P&F Industries

This past year was yet another dynamic and profitable one for P & F Industries, as we achieved important milestones in both revenues and earnings.

Consolidated revenues grew significantly, from $58,165,715 to $82,700,440, an increase of 42.2%. For the eighth consecutive year, income from continuing operations increased, from $3,943,441 to $4,545,505, an improvement of 15.3%. Diluted earnings per share increased to $1.23, up from $1.07 in 1998.

The most exciting news for P&F in 1999 was the revenue growth at Florida Pneumatic, attributable to the addition of a significant air tool customer. Florida Pneumatic began shipping to this customer in the fourth quarter of 1999, and we expect it to become their second largest account in 2000. It is a tribute to the capable management team and sales force at Florida Pneumatic that they were able to secure this customer in such an extremely competitive environment. We are also encouraged by the continued strong sales increases in both the Berkley Tool division and the catalog segment. To accommodate this growth, an extensive restructuring of the warehouse area was embarked upon and completed. All of these positive efforts were, however, partially offset by a significant strengthening of the yen against the dollar, which had some negative impact on earnings for the year.

In 1999, P&F had the benefit of a full year's earnings at Green Manufacturing, which contributed to overall corporate profitability. However, the operations at Green did experience some difficulties during the year, particularly with respect to labor management and productivity. Nevertheless, I am happy to report that, beginning in the fourth quarter, the labor productivity at Green has begun to improve.

Although the heating division of Embassy Industries had modest growth in revenues for the year, they were able to secure several new large accounts. Despite this slow growth, operating profit was substantially higher than in 1998, as Embassy posted another record year. This profit improvement was achieved by an increase in labor productivity, a reduction in production lead times and a significant improvement in inventory turns through better warehouse management.

Exciting growth also came from the Franklin Manufacturing hardware division of Embassy. Franklin's revenues increased by more than 27%, as they introduced their products to the northeast region of a large customer that was obtained in late 1998. Meeting the shipping demands of this customer was a great challenge, but the warehouse operation is now running smoothly and, for the year, Franklin's contribution to Embassy's profits increased substantially.

We are pleased that P & F has been able to transform its business, most notably by diversifying into fluid power products in 1998 and by adding other significant customers in 1999. As we look to 2000, we will continue, in all of our business segments, to take advantage of market opportunities that position the company to benefit from identifiable growth niches. In this regard, we will continue to develop new products and seek acquisitions of either individual products, product lines or companies that are related to, or complementary to, our current product offerings.

I would like to conclude by acknowledging that our success would not have been possible without the tremendous effort and dedication of our employees. I applaud their efforts in meeting the demands of a continuously more competitive marketplace, as we endeavor to increase the value of our stockholders' investment through 2000 and beyond.

Very truly Yours,

Richard A. Horowitz
Chairman of the Board, President
and Chief Executive Officer