The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

The discussion and analysis of the Company's consolidated financial statements and results of operations are based on consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results. The Company uses estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as collectability of trade accounts receivable and inventory valuation. Ultimate results may differ from these estimates under different assumptions or conditions.

Allowance for doubtful accounts - the Company establishes an allowance for doubtful accounts through review of open accounts, and historical collection and allowances amounts. The allowance for doubtful accounts is intended to reduce trade accounts receivable to the amount that reasonably approximates their net realizable value. The amount ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements based on collection experience.

Inventories- the Company values inventory at the lower of cost or net realizable value. Management assesses the inventory on hand and if necessary writes down the obsolete or excess inventory to net realizable value.

Revenue recognition - is upon delivery of product to our customer and when collectibility is reasonably assured. Delivery of product to our customer is evidenced through the shipping terms indicating when title and risk of loss is transferred. Our ordering process creates persuasive evidence of the sale arrangement and the sales amount is determined. The delivery of the goods to our customer completes the earnings process. Net sales consist of product sales and related delivery charge revenue, net of adjustments for returns and allowances. Shipping and handling costs are included in cost of goods sold.

The following table has been prepared as an aid in understanding the Company's results of operations on a comparative basis for the fiscal years ended June 30, 2012, 2011 and 2010. Amounts presented are percentages of the Company's net sales.

                                                   2012          2011        2010
     Net sales                                       100.0 %       100.0 %    100.0 %
     Cost of goods sold                              (75.8 )       (77.2 )    (77.2 )
     Gross margin                                     24.2          22.8       22.8
     Selling, general and administrative             (18.4 )       (17.8 )    (17.5 )
     Facility consolidation and other charges            -          (0.3 )        -
     Operating income                                  5.8           4.7        5.3
     Other income, net                                 0.1           0.1        0.0
     Income before income taxes                        5.9           4.8        5.3
     Income tax provision                             (2.2 )        (1.7 )     (2.0 )
     Net income                                        3.7 %         3.1 %      3.3 %

Net sales for fiscal 2012 were $352.1 million compared to $339.4 million in the prior fiscal year, an increase of 3.7%. For the fiscal year ended June 30, 2012, residential net sales were $275.4 million compared to $258.1 million for the year ended June 30, 2011, an increase of 6.7%. Commercial net sales were $76.7 million for the year ended June 30, 2012, a decrease of 5.8% from net sales of $81.3 million for the year ended June 30, 2011.

Gross margin for the year ended June 30, 2012 was 24.2% compared to 22.8% for the prior year primarily due to better absorption of fixed costs on the higher sales volume and lower freight costs. The prior year included a $0.6 million inventory write-down related to a facility closing.

Selling, general and administrative expenses for the fiscal year ended June 30, 2012 were $65.0 million or 18.4% of net sales compared to $60.4 million or 17.8% of net sales in the year ended June 30, 2011. The current year includes an increase in legal and professional fees of $2.1 million, or 0.6% of sales, primarily related to an Indiana civil lawsuit and a $1.0 million decrease in bad debt expense, compared to the prior year.

Operating income increased by $4.4 million in fiscal year 2012 in comparison to the prior year. During fiscal year 2011, the Company recorded pre-tax charges of $1.6 million related to closing a manufacturing facility. Of these pre-tax charges, employee separation and other closing costs of $1.0 million are reported as facility closing costs and an inventory write-down of $0.6 million is reported as cost of goods sold.

The effective tax rate for the fiscal year ended June 30, 2012 was 36.8% compared to 35.7% for fiscal year 2011. The change in effective tax rate is primarily due to the benefit of the Domestic Manufacturing Deduction under Internal Revenue Code Section 199 (DMD), which provides a tax benefit on U.S. based manufacturing, the change in provision for uncertain tax positions related to various state taxing jurisdictions and stock-based compensation.

The above factors resulted in net income for the fiscal year ended June 30, 2012 of $13.1 million or $1.86 per share compared to $10.4 million or $1.50 per share in fiscal 2011.

All earnings per share amounts are on a diluted basis.

Net sales for fiscal 2011 were $339.4 million compared to $326.5 million in the prior fiscal year, an increase of 4.5%. Residential net sales were $258.1 million compared to $246.0 million in fiscal 2010, an increase of 4.9%. Commercial net sales were $81.3 million for fiscal 2011, a increase of 1.1% from net sales of $80.5 million for fiscal 2010.

The Company's operating income decreased by $1.7 million in fiscal year 2011 in comparison to the prior year. During fiscal year 2011, the Company recorded pre-tax charges of $1.6 million related to closing a manufacturing facility. Of these pre-tax charges, employee separation and other closing costs of $1.0 million are reported as facility closing costs and an inventory write down of $0.6 million is reported as cost of goods sold.

Gross margin for fiscal year 2011 and 2010 was 22.8%. The gross margin for the year ended June 30, 2011, includes the $0.6 million inventory write-down related to facility closing offset by operational improvements.

For the fiscal years ended 2011 and 2010, selling, general and administrative expenses were 17.8% and 17.5% of net sales, respectively. The percentage increase for the year ended June 30, 2011 reflects higher legal and professional fees.

The effective tax rate for the fiscal year ended June 30, 2011 was 35.7% compared to 38.1% for fiscal year 2010. The change in the effective tax rate is primarily due to the change in provision for uncertain tax positions related to various state taxing jurisdictions, stock-based compensation and the benefit of the DMD. The DMD tax benefit available in previous years was being phased in by statute and was therefore lower than the full DMD tax benefit for 2011.

The above factors resulted in net income for the fiscal year ended June 30, 2011 of $10.4 million or $1.50 per share compared to $10.8 million or $1.61 per share in fiscal 2010.

All earnings per share amounts are on a diluted basis.

Working capital (current assets less current liabilities) at June 30, 2012 was $103.7 million as compared to $100.7 million at June 30, 2011. Significant changes in working capital from June 30, 2011 to June 30, 2012 included increased inventories of $9.0 million and increased accounts receivable of $2.2 million, offset by a decrease in cash of $3.9 million and increased current liabilities of $4.4 million. The higher inventory levels are to support the increases in residential sales volume, expanded product offerings and also reflect the timing of inventory receipts, especially imported finished products and components which require longer lead times. The increase in accounts receivable resulted from the higher shipments in the fourth fiscal quarter.

The Company's main source of liquidity is cash and cash flows from operations. As of June 30, 2012 and 2011, the Company had cash totaling $14.0 million and $17.9 million, respectively. The Company has borrowing availability under a credit agreement of up to $12.5 million.

Cash decreased by $3.9 million during fiscal year 2012 with net cash provided by operating activities of $9.0 million offset by capital expenditures of $10.9 million, including $8.8 million related to construction of our corporate office building, and payment of dividends of $2.5 million. Net cash provided by operating activities of $13.8 million in fiscal year 2011 was comprised primarily of net income of $10.4 million, changes in operating assets and liabilities of $1.3 million and non-cash charges of $4.7 million. Depreciation expense was $2.8 million and $2.7 million for the years ended June 30, 2012 and 2011, respectively.

Net cash used in investing activities was $11.3 million in fiscal year 2012 compared to cash used in investing activities of $2.7 million in fiscal year 2011. Net purchases of investments were $0.4 million. Capital expenditures were $10.9 million during fiscal year 2012.

Net cash used in financing activities was $1.6 million in fiscal year 2012, primarily for the payment of dividends of $2.5 million, compared to $1.5 million in fiscal year 2011. For fiscal year 2011, the cash was used primarily for the payment of dividends of $1.8 million.

The Company expects that capital expenditures will decrease to approximately $6.0 million in fiscal year 2013, including $2.6 million for the completion of the corporate office building. Management believes that the Company has adequate cash and credit arrangements to meet its operating and capital requirements for fiscal year 2013, including the completion of the corporate office building. In the opinion of management, the Company's liquidity and credit resources provide it with the ability to react to opportunities as they arise, to pay quarterly dividends to its shareholders, and to purchase productive capital assets that enhance safety and improve operations.

At June 30, 2012, the Company has no long-term debt obligations and therefore, no contractual interest payments are included in the table below. The following table summarizes the Company's contractual obligations at June 30, 2012 and the effect these obligations are expected to have on the Company's liquidity and cash flow in the future (in thousands):

                                          Less than     1 - 3    3 - 5     More than
                               Total       1 Year       Years    Years      5 Years
Operating lease obligations   $ 10,337   $     1,842   $ 4,146   $  931   $     3,418

Contractual obligations associated with the Company's deferred compensation plans were excluded from the table above as the Company cannot predict when the events that trigger payment will occur. Total accumulated deferred compensation liabilities were $5.6 million at June 30, 2012. At June 30, 2012, the Company had no capital lease obligations, and no purchase obligations for raw materials or finished goods. The purchase price on all open purchase orders was fixed and denominated in U.S. dollars. Additionally, the Company has excluded the uncertain tax positions from the above table, as the timing of payments, if any, cannot be reasonably estimated.

See Note 6 to the Consolidated Financial Statements of this Annual Report on Form 10-K.

The Company believes that moderate overall top line growth will continue through the end of calendar year 2012 through additions to product offerings and expanding our residential customer base. The Company is expecting current order trends for commercial products to continue for the remainder of the calendar year. The Company is confident in its ability to take advantage of market opportunities as they present themselves. However, our optimism is guarded due to the uncertainty that the upcoming elections and economic factors have on consumers' confidence and willingness to buy.

The Company remains committed to its core strategies, which include offering a wide range of quality products and price points to the residential and commercial markets, combined with a conservative approach to business. We will maintain our focus on a strong balance sheet and improving profitability. We believe these core strategies are in the best interest of our shareholders.