<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1 - 5332
P & F INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1657413
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
300 SMITH STREET, FARMINGDALE, NEW YORK 11735
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 694-1800
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
As of November 8, 2001, there were 3,531,648 shares of the Registrant's
Class A Common Stock outstanding.
<Page>
P & F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE
PART I ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000 1 - 2
Consolidated Statements of Income for the
three months and the nine months ended
September 30, 2001 and 2000 3
Consolidated Statement of Shareholders' Equity
for the nine months ended September 30, 2001 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2001 and 2000 5 - 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20 - 21
i
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=======================================
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
------
CURRENT:
Cash $ 64,571 $ 388,422
Accounts receivable, less allowance
for possible losses of $502,527
in 2001 and $496,569 in 2000 9,853,471 10,468,504
Inventories 20,805,249 23,418,990
Deferred income taxes 528,000 528,000
Prepaid expenses and other 874,044 762,548
------------ ------------
TOTAL CURRENT ASSETS 32,125,335 35,566,464
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,182,938 1,182,938
Buildings and improvements 5,989,454 5,983,654
Machinery and equipment 12,864,644 12,129,262
------------ ------------
20,037,036 19,295,854
Less accumulated depreciation
and amortization 9,584,064 8,506,651
------------ ------------
NET PROPERTY AND EQUIPMENT 10,452,972 10,789,203
------------ ------------
GOODWILL, net of accumulated
amortization of $2,082,238 in
2001 and $1,838,911 in 2000 7,382,720 7,626,047
OTHER ASSETS 152,329 171,103
------------ ------------
TOTAL ASSETS $ 50,113,356 $ 54,152,817
============ ============
</Table>
1
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
=======================================
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 4,000,000 $ 9,000,000
Accounts payable 2,882,738 3,177,469
Accruals:
Compensation 1,413,139 2,242,110
Other 2,978,093 1,713,486
Current maturities of long-term debt 304,874 296,106
------------ ------------
TOTAL CURRENT LIABILITIES 11,578,844 16,429,171
LONG-TERM DEBT, less current maturities 3,747,999 3,862,512
DEFERRED INCOME TAXES 869,000 869,000
------------ ------------
16,195,843 21,160,683
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock - $10 par;
authorized - 2,000,000 shares;
no shares outstanding -- --
Common stock:
Class A - $1 par;
authorized - 7,000,000 shares;
issued - 3,677,593 shares 3,677,593 3,677,593
Class B - $1 par;
authorized - 2,000,000 shares;
no shares issued or outstanding -- --
Additional paid-in capital 8,464,139 8,464,139
Retained earnings 22,896,399 21,560,475
Treasury stock, at cost
(131,645 shares and 72,185 shares) (1,120,618) (710,073)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 33,917,513 32,992,134
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 50,113,356 $ 54,152,817
============ ============
</Table>
2
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
=======================================
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES:
Net sales $ 16,011,708 $ 21,645,406 $ 49,262,386 $ 61,035,604
Other 437,150 199,351 876,412 569,848
------------ ------------ ------------ ------------
16,448,858 21,844,757 50,138,798 61,605,452
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 11,380,596 15,639,334 34,745,361 42,717,447
Selling, administrative and general 4,102,867 4,262,709 12,542,528 12,910,501
Interest - net 174,019 389,897 679,985 1,067,011
------------ ------------ ------------ ------------
15,657,482 20,291,940 47,967,874 56,694,959
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 791,376 1,552,817 2,170,924 4,910,493
TAXES ON INCOME 303,000 593,000 835,000 1,864,000
------------ ------------ ------------ ------------
NET INCOME $ 488,376 $ 959,817 $ 1,335,924 $ 3,046,493
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 3,553,974 3,584,324 3,561,636 3,546,203
Diluted 3,626,007 3,699,113 3,636,216 3,691,470
Earnings per share of common stock:
Basic $ .14 $ .27 $ .38 $ .86
Diluted $ .13 $ .26 $ .37 $ .83
</Table>
3
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
==============================================
<Table>
<Caption>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
----------- ----------- ------------ -----------
Balance,
January 1, 2001 $ 3,677,593 $ 8,464,139 $ 21,560,475 ($ 710,073)
Net income for the
nine months ended
September 30, 2001 -- -- 1,335,924 --
Purchase of Class A
Common Stock -- -- -- (410,545)
----------- ----------- ------------ -----------
Balance,
September 30, 2001 $ 3,677,593 $ 8,464,139 $ 22,896,399 ($1,120,618)
=========== =========== ============ ===========
</Table>
4
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=======================================
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,335,924 3,046,493
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 1,080,502 1,067,799
Amortization 257,056 254,520
(Gain) on disposal of fixed assets (3,089) (41,193)
Provision for losses on
accounts receivable - net 5,958 2,655
Decrease (increase):
Accounts receivable 609,075 (2,139,862)
Inventories 2,613,741 (5,490,341)
Prepaid expenses and other (111,496) (336,379)
Other assets 5,046 (844)
Increase (decrease):
Accounts payable (294,731) 783,446
Accruals and other 435,636 (278,159)
------------ ------------
Total adjustments 4,597,698 (6,178,358)
------------ ------------
Net cash provided by (used in)
operating activities 5,933,622 (3,131,865)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (741,182) (973,741)
Proceeds from sale of fixed assets -- 41,194
------------ ------------
Net cash used in
investing activities (741,182) (932,547)
------------ ------------
</Table>
5
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
======================================
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2001 2000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 3,500,000 7,000,000
Repayments of short-term borrowings (8,500,000) (3,000,000)
Principal payments on long-term debt (105,746) (598,094)
Purchase of Class A Common Stock (410,545) --
Proceeds from exercise of stock options -- 124,687
------------ ------------
Net cash provided by (used in)
financing activities (5,516,291) 3,526,593
------------ ------------
NET INCREASE (DECREASE) IN CASH (323,851) (537,819)
CASH AT BEGINNING OF PERIOD 388,422 1,305,351
------------ ------------
CASH AT END OF PERIOD $ 64,571 $ 767,532
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 541,000 $ 1,826,470
============ ============
Interest $ 721,669 $ 1,064,695
============ ============
</Table>
During the nine months ended September 30, 2000 the Company received 19,925
shares of Class A Common Stock in connection with the exercise of stock options.
The value of these shares was recorded at $192,500.
6
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements contained herein include the
accounts of P & F Industries, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
The Company conducts its business operations through its three
wholly-owned subsidiaries. Florida Pneumatic Manufacturing Corporation ("Florida
Pneumatic") is engaged in the importation, manufacture and sale of pneumatic
hand tools, primarily for the industrial and retail markets, and the importation
and sale of compressor air filters. Florida Pneumatic also markets, through its
Berkley Tool division, a line of pipe cutting and threading tools, wrenches and
replacement electrical components for a widely-used brand of pipe cutting and
threading machines. Green Manufacturing, Inc. ("Green") is engaged primarily in
the manufacture, development and sale of heavy-duty welded custom designed
hydraulic cylinders. Green also manufactures a line of access equipment for the
petro-chemical industry and a line of post hole digging equipment for the
agricultural industry. Embassy Industries, Inc. ("Embassy") is engaged in the
manufacture and sale of baseboard heating products and the importation and sale
of radiant heating systems. Embassy also imports a line of door and window
hardware items through its Franklin Manufacturing hardware division. Note 4
presents financial information for the segments of the Company's business.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information, and with the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, these interim financial statements do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of the Company, these unaudited consolidated
financial statements include all adjustments necessary to present fairly the
information set forth therein. All such adjustments are of a normal recurring
nature. Results for interim periods are not necessarily indicative of results to
be expected for a full year, since the operations of some of the Company's
subsidiaries are seasonal in nature.
7
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
BASIS OF FINANCIAL STATEMENT PRESENTATION (CONTINUED)
The consolidated balance sheet information for December 31, 2000 was
derived from the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. The interim financial
statements contained herein should be read in conjunction with that Report.
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - INVENTORIES
Major classes of inventory were as follows:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
Finished goods $ 16,519,059 $ 18,511,265
Work in process 839,026 934,283
Raw materials and supplies 3,447,164 3,973,442
------------ ------------
$ 20,805,249 $ 23,418,990
============ ============
</Table>
NOTE 3 - CAPITAL STOCK TRANSACTIONS
During the nine months ended September 30, 2001, the Company purchased
59,460 shares of its Class A Common Stock at a cost of $410,545.
During the nine months ended September 30, 2000, the Company received
19,925 shares of Class A Common Stock in connection with the exercise of stock
options. The value of these shares was recorded at $192,500.
8
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - SEGMENTS OF BUSINESS
The following tables present financial information by segment for the
periods ended September 30, 2001 and 2000. Segment profit (loss) excludes
general corporate expenses, interest expense and income taxes. There were no
intersegment revenues.
<Table>
<Caption>
PNEUMATIC
TOOLS AND
NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 2001 SOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
------------------ --------- --------- --------- -------- --------
(In thousands)
Revenues from
external customers $ 50,139 $ 28,782 $ 11,115 $ 6,704 $ 3,538
========= ========= ========= ========= =======
Segment profit (loss) $ 5,004 $ 4,869 $ (260) $ 287 $ 108
========= ========= ========= ========= =======
<Caption>
PNEUMATIC
TOOLS AND
NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 2000 SOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
------------------ --------- --------- --------- -------- --------
(In thousands)
Revenues from
external customers $ 61,605 $ 33,575 $ 16,328 $ 7,285 $ 4,417
========= ========= ========= ========= =======
Segment profit $ 8,272 $ 6,376 $ 1,052 $ 539 $ 305
========= ========= ========= ========= =======
<Caption>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 2001 SOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
------------------ --------- --------- --------- -------- --------
(In thousands)
Revenues from
external customers $ 16,449 $ 9,135 $ 3,508 $ 2,579 $ 1,227
========= ========= ========= ========= =======
Segment profit (loss) $ 1,622 $ 1,603 $ (139) $ 113 $ 45
========= ========= ========= ========= =======
</Table>
9
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - SEGMENTS OF BUSINESS (CONTINUED)
<Table>
<Caption>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 2000 SOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
------------------ --------- --------- --------- -------- --------
(In thousands)
Revenues from
external customers $ 21,844 $ 12,543 $ 4,971 $ 2,895 $ 1,435
========= ========= ========= ========= =======
Segment profit $ 2,674 $ 2,035 $ 267 $ 298 $ 74
========= ========= ========= ========= =======
</Table>
The reconciliation of combined operating profits for reportable
segments to consolidated income before income taxes is as follows:
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
---------- ----------
Total profit for reportable segments $5,003,953 $8,272,041
General corporate expenses (2,153,044) (2,294,537)
Interest expense (679,985) (1,067,011)
---------- ----------
Income before income taxes $2,170,924 $4,910,493
========== ==========
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
---------- ----------
Total profit for reportable segments $1,622,305 $2,673,930
General corporate expenses (656,910) (731,216)
Interest expense (174,019) (389,897)
---------- ----------
Income before income taxes $ 791,376 $1,552,817
========== ==========
</Table>
10
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Numerator:
Numerator for basic and diluted
earnings per common share -
income available to common
shareholders $ 488,376 $ 959,817 $ 1,335,924 $ 3,046,493
=========== =========== =========== ===========
Denominator:
Denominator for basic
earnings per common
share - weighted average
common shares outstanding 3,553,974 3,584,324 3,561,636 3,546,203
Effect of dilutive securities:
Common stock options 72,033 114,789 74,580 145,267
----------- ----------- ----------- -----------
Denominator for diluted
earnings per common
share - adjusted weighted
average common shares and
assumed conversions 3,626,007 3,699,113 3,636,216 3,691,470
=========== =========== =========== ===========
Earnings per common share:
Basic $ .14 $ .27 $ .38 $ .86
===== ===== ===== =====
Diluted $ .13 $ .26 $ .37 $ .83
===== ===== ===== =====
</Table>
11
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
=======================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 2001 COMPARED WITH THIRD QUARTER ENDED
SEPTEMBER 30, 2000
Consolidated revenues decreased 24.7%, from $21,844,757 to $16,448,858.
Revenues from pneumatic tools and related equipment decreased 27.2%, from
$12,543,705 to $9,134,963, due primarily to the cancellation of two special fall
promotions by one customer, as well as to a reduction in prices to another large
customer. Selling prices of pneumatic tools and related equipment were unchanged
from the prior year, with the exception of prices to the foregoing customer,
which were reduced by an average of 16%. Revenues from hydraulic cylinders and
other equipment decreased 29.4%, from $4,970,459 to $3,507,980, due primarily to
lower demand for recycled cardboard and large capital goods, which in turn
reduced demand for cylinders sold to the refuse and aerial lift markets,
respectively, as well as to the discontinuance by one major aerial lift customer
of a significant portion of its product line. Selling prices of hydraulic
cylinders and other equipment were unchanged from the prior year. Revenues from
heating equipment decreased 10.9%, from $2,895,530 to $2,579,239, due primarily
to a decrease in sales of baseboard products, including the loss of a
significant baseboard customer. This decrease in sales was partially offset by
an increase in sales of radiant products and by sales of the new boiler
products. Selling prices of heating equipment were unchanged from the prior
year. Revenues from hardware decreased 14.5%, from $1,435,063 to $1,226,676, due
primarily to the loss of two significant customers who declared bankruptcy since
the third quarter of 2000. Selling prices of hardware products were unchanged
from the prior year.
Consolidated gross profit, as a percentage of revenues, increased from
28.4% to 30.8%. Gross profit from pneumatic tools and related equipment
increased from 31.9% to 40.0%, due primarily to increases in the value of the
U.S. dollar as compared to both the Japanese yen and the New Taiwan dollar,
which decreased the cost of imported product. Gross profit from hydraulic
cylinders and other equipment decreased from 15.9% to 8.4%, due primarily to a
significant reduction in manufacturing activity resulting from the large
decrease in revenues, which has dramatically reduced the absorption of fixed
expenses and lowered gross profit. In addition, significant production labor
resources were expended to produce prototypes and initial short-run orders for
new customers. These new account activities generate little to no gross profit.
Labor productivity increases partially offset these negatives. Gross profit from
heating equipment decreased from 35.4% to 31.1%, due primarily to a reduction in
manufacturing activity resulting from the large decrease in revenues, which has
reduced the absorption of fixed expenses and lowered gross profit. Gross profit
was also negatively impacted by a less favorable product mix. Gross profit from
hardware decreased from 26.9% to 26.1%, due primarily to a less favorable
product mix.
12
<Page>
Consolidated selling, general and administrative expenses decreased
3.8%, from $4,262,709 to $4,102,867, due primarily to the overall decrease in
revenues for the period.
Interest expense decreased 55.4%, from $389,897 to $174,019, due
primarily to decreases in both the average outstanding balance of the Company's
borrowings and the average interest rate on these borrowings.
The effective tax rates for the quarters ended September 30, 2001 and
2000 were 38.3% and 38.2%, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2000
Consolidated revenues decreased 18.6%, from $61,605,452 to $50,138,798.
Revenues from pneumatic tools and related equipment decreased 14.3%, from
$33,575,538 to $28,781,405, due primarily to the cancellation of two special
fall promotions by a significant customer and, to a lesser extent, to a decrease
in sales to the catalog and industrial markets. These decreases in sales were
partially offset by an increase in sales to one large customer. Selling prices
of pneumatic tools and related equipment were unchanged from the prior year,
with the exception of prices to one significant customer, which were reduced by
an average of 16% in the third quarter. Revenues from hydraulic cylinders and
other equipment decreased 31.9%, from $16,327,893 to $11,114,768, due primarily
to lower demand for recycled cardboard and large capital goods, which in turn
reduced demand for cylinders sold to the refuse, aerial lift and wrecker
markets, , as well as to the discontinuance by one major aerial lift customer of
a significant portion of its product line Selling prices of hydraulic cylinders
and other equipment were unchanged from the prior year. Revenues from heating
equipment decreased 8.0%, from $7,285,172 to $6,704.234, due primarily to a
decrease in sales of baseboard products, including the loss of a significant
baseboard customer. This decrease in sales was partially offset by an increase
in sales of radiant products and by sales of the new boiler products. Selling
prices of heating equipment were unchanged from the prior year. Revenues from
hardware decreased 19.9%, from $4,416,849 to $3,538,391, due primarily to the
loss of two significant customers who declared bankruptcy since the third
quarter of 2000. Selling prices of hardware products were unchanged from the
prior year.
Consolidated gross profit, as a percentage of revenues, was unchanged
at 30.7%. Gross profit from pneumatic tools and related equipment increased from
37.4% to 38.7%, due primarily to increases in the value of the U.S. dollar as
compared to both the Japanese yen and the New Taiwan dollar, which decreased the
cost of imported product. Gross profit from hydraulic cylinders and other
equipment decreased from 15.7% to 9.8%, due primarily to a significant reduction
in manufacturing activity resulting from the large decrease in revenues, which
has dramatically reduced the absorption of fixed expenses and lowered gross
profit. In addition, significant production labor resources were expended to
produce prototypes and initial short-run orders for new customers. These new
account activities generate little
13
<Page>
to no gross profit. Labor productivity increases partially offset these
negatives. Gross profit from heating equipment decreased from 34.8% to 33.4%,
due primarily to a reduction in manufacturing activity resulting from the large
decrease in revenues, which has reduced the absorption of fixed expenses and
lowered gross profit. Gross profit was also negatively impacted by a less
favorable product mix. Gross profit from hardware decreased from 27.9% to 26.6%,
due primarily to a less favorable product mix.
Consolidated selling, general and administrative expenses decreased
2.9%, from $12,910,501 to $12,542,528, due primarily to the overall decrease in
revenues for the period.
Interest expense decreased 36.3%, from $1,067,011 to $679,985, due
primarily to decreases in both the average outstanding balance of the Company's
borrowings and the average interest rate on these borrowings.
The effective tax rates for the nine months ended September 30, 2001
and 2000 were 38.5% and 38.0%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table (dollar amounts in thousands):
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2001 2000 2000
------------- ------------ ------------
Working Capital $ 20,546 $ 19,137 $ 20,838
Current Ratio 2.77 to 1 2.16 to 1 1.96 to 1
Shareholders' Equity $ 33,918 $ 32,992 $ 32,196
</Table>
During the nine months ended September 30, 2001, gross accounts
receivable decreased by approximately $610,000, with decreases of approximately
$695,000 at Florida Pneumatic and approximately $65,000 at Green being partially
offset by an increase of approximately $150,000 at Embassy. The decreases at
Florida Pneumatic and Green were the result of decreased sales and slight
improvements in the average days' sales outstanding. The increase at Embassy was
due primarily to the timing of receipts from customers.
During the nine months ended September 30, 2001, inventories decreased
by approximately $2,610,000, with decreases of approximately $2,734,000 at
Florida Pneumatic and approximately $460,000 at Green being partially offset by
an increase of approximately $580,000 at Embassy. The decreases at Florida
Pneumatic and Green were primarily the result of ongoing efforts to bring
inventory balances in line with lower anticipated sales. The increase at Embassy
was primarily to support the new boiler product line. Inventories at Embassy
also increased as a result of lower than expected sales of baseboard products.
14
<Page>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the nine months ended September 30, 2001, accounts payable
decreased by approximately $295,000, with decreases of approximately $215,000 at
Embassy and approximately $265,000 at Green being partially offset by an
increase of approximately $185,000 at Florida Pneumatic. The decrease at Embassy
and the increase at Florida Pneumatic were both primarily due to the timing of
inventory receipts. The decrease at Green was primarily the result of lower
overall business activity. Short-term borrowings decreased by $5,000,000,
primarily as a result of the decrease in working capital requirements consistent
with a contraction of the business.
On June 25, 2001, the Company renewed its credit agreement, as amended,
with European American Bank through July 26, 2002. This agreement provides the
Company with various credit facilities, including revolving credit loans, term
loans for acquisitions and a foreign exchange line. The revolving credit loan
facility provides a total of $12,000,000, with various sublimits, for direct
borrowings, letters of credit, bankers' acceptances and equipment loans. At
September 30, 2001, there was $4,000,000 outstanding against the revolving
credit loan facility. There were no commitments for open letters of credit at
September 30, 2001.
The term loan facility provides a commitment of $15,000,000 to finance
acquisitions subject to the lending bank's approval. There was no loan balance
outstanding against this facility at September 30, 2001. There was, however, a
standby letter of credit totaling approximately $670,000 outstanding against
this facility at September 30, 2001. This standby letter of credit was used to
secure the Economic Development Revenue Bond assumed as part of the acquisition
of Green.
The foreign exchange line provides for the availability of up to
$10,000,000 in foreign currency forward contracts. These contracts fix the
exchange rate on future purchases of Japanese yen needed for payments to foreign
suppliers. The total amount of foreign currency forward contracts outstanding at
September 30, 2001 was approximately $1,310,000.
The Company's credit agreement is subject to annual review by the
lending bank. Under this agreement, the Company is required to adhere to certain
financial covenants. At September 30, 2001, and for the nine months then ended,
the Company satisfied all of these covenants.
Capital spending for the nine months ended September 30, 2001 was
approximately $750,000. The total amount was provided from working capital.
Capital expenditures for the rest of 2001 are expected to total approximately
$220,000, some of which may be financed through the Company's credit facilities.
Included in the expected total for the rest of 2001 are capital expenditures
relating to new products, expansion of existing product lines and replacement of
old equipment.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company, through Florida Pneumatic, imports a significant amount of
its purchases from Japan, with payment due in Japanese yen. As a result, the
Company is subject to the effects of foreign currency exchange fluctuations. The
Company uses a variety of techniques to protect itself from any adverse effects
from these fluctuations, including increasing its selling prices, obtaining
price reductions from its overseas suppliers, using alternative supplier sources
and entering into foreign currency forward contracts. The strengthening of the
U.S. dollar versus the Japanese yen over the last 12 months has had a positive
effect on the Company's results of operations and its financial position. There
can be no assurance however, that this situation will continue. See "Item 3 -
Quantitative and Qualitative Disclosures About Market Risk,"
NEW ACCOUNTING PRONOUNCEMENT
In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Accounting for Goodwill and Other Intangible Assets." SFAS No. 142 is
effective for transactions entered into after March 15, 2001. This statement
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". Among
other intangible assets, this statement addresses how goodwill should be
accounted for after it has been initially recognized in the financial
statements. For years beginning after December 15, 2001, companies are no longer
required to amortize goodwill but instead must evaluate the carrying value of
the goodwill for impairment. If the goodwill is impaired, then the Company will
be required to write down the carrying value of its goodwill to its estimated
net realizable value at the time it is impaired. The Company has not determined
the impact the adoption of this statement might have.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks relating to changes in foreign
currency exchange rates. The Company attempts to reduce the risks related to
foreign currency exchange rate fluctuation by utilizing financial instruments,
pursuant to Company policy.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect the Company's
gross profit and operating expenses. The Company engages in hedging programs
aimed at limiting, in part, the impact of currency fluctuations. Using primarily
forward exchange contracts, the Company hedges some of those transactions that,
when remeasured according to accounting principles generally accepted in the
United States of America, impact the income statement. Factors that could impact
the effectiveness of the Company's programs include volatility of the currency
markets and availability of hedging instruments. All currency contracts that are
entered into by the Company are components of hedging programs and are entered
into for the sole purpose of hedging an existing or anticipated currency
exposure, not for speculation. The Company does not buy or sell financial
instruments for trading purposes. Although the Company maintains these programs
to reduce the impact of changes in currency exchange rates, when the U.S. dollar
sustains a weakening exchange rate against currencies in which the Company
incurs costs, the Company's costs are adversely affected. At September 30, 2001,
the Company held open hedge forward contracts to deliver approximately
$1,310,000 of Japanese yen. The potential loss in value of the Company's net
investment in these foreign currency forward contracts resulting from a
hypothetical 10 percent adverse change in yen exchange rates at September 30,
2001 is approximately $150,000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is not a party to any litigation that is expected to
have a material adverse effect on its business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See "Exhibit Index" immediately following the
signature page.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
P & F INDUSTRIES, INC.
(Registrant)
By /s/ Joseph A. Molino, Jr.
-------------------------------
Joseph A. Molino, Jr.
Vice President
Dated: November 14, 2001 (Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT
NO.
- -------
2.1 Asset Purchase Agreement, dated as of September 16, 1998, by and
between Green Manufacturing, Inc., an Ohio corporation, and the
Registrant (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated September 16, 1998).
Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees to
furnish supplementally a copy of any exhibit or schedule omitted from
the Asset Purchase Agreement to the Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant (Incorporated
by reference to Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999).
3.2 Amended By-laws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
4.1 Rights Agreement, dated as of August 23, 1994, between the Registrant
and American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A dated August 24, 1994).
4.2 Amendment to Rights Agreement, dated as of April 11, 1997, between the
Registrant and American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated April 11, 1997).
4.3 Credit Agreement, dated as of July 23, 1998, by and among the
Registrant, Florida Pneumatic Manufacturing Corporation, a Florida
corporation, Embassy Industries, Inc., a New York corporation, and
European American Bank, a New York banking corporation (Incorporated by
reference to Exhibit 4.3 to the Registrant's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1998).
4.4 Amendment No. 1 to Credit Agreement, dated as of September 16, 1998, by
and among the Registrant, Florida Pneumatic Manufacturing Corporation,
a Florida corporation, Embassy Industries, Inc., a New York
corporation, Green Manufacturing, Inc., a Delaware corporation, and
European American Bank, a New York banking corporation (Incorporated by
reference to Exhibit 4.4 to the Registrant's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1998).
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EXHIBIT INDEX
(CONTINUED)
EXHIBIT
NO.
- -------
4.5 Amendment No. 2 to Credit Agreement, dated as of July 28, 1999, by and
among the Registrant, Florida Pneumatic Manufacturing Corporation, a
Florida corporation, Embassy Industries, Inc., a New York corporation,
Green Manufacturing, Inc., a Delaware corporation, and European
American Bank, a New York banking corporation (Incorporated by
reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
4.6 Amendment No. 3 to Credit Agreement, dated as of July 26, 2000, by and
among the Registrant, Florida Pneumatic Manufacturing Corporation, a
Florida corporation, Embassy Industries, Inc., a New York corporation,
Green Manufacturing, Inc., a Delaware corporation, and European
American Bank, a New York banking corporation (Incorporated by
reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000).
4.7 Amendment No. 4 to Credit Agreement, dated as of June 25, 2001, by and
among the Registrant, Florida Pneumatic Manufacturing Corporation, a
Florida corporation, Embassy Industries, Inc., a New York corporation,
Green Manufacturing, Inc., a Delaware corporation, and European
American Bank, a New York banking corporation (Incorporated by
reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
4.8 Certain instruments defining the rights of holders of the long-term
debt securities of the Registrant are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to
furnish supplementally copies of these instruments to the Commission
upon request.
10.1 Second Amended and Restated Employment Agreement, dated as of May 30,
2001, between the Registrant and Richard A. Horowitz (Incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
21