GENERAL:

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 quarterly report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES:

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2012 annual report on Form 10-K.

Overview

The following table has been prepared as an aid in understanding the Company's results of operations on a comparative basis for the three and six months ended December 31, 2012 and 2011. Amounts presented are percentages of the Company's net sales.

                                        Three Months Ended          Six Months Ended
                                           December 31,               December 31,
                                         2012          2011         2012         2011
Net sales                                  100.0 %      100.0 %       100.0 %     100.0 %
Cost of goods sold                         (76.0 )      (75.9 )       (76.4 )     (76.3 )
Gross margin                                24.0         24.1          23.6        23.7
Selling, general and administrative        (19.2 )      (18.6 )       (18.8 )     (18.7 )
Operating income                             4.8          5.5           4.8         5.0
Other income                                 0.1          0.1           0.1         0.1
Income before income taxes                   4.9          5.6           4.9         5.1
Income tax expense                          (1.8 )       (2.1 )        (1.8 )      (1.9 )
Net income                                   3.1 %        3.5 %         3.1 %       3.2 %

Results of Operations for the Quarter Ended December 31, 2012 vs. 2011



The following table compares net sales in total and by area of application for
the quarter ended December 31, 2012 to the prior year quarter.



                           Net Sales (in thousands)
                          Quarter Ended December 31,                $ Change
Area of
Application               2012                  2011             (in thousands)           % Change
   Residential       $        76,617       $        66,968      $           9,649                 14.4 %
   Commercial                 17,973                18,033                    (60 )               (0.3 )%
   Total             $        94,590       $        85,001      $           9,589                 11.3 %

Net sales for the quarter ended December 31, 2012 were $94.6 million, an 11.3% increase over the prior year quarter net sales of $85.0 million. Residential net sales were $76.6 million in the current quarter, an increase of 14.4% from the prior year quarter of $67.0 million. Commercial net sales were approximately $18.0 million in the current and prior year quarters.

Gross margin for the quarter ended December 31, 2012 was 24.0% compared to 24.1% in the prior year quarter.

Selling, general and administrative (SG&A) expenses for the quarter ended December 31, 2012 were $18.1 million or 19.2% of net sales compared to $15.8 million or 18.6% of net sales for the quarter ended December 31, 2011. SG&A expenses for the quarter ended December 31, 2012 include $0.7 million, or $0.06 per share, for employment inducement costs.

Operating income for the current quarter was $4.6 million compared to operating income of $4.7 million in the prior year quarter reflecting the aforementioned factors.

The effective income tax expense rate for the current fiscal quarter was 37.3% compared to an income tax expense rate of 37.8% in the prior year fiscal quarter. The effective rates include the federal statutory rate as well as the effect of the various state taxing jurisdictions.

The above factors resulted in current quarter net income of $2.9 million or $0.40 per share, compared to net income of $2.9 million or $0.42 per share in the prior year quarter.

All earnings per share amounts are on a diluted basis.

Results of Operations for the Six Months Ended December 31, 2012 vs. 2011



The following table compares net sales in total and by area of application for
the six months ended December 31, 2012 to the prior year six month period.



                           Net Sales (in thousands)
                         Six Months Ended December 31,              $ Change
Area of
Application               2012                  2011             (in thousands)           % Change
   Residential       $       148,947       $       129,491      $          19,456                 15.0 %
   Commercial                 36,880                37,031                   (151 )               (0.4 )%
   Total             $       185,827       $       166,522      $          19,305                 11.6 %

Net sales for the six months ended December 31, 2012 were $185.8 million, an 11.6% increase, compared to the prior six- month period of $166.5 million. Residential net sales were $148.9 million in the current six-month period, an increase of 15.0% from the prior year six-month period of $129.5 million. Commercial net sales were approximately $37.0 million in the current and prior year six-month periods.

Gross margin for the six months ended December 31, 2012 was 23.6% compared to 23.7% in the prior year six month period.

Selling, general and administrative expenses were $34.9 million or 18.8% of net sales compared to $31.1 million or 18.7% of net sales in the prior year six-month period. SG&A expenses for the six-month period ended December 31, 2012 include $0.7 million, or $0.06 per share, for employment inducement costs.

Operating income for the current six month period was $9.0 million compared to operating income of $8.3 million in the prior year six month period reflecting the aforementioned factors.

The effective income tax expense rate for the current six month period was 37.1% compared to an income tax expense rate of 37.3% in the prior year six month period. The effective rates include the federal statutory rate as well as the effect of the various state taxing jurisdictions.

The above factors resulted in net income for the current six month period of $5.8 million or $0.80 per share, compared to net income of $5.3 million or $0.76 per share in the prior year six month period.

All earnings per share amounts are on a diluted basis.

Liquidity and Capital Resources

Operating Activities:

Net cash provided by operating activities was $2.1 million during the six months ended December 31, 2012. Working capital (current assets less current liabilities) at December 31, 2012 was $105.8 million compared to $103.7 million at June 30, 2012. Changes in working capital from June 30, 2012 to December 31, 2012 include a reduction in cash of $5.8 million offset by increases in inventory of $5.0 million, other current assets of $1.9 million and accounts receivable of $0.5 million, and a reduction in current liabilities of $0.4 million. The higher inventory levels support the increases in residential sales volume and expanded product offerings. Depreciation expense was $1.8 million and $1.4 million in the six-month periods ended December 31, 2012 and 2011.

The Company expects that due to the nature of our operations that there will be continuing fluctuations in accounts receivable, inventory, accounts payable, and cash flows from operations due to the following: (i) we purchase inventory from overseas suppliers with long lead times and depending on the timing of the delivery of those orders, inventory levels can be greatly impacted, and (ii) we have various customers that purchase large quantities of inventory periodically and the timing of those purchases can significantly impact inventory levels, accounts receivable, accounts payable and short-term borrowings. As discussed below, the Company believes it has adequate financing arrangements and access to capital to absorb these fluctuations in operating cash flow.

Investing Activities:

Net cash used in investing activities was $5.5 million during the six-month period ended December 31, 2012. During the first six months of fiscal year 2013 capital expenditures were $4.9 million, including $2.5 million for the Company's headquarters building and the remaining amount primarily for manufacturing and delivery equipment. The Company expects that capital expenditures will be approximately $1.0 million for the remainder of the 2013 fiscal year.

Financing Activities:

Net cash used in financing activities was $2.3 million during the six-month period ended December 31, 2012. During the six-month period ended December 31, 2012, the Company paid three dividends to shareholders at $0.15 per share totaling $3.1 million. The dividends paid during the six-month period were partially offset by cash received from the exercise of stock options of approximately $0.8 million.

Management believes that the Company has adequate cash and credit arrangements to meet its operating and capital requirements for fiscal year 2013. 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.

Outlook

The Company believes that moderate top line growth will continue through the end of fiscal year 2013. Residential growth will continue with existing customers and products, and through expanding our product portfolio and customer base. The Company expects current order trends for commercial products to continue for the remainder of the fiscal year. The Company is confident in its ability to take advantage of market opportunities. However, our optimism is tempered due to economic uncertainty and its impact on the consumers' confidence and willingness to buy.

The Company remains committed to its core strategies, which include a wide range of quality product offerings 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 through emphasis on cash flow and improving profitability. We believe these core strategies are in the best interest of our shareholders.