P&F Industries

I am pleased to report that, during 2002, our revenues increased 14.9%, from $67.2 million to $77.2 million. Excluding a one-time after-tax adjustment to earnings of $3.2 million, recorded as of January 1, 2002, that resulted from a change in accounting principle regarding goodwill, net income increased 57.9%, from $1.8 million to $2.9 million, an increase in diluted earnings per share from $.50 to $.80. After giving effect to this write-down of goodwill at Green Manufacturing, however, there was a net loss for 2002 of $376,267, or $.11 per share, on a diluted basis.

At Florida Pneumatic, despite relatively weak base sales, major promotions at our two largest customers resulted in improved sales of products sold to our retail customers. We also experienced increased sales in both our OEM and automotive businesses. At the same time, we benefited from the first full year of our cost improvement program. As a result of this program, we have reduced our annual cost structure by approximately $500,000. Cost improvement is now a critical element of everyone's job description.

Our hardware group, now known as Countrywide Hardware, Inc., was formed during 2002 through the acquisition of Nationwide Industries, Inc., a Tampa, Florida importer and manufacturer of door, window and fencing hardware, and the combination of Countrywide with Embassy's Franklin Manufacturing division. We are very excited about the prospects for our newly-formed hardware group as we seek to exploit the opportunities for cross-selling and cost reduction that should result from this group's combined resources.

At Green Manufacturing, the major impact on our business was the loss of our largest customer to a competitor in the second quarter of 2002. We were informed of this event late in 2001, but we continued to make shipments to this account throughout the first quarter of 2002. Although the loss of this customer was significant, the new marketing initiatives we began achieved some success during 2002, as we shipped approximately $2 million in cylinders to new customers, as well as new cylinder designs to some current customers. Further, we are optimistic about the development of cylinders and other hydraulic components for the log splitter market, which is a completely new application for our products for 2003 and beyond. To improve our access equipment product line, we entered into a program with one of the largest manufacturers of products complementary to our own, and this organization has begun to represent our products into its distribution channels. Finally, the successful continuation of our cost reduction program has allowed us to not only manage the current economic environment, but also, we believe, to position us favorably for a return to profitability as the economy recovers.

At Embassy Industries, poor housing starts in the Northeast, along with the loss of a major customer during the first quarter of 2002, were the overriding causes for our decrease in sales. On a more positive note, sales of our new boiler line have continued to grow, and we intend to expand this product line, as well as our new Falcon commercial heating product offering, in 2003. We are also pleased to note that Embassy, with the assistance of the State of New York and outside consultants, is developing a lean manufacturing program, which includes guaranteed cost savings and energy use credits, that will be implemented during 2003.

During 2002, we continued to confront an uncertain economic environment in all of our businesses. Nevertheless, our achievements during 2002, particularly in the areas of customer development and cost containment, give us reason to look toward 2003 with optimism.

As always, we thank our employees for their dedication, and you, our stockholders, for your continued support. We are committed to making P&F a more valuable company.

View our 2002 Annual Report (914k PDF)

Very truly Yours,

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