MELVILLE, N.Y., March 27, 2017 /PRNewswire/ -- P&F
Industries, Inc. (NASDAQ: PFIN) today announced its results
from continuing operations for the year ended December 31, 2016. Full-year 2016 revenue from
continuing operations was $57,276,000, compared to full-year 2015 revenue
of $60,312,000. The Company's
2016's net income was $6,901,000
compared to $3,544,000 for 2015.
However, the Company is reporting a 2016 loss from continuing
operations before taxes of $8,638,000, compared to income from continuing
operations before taxes in 2015 of $2,681,000. Significant factors affecting
the Company's 2016 loss before income taxes from continuing
operations were: (i) non-cash impairment charges to goodwill and
other intangible assets of $9,581,000; (ii) a downward adjustment to the
carrying value of certain inventory of $1,001,000, and (iii) a gain on sale of real
property of $1,703,000, and
(iii). As such, the Company is reporting a net loss from
continuing operations for 2016 of $5,683,000, compared to net income from
continuing operations in 2015 of $1,856,000. P&F is a reporting 2016 net
income from discontinued operations of $12,584,000, of which $12,512,000 is from the gain on sale of
Nationwide Industries, Inc., compared to net income from
discontinued operations $1,688,000
for the prior year.
The Company is reporting fourth quarter 2016 revenue of
$12,507,000, compared to $13,771,000 for the same period in 2015. The
Company's fourth quarter 2016 net income was $61,000, compared to $401,000 reported for the same period a year ago.
Fourth quarter loss from continuing operations before income taxes
was $176,000, compared to income from
continuing operations before income taxes of $407,000 reported in the fourth quarter of
2015. Net loss from continuing operations was $93,000, for the fourth quarter of 2016, compared
to income from continuing operations of $346,000 for the same period in the prior
year. Net income from discontinued operations during the
fourth quarter of 2016 was $154,000,
compared to $55,000 a year ago.
Richard Horowitz, the Company's
Chairman of the Board, Chief Executive Officer and President
commented, "Our results for 2016 were mixed, with certain items
impacting the Company in a positive nature, while others
negatively. The key factor contributing to the increase in
our total net income was the gain on the sale of our Nationwide
Industries subsidiary. As announced back in February 2016, the sale of Nationwide was a
significant component of our objective to transform P&F into an
organization focused on the air tools and related accessories
market. In addition, the net proceeds of approximately
$18.7 million allowed us to eliminate
substantially all of our debt. Additionally, in November 2016, we completed a sale of the real
property located in Tampa,
Florida, in which we operated the Nationwide business,
generating an additional $3.5 million
of net proceeds. These transactions have provided us with
additional band-width for future growth."
Mr. Horowitz continued, "I am pleased to report that Florida
Pneumatic's 2016 revenue was 2.7% higher than the prior year. This
improvement was driven primarily by the continued growth of the
AIRCAT line of automotive application air tools, and to a lesser
degree increased revenue from its Retail customers. Further, as
previously announced, we are continuing to develop our plan to move
into other sectors of the automotive market, leveraging our
strategic relationships with the industry's major
distributors. Revenue from its Industrial and Catalog
channels declined, we believe due to the weakness in the markets
they serve. Although these channels accounted for only
approximately 11% of Florida Pneumatic's 2016 revenue, we are
working on them very diligently and are hopeful they will become a
larger contributor to profits."
Mr. Horowitz added, "During 2016, due primarily to weak revenue,
Hy-Tech recorded almost $9.6 million
of impairment charges against its goodwill and other intangible
assets. Additionally, certain inventory was adjusted downward
to its fair market value, resulting in a reduction to Hy-Tech's
gross profit by $1 million.
These two factors were primary causes for the decline in our
results from continuing operations. Hy-Tech struggled through 2016,
seeing its revenue decline 26%. Significant factors contributing to
this decline were, a fall-off in shipments of more than
$1.2 million to a large customer of
our ATSCO product line, the decision by a former major customer to
manufacture in-house certain products previously sourced from
Hy-Tech, resulting in a year over year decline in revenue of
$950,000, and lastly, a decrease in
revenue in its primary line of tools, parts and accessories of more
than $1.2 million which is also sold
into our segment of the oil and gas market. Finally, after many
dedicated and successful years of service, Hy-Tech's President and
the CFO have stepped down to pursue other interests. We
brought in a new President with a significant amount of experience
and acumen. We believe the new management team at Hy-Tech
will be able to execute on its strategic vision, growth and
earnings potential.
Additionally, Hy-Tech recently began shipping new products that
utilize their extensive air tool motor manufacturing knowledge to
new OEM markets and customers. We are continuing to develop
additional customer-sponsored projects in areas we have not
traditionally marketed to that we believe could replace a portion
of the revenue lost due to the factors described above. These
projects are currently in the early stages; however, we remain
confident that during 2017, they should strengthen and diversify
Hy-Tech's revenue."
Mr. Horowitz concluded his remarks by stating, "2016 was a
period of transition for P&F, with the disposition of the
Nationwide business and related real property being the first step
of the implementation of our strategic plan, which is to focus and
expand the Company into a robust, international, tools-centric
enterprise. We expect the business to develop through both
organic growth and synergistic acquisitions. Lastly, I wish
to thank the loyal, hardworking employees for their tireless
effort, as we seek to improve shareholder value."
The Company will be reporting the following
REVENUE
|
|
Three
months ended December 31,
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Variance
|
|
Variance
|
|
|
|
|
|
|
|
$
|
|
%
|
|
Tools
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
Pneumatic
|
|
$
|
10,012,000
|
|
$
|
10,090,000
|
|
$
|
(78,000)
|
|
|
(0.8)%
|
|
Hy-Tech
|
|
|
2,495,000
|
|
|
3,681,000
|
|
|
(1,186,000)
|
|
|
(32.2)
|
|
Tools
Total
|
|
$
|
12,507,000
|
|
$
|
13,771,000
|
|
$
|
(1,264,000)
|
|
|
(9.2)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Variance
|
|
Variance
|
|
|
|
|
|
|
|
$
|
|
%
|
|
Tools
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
Pneumatic
|
|
$
|
45,282,000
|
|
$
|
44,076,000
|
|
$
|
1,206,000
|
|
|
2.7%
|
|
Hy-Tech
|
|
|
11,994,000
|
|
|
16,236,000
|
|
|
(4,242,000)
|
|
|
(26.1)
|
|
Tools
Total
|
|
$
|
57,276,000
|
|
$
|
60,312,000
|
|
$
|
(3,036,000)
|
|
|
(5.0)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida Pneumatic
Florida Pneumatic markets its air tool products to three primary
sectors within the pneumatic tool market: retail;
Industrial/catalog and the automotive market. It also generates
revenue from its Berkley products line, as well as a line of air
filters and other OEM parts ("Other").
|
|
Three months ended
December 31,
|
|
|
|
2016
|
|
|
|
|
Increase
(decrease)
|
|
|
|
Revenue
|
|
Percent of revenue
|
|
Revenue
|
|
Percent of revenue
|
|
$
|
|
%
|
Retail
customers
|
|
$
|
5,435,000
|
|
|
54.3%
|
|
$
|
4,865,000
|
|
|
48.2%
|
|
$
|
570,000
|
|
|
11.7%
|
Automotive
|
|
|
3,240,000
|
|
|
32.4
|
|
|
3,682,000
|
|
|
36.5
|
|
|
(442,000)
|
|
|
(12.0)
|
Industrial/catalog
|
|
|
1,093,000
|
|
|
10.9
|
|
|
1,325,000
|
|
|
13.1
|
|
|
(232,000)
|
|
|
(17.5)
|
Other
|
|
|
244,000
|
|
|
2.4
|
|
|
218,000
|
|
|
2.2
|
|
|
26,000
|
|
|
11.9
|
Total
|
|
$
|
10,012,000
|
|
|
100.0%
|
|
$
|
10,090,000
|
|
|
100.0%
|
|
$
|
(78,000)
|
|
|
(0.8)%
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
|
|
Increase (decrease)
|
|
|
|
Revenue
|
|
Percent of revenue
|
|
Revenue
|
|
Percent of revenue
|
|
$
|
|
%
|
Retail
customers
|
|
$
|
24,847,000
|
|
|
54.9%
|
|
$
|
24,217,000
|
|
|
54.9%
|
|
$
|
630,000
|
|
|
2.6%
|
Automotive
|
|
|
14,576,000
|
|
|
32.2
|
|
|
12,805,000
|
|
|
29.1
|
|
|
1,771,000
|
|
|
13.8
|
Industrial/catalog
|
|
|
4,936,000
|
|
|
10.9
|
|
|
6,000,000
|
|
|
13.6
|
|
|
(1,064,000)
|
|
|
(17.7)
|
Other
|
|
|
923,000
|
|
|
2.0
|
|
|
1,054,000
|
|
|
2.4
|
|
|
(131,000)
|
|
|
(12.4)
|
Total
|
|
$
|
45,282,000
|
|
|
100.0%
|
|
$
|
44,076,000
|
|
|
100.0%
|
|
$
|
1,206,000
|
|
|
2.7%
|
A primary factor for the increase in Florida Pneumatic's Retail
revenue this quarter, compared to the fourth quarter of 2015, was a
delay in receiving certain orders from Sears during the third
quarter of 2016, which were received and fulfilled in the fourth
quarter of 2016. Revenue attributable to The Home Depot
improved approximately 1%, when comparing the fourth quarter of
2016 to 2015. The cause of the decline in Automotive revenue
this quarter, compared to the same period in 2015, was primarily
due to two AIRCAT major customers/distributors during the fourth
quarter putting in place an internal inventory reduction plan, and
a decline in revenue at our UAT subsidiary located in the United
Kingdom. A portion of UAT's revenue is derived from the sale
of pneumatic air tools to customers that are located in the North
Sea region of Scotland, and whose
businesses are primarily in the oil and gas sector. This region
continues to feel the effects of the ongoing weakness in global oil
and gas exploration. Lastly as relates to UAT, we are
currently in the process of developing a marketing strategy that we
believe should enable UAT to expand its presence into other Western
European countries; however, no specific timetable has been
established for the launch of this program. We continue to
encounter weaknesses in the Industrial/catalog market, with the
decline this quarter compared to the same period a year ago,
occurring most notably in the aerospace and oil and gas
exploration/production channels. Additionally, during the fourth
quarter of 2015, we shipped special orders of approximately
$124,000, while only shipping
$43,000 during the fourth quarter of
2016.
When comparing Florida Pneumatic's full-year 2016 revenue to
2015, the most significant factor contributing to the increase is
the growth in its Automotive tools product line, which increased
13.8% over the prior year. This increase was primarily driven
by new and improved tools, as well as an expanded customer
base. Florida Pneumatic's Retail revenue improved when
comparing full-year 2016 to 2015, due to higher sales from Sears in
2016, with 2016 revenue from The Home Depot effectively flat to
that reported in 2015. The aforementioned increases were
partially offset by the decline in revenue of its
Industrial/catalog lines, where the on-going slow-down in oil and
gas exploration and extraction, particularly in the Gulf of Mexico region continues.
Additionally, during 2015, we shipped approximately $767,000 of special orders, while shipping only
$454,000 during 2016, which
contributed to the decline in our Industrial/catalog revenue.
We have elected not to renew our supply agreement with Sears,
which will expire on September 30,
2017. While Sears remains at or close to complying with its
payment terms to Florida Pneumatic, this difficult decision was
based on a number of factors including Sears' continuing financial
difficulties, the sale of the Craftsman brand to Stanley Black & Decker, and our level of
working capital exposure in relation to our return on that
investment with Sears. It is anticipated that our Sears inventory
exposure should be eliminated by September
30, 2017, and that all accounts receivable, if collected in
the ordinary course, should be received by December 2017.
However, at the present time, there can be no assurance that events
may not occur that would prevent our recovery of our working
capital exposure.
Hy-Tech
Hy-Tech focuses primarily on the industrial sector of the
pneumatic tools market. Hy-Tech manufactures and markets
its own value-added line of air tools and parts, including the
ATSCO product line, as well as distributes a complementary line of
sockets, which in the aggregate are referred to as "ATP". Hy-Tech
Machine also manufactures non-pneumatic products primarily marketed
to the mining, construction and industrial manufacturing
sectors. Hy-Tech Machine data below also includes sales of
gears, and hydraulic stoppers.
|
|
Three months ended
December 31,
|
|
|
|
2016
|
|
|
|
|
Increase
(decrease)
|
|
|
|
Revenue
|
|
Percent of revenue
|
|
Revenue
|
|
Percent of revenue
|
|
$
|
|
%
|
|
ATP
|
|
$
|
2,188,000
|
|
|
87.7%
|
|
$
|
3,310,000
|
|
|
89.9%
|
|
$
|
(1,122,000)
|
|
|
(33.9)%
|
|
Hy-Tech
Machine
|
|
|
307,000
|
|
|
12.3
|
|
|
371,000
|
|
|
10.1
|
|
|
(64,000)
|
|
|
(17.3)
|
|
Total
|
|
$
|
2,495,000
|
|
|
100.0%
|
|
$
|
3,681,000
|
|
|
100.0%
|
|
$
|
(1,186,000)
|
|
|
(32.2)%
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
|
|
Increase
(decrease)
|
|
|
|
Revenue
|
|
Percent
of revenue
|
|
Revenue
|
|
Percent
of revenue
|
|
$
|
%
|
|
ATP
|
|
$
|
10,598,000
|
|
|
88.4%
|
|
$
|
13,990,000
|
|
|
86.2%
|
|
$
|
(3,392,000)
|
|
(24.2)%
|
|
Hy-Tech
Machine
|
|
|
1,396,000
|
|
|
11.6
|
|
|
2,246,000
|
|
|
13.8
|
|
|
(850,000)
|
|
(37.8)
|
|
Total
|
|
$
|
11,994,000
|
|
|
100.0%
|
|
$
|
16,236,000
|
|
|
100.0%
|
|
$
|
(4,242,000)
|
|
(26.1)%
|
|
There are three primary factors that contributed to the decline
in this year's ATP fourth quarter revenue, compared to the same
period a year ago. These factors are:
- Approximately $684,000 of the
decline this quarter of ATP revenue is due to a large customer that
was acquired in the ATSCO acquisition dramatically reducing its
purchases. We believe this decline in orders from this
customer is due primarily to excess inventory it acquired in 2015,
and a slow recovery of the oil and gas exploration sector, which is
its most significant sector.
- The decision by a former major customer of Hy-Tech to source
internally, certain impact wrenches and other products that it had
formerly purchased from Hy-Tech. This action contributed to
$309,000 of the decline in ATP
revenue. We continue to sell to this customer; however the
loss of the impact wrenches has negatively impacted gross margin as
well as revenue.
- Lower current pricing of domestic oil and gas compared to prior
years continues to negatively impact ATP product revenue.
Additionally, Hy-Tech is encountering pricing competition from
Asian-sourced parts and tools. As a result, revenue from the
sale of ATP parts and tools, as well as from the complimentary line
of sockets, has declined approximately $130,000 this quarter, compared to the same
period in 2015. We believe that should the oil and gas sector
remain at or near current levels of exploration and extraction, it
is likely that future periods may not reflect an increase over
comparable prior periods for some time, even if trending upwards,
chronologically. According to Baker Hughes Incorporated, the total
United States rig count has
increased to 658 as of December 30,
2016, from 522 as of September 30,
2016. However, a significant portion of Hy-Tech's oil and
gas sector revenue is driven by activity from rigs that operate
off-shore, primarily in the Gulf of
Mexico, where the rig count has remained relatively constant
during the fourth quarter of 2016, ranging from 21 rigs to 24 rigs,
whereas during the same period in 2015 the rig count in the
Gulf of Mexico ranged from 23 to
34. Additionally, we believe that there has not been a meaningful
increase or growth in the number of "turn-arounds" or plant
maintenance activities, which tend to require the tools and parts
that Hy-Tech manufactures and sells. Until such time as when
major plant turn-arounds increase, and related activity levels
return to recent historic levels, it is difficult to predict when
this sector of the ATP category will improve. To combat this
decline in revenue, in early 2016 we began to pursue alternate
markets where we can exploit our manufacturing expertise, and
develop different applications for our tools, motors and
accessories. We believe the development of this new marketing
strategy should provide Hy-Tech the ability to generate revenue
from new markets in the foreseeable future that should complement
its current markets such as oil and gas extraction and power
generation. Revenue from new sources during the fourth
quarter of 2016 was approximately $173,000, and is included in the ATP
grouping.
When analyzing Hy-Tech's full year 2016 revenue compared to full
year 2015, the primary causes were consistent with those occurring
during the fourth quarter, namely:
- The decline throughout 2016 in shipments to a large ATSCO
customer accounted for more than $1,204,000 of the shortfall in ATP revenue. We
believe this decline in orders from this customer is due primarily
to excess inventory they acquired in 2015, and a slow recovery of
the oil and gas exploration sector, which is its most significant
sector.
- The decision by a former major customer to replace most of the
products previously manufactured by Hy-Tech with products
manufactured internally. This decision resulted in a decline
in 2016 ATP revenue of approximately $950,000, compared to the prior year.
- Revenue from ATP parts, tools and motors, as well as from the
complimentary line of sockets, declined approximately $1,239,000 this year, compared to 2015. As
noted above, Hy-Tech began recognizing revenue from its initiative
to market its products and to new alternate markets. Revenue
from these new sources during 2016 was approximately $274,000, and is included in the ATP
grouping.
GROSS MARGIN
|
|
Three months ended December
31,
|
|
Increase
(decrease)
|
|
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Florida
Pneumatic
|
|
$
|
3,604,000
|
|
$
|
3,616,000
|
|
$
|
(12,000)
|
|
|
(0.3)%
|
|
As percent of
respective revenue
|
|
|
36.0%
|
|
|
35.8%
|
|
|
0.2
|
%pts
|
|
|
|
Hy-Tech
|
|
$
|
301,000
|
|
$
|
1,106,000
|
|
$
|
(805,000)
|
|
|
(72.8)
|
|
As percent of
respective revenue
|
|
|
12.1%
|
|
|
30.0%
|
|
|
(17.9)
|
%pts
|
|
|
|
Total Tools
|
|
$
|
3,905,000
|
|
$
|
4,722,000
|
|
$
|
(817,000)
|
|
|
(17.3)
|
|
As percent of
respective revenue
|
|
|
31.2%
|
|
|
34.3%
|
|
|
(3.1)
|
% pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
Increase
(decrease)
|
|
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Florida
Pneumatic
|
|
$
|
16,674,000
|
|
$
|
15,675,000
|
|
$
|
999,000
|
|
|
6.4%
|
|
As percent of
respective revenue
|
|
|
36.8%
|
|
|
35.6%
|
|
|
1.2
|
% pts
|
|
|
|
Hy-Tech
|
|
$
|
2,257,000
|
|
$
|
6,007,000
|
|
$
|
(3,750,000)
|
|
|
(62.4)
|
|
As percent of
respective revenue
|
|
|
18.8%
|
|
|
37.0%
|
|
|
(18.2)
|
%pts
|
|
|
|
Total Tools
|
|
$
|
18,931,000
|
|
$
|
21,682,000
|
|
$
|
(2,751,000)
|
|
|
(12.7)
|
|
As percent of
respective revenue
|
|
|
33.1%
|
|
|
35.9%
|
|
|
(2.8)
|
% pts
|
|
|
|
Florida Pneumatic's Gross margin for the fourth quarter 2016 was
essentially the same as the fourth quarter of 2015, improving 0.2
percentage point, or twenty basis points. We determine fair
value of Hy-Tech's inventory based on turnover ratio.
Primarily the result of weak market conditions in key sectors
serviced by Hy-Tech, such as oil and gas exploration and extraction
and power generation, we determined that it was necessary to lower
the carrying value of certain components of its inventory.
This additional increase in Hy-Tech's obsolete and slow moving
inventory ("OSMI") allowance this quarter of approximately
$257,000 negatively impacted its
fourth quarter of 2016's gross profit and gross margins.
Further, Hy-Tech's gross margin this quarter is lower, compared to
the same period in 2015, due in part to lower overhead absorption,
which was due primarily to lower manufacturing activity, driven by
the ongoing weakness in several key sectors as well as reduction in
activity with key customers.
The primary factors contributing to the increase in Florida
Pneumatic's gross margin for 2016, compared to 2015, include more
favorable product mix, favorable foreign currency exchange rates,
improved overhead absorption and slightly lower cost of product.
Hy-Tech's gross margin during 2016 has been adversely affected by
the effects of the ongoing weakness in several of the sectors in
which it markets its products, and services such as the oil and gas
sector, power generation and manufacturing, sectors critical to
Hy-Tech's revenue. This on-going weakness has caused Hy-Tech to
significantly increase its OSMI. The additional increase in
Hy-Tech's OSMI during 2016 was $1,001,000. Additionally, contributing to
the decline of Hy-Tech's 2016 gross margin was the fact that during
2016 Hy-Tech manufactured and sold an extremely low gross margin
product line to a key customer it acquired in the ATSCO
acquisition. We do not intend to continue to manufacture this
product line; however, it is likely there will be a residual effect
on gross margin in 2017, as Hy-Tech sells its remaining related
inventory. Lastly, until such time as when the markets that
Hy-Tech services improves, and associated revenue strengthens, it
is possible that Hy-Tech could encounter additional OSMI charges,
which we believe would be less than the amount charged in 2016.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A")
include salaries and related costs, commissions, travel,
administrative facilities, communications costs and promotional
expenses for our direct sales and marketing staff, administrative
and executive salaries and related benefits, legal, accounting and
other professional fees as well as general corporate overhead and
certain engineering expenses.
During the fourth quarter of 2016, our SG&A was $4,522,000, compared to $4,323,000 during the same three-month period in
2015. Significant items contributing to this increase include: (i)
variable costs and expenses, which include such things as
commissions, warranty costs, freight out and
advertising/promotional fees, increased by $118,000 during the fourth quarter of 2016,
compared to the same period in the prior year, driven primarily by
the increase in our AIRCAT sales, and (ii) compensation, which is
comprised of base salaries and wages, accrued performance-based
bonus incentives, associated payroll taxes and employee benefits
increased $244,000, when comparing
the fourth quarter of 2016 to the same period in the prior year.
During the fourth quarter of 2016, cash compensation paid to
employees was relatively unchanged compared to the same period in
the prior year. However, in connection with our reporting of
the sale of Nationwide, we allocated a portion of our corporate
overhead, which was attributable to Nationwide being accounted for
as Discontinued operations, thus resulting in a lower expense in
the fourth quarter of 2015. Partially offsetting the above
increases was a reduction in amortization expense of $96,000, due primarily to the impairment of
certain Hy-Tech intangible assets, lower professional fees and
stock-based compensation of $21,000
and $12,000, respectively.
Our SG&A incurred for the full year 2016 was $19,610,000, compared to $19,157,000 incurred during the full-year
2015. For the year ended December 31,
2016, total variable costs and expenses increased over the
prior year by $503,000. Variable
costs include such expenses as advertising, freight-out,
commissions and warranty. This increase was driven primarily by the
$1,771,000 increase in Automotive
sales, and to a lesser degree the $630,000 increase in Retail revenue.
Additionally, compensation costs, as defined earlier, increased
$321,000. Actual total compensation
paid to employees was essentially unchanged from the prior
period. However, $403,000 of
2015 total compensation costs was allocated to discontinued
operations related to the sale of Nationwide. In 2016, we
owned Nationwide for approximately a month and a half and did not
allocate any of the same compensation items. The above
increases in our SG&A were partially offset by reductions in
our amortization of intangible assets of $222,000 due primarily to the impairment charges
recorded during the second and fourth quarter of this year,
professional fees of $96,000, and
stock-based compensation of $57,000.
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
During the second quarter of 2016, we determined that an interim
impairment analysis of the goodwill recorded in connection with
Hy-Tech and ATSCO was necessary based upon consideration of a
number of factors, which included: i) continued weakness in oil and
gas exploration and extraction; ii) the recent loss of a major
portion of revenue from one of its larger customers; and iii)
recent significant reductions/guidance of forecasted purchases from
the largest customer acquired in the ATSCO acquisition. As a result
of the aforementioned it was determined that Hy-Tech's short and
long-term projections indicated an inability to generate sufficient
discounted future cash flows to support the recorded amounts of
goodwill, other intangible assets and other long-lived assets
necessitating the impairment charge. As a result, in accordance
with current accounting literature, we recorded an impairment
charge of $8,311,000 relating to
goodwill and other intangible assets during the second quarter of
2016.
During our annual testing for impairment of our goodwill and
other intangible assets, we determined that, primarily the result
of further degradation in Hy-Tech's revenue, which in turn produced
lower results of operations than had been previously re-forecasted
in May 2016, Hy-Tech's goodwill and
other intangibles were impaired. The unforeseen further
decline in their revenue began in October
2016 and continues into 2017. As a result, we
re-examined Hy-Tech's projections and determined that it would not
have the ability to generate sufficient discounted future cash
flows to support the recorded amounts of goodwill and other
intangible assets, thus necessitating an additional impairment
charge. As a result, in accordance with current accounting
literature, we recorded an impairment charge of $880,000 relating to goodwill and $390,000 to other intangible assets. We
believe that while we continue to make positive modifications
within Hy-Tech, which include among other actions, changes in
personnel and "go-to-market" strategies, should market conditions
in the sectors in which Hy-Tech operates worsen, we could incur
additional impairment charges in future periods.
GAIN ON SALE OF REAL PROPERTY
Effective November 1, 2016, we
completed a transaction in which we sold real property, located in
Tampa, Florida, for $3.75 million, resulting in a gain of
approximately $1.7 million.
This property is the headquarters of Nationwide, which we sold
February 11, 2016. After
deducting fees and expenses, we received approximately $3.5 million cash, which was used to pay down
bank borrowings, with the balance remaining in a cash
account.
OTHER INCOME - NET
The table below provides an analysis of our Other income-net
from continuing operations for the three months and years ended
December 31, 2016 and 2015:
|
|
Three months ended
December
31,
|
|
|
Year ended
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Lease
income-net
|
|
$
|
25,000
|
|
|
$
|
38,000
|
|
|
$
|
100,000
|
|
|
$
|
146,000
|
|
Fair value adjustment
to contingent consideration - UAT
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126,000
|
|
Total
|
|
$
|
25,000
|
|
|
$
|
38,000
|
|
|
$
|
100,000
|
|
|
$
|
272,000
|
|
Lease income-net is income net of related expenses incurred in
connection with the lease discussed in Gain on Sale of Real
Property. The fair value adjustment to contingent consideration –
UAT reflects the adjustments relating to the carrying value of the
additional consideration due to the sellers of UAT settled in
2015.
INTEREST EXPENSE
|
|
Three months ended December 31,
|
|
|
|
Interest expense
attributable to:
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
Short-term
borrowings
|
|
$
|
4,000
|
|
$
|
—
|
|
$
|
4,000
|
|
|
NA%
|
Term loans, including
Capital Expenditure Term Loans
|
|
|
3,000
|
|
|
2,000
|
|
|
1,000
|
|
|
50.0
|
Amortization expense of
debt issue costs
|
|
|
10,000
|
|
|
28,000
|
|
|
(18,000)
|
|
|
(64.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,000
|
|
$
|
30,000
|
|
$
|
(13,000)
|
|
|
(43.3)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
Increase
(Decrease)
|
|
Interest expense
attributable to:
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
Short-term
borrowings
|
|
$
|
45,000
|
|
$
|
—
|
|
$
|
45,000
|
|
|
NA%
|
Term loans, including
Capital Expenditure Term Loans
|
|
|
8,000
|
|
|
5,000
|
|
|
3,000
|
|
|
60.0
|
Amortization expense of
debt issue costs
|
|
|
128,000
|
|
|
111,000
|
|
|
17,000
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,000
|
|
$
|
116,000
|
|
$
|
65,000
|
|
|
56.0%
|
We received approximately $18.7
million cash from the sale of Nationwide, which eliminated
our revolving loan balance and reduced our term loans to
$100,000. In accordance with
current accounting guidance we have included the short-term
interest expense incurred in connection with the bank borrowings,
and term loan interest expense incurred during the three months and
year ended December 31, 2015 of
$120,000 and $600,000, respectively, and for the period
January 1, 2016 through February 11, 2016, (the "Closing Date") of
$60,000, which was the effective date
of sale of Nationwide, in Discontinued operations.
Additionally, we wrote down the debt issue costs associated with
the repayment of those term loans. Further, $128,000 is included in amortization expense of
debt issue costs in our interest expense for the full year ended
December 31, 2016.
Primarily the result of the cash received from the sale of
Nationwide and cash received from the sale of the real property in
Tampa, Florida, our average
balance of short-term borrowings during the three-month period
ended December 31, 2016 was
$685,000, significantly lower than
$10,883,000, which was the average
during the three-month period ended December
31, 2015.
The average balance of our short-term borrowings during the year
ended December 31, 2016 was
$2,862,000, compared to $13,818,000 during the year of 2015.
INCOME TAX EXPENSE
The effective tax rates from continuing operations for the years
ended December 31, 2016 and 2015 were
(34.2%) and 30.8%, respectively. Primary factors
affecting our 2016 effective tax rate were nondeductible expenses
and state income taxes. The primary factors affecting the 2015
effective tax rate were nondeductible expenses, reversal of
liability for contingent purchase price, and state income
taxes.
DISCONTINUED OPERATIONS
Net income from Discontinued Operations represents Nationwide's
results of operations for the period January
1, 2016 through the Closing Date, and for the twelve months
ended December 31, 2015. The SG&A
incurred during the period January 1,
2016 through the Closing Date, includes that of Nationwide
plus $19,000 of expenses incurred at
the corporate level that is specifically attributable to
Nationwide. Nationwide's SG&A for the three months and
year ended December 31, 2015,
includes all of Nationwide plus approximately $163,000 and $461,000, respectively, of corporate expenses
directly attributable to Nationwide. Further, in accordance with
current accounting guidance, we have included, as part of
discontinued operations, all interest expense incurred attributable
to our Bank borrowings during the year ended December 31, 2015, and for the period
January 1, 2016 through the Closing
Date.
We recognized a gain of $12,512,000 on the sale of Nationwide which
represents the difference between the adjusted net purchase price
and the carrying book value of Nationwide. For income tax
purposes, our tax basis in Nationwide was greater than the net
proceeds resulting in a tax loss and thus recorded a tax benefit of
$482,000. This tax loss can
only be applied against future capital gain transactions. In
November 2016, Countrywide completed
the sale of the Tampa, Florida
real property, which, for tax purposes is treated as a capital gain
transaction and utilized the $482,000
tax benefit generated from the sale of Nationwide.
OTHER INFORMATION
P&F Industries Inc. has scheduled a conference call for
today, March 27, 2017, at
11:00 A.M., Eastern Time, to discuss
its 2016 results and financial condition. Investors and other
interested parties who wish to listen to or participate can call
866-337-6663. It is suggested you call at least 10 minutes prior to
the call commencement. For those who cannot listen to the
live broadcast, a replay of the call will also be available on the
Company's web-site beginning on or about March 28, 2017.
About P&F Industries, Inc.
P&F Industries, Inc., through its wholly owned subsidiaries,
manufactures and/or imports air-powered tools and accessories, sold
principally to the industrial, retail and automotive markets.
P&F's products are sold under its own trademarks and other
trade names, as well as under the private labels of major
manufacturers and retailers.
Forward Looking Statements.
Statements contained in this press release may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Generally, the inclusion
of the words "believe," "expect," "intend," "estimate,"
"anticipate," "will," "may," "would," "could" and their opposites
and similar expressions identify statements that constitute forward
looking statements within the meaning of the Reform Act. Any
forward-looking statements contained in this press release and
those contained in the comments of management, including those
related to the Company's future performance, are based upon the
Company's historical performance and on current plans, estimates
and expectations, which are subject to various risks and
uncertainties, including, but not limited to, those relating
to:
- Exposure to fluctuations in energy prices;
- Debt and debt service requirements;
- Borrowing and compliance with covenants under our credit
facility;
- Disruption in the global capital and credit markets;
- The strength of the retail economy in the United States and abroad;
- Supply chain disruptions;
- Customer concentration;
- Adverse changes in currency exchange rates;
- Impairment of long-lived assets and goodwill;
- Unforeseen inventory adjustments or changes in purchasing
patterns;
- Market acceptance of products;
- Competition;
- Price reductions;
- Interest rates;
- Litigation and insurance;
- Retention of key personnel;
- Acquisition of businesses;
- Regulatory environment;
- The threat of terrorism and related political instability and
economic uncertainty; and
- Information technology system failures and attacks
and those other risks and uncertainties described in the
Company's most recent Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, and its other reports and
statements filed by the Company with the Securities and Exchange
Commission. These risks could cause the Company's actual results in
future periods to differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company.
Forward-looking statements speak only as of the date on which they
are made, and the Company undertakes no obligation to update
publicly or revise any forward-looking statement, whether as a
result of new information, future developments or otherwise, except
as may be required by law. The Company cautions you against relying
on any of these forward-looking statements.
www.pfina.com
P & F
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
(In Thousands
$)
|
December 31,
2016
|
December 31,
2015
|
|
(Unaudited)
|
(Unaudited)
|
Assets
|
|
|
Cash
|
|
$
|
3,699
|
|
$
|
927
|
|
Accounts receivable -
net
|
|
|
7,906
|
|
|
8,477
|
|
Inventories
|
|
|
19,901
|
|
|
19,783
|
|
Prepaid expenses and
other current assets
|
|
|
3,030
|
|
|
1,032
|
|
Assets of
discontinued operations
|
|
|
---
|
|
|
8,435
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
34,536
|
|
|
38,654
|
|
|
|
|
|
|
|
|
|
Net property and
equipment
|
|
|
7,089
|
|
|
9,472
|
|
Goodwill
|
|
|
3,897
|
|
|
10,154
|
|
Other intangible
assets - net
|
|
|
6,606
|
|
|
11,098
|
|
Deferred income taxes
- net
|
|
|
1,793
|
|
|
---
|
|
Other assets –
net
|
|
|
130
|
|
|
234
|
|
Total
assets
|
|
$
|
54,051
|
|
$
|
69,612
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
---
|
|
$
|
9,623
|
|
Accounts
payable
|
|
|
2,398
|
|
|
2,791
|
|
Accrued compensation
and benefits
|
|
|
1,733
|
|
|
1,718
|
|
Accrued other
liabilities
|
|
|
2,019
|
|
|
1,666
|
|
Current maturities of
long-term debt
|
|
|
13
|
|
|
491
|
|
Liabilities of
discontinued operations
|
|
|
---
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
6,163
|
|
|
17,631
|
|
|
|
|
|
|
|
|
|
Long-term debt, less
current maturities
|
|
|
88
|
|
|
5,936
|
|
Deferred tax
liability - net
|
|
|
---
|
|
|
2,175
|
|
Other
liabilities
|
|
|
210
|
|
|
228
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
6,461
|
|
|
25,970
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
47,590
|
|
|
43,642
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
54,051
|
|
$
|
69,612
|
|
|
|
|
|
|
|
|
|
P & F
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF (LOSS) INCOME (Unaudited)
|
|
|
|
Three months ended
December 31,
|
Full year ended
December 31,
|
(In Thousand
$)
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
Net
revenue
|
$
|
12,507
|
$
|
13,771
|
$
|
57,276
|
$
|
60,312
|
Cost of
sales
|
8,602
|
9,049
|
38,345
|
38,630
|
Gross
profit
|
3,905
|
4,722
|
18,931
|
21,682
|
Selling, general and
administrative
expenses
|
4,522
|
4,323
|
19,610
|
19,157
|
Impairment of
goodwill and other
intangible assets
|
1,270
|
---
|
9,581
|
---
|
Operating (loss)
income
|
(1,887)
|
399
|
(10,260)
|
2,525
|
Other income
-net
|
25
|
38
|
100
|
272
|
Gain on sale of
building
|
1,703
|
---
|
1,703
|
---
|
Interest
expense
|
(17)
|
(30)
|
(181)
|
(116)
|
(Loss) income from
continuing
operations before
income taxes
|
(176)
|
407
|
(8,638)
|
2,681
|
Income tax (benefit)
expense
|
(83)
|
61
|
(2,955)
|
825
|
(Loss) income from
continuing
operations
|
(93)
|
346
|
(5,683)
|
1,856
|
|
|
|
|
|
Net income from
discontinued
operations, net of tax of $-0- and $38,
for the three and twelve-month periods
ended December 31, 2016, and $55 and
$1,001 for the three and twelve months
ended December 31, 2015.
|
---
|
55
|
72
|
1,688
|
Gain on sale of
discontinued operations,
net of tax benefits of $154 and $482 for
the three and twelve-month periods
ended December 31, 2016
|
154
|
---
|
12,512
|
---
|
Net income from
discontinued
operations, net of tax
|
154
|
55
|
12,584
|
1,688
|
Net income
|
$
|
61
|
$
|
401
|
$
|
6,901
|
$
|
3,544
|
P&F INDUSTRIES
INC. AND SUBSIDIARIES
|
|
(LOSS) EARNINGS PER
SHARE (Unaudited)
|
|
|
|
|
|
Full year ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Basic (loss) earnings
per share
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.58)
|
|
$
|
0.51
|
|
Discontinued
operations
|
|
|
3.50
|
|
|
0.47
|
|
Net (loss)
income
|
|
$
|
(1.92)
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings
per share
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.58)
|
|
$
|
0.49
|
|
Discontinued
operations
|
|
|
3.50
|
|
|
0.45
|
|
Net (loss)
income
|
|
$
|
(1.92)
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
P & F
INDUSTRIES, INC. AND SUBSIDIARIES
|
NON-GAAP FINANCIAL
MEASURE AND RECONCILIATION
|
|
COMPUTATION
OF (EBITDIA) - EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION, IMPAIRMENT
CHARGE AND AMORIZATION FROM CONTINUING
OPERATIONS
|
(Unaudited)
|
|
|
(In Thousands
$)
|
For the full year
ended December 31,
|
|
|
2016
|
|
|
2015
|
|
|
Net (loss) income
from
continuing operations
|
$
|
(5,683)
|
|
$
|
1,856
|
|
|
Add:
|
|
|
|
|
|
|
|
Impairment of
Goodwill
and other intangible
assets
|
|
9,581
|
|
|
---
|
|
|
Depreciation and
amortization
|
|
2,636
|
|
|
2,792
|
|
|
Interest
expense
|
|
181
|
|
|
116
|
|
|
(Benefit) provision
for
income taxes
|
|
(2,955)
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
EBITDIA
(1)
|
$
|
3,760
|
|
$
|
5,589
|
|
|
|
|
|
|
|
|
|
|
(1)The Company
discloses a tabular comparison of EBITDIA, which is a non-GAAP
measure because it is instrumental in comparing the results from
period to period. The Company's management believes that the
comparison of EBITDIA provides greater insight into the Company's
results of operations for the periods presented. EBITDIA
should not be considered in isolation or as a substitute for
operating income as reported on the face of our statement of
operations.
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/pf-industries-inc-reports-results-for-the-year-ended-december-31-2016-300429410.html
SOURCE P&F Industries, Inc.