**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

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**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended September 30, 2004**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number 1 - 5332**

 

**P & F INDUSTRIES, INC.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                                                 | **22-1657413**                          |
|------------------------------------------------------------------------------|-----------------------------------------|
| (State or other jurisdiction of                                              | (I.R.S. Employer Identification Number) |
| incorporation or organization)                                               |                                    |
|                                                                         |                                    |
| **300 Smith Street, Farmingdale,  New York**                                 | **11735**                               |
| (Address of principal executive offices)                                     | (Zip Code)                              |
|                                                                         |                                    |
| Registrant’s telephone number, including area  code: **(631) 694-1800** |

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements for the past 90days.

**Yes ****ý****    No ****o**

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

**Yes ****o****    No ****ý**

 

As of November 12,2004, there were 3,537,631 shares of the registrant’s Class ACommon Stock outstanding.

 

 

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**P & F INDUSTRIES, INC.**

 

**FORM 10-Q**

 

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004**

 

**TABLE OF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION** |                                                                                        |
|-----------------------------------------|---------------------------------------------------------------------------------------------|
| Item 1.                                 | Consolidated Condensed Financial Statements  (unaudited)                                    |   |
|                                    |                                                                                        |   |   |
|                                    |                                                                                        | Consolidated  Condensed Balance Sheets |   |
|                                    |                                                                                        |   |   |
|                                    |                                                                                        | Consolidated  Condensed Statements of Income |   |
|                                    |                                                                                        |   |   |
|                                    |                                                                                        | Consolidated  Condensed Statement of Shareholders’ Equity |   |
|                                    |                                                                                        |   |   |
|                                    |                                                                                        | Consolidated  Condensed Statements of Cash Flows |   |
|                                    |                                                                                        |   |   |
|                                    |                                                                                        | Notes to  Consolidated Condensed Financial Statements |   |
|                                    |                                                                                        |   |   |
| Item 2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                    |                                                                                        |   |   |
| Item 3.                                 | Quantitative and Qualitative Disclosures  About Market Risk                                 |   |
|                                    |                                                                                        |   |   |
| Item 4.                                 | Controls and Procedures                                                                     |   |
|                                    |                                                                                        |   |   |
| **PART II – OTHER INFORMATION**    |                                                                                        |
| Item 1.                                 | Legal Proceedings                                                                           |   |
|                                    |                                                                                        |   |   |
| Item 2.                                 | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|                                    |                                                                                        |   |   |
| Item 3.                                 | Defaults Upon  Senior Securities                                                            |   |
|                                    |                                                                                        |   |   |
| Item 4.                                 | Submission of  Matters to a Vote of Security Holders                                        |   |
|                                    |                                                                                        |   |   |
| Item 5.                                 | Other Information                                                                           |   |
|                                    |                                                                                        |   |   |
| Item 6.                                 | Exhibits                                                                                    |   |
|                                    |                                                                                        |   |   |
| **Signatures**                          |                                                                                        |
|                                    |                                                                                        |
| **Exhibit Index**                       |                                                                                        |

 

i

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.****   Financial Statements**

 

**P & F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)**

 
| ** **                                      | ** ** | **September 30, 2004** | ** **  | **December 31, 2003** | ** ** |
|-------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| **ASSETS**                                      |       |                   |        |                  |       |
| CURRENT                                         |       |                   |        |                  |       |
| Cash                                            |       | $                      | 2,428,863   |                  | $          | 213,409 |   |
| Accounts receivable – net                  |       | 19,637,385             |        | 11,921,846            |       |
| Inventories – net                          |       | 28,673,123             |        | 18,755,061            |       |
| Deferred income taxes - net                     |       | 789,000                |        | 789,000               |       |
| Prepaid expenses and other                      |       | 2,462,442              |        | 1,456,188             |       |
|                                            |       |                   |        |                  |       |
| TOTAL CURRENT ASSETS                            |       | 53,990,813             |        | 33,135,504            |       |
|                                            |       |                   |        |                  |       |
| PROPERTY AND EQUIPMENT                          |       |                   |        |                  |       |
| Land                                            |       | 1,582,938              |        | 1,582,938             |       |
| Buildings and improvements                      |       | 9,042,832              |        | 9,035,412             |       |
| Machinery and equipment                         |       | 16,383,126             |        | 14,962,867            |       |
|                                            |       | 27,008,896             |        | 25,581,217            |       |
| Less accumulated depreciation and  amortization |       | 14,067,085             |        | 12,840,367            |       |
|                                            |       |                   |        |                  |       |
| NET PROPERTY AND EQUIPMENT                      |       | 12,941,811             |        | 12,740,850            |       |
|                                            |       |                   |        |                  |       |
| GOODWILL - net                                  |       | 23,946,123             |        | 10,561,703            |       |
|                                            |       |                   |        |                  |       |
| OTHER INTANGIBLE ASSETS - net                   |       | 10,071,083             |        | 1,773,333             |       |
|                                            |       |                   |        |                  |       |
| OTHER ASSETS - net                              |       | 1,154,271              |        | 120,534               |       |
|                                            |       |                   |        |                  |       |
| TOTAL ASSETS                                    |       | $                      | 102,104,101 |                  | $          | 58,331,924 |   |

 

See accompanying notesto consolidated condensed financial statements (unaudited).

 

1

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| ** **                                                                                                       | ** ** | **September 30, 2004** | ** **  | **December 31, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                   |       |                   |        |                  |       |
| CURRENT LIABILITIES                                                                                              |       |                   |        |                  |       |
| Short-term borrowings                                                                                            |       | $                      | 9,500,000   |                  | $          | 3,000,000 |   |
| Accounts payable                                                                                                 |       | 6,433,834              |        | 3,302,185             |       |
| Accruals:                                                                                                        |       |                   |        |                  |       |
| Compensation                                                                                                     |       | 2,004,752              |        | 1,730,180             |       |
| Other                                                                                                            |       | 4,377,933              |        | 2,616,691             |       |
| Current maturities of long-term debt                                                                             |       | 3,531,911              |        | 1,526,213             |       |
| TOTAL CURRENT LIABILITIES                                                                                        |       | 25,848,430             |        | 12,175,269            |       |
|                                                                                                             |       |                   |        |                  |       |
| LONG-TERM DEBT, less current maturities                                                                          |       | 36,376,311             |        | 8,723,324             |       |
|                                                                                                             |       |                   |        |                  |       |
| DEFERRED INCOME TAXES – net                                                                                 |       | 309,000                |        | 455,000               |       |
|                                                                                                             |       |                   |        |                  |       |
| TOTAL LIABILITIES                                                                                                |       | 62,533,741             |        | 21,353,593            |       |
|                                                                                                             |       |                   |        |                  |       |
| COMMITMENTS AND CONTINGENCIES                                                                                    |       |                   |        |                  |       |
|                                                                                                             |       |                   |        |                  |       |
| SHAREHOLDERS’ EQUITY                                                                                        |       |                   |        |                  |       |
| Preferred Stock – $10 par; authorized -  2,000,000 shares; no shares issued or outstanding                  |       | —                 |        | —                |       |
| Common Stock:                                                                                                    |       |                   |        |                  |       |
| Class A - $1 par; authorized - 7,000,000  shares; issued - 3,746,367 shares in 2004 and 3,735,367 shares in 2003 |       | 3,746,367              |        | 3,735,367             |       |
| Class B – $1 par; authorized - 2,000,000  shares; no shares issued or outstanding                           |       | —                 |        | —                |       |
| Additional paid-in capital                                                                                       |       | 8,644,528              |        | 8,609,840             |       |
| Retained earnings                                                                                                |       | 28,906,306             |        | 26,359,965            |       |
| Treasury stock, at cost - 223,736 shares                                                                         |       | (1,726,841             | )           | (1,726,841            | )          |
|                                                                                                             |       |                   |        |                  |       |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                  |       | 39,570,360             |        | 36,978,331            |       |
|                                                                                                             |       |                   |        |                  |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                  |       | $                      | 102,104,101 |                  | $          | 58,331,924 |   |

 

See accompanying notesto consolidated condensed financial statements (unaudited).

 

2

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**P & F INDUSTRIES, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)**

 
| ** **                                  | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                  | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                  | ** ** | ** **                            | ** ** | **(restated)**                       | ** ** | ** ** | ** ** | **(restated)** | ** ** |
| REVENUES                                    |       |                                  |       |                                 |       |   |   |   |   |
| Net sales                                   |       | $                                     | 38,887,853 |                                 | $          | 23,614,451 |   | $ | 79,753,279 |   | $ | 64,584,445 |   |
| Other                                       |       | 48,469                                |       | 88,251                               |       | 108,934 |   | 338,438 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
|                                        |       | 38,936,322                            |       | 23,702,702                           |       | 79,862,213 |   | 64,922,883 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| COSTS AND EXPENSES                          |       |                                  |       |                                 |       |   |   |   |   |
| Cost of sales                               |       | 28,400,479                            |       | 16,967,999                           |       | 57,067,988 |   | 45,046,765 |   |
| Selling, general and administrative         |       | 7,295,171                             |       | 5,149,755                            |       | 17,716,521 |   | 15,209,037 |   |
| Interest - net                              |       | 438,271                               |       | 172,256                              |       | 701,363 |   | 555,265 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
|                                        |       | 36,133,921                            |       | 22,290,010                           |       | 75,485,872 |   | 60,811,067 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| INCOME BEFORE TAXES ON INCOME               |       | 2,802,401                             |       | 1,412,692                            |       | 4,376,341 |   | 4,111,816 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| TAXES ON INCOME                             |       | 1,197,000                             |       | 530,000                              |       | 1,830,000 |   | 1,542,000 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| NET INCOME                                  |       | $                                     | 1,605,401  |                                 | $          | 882,692 |   | $ | 2,546,341 |   | $ | 2,569,816 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| Weighted average common shares outstanding: |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                       |       | 3,518,212                             |       | 3,503,766                            |       | 3,517,142 |   | 3,505,204 |   |
| Diluted                                     |       | 3,653,472                             |       | 3,584,939                            |       | 3,632,374 |   | 3,579,407 |   |
|                                        |       |                                  |       |                                 |       |   |   |   |   |
| Earnings per common share:                  |       |                                  |       |                                 |       |   |   |   |   |
| Basic                                       |       | $                                     | .46        |                                 | $          | .25 |   | $ | .72 |   | $ | .73 |   |
| Diluted                                     |       | $                                     | .44        |                                 | $          | .25 |   | $ | .70 |   | $ | .72 |   |

 

See accompanying notes toconsolidated condensed financial statements (unaudited).

 

3

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**P & F INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY**

**(unaudited)**

 
| ** **                                               | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Retained  earnings** | ** ** | **Treasury  stock** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|---------------------|------------|-----------|------------|
| Balance, January 1, 2004                                 |       | $                 | 3,735,367  |                             | $          | 8,609,840              |       | $                   | 26,359,965 |      | $          | (1,726,841 | ) | $ | 36,978,331 |   |
|                                                     |       |              |       |                             |       |                   |       |                |       |      |       |
| Net income for the nine months ended  September 30, 2004 |       | —            |       | —                           |       | 2,546,341              |       | —              |       | 2,546,341 |       |
|                                                     |       | —            |       |                             |       |                   |       |                |       |      |       |
| Exercise of stock options                                |       | 11,000            |       | 34,688                           |       | —                 |       | —              |       | 45,688    |       |
|                                                     |       |              |       |                             |       |                   |       |                |       |      |       |
| Balance, September 30, 2004                              |       | $                 | 3,746,367  |                             | $          | 8,644,528              |       | $                   | 28,906,306 |      | $          | (1,726,841 | ) | $ | 39,570,360 |   |

 

**Shares of Class A Common Stock:**

 
| ** **                  | ** ** | **Issued** | ** ** | **Treasury** | ** ** | **Outstanding** | ** ** |
|-----------------------------|------------|------------|------------|--------------|------------|-----------------|------------|
| Balance, January 1, 2004    |       | 3,735,367  |       | (223,736     | )          | 3,511,631       |       |
|                        |       |       |       |         |       |            |       |
| Exercise of stock options   |       | 11,000     |       | —       |       | 11,000          |       |
|                        |       |       |       |         |       |            |       |
| Balance, September 30, 2004 |       | 3,746,367  |       | (223,736     | )          | 3,522,631       |       |

 

See accompanying notesto consolidated condensed financial statements (unaudited).

 

4

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**P & F INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED****CONDENSED****STATEMENTSOF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                                                | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| ** **                                                                                                | ** ** | ** **                           | ** ** | **(restated)** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                      |       |                                 |       |   |   |
| Net income                                                                                                |       | $                                    | 2,546,341  |   | $ | 2,569,816 |   |
|                                                                                                      |       |                                 |       |   |   |
| Adjustments to reconcile net income to net  cash used in operating activities:                            |       |                                 |       |   |   |
| Depreciation and amortization                                                                             |       | 1,340,153                            |       | 1,307,990 |   |
| Amortization of intangible assets                                                                         |       | 542,250                              |       | 399,000 |   |
| Amortization of other assets                                                                              |       | 10,450                               |       | 26,714 |   |
| (Recovery of) provision for losses on  accounts receivable - net                                          |       | (6,954                               | )          | 38,221 |   |
| Deferred income taxes - net                                                                               |       | (146,000                             | )          | (146,000 | ) |
| (Gain) loss on disposal of fixed assets                                                                   |       | (5,463                               | )          | 11,638 |   |
| Increase in:                                                                                              |       |                                 |       |   |   |
| Accounts receivable                                                                                       |       | (4,703,614                           | )          | (3,772,121 | ) |
| Inventories                                                                                               |       | (4,084,974                           | )          | (1,682,916 | ) |
| Prepaid expenses and other                                                                                |       | (470,195                             | )          | (123,763 | ) |
| Other assets                                                                                              |       | (300,226                             | )          | (28,969 | ) |
| Increase (decrease) in:                                                                                   |       |                                 |       |   |   |
| Accounts payable                                                                                          |       | 2,914,068                            |       | 380,379 |   |
| Accruals and other                                                                                        |       | 1,550,265                            |       | (117,162 | ) |
|                                                                                                      |       |                                 |       |   |   |
| Total adjustments                                                                                         |       | (3,360,240                           | )          | (3,706,989 | ) |
|                                                                                                      |       |                                 |       |   |   |
| Net cash used in operating activities                                                                     |       | (813,899                             | )          | (1,137,173 | ) |
|                                                                                                      |       |                                 |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                      |       |                                 |       |   |   |
| Capital expenditures                                                                                      |       | (943,914                             | )          | (799,955 | ) |
| Purchase of certain assets, net of certain  liabilities, of Woodmark International, L.P.                  |       | (27,160,000                          | )          | — |   |
| Additional purchase price for working  capital adjustment related to the Woodmark acquisition transaction |       | (340,357                             | )          | — |   |
| Additional payments for expenses related to  the Woodmark acquisition transaction                         |       | (856,073                             | )          | — |   |
| Additional payments for purchase of  Nationwide Industries, Inc.                                          |       | (501,708                             | )          | (444,246 | ) |
| Proceeds from disposal of fixed assets                                                                    |       | 35,032                               |       | — |   |
|                                                                                                      |       |                                 |       |   |   |
| Net cash used in investing activities                                                                     |       | (29,767,020                          | )          | (1,244,201 | ) |
|                                                                                                           |            |                                      |            |  |  |  |  |

 

Seeaccompanying notes to consolidated condensed financial statements (unaudited).

 

5

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| ** **                                | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| ** **                                | ** ** | ** **                           | ** ** | **(restated)** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES      |       |                                 |       |   |   |
| Proceeds from short-term borrowings       |       | 12,500,000                           |       | 9,000,000 |   |
| Repayments of short-term borrowings       |       | (6,000,000                           | )          | (4,000,000 | ) |
| Proceeds from term loan                   |       | 34,000,000                           |       | — |   |
| Repayments of term loan                   |       | (7,500,000                           | )          | (2,000,000 | ) |
| Proceeds from mortgage                    |       | —                               |       | 1,697,301 |   |
| Principal payments on mortgages           |       | (249,315                             | )          | (1,942,321 | ) |
| Proceeds from exercise of stock options   |       | 45,688                               |       | 88,062 |   |
| Purchase of Class A Common Stock          |       | —                               |       | (322,340 | ) |
|                                      |       |                                 |       |   |   |
| Net cash provided by financing activities |       | 32,796,373                           |       | 2,520,702 |   |
|                                      |       |                                 |       |   |   |
| NET INCREASE IN CASH                      |       | 2,215,454                            |       | 139,328 |   |
|                                      |       |                                 |       |   |   |
| CASH AT BEGINNING OF PERIOD               |       | 213,409                              |       | 1,024,222 |   |
|                                      |       |                                 |       |   |   |
| CASH AT END OF PERIOD                     |       | $                                    | 2,428,863  |   | $ | 1,163,550 |   |
|                                           |            |                                      |            |  |  |  |  |

 

**Supplementaldisclosures of cash flow information:**

 
| Cash paid for: |   | ** ** |   | ** ** |   |
|----------------|--------|------------|--------|------------|--------|

 
| ** **   |   | **Nine months ended  September 30,** |       |
|--------------|--------|--------------------------------------|------------|
| ** **   |   | **2004**                             | ** ** | **2003** |   |
| Interest     |   | $                                    | 613,979    |   | $ | 566,885 |   |
|         |   |                                 |       |   |   |
| Income taxes |   | $                                    | 1,274,571  |   | $ | 1,779,212 |   |

 

In connection with the Woodmark acquisitiontransaction, the Company issued a note payable to the sellers in the amount of$1,218,000. The Company also assumed a note payable to the sellers in theamount of $2,190,000.

 

Seeaccompanying notes to consolidated condensed financial statements (unaudited).

 

6

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**P & F INDUSTRIES, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED****CONDENSED****FINANCIALSTATEMENTS (unaudited)**

 

**NOTE 1 - PRINCIPLES OF CONSOLIDATION**

 

The unauditedconsolidated condensed financial statements contained herein include theaccounts of P & F Industries, Inc. (“P & F”) and its subsidiaries. All significantintercompany balances and transactions have been eliminated. P & F conducts itsbusiness operations through its four wholly-owned subsidiaries: FloridaPneumatic Manufacturing Corporation (“Florida Pneumatic”), CountrywideHardware, Inc. (“Countrywide”), Green Manufacturing, Inc. (“Green”) and EmbassyIndustries, Inc. (“Embassy”). P & F and its subsidiaries are hereinreferred to collectively as the “Company.” Note 13 presents financialinformation for the segments of the Company’s business.

 

Florida Pneumatic isengaged in the importation, manufacture and sale of pneumatic hand tools,primarily for the industrial and retail markets, and the importation and saleof compressor air filters. Florida Pneumatic also markets, through its BerkleyTool division (“Berkley”), a line of pipe cutting and threading tools, wrenchesand replacement electrical components for a widely-used brand of pipe cuttingand threading machines.

 

Countrywide conducts itsbusiness operations through Nationwide Industries, Inc. (“Nationwide”), itswholly-owned subsidiary, its Franklin Manufacturing (“Franklin”) division andWoodmark International, L.P. (“Woodmark”), a limited partnership between P& F and Countrywide. (See Note 7 for information regarding the Woodmarkacquisition transaction.) Nationwide is an importer and manufacturer of door,window and fencing hardware. Franklin imports a line of door and windowhardware. Woodmark is an importer of builders’ hardware, including staircase components and kitchenand bath hardware and accessories.

 

Green is engagedprimarily in the manufacture, development and sale of heavy-duty welded customdesigned hydraulic cylinders. Green also manufactures a line of accessequipment for the petro-chemical industry and a line of post hole diggingequipment for the agricultural industry.

 

Embassy is engaged inthe manufacture and sale of baseboard heating products and the importation andsale of radiant heating systems.

 

**NOTE 2 - BASIS OF FINANCIAL STATEMENTPRESENTATION**

 

The accompanyingunaudited consolidated condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information, and with the rules andregulations of the Securities and Exchange Commission regarding interim financialreporting. Accordingly, these interim financial statements do not include allof the information and footnotes required by accounting principles generallyaccepted in the United States of America for complete financial statements. Inthe opinion of the Company, these unaudited consolidated condensed financialstatements include all adjustments necessary to present fairly the informationset forth therein. All such adjustments are of a normal recurring nature.Results for interim periods are not necessarily indicative of results to beexpected for a full year.

 

The consolidatedcondensed balance sheet information as of December 31, 2003 was derived fromthe audited financial statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2003. The interim financialstatements contained herein should be read in conjunction with that Report.

 

7

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In preparing itsconsolidated condensed financial statements in conformity with accountingprinciples generally accepted in the United States of America, the Company isrequired to make estimates and assumptions that affect the reported amounts ofassets and liabilities and the disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

**NOTE 3 - RESTATEMENT OF PREVIOUSLYISSUED FINANCIAL STATEMENTS**

 

Subsequent to the issuance of the Company’sconsolidated condensed financial statements as of September 30, 2003, filed aspart of its Quarterly Report on Form 10-Q filed on November 13, 2003, theCompany determined that it needed to revise its provision for taxes on incomein previously issued financial statements. This change resulted from theamortization of a deferred tax liability, not previously recorded, related to the acquisition of Nationwide. The Company’sconsolidated condensed statements of income for the three-month and nine-monthperiods ended September 30, 2003 have been restated from the amounts previouslyreported. The Company has filed an amended Quarterly Report on Form 10-Q forthe quarter ended September 30, 2003.

 

**NOTE 4 - STOCK-BASED COMPENSATION**

 

The Company accounts forits stock option awards to its employees under the intrinsic value based methodof accounting prescribed by Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees.” Under the intrinsic value based method,compensation cost is the excess, if any, of the quoted market price of thestock at grant date or other measurement date over the amount an employee mustpay to acquire the stock. The Company makes pro forma disclosures of net incomeand earnings per share as if the fair value based method of accounting had beenapplied, as required by Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”) and Statement of Financial Accounting StandardsNo. 148, “Accounting for Stock BasedCompensation - Transition and Disclosure” (“SFAS 148”), which requiresprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results.

 

SFAS123 requires the Company to provide pro forma information regarding net incomeand earnings per share as if compensation cost for the Company’s 2002 StockIncentive Plan had been determined in accordance with the fair value methodprescribed by SFAS 123. The Company estimates the fair value of each stockoption at the grant date by using the Black-Scholes option-pricing model, withthe following weighted-average assumptions for options granted in 2004; nodividends paid; expected volatility of 35.0%; risk-free interest rate of 4.5%;and expected life of 9.3 years. No options were granted in 2003.

 

8

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Underthe provisions of SFAS 123, the Company’s net income and its basic and dilutedearnings per common share for the three-month and nine-month periods endedSeptember 30, 2004 and 2003 would have changed to the pro forma amountsindicated below:

 
| ** **                                                                                                               | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income as reported                                                                                                   |       | $                                     | 1,605,401  |                                 | $          | 882,692 |   | $ | 2,546,341 |   | $ | 2,569,816 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value method, net of related tax  effects |       | (400,393                              | )          | —                               |       | (400,393 | ) | — |   |
| Pro forma net income                                                                                                     |       | $                                     | 1,205,008  |                                 | $          | 882,692 |   | $ | 2,145,948 |   | $ | 2,569,816 |   |
|                                                                                                                     |       |                                  |       |                                 |       |   |   |   |   |
| Basic earnings per common share                                                                                          |       |                                  |       |                                 |       |   |   |   |   |
| As reported                                                                                                              |       | $                                     | .46        |                                 | $          | .25 |   | $ | .72 |   | $ | .73 |   |
| Pro forma                                                                                                                |       | $                                     | .34        |                                 | $          | .25 |   | $ | .61 |   | $ | .73 |   |
| Diluted earnings per common share                                                                                        |       |                                  |       |                                 |       |   |   |   |   |
| As reported                                                                                                              |       | $                                     | .44        |                                 | $          | .25 |   | $ | .70 |   | $ | .72 |   |
| Pro forma                                                                                                                |       | $                                     | .33        |                                 | $          | .25 |   | $ | .59 |   | $ | .72 |   |

 

**NOTE 5 - FOREIGN CURRENCY TRANSACTIONS**

 

TheCompany accounts for changes in the fair value of its foreign currencycontracts by marking them to market and recognizing any resulting gains orlosses through its statement of income. The Company also marks itsyen-denominated payables to market, recognizing any resulting gains or lossesin its statement of income. At September 30, 2004, the Company had foreigncurrency forward contracts, maturing through December 2004, to purchase yen atcontracted forward rates. The value of these contracts at September 30, 2004,based on that day’s closing spot rate, was approximately $3,384,000, which wasthe approximate value of the Company’s corresponding yen-denominated accountspayable. During the three-month periods ended September 30, 2004 and 2003, theCompany recorded net realized gains of approximately $18,000 and $8,000,respectively, on foreign currency transactions. During the nine-month periodsended September 30, 2004 and 2003, the Company recorded net realized losses ofapproximately $65,000 and $1,000, respectively, on foreign currencytransactions. At September 30, 2004, the Company had an unrealized gain ofapproximately $60,000 on foreign currency transactions.

 

**NOTE 6 - NEWACCOUNTING PRONOUNCEMENT**

 

In January 2003, the Financial Accounting StandardsBoard issued Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46”). This interpretation clarifies the application ofAccounting Research Bulletin No. 51, “Consolidated Financial Statements,” tocertain entities in which equity investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties. FIN 46 is effective February 1, 2003 for variableinterest entities created after January 31, 2003, and July 1, 2003 for variableinterest entities created prior to February 1, 2003 (deferred until the firstquarter of 2004). The adoption of FIN 46 did not have any effect on either theCompany’s results of operations or its financial position.

 

9

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**NOTE 7 - ACQUISITION**

 

OnJune 30, 2004, WoodmarkInternational, L.P. (“Woodmark”), a Delaware limited partnership between P& F and Countrywide, acquired certain assets comprising the business of theformer Woodmark International L.P., a Texas limited partnership, and itswholly-owned subsidiary, the former Stair House, Inc., a Georgia corporation(collectively, the “Sellers”), and assumed certain of the Sellers’ relatedliabilities (the “Woodmark acquisition transaction”). Woodmark is an importer of builders’ hardware, includingstaircase components and kitchen and bath hardware and accessories. As a resultof this transaction, Countrywide has significantly increased its purchasingpower and geographic distribution.

 

The purchase price for thisacquisition was as follows:

 
| Cash paid at closing                                      |   | $         | 27,160,000 |   |
|-----------------------------------------------------------|--------|-----------|------------|--------|
| Additional purchase price for working  capital adjustment |   | 340,000   |       |
| Notes payable                                             |   | 3,408,000 |       |
| Direct acquisition costs                                  |   | 856,000   |       |
|                                                      |   |      |       |
| Total purchase price                                      |   | $         | 31,764,000 |   |

 

The acquisition was financedthrough the Company’s senior credit facility with Citibank, described in Note10.

 

Woodmark also agreed to make additionalpayments to the Sellers. The amount of these payments, which would be made asof either June 30, 2007 or June 30, 2009, are to be based on increases inearnings before interest and taxes, for the year ended on the respective date,over a base of $5,100,000. Woodmark has the option to make a payment as of June30, 2007 in an amount equal to 48% of this increase. If Woodmark does not makethis payment as of June 30, 2007, the Sellers may demand payment as of June 30,2009 in an amount equal to 40% of the increase. Any such additional paymentswill be treated as additions to goodwill. 

 

The unaudited consolidated condensedfinancial statements presented in this Report include the results of operationsfor Woodmark for the period from July 1, 2004 to September 30, 2004.

 

The following table presents the unauditedestimated fair values of the net assets acquired and the amount allocated togoodwill:

 
| Current and other assets                |   |      |   | $          | 10,118,000 |   |
|-----------------------------------------|--------|-----------|--------|------------|------------|--------|
| Property and equipment                  |   |      |   | 627,000    |       |
| Identifiable intangible assets:         |   |      |   |       |       |
| Customer relationships                  |   | 7,260,000 |   |       |       |
| Vendor relationship                     |   | 890,000   |   |       |       |
| Trademark                               |   | 690,000   |   | 8,840,000  |       |
|                                    |   |      |   |       |       |
|                                    |   |      |   | 19,585,000 |       |
| Less: liabilities assumed               |   |      |   | 703,000    |       |
|                                    |   |      |   |       |       |
| Total fair value of net assets acquired |   |      |   | 18,882,000 |       |
| Goodwill                                |   |      |   | 12,882,000 |       |
|                                    |   |      |   |       |       |
| Total purchase price                    |   |      |   | $          | 31,764,000 |   |

 

10

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The Company obtained an independentthird-party valuation of the identifiable intangible assets. The excess of the total purchase price overthe fair value of the net assets acquired, including the value of theidentifiable intangible assets, has been allocated to goodwill. These fair values arebased on current information and are subject to change.

 

The intangible assets subject to amortization havebeen assigned useful lives as follows:

 
| Customer  relationships |   | 15 years   |   |
|-------------------------|--------|----------------------|--------|
| Vendor relationship     |   | 10 years   |   |
| Trademark               |   | Indefinite           |   |

 

Thefollowing table summarizes, on an unaudited pro forma basis, the combinedresults of operations of the Company and Woodmark as though the acquisitiontransaction had occurred as of January 1, 2003. The pro forma amounts giveeffect to appropriate adjustments for amortization of intangible assets,additional compensation related to an employment agreement, interest expenseand income taxes. The pro forma amounts presented are not necessarilyindicative of either the actual consolidated operating results had theacquisition transaction occurred as of January 1, 2003 or of futureconsolidated operating results.

 
| ** **                         | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                         | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues                           |       | $                                     | 38,936,000 |                                 | $          | 30,903,000 |   | $ | 96,370,000 |   | $ | 84,302,000 |   |
|                               |       |                                  |       |                                 |       |   |   |   |   |
| Net income                         |       | $                                     | 1,605,000  |                                 | $          | 1,733,000 |   | $ | 3,557,000 |   | $ | 4,116,000 |   |
|                               |       |                                  |       |                                 |       |   |   |   |   |
| Earnings per share of common stock |       |                                  |       |                                 |       |   |   |   |   |
| Basic                              |       | $                                     | .46        |                                 | $          | .49 |   | $ | 1.01 |   | $ | 1.17 |   |
|                               |       |                                  |       |                                 |       |   |   |   |   |
| Diluted                            |       | $                                     | .44        |                                 | $          | .48 |   | $ | .98 |   | $ | 1.15 |   |
|                                    |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

**NOTE 8****-****GOODWILL AND OTHER INTANGIBLEASSETS**

 

The changes in the carryingamounts of goodwill by segment for the nine months ended September 30, 2004were as follows:

 
| **(In thousands)**                                                | ** ** | **Consolidated** | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and related  equipment** | ** ** | **Heating  products** | ** ** |
|-------------------------------------------------------------------|------------|------------------|------------|----------------------------------------------|------------|--------------|------------|--------------------------------------------------|------------|-----------------------|------------|
| Balance, January 1, 2004                                          |       | $                | 10,562     |                                         | $          | 2,327        |       | $                                                | 7,387      |                  | $          | 848 |   | $ | — |   |
| Goodwill resulting from the Woodmark  acquisition transaction     |       | 12,026           |       | —                                       |       | 12,026       |       | —                                           |       | —                |       |
| Additional costs related to the Woodmark  acquisition transaction |       | 856              |       | —                                       |       | 856          |       | —                                           |       | —                |       |
| Additional payments related to the  acquisition of Nationwide     |       | 502              |       | —                                       |       | 502          |       | —                                           |       | —                |       |
|                                                              |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| Balance, September 30, 2004                                       |       | $                | 23,946     |                                         | $          | 2,327        |       | $                                                | 20,771     |                  | $          | 848 |   | $ | — |   |

 

11

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Otherintangible assets were as follows:

 
| ** **             | ** ** | **September 30, 2004** | ** ** | **December 31, 2003**         | ** ** |
|------------------------|------------|------------------------|------------|-------------------------------|------------|
| ** **             | ** ** | **Cost**               | ** ** | **Accumulated  amortization** | ** ** | **Cost** | ** ** | **Accumulated  amortization** | ** ** |
| Customer list          |       | $                      | 1,900,000  |                          | $          | 918,334 |   | $ | 1,900,000 |   | $ | 633,334 |   |
| Employment agreement   |       | 760,000                |       | 367,333                       |       | 760,000 |   | 253,333 |   |
| Customer relationships |       | 7,260,000              |       | 121,000                       |       | — |   | — |   |
| Vendor relationship    |       | 890,000                |       | 22,250                        |       | — |   | — |   |
| Trademark              |       | 690,000                |       | —                        |       | — |   | — |   |
|                   |       |                   |       |                          |       |   |   |   |   |
| Total                  |       | $                      | 11,500,000 |                          | $          | 1,428,917 |   | $ | 2,660,000 |   | $ | 886,667 |   |

 

Amortization expense relatedto other intangible assets subject to amortization, for the three-month andnine-month periods ended September 30, 2004 and 2003, was as follows:

 

| **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| $                                     | 276,250    |                                 | $          | 133,000 |   | $ | 542,250 |   | $ | 399,000 |   |
|                                       |            |                                      |            |  |  |  |  |  |  |  |  |

 

Amortization expense relatedto other intangible assets subject to amortization is expected to be $276,250for the fourth quarter of 2004, and, for each of the years in the five-yearperiod ending September 30, 2009, as follows:2005 - $1,105,000; 2006 - $1,105,000; 2007 - $883,333; 2008 - $573,000; and2009 - $573,000.

 

**NOTE 9 - SHORT-TERM BORROWINGS**

 

On June 30, 2004, inconjunction with the Woodmark acquisition transaction, the Company entered intoa credit agreement with Citibank and another bank. This agreement includes a revolving credit loan facility, whichprovides a total of $12,000,000 for direct borrowings, with various sublimitsfor letters of credit, bankers’ acceptances and equipment loans. Thereare no commitment fees for any unused portion of this credit facility. At September 30, 2004, there was $9,500,000outstanding against the revolving credit loan facility, and there were no openletters of credit.

 

Directborrowings under the Company’s revolving credit loan facility are secured bythe Company’s accounts receivable, inventory and equipment and arecross-guaranteed by each of the Company’s subsidiaries. These borrowings bearinterest at either LIBOR  (London InterBank Offered Rate) plus the currently applicable loan margin or theprime interest rate. At September 30, 2004, the applicable loan margin added toLIBOR was 1.6%. At September 30, 2004, LIBOR was approximately 1.8% and theprime interest rate was 4.75%. At September 30, 2003, LIBOR was approximately1.1% and the prime interest rate was 4.0%.

 

Thecredit agreement also includes a foreign exchange line, which provides for theavailability of up to $10,000,000 in foreign currency forward contracts. Thesecontracts fix the exchange rate on future purchases of yen needed for paymentsto foreign suppliers. The total amount of foreign currency forward contractsoutstanding under the foreign exchange line at September 30, 2004, based onthat day’s closing spot rate, was approximately $3,384,000.

 

Underthe terms of the Company’s credit agreement, the Company is required to adhereto certain financial covenants. At September 30, 2004, and for the nine monthsthen ended, the Company was in compliance with all of these covenants.

 

12

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**NOTE 10 - LONG-TERM DEBT**

 

The credit agreement also includes a term loan facility, which providesa maximum commitment of $34,000,000 to finance acquisitions subject to theapproval of the lending banks. TheCompany borrowed $29,000,000 against this facility to finance the Woodmarkacquisition transaction, and there was $31,750,000, including amounts rolledover from the prior term loan facility, outstanding against the term loanfacility at September 30, 2004.

 

Long-termdebt consists of:

 
| ** **                                                                                                                                                                                                                                                                            | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Term loan – $250,000 payable quarterly from  September 2004 through June 2005. Principal amount outstanding at September  30, 2005 to be paid in 24 equal quarterly installments (plus interest at  LIBOR plus the applicable loan margin) from September 2005 through June 2011 |       | $                       | 31,750,000 |                   | $          | 5,250,000 |   |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Note payable to former owners of Woodmark –  lump sum payment, plus interest, due in June 2007. Interest accrues at the  Company’s highest borrowing rate in effect under its credit agreement. At  September 30, 2004, the applicable rate was LIBOR plus 1.75%            |       | 2,190,000               |       | —                 |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Note payable to former owners of Woodmark –  lump sum payment due in June 2007. This non-interest bearing note has been  discounted using the Company’s current interest rate. This amount includes  $9,583 of imputed interest expense recorded through September 30, 2004 |       | 1,227,583               |       | —                 |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Mortgage loan - $11,244 (plus interest at  LIBOR plus 155 basis points) payable monthly through May 2009, when a final  payment of approximately $1,090,000 is due                                                                                                                    |       | 1,709,156               |       | 1,810,356              |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Mortgage loan - $9,429 (plus interest at  LIBOR plus 155 basis points) payable monthly through January 2010, when a  final payment of approximately $915,000 is due                                                                                                                   |       | 1,508,712               |       | 1,593,577              |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Mortgage loan - $16,388 (including interest  at 7.09%) payable monthly through March 2014                                                                                                                                                                                             |       | 1,342,771               |       | 1,415,604              |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
| Economic Development Revenue Bond – payable  annually in various principal amounts (plus interest at variable rates)  through November 2004. This bond was paid in full in October 2004.                                                                                         |       | 180,000                 |       | 180,000                |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
|                                                                                                                                                                                                                                                                                  |       | 39,908,222              |       | 10,249,537             |       |
| Less current maturities                                                                                                                                                                                                                                                               |       | 3,531,911               |       | 1,526,213              |       |
|                                                                                                                                                                                                                                                                                  |       |                    |       |                   |       |
|                                                                                                                                                                                                                                                                                  |       | $                       | 36,376,311 |                   | $          | 8,723,324 |   |

 

Certain of the Company’s mortgage agreements requirethe Company to adhere to certain financial covenants. At September 30, 2004, and forthe nine months then ended, the Company received a waiver for the one covenantwith which it was not in compliance.

 

13

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**NOTE 11 - WARRANTY LIABILITY**

 

The Company offers to its customerswarranties against product defects for periods ranging from one year to thelife of the product, depending on the specific product and terms of thecustomer purchase agreement. The Company’s typical warranties require it torepair or replace the defective products during the warranty period at no costto the customer. At the time the product revenue is recognized, the Companyrecords a liability for estimated costs under its warranties, which costs areestimated based on historical experience. The Company periodically assesses theadequacy of its recorded warranty liability and adjusts the amounts as necessary.While the Company believes that its estimated liability for product warrantiesis adequate, the estimated liability for the product warranties could differmaterially from future actual warranty costs.

 

Changes in the Company’s warranty liability, includedin other accrued liabilities, for the nine-month periods ended September 30,2004 and 2003 were as follows:

 
| ** **                                                                                                   | ** ** | **Nine months ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Balance, beginning of period                                                                                 |       | $                                    | 210,989    |   | $ | 186,513 |   |
| Addition related to the acquisition of  certain assets and the assumption of certain liabilities of Woodmark |       | 148,487                              |       | — |   |
| Warranties issued and changes in estimated  pre-existing warranties                                          |       | 972,705                              |       | 258,610 |   |
| Actual warranty costs incurred                                                                               |       | (718,161                             | )          | (230,453 | ) |
|                                                                                                         |       |                                 |       |   |   |
| Balance, end of period                                                                                       |       | $                                    | 614,020    |   | $ | 214,670 |   |

 

**NOTE 12 - CAPITAL STOCK TRANSACTIONS**

 

Inconnection with its Stockholder Rights Plan, the Company entered into a RightsAgreement, under which the Company declared a dividend distribution of onepreferred share purchase right (a “Right”) for each outstanding share of ClassA Common Stock. The dividend is payable to the stockholders of record onSeptember 6, 2004. These rights entitle the stockholders, in certaincircumstances, to purchase one one-thousandth (1/1000th) of a share(a “Unit”) of the Company’s Series A-2004 Junior Participating Preferred Stock,par value $10.00 per share, at a purchase price of $40.00 per unit. TheStockholder Rights Plan, which expires in September 2014, is intended toprotect, among other things, the interests of the Company’s stockholders in theevent the Company is confronted with coercive or unfair takeover tactics.

 

14

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**NOTE 13 - SEGMENTS OF BUSINESS**

 

Thefollowing tables present financial information by segment for the periods endedSeptember 30, 2004 and 2003. Segment profit (loss) excludes general corporateexpenses, interest expense and income taxes. All intersegment revenues havebeen eliminated.

 
| **Three  months ended  September 30, 2004**   | ** ** | **Consolidated**   | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and  related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|----------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **(In Thousands)** | ** ** |
| Revenues from external customers              |       | $                  | 38,936     |                                         | $          | 15,840       |       | $                                                 | 15,895     |                  | $          | 4,347 |   | $ | 2,854 |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Gross profit                                  |       | $                  | 10,536     |                                         | $          | 4,233        |       | $                                                 | 5,112      |                  | $          | 394 |   | $ | 797 |   |
| Selling, general and administrative  expenses |       | 6,067              |       | 2,509                                        |       | 2,340        |       | 447                                               |       | 771                   |       |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Segment profit (loss)                         |       | 4,469              |       | $                                            | 1,724      |         | $          | 2,772                                             |       | $                     | (53        | ) | $ | 26 |   |
| General corporate expense                     |       | 1,228              |       |                                         |       |         |       |                                              |       |                  |       |
| Interest expense - net                        |       | 439                |       |                                         |       |         |       |                                              |       |                  |       |
| Income before taxes on income                 |       | $                  | 2,802      |                                         |       |         |       |                                              |       |                  |       |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Identifiable assets at September 30, 2004     |       | $                  | 99,751     |                                         | $          | 29,857       |       | $                                                 | 54,280     |                  | $          | 9,596 |   | $ | 6,018 |   |
| Corporate assets                              |       | 2,353              |       |                                         |       |         |       |                                              |       |                  |       |
| Total assets at September 30, 2004            |       | $                  | 102,104    |                                         |       |         |       |                                              |       |                  |       |   |

 
| **Three  months ended  September 30, 2003**   | ** ** | **Consolidated**   | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and  related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|----------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **(In Thousands)** | ** ** |
| Revenues from external customers              |       | $                  | 23,703     |                                         | $          | 12,431       |       | $                                                 | 5,282      |                  | $          | 3,452 |   | $ | 2,538 |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Gross profit                                  |       | $                  | 6,735      |                                         | $          | 3,811        |       | $                                                 | 1,856      |                  | $          | 364 |   | $ | 704 |   |
| Selling, general and administrative  expenses |       | 4,192              |       | 2,077                                        |       | 944          |       | 433                                               |       | 738                   |       |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Segment profit (loss)                         |       | 2,543              |       | $                                            | 1,734      |         | $          | 912                                               |       | $                     | (69        | ) | $ | (34 | ) |
| General corporate expense                     |       | 958                |       |                                         |       |         |       |                                              |       |                  |       |
| Interest expense - net                        |       | 172                |       |                                         |       |         |       |                                              |       |                  |       |
| Income before taxes on income                 |       | $                  | 1,413      |                                         |       |         |       |                                              |       |                  |       |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Identifiable assets at September 30, 2003     |       | $                  | 63,031     |                                         | $          | 28,632       |       | $                                                 | 19,885     |                  | $          | 8,870 |   | $ | 5,644 |   |
| Corporate assets                              |       | 1,344              |       |                                         |       |         |       |                                              |       |                  |       |
| Total assets at September 30, 2003            |       | $                  | 64,375     |                                         |       |         |       |                                              |       |                  |       |   |

 

15

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| **Nine  months ended  September 30, 2004**    | ** ** | **Consolidated**   | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and  related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|----------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **(In Thousands)** | ** ** |
| Revenues from external customers              |       | $                  | 79,862     |                                         | $          | 33,631       |       | $                                                 | 27,259     |                  | $          | 11,201 |   | $ | 7,771 |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Gross profit                                  |       | $                  | 22,794     |                                         | $          | 10,311       |       | $                                                 | 9,268      |                  | $          | 1,014 |   | $ | 2,201 |   |
| Selling, general and administrative  expenses |       | 14,586             |       | 6,677                                        |       | 4,387        |       | 1,312                                             |       | 2,210                 |       |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Segment profit (loss)                         |       | 8,208              |       | $                                            | 3,634      |         | $          | 4,881                                             |       | $                     | (298       | ) | $ | (9 | ) |
| General corporate expense                     |       | 3,130              |       |                                         |       |         |       |                                              |       |                  |       |
| Interest expense - net                        |       | 702                |       |                                         |       |         |       |                                              |       |                  |       |
| Income before taxes on income                 |       | $                  | 4,376      |                                         |       |         |       |                                              |       |                  |       |   |

 
| **Nine  months ended  September 30, 2003**    | ** ** | **Consolidated**   | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and  related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|----------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **(In Thousands)** | ** ** |
| Revenues from external customers              |       | $                  | 64,923     |                                         | $          | 33,705       |       | $                                                 | 15,229     |                  | $          | 9,341 |   | $ | 6,648 |   |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Gross profit                                  |       | $                  | 19,876     |                                         | $          | 11,696       |       | $                                                 | 5,314      |                  | $          | 880 |   | $ | 1,986 |   |
| Selling, general and administrative  expenses |       | 12,367             |       | 6,404                                        |       | 2,516        |       | 1,271                                             |       | 2,176                 |       |
|                                          |       |               |       |                                         |       |         |       |                                              |       |                  |       |
| Segment profit (loss)                         |       | 7,509              |       | $                                            | 5,292      |         | $          | 2,798                                             |       | $                     | (391       | ) | $ | (190 | ) |
| General corporate expense                     |       | 2,842              |       |                                         |       |         |       |                                              |       |                  |       |
| Interest expense - net                        |       | 555                |       |                                         |       |         |       |                                              |       |                  |       |
| Income before taxes on income                 |       | $                  | 4,112      |                                         |       |         |       |                                              |       |                  |       |   |

 

16

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**NOTE 14 -EARNINGS PER SHARE**

 

Thefollowing table sets forth the computation of basic and diluted earnings percommon share:

 
| ** **                                                                                                         | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Numerator:                                                                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Numerator for basic and diluted earnings  per common share:                                                        |       |                                  |       |                                 |       |   |   |   |   |
| Net income                                                                                                         |       | $                                     | 1,605,401  |                                 | $          | 882,692 |   | $ | 2,546,341 |   | $ | 2,569,816 |   |
|                                                                                                               |       |                                  |       |                                 |       |   |   |   |   |
| Denominator:                                                                                                       |       |                                  |       |                                 |       |   |   |   |   |
| Denominator for basic and diluted earnings  per share:                                                             |       |                                  |       |                                 |       |   |   |   |   |
| Weighted average common shares outstanding                                                                         |       | 3,518,212                             |       | 3,503,766                            |       | 3,517,142 |   | 3,505,204 |   |
| Effect of dilutive securities:                                                                                     |       |                                  |       |                                 |       |   |   |   |   |
| Common stock options                                                                                               |       | 135,260                               |       | 81,173                               |       | 115,232 |   | 74,203 |   |
| Denominator for diluted earnings per share  – adjusted weighted average common shares and assumed conversions |       | 3,653,472                             |       | 3,584,939                            |       | 3,632,374 |   | 3,579,407 |   |
|                                                                                                                    |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |

 

Therewere outstanding during the three-month and nine-month periods ended September30, 2004 and 2003 stock options whose exercise prices were higher than theaverage market values of the underlying Class A CommonStock for the respective periods. These options are anti-dilutive and areexcluded from the computation of earnings per share. The weighted averageanti-dilutive stock options outstanding were as follows:

 
| ** **                                                     | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                     | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted average anti-dilutive  stock options outstanding |       | 43,812                                |       | 187,000                              |       | 27,271 |   | 231,443 |   |

 

17

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**Item 2.****            Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**General**

 

Any forward-lookingstatements contained herein, including those related to the Company’s futureperformance, are based upon the Company’s historical performance and on currentplans, estimates and expectations, which are subject to various risks anduncertainties, including, but not limited to, the impact of competition, productdemand and pricing. These risks could cause the Company’s actual results forthe balance of fiscal year 2004 and beyond to differ materially from thoseexpressed in any forward-looking statement made by or on behalf of the Company.Forward-looking statements speak only as of the date on which they are made,and the Company undertakes no obligation to update publicly or revise anyforward-looking statement, whether as a result of new information, futuredevelopments or otherwise.

 

**Overview**

 

On June 30, 2004, asdescribed in Note 7 of the Notes toConsolidated Condensed Financial Statements (unaudited) contained herein,Woodmark acquired certain assets comprising the business of the former WoodmarkInternational L.P. and its wholly-owned subsidiary, the former Stair House,Inc., and assumed certain related liabilities. The Company’s results of operations include the results of operationsfor Woodmark for the three months ended September 30, 2004 within its hardwarebusiness segment.

 

Consolidated revenues forthe quarter ended September 30, 2004 increased $15,233,620, or 64.3%, from$23,702,702 to $38,936,322. Revenues increased at each of the foursubsidiaries, with the greatest increase at Countrywide, which includedrevenues at Woodmark of $10,484,564. In addition, revenues at Florida Pneumaticincreased $3,408,911, or 27.4%, from the comparable prior-year period primarilydue to increases in retail promotions, base sales and new productintroductions. Moreover, this revenue growth has replaced the revenues lostfrom a major customer which had adversely affected Florida Pneumatic’s revenuesin the first half of fiscal 2004. Gross profit increased for the quarter, dueprimarily to increased revenues. Gross profit increases were offset, in part,due to increases in the cost of raw materials and the cost of imported productdue to the weakening of the U.S. dollar versus both the yen and euro.Consolidated net income increased $722,709, or 81.9%, from $882,692 to$1,605,401.

 

Consolidated revenues forthe nine months ended September 30, 2004 increased $14,939,330, or 23.0%, from$64,922,883 to $79,862,213. Revenues increased at three of the foursubsidiaries, with the greatest increase at Countrywide, which includedrevenues at Woodmark of $10,484,564 and increased revenues at Nationwide of$1,527,651. In addition, revenues from Green and Embassy increased $1,951,676and $1,122,648, respectively. Net income decreased $23,475, or .9%, from$2,569,816 to $2,546,341.

 

**Critical Accounting Policies andEstimates**

 

There have been no materialchanges in the Company’s critical accounting policies and estimates from thosediscussed in Item 7 of the Company’s Annual Report on Form 10-K for the yearended December 31, 2003.

 

18

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**RESULTS OF OPERATIONS**

 

**Quarters ended September 30, 2004and September 30, 2003**

 

**Revenues**

 

Revenues by segment for thequarters ended September 30, 2004 and 2003 were as follows:

 
| **Quarter  ended  September 30,** | ** ** | **Consolidated** | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------|------------|------------------|------------|----------------------------------------------|------------|--------------|------------|--------------------------------------------------|------------|-----------------------|------------|
| **2004**                          |       | $                | 38,936,322 |                                         | $          | 15,840,477   |       | $                                                | 15,894,679 |                  | $          | 4,347,020 |   | $ | 2,854,146 |   |
|                              |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **2003**                          |       | $                | 23,702,702 |                                         | $          | 12,431,566   |       | $                                                | 5,282,013  |                  | $          | 3,451,184 |   | $ | 2,537,939 |   |
|                              |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **%  increase**                   |       | 64.3             | %          | 27.4                                         | %          | 200.9        | %          | 26.0                                             | %          | 12.5                  | %          |

 

Revenues from pneumatictools and related equipment increased due primarily to increases in retailpromotions, base sales and new product introductions of approximately$4,070,000 and increases in sales to the automotive after-market ofapproximately $449,000. These increases were offset by a decrease ofapproximately $1,135,000 attributable to the loss of a major customer in early2004. Selling prices of pneumatic tools and related equipment were unchanged.

 

Revenues from hardwareincreased significantly as a result of the acquisition of Woodmark, whichrecorded approximately $10,485,000 in revenues during the third quarter.Moreover, Nationwide’s revenues increased by approximately $109,000, primarilyattributable to an increase of approximately $365,000 in sales of fencingproducts, which was partially offset by decreases in OEM and patio hardwaresales of approximately $201,000 and $92,000, respectively. Further revenueincreases in the third quarter were thwarted by Florida’s severe hurricanes,which caused a business disruption for Nationwide and many of its customers forseveral days. Although Nationwide expects to increase its sales of fencing andpatio products as a direct result of the damage caused by theses hurricanes,the extent and timing of these sales may be delayed by one or more quarters.During the first quarter of 2004, the Company incurred increases in the priceof steel. Effective February 1, 2004, Nationwide began charging fencing productcustomers an additional 4-5% to cover the increased cost. During April of 2004,the Company began increasing prices to customers at Franklin and to othercustomers at Nationwide in an effort to cover the cost increases.

 

Revenues from hydrauliccylinders and other equipment increased due primarily to increases in cylindersales of approximately $689,000, or 28.2%, and in the access product line ofapproximately $180,000, or 25.4%. In addition to general price increases latein the third quarter to certain customers to improve operating margins, theCompany increased cylinder prices to customers by an additional 2% on average(8.5% for the nine months ended September 30, 2004) by the end of the thirdquarter of 2004, the approximate amount of the increases in the cost of steelthat began in the first quarter of 2004. However, due to the delays inimplementing these price increases, they did not fully offset the material costincreases for the period.

 

19

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Revenues from heatingproducts increased approximately $316,000, or 12.5%, due primarily to increasedradiant and boiler sales of approximately $237,000, as well as increasedbaseboard sales resulting from the continued strength of new housing starts in2004. During the first quarter of 2004, the Company incurred increases in theprice of steel, copper and aluminum. During the second quarter of 2004, theCompany began increasing selling prices across all product lines within thissegment in amounts that approximate the cost increases.

 

**GrossProfit**

 

Grossprofits by segment for the quarters ended September 30, 2004 and 2003 were asfollows:

** **
| **Quarter  ended  September 30,** | ** ** | **Consolidated** | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and related  equipment** | ** ** | **Heating  products** | ** ** |
|-----------------------------------|------------|------------------|------------|----------------------------------------------|------------|--------------|------------|--------------------------------------------------|------------|-----------------------|------------|
| **2004**                          |       | $                | 10,535,843 |                                         | $          | 4,232,862    |       | $                                                | 5,111,857  |                  | $          | 394,783 |   | $ | 796,341 |   |
|                              |       | 27.1             | %          | 26.7                                         | %          | 32.2         | %          | 9.1                                              | %          | 27.9                  | %          |
|                              |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **2003**                          |       | $                | 6,734,703  |                                         | $          | 3,811,278    |       | $                                                | 1,855,067  |                  | $          | 364,677 |   | $ | 703,681 |   |
|                              |       | 28.4             | %          | 30.7                                         | %          | 35.1         | %          | 10.6                                             | %          | 27.7                  | %          |

 

The decrease in the grossprofit percentage from pneumatic tools and related equipment was due primarilyto the weakness of the U.S. dollar in relation to the Japanese yen, the loss ofa major customer noted above with a better-than-average gross margin and by aless favorable product mix, offset by other cost reductions and productivityimprovements. The decrease in the gross profit percentage from hardwareproducts was due primarily to the inclusion of Woodmark, whose gross profitpercentage of 31.3% was less than this segment’s prior-period average.Excluding Woodmark, the gross profit percentage for hardware products was33.8%. On this basis, the gross profit percentage decreased compared with theprior-year quarter due to higher freight and overhead costs offset by a morefavorable product mix. The decrease in the gross profit percentage fromhydraulic cylinders and other equipment was due primarily to the increased costof materials, principally steel. The slight increase in the gross profitpercentage from heating equipment was due primarily to a favorable product mix.

 

**Selling,General and Administrative Expenses**

 

Consolidated selling,general and administrative (SG&A) expenses increased $2,145,416, or 41.7%,from $5,149,755 to $7,295,171. Excluding expenses of $1,333,336 related toWoodmark during the quarter, SG&A expenses increased by $812,080, or 15.8%,due primarily to increased compensation resulting from a change in executivepersonnel at Nationwide and, to a lesser extent, to increased professionalfees, mainly related to corporate compliance and reporting requirements. Theseincreases were partially offset by decreases resulting from cost-cuttingefforts in all of the segments. However, due to increases in revenues, SG&Aexpenses as a percentage of revenues decreased from 21.7% to 18.7%.

 

20

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**Interest-Net**

 

Net interest expenseincreased $266,015, or 154.4%, from $172,256 to $438,271, due primarily to theamounts borrowed under the Company’s term loan facility to finance the Woodmarkacquisition transaction on June 30, 2004. Interest expense onborrowings under the term loan facility increased by approximately $223,000.Interest expense on borrowings under the Company’s revolving credit loanfacility increased by approximately $3,000, as lower average borrowings wereoffset by higher average interest rates.

 

**Taxeson Income**

 

The effective tax rates forthe quarters ended September 30, 2004 and 2003 were 42.7% and 37.5%,respectively. The increase in the effective tax rate was due primarily to anincrease in expenses that are not deductible for tax purposes.

 

**Nine-month periods endedSeptember 30, 2004 and September 30, 2003**

 

**Revenues**

 

Revenues by segment for thenine-month periods ended September 30, 2004 and 2003 were as follows:

 
| **Nine  months ended  September 30,** | ** ** | **Consolidated** | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and related  equipment** | ** ** | **Heating  products** | ** ** |
|---------------------------------------|------------|------------------|------------|----------------------------------------------|------------|--------------|------------|--------------------------------------------------|------------|-----------------------|------------|
| **2004**                              |       | $                | 79,862,213 |                                         | $          | 33,631,545   |       | $                                                | 27,259,321 |                  | $          | 11,200,688 |   | $ | 7,770,659 |   |
|                                  |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **2003**                              |       | $                | 64,922,883 |                                         | $          | 33,705,562   |       | $                                                | 15,228,583 |                  | $          | 9,340,727 |   | $ | 6,648,011 |   |
|                                  |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **%  increase (decrease)**            |       | 23.0             | %          | (.2                                          | )%         | 79.0         | %          | 19.9                                             | %          | 16.9                  | %          |

 

Revenues from pneumatictools and related equipment were only slightly less than the prior-year period,which included approximately $2,905,000 attributable to a major customer thatwas lost in early 2004. Through the third quarter, nearly two-thirds of thatrevenue shortfall had been recouped from new retail product sales ofapproximately $1,367,000 and increases in retail promotions and base sales ofapproximately $562,000. In addition, revenues have been favorably impacted byincreased sales to the automotive after-market of approximately $859,000,principally from new products, and by increased industrial revenues ofapproximately $443,000. These increases were partially offset by decreases incommission revenues and Berkeley tool division, OEM and filter sales. Sellingprices of pneumatic tools and related equipment were unchanged.

 

Revenues from hardwareincreased significantly as a result of the acquisition of Woodmark, whichrecorded approximately $10,485,000 in revenues during the third quarter.Moreover, Nationwide’s revenues increased approximately $1,528,000, or 13.2%,primarily attributable to an increase of approximately $1,959,000 in sales offencing products which was partially offset by decreases in OEM and patiohardware sales of approximately $298,000 and $174,000, respectively. During thefirst quarter of 2004, the Company incurred increases in the price of steel.Effective February 1, 2004, Nationwide began charging fencing product customersan additional 4-5% to cover the increased cost. During April of 2004, the Companybegan increasing prices to customers at Franklin and to other customers atNationwide in an effort to cover the cost increases.

 

21

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Revenues from hydrauliccylinders and other equipment increased due primarily to increases in cylindersales of approximately $1,501,000, or 23.3%, as demand in this product hasincreased in 2004. In addition to a general increase in sales to most cylindercustomers, there were also increases in sales in the agriculture and accessproduct lines of approximately $162,000, or 14.5%, and approximately $389,000,or 16.1%, respectively. In addition to general price increases in the thirdquarter to certain customers to improve operating margins, the Companyincreased cylinder prices to customers by 8.5% on average throughout 2004, theapproximate amount of the increases in the cost of steel that began in thefirst quarter of 2004. However, due to the delay in implementing these priceincreases, they did not fully offset the material cost increases for theperiod.

 

Revenues from heatingproducts increased due primarily to increased baseboard sales, resulting fromstrong housing starts in 2004, and increased radiant and boiler sales,reflecting continued market penetration with the new product line. During thefirst quarter of 2004, the Company incurred increases in the price of steel,copper and aluminum. During the second quarter of 2004, the Company beganincreasing selling prices across all product lines within this segment in amountsthat approximate the cost increases.

 

**GrossProfit**

 

Grossprofits by segment for the nine-month periods ended September 30, 2004 and 2003were as follows:

 
| **Nine  months ended  September 30,** | ** ** | **Consolidated** | ** ** | **Pneumatic  tools and  related  equipment** | ** ** | **Hardware** | ** ** | **Hydraulic  cylinders  and related  equipment** | ** ** | **Heating  products** | ** ** |
|---------------------------------------|------------|------------------|------------|----------------------------------------------|------------|--------------|------------|--------------------------------------------------|------------|-----------------------|------------|
| **2004**                              |       | $                | 22,794,225 |                                         | $          | 10,311,248   |       | $                                                | 9,268,410  |                  | $          | 1,014,051 |   | $ | 2,200,516 |   |
|                                  |       | 28.5             | %          | 30.7                                         | %          | 34.0         | %          | 9.1                                              | %          | 28.3                  | %          |
|                                  |       |             |       |                                         |       |         |       |                                             |       |                  |       |
| **2003**                              |       | $                | 19,876,118 |                                         | $          | 11,696,727   |       | $                                                | 5,313,367  |                  | $          | 880,414 |   | $ | 1,985,610 |   |
|                                  |       | 30.6             | %          | 34.7                                         | %          | 34.9         | %          | 9.4                                              | %          | 29.9                  | %          |

 

The decrease in the grossprofit percentage from pneumatic tools and related equipment was due primarilyto the loss of a major customer noted above with a better-than-average grossmargin and the weakness of the U.S. dollar in relation to the Japanese yen, partially offset by a more favorable product mix andproductivity improvements. The decrease in the gross profit percentage fromhardware products was due primarily to the inclusion of Woodmark, whose grossprofit percentage of 31.3% was less than this segment’s prior-period average.Excluding Woodmark, the gross profit percentage for hardware products was35.7%. On this basis, gross profit percentage increased compared with theprior-year period due to a more favorable product mix and greater absorption offixed period costs from increased sales volume. The decrease in the grossprofit percentage from hydraulic cylinders and other equipment was dueprimarily to material cost increases not fully absorbed by price increases. Thedecrease in the gross profit percentage from heating equipment was dueprimarily to lower gross profit margins on radiant and boiler sales, resultingprincipally from the weakening of the U.S. dollar in relation to the euro, aless favorable product mix for commercial products, reduced margins forbaseboard heating products and an increase in boiler sales that were at reducedmargins.

 

22

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**Selling,General and Administrative Expenses**

 

Consolidated selling,general and administrative (SG&A) expenses increased $2,507,484, or 16.5%,from $15,209,037 to $17,716,521. Excluding expenses of $1,333,336 related toWoodmark during the third quarter, SG&A increased by $1,174,148, or 7.7%,due primarily to increased compensation resulting from a change in executivepersonnel at Nationwide and, to a lesser extent, to increased professionalfees, mainly related to corporate compliance and reporting requirements. Theseincreases were partially offset by decreases resulting from cost-cuttingefforts in all of the segments. However, due to increases in revenues, SG&Aexpenses as a percentage of revenues decreased from 23.4% to 22.2%.

 

**Interest-Net**

 

Net interest expenseincreased $146,098, or 26.3%, from $555,265 to $701,363, due primarily to theamounts borrowed under the Company’s term loan facility to finance the Woodmarkacquisition transaction on June 30, 2004. Interest expense onborrowings under the term loan facility increased by approximately $186,000.Interest expense on borrowings under the Company’s revolving credit loanfacility decreased by approximately $41,000, as a result of lower averageborrowings and lower average interest rates.

 

**Taxeson Income**

 

The effective tax rates forthe nine-month periods ended September 30, 2004 and 2003 were 41.8% and 37.5%,respectively. The increase in the effective tax rate was due primarily to anincrease in expenses that are not deductible for tax purposes.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company’s cash flows from operations arecyclical, with the greatest demand in the second and third quarters followed byvery positive cash flows in the fourth quarter as receivables and inventories trenddown. Due to its strong asset base, predictable cash flows and favorablebanking relationships, the Company believes it has adequate access to capital,if and when needed. The Company monitors average dayssales outstanding, inventory turns and capital expenditures to projectliquidity needs and evaluate return on assets employed.

 

TheCompany gauges its liquidity and financial stability by the measurements shownin the following table (dollar amounts in thousands):

 
| ** **                | ** ** | **September 30, 2004** | ** ** | **December 31, 2003** | ** ** | **September 30, 2003** | ** ** |
|---------------------------|------------|------------------------|------------|-----------------------|------------|------------------------|------------|
| Working Capital           |       | $                      | 28,142     |                  | $          | 20,960                 |       | $ | 20,083 |   |
| Current Ratio             |       | 2.09 to 1              |       | 2.72 to 1             |       | 2.08 to 1              |       |
| Shareholders’ Equity |       | $                      | 39,570     |                  | $          | 36,978                 |       | $ | 36,159 |   |

 

On June 30, 2004, asdescribed in Note 7 of the Notes toConsolidated Condensed Financial Statements (unaudited) contained herein,Woodmark acquired certain assets comprising the business of the former WoodmarkInternational L.P. and its wholly-owned subsidiary, the former Stair House,Inc., and assumed certain related liabilities.

 

23

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Cash increased $2,215,454,from $213,409 as of December 31, 2003 to $2,428,863, as of September 30, 2004.The Company’s debt levels increased from $13,249,537 at December 31, 2003 to$49,408,222 at September 30, 2004, due primarily to the financing of theaforementioned acquisition. The Company’s total percent of debt to totalcapitalization increased from 26.4% at December 31, 2003 to 55.5% at September30, 2004.

 

In connection withCountrywide’s acquisition of all of the stock of Nationwide in 2002, theCompany is liable for contingent earnout payments to Nationwide’s previousowner, in amounts equal to 30% of the excess of Nationwide’s earnings, beforeamortization of intangible assets, interest and taxes, over $2,500,000, foreach of the five twelve-month periods subsequent to the acquisition date. Thesecontingent earnout payments have been and will be treated as additions togoodwill. During the nine months ended September 30, 2004, the Company recordednet additions to goodwill of approximately $502,000, related to contingentearnout payments.

 

In connection with the Woodmark acquisitiontransaction, the Company is liable for additional payments to the sellers. Theamount of these payments, which would be made as of either June 30, 2007 orJune 30, 2009, are to be based on increases in earnings before interest andtaxes, for the year ended on the respective date, over a base of $5,100,000.Woodmark has the option to make a payment as of June 30, 2007 in an amountequal to 48% of this increase. If Woodmark does not make this payment as ofJune 30, 2007, the Sellers may demand payment as of June 30, 2009 in an amountequal to 40% of the increase. Any such additional payments will be treated asadditions to goodwill. 

 

During the nine months ended September 30,2004, gross accounts receivable increased at each of the four subsidiaries, byapproximately $7,862,000 in the aggregate and approximately $4,704,000exclusive of the Woodmark acquisition transaction. Increases were approximately$3,882,000, $1,056,000, $2,888,000 and $36,000 at Countrywide, Green, FloridaPneumatic and Embassy, respectively. The increase at Countrywide was dueprimarily to the addition of Woodmark’s gross accounts receivable of$3,419,000. Excluding Woodmark, the overall increase in gross accountsreceivable at each subsidiary is due primarily to the increase in sales in thethird quarter of 2004 compared to the fourth quarter of 2003.

 

During the nine months endedSeptember 30, 2004, inventories increased at each of the four subsidiaries, by approximately$9,918,000 in the aggregate and approximately $4,085,000 exclusive of theWoodmark acquisition transaction. Increases were approximately $7,844,000,$381,000, $1,477,000 and $216,000 at Countrywide, Green, Florida Pneumatic andEmbassy, respectively. The increase at Countrywide was due primarily to theaddition of Woodmark’s inventories of $6,770,000. Inventory increases at eachsubsidiary, particularly at Countrywide and Florida Pneumatic, are primarily tosupport overall growth in the business.

 

During the nine-months endedSeptember 30, 2004, short-term borrowings increased by $6,500,000, primarily tofund working capital needs.

 

During the nine months endedSeptember 30, 2004, accounts payable increased at each of the foursubsidiaries, by approximately $3,132,000 in the aggregate and approximately$2,914,000 exclusive of the Woodmark acquisition transaction. Increases wereapproximately $482,000, $148,000, $2,465,000 and $37,000 at Countrywide, Green,Florida Pneumatic and Embassy, respectively. The increase at Countrywide wasdue primarily to the addition of Woodmark’s accounts payable of $341,000. Theincrease at Florida Pneumatic was due primarily to the mix of foreign purchasesto support new product introductions. The increases at Green and Embassy weredue primarily to the timing of payments resulting from increased inventorypurchases.

 

24

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On June 30, 2004, inconjunction with the Woodmark acquisition transaction, the Company entered intoa credit agreement with Citibank and another bank. This agreement provides theCompany with various credit facilities, including revolving credit loans, termloans for acquisitions and a foreign exchange line. The credit agreement issubject to annual review by the banks.

 

The revolving credit loanfacility provides a maximum of $12,000,000, with various sublimits, for directborrowings, letters of credit, bankers’ acceptances and equipment loans. Thereare no commitment fees for any unused portion of this credit facility. AtSeptember 30, 2004, there was $9,500,000 outstanding against the revolvingcredit loan facility, and there were no openletters of credit.

 

The term loan facilityprovides a maximum commitment of $34,000,000 to finance acquisitions subject to the approval of the lending banks.There are no commitment fees for any unused portion of this credit facility.The Company borrowed $29,000,000 against this facility to finance the Woodmarkacquisition transaction, and there was $31,750,000, including amounts rolledover from the prior term loan facility, outstanding against the term loanfacility at September 30, 2004.

 

The foreign exchange lineprovides for the availability of up to $10,000,000 in foreign currency forwardcontracts. These contracts fix the exchange rate on future purchases ofJapanese yen needed for payments to foreign suppliers. The total amount offoreign currency forward contracts outstanding under the foreign exchange line at September 30, 2004, based onthat day’s closing spot rate, was approximately $3,384,000.

 

Under its credit agreement,the Company is required to adhere to certain financial covenants. At September 30, 2004, and for the nine monthsthen ended, the Company was in compliance with all of these covenants.

 

Certain of the Company’smortgage agreements also require the Company to adhere to certain financialcovenants. At September 30, 2004, and forthe nine months then ended, the Company received a waiver for the one covenantwith which it was not in compliance.

 

Capital spending for thenine months ended September 30, 2004 and 2003 was approximately $944,000 and$800,000, respectively, which amounts were provided from working capital.Capital expenditures for the remainder of 2004 are expected to be approximately$240,000, some of which may be financed through the Company’s creditfacilities. Included in the expected total for the remainder of 2004 arecapital expenditures relating to new products, expansion of existing productlines and replacement of equipment.

 

Operating activities usedcash totaling approximately $814,000 and $1,137,000 during the nine monthsended September 30, 2004 and 2003, respectively. The Company believes that cashon hand derived from operations and cash available through borrowings under itscredit facilities will be sufficient to allow the Company to meet itsforeseeable working capital needs.

 

25

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**Off-Balance Sheet Arrangements**

 

The Company’s foreignexchange line provides for the availability of up to $10,000,000 in foreigncurrency forward contracts. These contracts fix the exchange rate on futurepurchases of Japanese yen needed for payments to foreign suppliers. The Companydoes not purchase forward contracts on New Taiwan dollars or euros. The total amount of foreign currency forwardcontracts outstanding under the foreign exchange line at September 30, 2004,based on that day’s closing spot rate, was approximately $3,384,000.

 

The Company, through FloridaPneumatic, imports a significant amount of its purchases from Japan and Taiwan,with payment due in Japanese yen and New Taiwan dollars. As a result, theCompany is subject to the effects of foreign currency exchange fluctuations.The Company uses a variety of techniques to mitigate any adverse effects fromthese fluctuations, including increasing its selling prices, obtaining pricereductions from its overseas suppliers, using alternative supplier sources andentering into foreign currency forward contracts on yen. The increase in thestrength of the Japanese yen versus the U.S. dollar over the first nine monthsof 2004 had a negative effect on the Company’s results of operations and itsfinancial position. There can be no assurance as to the future trend of thisvalue. See “Item 3 – Quantitative and Qualitative Disclosure About Market Risk.”

 

26

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**Item 3.****    Quantitative and Qualitative Disclosures About Market Risk**

 

The Company is exposed tomarket risks, which include changes in international exchange rates and theprices of certain commodities. The Company attempts to reduce the risks relatedto foreign currency fluctuation by utilizing financial instruments, pursuant toCompany policy.

 

The value of the U.S. dollaraffects the Company’s results. Changes in exchange rates may positively ornegatively affect the Company’s gross margins and operating expenses. TheCompany engages in hedging programs aimed at limiting, in part, the impact ofcurrency fluctuations. Using primarily forward exchange contracts, the Companyhedges some of those transactions that, when remeasured according to accountingprinciples generally accepted in the United States of America, impact thestatement of operations. Factors that could impact the effectiveness of the Company’sprograms include volatility of the currency markets and availability of hedginginstruments. All currency transactions that are entered into by the Company arecomponents of hedging programs and are entered into not for speculation but forthe sole purpose of hedging an existing or anticipated currency exposure. TheCompany does not buy or sell financial instruments for trading purposes.Although the Company maintains these programs to reduce the impact of changesin currency exchange rates, when the U.S. dollar sustains a weakening exchangerate against currencies in which the Company incurs costs, the Company’s costsare adversely affected. The Company has various debt instruments that bearinterest at variable rates tied to LIBOR (London InterBank Offered Rate). Anyincrease in LIBOR would have an adverse effect on the Company’s interest costs.

 

TheCompany accounts for changes in the fair value of its foreign currencycontracts by marking them to market and recognizing any resulting gains or lossesthrough its statement of operations. The Company also marks its yen-denominatedpayables to market, recognizing any resulting gains or losses in its statementof operations. At September 30, 2004, the Company had foreign currency forwardcontracts, maturing in 2004, to purchase yen at contracted forward rates. Thevalue of these contracts at September 30, 2004, based on that day’s closingspot rate, was approximately $3,384,000, which was the approximate value of theCompany’s corresponding yen-denominated accounts payable. During thethree-month periods ended September 30, 2004 and 2003, the Company recorded netrealized gains of approximately $18,000 and $8,000, respectively, on foreigncurrency transactions. During the nine-month periods ended September 30, 2004and 2003, the Company recorded net realized losses of approximately $65,000 and$1,000, respectively, on foreign currency transactions. At September 30, 2004,the Company had an unrealized gain of approximately $60,000 on foreign currencytransactions.

 

The potential loss in valueof the Company’s net investment in foreign currency forward contracts resultingfrom a hypothetical 10 percent adverse change in foreign exchange rates atSeptember 30, 2004 was approximately $391,000.

 

27

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**Item 4.****   ****Controls and Procedures**

 

**Evaluation of disclosure controls and procedures**

 

An evaluation was performed, under the supervision of, and with the participation of, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities and Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were adequate and effective, as of the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (this “Report”), in timely alerting them to all material information relating to the Company and its consolidated subsidiaries that is required to be included in this Report.

 

**Changes in internal controls**

 

There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

28

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**PART II - OTHER INFORMATION**

 
| **Item 1.** | **Legal Proceedings**                                                                                                                                                                                                                            |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        | The Company is a defendant or co-defendant in various  actions brought about in the ordinary course of conducting its business. The  Company does not believe that any of these actions are material to the  financial condition of the Company. |
|        |                                                                                                                                                                                                                                             |
| **Item 2.** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                                                                                                                                 |
|        | None.                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                             |
| **Item 3.** | **Defaults Upon Senior Securities**                                                                                                                                                                                                              |
|        | None.                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                             |
| **Item 4.** | **Submission of Matters to a Vote of Security Holders**                                                                                                                                                                                          |
|        | None.                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                             |
| **Item 5.** | **Other Information**                                                                                                                                                                                                                            |
|        | None.                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                             |
| **Item 6.** | **Exhibits**                                                                                                                                                                                                                                     |
|        | See “Exhibit Index” immediately following the  signature page.                                                                                                                                                                         |

 

29

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**SIGNATURES**

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 
| ** **                | ** ** | **P & F INDUSTRIES, INC.**          |
|---------------------------|------------|-----------------------------------------|
|                      |       | (Registrant)                            |
|                      |       |                                    |
|                      |       |                                    |
|                      |       | By  /s/ Joseph A. Molino, Jr. |   |
|                      |       | Joseph  A. Molino, Jr.                  |
|                      |       | Vice  President                         |
| Dated:  November 12, 2004 |       | (Principal  Financial Officer)          |

 

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **2.1**    |       | Asset Purchase Agreement,  dated as of September 16, 1998, by and between Green Manufacturing, Inc., an  Ohio corporation, and the Registrant (Incorporated by reference to Exhibit  2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2003). Pursuant to Item 601(b)(2) of  Regulation S-K, the Registrant agrees to furnish, supplementally, a copy of  any exhibit or schedule omitted from the Asset Purchase Agreement to the  Commission upon request.                                                                                                                                                                                                                     |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **2.2**    |       | Stock Purchase Agreement,  dated as of May 3, 2002, by and between Mark C. Weldon and the Registrant  (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report  on Form 8-K dated May 3, 2002). Pursuant to Item 601(b)(2)  of Regulation S-K, the Registrant agrees to furnish supplementally a copy of  any exhibit or schedule omitted from the Stock Purchase Agreement to the  Securities and Exchange Commission upon request.                                                                                                                                                                                                                                                                  |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **2.3**    |       | Contract for Purchase and  Sale, dated as of May  1, 2002, between W. I. Commercial Properties, Inc., a Florida corporation,  and Countrywide Hardware, Inc., a Delaware corporation (Incorporated by reference to Exhibit 4.7 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                                                                                                                                                                                                                                                                                                                                   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **2.4**    |       | Asset Purchase Agreement, dated as of June 30,  2004, by and among WM Texas International, LP, a Texas limited partnership  formerly known as Woodmark International, L.P., SH Georgia, Inc., a Georgia  corporation formerly known as Stair House, Inc., Samuel G. Sherstad, WM Texas  GP, LLC, WM Texas Partners, LLC and Woodmark International, L.P., a Delaware  limited partnership. (Incorporated by  reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated  July 9, 2004). Pursuant to Item  601(b)(2) of Regulation S-K, the Registrant agrees  to furnish, supplementally, a copy of any exhibit or schedule omitted from  the Asset Purchase Agreement to the Commission upon request. |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **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, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **3.2**    |       | Amended By-laws of the  Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **3.3**    |       | Amendment to the Amended  By-laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,  2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **4.1**    |       | Rights Agreement, dated as of  August 23, 1994, between the Registrant and American Stock Transfer &  Trust Company, as Rights Agent (Incorporated by reference to Exhibit 1 to the  Registrant’s Registration Statement on Form 8-A dated August 24, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **4.2**    |       | Amendment to Rights  Agreement, dated as of April 11, 1997, between the Registrant and American  Stock Transfer & Trust Company, as Rights Agent (Incorporated by  reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **4.3**    |       | Rights Agreement, dated as of  August 18, 2004, between the Registrant and American Stock Transfer &  Trust Company, as Rights Agent (Incorporated by reference to Exhibit 1 to the  Registrant’s Registration Statement on Form 8-A dated August 18, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |

 

31

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| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.4**    |       | Credit Agreement, dated as of  July 23, 1998, by and among the Registrant, Florida Pneumatic Manufacturing  Corporation, a Florida corporation, Embassy Industries, Inc., a New York  corporation, and European American Bank, a New York banking corporation  (Incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended December 31, 2003).                                                                                                              |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.5**    |       | Amendment No. 1 to Credit  Agreement, dated as of September 16, 1998, by and among the Registrant,  Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and European American Bank, a New York banking corporation  (Incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended December 31, 2003).                                  |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.6**    |       | Amendment No. 2 to Credit  Agreement, dated as of July 28, 1999, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and European American Bank, a New York banking  corporation (Incorporated by reference to Exhibit 4.5 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).                                            |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.7**    |       | Amendment No. 3 to Credit  Agreement, dated as of July 26, 2000, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and European American Bank, a New York banking  corporation (Incorporated by reference to Exhibit 4.5 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).                                            |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.8**    |       | Amendment No. 4 to Credit  Agreement, dated as of June 25, 2001, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and European American Bank, a New York banking  corporation (Incorporated by reference to Exhibit 4.7 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).                                       |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.9**    |       | Amendment No. 5 to Credit  Agreement, dated as of May 3, 2002, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and Citibank, N.A. (successor-in-interest to European  American Bank), a New York banking corporation. (Incorporated by reference to  Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter  ended March 31, 2002). |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| **4.10**   |       | Amendment No. 6 to Credit  Agreement, dated as of June 13, 2002, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, and Citibank, N.A. (successor-in-interest to European  American Bank), a New York banking corporation (Incorporated by reference to  Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter  ended June 30, 2002). |

 

32

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| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **4.11**   |       | Amendment No. 7 to Credit  Agreement, dated as of August 1, 2002, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and Citibank, N.A. (successor-in-interest to  European American Bank), a New York banking corporation (Incorporated by  reference to Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2002).       |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **4.12**   |       | Amendment No. 8 to Credit  Agreement, dated as of August 1, 2002, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and Citibank, N.A. (successor-in-interest to  European American Bank), a New York banking corporation (Incorporated by  reference to Exhibit 4.11 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2002). |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **4.13**   |       | Second Amendment and  Restated Term Note, dated as of February 20, 2003, by and among the  Registrant, Florida Pneumatic Manufacturing Corporation, a Florida  corporation, Embassy Industries, Inc., a New York corporation, Green  Manufacturing, Inc., a Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and Citibank, N.A. (successor-in-interest to  European American Bank), a New York banking corporation (Incorporated by  reference to Exhibit 4.11 to the Registrant’s Annual Report on Form 10-K for  the year ended December 31, 2002). |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **4.14**   |       | Amendment No. 9 to Credit  Agreement, dated as of June 30, 2003, by and among the Registrant, Florida  Pneumatic Manufacturing Corporation, a Florida corporation, Embassy  Industries, Inc., a New York corporation, Green Manufacturing, Inc., a  Delaware corporation, Countrywide Hardware, Inc., a Delaware corporation, Nationwide Industries, Inc.**,** a Florida corporation, and Citibank, N.A. (successor-in-interest to  European American Bank), a New York banking corporation (Incorporated by  reference to Exhibit 4.11 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2003).       |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **4.15**   |       | Credit Agreement, dated as of June 30, 2004, by  and among the Registrant, Florida Pneumatic Manufacturing Corporation,  Embassy Industries, Inc., Green Manufacturing, Inc., Countrywide Hardware,  Inc., Nationwide Industries, Inc.,   Woodmark International, L.P. and Citibank, N.A., as Administrative  Agent, and the lenders** **party  thereto. (Incorporated by reference to  Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 9,  2004).                                                                                                                                                    |   |
| ** ** |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **4.16**   |       | Certain instruments defining  the rights of holders of the long-term debt securities of the Registrant are omitted  pursuant to Section (b)(4)(iii)(A) of Item 601 of  Regulation S-K. The Registrant agrees to furnish supplementally copies of  these instruments to the Commission upon request.                                                                                                                                                                                                                                                                                                                                         |   |

 

33

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| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                        |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **10.1**   |       | Second Amended and Restated  Employment Agreement, dated as of May 30, 2001, between the Registrant and  Richard A. Horowitz (Incorporated by reference to Exhibit 10.1 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2001). |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **10.2**   |       | Consulting Agreement,  effective as of November 1, 2003, between the Registrant and Sidney Horowitz  (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended December 31, 2003).                     |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **10.3**   |       | 1992 Incentive Stock Option  Plan of the Registrant, as amended and restated as of March 13, 1997  (Incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended December 31, 2003).                       |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **10.4**   |       | Executive Incentive Bonus  Plan of the Registrant (Incorporated by reference to Exhibit 10.4 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2001).                                                                       |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **10.5**   |       | 2002 Stock Incentive Plan of  the Registrant (Incorporated  by reference to Exhibit 4.7 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended March 31, 2002).                                                                                 |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **14.1**   |       | Code of Business Conduct and Ethics of the  Registrant and its Affiliates  (Incorporated by reference to Exhibit 14.1 to the Registrant’s Annual Report  on Form 10-K for the fiscal year ended December 31, 2003).                                               |
| ** ** |       |                                                                                                                                                                                                                                                                   |
| **31.1**   |       | 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).                                                     |

 

A copy of any of the foregoing exhibits to this QuarterlyReport on Form 10-Q may be obtained, upon payment of the Registrant’sreasonable expenses in furnishing such exhibit, by writing to P & FIndustries, Inc., 300 Smith Street, Farmingdale, New York 11735-1114,Attention: Corporate Secretary.

 

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