UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2017
or
Commission File Number 1-5332
P&F INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
445 Broadhollow Road, Suite 100, Melville, New York
(Address of principal executive offices)
22-1657413
(I.R.S. Employer
Identification Number)
11747
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (631) 694-9800
(Title of each class)
Class A Common Stock, $1.00 par value
(Name of each exchange on which registered)
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨
No x
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes x
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company x
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
The aggregate market value of the registrant’s Class A Common Stock held by non-affiliates of the registrant, based on the last sale price on June 30, 2017 (the last
business day of the registrant’s most recently completed second fiscal quarter), was approximately $14,307,000. For purposes of this calculation, shares of
common stock held by each executive officer and director have been excluded since those persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of March 23, 2018, there were 3,589,616 shares of the registrant’s Class A Common Stock outstanding.
Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant’s definitive Proxy Statement for the Annual
Documents Incorporated by Reference
Meeting of Stockholders to be held in 2018.
P&F INDUSTRIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Signatures
2
Page
4
4
6
9
9
9
9
10
10
10
11
21
22
51
51
52
53
53
53
53
53
53
54
54
58
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for 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 made by or on behalf of P&F Industries, Inc. and subsidiaries
(the “Company”). The Company 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, such as this Annual Report on Form 10-K (“Report”), and in its reports to stockholders.
Any statements made in the Report that is not historical or current facts may be deemed to be forward looking statements. 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 the Reform Act. 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. Such forward looking
statements are subject to various risks and uncertainties, including those risk factors described in Item 1A of Part I, “Risk Factors” of this Report, which may cause
actual results to differ materially from the forward looking statements. You are therefore cautioned against relying on any forward looking statements. 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.
3
ITEM 1. Business
PART I
P&F is a Delaware corporation incorporated on April 19, 1963. For all periods presented until February 11, 2016 (the “Nationwide Closing Date”), the
effective date of the sale of its Nationwide Industries, Inc. (“Nationwide”) subsidiary, P&F operated in two primary lines of business or segments: (i) tools and
other products (“Tools”) and (ii) hardware and accessories (“Hardware”). As a result of the sale of Nationwide, which had been reported in the Hardware segment,
the Company currently only operates in the Tools business. See Note 2 to consolidated financial statements for further discussion.
Tools
The Company conducts its Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates
through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”). Exhaust
Technologies Inc. (“ETI”) and Universal Air Tool Company Limited (“UAT”) are wholly-owned subsidiaries of Florida Pneumatic. Effective April 5, 2017,
Florida Pneumatic, through a wholly-owned subsidiary, purchased substantially all of the operating assets, less certain payables of Jiffy Air Tool, Inc. (“Jiffy”). See
Note 3 to our Consolidated Financial Statements for further discussion. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned
subsidiary of Hy-Tech.
Florida Pneumatic
Florida Pneumatic imports and sells pneumatic hand tools, most of which are of its own design, primarily to the retail, industrial, automotive and
aerospace markets. This line of products includes sanders, grinders, drills, saws and impact wrenches. These tools are similar in appearance and function to electric
hand tools, but are powered by compressed air, rather than by electricity or battery. Air tools, as they are more commonly referred to, generally are less expensive
to operate, offer better performance and weigh less than their electrical counterparts. Florida Pneumatic imports approximately seventy-five types of pneumatic
hand tools, most of which are sold at prices ranging from $50 to $1,000, under the names “Florida Pneumatic,” “Universal Tool,” AIRCAT, NITROCAT, as well
as under the trade names or trademarks of several private label customers. These products are sold to retailers, distributors, and private label customers through in-
house sales personnel and manufacturers’ representatives. The AIRCAT and NITROCAT brands of pneumatic tools are sold primarily to the automotive service
and repair market (“automotive market”). Users of Florida Pneumatic’s hand tools include industrial maintenance and production staffs, do-it-yourself mechanics,
professional automobile mechanics and auto body personnel. Jiffy manufactures and distributes pneumatic tools and components primarily to aerospace
manufacturers. Lastly, Jiffy, a manufacturer and distributor of pneumatic tools and components acquired in April 2017, has enabled Florida Pneumatic to approach
the aerospace sector with a much stronger brand.
Florida Pneumatic also markets, through its Berkley Tool division (“Berkley”), a product line that includes pipe and bolt dies, pipe taps, wrenches, vises
and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand of pipe cutting and
threading machines. Florida Pneumatic markets Berkley’s products through industrial distributors and contractors. Florida Pneumatic also assembles and markets a
line of compressor air filters.
There are redundant supply sources for nearly all products purchased.
The primary competitive factors in the industrial and automotive pneumatic tool market are quality, breadth and availability of products, customer service,
technical support, price and brand name awareness. The primary competitive factors in the retail pneumatic tool market are price, service and brand-name
awareness. The primary competitive factors in Berkley’s business are price and service. Florida Pneumatic’s products are sold off the shelf. Currently, there is
minimal seasonality to Florida Pneumatic’s revenue.
During 2017 Florida Pneumatic purchased approximately 36 % of its pneumatic tools from China, 63 % from Taiwan and 1% from Japan and Europe.
Florida Pneumatic performs final assembly on certain of its products at its factory in Jupiter, Florida.
Hy-Tech
Hy-Tech designs, manufactures and distributes industrial pneumatic tools, industrial gears, hydrostatic test plugs and a wide variety of parts under the
brands ATP ATSCO, OZAT, Numatx, Thaxton and Quality Gear. Hy-Tech produces and sells over sixty types of pneumatic tools, which include heavy duty air
tools, industrial grinders, impact sockets, hydro-pneumatic riveters, air motors and custom gears, with prices ranging from $450 to $42,000.
Its products are sold direct to major end-users, as well as through a broad network of industrial and fluid power distributors. Industries served include
power generation, petrochemical, construction, railroad, mining, ship building and fabricated metals. Hy-Tech also manufactures components, assemblies, finished
product and systems for various Original Equipment Manufacturers under their own brand names.
Other than a line of sockets sold under the “OZAT” brand name that are imported from Israel, and a small number of parts, all Hy-Tech products are
manufactured in the United States of America.
4
Hy-Tech products are sold through its in-house sales force as well as manufacturer representatives. Further, its products are sold off the shelf and also are
produced and sold to customer’s specifications.
The business is not seasonal but may be subject to periodic outage and maintenance schedules in refineries, power generation facilities and chemical
plants. The primary competitive factors in their industrial markets are quality, value, breadth and availability of products, customer service and technical support.
Hy-Tech sources its raw materials from various well-established distributors throughout the United States. There are redundant sources for all materials.
Hardware
Nationwide
Prior to the Nationwide Closing Date, the Company conducted its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc.
(“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. As of the Nationwide Closing Date,
Nationwide was an importer and manufacturer of door, window and fencing hardware and accessories, including rollers, hinges, window operators, sash locks,
custom zinc castings and door closers. On the Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22.2 million.
In November 2016, Countrywide sold the land and building that was the sole location from which Nationwide operated for $3.5 million, after fees and
expenses.
See Note 2 to Consolidated Financial Statements for further discussion.
Patents, Trademarks and Other Intellectual Property
The Company holds several patents, trademarks, and copyrights of various durations, and it believes that it holds or licenses all of the patent, trademark,
copyright, and other intellectual property rights necessary to conduct our business. The Company relies upon patents, copyrights, trademarks, and trade secret laws
to establish and maintain its proprietary rights in many of our products. There can be no assurance that any of its patents, trademarks or other intellectual property
rights will not be challenged, invalidated, or circumvented, or that any rights granted thereunder will provide competitive advantages to it. In addition, there can be
no assurance that patents will be issued from pending patent applications filed by the Company, or that claims allowed on any future patents will be sufficiently
broad to protect our technology or designs. Further, the laws of some foreign countries may not permit the protection of our proprietary rights to the same extent as
do the laws of the United States.
Customers
The Company is not dependent on any one customer. During 2017 we had two retail customers, Sears and The Home Depot, which accounted for 5.9%
and 27.1%, respectively, of the Company’s revenue and 13.6% and 29.8%, respectively, in 2016. The Company elected not to renew an agreement with Sears,
which terminated on September 30, 2017.
Employees
The Company employed 171 full-time employees as of December 31, 2017. At various times during the year our operating units may employ seasonal or
part-time help, as necessary. None of the Company’s employees are represented by a union.
Information Available on the Company’s Website
Additional information regarding the Company and its products is available on the Company’s website at www.pfina.com . In addition, the Company’s
(i) charters for the Audit, Compensation, Corporate Governance and Nominating, and Strategic Planning and Risk Assessment Committees of the Company’s
Board of Directors and of the Lead Independent Director; and (ii) Code of Business Conduct and Ethics are available on the Company’s website. P&F’s Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements on Schedule 14A and Current Reports on Form 8-K, as well as any amendments to
those reports and certain other filings, are made available to the public at no charge, other than an investor’s own internet access charges, through the “SEC
Filings” section of the Company’s website. The Company makes such material available on its website as soon as reasonably practicable after it electronically files
such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). Copies of any materials the Company files with the SEC can also be
obtained free of charge through the SEC’s website at www.sec.gov. The SEC’s Public Reference Room can be contacted at 100 F Street, N.E., Washington, D.C.
20549. The information on the Company’s website is not, and should not be considered, part of this Annual Report on Form 10-K and is not incorporated by
reference to this report.
5
ITEM 1A. Risk Factors
A wide range of factors could materially affect our performance. In addition to the factors affecting specific business operations identified in connection
with the description of these operations and the financial results elsewhere in this report, the following factors, among others, could adversely affect our business,
including our results of operations or financial position:
·
Exposure to fluctuations in energy prices. Fluctuations in energy prices, including crude oil and gas prices, could negatively impact the activities of
those of our customers involved in extracting, refining or exploring for crude oil and gas, resulting in a corresponding adverse effect on the demand
for the products that they purchase from us. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the
supply of, and demand for, oil and gas, market uncertainty and a variety of other economic factors that are beyond our control. Worldwide economic,
political and military events, including war, terrorist activity, events in the Middle East and initiatives by the Organization of the Petroleum
Exporting Countries (OPEC), have contributed, and are likely to continue to contribute, to price and volume volatility. Such volatility could result in
a material adverse effect on our business, results of operations or financial position.
· Debt and debt service requirements. The amount of our debt from time to time could have important consequences. For example, it could: increase
our vulnerability to general adverse economic and industry conditions; limit our ability to fund future capital expenditures, working capital and other
general corporate requirements and limit our flexibility in planning for, or reacting to, changes in our business.
·
Borrowing and compliance with covenants under our credit facility. Our credit facility contains affirmative and negative covenants including
financial covenants, and default provisions. A breach of any of these covenants could result in a default under our credit agreement. Upon the
occurrence of an event of default under our current credit agreement, the lenders could elect to declare all amounts outstanding to be immediately due
and payable and terminate all commitments to extend further credit. If the lenders were to accelerate the repayment of borrowings, to the extent we
have significant outstanding borrowings at said time, we may not have sufficient assets to repay our asset based credit facility and our other
indebtedness. Also, should there be an event of default, or a need to obtain waivers following an event of default, we may be subject to higher
borrowing costs and/or more restrictive covenants in future periods. Further, the amount available for borrowing under our asset-based revolving loan
facility is subject to a borrowing base, which is determined by taking into account, among other things, our accounts receivable, inventory and
machinery and equipment. Fluctuations in our borrowing base impact our ability to borrow funds pursuant to the revolving loan facility.
· Disruption in the global capital and credit markets. If global economic and financial market conditions deteriorate, it could have a material adverse
effect on our financial condition and results of operations. In particular, lower consumer spending may result in reduced demand and orders for
certain of our products, order cancellations, lower revenues, increased inventories, and lower gross margins. Further, if our customers experience
difficulty obtaining financing in the capital and credit markets to purchase our products, this could result in further reduced orders for our products,
order cancellations, inability of customers to timely meet their payment obligations to us, extended payment terms, higher accounts receivable,
reduced cash flows, greater expense associated with collection efforts and increased bad debt expense; and a severe financial difficulty experienced
by our customers may cause them to become insolvent or cease business operations.
·
The strength of the retail economy in the United States and abroad. Our business is subject to economic conditions in major markets in which we
operate, including recession, inflation, deflation, general weakness in retail and industrial markets, as well as the exposure to liabilities under anti-
corruption laws in various countries, such as the U.S. Foreign Corrupt Practices Act, currency instability, transportation delays or interruptions,
sovereign debt uncertainties and difficulties in enforcement of contract and intellectual property rights, as well as natural disasters. The strength of
such markets is a function of many factors beyond our control, including interest rates, employment levels, availability of credit and consumer
confidence.
6
·
·
·
Risks associated with sourcing from overseas . We import finished goods and component parts. Any difficulty or inability on the part of
manufacturers of our products or other participants in our supply chain in obtaining sufficient financing to purchase raw materials or to finance
general working capital needs, or their inability to obtain raw materials due to shortages or other factors, may result in delays or non-delivery of
shipments of our products. Additionally, material increases in raw material commodity prices could further adversely affect our results of operations
and financial position. Our foreign suppliers may encounter interruption in their ability to continue to provide us with products on a short-term or
long-term basis. Although we believe that there are redundant sources available and maintain multiple sources for most of our products, there may be
costs and delays associated with securing such sources and there can be no assurance that such sources would provide the same quality of product at
similar prices. Further, substantially all of our import operations are subject to customs’ requirements and to tariffs and quotas set by governments
through mutual agreements, bilateral actions or, in some cases unilateral action. The countries in which our products and materials are manufactured
or imported from, may from, time to time impose additional quotas, duties, tariffs or other restrictions on its imports or adversely modify existing
restrictions. Furthermore, imported products and materials may be subject to future tariffs or other trade measures in the U.S. Adverse changes in
these import costs and restrictions, or our suppliers’ failure to comply with customs regulations or similar laws could harm our business.
Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect
transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or increased homeland security
requirements in the U.S. and other countries. These issues could delay importation of products or require us to locate alternative ports or warehousing
providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could
have an adverse impact on our business and financial condition.
Customer concentration. We have several key customers, one of which accounted for approximately 27.1% of our 2017 consolidated revenue and
31.0% of our consolidated accounts receivable. Loss of key customers or a material negative change in our relationships with our key customers
could have a material adverse effect on our business, results of operations or financial position.
Adverse changes in currency exchange rates A majority of our products are manufactured outside the United States, a portion of which are
purchased in the local currency. As a result, we are exposed to movements in the exchange rates of various currencies against the United States dollar
which could have an adverse effect on our results of operations or financial position. We believe our most significant foreign currency exposures are
the Taiwan dollar (“TWD”) and the Chinese Renminbi (“RMB”). Purchases from Chinese sources are made in U.S. dollars (“USD”). However, if the
RMB were to be revalued against the dollar, there could be a significant negative impact on the cost of our products. Further, the reporting currency
for our consolidated financial statements is the USD. Certain of the company’s assets, liabilities, expenses and revenues are denominated in
currencies other than the USD. In preparing our Consolidated Financial Statements, those assets, liabilities, expenses and revenues are translated into
USD at applicable exchange rates. Increases or decreases in exchange rates between the USD and other currencies affect the USD value of those
items, as reflected in the Consolidated Financial Statements. Substantial fluctuations in the value of the USD could have a significant impact on the
company’s financial condition and results of operations.
·
Impairment of long-lived assets and goodwill. The inability to generate future cash flows sufficient to support the recorded amounts of goodwill,
other intangible assets and other long-lived assets could result in future impairment charges.
· Unforeseen inventory adjustments or changes in purchasing patterns. We make purchasing decisions based upon a number of factors including an
assessment of market needs and preferences, manufacturing lead times and cash flow considerations. To the extent that our assumptions result in
inventory levels being too high or too low, there could be a material adverse effect on our business, results of operations or financial position.
· Market acceptance of products. There can be no assurance that the market continues its acceptance of the products we introduced in recent years or
will accept new products (including the introduction of products into new geographic markets) introduced or scheduled for introduction in 2018.
There can also be no assurance that the level of sales generated from these new products or geographic markets relative to our expectations will
materialize.
·
·
·
Competition. The markets in which we sell our products are highly competitive on the basis of price, quality, availability, post-sale service and
brand-name awareness. A number of competing companies are well-established manufacturers that compete on a global basis.
Price reductions. Price reductions taken by us in response to customer and competitive pressures, as well as price reductions or promotional actions
taken in order to drive demand, could have a material adverse effect on our business, results of operations or financial position.
Interest rates. Interest rate fluctuations and other capital market conditions could have a material adverse effect on our business, results of
operations or financial position.
7
·
·
·
·
·
·
Litigation and insurance. The effects of litigation and product liability exposure, as well as other risks and uncertainties described from time to time
in our filings with the Securities and Exchange Commission and our public announcements could have a material adverse effect on our business,
results of operations or financial position. Further, while we maintain insurance policies to protect against most potential exposures, events may arise
against which we may not be adequately insured.
Retention of key personnel. Our success depends to a significant extent upon the abilities and efforts of our key personnel. The loss of the services of
any of our key personnel or our inability to attract and retain qualified personnel in the future could have a material adverse effect on our business,
results of operations or financial position.
Acquisition of businesses. Part of our business strategy is to opportunistically acquire complementary businesses, which involve risks that could
have a material adverse effect on our business, financial condition and results of operations. These risks include:
·
·
·
·
·
·
·
·
·
Loss or significant decline in the revenue of customers of the acquired businesses;
Inability to integrate successfully the acquired businesses’ operations;
Inability to coordinate management and integrate and retain employees of the acquired businesses;
Difficulties in implementing and maintaining consistent standards, controls, procedures, policies and information systems;
Failure to realize anticipated synergies, economies of scale or other anticipated benefits, or to maintain operating margins;
Strain on our personnel, systems and resources, and diversion of attention from other priorities;
Incurrence of additional debt and related interest expense;
Unforeseen or contingent liabilities of the acquired businesses; and
Large write-offs or write-downs, or the impairment of goodwill or other intangible assets.
Regulatory environment. We cannot anticipate the impact of changes in laws and regulations, including changes in accounting standards, taxation
requirements, including tax rate changes, new tax laws and revised tax law interpretations, and environmental laws, in both domestic and foreign
jurisdictions. Increased legislative and regulatory activity and burdens, and a more stringent manner in which they are applied, could significantly
impact our business and the economy as a whole.
The threat of terrorism and related political instability and economic uncertainty. The threat of potential terrorist attacks on the United States and
throughout the world and political instability has created an atmosphere of economic uncertainty in the United States and in foreign markets. Our
results may be impacted by the macroeconomic effects of those events. Also, a disruption in our supply chain as a result of terrorist attacks or the
threat thereof may significantly affect our business and its prospects. In addition, such events may also result in heightened domestic security and
higher costs for importing and exporting shipments of components and finished goods. Any of these occurrences may have a material adverse effect
on our financial position, cash flow or results in any reporting period.
Business disruptions or other costs associated with information technology, cyber-attacks, system implementations, data privacy, or catastrophic
losses. We rely heavily on computer systems to manage and operate our businesses, and record and process transactions. Computer systems are
important to production planning, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation
of the computer hardware and software systems is imperative to the successful sales and earnings performance. Despite efforts to prevent such
situations, and loss control and risk management practices that partially mitigate these risks, our systems may be affected by damage or interruption
from, among other causes, fire, natural disasters, power outages, system failures or computer viruses. Computer hardware and storage equipment that
is integral to efficient operations, such as e-mail, telephone and other functionality, is concentrated in certain physical locations in which we operate.
Additionally, we rely on software applications and enterprise cloud storage systems and cloud computing services provided by third-party vendors,
and our business may be adversely affected by service disruptions or security breaches in such third-party systems. Security threats and sophisticated
computer crime pose a potential risk to the security of our information technology systems, cloud storage systems, networks, services and assets, as
well as the confidentiality and integrity of some of our customers' data. If we suffer a loss or disclosure of business or stakeholder information due to
security breaches, including as a result of human error and technological failures, and business continuity plans do not effectively address these
issues on a timely basis, we may suffer interruptions in our ability to manage operations as well as reputational, competitive or business harm, which
may adversely impact our results of operations and financial condition.
· Unforeseen events. We cannot anticipate the impact of unforeseen events, including but not limited to war and pandemic disease, on economic
conditions and consumer confidence in our business.
The risk factors described above are not intended to be all-inclusive. There can be no assurance that we have correctly identified and appropriately
assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct. Additional risks
and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop
into actual events, these developments could have a material adverse effect on our business, results of operations or financial position.
8
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Florida Pneumatic owns a 72,000 square foot plant facility located in Jupiter, Florida from which it conducts its operations. Its UAT subsidiary leases a
3,100 square foot facility from a non-affiliated lessor in High Wycombe, United Kingdom. This facility houses UAT’s warehouse / distribution, as well as its office
needs. The lease expires in 2019 and contains a five-year renewal clause.
Hy-Tech owns and operates out of a 51,000 square foot plant facility located in Cranberry Township, Pennsylvania and leases a 13,200 square foot
facility located in Punxsutawney, Pennsylvania, which expires in 2021 and does not have a renewal clause.
In connection with the Jiffy acquisition a wholly-owned subsidiary of Florida Pneumatic purchased certain real property, which consisted of land and the
building from which Jiffy operates in Carson City, NV. The building is approximately 17,500 square feet. See Note 3 to Consolidated Financial Statements for
further discussion.
The Company’s executive office of approximately 5,000 square feet is located in an office building in Melville, New York and is leased from a non-
affiliated landlord. This lease expires in August 2022. Beginning December 2018, the Company can give notice of its intention to leave twelve months from the
date of notice.
Each facility described above either provides adequate space for the operations of the respective subsidiary for the foreseeable future or can be modified
or expanded to provide some additional space.
The three owned properties described above are subject to mortgages and therefore pledged as collateral against the Company’s credit facility, which is
discussed further in Management’s Discussion and Analysis – Liquidity and Capital Resources and Notes to Consolidated Financial Statements.
In November 2016, Countrywide sold the 56,250 square foot facility located in Tampa, Florida in which Nationwide conducted its business. This
property was sold to an unrelated third party in November 2016. See Note 2 to Consolidated Financial Statements for further discussion.
ITEM 3. Legal Proceedings
From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. While the results of proceedings cannot be
predicted with certainty, the Company believes that the final outcome of these proceedings will not have a material adverse effect on the Company’s business,
financial condition, or results of operations.
ITEM 4. Mine Safety Disclosures
None.
9
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class A Common Stock (“Common Stock”) trades on the Nasdaq Global Market under the symbol PFIN. The ranges of the high and low closing
sales prices for our Common Stock during the last two years were as follows:
PART II
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
8.74 $
6.98
7.70
8.63
High
Low
11.62 $
10.15
9.39
8.69
6.86
5.71
5.66
6.81
7.80
8.29
7.70
6.75
As of March 23, 2018, there were approximately 700 holders of record of our Common Stock and the closing sale price of our stock as reported by the
Nasdaq Global Market was $7.40.
From our incorporation in 1963 through December 31, 2015, we declared no cash dividends on our Common Stock. On March 8, 2016, the Company’s
Board of Directors announced that it declared a special, one-time cash dividend of $0.50 per share payable on April 4, 2016, to stockholders of record at the close
of business on March 21, 2016. The total amount of this special dividend payment was approximately $1,800,000 based on the then current number of shares
outstanding. Additionally, the Company’s Board of Directors announced that it approved the initiation of a dividend policy under which the Company intends to
declare a cash dividend to its stockholders in the amount of $0.20 per share per annum, payable in equal quarterly installments. In conjunction therewith, the
Company’s Board of Directors declared three quarterly cash dividends of $0.05 per share to stockholders during 2016 and four quarterly dividends during 2017.
The Company continues to maintain the dividend policy; however, the declaration of dividends under this policy going forward is dependent upon the
Company’s financial condition, results of operations, capital requirements and other factors deemed relevant by the Company’s Board of Directors.
The following table presents our repurchase activity of our Common stock during the three month period ended December 31, 2017:
Period
October, 2017
November, 2017
December, 2017
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as Maximum Number of
Shares that may yet be
Announced Plan Purchased Under the
Plan or Program (1)
Part of Publicly
or Program
2,631 $
3,939 $
27,943 $
7.45
7.40
7.88
2,631
3,939
27,943
85,004
81,065
53,122
(1) On August 24, 2017, the Company announced that it had adopted a written trading plan for the purpose of repurchasing up to 100,000 shares of its common
stock. This trading plan expires on August 23, 2018, and was adopted pursuant to an authorization of a stock repurchase program by the Company’s Board,
which was publicly announced on August 10, 2017.
ITEM 6. Selected Financial Data
Not required.
10
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT OVERVIEW
Overview
During 2017, our results of operations were impacted by a number of significant factors, such as:
·
·
The acquisition in April, 2017, of substantially all of the operating assets of Jiffy Air Tool Inc., for approximately $5,795,000; along with the purchase of
the land and building of the Jiffy facility for $1,050,000;
The election not to renew the supply agreement with Sears, which terminated September 30, 2017;
· Overall improvement in Hy-Tech’s gross margin;
· Hy-Tech’s launch of its new product initiative.
KEY INDICATORS
Economic Measures
Much of our business is driven by the ebbs and flows of the general economic conditions in both the United States and, to a lesser extent, abroad. We
focus on a wide array of customer types including, but not limited to large retailers, aerospace manufacturers, large and small resellers of pneumatic tools and
parts, and automotive related customers. We tend to track the general economic conditions of the United States, industrial production and general retail sales.
A key economic measure relevant to us is the cost of the raw materials in our products. Key materials include metals, especially various types of steel and
aluminum. Also important is the value of the United States Dollar (“USD”) in relation to the Taiwanese dollar (“TWD”), as we purchase a significant portion of
our products from Taiwan. Purchases from Chinese sources are made in USD; however, if the Chinese currency, the Renminbi (“RMB”), were to be revalued
against the USD, there could be a negative impact on the cost of our products. Additionally, we closely monitor the fluctuation in the Great British Pound (“GBP”)
to the USD, and the GBP to TWD, both of which has had an impact on our consolidated results in 2017. In addition, we monitor the number of operating rotary
drilling rigs in the United States, as a means of gauging oil production, which is a key factor in our sales into the oil and gas exploration and extraction sector.
The cost and availability of a quality labor pool in the countries where products and components are manufactured, both overseas as well as in the United
States, could materially affect our overall results.
Operating Measures
Key operating measures we use to manage our operations are: orders; shipments; development of new products; customer retention; inventory levels and
productivity. These measures are recorded and monitored at various intervals, including daily, weekly and monthly. To the extent these measures are relevant, they
are discussed in the detailed sections below.
Financial Measures
Key financial measures we use to evaluate the results of our business include: various revenue metrics; gross margin; selling, general and administrative
expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; operating cash flows and capital expenditures; return on
sales; return on assets; days sales outstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and compared to
historical periods as well as established objectives. To the extent that these measures are relevant, they are discussed in detail below.
11
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates pertaining to such matters as bad
debts, inventory reserves, goodwill and intangible assets, warranty reserves, sales discounts and taxes. We base our estimates on historical data and experience,
when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Our critical accounting policies are further described below.
We consider the following policies and estimates to be the most critical in understanding the judgments that are involved in the preparation of the
Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial position, results of operations and cash flows.
Revenue Recognition
In accordance with current accounting literature, we recognize revenue when persuasive evidence of an arrangement exists, delivery, which occurs when
title has passed to our customer or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured. We sell our goods
on terms which transfer title and risk of loss at a specified location, which may be our warehouse, destination designated by our customer, port of loading or port of
discharge, depending on the final destination of the goods. Other than standard product warranty provisions, our sales arrangements provide for no other post-
shipment obligations. We do offer rebates and other sales incentives, promotional allowances or discounts; for certain customers, typically related to customer
purchase volume, and are classified as a reduction of revenue and recorded at the time of sale. We periodically evaluate whether an allowance for sales returns is
necessary. Historically, we have experienced minimal sales returns. If we believe there are material potential sales returns, we would provide the necessary
provision against sales.
See Note 1 to our Consolidated Financial Statements for discussion on Topic 606 – Revenue Recognition.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. We sell our products to retailers, distributors and OEMs involved in a variety
of industries. We perform continuing credit evaluations of our customers’ financial condition, and although we generally do not require collateral, letters of credit
may be required from customers in certain circumstances. Management reviews accounts receivable to determine if any receivables will potentially be
uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, customer historical trends, available
credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.
We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. We also may record as an
additional allowance a certain percentage of aged accounts receivable, based on historical experience and our assessment of the general financial conditions
affecting our customer base. If actual collection experience changes, revisions to the allowance may be required. We have a limited number of customers with
individually large amounts due at any given consolidated balance sheet date. Further, any unanticipated change in the creditworthiness of any of our customers
could have a material effect on our results of operations in the period in which such changes or events occur. After all reasonable attempts to collect an account
receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, we believe that our allowance for
doubtful accounts as of December 31, 2017 and 2016 were adequate. However, actual write-offs in future periods could exceed the recorded allowance.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method or the weighted average method. Inventory,
which includes materials, labor, and manufacturing overhead costs, is recorded net of an allowance for obsolete or slow moving inventory (“OSMI”), as well as
unmarketable inventory. Such allowance is based upon historical experience and management’s understanding of market conditions and forecasts of future product
demand. Specifically, at Florida Pneumatic and Jiffy we generally place a 100% reserve on inventory that has not had any sales or usage in more than two years.
Hy-Tech’s methodology is primarily based on inventory turns, with inventory items that turn less frequently, receiving a greater allowance. Changes in our OSMI
impact the Company’s cost of goods sold, gross profit and net earnings.
12
Goodwill and Indefinite-Lived Intangible Assets
In accordance and compliance with authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), we test goodwill for
impairment on an annual basis. This test is performed as of the last day in November, or more frequently if we believe indicators of impairment might exist.
Goodwill is tested at a level of reporting referred to as "the reporting unit." The Company's reporting units are Hy-Tech and Florida Pneumatic. We have the option
to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a
likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the carrying amount of the reporting unit is less than its fair
value, no impairment exists and no further action is required. If the carrying amount of a reporting unit exceeds its fair value, the entity will record an impairment
charge based on the excess of a reporting unit's carrying amount over its fair value.
The Company also tests indefinite-lived intangible assets for impairment at least annually as of the last day of November. The evaluation of goodwill and
indefinite-lived intangible assets requires that management prepare estimates of future operating results for each of the operating units. These estimates are made
with respect to future business conditions and estimated expected future cash flows to determine estimated fair value. However, if, in the future, key drivers in our
assumptions or estimates such as (i) a material decline in general economic conditions; (ii) competitive pressures on our revenue, or our ability to maintain
margins; (iii) significant price increases from our vendors that cannot be passed through to our customers; and (iv) breakdowns in supply chain, or other possible
factors beyond our control occur, an impairment charge against our intangible assets may be required.
Impairment of Long-Lived Assets
We review long-lived assets, including property, plant, and equipment and identifiable intangible assets, for impairment whenever changes in
circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is
recognized for the difference.
Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market
trends, a significant underperformance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its
estimated useful life. If any of these factors exist, we are required to test the long-lived asset for recoverability and may be required to recognize an impairment
charge for all or a portion of the asset's carrying value.
Income Taxes
We account for income taxes using the asset and liability approach. This approach requires the recognition of current tax assets or liabilities for the
amounts refundable or payable on tax returns for the current year, as well as the recognition of deferred tax assets or liabilities for the expected future tax
consequences of temporary differences that can arise between (a) the amount of taxable income and pretax financial income for a year, such as from net operating
loss carryforwards and other tax credits, and (b) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. Deferred
tax assets and liabilities are measured using enacted tax rates. The impact on deferred tax assets and liabilities of changes in tax rates and laws, if any, is reflected
in the consolidated financial statements in the period enacted. Further, we evaluate the likelihood of realizing benefit from our deferred tax assets by estimating
future sources of taxable income and the impact of tax planning strategies. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
We file a consolidated Federal tax return. P&F and certain of its subsidiaries file combined tax returns in New York and Texas. All subsidiaries, other
than UAT, file other state and local tax returns on a stand-alone basis. UAT files an income tax return with the taxing authorities in the United Kingdom.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other
positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax
position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that
the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50%
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount
measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are
classified as income taxes in the consolidated statements of operations and comprehensive (loss) income.
13
The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if,
based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax
assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns
and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's
estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company continually
evaluates its deferred tax assets to determine if a valuation allowance is required.
For current and deferred tax provisions, the authoritative guidance requires entities to account for the effects of new income tax legislation in the same
reporting period that the tax legislation is enacted. For recent tax law changes known as the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Act") enacted on
December 22, 2017, SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, permits us to calculate and
recognize provisional tax estimates for our fourth quarter of fiscal 2017 for the accounting related to the enactment of the 2017 Act. Any subsequent adjustments to
the provisional estimates will be reflected in our income tax provisions/benefits during one or more periods in fiscal 2018. Additional information is contained in
Note 11, Income Taxes, to the consolidated financial statements.
14
RESULTS OF OPERATIONS
2017 compared to 2016
Continuing operations
Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our relationships with our key customers and
suppliers remain satisfactory. The largest factor driving the improvement at Hy-Tech was the growth of its engineered solutions business (“OEM business”) as
discussed below.
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 Sears inventory exposure at December 31, 2017. Further, the final remaining accounts receivable
attributable to Sears at December 31, 2017 of approximately $212,000 was collected in full in January 2018.
We believe that over time several newer technologies and features will have a greater 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.
During the first quarter of 2016, we sold Nationwide to an unrelated third party for approximately $22.2 million. As a result of this transaction,
Nationwide’s 2016 results are reported under discontinued operations, and are therefore excluded from continuing operations for all periods presented. Please see
Note 2 - Discontinued Operations, to our Consolidated Financial Statements for additional information.
In December of 2017, Florida Pneumatic and Home Depot agreed to launch an improved line of pneumatic tools to replace the current offering. We
expect to begin shipment of this new product line sometime in the third quarter of 2018. Gross margin for the new product line will be approximately 2% less than
the current product line. In order to promote the roll out of the new products, Florida Pneumatic has agreed to participate in the 2018 marketing efforts by
contributing $1,000,000.
Other than the aforementioned, or matters that may be discussed below, there are no major trends or uncertainties that had, or we could have reasonably
expected to 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.
REVENUE
The tables set forth below provide an analysis of our revenue for the years ended December 31, 2017 and 2016.
Consolidated
Florida Pneumatic
Hy-Tech
Total
2017
Revenue
$
$
46,471,000
12,503,000
58,974,000
Percent of
revenue
Year Ended December 31,
2016
Revenue
Percent of
revenue
78.8% $
21.2
100.0% $
45,282,000
11,994,000
57,276,000
79.1% $
20.9
100.0% $
Increase
$
1,189,000
509,000
1,698,000
%
2.6%
4.2
3.0%
15
Florida Pneumatic
Florida Pneumatic markets its air tool products to four primary sectors within the pneumatic tool market; Retail, Automotive, Industrial/catalog and the
Aerospace market. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts (“Other”).
2017
Revenue
19,894,000
13,901,000
5,303,000
6,506,000
867,000
46,471,000
$
$
Percent of
revenue
42.8% $
29.9
11.4
14.0
1.9
100.0% $
Year Ended December 31,
2016
Revenue
24,847,000
14,576,000
4,616,000
320,000
923,000
45,282,000
Percent of
revenue
54.9% $
32.2
10.2
0.7
2.0
100.0% $
Increase (decrease)
$
(4,953,000)
(675,000)
687,000
6,186,000
(56,000)
1,189,000
%
(19.9)%
(4.6)
14.9
1,933.1
(6.1)
2.6%
Retail customers
Automotive
Industrial/catalog
Aerospace
Other
Total
Notable key factors impacting Florida Pneumatic’s full year 2017 revenue, compared to its full year 2016 revenue include: (i) a decline in shipments to its
Retail customers. As previously disclosed, we elected not to renew a sales/service agreement with Sears, which expired September 30, 2017. This decision was the
primary factor for a $4.3 million year over year decline in Sears’s revenue; (ii) an approximate $1.0 million decline in annual revenue from The Home Depot, due
primarily to their decision to reduce the number of items offered for sale at certain locations, and lastly; (iii), we believe that the hurricanes and other factors,
which impacted primarily the southern portion of the United States, were a contributing factor to the decline. With respect to our Automotive revenue, we believe
that during 2017 two major automotive parts distributors were attempting to adjust their inventory levels of pneumatic hand tools. The actions taken by these two
automotive parts distributors were the primary factors contributing to the 4.6% decline in year over year Automotive revenue. Further, a decline of approximately
$200,000 in annual revenue at our UAT subsidiary in the United Kingdom also contributed to the decline in Automotive revenue. Our 2017 Industrial/catalog
revenue increased 14.9% over 2016, due primarily to increased shipments to the US military and general industries, as well as overall market sector strengthening
of this product line. Lastly, the Jiffy acquisition in April of this year has enabled us to approach the aerospace sector with a much stronger brand. As a result, our
full year 2017 Aerospace revenue increased almost $6.2 million, over 2016 levels.
Hy-Tech
Hy-Tech designs, manufactures and sells a wide range of industrial products under the brands ATP, ATSCO, OZAT and NUMATX, which are
categorized as “ATP” for reporting purposes and include heavy duty air tools, industrial grinders, impact sockets and OEM business. Hy-Tech’s other product
lines, Thaxton and Quality Gear, are reported as “Hy-Tech Machine” and include the hydro-pneumatic riveters, hydrostatic test plugs, air motors and custom gears.
2017
Revenue
$
$
11,116,000
1,387,000
12,503,000
Percent of
revenue
Year Ended December 31,
2016
Revenue
Percent of
revenue
Increase (decrease)
$
%
88.9% $
11.1
100.0% $
10,598,000
1,396,000
11,994,000
88.4% $
11.6
100.0% $
518,000
(9,000)
509,000
4.9%
(0.6)
4.2%
ATP
Hy-Tech Machine
Total
The major components of the overall improvement in Hy-Tech’s full year 2017 revenue, compared to full year 2016 revenue are due primarily to the
increase in revenue from its efforts to pursue alternate markets where it believes it could exploit its engineering and manufacturing expertise, and develop different
applications for their tools, motors and accessories. We believe the development of the OEM business will continue to provide Hy-Tech an opportunity to generate
additional sources of revenue in the future. During 2017 revenue from this initiative was $1,067,000, an increase of $795,000 over 2016’s revenue.. Offsetting
these improvements was a net decline of $277,000 in its sale of its ATP tools and parts and sockets, as well as lower shipments to the large customer acquired in
the ATSCO acquisition. It should be noted that sales to this customer have greatly improved during the last six months of 2017, compared to the same period a year
ago. Hy-Tech Machine revenue was essentially flat for the year.
16
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.
GROSS MARGIN
Florida Pneumatic
As percent of respective revenue
Hy-Tech
As percent of respective revenue
Total Tools
As percent of respective revenue
$
$
$
Year Ended December 31,
2016
2017
16,674,000
17,432,000
3,652,000
2,257,000
21,084,000
18,931,000
$
37.5%
$
29.2%
$
35.8%
$
36.8%
$
18.8%
$
33.1%
Increase
Amount
758,000
%
0.7% pts
1,395,000
10.4% pts
2,153,000
2.7% pts
4.5%
61.8
11.4%
Customer and product mix were the primary factors that contributed to the increase in Florida Pneumatic’s full-year 2017 gross margin, compared to full-
year 2016. Additionally, reduced shipments to Sears during 2017 were a key factor, as Sears’ related gross margin was lower than that of Florida Pneumatic’s other
product lines / customers. Further, Jiffy’s gross margin approximates that of Florida Pneumatic’s non-retail product lines. As such, the gross profit associated with
the increase in Aerospace revenue this year exceeded the gross profits lost due to the decline in Retail revenue. There were no significant changes to our cost
structure or selling price during the year.
Hy-Tech’s full-year 2017 gross margin increased 10.4 percentage points over 2016’s full-year gross margin. Factors contributing to the positive change
include, among other things: (a) the adjustment to Hy-Tech’s full-year 2017 allowance for obsolete / slow moving inventory (“OSMI”) was less than the
adjustment recorded during full-year 2016, as inventory turns improved, which directly impacts the computation of Hy-Tech’s OSMI; (b) 2017’s overhead
absorption significantly improved; and (c) during 2016, we were shipping a line of very low gross margin tools to a major customer. During full-year 2017,
shipment of these low gross margin tools greatly declined, compared to the prior year. We have no intention to continue to manufacture these products going
forward. Offsetting the improvements discussed above, gross margin on the products being sold under its new marketing initiative are below Hy-Tech’s historical
range. Management believes that gross margin on the new initiative products should increase as the result of manufacturing experience, and greater volume
through the facility. Lastly, we also expect average margins of the new marketing initiative products category to improve as the result of anticipated additional new
product offerings that we believe will generate greater gross margin.
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.
Our SG&A for the full year 2017 was $21,034,000, compared to $19,610,000, an increase of $1,424,000 for the full year 2017. The most significant
factor driving the increase was the addition of Jiffy. During 2017, from date of acquisition – April 5, 2017, through year-end, Jiffy’s SG&A was approximately
$1,673,000. Other significant components to the change in SG&A include reductions in: (i) non-Jiffy compensation expenses of $56,000; (ii) variable expenses,
which include costs such as: commissions, advertising travel and warranty of $286,000, due primarily to lower Retail revenue; and (iii) depreciation and
amortization of $283,000, due in part to certain intangible assets at Hy-Tech written off in 2016; and to a lesser extent, certain assets being fully depreciated. The
reductions were partially offset by an increase in professional fees of $425,000, 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, in accordance with current accounting literature, during the second quarter of 2016 we recorded an impairment charge of
$8,311,000 relating to goodwill and other intangible assets.
During our 2016 annual testing for impairment of our goodwill and other intangible assets, we determined that, primarily as the result of further
degradation in Hy-Tech’s revenue, which in turn produced lower results of operations than had been previously re-forecast in May 2016, Hy-Tech’s goodwill and
other intangibles were impaired. As a result, in accordance with current accounting literature, during the fourth quarter of 2016, we recorded an impairment charge
of $880,000 relating to goodwill and $390,000 to other intangible assets.
17
GAIN ON SALE OF REAL PROPERTY - 2016
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 was the headquarters of Nationwide, which we sold February 11, 2016. After deducting fees and expenses, we
received approximately $3.5 million in cash, which was used to pay down bank borrowings, with the balance remaining in a cash account.
OTHER (EXPENSE) INCOME - NET
The table below provides an analysis of our Other (expense) income-net from continuing operations for the years ended December 31, 2017 and 2016:
Lease income-net
Escrow refund
Fair value adjustment to contingent consideration - JIFFY
Total
Year ended December 31,
2016
2017
$
$
— $
27,000
(158,000)
(131,000) $
100,000
—
100,000
The full-year 2017 consists primarily of an adjustment to the fair value of the contingent consideration obligation to the Jiffy Seller, partially offset by 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. See Note 2 to our
consolidated financial statements for further discussion. During 2016 we received net rentals income on the real property that was sold in November of 2016.
INTEREST EXPENSE
Interest expense attributable to:
Short-term borrowings
Term loans, including Capital Expenditure Term Loans
Amortization expense of debt issue costs
Total
Year Ended December 31,
2016
2017
$
$
102,000 $
3,000
63,000
168,000 $
45,000
8,000
128,000
181,000
Primarily due to 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. However, as discussed in Note 3 - Acquisition, to our consolidated financial statements, 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 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.” See Note 2 to our consolidated financial statements for further discussion on the sale of
Nationwide. See Liquidity and Capital Resources elsewhere in this Management’s Discussion and Analysis section for further information regarding our bank
loans.
Our average balance of short-term borrowings during 2017 was $3,092,000, compared to $2,862,000, during 2016.
INCOME TAX EXPENSE
The effective tax rates from continuing operations for the years ended December 31, 2017 and 2016 were 255.0% and (34.2%), respectively. Primary
factors affecting our 2017 effective tax rate were nondeductible expenses, the adoption of ASU 2016-09 Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting , provisional impact of changes to the tax law and state income taxes. The primary factors affecting
the 2016 effective tax rate were nondeductible expenses and state income taxes. See Note 11 – Income Taxes, to Consolidated Financial Statements for further
discussion and analysis.
18
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law making significant changes to the Internal Revenue Code. Changes
include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S
international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative
foreign earnings as of December 31, 2017.
The Company calculated its best estimate of the impact of the 2017 Act in its year end income tax provision in accordance with its understanding of the
2017 Act and guidance available as of the date of this filing and, as a result, recorded $643,000 as additional income tax expense in the fourth quarter of 2017, the
period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at
which they are expected to reverse in the future, was $588,000. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation
of foreign earnings was $55,000 based on cumulative foreign earnings of $352,000.
DISCONTINUED OPERATIONS - 2016
Nationwide’s results of operations in our consolidated financial statements and Note 2 present its 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.
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. For income tax purposes, the Company’s tax basis in Nationwide was greater than the net proceeds, resulting in a tax loss and thus a recorded 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 thus utilized the tax benefit generated from the sale of Nationwide.
LIQUIDITY AND CAPITAL RESOURCES
We monitor such metrics as days’ sales outstanding, inventory requirements, accounts payable 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:
Working capital
Current ratio
Shareholders’ equity
Credit Facility
December 31,
2017
2016
24,278,000 $
4.08 to 1
46,013,000 $
28,373,000
5.60 to 1
47,590,000
$
$
In October 2010, we entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital
One” or the “Bank”). The Credit Agreement, as amended from time to time, among other things, provides the ability to borrow funds under a Revolver
arrangement. Revolver borrowings are secured by the Company’s accounts receivable, inventory, equipment and mortgages on real property. 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 bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined in the
Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. We are subject to limitations on the number of LIBOR borrowings.
19
Contemporaneously with the sale of Nationwide in February 2016, we entered into the Consent and Second Amendment to the Restated Loan Agreement
(the “2016 Amendment”) with Capital One. The 2016 Amendment, among other things, provided the Bank’s consent to the transactions related to the sale of
Nationwide and the repurchase of certain shares and options discussed in Note 2 to the consolidated financial statements, and amended the Credit Agreement by:
(a) reducing the aggregate Commitment (as defined) to $11,600,000; (b) reducing the Term Loan (as defined) to $100,000; (c) reducing the Revolver Commitment
(as defined) to $10,000,000 (less the new Term Loan A balance of $100,000.); (d) reducing the Capex Loan Commitment (as defined) to $1,600,000; (e) modifying
certain financial covenants, (f) lowering interest rate margins and fee obligations; (g) extending the expiration of the Credit Agreement to February 11, 2019, and
(h) releasing the mortgage on our Tampa, FL real property.
Contemporaneously with the acquisition of the Jiffy business discussed in Note 3 to the consolidated financial statements, we entered into a Second
Amended and Restated Loan and Security Agreement, effective as of the April 5, 2017, the closing date of the Jiffy Acquisition (the “2017 Agreement”), with
Capital One. The 2017 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.
At December 31, 2017 we had approximately $12,400,000 available under the Credit Facility.
We believe that should a need arise whereby the current credit facility is insufficient, we can borrow additional amounts against our real property or other
assets.
We provide Capital One monthly financial statements, monthly borrowing base certificates and monthly certificates of compliance with various financial
covenants. We believe we are in compliance with all financial and non-financial covenants. As part of the 2017 Agreement, if an event of default occurs, the
interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.
Short–Term Borrowings
At December 31, 2017, the Company’s short-term or Revolver borrowing was $1,928,000, compared to no short-term borrowing balance at December 31,
2016. Applicable Margin Rates, as defined in the Credit Agreement, at December 31, 2017 and 2016 for LIBOR and Base Rates were 1.50% and 0.50%,
respectively.
Range of Applicable Margins added to Revolver borrowings during:
2017
2016
LIBOR
%
Base Rate
%
1.50 points to
1.75 points
1.50 points to
2.0 points
0.50 points to
0.75 points
0.50 points to
1.00 points
We purchase vehicles for use by our UAT salesforce. The current portion of the balance due on these loans applicable to these purchased vehicles was $0
at December 31, 2017, and $13,000 at December 31, 2016.
At December 31, 2017, we had $7,138,000 of open purchase order commitments, compared to $9,836,000 at December 31, 2016.
Cash Flows
At December 31, 2017, cash provided by operating activities for the year was $4,634,000, compared to cash used in operating activities for the year ended
December 31, 2016 of $1,158,000. At December 31, 2017, our cash balance was $1,241,000, compared to $3,699,000 at December 31, 2016. Cash at our UAT
subsidiary at December 31, 2107 and 2016 was $501,000 and $305,000, respectively. We operate under the terms and conditions of the Credit Facility. As a result,
all domestic cash receipts are remitted to Capital One lock-boxes.
Our total debt to total book capitalization (total debt divided by total debt plus equity) at December 31, 2017 was 4.2%, compared to 0.2% at December
31, 2016. We anticipate being able to generate cash from operations during 2018.
Capital spending during the year ended December 31, 2017 was $910,000, compared to $1,066,000 in 2016. Capital expenditures currently planned for
2018 are approximately $1,450,000, which we expect will be financed through the Credit Facility. The major portion of these planned capital expenditures will be
for new metal cutting equipment, tooling and information technology hardware and software.
20
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 2017, our Board of Directors voted to approve the payment of four quarterly dividends. As such, in
February 2017, May 2017, August 2017, and November 2017, we paid a $0.05 per share dividend to the shareholders of record. The aggregate of such dividend
payments was approximately $722,000. 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 deem relevant.
On August 9, 2017, our Board of Directors authorized us to repurchase up to 100,000 shares of its common stock over a period of up to twelve months
(the “Repurchase Program”). On August 24, 2017, we announced that, pursuant to the Repurchase Program, we adopted a written trading plan in accordance with
the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. As of December 31, 2017, we repurchased 46,878 shares of our Common
Stock pursuant to the Repurchase Program, the cost of which was $358,000.
Customer concentration
As of December 31, 2017, our accounts receivable from Sears and The Home Depot was 2.1% and 31.0%, respectively of our total accounts receivable. In
January, 2018 we collected the remaining balance of our accounts receivable from Sears. During 2016 Florida Pneumatic had two retail customers, Sears and The
Home Depot, which at December 31, 2016 accounted for 14.2% and 39.3%, respectively, of our consolidated accounts receivable. Additionally, these two
customers accounted for 5.9% and 27.1%, respectively, of our 2017 consolidated revenue, compared to 13.6% and 29.8%, respectively, in 2016. There was no
other customer that accounted for more than 10% of our consolidated revenue in 2017 or 2016.
IMPACT OF INFLATION
We believe that the effects of changing prices and inflation on our consolidated financial position and our results of operations have been minimal.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, "Summary of Accounting Policies," to our consolidated financial statements for additional discussion of recent accounting standards and
pronouncements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts
with Customers , as a new Topic, Accounting Standards Codification (“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition
and creates a single framework. Additional updates to Topic 606 were issued by the FASB in 2015 and 2016. We completed our assessment phase of what impact
the adoption of these new revenue standards will have on our consolidated financial statements and related disclosures. Further, we performed a review of our
revenue streams including reviewing contracts and comparing current accounting policies and practices to the new standard to identify differences from the
application of ASU 2014-09. The performance obligations underlying our core revenue sources will remain substantially unchanged. Our revenue is generated
through the sale of finished products, and will continue to be generally recognized at the point in time when merchandise is transferred to the customer and in an
amount that considers the impacts of estimated allowances. Adoption of these standards will also require additional disclosures about the nature of revenue.
Further, upon adoption of these standards we will have a change in classification of certain adjustments made by customers from SG&A to a reduction of net sales,
which we believe will not be material to our consolidated financial statements, results of operations or cash flows.
We are currently evaluating the impact of the adoption of ASU 2016-02, Leases , on our consolidated financial condition, results of operations and cash
flows.
In addition, in February 2018, the FASB issued No. ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). Under ASU 2018-02, an entity may elect to reclassify the income tax
effects of the Tax Reform Act on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period. We are currently evaluating what impact,
if any, adoption of ASU 2018-02 may have on our consolidated financial statements.
Other than the aforementioned, we do not believe that any other recently issued but not yet effective accounting standard, if adopted, will have a material
effect on our consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Required
21
ITEM 8. Financial Statements and Supplementary Data
P&F INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2017 and 2016
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
22
Page
23
24
26
27
28
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of P&F Industries, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of P&F Industries, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, and
the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2017, and the related consolidated notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the years in the two year period ended December 31, 2017, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ CohnReznick LLP
We have served as the Company’s auditor since 2008.
Jericho, New York
March 29, 2018
23
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2017
December 31, 2016
CURRENT ASSETS
ASSETS
Cash
Accounts receivable — net
Inventories
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT
Land
Buildings and improvements
Machinery and equipment
Less accumulated depreciation and amortization
NET PROPERTY AND EQUIPMENT
GOODWILL
OTHER INTANGIBLE ASSETS — net
DEFERRED INCOME TAXES — net
OTHER ASSETS — net
TOTAL ASSETS
$
1,241,000 $
10,047,000
19,657,000
1,224,000
32,169,000
1,281,000
6,138,000
20,579,000
27,998,000
19,091,000
8,907,000
4,447,000
8,533,000
872,000
110,000
3,699,000
7,906,000
19,901,000
3,030,000
34,536,000
1,150,000
5,209,000
19,401,000
25,760,000
18,671,000
7,089,000
3,897,000
6,606,000
1,793,000
130,000
$
55,038,000 $
54,051,000
The accompanying notes are an integral part of these consolidated financial statements.
24
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31, 2017
December 31, 2016
CURRENT LIABILITIES
Short-term borrowings
Accounts payable
Accrued compensation and benefits
Accrued other liabilities
Current maturities of long-term debt
TOTAL CURRENT LIABILITIES
Long-term debt, less current maturities
Other liabilities
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued
Common stock:
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,203,000 at December 31, 2017 and
4,181,000 at December 31, 2016
Class B - $1 par; authorized - 2,000,000 shares; no shares issued
Additional paid-in capital
Retained earnings
Treasury stock, at cost - 631,000 shares at December 31, 2017 and 584,000 shares at December 31,
2016
Accumulated other comprehensive loss
$
1,928,000 $
2,443,000
1,944,000
1,576,000
—
7,891,000
94,000
1,040,000
—
2,398,000
1,733,000
2,019,000
13,000
6,163,000
88,000
210,000
9,025,000
6,461,000
—
—
4,203,000
—
13,064,000
34,455,000
(5,179,000)
(530,000)
4,181,000
—
12,906,000
36,061,000
(4,821,000)
(737,000)
TOTAL SHAREHOLDERS’ EQUITY
46,013,000
47,590,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
55,038,000 $
54,051,000
The accompanying notes are an integral part of these consolidated financial statements.
25
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
Years ended December 31,
2017
2016
Net revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment of goodwill and other intangible assets
Operating income (loss)
Other (expense) income - net
Gain on sale of building
Interest expense
Loss before income taxes
Income tax (expense) benefit
Net loss from continuing operations
Discontinued operations (Note 2)
Net income from discontinued operations, net of tax of $38,000
Gain on sale of discontinued operations, net of tax benefit of $482,000
Net income from discontinued operations, net of tax
Net (loss) income
Basic and diluted (loss) earnings per share
Continuing operations
Discontinued operations
Net (loss) income
Weighted average common shares outstanding:
Basic
Diluted
Net (loss) income
Other comprehensive income (loss) - foreign currency translation adjustment
Total comprehensive (loss) income
$
$
$
$
$
$
58,974,000 $
37,890,000
21,084,000
21,034,000
—
50,000
(131,000)
—
(168,000)
(249,000)
(635,000)
(884,000)
—
—
—
(884,000) $
(0.25) $
—
(0.25) $
3,606,000
3,606,000
(884,000) $
207,000
(677,000) $
57,276,000
38,345,000
18,931,000
19,610,000
9,581,000
(10,260,000)
100,000
1,703,000
(181,000)
(8,638,000)
2,955,000
(5,683,000)
72,000
12,512,000
12,584,000
6,901,000
(1.58)
3.50
1.92
3,598,000
3,598,000
6,901,000
(396,000)
6,505,000
The accompanying notes are an integral part of these consolidated financial statements.
26
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Class A Common
Stock, $1 Par
Total
Shares
Amount
Additional
paid-in Retained
earnings
capital
Treasury stock
Shares
Amount
Accumulated
other
comprehensive
loss
Balance, January 1, 2016
$ 43,642,000 4,170,000 $ 4,170,000 $ 12,884,000 $ 31,495,000
(554,000) $ (4,566,000) $
(341,000)
Net income
6,901,000
—
—
— 6,901,000
—
Exercise of stock options
23,000
6,000
6,000
17,000
—
—
Restricted common stock
compensation
50,000
5,000
5,000
45,000
—
—
Stock-based compensation
(22,000)
—
—
(22,000)
—
—
—
—
—
—
Purchase of Class A common stock
(255,000)
—
—
—
—
(30,000)
(255,000)
Tax benefit on stock-based
compensation
(18,000)
—
—
(18,000)
—
—
Dividends
(2,335,000)
—
—
— (2,335,000)
—
—
—
—
—
—
—
—
—
—
Foreign currency translation
adjustment
(396,000)
—
—
—
—
—
—
(396,000)
Balance, December 31, 2016
$ 47,590,000 4,181,000 $ 4,181,000 $ 12,906,000 $ 36,061,000
(584,000) $ (4,821,000) $
(737,000)
Net loss
(884,000)
—
—
—
(884,000)
—
Exercise of stock options
62,000
17,000
17,000
45,000
—
—
Restricted common stock
compensation
38,000
5,000
5,000
33,000
—
—
Stock - based compensation
80,000
—
—
80,000
—
—
—
—
—
—
Purchase of Class A common stock
(358,000)
—
—
—
—
(47,000)
(358,000)
Dividends
(722,000)
—
—
—
(722,000)
—
—
—
—
—
—
—
—
Foreign currency translation
adjustment
207,000
—
—
—
—
—
—
207,000
Balance, December 31, 2017
$ 46,013,000 4,203,000 $ 4,203,000 $ 13,064,000 $ 34,455,000
(631,000) $ (5,179,000) $
(530,000)
The accompanying notes are an integral part of these consolidated financial statements.
27
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net loss from continuing operations
Net income from discontinued operations
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating
activities:
Years ended December 31,
2017
2016
$
(884,000) $
—
(5,683,000)
12,584,000
Non-cash charges:
Depreciation and amortization
Amortization of other intangible assets
Amortization of debt issue costs
Provision for doubtful accounts
Stock-based compensation
Restricted stock-based compensation
Loss (gain) on sale of fixed assets
Deferred income taxes
Fair value increase in contingent consideration
Impairment of goodwill and other intangible assets
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued compensation and benefits
Accrued other liabilities
Other liabilities
Total adjustments
Net cash provided by (used in) operating activities – continuing operations
Net cash used in operating activities – discontinued operations
Net cash provided by (used in) operating activities
1,309,000
800,000
64,000
66,000
80,000
38,000
21,000
912,000
158,000
—
(1,384,000)
1,913,000
1,857,000
45,000
40,000
120,000
(502,000)
(19,000)
5,518,000
4,634,000
—
4,634,000
1,620,000
1,016,000
128,000
4,000
13,000
50,000
(1,700,000)
(3,946,000)
—
9,581,000
498,000
(316,000)
(2,006,000)
58,000
(372,000)
24,000
390,000
(18,000)
5,024,000
(659,000)
(499,000)
(1,158,000)
The accompanying notes are an integral part of these consolidated financial statements.
28
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Investing Activities:
Capital expenditures
Proceeds from disposal of assets
Purchase of net assets of Jiffy Air Tool, Inc.
Purchase of patents
Net cash (used in) provided by investing activities – continuing operations
Net cash provided by investing activities – discontinued operations
Net cash (used in) provided by investing activities
Cash Flows from Financing Activities:
Dividend payments
Proceeds from exercise of stock options
Purchase of Class A common stock
Net proceeds from short-term borrowings
Repayments of term loans
Repayments of notes payable
Excess tax benefit on stock-based compensation
Payments of debt issue costs
Net cash provided by financing activities – continuing operations
Net cash used in financing activities – discontinued operations
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosures of cash flow information:
Cash paid for:
Interest
Income taxes
Supplemental disclosures of non-cash investing and financing activities:
Contingent consideration on acquisition
Years ended December 31,
2017
2016
(910,000) $
12,000
(6,845,000)
(200,000)
(7,943,000)
—
(7,943,000)
(722,000)
62,000
(358,000)
1,928,000
—
(14,000)
—
(84,000)
812,000
—
812,000
39,000
(2,458,000)
3,699,000
1,241,000 $
(1,066,000)
3,512,000
—
—
2,446,000
20,149,000
22,595,000
(2,335,000)
23,000
(255,000)
9,087,000
(6,343,000)
(29,000)
(18,000)
(30,000)
100,000
(18,716,000)
(18,616,000)
(49,000)
2,772,000
927,000
3,699,000
97,000 $
409,000 $
133,000
112,000
692,000 $
—
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
29
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements contained herein include the accounts of P&F Industries, Inc. and its subsidiaries (“P&F” or the “Company”). All
significant intercompany balances and transactions have been eliminated.
The Company
Prior to February 11, 2016, the effective date of the sale of its Nationwide Industries, Inc. (“Nationwide”) subsidiary, P&F operated in two primary lines
of business or segments: (i) tools and other products (“Tools”) and (ii) hardware and accessories (“Hardware”). As a result of the sale of Nationwide, which had
been reported in the Hardware segment, the Company only operates in the Tools business. See Note 2 to Consolidated Financial Statements for further discussion.
Tools
The Company conducts its Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates
through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”). Exhaust
Technologies Inc. (“ETI”) and Universal Air Tool Company Limited (“UAT”) are wholly-owned subsidiaries of Florida Pneumatic. Effective April 5, 2017, the
Company purchased substantially all of the operating assets, less certain payables of Jiffy Air Tool, Inc., (“Jiffy”) through a wholly-owned subsidiary. See Note 3
to our consolidated financial statements for further discussion. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned
subsidiary of Hy-Tech.
Florida Pneumatic imports and sells pneumatic hand tools, most of which are of its own design, primarily to the retail, industrial, automotive and
aerospace markets. It also markets, through its Berkley Tool division (“Berkley”), a product line which includes pipe and bolt dies, pipe taps, wrenches, vises and
stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand of pipe cutting and threading
machines.
Hy-Tech designs, manufactures and distributes industrial pneumatic tools, industrial gears, hydrostatic test plugs and a wide variety of parts under the
brands ATP ATSCO, OZAT, Numatx, Thaxton and Quality Gear.
Industries served include power generation, petrochemical, construction, railroad, mining, ship building and fabricated metals. Hy-Tech also
manufactures components, assemblies, finished product and systems for various Original Equipment Manufacturers under their own brand names.
Hardware
Prior to the sale of Nationwide, which was effective February 11, 2016 (the “Closing Date”), the Company conducted its Hardware business through its
wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary,
Nationwide. As of the Closing Date, Nationwide was an importer and manufacturer of door, window and fencing hardware and accessories, including rollers,
hinges, window operators, sash locks, custom zinc castings and door closers. See Note 2 to Consolidated Financial Statements for further discussion relating to the
sale of Nationwide.
Basis of Financial Statement Presentation
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).
30
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES -Continued
Revenue Recognition
In accordance with current accounting literature, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery, which
occurs when title has passed to our customer or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured. The
Company sells its goods on terms which transfer title and risk of loss at a specified location, which may be our warehouse, destination designated by our customer,
port of loading or port of discharge, depending on the final destination of the goods. Other than standard product warranty provisions, our sales arrangements
provide for no other post-shipment obligations. The Company offers rebates and other sales incentives, promotional allowances or discounts; for certain customers,
typically related to customer purchase volume, and are classified as a reduction of revenue and recorded at the time of sale. The Company periodically evaluates
whether an allowance for sales returns is necessary. Historically, we have experienced minimal sales returns. If the Company believes there are material potential
sales returns, it would provide the necessary provision against sales.
Shipping and Handling Costs
Expenses for shipping and handling costs are included in selling, general and administrative expenses, and totaled approximately $2,017,000 and
$2,013,000, respectively, for the years ended December 31, 2017 and 2016.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held in bank demand deposits. The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2017 and 2016.
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts payable and short-term debt approximate fair
value as of December 31, 2017 and 2016 because of the relatively short-term maturity of these financial instruments. The carrying amounts reported for long-term
debt approximate fair value as of December 31, 2017 and 2016 because, in general, the interest rates underlying the instruments fluctuate with market rates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to retailers, distributors and original
equipment manufacturers involved in a variety of industries. The Company performs continuing credit evaluations of its customers’ financial condition, and
although the Company generally does not require collateral, letters of credit may be required from customers in certain circumstances.
Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination
include, among other factors, number of days an invoice is past due, customer historical trends, available credit ratings information, other financial data and the
overall economic environment. Collection agencies may also be utilized if management so determines.
The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company
also records as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and the Company’s assessment of the
general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required. The Company has a
limited number of customers with individually large amounts due at any given balance sheet date. Any unanticipated change in the creditworthiness of any of these
customers could have a material effect on the Company’s results of operations in the period in which such changes or events occur. After all reasonable attempts to
collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, the Company
believes that its allowance for doubtful accounts as of December 31, 2017 is adequate. However, actual write-offs might exceed the recorded allowance.
31
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
Concentrations of Credit Risk
The Company places the majority of its cash with its primary bank, Capital One Bank, National Association (“Capital One”), which is insured by the
Federal Deposit Insurance Corporation (“FDIC”). Significant concentrations of credit risk may arise from the Company’s cash maintained at Capital One, as from
time to time cash balances may exceed the FDIC limits.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. We have two
customers that in the aggregate, as of December 31, 2017 and 2016, accounted for 33.1% and 53.5%, respectively, of our consolidated accounts receivable. Sears
was one of the two customers included in the percentages stated above. The Company has previously disclosed that it terminated its business relationship with
Sears, effective September 30, 2017. As of December 31, 2017, there was an outstanding accounts receivable balance of $212,000 due from Sears, which was fully
collected in January 2018. Additionally, these two customers accounted for 5.9% and 27.1%, respectively, of our 2017 consolidated revenue, compared to 13.6%
and 29.8%, respectively, in 2016. There was no other customer that accounted for more than 10% of our consolidated revenue in 2017 or 2016.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method or the weighted average method. The inventory
balance, which includes raw materials, labor, and manufacturing overhead costs, is recorded net of an allowance for obsolete or unmarketable inventory. Such
allowance is based upon both historical experience and management’s understanding of market conditions and forecasts of future product demand. If the actual
amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance, the Company’s cost of sales, gross profit and net earnings would be
significantly affected.
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost less accumulated depreciation and amortization. Generally, the Company capitalizes items in excess of $1,000.
Minor replacements and maintenance and repair items are charged to expense as incurred. Upon disposal or retirement of assets, the cost and related accumulated
depreciation are removed from the Company’s consolidated balance sheets.
Depreciation of buildings and machinery and equipment is computed by using the straight-line method over the estimated useful lives of the assets.
Buildings are depreciated over periods ranging from 27.5 to 31 years, and machinery and equipment is depreciated over periods ranging from 3 to 10 years.
Leasehold improvements are amortized over the life of the lease or the useful life of the related asset, whichever is shorter.
Long-Lived Assets
In accordance with authoritative guidance pertaining to the accounting for the impairment or disposal of long-lived assets, property and equipment and
purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company’s assessment of recoverability of property and equipment is performed on an entity level. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of such asset to its estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of such asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
Acquisitions
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired, liabilities assumed, and
contingent consideration, if any, are recorded as of the date of the acquisition at their respective fair values. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred and that restructuring costs be expensed in periods subsequent to the acquisition date.
Generally, the Company engages third party valuation appraisal firms to assist it in determining the fair values and useful lives of the assets acquired and liabilities
assumed. The Company records a preliminary purchase price allocation for its acquisitions and finalizes purchase price allocations as additional information
relative to the fair values of the assets acquired become known.
32
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
Goodwill, Intangible and Long-Lived Assets
Goodwill is carried at cost less any impairment charges. Goodwill and intangible assets with indefinite lives are not amortized but are subject to an annual
test for impairment at the entity unit level (operating segment or one level below an operating segment) and between annual tests in certain circumstances. In
accordance with authoritative guidance issued by the Financial Accounting Standards Board, (“FASB”), the Company tests goodwill for impairment on an annual
basis. This test occurs in the fourth quarter or more frequently if the Company believes indicators of impairment exist. An entity has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of
more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the carrying amount of the reporting unit is less than its fair value, no
impairment exists and no further action is required. If the carrying amount of a reporting unit exceeds its fair value, the entity will record an impairment charge
based on the excess of a reporting unit's carrying amount over its fair value.
Intangible assets other than goodwill and intangible assets with indefinite lives are carried at cost less accumulated amortization. Intangible assets are
generally amortized on a straight-line basis over their respective useful lives, generally 3 to 20 years.
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets
that management expects to hold and use is based on the amount by which the carrying value exceeds the fair value of the asset.
Warranty Liability
The Company offers certain warranties against product defects for periods ranging from one to three years. Certain products carry limited lifetime
warranties. The Company’s typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At the
time the product revenue is recognized, the Company records a liability for estimated costs. The costs are estimated based on revenue and historical experience.
The Company periodically assesses the adequacy of its warranty liability and adjusts the amounts as necessary. While the Company believes that its estimated
liability for product warranties is adequate and that the judgment applied is appropriate, the estimated liability for the product warranties could differ materially in
the future.
Income Taxes
The Company accounts for income taxes using the asset and liability approach. This approach requires the recognition of current tax assets or liabilities
for the amounts refundable or payable on tax returns for the current year, as well as the recognition of deferred tax assets or liabilities for the expected future tax
consequences of temporary differences that can arise between (a) the amount of taxable income and pretax financial income for a year, such as from net operating
loss carryforwards and other tax credits, and (b) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements. Deferred
tax assets and liabilities are measured using enacted tax rates. The impact on deferred tax assets and liabilities of changes in tax rates and laws, if any, is reflected
in the consolidated financial statements in the period enacted. Further, the Company evaluates the likelihood of realizing benefit from our deferred tax assets by
estimating future sources of taxable income and the impact of tax planning strategies. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
The Company files a consolidated Federal tax return. P&F and certain of its subsidiaries file combined tax returns in New York and Texas. All
subsidiaries, other than UAT, file other state and local tax returns on a stand-alone basis. UAT files an income tax return to the taxing authorities in the United
Kingdom.
33
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other
positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax
position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that
the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. For tax positions that meet the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to
have a greater than 50% likelihood of being realized upon ultimate settlement with the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above, is reflected as a liability for unrecognized tax benefits in the consolidated balance sheets
along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with
unrecognized tax benefits are classified as income taxes in the consolidated statements of operations and comprehensive (loss) income.
The authoritative guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if,
based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) such assets will not be realized. The valuation of deferred tax
assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company's financial statements or tax returns
and future profitability. The Company's accounting for deferred tax consequences represents its best estimate of those future events. Changes in the Company's
estimates, due to unanticipated events or otherwise, could have a material effect on its financial condition and results of operations. The Company continually
evaluates its deferred tax assets to determine if a valuation allowance is required.
For current and deferred tax provisions, current accounting guidance requires entities to account for the effects of new income tax legislation in the same
reporting period that the tax legislation is enacted. For recent tax law changes known as the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Act") enacted on
December 22, 2017, SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, permits us to calculate and
recognize provisional tax estimates for our fourth quarter of fiscal 2017 for the accounting related to the enactment of the 2017 Act. Any subsequent adjustments to
the provisional estimates will be reflected in our income tax provisions/benefits during one or more periods in fiscal 2018. Additional information is contained in
Note 11, Income Taxes, to the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, possible disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. On an on-going basis P&F evaluates its estimates, including those related to collectability of accounts receivable,
valuation of inventories, recoverability of goodwill and intangible assets and income taxes. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.
Advertising
The Company expenses its costs of advertising in the period in which they are incurred. Advertising costs for the years ended December 31, 2017 and
2016 were $1,276,000 and $1,441,000, respectively.
34
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
Earnings Per Common Share
Basic earnings per common share exclude any dilution. It is based upon the weighted average number of shares of common stock outstanding during the
year. Diluted earnings per common share reflect the effect of shares of common stock issuable upon the exercise of stock options, unless the effect on earnings is
anti-dilutive.
Diluted earnings per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of common stock
outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of the Company’s Class A Common
Stock. The average market value for the period is used as the assumed purchase price.
The following table sets forth the computation of basic and diluted (loss) earnings per common share:
Numerator for basic and diluted (loss) earnings per common share:
Net loss from continuing operations
Net income from discontinued operations
Net (loss) income
Denominator:
Years Ended December 31,
2017
2016
$
$
(884,000) $
—
(884,000) $
(5,683,000)
12,584,000
6,901,000
Denominator for basic (loss) income per share—weighted average common shares outstanding
Denominator for diluted (loss) income per share—adjusted weighted average common shares
and assumed conversions
3,606,000
3,598,000
3,606,000
3,598,000
For the years ended December 31, 2017 and 2016, the Company experienced a net loss from continuing operations. As a result, there is no calculation of
diluted earnings per share. The average anti-dilutive options outstanding for the years ended December 31, 2017 and 2016 were 77,000 and 76,000, respectively.
Share-Based Compensation
In accordance with GAAP, the Company measures and recognizes compensation expense for all share-based payment awards based on estimated fair
values. Share-based compensation expense is included in selling, general and administrative expense on the accompanying consolidated statements of operations
and comprehensive (loss) income.
With respect to stock options, GAAP requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-
pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the
Company’s consolidated statements of operations and comprehensive (loss) income. The Company records compensation expense ratably over the vesting periods.
The Company estimates forfeitures at the time of grant and revises this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company uses the Black-Scholes option-pricing model as its method of valuation for share-based awards granted. As such, the Company’s determination of
fair value of share-based payment awards is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables.
These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, relevant interest rates, and the expected
term of the awards.
With respect to any issuance of its common stock, the Company determines fair value per share as the closing price of its common stock on the date of the
grant of said shares.
35
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
Foreign Currency Translation
The assets and liabilities of international operations are translated at the exchange rates in effect at the balance sheet date. Revenue and expense accounts
are translated at the monthly average exchange rates. Adjustments arising from the translation of the foreign currency financial statements of the Company's
international operations are reported as a component of "Accumulated other comprehensive loss" in the Company's consolidated balance sheets.
For foreign currency remeasurement from each local currency into the appropriate functional currency, monetary assets and liabilities are remeasured to
functional currencies using current exchange rates in effect at the balance sheet date. Gains or losses from these remeasurements were not significant and have
been included in the Company’s consolidated statements of operations and comprehensive (loss) income. Non-monetary assets and liabilities are recorded at
historical exchange rates, and the related remeasurement gains or losses are reported as a component of "Accumulated other comprehensive loss" in the Company's
consolidated balance sheets.
Going concern assessment
In accordance with current accounting literature, the Company assesses going concern uncertainty in its financial statements to determine if it will have
sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial
statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in the current accounting guidance. As part of this
assessment, based on conditions that are known and reasonably knowable to the Company, it will consider various scenarios, forecasts, projections, estimates and
will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and its ability to delay or curtail expenditures or
programs, if necessary, among other factors. Based on this assessment, as necessary or applicable, the Company will make certain assumptions around
implementing curtailments or delays in the nature and timing of programs and expenditures to the extent the Company deems probable those implementations can
be achieved and it will have the proper authority to execute them within the look-forward period. Our assessment determined the Company is a going concern.
New Accounting Pronouncements
Recently Issued Accounting Pronouncements
Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers , as a new Topic,
Accounting Standards Codification (“ASC”) Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework.
Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:
· ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , which defers the effective date of the new guidance
such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017;
· ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations , which clarifies the implementation guidance
on principal versus agent considerations (reporting revenue gross versus net);
· ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , which clarifies the
implementation guidance on identifying performance obligations and classifying licensing arrangements;
· ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients , which clarifies the
implementation guidance in a number of other areas.
The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers
in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or
modified retrospective application. The Company has elected to use the modified retrospective application. The Company has performed a review of its revenue
streams including reviewing contracts and comparing current accounting policies and practices to the new standard to identify differences from the application of
ASU 2014-09. The Company's performance obligations underlying its core revenue sources will remain substantially unchanged. Its revenue is generated through
the sale of finished products, and will continue to be generally recognized at the point in time when merchandise is transferred to the customer and in an amount
that considers the impacts of estimated allowances. The Company will have a change in classification of certain adjustments made by customers from SG&A to a
reduction of net sales, which the Company does not believe will be material. The standard will also require additional disclosures about the nature of revenue as
well as the judgment involved in the timing of revenue recognition. The Company adopted ASU 2014-09 on the first day of fiscal 2018 and used the modified
retrospective approach.
36
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1—SUMMARY OF ACCOUNTING POLICIES - Continued
In February 2016, the FASB issued ASU No. 2016-02, Leases . This ASU is a comprehensive new leases standard that amends various aspects of existing
guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by
lessees for those leases classified as operating leases under previous GAAP. ASC Topic 842 retains a distinction between finance leases and operating leases. The
classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between
capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim
periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and
recognized at the beginning of the earliest comparative period presented with an adjustment to equity. The Company is currently evaluating the impact of the
adoption of this guidance on its consolidated financial statements.
There are currently no other accounting standards that have been issued but not yet adopted that will have a significant impact on the Company’s financial
position, results of operations or cash flows upon adoption.
Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”), which simplified the testing of goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill
impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for public
companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company concluded that ASU 2017-04 is
preferable to the current guidance due to efficiency, since ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of
a reporting unit to measure goodwill impairment. The Company early adopted ASU 2017-04 in conjunction with its annual impairment test of goodwill for all
reporting units. The adoption of ASU 2017-04 did not have a material impact on its financial results nor its impairment analysis of its goodwill as of November 30,
2017.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting (“ASU 2016-09”) . ASU 2016-09 simplified several areas of accounting for share-based compensation arrangements, including the income tax impact,
classification on the consolidated statement of cash flows and forfeitures. ASU 2016-09 was effective for the Company beginning fiscal year 2017 and did not have
a material impact on the Company’s consolidated results of operations or financial position. As a result of adoption, the Company now recognizes excess tax
benefits or deficiencies associated with share-based compensation activity as an income tax expense or benefit in the period the awards vest or are settled. In
addition, the Company now presents excess tax benefits or deficiencies from share-based compensation activity with other income tax cash flows as an operating
activity on the consolidated statement of cash flows, which differs from the Company’s historical classification of excess tax benefits or deficiencies as a financing
activity. The Company has elected to apply this change in cash flow presentation on a prospective basis. The standard also permits the Company to make a policy
election for how it accounts for forfeitures, and the Company has elected to account for these forfeitures as they occur.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”) . The standard
simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value for entities using the first-
in, first-out method of valuing inventory. ASU 2015-11 eliminates other measures required by current guidance to determine net realizable value. ASU 2015-11
was effective for fiscal 2017. The impact of the adoption was not material to the Company’s consolidated financial statements.
The Company does not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on its
consolidated financial statements.
37
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 2—DISCONTINUED OPERATIONS - 2016
Sale of Nationwide Industries, Inc.
The Company, as part of its strategic plan to focus on expanding its position in the power-tool and accessories market, sold Nationwide in February 2016.
On the Nationwide Closing Date, P&F, Countrywide, Nationwide and Argosy NWI Holdings, LLC, a Delaware limited liability company (“Buyer”), entered into a
Stock Purchase and Redemption Agreement (the “Stock Purchase Agreement”), pursuant to which, among other things, after giving effect to certain contributions
and redemptions of Nationwide’s common shares (“Nationwide Shares”), the Buyer acquired all of the outstanding Nationwide Shares from Countrywide (the
“Acquisition”). The purchase price for the Nationwide Shares acquired in the Acquisition was approximately $22,200,000, before giving effect to an estimated
working capital adjustment, as defined in the Stock Purchase Agreement, of approximately $802,000 in favor of the Buyer. Further, in accordance with the Stock
Purchase Agreement, the Company placed into escrow $1,955,000 (“escrow funds”), of which $250,000 related to the final working capital adjustment. Pursuant to
the terms of the Stock Purchase Agreement, the final working capital adjustment amount was determined to be approximately $75,000 in the Company’s favor. As
a result, during the three-month period ended June 30, 2016, the $250,000 portion of the escrow funds was released to the Company, and the final working capital
adjustment amount of $75,000 was paid to the Company by the Buyer. In connection with the Acquisition, Countrywide agreed that, should it sell the real property
it owned in Tampa, Florida (the “Premises”), it will contribute an additional $400,000 into the escrow funds. In November 2016, the Premises were sold, and as a
result Countrywide contributed the additional $400,000 into the aforementioned escrow funds which, at that time, aggregated to approximately $2,105,000. In
accordance with the Stock Purchase Agreement, in August 2017, as no claims were made against the Escrow funds, the Company received the full amount of the
escrow plus interest.
At the closing of the Acquisition, after paying closing costs, the net cash received from the Buyer was approximately $18,700,000.
As Nationwide was a substantial and unique business unit of the Company, its sale was a strategic shift. Accordingly, in accordance with ASC Topic 360,
the Company, in 2016, classified Nationwide as a discontinued operation.
The net income from discontinued operations, net of taxes in 2016 presented in the accompanying Consolidated Statements of Operations and
Comprehensive (Loss) Income is composed of the following:
Revenue
Cost of goods sold
Gross profit
Selling and general and administrative expenses
Interest expense-net
Income before income taxes
Income taxes
Net income
January 1, 2016 through the
Closing Date
$
$
1,830,000
1,177,000
653,000
483,000
60,000
110,000
38,000
72,000
The Company 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 the
Company 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 Premises to an unrelated third party for $3,750,000. After fees and other expenses, the net proceeds to the Company were $3,500,000. The Company
used these net proceeds to pay down its revolving credit loan and reduce its terms loans to $100,000. As a result of this transaction, the Company, during the fourth
quarter of 2016, recognized a gain on sale of $1,703,000. For tax purposes this sale is treated as a capital gain transaction and the Company utilized the $482,000
tax benefit generated from the sale of Nationwide.
38
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – ACQUISITION
On April 5, 2017 (the “Jiffy Closing Date”), Bonanza Holdings Corp. (now known as Jiffy Air Tool, Inc.), a Delaware corporation and newly formed
wholly-owned subsidiary (“Jiffy”) of Florida Pneumatic, Jiffy Air Tool, Inc. a Nevada corporation (“Jiffy Seller”), The Jack E. Pettit—1996 Trust, the sole
shareholder of Jiffy Seller and Jack E. Pettit, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which, among other things,
Jiffy acquired (the “Jiffy Acquisition”) substantially all of the operating assets of Jiffy Seller for $5,950,000, in addition to the assumption of certain payables and
contractual obligations as set forth in the Asset Purchase Agreement. Jiffy manufactures and distributes pneumatic tools and components, primarily sold to
aerospace manufacturers. The purchase price was $5,950,000, less a post-closing working capital adjustment of $155,000, which was paid by Jiffy Seller to the
Company in June 2017.
Additionally, Jiffy Seller may be entitled to up to $1,000,000 in additional consideration, which is contingent upon Jiffy achieving certain revenue
thresholds and other criteria as set forth in the Asset Purchase Agreement within two defined measurement periods occurring within approximately the first two
years following the Jiffy Closing Date.
In connection with the Asset Purchase Agreement, a separate Purchase and Sale Agreement and Joint Escrow Instructions (the “Purchase and Sale
Agreement” and together with the Asset Purchase Agreement, the “Agreements”) was entered into between Jiffy Seller and Bonanza Properties Corp. (“Bonanza
Properties”), a Delaware corporation and newly formed wholly-owned subsidiary of Florida Pneumatic, pursuant to which Bonanza Properties purchased certain
real property of Jiffy Seller. Pursuant to the Purchase and Sale Agreement, the purchase price for the real property was $1,050,000.
The initial total consideration ($5,950,000 plus $1,050,000) was paid by Jiffy to Jiffy Seller from funds available under the Revolver, as defined in Note
8, pursuant to the 2016 Amendment (defined in Note 8 below), less certain amounts escrowed pursuant to, among others, the terms of the Agreements.
Cash paid at closing
Less working capital adjustment
Fair value of contingent consideration
Total estimated purchase price
The following table presents purchase price allocation:
Accounts receivable
Inventories
Other current assets
Land
Building
Machinery and equipment
Identifiable intangible assets:
Customer relationships
Trademarks and trade names
Non-compete agreements
Liabilities assumed
Goodwill
Total estimated purchase price
$
$
$
$
Total
7,000,000
(155,000)
692,000
7,537,000
789,000
1,571,000
45,000
131,000
919,000
1,196,000
1,670,000
790,000
17,000
(125,000)
534,000
7,537,000
The excess of the total purchase price over the fair value of the net assets acquired, including the value of the identifiable intangible assets, has been
allocated to goodwill. Goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. The intangible assets subject
to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes, useful lives have been assigned as follows:
Customer relationships
Trademarks and trade names
Non-compete agreements
15 years
Indefinite
4 years
39
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – ACQUISITION - Continued
The following unaudited pro-forma combined financial information gives effect to the Jiffy Acquisition as if the Jiffy Acquisition was consummated
January 1, 2016. This unaudited pro-forma financial information is presented for information purposes only, and is not intended to present actual results that would
have been attained had the Jiffy Acquisition been completed as of January 1, 2016 (the beginning of the earliest period presented) or to project potential operating
results as of any future date or for any future periods.
Revenue
Net loss from continuing operations
Loss per share – basic
Loss per share – diluted
NOTE 4—FAIR VALUE MEASUREMENTS
For the Year Ended December 31,
2017
60,451,000 $
(779,000) $
(0.22) $
(0.22) $
2016
64,152,000
(4,472,000)
(1.24)
(1.24)
$
$
$
$
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following
hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.
Level 2: Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are
unobservable in the market and significant to the instruments valuation.
The guidance requires the use of observable market data if such data is available without undue cost and effort.
As of December 31, 2017 and 2016, the carrying amounts reflected in the accompanying consolidated balance sheets for current assets and current
liabilities approximated fair value due to the short-term nature of these accounts.
The fair value of the Prepaid expenses and other current assets, which consists primarily of escrowed funds from the sale of Nationwide, was estimated to
be the same as its carrying value, based on Level 3 inputs. The escrow was released to the Company in August 2017, in accordance with the terms and conditions
set forth in the Stock Purchase Agreement.
Assets and liabilities measured at fair value on a non-recurring basis include goodwill, and intangible assets. Such assets are reviewed quarterly for
impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the
carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).
NOTE 5—ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable - net consists of:
Accounts receivable
Allowance for doubtful accounts and sales discounts
December 31,
2017
December 31,
2016
$
$
10,199,000 $
(152,000)
10,047,000 $
7,991,000
(85,000)
7,906,000
40
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 6—INVENTORIES
Inventories consist of:
Raw materials
Work in process
Finished goods
December 31,
2017
December 31,
2016
$
$
1,871,000 $
1,556,000
16,230,000
19,657,000 $
1,918,000
658,000
17,325,000
19,901,000
NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets with indefinite lives are tested annually or whenever events or circumstances indicate the carrying value of these
assets may not be recoverable. In accordance with authoritative guidance issued by the FASB, the Company performed an annual impairment test of goodwill and
indefinite-lived intangible assets during the fourth quarter based on conditions as of November 30, 2017. In 2017, with respect to Florida Pneumatic and Hy-Tech,
the Company determined the fair value using the income approach methodology of valuation, which considers the expected present value of future cash flows. As
an integral part of the valuation process the Company utilizes its latest cash flows forecasts for the next four fiscal years, and then applies projected minimal
growth for all remaining years, based upon available statistical data and management’s estimates.
The result of the Company’s impairment test for Florida Pneumatic determined that its fair value exceeded the carrying value and, as such, no impairment
to Goodwill and other intangible assets was recorded in 2017.
Changes in the carrying amount of goodwill are as follows:
Balance, January 1, 2017
Acquisition of Jiffy Air Tool, Inc.
Currency translation adjustment
Balance, December 31, 2017
Other intangible assets were as follows:
$
$
3,897,000
534,000
16,000
4,447,000
Other intangible assets:
Customer relationships (1)
Trademarks and trade names (1)
Trademarks and trade names (2)
Engineering drawings
Non-compete agreements (1)
Patents (3)
Totals
December 31, 2017
Accumulated
amortization
Net book
value
Cost
December 31, 2016
Accumulated
amortization
Net book
value
Cost
$
$
6,836,000 $
2,329,000
200,000
330,000
239,000
1,405,000
11,339,000 $
1,570,000 $
—
19,000
175,000
210,000
832,000
2,806,000 $
5,266,000 $
2,329,000
181,000
155,000
29,000
573,000
8,533,000 $
5,143,000 $
1,507,000
200,000
330,000
212,000
1,205,000
8,597,000 $
1,022,000 $
—
5,000
148,000
150,000
666,000
1,991,000 $
4,121,000
1,507,000
195,000
182,000
62,000
539,000
6,606,000
(1) A portion of these intangibles are maintained in a foreign currency, and are therefore subject to foreign exchange rate fluctuations.
(2) These were previously considered an indefinite-lived intangible asset of Hy-Tech. However, as the result of a prior impairment, the Company began
amortizing these intangible assets over a 15 year useful life.
(3) The $200,000 increase represents a patent acquired during the third quarter of 2017.
41
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS - Continued
Changes in the carrying amount of other intangibles are as follows:
Balance, January 1, 2017
Acquisition of Jiffy Air Tool, Inc.
Purchase of patent
Amortization
Currency translation adjustment
Balance, December 31, 2017
$
$
Cost
8,597,000 $
2,477,000
200,000
—
65,000
11,339,000 $
Accumulated
amortization
Net book value
1,991,000 $
—
—
800,000
15,000
2,806,000 $
6,606,000
2,477,000
200,000
(800,000)
50,000
8,533,000
The weighted average amortization period for intangible assets was as follows:
Customer relationships
Trademarks and trade names (2)
Engineering drawings
Non-compete agreements
Patents
December 31, 2017 December 31, 2016
9.3
14.5
8.8
1.2
6.1
10.1
13.5
8.1
1.8
8.8
Amortization expense of intangible assets from continuing operations subject to amortization was as follows:
Year ended December 31,
2017
2016
$
800,000 $
1,016,000
Amortization expense for each of the next five years and thereafter is estimated to be as follows:
2018
2019
2020
2021
2022
Thereafter
$
$
702,000
683,000
644,000
637,000
636,000
2,902,000
6,204,000
During the second and fourth quarters of 2016, the Company recorded impairment charges against Hy-Tech’s Goodwill. The following table presents the
aggregate amount of impairment charges recorded in 2016.
Customer relationships
Trademarks and trade names (1)
Engineering drawings
Non-compete agreements
$
3,001,000
237,000
37,000
83,000
$
3,358,000
(1)
These were previously considered an indefinite lived intangible asset of Hy-Tech; however, as the result of the testing for impairment the Company began
amortizing these intangible assets over a fifteen year useful life.
NOTE A portion of these intangibles are maintained in a foreign currency, and are therefore subject to foreign exchange rate fluctuations.
42
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 8—DEBT
In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association
(“Capital One” or the “Bank”). The Credit Agreement, as amended from time to time, among other things, provides the ability to borrow funds under a Revolver
arrangement. Revolver borrowings are secured by the Company’s accounts receivable, inventory, equipment and mortgages on real property. P&F and certain of
its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross-guaranteed by certain other subsidiaries.
At the Company’s option, Revolver borrowings bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined
in the Credit Agreement, plus an Applicable Margin, as defined in the Credit Agreement. We are subject to limitations on the number of LIBOR borrowings.
Contemporaneously with the sale of Nationwide in February 2016, the Company entered into the Consent and Second Amendment to the Restated Loan
Agreement (the “2016 Amendment”) with Capital One. The 2016 Amendment, among other things, provided the Bank’s consent to the transactions contained in
the Stock Purchase Agreement related to the sale of Nationwide and the repurchase of certain shares and options discussed in Note 2 and 9 to the consolidated
financial statements, and amended the Credit Agreement by: (a) reducing the aggregate Commitment (as defined in the 2016 Amendment) to $11,600,000; (b)
reducing the Term Loan to $100,000; (c) reducing the Revolver Commitment (as defined in the 2016 Amendment) to $10,000,000 (less the new Term Loan A
balance of $100,000. Leaving this balance will simplify potential future increases to the term loan, should the Company require and should Capital One be willing
to provide such funding.); (d) reducing the Capex Loan Commitment (as defined in the 2016 amendment) to $1,600,000; (e) modifying certain financial covenants,
(f) lowering interest rate margins and fee obligations; (g) extending the expiration of the Credit Agreement to February 11, 2019, and (h) releasing the mortgage on
our Tampa, FL real property.
Contemporaneously with the acquisition of the Jiffy business discussed in Note 3 to the consolidated financial statements, the Company entered into a
Second Amended and Restated Loan and Security Agreement, effective as of the April 5, 2017, the closing date of the Jiffy Acquisition (the “2017 Agreement”),
with Capital One. The 2017 Agreement, among other things, amended the Credit Agreement by: (1) increasing the maximum amount it 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. In addition, the Company incurred $84,000 of debt issue costs in connection with this Amendment.
The Company provides Capital One monthly financial statements, borrowing base certificates and certificates of compliance with various financial
covenants. The Company believes it is in compliance with all financial and non-financial covenants. As part of the Restated Loan Agreement, if an event of default
occurs, the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.
SHORT–TERM BORROWINGS
At December 31, 2017, the Company’s short-term or Revolver borrowing was $1,928,000, compared to no short-term borrowing balance at December 31,
2016. At December 31, 2017, the Company had approximately $12,400,000 available under the Credit Agreement. Applicable Margin Rates, as defined in the
Credit Agreement, at December 31, 2017 and 2016 for LIBOR and Base Rates were 1.50% and 0.50%, respectively.
Range of Applicable Margins added to Revolver borrowings during:
2017
2016
43
LIBOR
%
Base Rate
%
1.50 points to
1.75 points
0.50 points to
0.75 points
1.50 points to
2.0 points
0.50 points to
1.00 points
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 8—DEBT - Continued
LONG –TERM BORROWINGS
There is a Term Loan that is secured by mortgages on the Real Property, accounts receivable, inventory and equipment. The Term Loan borrowings can
be at either LIBOR, or at the Base Rate, or a combination of the two plus the Applicable Margins. LIBOR borrowings at December 31, 2017 and 2016 were 1.5%.
The Applicable Margin for borrowings at the Base Rate for the same timeframes was 0.5%. At December 31, 2017 this obligation was at the Base Rate, and is
included in Long-term debt, less current maturities on the Company’s Consolidated Balance Sheet at December 31, 2017.
In accordance with ASU 2015-03, the Company reduced its long-term debt by $6,000 and $12,000, respectively, relating to debt issue costs as of
December 31, 2017 and 2016.
LONG-TERM DEBT:
Term Loan - $23,000 payable monthly January 2013 through February 2016, balance due December 19,
2019.
Other
Debt issue costs
Less current maturities
NOTE 9—STOCK OPTIONS – STOCK COMPENSATION
December
31, 2017
December
31, 2016
$
$
100,000 $
—
(6,000)
94,000
—
94,000 $
100,000
13,000
(12,000)
101,000
13,000
88,000
The Company’s stockholders approved the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the issuance to
employees, consultants and non-employee directors of nonqualified stock options, stock appreciation rights, restricted stock, performance shares, performance
units, and other stock-based awards. In addition, employees are eligible to be granted incentive stock options under the 2012 Plan. The 2012 Plan is currently
administered by the compensation committee of the Company’s Board of Directors (the “Committee”). The aggregate number of shares of the Company’s Class A
Common Stock (“Common Stock”) that may be issued under the 2012 Plan may not exceed 325,000 shares; provided, however, that any shares of Common Stock
that are subject to a stock option, stock appreciation right or other stock-based award that is based on the appreciation in value of a share of Common Stock in
excess of an amount equal to at least the fair market value of the Common Stock on the date such other stock-based award is granted (each an “Appreciation
Award”) will be counted against this limit as one share for every share granted. Any shares of restricted stock or shares of Common Stock that are subject to any
other award other than Appreciation Award will be counted against this limit as 1.5 shares for every share granted.
The maximum number of shares of Common Stock with respect to which any award of stock options, stock appreciation rights or other Appreciation
Award that may be granted under the 2012 Plan during any fiscal year to any eligible employee or consultant will be 100,000 shares per type of award. The
maximum number of shares of Common Stock subject to any award of performance shares for any performance period, other stock-based awards that are not
Appreciation Awards, or shares of restricted stock for which the grant of such award or the lapse of the relevant restriction period is subject to the attainment of
specified performance goals that may be granted under the 2012 Plan during any fiscal year to any eligible employee or consultant will be 65,000 shares per type of
award. The maximum number of shares of Common Stock for all such types of awards to any eligible employee or consultant will be 165,000 shares during any
fiscal year. There are no annual limits on the number of shares of Common Stock with respect to an award of restricted stock that is not subject to the attainment of
specified performance goals to eligible employees or consultants. The maximum value at grant of performance units which may be granted under the 2012 Plan
during any fiscal year will be $1,000,000. The maximum number of shares of Common Stock subject to any award which may be granted under the 2012 Plan
during any fiscal year of the Company to any non-employee director will be 35,000 shares.
With respect to stock options, the Committee determines the number of shares of Common Stock subject to each option, the term of each option, which
may not exceed ten years (or five years in the case of an incentive stock option granted to a 10% stockholder), the exercise price, the vesting schedule (if any), and
the other material terms of each option. No stock option may have an exercise price less than the fair market value of the Common Stock at the time of grant (or, in
the case of an incentive stock option granted to a 10% stockholder, 110% of fair market value). With respect to all other permissible grants under the 2012 Plan,
the Committee will determine their terms and conditions, subject to the terms and conditions of the 2012 Plan.
The 2012 Plan, which terminates in May 2022, is the successor to the Company’s 2002 Stock Incentive Plan (“Previous Plan”) – see below. Stock option
awards made under the Previous Plan will continue in effect and remain governed by the provisions of that plan.
44
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 9—STOCK OPTIONS – STOCK COMPENSATION - Continued
The Company’s Previous Plan authorized the issuance to employees and directors of options to purchase a maximum of 1,100,000 shares of Common
Stock. These options had to be issued within ten years of the effective date of the Previous Plan and are exercisable for a ten year period from the date of grant, at
prices not less than 100% of the closing market value of the Common Stock on the date the option is granted. In the event options granted contained a vesting
schedule over a period of years, the Company recognized compensation cost for these awards ratably over the service period.
On September 5, 2017, the Committee authorized the issuance of options to purchase 89,000 shares of the Company’s Common Stock. This grant was
comprised of an aggregate of 55,000 options issued to the Company’s Chief Executive Officer and its Chief Operating and Financial Officer, with the balance of
34,000 options being issued to non-executive employees. All options within this grant have an exercise price of $7.09. The options granted vest as to one third on
each of the anniversary dates in 2018, 2019 and 2020. All the options granted have a ten year life.
The Company estimated the fair value of its common stock options using the following assumptions:
Risk-free interest rate
Expected term
Volatility
Dividend yield
Fair value of options granted
For the years ended
December 31, 2017
2.07%
10 years
87.16%
2.82%
4.41
$
In connection with an equity restructuring event, which occurred in March 2016 relating to a special dividend granted by the Company, the Company
modified all previously issued outstanding options to purchase its Common Stock. This modification resulted in an aggregate increase of 19,174 options. The
Company did not record any compensation expense in connection with the issuance of these options, as the issuance was made as the result of an equity
restructuring event. Other than the aforementioned issuance, there were no other options granted or issued during 2016.
The following table contains information on the status of the Company’s stock options:
Outstanding, January 1, 2016
Granted
Exercised
Forfeited and repurchased
Expired
Outstanding, December 31, 2016
Granted
Exercised
Forfeited
Expired
Outstanding, December 31, 2017
Vested, December 31, 2017
Number
of
Shares
Weighted
Average
Exercise Price
per share
Aggregate
Intrinsic
Value
457,000 $
19,174
(6,000)
(29,634)
(16,723)
423,817
89,000
(16,722)
(6,793)
(71,069)
418,233 $
329,233 $
6.15
5.89
3.81
5.86
10.72
5.68
7.09
3.65
7.86
10.72
5.17 $
4.65 $
1,343,442
1,228,454
Included in the forfeited options in the table above for 2016 are 20,998 options the Company purchased from Nationwide employees for $50,000 in
connection with the sale of Nationwide.
In 2017, 68,000 options that expired and forfeited were issued under the Previous Plan and 9,862 were issued under the 2012 Plan. In 2016, 27,500
options that expired and forfeited were issued under the Previous Plan and 18,857 were issued under the 2012 Plan.
45
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 9—STOCK OPTIONS – STOCK COMPENSATION - Continued
The following is a summary of changes in non-vested shares, all of which are expected to vest:
Non-vested shares, beginning of year
Granted
Vested
Forfeited
Non-vested shares, end of year
December 31,
2017
2016
Option
Shares
— $
89,000
—
—
89,000 $
Weighted
Average
Grant-Date
Fair Value
—
4.41
—
—
4.41
Weighted
Average
Grant-Date
Fair Value
6.72
6.45
6.71
6.72
—
Option
Shares
23,840 $
829
(19,167)
(5,502)
— $
Stock-based compensation expense recognized for the years ended December 31, 2017 and 2016 was approximately $80,000 and $13,000, respectively.
The Company recognizes stock-based compensation cost over the requisite service period. However, the exercisability of the respective non-vested options, which
are at predetermined dates, does not necessarily correspond to the periods in which straight-line amortization of compensation expenses is recorded.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:
Options Outstanding
Weighted Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
Number
outstanding
Options Exercisable
Weighted Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise Price
Number
exercisable
177,687
17,244
41,283
2,090
41,809
49,120
89,000
418,233
0.5 $
3.0 $
3.4 $
4.4 $
4.5 $
5.3 $
9.7 $
3.8 $
3.98
2.92
4.37
4.29
4.74
7.86
7.09
5.17
177,687
17,244
41,283
2,090
41,809
49,120
—
329,233
0.5 $
3.0 $
3.4 $
4.4 $
4.5 $
5.3 $
— $
2.2 $
3.98
2.92
4.37
4.29
4.74
7.86
—
4.65
Other Information
At December 31, 2017 and 2016, there were 88,812 and 175,450 shares available for issuance under the 2012 Plan. At December 31, 2017, there were
192,233 options outstanding issued under the 2012 Plan and 226,000 options outstanding issued under the Previous Plan.
Restricted Stock
The Company, in May 2017, granted 1,000 restricted shares of its common stock to each non-employee member of its Board of Directors, totaling 5,000
restricted shares. The Company determined that the fair value of these shares was $6.17 per share, which was the closing price of the Company’s Common Stock
on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. As such, the Company is ratably amortizing the total non-
cash compensation expense of approximately $30,000 in its selling, general and administrative expenses through May 2018.
The Company, in May 2016, granted 1,000 restricted shares of its common stock to each non-employee member of its Board of Directors, totaling 5,000
restricted shares. The Company determined that the fair value of these shares was $8.72 per share, which was the closing price of the Company’s Common Stock
on the date of the grant. These shares could not be traded earlier than the first anniversary of the grant date. As such, the Company ratably amortized the total non-
cash compensation expense of approximately $44,000 in its selling, general and administrative expenses through May 2017.
46
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 9—STOCK OPTIONS – STOCK COMPENSATION - Continued
Treasury Stock
On August 9, 2017, the Company’s Board of Directors authorized the Company to repurchase up to 100,000 shares of its common stock over a period of
up to twelve months (the “Repurchase Program”). As of December 31, 2017, the Company repurchased 46,878 shares of its common stock at an aggregate cost of
$358,000.
On August 24, 2017, the Company announced that, pursuant to the Repurchase Program, it had adopted a written trading plan in accordance with the
guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. A plan under Rule 10b5-1 allows the Company to repurchase shares at times
when it might otherwise be prevented from doing so by securities laws or because of self-imposed trading blackout periods. Repurchases made under the plan are
subject to the Securities and Exchange Commission's regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since
repurchases under the plan are subject to certain constraints, there is no guarantee as to the exact number of shares that will be repurchased under the plan.
NOTE 10—DIVIDENDS
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 2017, our Board of Directors voted to approve the payment of four quarterly dividends. As such, in
February 2017, May 2017, August 2017, and November 2017, the Company paid a $0.05 per share dividend to the shareholders of record. The aggregate of such
dividend payments was approximately $722,000. 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 include such things as our overall financial condition, results of operations, capital requirements and
other factors our board may deem relevant.
On March 8, 2016, the Company’s Board of Directors declared a special cash dividend of $0.50 per common share, which was paid on April 4, 2016, to
shareholders of record at the close of business on March 21, 2016. The total amount of this special dividend payment was approximately $1.8 million. Further,
during 2016, the Company’s Board of Directors approved the payment of quarterly cash dividends of $0.05 per share in April, July and October 2016, which
aggregated approximately $540,000.
NOTE 11—INCOME TAXES
Income tax expense (benefit) from continuing operations in the consolidated statements of operations and comprehensive (loss) income consists of:
Current:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Totals
Years Ended December 31,
2017
2016
(373,000) $
36,000
62,000
(275,000)
980,000
(63,000)
(7,000)
910,000
635,000 $
766,000
208,000
41,000
1,015,000
(3,638,000)
(308,000)
(24,000)
(3,970,000)
(2,955,000)
$
$
The Company has state net operating loss carryforwards of $2,893,000, which expire through 2037.
47
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 11—INCOME TAXES - Continued
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) was signed into law making significant changes to the Internal Revenue
Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the
transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of
cumulative foreign earnings as of December 31, 2017.
The Company calculated its best estimate of the impact of the 2017 Act in our year-end income tax provision in accordance with its understanding of the
2017 Act and guidance available as of the date of this filing and as a result recorded $643,000 as additional income tax expense in the fourth quarter of 2017, the
period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at
which they are expected to reverse in the future, was $588,000. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation
of foreign earnings was $55,000 based on cumulative foreign earnings of $352,000.
The 2017 Act also puts in place new tax laws that will apply prospectively, which include, but are not limited to, (1) implementing a base erosion and
anti-abuse tax, (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently in the U.S.
global intangible low-taxed income (“GILTI”) of foreign subsidiaries, which allows for the possibility of utilizing foreign tax credits to offset the income tax
liability (subject to some limitations), and (4) a lower effective U.S. tax rate on certain revenues from sources outside the U.S.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a
registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for
certain income tax effects of the 2017 Act. In accordance with SAB 118, the Company has determined that the $588,000 of the deferred tax expense recorded in
connection with the remeasurement of certain deferred tax assets and liabilities and the $55,000 of current tax expense recorded in connection with the transition
tax on the mandatory deemed repatriation of foreign earnings was a provisional and a reasonable estimate at December 31, 2017. Additional work is necessary to
do a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded
to current tax expense in the quarter of 2018 when the analysis is complete.
Deferred tax assets (liabilities) consist of:
Deferred tax assets:
Bad debt reserves
Inventory reserves
Warranty and other reserves
Stock-based compensation
Goodwill
Acquisition costs
Net operating losses - state
Other
Deferred tax (liabilities):
Prepaid expenses
Depreciation
Intangibles
Net deferred tax assets
December 31,
2017
2016
15,000 $
570,000
121,000
240,000
1,066,000
58,000
66,000
8,000
2,144,000
(152,000)
(481,000)
(639,000)
872,000 $
28,000
1,185,000
255,000
485,000
1,962,000
—
—
11,000
3,926,000
(177,000)
(720,000)
(1,236,000)
1,793,000
$
$
48
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 11—INCOME TAXES - Continued
The components of (loss) income from continuing operations before income taxes consisted of the following:
United States operations
International operations
Income before tax
Years ended December 31,
2017
(476,000) $
227,000
(249,000) $
2016
(8,790,000)
152,000
(8,638,000)
$
$
A reconciliation of the Federal statutory rate to the total effective tax rate applicable to (loss) income from continuing operations is as follows:
Federal income tax computed at statutory rates
(Decrease) increase in taxes resulting from:
State and local taxes, net of Federal tax benefit
Permanent differences - net
Foreign rate differential
Tax Cuts and Jobs Act of 2017
Share based compensation
Other
Income tax (benefit) expense
Years ended December 31,
2017
2016
(34.0)%
(7.2)
11.6
(9.2)
257.6
46.4
(10.2)
255.0%
(34.0)%
(0.8)
0.3
(0.4)
—
—
0.7
(34.2)%
The Company follows the authoritative guidance issued by the FASB that pertains to the accounting for uncertain tax matters. A reconciliation of the
beginning and ending amounts of unrecognized tax benefits is as follows:
Balance January 1, 2016
Lapse of statute of limitations
Interest accrual
Balance at January 1, 2017
Lapse of statute of limitations
Balance December 31, 2017
$
$
432,000
(143,000)
22,000
311,000
(311,000)
—
In connection with one of the acquisitions that occurred in 2014, the Company, in accordance with the ASC 740-10, had recorded in Accrued liabilities an
uncertain tax position. The parties to such transaction entered into a tax exposure-related escrow agreement, which together with the indemnity obligations of the
seller, the Company believed adequately covered the entire potential exposure related to the uncertain tax position. As a result, such liability was offset by an
indemnification asset recorded in Prepaid expenses and other current assets in the consolidated balance sheet. During the current year ended December 31, 2017,
the statute of limitations had lapsed and the Company no longer has a liability for an uncertain tax position.
The Company files a consolidated Federal tax return. The Company and certain of its subsidiaries file tax returns in various U.S. state jurisdictions. Its
foreign subsidiary, UAT, files in the United Kingdom. With few exceptions, the years that remain subject to examination are the years ended December 31, 2014
through December 31, 2016. During the current year, the Company received notification from the Internal Revenue Service of an examination for the year ended
December 31, 2015. As of December 31, 2017, no significant preliminary audit findings were received by the Company and no reserves have been recorded.
Interest and penalties, if any, related to income tax liabilities are included in income tax expense.
49
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 12—COMMITMENTS AND CONTINGENCIES
(a) The Company maintains a contributory defined contribution plan that covers all eligible employees. All contributions to this plan are discretionary.
Amounts recognized as expense for contributions to this plan were $353,000 and $298,000 for the years ended December 31, 2017 and 2016, respectively.
(b) At December 31, 2017 and 2016, the Company had open purchase order commitments totaling approximately $7,138,000 and $9,836,000,
respectively.
(c) From time to time, the Company may be a defendant or co-defendant in actions brought about in the ordinary course of conducting our business.
(d) The Company leases certain facilities and equipment through 2022. Generally, the facility leases carry renewal provisions and require the Company to
pay maintenance costs. Rental payments may be adjusted for increases in taxes and insurance above specified amounts. Operating lease expense for 2017 and 2016
was $388,000 and $371,000, respectively. Future minimum payments under non-cancelable operating leases with initial or remaining terms of more than one year
as of December 31, 2017 were as follows:
2018
2019
2020
2021
2022
$
$
347,000
296,000
103,000
21,000
1,000
768,000
50
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
ITEM 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
The Company's management, with the participation of the Company's CEO and CFO, evaluated, as of December 31, 2017, the effectiveness of the
Company's disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based
on the evaluation of the Company's disclosure controls and procedures as of December 31, 2017, the Company’s management, including its CEO and CFO,
concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level at that date.
Management’s Report on Internal Control over Financial Reporting
The Company’s Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-
15(f) and 15d-15(f) of the Exchange Act). This system is designed by, or under the supervision of, the Company’s principal executive officer and principal
financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the Company’s transactions and dispositions of its assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance
with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with the
authorizations of its management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the consolidated financial statements.
The Company carried out an evaluation, under the supervision and with the participation of its Management, including its CEO and CFO, of the
effectiveness of the design and operation of its internal control over financial reporting, as of December 31, 2017. Management based this assessment on criteria
for effective internal control over financial reporting described in “Internal Control—Integrated Framework 2013” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, the Company’s Management, including its CEO and CFO concluded that its internal control
over financial reporting was effective at December 31, 2017.
Because of its inherent limitations, internal controls may not prevent or detect misstatements. A control system, no matter how well designed and
operated, can only provide reasonable, not absolute, assurance that the control system’s objectives will be met. Also, projections of any evaluation of effectiveness
as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and
procedures may deteriorate.
This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to
the rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
51
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recently completed quarter ended December 31, 2017 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None
52
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K is incorporated by reference to the Company’s
definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in May 2018, to be filed with the Securities and Exchange
Commission within 120 days following the end of the Company’s year ended December 31, 2017.
ITEM 11. Executive Compensation
See Item 10.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
See Item 10.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
See Item 10.
ITEM 14. Principal Accounting Fees and Services
See Item 10.
53
ITEM 15. Exhibits and Financial Statement Schedules
PART IV
Page
a)
List of Financial Statements, Financial Statement Schedules, and Exhibits
(1)
List of Financial Statements
The consolidated financial statements of the Company and its subsidiaries are included in Item 8 of Part II of this report.
All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
List of Exhibits
(2)
(3)
The following exhibits are either included in this report or incorporated herein by reference as indicated below:
Exhibit
Number
2.1
2.2
2.3
Description of Exhibit
Stock Purchase and Redemption Agreement, dated as of February 11, 2016, by and among Countrywide Hardware, Inc., Argosy NWI
Holdings, LLC, the Registrant and Nationwide Industries, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report
on Form 8-K dated February 11, 2016).
Asset Purchase Agreement, dated as of April 5, 2017, by and among Bonanza Holdings Corp. (now known as Jiffy Air Tool, Inc.), Jack E.
Pettit, Jiffy Air Tool, Inc. (now known as Jack E. Pettit Enterprises, Inc.) and The Jack E. Pettit—1996 Trust. (Incorporated by reference to
Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated April 5. 2017).
Purchase and Sale Agreement and Joint Escrow Instructions, dated as of April 5, 2017, by and among Jiffy Air Tool, Inc. (now known as
Jack E. Pettit Enterprises, Inc.) and Bonanza Properties Corp. (Incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report
on Form 8-K dated April 5. 2017).
3.1
Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2004).
3.2
By-laws of the Registrant (as amended on September 19, 2016) (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K dated September 19, 2016).
54
Exhibit
Number
10.1
10.2
10.3
10.4
10.5
10.6
Description of Exhibit
Amended and Restated Loan and Security Agreement dated as of August 13, 2014, by and among the Registrant, Florida Pneumatic
Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp., Continental Tool Group, Inc.,
Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc.,
WILP Holdings, Inc., Woodmark International, L.P., and Capital One Business Credit Corporation, as lender and agent (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 13, 2014).
Second Amended and Restated Revolver Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing
Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp., in favor of and Capital One Business Credit
Corporation (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated August 13, 2014).
Tranche A Term Loan Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech
Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp in favor of and Capital One Business Credit Corporation
(Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated August 13, 2014).
Tranche B Term Loan Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech
Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp in favor of and Capital One Business Credit Corporation
(Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated August 13, 2014).
Amended and Restated Capex Loan Note dated as of August 13, 2014 by the Registrant, Florida Pneumatic Manufacturing Corporation, Hy-
Tech Machine, Inc., Nationwide Industries, Inc. and ATSCO Holdings Corp in favor of and Capital One Business Credit Corporation.
(Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K dated August 13, 2014).
Waiver and Amendment No. 1 to the Amended and Restated Loan and Security Agreement, dated as of October 14, 2014, by and among the
Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp,
Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing,
Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P., and Capital One Business Credit Corporation, as
lender and agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 14, 2014).
55
Exhibit
Number
Description of Exhibit
10.7
Purchase Agreement, dated as of February 11, 2016, by and between the Registrant and Christopher J. Kliefoth (Incorporated by reference
to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 11, 2016).
10.8
10.9
Consent and Second Amendment to Amended and Restated Loan and Security Agreement, dated as of February 11, 2016, by and among the
Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp,
Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing,
Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and
agent (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated February 11, 2016).
Third Amendment to Amended and Restated Loan and Security Agreement, dated as of March 31, 2016, by and among the Registrant,
Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., Nationwide Industries, Inc., ATSCO Holdings Corp, Continental
Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific
Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital One, National Association, as lender and agent
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 31, 2016).
10.10
Lease, dated as of February 11, 2016, between the Registrant and Nationwide Industries, Inc. (Incorporated by reference to Exhibit 10.3 to
the Registrant’s Current Report on Form 8-K dated February 11, 2016).
10.11
Option and Right of First Refusal Agreement, dated as of February 11, 2016, between the Registrant and Nationwide Industries, Inc.
(Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated February 11, 2016).
10.12
10.13
10.14
10.15
10.16
Second Amended and Restated Loan and Security Agreement dated as of April 5, 2017, by and among the Registrant, Florida Pneumatic
Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc. (formerly known as Bonanza Holdings
Corp.), Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy Industries, Inc., Exhaust
Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark International, L.P, and Capital
One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
dated April 5, 2017).
Third Amended and Restated Revolver Note dated as of April 5, 2017, by the Registrant, Florida Pneumatic Manufacturing Corporation and
Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K dated April 5, 2017).
Amended and Restated Tranche A Term Loan Note dated as of April 5, 2017 by the Registrant, Florida Pneumatic Manufacturing
Corporation and Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K dated April 5, 2017).
Second Amended and Restated Capex Loan Note dated as of April 5, 2017 by the Registrant, Florida Pneumatic Manufacturing Corporation
and Hy-Tech Machine, Inc. in favor of Capital One, National Association (Incorporated by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K dated April 5, 2017).
Amendment No. 1 to Second Amended and Restated Loan and Security Agreement, dated as of August 9, 2017, by and among the
Registrant, Florida Pneumatic Manufacturing Corporation, Hy-Tech Machine, Inc., ATSCO Holdings Corp, Jiffy Air Tool, Inc. (formerly
known as Bonanza Holdings Corp.), Bonanza Properties Corp., Continental Tool Group, Inc., Countrywide Hardware, Inc., Embassy
Industries, Inc., Exhaust Technologies, Inc., Green Manufacturing, Inc., Pacific Stair Products, Inc., WILP Holdings, Inc., Woodmark
International, L.P, and Capital One, National Association, as lender and agent (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated September 20, 2017).
56
Exhibit
Number
10.17
10.18
Description of Exhibit
*Executive Employment Agreement, dated as of January 1, 2015, between the Registrant and Richard A. Horowitz (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 5, 2015).
*2002 Stock Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002).
10.19
*2012 Stock Incentive Plan of the Registrant (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement with
respect to the Registrant’s 2012 Annual Meeting of Stockholders).
10.20
10.21
21
23.1
31.1
*Amended and Restated Executive 162(m) Bonus Plan of the Registrant effective as of May 20, 2015 (Incorporated by reference to
Appendix A to the Registrant’s Definitive Proxy Statement with respect to the Registrant’s 2015 Annual Meeting of Stockholders).
*Executive Employment Agreement, dated as of January 1, 2018, between the Registrant and Joseph A. Molino, Jr. (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 30, 2018).
Subsidiaries of the Registrant (Filed herein).
Consent of Independent Registered Public Accounting Firm (Filed herein).
Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (Filed herein).
31.2
Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (Filed herein).
32.1
Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herein).
32.2
Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herein).
101
** XBRL Interactive Data
Certain instruments defining the rights of holders of the long-term debt securities of the Registrant may be omitted pursuant to Section (b)
(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to furnish supplemental copies of these instruments to the Commission upon
request.
* Management contract or a compensatory plan or arrangement required to be filed as an exhibit.
** Attached as Exhibit 101 to this Annual Report on Form 10-K are the following, each formatted in Extensible Business Reporting Language (“XBRL”): (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive (Loss) Income, (iii) Consolidated Statements of Shareholders’
Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.
A copy of any of the foregoing exhibits to this Annual Report on Form 10-K may be obtained, upon payment of the Registrant’s reasonable expenses in
furnishing such exhibit, by writing to P&F Industries, Inc., 445 Broadhollow Road, Suite 100, Melville New York 11747, Attention: Corporate Secretary.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
/s/ RICHARD A. HOROWITZ
Richard A. Horowitz
Chairman of the Board
President
Principal Executive Officer
Date: March 29, 2018
P&F INDUSTRIES, INC.
(Registrant)
By:
/s/ JOSEPH A. MOLINO, JR.
Joseph A. Molino, Jr.
Vice President
Principal Financial and
Accounting Officer
Date: March 29, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Name
Title
Date
/s/ RICHARD A. HOROWITZ
Richard A. Horowitz
/s/ JEFFREY D. FRANKLIN
Jeffrey D. Franklin
/s/ HOWARD BROD BROWNSTEIN
Howard Brod Brownstein
/s/ KENNETH M. SCHERIFF
Kenneth M. Scheriff
/s/ MITCHELL A. SOLOMON
Mitchell A. Solomon
/s/ RICHARD RANDALL
Richard Randall
Director
Director
Director
Director
Director
Director
58
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
EXHIBIT 21
P&F INDUSTRIES, INC.
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 2017
Continental Tool Group, Inc., a Delaware Corporation
Hy-Tech Machine, Inc., a Delaware Corporation
ATSCO Holdings Corp., a Delaware Corporation
Florida Pneumatic Manufacturing Corporation, a Florida Corporation
D/b/a Universal Tool
D/b/a Berkley Tool
Exhaust Technologies, Inc., a Delaware corporation
Universal Air Tool Company Limited, a Company incorporated in England and Whales
Jiffy Air Tool, Inc.
Bonanza Properties, Inc.
Countrywide Hardware, Inc., a Delaware Corporation
Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries are omitted because, considered in the aggregate, they would not constitute a
significant subsidiary as of December 31, 2017.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Forms S-8 (File No. 333-22047 and File No. 333-90562) of P&F Industries, Inc. of our report dated
March 29, 2018 on our audits of the consolidated financial statements of P&F Industries, Inc. and Subsidiaries as of December 31, 2017 and 2016, and for the
years then ended included in the 2017 Annual Report of P&F Industries, Inc. on Form 10-K.
EXHIBIT 23.1
/s/ CohnReznick LLP
Jericho, New York
March 29, 2018
P&F INDUSTRIES, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Richard A. Horowitz, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of P&F Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 29, 2018
/s/ RICHARD A. HOROWITZ
Richard A. Horowitz
Principal Executive Officer
P&F INDUSTRIES, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Joseph A. Molino, Jr., certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of P&F Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 29, 2018
/s/ JOSEPH A. MOLINO, JR.
Joseph A. Molino, Jr.
Principal Financial Officer
P&F INDUSTRIES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the year ended December 31, 2017, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard A. Horowitz, Principal Executive Officer of the Company,
hereby certifies, pursuant to 18 U.S.C. §1350, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29, 2018
/s/ RICHARD A. HOROWITZ
Richard A. Horowitz
Principal Executive Officer
P&F INDUSTRIES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the annual report on Form 10-K of P&F Industries, Inc. (the “Company”) for the year ended December 31, 2017, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Joseph A. Molino, Jr., Principal Financial Officer of the Company,
hereby certifies, pursuant to 18 U.S.C. §1350, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 29, 2018
/s/ JOSEPH A. MOLINO, JR.
Joseph A. Molino, Jr.
Principal Financial Officer