<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 MARCH 31, 2002
/ / 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 May 13, 2002, there were 3,504,148 shares of the registrant's Class A
Common Stock outstanding.
<Page>
P & F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001 1 - 2
Consolidated Statements of Income
for the three months ended March 31, 2002 3
Consolidated Statement of Shareholders' Equity
for the three months ended March 31, 2002 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18 - 20
</Table>
i
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
------
CURRENT:
Cash $ 43,762 $ 507,833
Accounts receivable, less allowance
for possible losses of $410,808
in 2002 and $404,557 in 2001 11,655,838 9,729,605
Inventories 16,298,266 17,223,225
Deferred income taxes 580,000 580,000
Prepaid expenses and other 761,741 723,538
------------ ------------
TOTAL CURRENT ASSETS 29,339,607 28,764,201
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,182,938 1,182,938
Buildings and improvements 6,301,849 6,291,225
Machinery and equipment 13,011,090 12,728,582
------------ ------------
20,495,877 20,202,745
Less accumulated depreciation
and amortization 10,270,594 9,901,650
------------ ------------
NET PROPERTY AND EQUIPMENT 10,225,283 10,301,095
------------ ------------
GOODWILL, net of accumulated
amortization of $2,163,347 7,699,551 7,301,611
OTHER ASSETS 99,165 102,615
------------ ------------
TOTAL ASSETS $ 47,363,606 $ 46,469,522
============ ============
</Table>
1
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 1,800,000 $ 2,000,000
Accounts payable 3,131,608 1,981,368
Accruals:
Compensation 750,684 1,512,141
Other 2,237,391 1,947,143
Current maturities of long-term debt 306,395 313,075
------------ ------------
TOTAL CURRENT LIABILITIES 8,226,078 7,753,727
LONG-TERM DEBT, less current maturities 3,517,816 3,548,945
DEFERRED INCOME TAXES 939,000 939,000
------------ ------------
12,682,894 12,241,672
------------ ------------
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 23,926,945 23,373,283
Treasury stock, at cost
(173,445 shares and 157,445 shares) (1,387,965) (1,287,165)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 34,680,712 34,227,850
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 47,363,606 $ 46,469,522
============ ============
</Table>
2
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
------------ ------------
REVENUES:
Net sales 17,037,755 17,298,505
Other 58,964 145,259
------------ ------------
17,096,719 17,443,764
------------ ------------
COSTS AND EXPENSES:
Cost of sales 12,004,222 12,254,793
Selling, general and administrative 4,089,063 4,214,920
Interest - net 101,772 270,072
------------ ------------
16,195,057 16,739,785
------------ ------------
INCOME BEFORE TAXES ON INCOME 901,662 703,979
TAXES ON INCOME 348,000 273,000
------------ ------------
NET INCOME $ 553,662 $ 430,979
============ ============
Weighted average common shares outstanding:
Basic 3,510,605 3,575,599
Diluted 3,587,437 3,649,245
Earnings per share of common stock:
Basic $ .16 $ .12
Diluted $ .15 $ .12
</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, 2002 $ 3,677,593 $ 8,464,139 $ 23,373,283 $(1,287,165)
Net income for the
three months ended
March 31, 2002 - - 553,662 -
Purchase of Class A
Common Stock - - - (100,800)
----------- ----------- ------------ ----------
Balance, March 31, 2002 $ 3,677,593 $ 8,464,139 $ 23,926,945 $(1,387,965)
=========== =========== ============ ==========
</Table>
4
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 553,662 430,979
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 368,944 363,876
Amortization 4,295 85,403
Provision for losses on
accounts receivable - net 6,251 2,143
Decrease (increase):
Accounts receivable (1,932,484) 91,921
Inventories 924,959 (628,453)
Prepaid expenses and other (39,048) (33,139)
Other assets - (16,296)
Increase (decrease):
Accounts payable 1,150,240 471,393
Accruals and other (471,209) (1,463,370)
------------ ------------
Total adjustments 11,948 (1,126,522)
------------ ------------
Net cash provided by (used in)
operating activities 565,610 (695,543)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (293,132) (297,275)
Payments for acquisition-related expenses (397,940) -
------------ ------------
Net cash used in
investing activities (691,072) (297,275)
------------ ------------
</Table>
5
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 800,000 2,000,000
Repayments of short-term borrowings (1,000,000) (1,000,000)
Principal payments on long-term debt (37,809) (34,806)
Purchase of Class A Common Stock (100,800) (357,045)
------------ ------------
Net cash provided by (used in)
financing activities (338,609) 608,149
------------ ------------
NET INCREASE (DECREASE) IN CASH (464,071) (384,669)
CASH AT BEGINNING OF PERIOD 507,833 388,422
------------ ------------
CASH AT END OF PERIOD $ 43,762 $ 3,753
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 2,500 $ 23,000
============ ============
Interest $ 107,635 $ 271,873
============ ============
</Table>
6
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated unaudited financial statements contained herein include
the accounts of P & F Industries, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
P & F Industries, Inc. ("P & F") conducts business operations through its
three wholly-owned subsidiaries; Florida Pneumatic Manufacturing Corporation
("Florida Pneumatic"), Green Manufacturing, Inc. ("Green") and Embassy
Industries, Inc. ("Embassy"). P & F and its subsidiaries are herein referred to
collectively as the "Company".
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 ("Berkley"), 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 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 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 hardware division ("Franklin"). Note 4 of the Notes to Consolidated
Financial Statements 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.
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, 2001 was
derived from the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. 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>
MARCH 31, DECEMBER 31,
2002 2001
------------ ------------
Raw materials and supplies $ 2,903,609 $ 3,122,061
Work in process 735,430 740,036
Finished goods 12,659,227 13,361,128
------------ ------------
$ 16,298,266 $ 17,223,225
============ ============
</Table>
NOTE 3 - CAPITAL STOCK TRANSACTIONS
During the three months ended March 31, 2002, the Company purchased 16,000
shares of its Class A Common Stock, at a cost of $100,800.
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
three-month periods ended March 31, 2002 and 2001. Segment profit (loss)
excludes general corporate expenses, interest expense and income taxes. There
were no intersegment revenues.
<Table>
<Caption>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED RELATED HYDRAULIC HEATING
MARCH 31, 2002 CONSOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
- ---------------------- ------------ --------- --------- --------- --------
(IN THOUSANDS)
Revenues from
external customers $ 17,097 $ 10,009 $ 3,343 $ 2,281 $ 1,464
============ ========= ========= ========= ========
Segment profit (loss) $ 1,770 $ 1,737 $ (94) $ 102 $ 25
============ ========= ========= ========= ========
<Caption>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED RELATED HYDRAULIC HEATING
MARCH 31, 2001 CONSOLIDATED EQUIPMENT CYLINDERS PRODUCTS HARDWARE
- ---------------------- ------------ --------- --------- --------- --------
(IN THOUSANDS)
Revenues from
external customers $ 17,444 $ 10,171 $ 4,161 $ 1,971 $ 1,141
============ ========= ========= ========= ========
Segment profit $ 1,696 $ 1,553 $ 47 $ 67 $ 29
============ ========= ========= ========= ========
</Table>
The reconciliation of combined operating profits for reportable segments to
consolidated income before income taxes is as follows:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2002 2001
------------ ------------
Total profit for reportable segments $ 1,770,133 $ 1,695,556
General corporate expenses (766,699) (721,505)
Interest expense (101,772) (270,072)
------------ ------------
Income before income taxes $ 901,662 $ 703,979
============ ============
</Table>
9
<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
MARCH 31,
---------------------------
2002 2001
------------ ------------
Numerator:
Numerator for basic and diluted
earnings per common share -
income available to common
shareholders $ 553,662 $ 430,979
============ ============
Denominator:
Denominator for basic earnings
per common share - weighted
average common shares outstanding 3,510,605 3,575,599
Effect of dilutive securities:
Common stock options 76,742 73,646
------------ ------------
Denominator for diluted earnings
per common share - adjusted
weighted average common shares
and assumed conversions 3,587,347 3,649,245
============ ============
Earnings per common share:
Basic $ .16 $ .12
============ ============
Diluted $ .15 $ .12
============ ============
</Table>
NOTE 6 - SUBSEQUENT EVENT
On May 3, 2002, a newly formed wholly-owned subsidiary of the Company
acquired the stock of Nationwide Industries, Inc. ("Nationwide") for
$11,500,000, subject to adjustment. Nationwide is engaged in the business of
importing and manufacturing door, window and fencing hardware. This acquisition
was financed primarily through the term loan facility available under the
Company's credit agreement. In connection with this acquisition, the same
subsidiary entered into a contract to purchase, for $2,500,000, the real
property and the improvements thereon in which Nationwide conducts its business.
As of the date of this Quarterly Report on Form 10-Q, the purchase of the real
property and improvements thereon had not yet been consummated.
10
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 COMPARED WITH QUARTER ENDED MARCH 31, 2001
Consolidated revenues decreased 2.0%, from $17,443,764 to $17,096,719.
Revenues from pneumatic tools and related equipment decreased 1.6%, from
$10,170,433 to $10,008,910, due primarily to the continued weakness in the
industrial and catalog segments, which was partially offset by increased sales
to the retail market. 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%. Revenues from
hydraulic cylinders and other equipment decreased 19.7%, from $4,160,842 to
$3,343,175, due primarily to the loss of a significant customer in the wrecker
market and a decrease in orders from a customer with significant sales to the
airline industry. Selling prices of hydraulic cylinders and other equipment were
unchanged from the prior year. Revenues from heating equipment increased 15.7%,
from $1,971,073 to $2,280,355, due to increased sales in all of its product
lines. Selling prices of heating equipment were unchanged from the prior year.
Revenues from hardware increased 28.3%, from $1,141,416 to $1,464,279, due
primarily to the addition of two significant customers in late 2001. Selling
prices of hardware products were unchanged from the prior year.
Consolidated gross profit, as a percentage of revenues, increased from
29.7% to 29.8%. Gross profit from pneumatic tools and related equipment
increased from 36.1% to 36.9%, 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, continuing productivity
improvements and expense reductions. Gross profit from hydraulic cylinders and
other equipment decreased from 12.7% to 9.1%, due primarily to the lower
absorption of fixed expenses resulting from the decreased manufacturing
activity. 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 34.7% to 32.0%, due primarily to a change in product mix. Gross
profit from hardware decreased from 26.6% to 25.2%, due primarily to a less
favorable product mix.
Consolidated selling, general and administrative expenses decreased 3.0%,
from $4,214,920 to $4,089,063, due primarily to an overall decrease in revenues
for the period. Interest expense decreased 62.3%, from $270,072 to $101,772, 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 March 31, 2002 and 2001 were
38.6% and 38.8%, respectively.
11
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
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>
MARCH 31, DECEMBER 31, MARCH 31,
2002 2001 2001
----------- ------------ -----------
Working Capital $ 21,114 $ 21,010 $ 19,321
Current Ratio 3.57 to 1 3.71 to 1 2.18 to 1
Shareholders' Equity $ 34,681 $ 34,228 $ 33,066
</Table>
During the quarter ended March 31, 2002, gross accounts receivable
increased by approximately $1,932,000, with increases of approximately
$1,668,000 at Florida Pneumatic, approximately $85,000 at Green and
approximately $179,000 at Embassy. The increase at Florida Pneumatic was the
result of granting longer payment terms to one significant customer and
increased sales to another significant customer that also has extended payment
terms. The increases at Green and Embassy were the result of increased sales.
During the quarter ended March 31, 2002, inventories decreased by
approximately $925,000, with decreases of approximately $685,000 at Florida
Pneumatic, approximately $114,000 at Green and approximately $126,000 at
Embassy. At Florida Pneumatic, inventory decreased due to the reduction in sales
and decreased purchasing activity. The decreases in inventory at Green and
Embassy were made to improve inventory turns.
During the quarter ended March 31, 2002, accounts payable increased by
approximately $1,150,000, with increases of approximately $990,000 at Florida
Pneumatic and approximately $196,000 at Green being partially offset by a
decrease of approximately $36,000 at Embassy. All of the changes in accounts
payable were the result of the timing of payments. Short-term borrowings
decreased by $200,000, as a result of the decrease in working capital
requirements consistent with changes in accounts receivable, accounts payable
and inventory.
The Company has a credit agreement, as amended, with Citibank, N.A.
(successor-in-interest to European American Bank), which expires on 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. On May 3, 2002, the credit agreement was amended in connection
with the Company's acquisition of Nationwide.
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 March 31, 2002, there was $1,800,000
outstanding against the revolving credit loan facility. There was a commitment
of approximately $830,000 for open letters of credit at March 31, 2002.
12
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 March 31, 2001. There was, however, a
standby letter of credit totaling approximately $510,000 outstanding against
this facility at March 31, 2001. This standby letter of credit was used to
secure the Economic Development Revenue Bond assumed as part of the acquisition
of Green.
On May 3, 2002, the Company borrowed $11,500,000 against the term loan
facility in connection with the acquisition of Nationwide.
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
March 31, 2002 was approximately $2,530,000.
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 March 31, 2002, and for the three months then ended, the
Company satisfied all of these covenants.
Capital spending for the quarter ended March 31, 2002 was approximately
$295,000. The total amount was provided from working capital. Capital
expenditures for the remainder of 2002 are expected to total approximately
$1,000,000, some of which may be financed through the Company's credit
facilities. Included in the expected total for the remainder of 2002 are capital
expenditures relating to new products, expansion of existing product lines and
replacement of old equipment.
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 mitigate the effects of 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."
13
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"),
and No. 142, "Goodwill and Other Intangible Assets" ("SFAS" 142). SFAS 141
requires the use of the purchase method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001, and to all business combinations accounted for by the
purchase method for which the date of acquisition is July 1, 2001 or later. It
also requires, upon adoption of SFAS 142, that the Company reclassify, if
necessary, the carrying amounts of intangible assets and goodwill, based on the
criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortizing intangible assets with an indefinite useful life. An intangible asset
with an indefinite useful life should be tested for impairment in accordance
with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal
years beginning after December 15, 2001 to all goodwill and other intangible
assets recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
With respect to the Company's business combinations that were effected
prior to June 30, 2001 using the purchase method of accounting, the net carrying
amount of the resulting goodwill as of March 31, 2002 was $7,301,611. The
Company is currently assessing the effect that the adoption of SFAS 141 and SFAS
142 will have on its consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and addresses
financial accounting and reporting for the impairment of long-lived assets to be
disposed of. SFAS 144 is required to be adopted for fiscal years beginning after
December 15, 2001. The Company is currently assessing the effect that the
adoption of SFAS 144 will have on its consolidated financial statements.
14
<Page>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S. and
international exchange rates, the prices of certain commodities and currency
rates as measured against the U.S. dollar and each other. The Company attempts
to reduce the risks related to foreign currency 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 margins 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 and not for speculation. The Company does not buy or sell financial
instruments for trading purposes. Although the Company maintains these programs
to mitigate the effects 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.
The Company accounts for changes in the fair value of its foreign currency
contracts by marking them to market and recognizing any resulting gains or
losses through its statement of income. The Company also marks its
yen-denominated payables to market, recognizing any resulting gains or losses in
its statement of income. At March 31, 2002, the Company had foreign currency
forward contracts, maturing in 2002, to purchase approximately $2,530,000 in
Japanese yen at contracted forward rates. This amount was not in excess of the
Company's yen-denominated payables.
The potential loss in value of the Company's net investment in foreign
currency forward contracts resulting from a hypothetical 10 percent adverse
change in foreign currency exchange rates at March 31, 2002 was approximately
$280,000.
15
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant or co-defendant in various actions brought
about in the course of conducting its business. The Company has
accrued approximately $400,000 for possible liability relating to
these actions.
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 March 31, 2002.
16
<Page>
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: May 13, 2002 (Principal Financial Officer)
17
<Page>
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 Securities and Exchange 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 March 31, 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).
18
<Page>
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 March 31, 2000).
4.8 Amendment No. 5 to Credit Agreement, dated as of May 3, 2002, 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 Citibank, N.A.
(successor-in-interest to European American Bank), a New York banking
corporation.
4.9 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 March 31, 2000).
19
<Page>
EXHIBIT INDEX
(CONTINUED)
EXHIBIT
NO.
- -------
10.2 Consulting Agreement, effective as of November 1, 2000, between the
Registrant and Sidney Horowitz (Incorporated by reference to Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.3 1992 Incentive Stock Option Plan of the Registrant, as amended and
restated as of March 13, 1997 (Incorporated by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1998).
10.4 Executive Incentive Bonus Plan of the Registrant (Incorporated by
reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2001).
10.5 2002 Stock Incentive Plan of the Registrant.
20