SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE COMMISSION ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 1-5332 P & F INDUSTRIES, INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-1657413 ---------------------------- ------------------------------ (State of incorporation) (I.R.S. Employer Identification Number) 300 SMITH STREET, FARMINGDALE, NEW YORK 11735 ---------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 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 ( ) Number of shares of Class A common stock outstanding as of October 27, 1995.........2,928,867 PART I. FINANCIAL INFORMATION P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ------------------------------------------------ ------------------------------------------------ SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ ASSETS ------- CURRENT: Cash and cash equivalents $ 1,003,318 $ 1,071,903 Accounts receivable, less allowance for possible losses of $417,470 in 1995 and $354,252 in 1994 6,383,812 8,315,300 Inventories 14,849,899 12,867,604 Note receivable from officer 65,000 85,000 Deferred income taxes 325,000 764,000 Prepaid expenses and other assets 415,532 618,686 ------------- --------------- TOTAL CURRENT ASSETS 23,042,561 23,722,493 ------------- --------------- PROPERTY AND EQUIPMENT: Land 993,020 993,020 Buildings and improvements 4,512,050 4,490,216 Machinery and equipment 5,243,556 4,596,342 ------------- --------------- 10,748,626 10,079,578 Less accumulated depreciation and amortization 4,652,302 4,164,690 ------------- --------------- NET PROPERTY AND EQUIPMENT 6,096,324 5,914,888 ------------- --------------- GOODWILL, net of accumulated amortization of $804,349 in 1995 and $730,558 in 1994 3,009,418 3,083,209 OTHER ASSETS, net of accumulated amortization of $489,666 in 1995 and $402,663 in 1994 182,207 292,710 ------------- -------------- TOTAL ASSETS $ 32,330,510 $ 33,013,300 ------------- -------------- ------------- -------------- 1 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED) ---------------------------------------------------- ---------------------------------------------------- SEPTEMBER 30, DECEMBER 31, 1995 1994 -------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings $ 1,916,913 $ 3,514,290 Accounts payable 4,200,523 2,952,483 Accruals and other liabilities 1,323,285 1,971,198 Current maturities of long-term debt 348,003 344,514 ------------ ------------- TOTAL CURRENT LIABILITIES 7,788,724 8,782,485 LONG-TERM DEBT, less current maturities 6,137,677 6,398,425 SUBORDINATED DEBENTURES 1,369,200 1,369,200 ------------- ------------ 15,295,601 16,550,110 ------------- ------------ SHAREHOLDERS' EQUITY: Preferred stock, $10 par, cumulative; shares authorized 2,000,000; outstanding 263,345 2,633,450 2,633,450 Common stock: Class A - $1 par; shares authorized 7,000,000; outstanding 2,928,867; reserved for options 1,683,200 shares; reserved for warrants 70,000 shares 2,928,867 2,928,867 Class B - $1 par; shares authorized 2,000,000 -- -- Additional paid-in capital 7,607,614 7,607,614 Retained earnings 3,864,978 3,293,259 ------------- ----------- TOTAL SHAREHOLDERS' EQUITY 17,034,909 16,463,190 ------------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 32,330,510 $ 33,013,300 ------------ ------------ ------------ ------------ 2 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ------------------------------------------ ------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 1995 1994 1995 1994 ----------- ----------- ----------- ------------- REVENUES: Net sales $ 9,854,150 $ 10,993,240 $ 30,155,420 $ 30,525,653 Other 82,233 50,523 208,760 51,016 ------------ ------------ ------------ ------------- 9,936,383 11,043,763 30,364,180 30,576,669 ------------ ------------ ------------ ------------- COSTS AND EXPENSES: Cost of sales 6,634,725 7,801,703 20,449,078 21,053,615 Selling, administrative and general 2,528,065 2,484,416 7,391,959 7,250,494 Interest - net 288,324 263,409 806,948 790,901 Depreciation 157,075 142,888 467,968 428,664 ------------ ------------ ------------ ------------- 9,608,189 10,692,416 29,115,953 29,523,674 ------------ ------------ ------------ ------------- INCOME BEFORE TAXES ON INCOME 328,194 351,347 1,248,227 1,052,995 TAXES ON INCOME 130,000 157,000 479,000 421,000 ------------ ------------ ------------ ------------- NET INCOME $ 198,194 $ 194,347 $ 769,227 $ 631,995 ------------ ------------ ------------ ------------- ------------ ------------ ------------ ------------- Preferred dividends $ 65,836 $ 65,836 $ 197,509 $ 197,509 --------- --------- --------- ---------- --------- --------- --------- ---------- Net income attributable to common stock $ 132,358 $ 128,511 $ 571,718 $ 434,486 --------- --------- --------- ---------- --------- --------- --------- ---------- Average number of common shares and common share equivalents - primary 3,354,918 3,377,418 3,355,585 3,237,308 --------- --------- --------- ---------- --------- --------- --------- ---------- - fully diluted 3,354,918 3,377,418 3,355,585 3,238,224 --------- --------- --------- ---------- --------- --------- --------- ---------- Earnings per share of common stock - primary and fully diluted $ .04 $ .04 $ .18 $ .14 ------ ------ ------ ------- ------ ------ ------ ------- 3 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ----------------------------------------- ----------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 769,227 $ 631,995 ----------- ----------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 678,895 604,658 Deferred income taxes 439,000 95,000 Provision for losses on accounts receivable 57,687 74,997 Decrease (increase): Accounts receivable 1,957,191 1,116,780 Inventories (1,773,676) (3,001,556) Note receivable from officer 20,000 15,000 Prepaid expenses and other assets 204,322 (442,875) Net assets of discontinued operation - net of cash -- 3,221,254 Other assets 400 (44,632) Increase (decrease): Accounts payable 1,248,040 (2,950,136) Accruals and other (647,913) 101,839 ----------- ----------- Total adjustments 2,183,946 (1,209,671) ----------- ---------- Net cash provided by operating activities 2,953,173 (577,676) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (216,654) (98,113) Payment for acquisition of assets of Tradesman Tool Co. and Intech Industries, Inc. (752,959) -- ----------- ---------- Net cash used in investing activities (969,613) (98,113) ----------- ---------- 4 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) --------------------------------------------- --------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term borrowings 11,115,646 14,131,742 Repayments of short-term borrowings (12,713,023) (11,474,842) Proceeds from mortgage refinancing -- 2,343,400 Principal payments on long-term debt (257,259) (2,859,526) Dividends paid (197,509) (226,797) ------------ ------------ Net cash provided by (used in) financing activities (2,052,145) 1,913,977 ------------ ------------ NET INCREASE (DECREASE) IN CASH (68,585) 1,238,188 CASH AT BEGINNING OF PERIOD - including cash of discontinued operation of $881,537 in 1994 1,071,903 1,969,071 ------------ ------------ CASH AT END OF PERIOD $ 1,003,318 $ 3,207,259 ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 314,025 $ 258,729 ------------ ------------ ------------ ------------ Interest $ 888,221 $ 899,101 ------------ ------------ ------------ ------------ 5 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS ------------------------------------------- ------------------------------------------- 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements for the nine months ended September 30, 1995 and 1994 are presented as unaudited but, in the opinion of the Company, they include all adjustments necessary for a fair statement of the results of operations for those periods. All such adjustments are of a normal recurring nature. The consolidated balance sheet information for December 31, 1994 was derived from audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. These interim financial statements should be read in conjunction with that report. 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. 2. INVENTORIES Major classes of inventory were as follows: SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ Finished goods $ 11,791,282 $ 10,142,039 Work in process 94,311 26,163 Raw materials and supplies 2,964,306 2,699,402 ------------ ------------ $ 14,849,899 $ 12,867,604 ------------ ------------ ------------ ------------ 3. EARNINGS PER SHARE Primary and fully diluted earnings per share are computed using the treasury stock method, modified for stock options and warrants outstanding in excess of 20% of the total outstanding shares of common stock. Under this method, the number of shares outstanding reflects the assumed use of proceeds from the hypothetical exercise of the outstanding options and warrants, unless the effect on earnings per share is antidilutive. The assumed proceeds are used to repurchase shares of common stock, to a maximum of 20% of the shares outstanding. The balance of the proceeds, if any, are used to reduce outstanding debt. Fully diluted earnings per share also reflects the assumed use of proceeds from the hypothetical exercise of contingent issuances if such contingent issuances have a reasonable possibility of occurring. In calculating the purchase price of common stock, the average market value for the period is used for primary earnings per share and the greater of the average or ending market value for the period is used for fully diluted earnings per share. Net income is adjusted for preferred dividends in computing the net income attributable to the common stock. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. P & F INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- ---------------------------------------- THIRD QUARTER ENDED SEPTEMBER 30, 1995 COMPARED WITH THIRD QUARTER ENDED SEPTEMBER 30, 1994 Revenues declined 10% to $9,936,383 from $11,043,763. This decline in revenues is attributable to a decline of $1,386,057 in revenues from hydraulic equipment, the result of a change in accounting for these revenues. In 1994, revenues from hydraulic equipment were primarily accounted for as sales, with corresponding cost of sales, while in 1995 these net revenues were accounted for as commission income. Excluding the change in revenues from hydraulic equipment, total revenues increased 2.9%. Revenues from pneumatic tools and related equipment and baseboard and radiant heating products increased 1.7% and 10.1%, respectively, while revenues from hardware declined 3.3%. Cost of sales declined 3.9 percentage points as a percentage of revenues. Excluding the effect of the change in accounting for hydraulic equipment sales described above, cost of sales as a percentage of revenues was virtually unchanged. Higher selling prices offset cost increases. Average selling prices of pneumatic tools and heating equipment were approximately 4.6% and 7.8% higher, respectively, than the prior year. Hardware average selling prices were unchanged. Selling, administrative and general expenses were virtually unchanged as a percentage of revenues, as adjusted for the change in revenues from hydraulic equipment. Interest expense rose $24,915 due to higher interest rates. 7 P & F INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- ---------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1994 Revenues were essentially unchanged from the prior year, despite a decline of $2,018,335 in revenues from hydraulic equipment, resulting from the change in accounting for these revenues described above. Excluding the change in revenues from hydraulic equipment, total revenues increased 6.4%. Revenues from pneumatic tools and related equipment, baseboard and radiant heating equipment and hardware increased 5.5%, 10.7% and 6.5%, respectively. Average selling prices of pneumatic tools and heating equipment were approximately 3.9% and 5.5% higher, respectively, than the prior year. Hardware average selling prices were unchanged. Cost of sales declined 1.5 percentage points as a percentage of revenues. Excluding the effect of the change in accounting for hydraulic equipment sales described above, cost of sales as a percentage of revenues was virtually unchanged, with higher selling prices offsetting higher material costs. Selling, administrative and general expenses rose 2%, but declined 1.1 percentage points as a percentage of revenues, as adjusted for the change in revenues from hydraulic equipment, due to the 6.4% increase in these adjusted revenues. 8 P & F INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- --------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The Company gauges its liquidity and financial stability by the measurements as shown in the following table (dollar amounts in thousands): SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1995 1994 1994 ------------- ------------ ------------- Working Capital $ 15,254 $ 14,940 $ 14,441 Current Ratio 2.96 to 1 2.70 to 1 2.22 to 1 Shareholders' Equity $ 17,035 $ 16,463 $ 15,928 During the nine months ended September 30, 1995, accounts receivable declined approximately $1,950,000. The monies received from the collection of accounts receivable were used to reduce short-term borrowings, which declined by approximately $1,600,000. In December 1994, the Company's credit facilities were consolidated to provide a line of credit totalling $18,000,000. Of this amount, $14,000,000 is available for direct loans, letters of credit and bankers' acceptances. The total amount of these instruments outstanding as of September 30, 1995 was approximately $5,090,000, including approximately $1,920,000 for direct loans. The total line of credit also includes $4,000,000 earmarked for acquisitions subject to the lending bank's approval. The Company also has a $10,000,000 line for foreign exchange transactions. In June 1994, substantially all of the net assets of Triangle Sheet Metal Works, Inc. ("Triangle") were sold for $3,500,000 in cash to an investment group which included Triangle's senior management. The proceeds from the sale of Triangle were used to reduce short-term borrowings. The Company is currently leasing its facilities in New Hyde Park, New York to the new entity. The divestiture of Triangle was in line with the Company's previously stated goal of disengaging itself from the volatility of the construction industry. The Company is currently conducting an extensive acquisition search. The funds for an acquisition will be provided by reborrowing the $3,500,000 received from the sale of the assets of Triangle, referred to above, which was temporarily used to reduce short-term debt, and from the new $4,000,000 credit facility earmarked for acquisitions referred to above. The total of funds available, including cash derived from operations, is approximately $9,000,000. 9 P & F INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- --------------------------------------- LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Capital spending for the nine months ended September 30, 1995 totalled $216,654. Capital expenditures for the rest of 1995 are expected to total approximately $335,000. The funds for all capital expenditures for 1995 have been and will be provided from working capital. Included in the expected total for 1995 are capital expenditures relating to new products, expansion of existing product lines and replacement of old equipment. During 1994, the mortgage on the Company's Jupiter, Florida facility, in the amount of $2,343,400, was refinanced, through February 1999. The interest rate, 1/2% over prime per annum, remained the same. On August 23, 1994, the Board of Directors of the Company authorized the redemption, effective September 6, 1994, of all outstanding rights issued under a shareholder rights plan established in 1989 and also declared a dividend distribution of new rights under a new shareholder rights plan. The redemption price of $.01 per right resulted in an aggregate payment of $29,289, which was treated as a dividend for tax purposes. On February 15, 1995, Florida Pneumatic purchased the assets and business of Tradesman Tool Co., Inc. ("Tradesman"), a domestic manufacturer of heavy-duty pipe wrenches. On March 31, 1995, Florida Pneumatic purchased the assets and business of Intech Industries, Inc. ("Intech"), a domestic manufacturer of air filters used in compressors. Cash totalling $752,959 was paid for these purchases. The operations of Tradesman and Intech have been merged with the operations of Florida Pneumatic. The Company, through Florida Pneumatic, imports a significant amount of its purchases of tools 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 against adverse effects of these fluctuations, including product pricing adjustments, alternative supplier sources and the use of forward currency contracts to hedge currency positions. Because of these steps taken by the Company, foreign currency exchange rate fluctuations have not had a significant negative effect on the Company's results of operations or its financial position. Any further weakness of the dollar would again, however, present a problem and there can be no certainty that the Company will continue to be successful in its efforts to counter this problem. 10 PART II. OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS None. 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 None. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1995. 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 LEON D. FELDMAN -------------------------------- Leon D. Feldman Executive Vice President Dated: October 27, 1995 (Principal Financial Officer) 11