MELVILLE, N.Y., Nov. 9, 2017 /PRNewswire/ -- P&F Industries,
Inc. (NASDAQ: PFIN) today announced its results from operations for
the three and nine-month periods ended September 30, 2017. P&F Industries, Inc. is
reporting third quarter 2017 revenue from continuing operations of
$15,782,000, compared to $14,633,000, for the same period in 2016.
For the nine-month period ended September
30, 2017, the Company's revenue from continuing operations
was $44,357,000, compared to
$44,769,000, during the same period
in 2016. For the three and nine-month periods ended
September 30, 2017, the Company is
reporting income from continuing operations before taxes of
$171,000 and $104,000, compared to losses of $393,000 and $8,462,000, respectively, for the same three and
nine-month periods in 2016. The nine month loss recorded in 2016
was due primarily to $8,311,000 of
impairment charges recorded against Hy-Tech's intangible
assets. For the three and nine months ended September 30, 2017, after giving effect to income
taxes, the Company is reporting net income from continuing
operations of $5,000, and a loss of
$38,000, respectively. For the
same periods in 2016, the Company reported net after-tax losses
from continuing operations of $286,000 and $5,590,000, respectively.
There were no discontinued operations in 2017, whereas during
the third quarter of 2016, the Company reported net income from
discontinued operations after taxes of $187,000, and reported for the nine-month period
ended September 30, 2016, income, net
of tax, of $12,430,000, from the
February 2016 sale of Nationwide
Industries, Inc. and its operations prior thereto.
Richard Horowitz, the Company's
Chairman of the Board, Chief Executive Officer and President
commented, "The acquisition in April of this year of the Jiffy Air
Tool business continues to prove to be a strategic acquisition,
enabling us to penetrate deeper into the aerospace sector, with
revenue this quarter of $2,564,000.
Further, as previously disclosed earlier this year, we made
the decision to exit the Sears relationship effective September 30, 2017. For more than three
decades, we have been the primary provider to Sears of its
Craftsman pneumatic tools, making this decision extremely
difficult. However, Sears' continued financial difficulties,
and their decision to sell the Craftsman brand to
Stanley Black & Decker, made us
reassess our return in relation to our risk. I wish to note
that Sears purchased nearly all remaining Craftsman
inventory from us, with the small balance of the Craftsman
inventory remaining on hand projected to be sold to Stanley Black & Decker. At this juncture, we
remain confident that we will collect the balance owed by Sears by
year end.
Our Automotive revenue declined this quarter compared to the
third quarter of 2016. We believe this decline was due to two
major customers who, we have been advised, are currently in the
process of re-balancing their pneumatic hand tool inventory.
However, while our Automotive revenue may have declined this year
compared to the same periods in 2016, our Automotive revenue, on a
trailing twelve month basis, has increased 19% compared to the
first twelve months immediately following the acquisition of
Exhaust Technologies, Inc. and its AIRCAT line of automotive tools.
I am also pleased to report that our Industrial/catalog revenue
has improved nearly 20% this quarter compared to the third quarter
of 2016, with year to date revenue higher by 8% over the same nine
month period a year ago."
Mr. Horowitz added, "Hy-Tech's revenue increased 19% this
quarter over the third quarter of 2016, which is an encouraging
sign. Further, its gross margins continue to improve,
evidenced by a 19 percentage point increase this quarter, compared
to the same period a year ago. Finally, Hy-Tech's initiative
to expand its product and technology into new niche markets
continues to grow, accounting for 7.0% of Hy-Tech's ATP nine-month
revenue. We remain confident that growth in this sector will
continue. And Lastly, in September, we acquired intellectual
property from Numatx, Inc. This acquisition will add another
product line to our aerospace offering, allows us to manufacture
and market one of the world's smallest, lightest, aerospace-grade
C-Squeezer and alligator squeezer riveters, and we are excited by
its prospects.
Our selling and general and administrative expenses during the
three-month period ended September 30,
2017, increased $437,000,
compared to the third quarter of 2016. It should be noted that this
quarter's selling, general and administrative expenses include
approximately $575,000 attributable
to Jiffy's operations."
Mr. Horowitz concluded his remarks by adding, "Driven primarily
by our continued improvement at Hy-Tech, the success derived from
the recent acquisition of Jiffy, as well as expansion into new
markets and technologies, we are very excited about the future. We
will continue our pursuit of business opportunities, including
acquisitions of complementary businesses, as well as new market
initiatives that we believe will enhance shareholder value.
Lastly, as always, we remain focused on our mission, which is for
P&F to be a key provider of pneumatic tools and
accessories."
In a separate announcement today, the Company announced the
declaration of a quarterly cash dividend.
The Company will be reporting the following.
RESULTS OF OPERATIONS
Continuing operations
We elected not to renew our supply agreement with Sears, which
expired on September 30, 2017. This
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 pertaining to Sears. There is no Sear's inventory
exposure at September 30, 2017.
Further, we believe that all accounts receivable attributable to
Sears, which approximates $1,100,000
at September 30, 2017, should be
collected by December 31, 2017.
However, at the present time, there can be no assurance that we
will fully recover this.
We believe that over time several newer technologies and
features may begin to have an impact on the market for the
company's traditional pneumatic tool offerings. This
evolution has been felt initially by the advent of some cordless
operated hand tools in the automotive aftermarket. We are
currently evaluating the development of more advanced technologies
in our tool platforms.
Other than the aforementioned, there are no major trends or
uncertainties that had, or we could reasonably expect could have a
material impact on our revenue, nor was there any unusual or
infrequent event, transaction or any significant economic change
that materially affected our results of operations.
During the first quarter of 2016, we sold Nationwide to an
unrelated third party for approximately $22,200,000. As a result of this transaction,
Nationwide's 2016 results are reported under discontinued
operations.
REVENUE
The tables below provide an analysis of our net revenue from
continuing operations for the three and nine-month periods ended
September 30, 2017 and 2016:
|
|
Three months ended
September 30,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
Florida
Pneumatic
|
|
$
|
12,295,000
|
|
|
$
|
11,702,000
|
|
|
$
|
593,000
|
|
|
|
5.1%
|
|
Hy-Tech
|
|
|
3,487,000
|
|
|
|
2,931,000
|
|
|
|
556,000
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
15,782,000
|
|
|
$
|
14,633,000
|
|
|
$
|
1,149,000
|
|
|
|
7.9%
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
Pneumatic
|
|
$
|
34,936,000
|
|
|
$
|
35,270,000
|
|
|
$
|
(334,000)
|
|
|
|
(0.9)%
|
|
Hy-Tech
|
|
|
9,421,000
|
|
|
|
9,499,000
|
|
|
|
(78,000)
|
|
|
|
(0.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
44,357,000
|
|
|
$
|
44,769,000
|
|
|
$
|
(412,000)
|
|
|
|
(0.9)%
|
|
Florida Pneumatic
Florida Pneumatic markets its air tool products to four primary
sectors within the pneumatic tool market; retail, automotive,
industrial/catalog, and aerospace. 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 September
30,
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase (decrease)
|
|
|
|
Revenue
|
|
|
Percent of
revenue
|
|
|
Revenue
|
|
|
Percent of
revenue
|
|
|
$
|
|
|
%
|
|
Retail
customers
|
|
$
|
5,212,000
|
|
|
|
42.4%
|
|
|
$
|
6,631,000
|
|
|
|
56.7%
|
|
|
$
|
(1,419,000)
|
|
|
|
(21.4)%
|
|
Automotive
|
|
|
3,021,000
|
|
|
|
24.6
|
|
|
|
3,723,000
|
|
|
|
31.8
|
|
|
|
(702,000)
|
|
|
|
(18.9)
|
|
Industrial/catalog
|
|
|
1,228,000
|
|
|
|
10.0
|
|
|
|
1,026,000
|
|
|
|
8.7
|
|
|
|
202,000
|
|
|
|
19.7
|
|
Aerospace
|
|
|
2,564,000
|
|
|
|
20.8
|
|
|
|
89,000
|
|
|
|
0.8
|
|
|
|
2,475,000
|
|
|
|
2,780.9
|
|
Other
|
|
|
270,000
|
|
|
|
2.2
|
|
|
|
233,000
|
|
|
|
2.0
|
|
|
|
37,000
|
|
|
|
15.9
|
|
Total
|
|
$
|
12,295,000
|
|
|
|
100.0%
|
|
|
$
|
11,702,000
|
|
|
|
100.0%
|
|
|
$
|
593,000
|
|
|
|
5.1%
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase (decrease)
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
revenue
|
|
|
Revenue
|
|
|
revenue
|
|
|
$
|
|
|
%
|
|
Retail
customers
|
|
$
|
15,976,000
|
|
|
|
45.7%
|
|
|
$
|
19,411,000
|
|
|
|
55.1%
|
|
|
$
|
(3,435,000)
|
|
|
|
(17.7)%
|
|
Automotive
|
|
|
10,024,000
|
|
|
|
28.7
|
|
|
|
11,336,000
|
|
|
|
32.1
|
|
|
|
(1,312,000)
|
|
|
|
(11.6)
|
|
Industrial/catalog
|
|
|
3,812,000
|
|
|
|
10.9
|
|
|
|
3,523,000
|
|
|
|
10.0
|
|
|
|
289,000
|
|
|
|
8.2
|
|
Aerospace
|
|
|
4,426,000
|
|
|
|
12.7
|
|
|
|
320,000
|
|
|
|
0.9
|
|
|
|
4,106,000
|
|
|
|
1,283.1
|
|
Other
|
|
|
698,000
|
|
|
|
2.0
|
|
|
|
680,000
|
|
|
|
1.9
|
|
|
|
18,000
|
|
|
|
2.6
|
|
Total
|
|
$
|
34,936,000
|
|
|
|
100.0%
|
|
|
$
|
35,270,000
|
|
|
|
100.0%
|
|
|
$
|
(334,000)
|
|
|
|
(0.9)%
|
|
The majority of the decline in Florida Pneumatic's third quarter
2017 Retail revenue was due to the reduction in shipments to Sears
this quarter, compared to the same period in 2016. As discussed
above, we elected not to renew an agreement with Sears, which
expired on September 30, 2017. Also
impacting our Retail revenue this quarter was a decline in
shipments to The Home Depot, which was due primarily to their
decision to reduce the number of items offered for sale at certain
locations. Additionally, we believe that the recent
hurricanes, which impacted the southern portion of the United States, was a contributing factor
to the decline in our Retail revenue this quarter, compared to the
third quarter of 2016. A major factor contributing to the net
decline in our Automotive revenue this quarter compared to the same
three-month period in 2016, were two major automotive parts
distributors continuing to adjust their inventory levels of
pneumatic hand tools. Partially offsetting this decline was
an increase in revenue from our UAT division headquartered in the
United Kingdom. Our Industrial/catalog revenue increased
slightly compared to the same period a year ago. Activity in this
sector has begun to improve, however no assurance can be given that
this trend will continue. Lastly, the Jiffy acquisition in April of
this year has enabled us to approach the aerospace sector with a
much stronger brand and product offering. As a result, aerospace
sales contributed nearly $2.5 million
to Florida Pneumatic's total third quarter 2017 revenue.
With respect to our year to date results, seventy-five percent
of the decline in our Retail revenue was due primarily to the
reduction in shipments to Sears, compared to the same nine-month
period in 2016. During 2016, The Home Depot rolled-out several new
tools, which did not occur in 2017, accounting for much of the
decline in The Home Depot's year-to-date revenue. Additionally,
year to date revenue was negatively affected by their decision to
reduce the number of items being offered at certain locations. We
believe two major automotive distributors have been adjusting their
inventory levels. As such, their decision is a primary cause of the
year to date decline in our Automotive revenue. It should be noted
that we have enjoyed increased sales to other major Automotive
customers and distributors. Additionally, UAT's 2017 year to
date revenue has declined approximately 11%, when compared to the
same period a year ago. Our Industrial/catalog revenue, while
sluggish during the first three months of 2017, has begun to see
improvement during the second and third quarters of 2017. Lastly,
aerospace revenue, driven by the Jiffy acquisition added more than
$4.1 million to Florida Pneumatic's
year to date 2017 revenue, compared to the same period a year
ago.
Hy-Tech
Hy-Tech designs, manufactures and sells a wide range of
industrial products under the brands ATP, ATSCO and Ozat which are
categorized as "ATP" for reporting purposes and include heavy duty
air tools, industrial grinders and impact sockets. Hy-Tech's other
product lines, Numatx, Thaxton and Quality Gear, are reported as
"Other" and include the hydro pneumatic riveters, hydrostatic test
plugs, air motors and custom gears.
|
|
Three months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(decrease)
|
|
|
|
Revenue
|
|
|
Percent of
revenue
|
|
|
Revenue
|
|
|
Percent of
revenue
|
|
|
$
|
|
|
%
|
|
ATP
|
|
$
|
3,092,000
|
|
|
|
88.7%
|
|
|
$
|
2,515,000
|
|
|
|
85.8%
|
|
|
$
|
577,000
|
|
|
|
22.9%
|
|
Other
|
|
|
395,000
|
|
|
|
11.3
|
|
|
|
416,000
|
|
|
|
14.2
|
|
|
|
(21,000)
|
|
|
|
(5.0)
|
|
Total
|
|
$
|
3,487,000
|
|
|
|
100.0%
|
|
|
$
|
2,931,000
|
|
|
|
100.0%
|
|
|
$
|
556,000
|
|
|
|
19.0%
|
|
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
Decrease
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
revenue
|
|
|
Revenue
|
|
|
revenue
|
|
|
$
|
|
|
%
|
|
ATP
|
|
$
|
8,386,000
|
|
|
|
89.0%
|
|
|
$
|
8,411,000
|
|
|
|
88.5%
|
|
|
$
|
(25,000)
|
|
|
|
(0.3)%
|
|
Other
|
|
|
1,035,000
|
|
|
|
11.0
|
|
|
|
1,088,000
|
|
|
|
11.5
|
|
|
|
(53,000)
|
|
|
|
(4.9)
|
|
Total
|
|
$
|
9,421,000
|
|
|
|
100.0%
|
|
|
$
|
9,499,000
|
|
|
|
100.0%
|
|
|
$
|
(78,000)
|
|
|
|
(0.8)%
|
|
Significant components contributing to the increase in Hy-Tech's
third quarter 2017 ATP revenue, compared to the same period in
2016, include the resurgence in activity from a large customer
acquired in the ATSCO acquisition that had reduced its orders until
the second quarter of 2017, and continues to place orders during
the third quarter of 2017. Additionally, in 2016 we began to pursue
alternate markets where we believed we could exploit our
engineering and manufacturing expertise, and develop different
applications for our tools, motors and accessories. We believe the
development of this new marketing strategy provides an opportunity
to generate new sources of revenue from new markets in 2017 and
beyond. While third quarter 2017 revenue from this new initiative
was $156,000, at September 30, 2017, Hy-Tech has future orders
just shy of $750,000. Although
Hy-Tech's third quarter 2017 revenue has increased compared to both
the first and second quarters of 2017, we believe that there
continues to be an excess inventory of tools and spare parts in the
distribution channels. Additionally, we believe that the
turn-around activities in the oil and gas sector continue to lag,
compared to historic levels, further negatively impacting Hy-Tech's
revenue. Recent hurricanes and other major storms have also
impacted Hy-Tech's revenue. Further, we believe lower-priced
imported tools and spare parts are adversely impacting Hy-Tech's
position in the marketplace.
The fluctuation in Hy-Tech's year to date revenue for the
nine-month period ended September 30,
2017, compared to the same period in 2016 was primarily due
to a number of factors. A decline in ATP revenue from a large
customer that was acquired in the ATSCO acquisition that had
greatly reduced its purchases in the first quarter of 2017,
compared to its purchases during the first quarter of 2016.
By mid-2016 this customer ceased placing orders. However, as
discussed above, this customer began placing orders during the
second quarter of 2017 and continued into the third quarter of this
year. A major component of Hy-Tech's revenue is derived from
the oil and gas sector. Currently, we estimate that the oil and gas
sector revenue accounts for approximately 30% to 35% of Hy-Tech's
total revenue. This revenue stream is driven by a number of
factors, such as, the number of off-shore rigs located in the
Gulf of Mexico, "turn-arounds" or
plant maintenance activities and, to a lesser extent, land rigs. We
believe the lag in turn-around activities, the hurricanes that
severely damaged the Gulf of
Mexico and many of the oil refineries in the Gulf States,
along with the growing presence of lower-priced imported tools and
spare parts are impacting the markets in which Hy-Tech operates.
However, as discussed earlier, Hy-Tech continues to pursue
alternate markets where it believes it can exploit its engineering
and manufacturing expertise, and develop different applications for
its tools, motors and accessories. Revenue from these new sources
during the first nine months of 2017 was approximately $657,000, and is included in the ATP
grouping. Lastly, Hy-Tech has recently begun a new marketing
strategy that is intended to re-energize its gear and hydraulic
stopper business.
Gross profit / margin
|
|
Three months ended
September 30,
|
|
Increase
(decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
Florida
Pneumatic
|
|
$
|
4,579,000
|
|
|
|
|
|
|
$
|
4,219,000
|
|
|
|
|
|
|
$
|
360,000
|
|
|
|
8.5%
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
37.2%
|
|
|
|
|
|
|
|
36.1%
|
|
|
|
1.1
|
% pts
|
|
|
|
|
Hy-Tech
|
|
$
|
1,005,000
|
|
|
|
|
|
|
$
|
286,000
|
|
|
|
|
|
|
$
|
719,000
|
|
|
|
251.4
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
28.8%
|
|
|
|
|
|
|
|
9.8%
|
|
|
|
19.0
|
% pts
|
|
|
|
|
Total
|
|
$
|
5,584,000
|
|
|
|
|
|
|
$
|
4,505,000
|
|
|
|
|
|
|
$
|
1,079,000
|
|
|
|
24.0%
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
35.4%
|
|
|
|
|
|
|
|
30.8%
|
|
|
|
4.6
|
% pts
|
|
|
|
|
|
|
Nine months ended
September 30,
|
|
Increase
(decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
Florida
Pneumatic
|
|
$
|
13,116,000
|
|
|
|
|
|
|
$
|
13,070,000
|
|
|
|
|
|
|
$
|
46,000
|
|
|
|
0.4%
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
37.5%
|
|
|
|
|
|
|
|
37.1%
|
|
|
|
0.4
|
% pts
|
|
|
|
|
Hy-Tech
|
|
$
|
2,864,000
|
|
|
|
|
|
|
$
|
1,956,000
|
|
|
|
|
|
|
$
|
908,000
|
|
|
|
46.4
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
30.4%
|
|
|
|
|
|
|
|
20.6%
|
|
|
|
9.8
|
% pts
|
|
|
|
|
Total
|
|
$
|
15,980,000
|
|
|
|
|
|
|
$
|
15,026,000
|
|
|
|
|
|
|
$
|
954,000
|
|
|
|
6.3%
|
|
As percent of
respective revenue
|
|
|
|
|
|
|
36.0%
|
|
|
|
|
|
|
|
33.6%
|
|
|
|
2.4
|
% pts
|
|
|
|
|
Customer and product mix were the primary factors that
contributed to the increase in Florida Pneumatic's third quarter
2017 gross margin, compared to the same period a year ago. Of note,
Jiffy's gross margin approximates that of Florida Pneumatic's
non-retail product lines. As such, the gross profit
associated with the Aerospace revenue this quarter exceeded the
gross profits lost as the result of the decline in Retail revenue.
There were no significant changes to our cost structure or selling
price during this quarter.
Florida Pneumatic's overall gross margin for the nine-month
period ended September 30, 2017 is
essentially the same as the gross margin for the same period in
2016.
Hy-Tech's 2017 third quarter gross margin increased 19.0
percentage points, a more than 250% improvement over the same
period a year ago. Factors contributing to the positive change
include, among other things: (a) in the third quarter of 2016, we
increased Hy-Tech's allowance for obsolete / slow moving inventory
("OSMI"). This adjustment in 2016 was compounded by lower overhead
absorption, due to reduced manufacturing, in turn due to weakness
in the oil and gas and power generation sectors and (b) during
2016, we were shipping a line of very low gross margin tools to a
major customer. However, during the second and third quarters
of 2017, shipments of these low gross margin tools declined
compared to the prior year. Additional factors contributing to the
improvement in Hy-Tech's gross margin include: (a) improved
overhead absorption as manufacturing activity has increased; (b)
improved inventory turns, which directly impacts fluctuations in
Hy-Tech's OSMI, and (c) the sale of the low margin tools has been
lower this year compared to the prior year.
Hy-Tech's gross margin for the nine-month period ended
September 30, 2017, improved 9.8
percentage points, when compared to the same period a year ago.
Offsetting the primary factors to this improvement discussed above,
gross margin on the products being sold under its new marketing
initiative are below Hy-Tech's historical range. In addition to
margins on these products increasing as the result of manufacturing
experience, we also expect average margins in this category to
improve as we develop additional product offerings.
Selling and general and administrative expenses
Selling, general and administrative expenses, ("SG&A" or
"operating expenses") 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 third quarter of 2017, our SG&A was $5,352,000, compared to $4,915,000 for the same three-month period in
2016. The net increase was due in large part to the acquisition of
the Jiffy business in April 2017,
with SG&A of approximately
$575,000 for the third quarter of
2017. Other significant components of the change include: (i) a
$17,000 reduction in non-Jiffy
compensation expenses, which is comprised of base salaries and
wages, accrued performance-based bonus incentives, associated
payroll taxes and employee benefits; (ii) a decrease in variable
expenses of $78,000, due primarily to
lower Retail revenue; (iii) a decrease in professional fees of
$56,000 and (iv) a reduction in
amortization and depreciation expenses of $60,000. These reductions were partially offset
by an increase in corporate related expenses of $24,000.
Our SG&A for the nine-month period ended September 30, 2017 was $15,765,000, compared to $15,088,000 for the same period in 2016. As noted
above, the most significant component to the net increase was the
addition of Jiffy, with year to date 2017 SG&A of approximately $1,025,000. Other significant components include
reductions in: (i) non-Jiffy compensation expenses of $74,000; (ii) variable expenses of $300,000, due primarily to lower Retail revenue;
(iii) depreciation and amortization of $236,000, due mostly to the reduction in
Hy-Tech's intangible assets, which were written down in 2016; and
(iv) corporate related expenses of $80,000. The reductions were partially offset by
an increase in professional fees of $381,000, which include fees and expenses related
to the Jiffy Acquisition and recruitment fees for executive
positions at Hy-Tech.
Impairment of goodwill and other intangible assets -
2016
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. As a result of the aforementioned,
it was determined that Hy-Tech's short and long-term projections at
that time had 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. Accordingly, adhering to
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.
Other expense (income), net
The three-month period ended September
30, 2017 included $11,000
consisting primarily of an adjustment to the fair value of the
contingent consideration obligation to the Jiffy Seller. During the
same period in 2016, the most significant factor contributing to
the net Other income was rental income of real property that was
sold in November of 2016. There is no income of a similar nature
for 2017.
For the nine-month period ended September
30, 2017, our Other expense (income), net, is primarily the
fair value adjustment discussed above partially offsetting the
receipt of the balance of an escrow related to the sale of the real
property that was located in Tampa,
Florida and used by Nationwide Industries Inc. The amount
for the same period in 2016 was the net rental income on the real
property that was sold in November of 2016.
Interest
|
|
Three months ended
September 30,
|
|
|
Increase
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Interest expense
attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
32,000
|
|
|
$
|
15,000
|
|
|
$
|
17,000
|
|
|
|
113.3
|
|
Term loans, including
Capital Expenditure Term Loans
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
Amortization expense of
debt issue costs
|
|
|
17,000
|
|
|
|
10,000
|
|
|
|
7,000
|
|
|
|
70.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,000
|
|
|
$
|
26,000
|
|
|
$
|
24,000
|
|
|
|
92.3
|
|
|
|
Nine months ended
September 30,
|
|
|
Increase
(decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Interest expense
attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
80,000
|
|
|
$
|
41,000
|
|
|
$
|
39,000
|
|
|
|
95.1%
|
|
Term loans, including
Capital Expenditure Term Loans
|
|
|
2,000
|
|
|
|
5,000
|
|
|
|
(3,000)
|
|
|
|
(60.0)
|
|
Amortization expense of
debt issue costs
|
|
|
42,000
|
|
|
|
118,000
|
|
|
|
(76,000)
|
|
|
|
(64.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,000
|
|
|
$
|
164,000
|
|
|
$
|
(40,000)
|
|
|
|
(24.4)%
|
|
Primarily the result of the sale of Nationwide and the real
property located in Tampa,
Florida, occurring in February and November 2016, respectively, our total bank
borrowings have been minimal. On April
5, 2017, we purchased the net assets of the Jiffy business
and real property located in Carson City,
Nevada. The funding for this transaction was from our
Revolver Loan, which is our short-term borrowing.
In accordance with accounting guidance we have reported our
short-term and term loan interest expense incurred during the
period January 1, 2016 through
February 11, 2016, which was the
effective date of sale of Nationwide, in Discontinued operations.
Further, as the result of the Company and Capital One, National
Association ("Capital One", or the "Bank") agreeing to
significantly modify the Credit Agreement, as defined below in our
Liquidity and Capital Resources, we were required to write down and
recognize as interest expense the debt issue costs associated with
the then existing Credit Agreement. These costs are identified in
the table above as "Amortization expense of debt issue costs".
Our average balance of short-term borrowings during the three
and nine-month periods ended September 30,
2017 was $3,635,000 and
$3,263,000, respectively, compared to
$2,585,000 and $3,593,000, respectively, during the same periods
in 2016.
Income taxes
At the end of each interim reporting period, we estimate an
effective tax rate expected to be applied for the full year. This
estimate is used to determine the income tax provision or benefit
applicable to continuing operations, on a year-to-date basis, and
may change in subsequent interim periods. Additionally, we included
the impact of options that expired or were forfeited. The
forfeited and expired stock options effectively reduced our
deferred tax asset and increased the tax provision by approximately
$116,000. As a result of the
aforementioned, our effective tax rate applicable to continuing
operations for the three and nine-months ended September 30, 2017 was 97.1% and 136.5%,
respectively. For the same periods in 2016 our effective tax rate
applicable to continuing operations was 27.2% and 33.9%,
respectively. The Company's effective tax rates were also affected
by state taxes, non-deductible expenses and foreign tax rate
differentials.
Discontinued operations - 2016
Nationwide's results of operations in our consolidated financial
statements presents their revenue and cost of goods sold for the
period January 1, 2016 through
February 11, 2016. The SG&A
incurred during the same period includes that of Nationwide plus
$19,000 of expenses incurred at the
corporate level that is specifically attributable to Nationwide. In
accordance with current accounting guidance, we included, as part
of discontinued operations, all interest expense incurred
attributable to our Bank borrowings during the period January 1, 2016 through February 11, 2016. Additionally, we
initially recognized an after tax gain of $12,171,000, on the sale of Nationwide. For
income tax purposes, the Company's tax basis in Nationwide was
greater than the net proceeds, thus resulting in a tax loss. This
gain represents the difference between the adjusted net purchase
price and the carrying value of Nationwide. Further, in 2016,
Countrywide completed the sale of the Tampa, Florida real property, which was
treated as a capital gain transaction for tax purposes.
During the three-month period ended September 30, 2016, the Company removed a
valuation allowance initially recorded against the tax loss,
resulting in an additional gain on sale of $187,000.
LIQUIDITY AND CAPITAL RESOURCES
We monitor such metrics as days' sales outstanding, inventory
requirements, inventory turns, estimated future purchasing
requirements and capital expenditures to project liquidity needs,
as well as evaluate return on assets. Our primary sources of funds
are operating cash flows and our Revolver Loan ("Revolver") with
our Bank.
We gauge our liquidity and financial stability by various
measurements, some of which are shown in the following table:
|
|
September 30,
2017
|
|
|
December 31, 2016
|
|
Working
Capital
|
|
$
|
24,490,000
|
|
|
$
|
28,373,000
|
|
Current
Ratio
|
|
|
3.81 to
1
|
|
|
|
5.60 to 1
|
|
Shareholders'
Equity
|
|
$
|
47,221,000
|
|
|
$
|
47,590,000
|
|
Credit facility
In October 2010, we entered into a
Loan and Security Agreement (as amended from time to time, "Credit
Agreement") with an affiliate of Capital One. The Credit Agreement
provides for Revolver borrowings, which are secured by the
Company's accounts receivable, mortgages on its real property
("Real Property"), inventory and equipment. P&F and
certain of its subsidiaries are borrowers under the Credit
Agreement, and their obligations are cross-guaranteed by certain
other subsidiaries.
At our option, Revolver borrowings will bear interest at either
LIBOR ("London InterBank Offered Rate") or the Base Rate, as the
term is defined in the Credit Agreement, plus the Applicable
Margin, as defined in the Credit Agreement. The interest rate,
either LIBOR or Base Rate, which is added to the Applicable Margin,
is at our option. We are limited in the number of LIBOR
borrowings.
Contemporaneously with the acquisition of the Jiffy business, we
entered into a Second Amended and Restated Loan and Security
Agreement, effective as of the April 5,
2017 closing date of the Jiffy Acquisition (the "Second
Amended and Restated Loan Agreement"), with Capital One which
amended and restated the previous amendment to the Credit
Agreement.
The Second Amended and Restated Loan Agreement, among other
things, amended the Credit Agreement by: (1) increasing the maximum
amount we can borrow under the Revolver Commitment (as defined)
from $10,000,000 to $16,000,000,
subject to certain borrowing base criteria, and (2) modifying
certain borrowing base criteria as well as financial and other
covenants.
The net funds of approximately $18,700,000 provided by the sale of Nationwide in
2016 were used to pay down the Revolver, Capex loans and the Term
Loan A; however, we and the Bank agreed to have $100,000 remain outstanding under the Term Loan
A, rather than pay it off in full, thus providing the Company and
Capital One the ability to potentially increase future term loan
borrowings more efficiently and at lower costs.
We funded the $7,000,000 Jiffy
acquisition from Revolver borrowings. Cash flows from
operations thereafter and receipt in August of the $2,100,000 escrow from the sale of Nationwide
have reduced our Revolver balance to $2,334,000 at September
30, 2017. Revolver borrowings can be at either LIBOR or at
the Base Rate, as defined in the Credit Agreement with Capital One.
Applicable LIBOR Margins in effect at September 30, 2017, was 1.75%, compared to 1.50%
at December 31, 2016. The Applicable
Base Rate Margins in effect as of September
30, 2017 and December 31, 2016
were 0.75% and 0.50%, respectively.
Cash flows
During the nine-month period ended September 30, 2017, our cash decreased to
$1,205,000 from $3,699,000 at December 31, 2016. Our
total bank debt at September 30,
2017, primarily driven by the Jiffy acquisition, was
$2,434,000, compared to $100,000 at December 31, 2016. The total
debt to total book capitalization (total debt divided by total debt
plus equity) at September 30, 2017
was 4.9%, compared to 0.2% at December 31, 2016.
In March 2016, our Board of
Directors approved the initiation of a dividend policy under which
the Company intends to declare quarterly cash dividends to its
stockholders in the amount of $0.05
per quarter. During the nine-month period ended September 30, 2017, our Board of Directors voted
to approve the payment of three quarterly dividends. As such, in
February 2017, May 2017, and August
2017, we paid a $0.05 per
share dividend to the shareholders of record. The aggregate of such
dividend payments was approximately $542,000. Our Board of Directors expects to
maintain this dividend policy, however, the future declaration of
dividends under this policy is dependent upon several factors,
which includes such things as our overall financial condition,
results of operations, capital requirements and other factors our
board may deemed relevant.
During the nine-month period ended September 30, 2017, we used $444,000 for capital expenditures, compared to
$894,000 during the same period in
the prior year. Capital expenditures for the balance of
2017 are expected to be approximately $500,000, some of which may be financed through
our credit facilities or financed through independent third party
financial institutions. The remaining 2017 capital expenditures
will likely be for machinery and equipment, tooling and computer
hardware and software.
Customer concentration
Florida Pneumatic has two customers, Sears and The Home Depot
that, in the aggregate, at September 30,
2017, and December 31, 2016,
accounted for 39.6% and 53.5%, respectively of our accounts
receivable. To date, these customers remain at or close to
complying with their payment terms. Additionally, these two
customers in the aggregate, accounted for 31.3% and 35.4%,
respectively, of our revenue for the three and nine-month periods
ended September 30, 2017, compared to
45.3% and 43.4% for the same periods in 2016.
As previously mentioned we elected not to renew an agreement
with Sears, which terminated on September
30, 2017. We believe the loss of Sears's revenue will have a
negative impact on our financial condition, but will not affect our
ability to remain a going concern.
OTHER INFORMATION
P&F Industries Inc. has scheduled a conference call for
today, November 9, 2017, at
11:00 A.M., Eastern Time, to discuss
its third quarter of 2017's results and financial condition.
Investors and other interested parties who wish to listen to
or participate can call 888-791-4321. 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
November 10, 2017.
Forward Looking Statement
The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") provides a safe harbor for forward-looking statements
made by or on behalf of P&F Industries, Inc. and
subsidiaries ("P&F", or the "Company"). P&F and its
representatives may, from time to time, make written or verbal
forward-looking statements, including statements contained in the
Company's filings with the Securities and Exchange Commission and
in its reports to shareholders. Generally, the inclusion of the
words "believe," "expect," "intend," "estimate," "anticipate,"
"will," "may," "would," "could," "should" and their opposites and
similar expressions identify statements that constitute
"forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and that are intended to come
within the safe harbor protection provided by those sections. Any
forward-looking statements contained herein, including those
related to the Company's future performance, are based upon the
Company's historical performance and on current plans, estimates
and expectations. All forward-looking statements involve risks and
uncertainties. These risks and uncertainties could cause the
Company's actual results for all or part the 2017 fiscal year and
beyond to differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company for a
number of reasons including, but not limited 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 its Annual
Report on Form 10-K for the year ended December 31, 2016
("2016 Form 10-K"), its Quarterly Reports on Form 10-Q, and its
other reports and statements filed by the Company with the
Securities and Exchange Commission. Forward-looking statements
speak only as of the date on which they are made. 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. The Company cautions you against
relying on any of these forward-looking
statements.
P & F
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
(In Thousands
$)
|
September 30,
2017
|
December 31,
2016
|
|
(Unaudited)
|
(Audited)
|
Assets
|
|
|
Cash
|
|
$
|
1,205
|
|
|
$
|
3,699
|
|
Accounts receivable -
net
|
|
|
10,994
|
|
|
|
7,906
|
|
Inventories
|
|
|
20,090
|
|
|
|
19,901
|
|
Prepaid expenses and
other current assets
|
|
|
925
|
|
|
|
3,030
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
33,214
|
|
|
|
34,536
|
|
|
|
|
|
|
|
|
|
|
Net property and
equipment
|
|
|
8,807
|
|
|
|
7,089
|
|
Goodwill
|
|
|
4,445
|
|
|
|
3,897
|
|
Other intangible
assets - net
|
|
|
8,709
|
|
|
|
6,606
|
|
Deferred income taxes
- net
|
|
|
1,643
|
|
|
|
1,793
|
|
Other assets –
net
|
|
|
120
|
|
|
|
130
|
|
Total
assets
|
|
$
|
56,938
|
|
|
$
|
54,051
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
2,334
|
|
|
$
|
---
|
|
Accounts
payable
|
|
|
3,247
|
|
|
|
2,398
|
|
Accrued compensation
and benefits
|
|
|
1,694
|
|
|
|
1,733
|
|
Accrued other
liabilities
|
|
|
1,449
|
|
|
|
2,019
|
|
Current maturities of
long-term debt
|
|
|
---
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
8,724
|
|
|
|
6,163
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less
current maturities
|
|
|
92
|
|
|
|
88
|
|
Other
liabilities
|
|
|
901
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
9,717
|
|
|
|
6,461
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
47,221
|
|
|
|
47,590
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders' equity
|
|
$
|
56,938
|
|
|
$
|
54,051
|
|
|
|
|
|
|
|
|
|
|
P & F
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF
INCOME (LOSS) (Unaudited)
|
|
|
|
Three months
ended
September
30,
|
Nine months
ended
September
30,
|
(In Thousand
$)
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Net
revenue
|
$
|
15,782
|
$
|
14,633
|
$
|
44,357
|
$
|
44,769
|
Cost of
sales
|
|
10,198
|
|
10,128
|
|
28,377
|
|
29,743
|
Gross
profit
|
5,584
|
4,505
|
15,980
|
15,026
|
Selling, general and
administrative expenses
|
5,352
|
4,915
|
15,765
|
15,088
|
Impairment of
goodwill and other intangible
assets
|
|
---
|
|
---
|
|
---
|
|
8,311
|
Operating income
(loss)
|
232
|
(410)
|
215
|
(8,373)
|
Other expense
(income) -net
|
11
|
(43)
|
(13)
|
(75)
|
Interest
expense
|
|
50
|
|
26
|
|
124
|
|
164
|
Income (loss) before
income taxes
|
171
|
(393)
|
104
|
(8,462)
|
Income tax expense
(benefit)
|
|
166
|
|
(107)
|
|
142
|
|
(2,872)
|
Income (loss) from
continuing operations
|
5
|
(286)
|
(38)
|
(5,590)
|
|
|
|
|
|
Net income from
discontinued operations, net
of tax of $-0- and $38, for the three and nine-
month period ended September 30, 2016.
|
---
|
---
|
---
|
72
|
Gain on sale of
discontinued operations, net of
tax benefits of $187 and $328 for the three and
nine-month periods ended September 30, 2016
|
|
---
|
|
187
|
|
---
|
|
12,358
|
Income from
discontinued operations, net of tax
|
|
---
|
|
187
|
|
---
|
|
12,430
|
Net income
(loss)
|
$
|
5
|
$
|
(99)
|
$
|
(38)
|
$
|
6,840
|
P&F INDUSTRIES INC. AND
SUBSIDIARIES
|
|
(LOSS) EARNINGS PER SHARE
(Unaudited)
|
|
|
|
|
Three months ended September
30,
|
|
Nine months ended
September 30,
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Basic (loss) earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
---
|
|
|
$
|
(0.08)
|
|
|
$
|
(0.01)
|
|
|
$
|
(1.55)
|
|
Discontinued
operations
|
|
|
---
|
|
|
|
0.05
|
|
|
|
---
|
|
|
|
3.45
|
|
Net (loss)
income
|
|
$
|
---
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.01)
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
---
|
|
|
$
|
(0.08)
|
|
|
$
|
(0.01)
|
|
|
$
|
(1.55)
|
|
Discontinued
operations
|
|
|
---
|
|
|
|
0.05
|
|
|
|
---
|
|
|
|
3.45
|
|
Net (loss)
income
|
|
$
|
---
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.01)
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three-month
periods ended
September 30,
|
For the nine-month
periods ended September
30,
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
2016
|
|
Net income (loss)
from
continuing operations
|
|
$
|
5
|
|
|
$
|
(286)
|
|
|
$
|
(38)
|
|
$
|
(5,590)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of
Goodwill
and other intangible
assets
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
8,311
|
|
Depreciation and
amortization
|
|
|
506
|
|
|
|
621
|
|
|
|
1,595
|
|
|
2,030
|
|
Interest
expense
|
|
|
50
|
|
|
|
26
|
|
|
|
124
|
|
|
164
|
|
Tax expense
(benefit)
for income taxes
|
|
|
166
|
|
|
|
(107)
|
|
|
|
142
|
|
|
(2,872)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDIA
(1)
|
|
$
|
727
|
|
|
$
|
254
|
|
|
$
|
1,823
|
|
$
|
2,043
|
|
(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.
|
View original
content:http://www.prnewswire.com/news-releases/pf-industries-inc-reports-results-for-the-three-and-nine-month-periods-ended-september-30-2017-300552745.html
SOURCE P&F Industries, Inc.