UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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
As of November 6, 2023, there were
P&F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2023 | December 31, 2022 | |||||
| (unaudited) |
| (See Note 1) | |||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash | $ | | $ | | ||
Accounts receivable — net |
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Inventories |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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PROPERTY AND EQUIPMENT |
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Land |
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Buildings and improvements |
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Machinery and equipment |
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Less accumulated depreciation and amortization |
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NET PROPERTY AND EQUIPMENT |
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GOODWILL |
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OTHER INTANGIBLE ASSETS — net |
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DEFERRED INCOME TAXES — net |
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RIGHT-OF-USE ASSETS | | | ||||
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OTHER ASSETS — net |
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TOTAL ASSETS | $ | | $ | |
See accompanying notes to consolidated financial statements (unaudited).
3
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2023 | December 31, 2022 | |||||
| (unaudited) |
| (See Note 1) | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Short-term borrowings | $ | | $ | | ||
Accounts payable |
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Accrued compensation and benefits |
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Accrued other liabilities |
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Current leased liabilities – operating leases | | | ||||
TOTAL CURRENT LIABILITIES |
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Noncurrent leased liabilities – operating leases | | | ||||
Other liabilities |
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TOTAL LIABILITIES |
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SHAREHOLDERS’ EQUITY |
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Preferred stock - $ |
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Common stock |
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Class A - $ |
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Class B - $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock, at cost – |
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Accumulated other comprehensive loss |
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TOTAL SHAREHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | | $ | |
See accompanying notes to consolidated financial statements (unaudited).
4
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
Three months | Nine months | |||||||||||
ended September 30, | ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net revenue | $ | |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Operating (loss) income |
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Other (expense) income |
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Gain on sale of property and equipment | | — | | | ||||||||
Interest expense | ( | ( | ( | ( | ||||||||
Loss before income tax | ( | ( | ( | ( | ||||||||
Income tax benefit (expense) |
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Net loss | $ | ( |
| $ | ( | $ | ( |
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Basic and diluted loss per share | $ | ( |
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| $ | ( |
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Weighted average common shares outstanding: |
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Basic and diluted |
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Net loss | $ | ( |
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Other comprehensive loss - foreign currency translation adjustment |
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Total comprehensive loss | $ | ( |
| $ | ( | $ | ( |
| $ | ( |
See accompanying notes to consolidated financial statements (unaudited).
5
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Three months ended September 30, 2023
Accumulated | ||||||||||||||||||||||
Class A common | Additional | other | ||||||||||||||||||||
stock, $1 par | paid-in | Retained | Treasury stock | comprehensive | ||||||||||||||||||
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | |||||||
Balance, July 1, 2023 | $ | |
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Net loss |
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Restricted common stock compensation |
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Dividends |
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Foreign currency translation adjustment |
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Balance, September 30, 2023 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( |
Three months ended September 30, 2022
| Accumulated | |||||||||||||||||||||
| Class A common |
| Additional |
| other | |||||||||||||||||
| stock, $1 par |
| paid-in |
| Retained |
| Treasury stock |
| comprehensive | |||||||||||||
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | |||||||
Balance, July 1, 2022 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( | ||||||
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Net loss |
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Restricted common stock compensation |
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Dividends |
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Foreign currency translation adjustment |
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Balance, September 30, 2022 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( |
See accompanying notes to consolidated financial statements (unaudited).
6
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
Nine months ended September 30, 2023
Accumulated | ||||||||||||||||||||||
Class A common | Additional | other | ||||||||||||||||||||
stock, $1 par | paid-in | Retained | Treasury stock | comprehensive | ||||||||||||||||||
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | |||||||
Balance, January 1, 2023 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( | ||||||
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Net loss |
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Restricted common stock compensation |
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Stock-based compensation |
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Dividends |
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Foreign currency translation adjustment |
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Balance, September 30, 2023 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( |
Nine months ended September 30, 2022
Accumulated | ||||||||||||||||||||||
Class A common | Additional | other | ||||||||||||||||||||
stock, $1 par | paid-in | Retained | Treasury stock | comprehensive | ||||||||||||||||||
| Total |
| Shares |
| Amount |
| capital |
| earnings |
| Shares |
| Amount |
| loss | |||||||
Balance, January 1, 2022 | $ | |
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| ( | $ | ( | $ | ( | ||||||
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Net loss |
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Exercise of stock options |
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Restricted common stock compensation |
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Stock-based compensation |
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Dividends |
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Foreign currency translation adjustment |
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Balance, September 30, 2022 | $ | |
| | $ | | $ | | $ | |
| ( | $ | ( | $ | ( |
See accompanying notes to consolidated financial statements (unaudited).
7
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months | ||||||
ended September 30, | ||||||
| 2023 |
| 2022 | |||
Cash Flows from Operating Activities: | ||||||
Net loss | $ | ( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Non-cash and other charges: |
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Depreciation |
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Amortization of other intangible assets |
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Amortization of operating lease assets | |
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Amortization of debt issue costs |
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Amortization of consideration payable to a customer |
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Provision for losses on accounts receivable |
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Stock-based compensation |
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Stock-based compensation-options exercised | — | | ||||
Restricted stock-based compensation |
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Deferred income taxes |
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Gain on disposal of fixed assets | ( | ( | ||||
Gain on early termination of a lease | — | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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Accounts payable |
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Accrued compensation and benefits |
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Accrued other liabilities and other current liabilities | |
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Operating lease liabilities |
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Other liabilities |
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Total adjustments |
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Net cash provided by operating activities | | |
See accompanying notes to consolidated financial statements (unaudited).
8
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months | ||||||
ended September 30, | ||||||
| 2023 |
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Cash Flows from Investing Activities: |
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Capital expenditures | $ | ( | $ | ( | ||
Proceeds from the sale of fixed assets | | — | ||||
Purchase of net assets of the Jackson Gear Company business |
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Net cash used in investing activities |
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Cash Flows from Financing Activities: |
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Dividend payments |
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Net (repayments on) proceeds from short-term borrowings |
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Proceeds from exercise of stock options | — | | ||||
Bank financing costs |
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Net cash (used in) provided by financing activities |
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Effect of exchange rate changes on cash |
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Net decrease in cash |
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Cash at beginning of period |
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Cash at end of period | $ | |
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Supplemental disclosures of cash flow information: |
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Cash paid for: |
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Taxes | $ | | $ | | ||
Interest | $ | |
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Non-cash information: |
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Right of Use (“ROU”) assets recognized for new operating lease liabilities | $ | — |
| $ | | |
ROU adjustment due to early termination | $ | |
| $ | |
See accompanying notes to consolidated financial statements (unaudited).
9
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all normal, recurring adjustments necessary to present fairly the information set forth therein. Results for interim periods are not necessarily indicative of results to be expected for a full year.
The consolidated balance sheet information as of December 31, 2022, was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The unaudited consolidated financial statements contained herein should be read in conjunction with the 2022 Form 10-K.
The consolidated financial statements have been reported in U.S. dollars by translating asset and liability amounts of a foreign wholly-owned subsidiary at the closing exchange rate, equity amounts at historical rates and the results of operations and cash flow at the average of the prevailing exchange rates during the periods reported. As a result, the Company is exposed to foreign currency translation gains or losses. These gains or losses are presented in the Company’s consolidated financial statements as “Other comprehensive income (loss) - foreign currency translation adjustment.”
Principles of Consolidation
The unaudited 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
P&F, a Delaware corporation incorporated in 1963, conducts its 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”).
Florida Pneumatic
Florida Pneumatic directly, and through its wholly-owned subsidiaries Exhaust Technologies Inc. (“ETI”), Universal Air Tool Company Limited (“UAT”), and Jiffy Air Tool, Inc. (“Jiffy”) imports, manufactures, and markets pneumatic hand tools and related products of its own design, primarily to the retail, industrial, automotive and aerospace markets. Its products include sanders, grinders, drills, saws, and impact wrenches. Pneumatic tools are similar in appearance and function to electric hand tools, but are powered by compressed air, rather than by electricity or a battery. Air tools, as they are more commonly referred to generally offer a better power-to-weight ratio than their electrical counterparts. Florida Pneumatic imports and/or manufactures approximately
10
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
The Company - Continued
Hy-Tech
Hy-Tech designs, manufactures, and markets industrial tools, systems, gearing, accessories, and a wide variety of replacement parts under various brands including ATP, NUMATX, and Thaxton. Hy-Tech produces and sells heavy-duty pneumatic impact tools, grinders, air motors, hydro-pneumatic riveters, hydrostatic test plugs, impact sockets and custom gears, with prices ranging from $
Hy-Tech’s “Engineered Solutions” products are sold directly to Original Equipment Manufacturers (“OEMs”), and industrial branded products are sold through a broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals industries, among others. Hy-Tech works directly with its industrial customers, designing and manufacturing products from finished components to complete turnkey systems to be sold under their own brand names.
Hy-Tech’s “Power Transmission Group”, commonly referred to as “PTG”, produces spiral bevel and straight bevel gears along with a wide variety of other gearing. These products are sold directly to OEMs, end-users and gearbox repair companies. PTG works directly with its customers’ engineering departments to design or redesign gears or gearboxes to optimize a solution for functionality and manufacturability.
Effective January 15, 2022, through a wholly-owned subsidiary of Hy-Tech, we acquired substantially all the non-real estate assets comprising the business of Jackson Gear Company (“JGC”), a Pennsylvania-based corporation that manufactures and distributes custom gears and power transmission gear products. This business was consolidated into PTG and provides added market exposure into the larger gears market.
Nearly all Hy-Tech brands are manufactured in the United States of America. Hy-Tech markets ATP branded impact sockets, striking wrenches and accessories that are imported from Asia.
COVID-19
During the three-and nine-month periods ended September 30, 2023, the Company has encountered minimal effects from the COVID-19 pandemic. The Company, however, continues to encounter intermittent inventory supply-chain delays from its Asian suppliers, which cause shortages of inventory. While the negative effects that the Company was encountering during the COVID-19 pandemic in general have eased, it is difficult for the Company to be certain that the inventory issue discussed above is in fact COVID-19 related.
Going Concern Assessment
Management assesses going concern uncertainty to determine whether there is 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 consolidated financial statements are issued, which is referred to as the “look-forward period,” as defined in US GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, it considers various scenarios, forecasts, projections, estimates and makes certain key assumptions, including the timing and nature of projected cash expenditures, its ability to reduce, delay or curtail cash outflows and its ability to raise additional capital, if necessary, among other factors. Management has prepared estimates of operations covering the look-forward period and believes that sufficient funds will be generated from operations, working capital, and its existing credit facility to fund its operations. The Company has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts.
11
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Going Concern Assessment - Continued
As of September 30, 2023, the Company had borrowing availability on its bank facility of $
The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Customer Concentration
The Company had one customer that accounted for
Management Estimates
The preparation of financial statements and related disclosures in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, income taxes, deferred taxes. Descriptions of these policies are discussed in the Company’s 2022 Form 10-K. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and adjusts when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Significant Accounting Policies
The Company’s significant accounting policies are described in “Note 1: Summary of Significant Accounting Policies” to the Company’s 2022 Form 10-K.
Lease Accounting
The Company adheres to the standards set forth in Accounting Standards Codification No. 842, Leases (“ASC Topic 842”). 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.
As permitted under ASC Topic 842, if the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as the discount rate. The Company uses its best judgement when determining the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term to the lease payments in a similar currency.
The Company’s operating leases include vehicles, office space and the use of real property. The Company has not identified any new material finance leases during the three-month period ended September 30, 2023.
The Company considers any options to extend the term of a lease when measuring the right-of-use lease asset.
12
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES - (Continued)
Lease Accounting - Continued
For the three and nine-month periods ended September 30, 2023, the Company had $
The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities:
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2023 (excluding the nine months ended September 30, 2023) | $ | | ||
2024 |
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2025 |
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2026 |
| | ||
2027 | | |||
Thereafter | | |||
Total operating lease payments |
| | ||
Less imputed interest |
| ( | ||
Total operating lease liabilities | $ | | ||
Weighted average remaining lease term | years | |||