with acquisition accounting for ATT. On a pro forma basis, as if ATT was purchased on October 1, 2009, segment operating profit in the prior year was $49,401 compared to the segment operating profit of $18,820 in the current year. In addition to the ATT inventory item, the decrease was primarily due to the impact of inclement weather on lawn tool sales, higher material costs for both ATT and CBP, and $2,919 of lower receipts under the Byrd Amendment (anti-dumping compensation from the U.S. Government).
For the quarter ended June 30, 2011, Telephonics revenue increased $3,117, or 3%, compared to the prior year quarter. The increase was primarily attributable to an increase in Ground Surveillance Radars (“GSR”) ($6,091) and LAMPS MMR revenue ($7,611); these increases were partially offset by a decrease in CREW 3.1 revenue.
For the quarter ended June 30, 2011, Segment operating profit remained consistent, and operating profit margin declined 30 basis points from the prior year quarter primarily due to the restructuring charge and higher selling, general and administrative expenses due to the timing of proposal activities and research and development initiatives, partially offset by gross profits from increased revenue. Telephonics recognized $603 of restructuring charges in the current quarter in connection with the consolidation of the management of its Electronics Systems and Communication Systems operating units; such charges are all personnel related.
For the nine months ended June 30, 2011, Telephonics revenue decreased $4,888, or 2%, compared to the prior year primarily due to the timing of the transition on the Automatic Radar Periscope Detection and Discrimination (“ARPDD”) program from the development to the production phase , the CREW 3.1 program , and the lower rate of production on the C-17 program; the decreases were partially offset by an increase in GSR and LAMPS MMR revenue.
For the nine months ended June 30, 2011, Segment operating profit increased $4,243, or 15%, and operating profit margin improved 140 basis points from the prior year due to program mix, as well as lower selling, general and administrative expenses due to the timing of proposal activities, and research and development initiatives.
During the quarter, Telephonics was awarded several new contracts and received incremental funding on current contracts totaling $105,000. Contract backlog was $442,000 at June 30, 2011 with 76% expected to be realized in the next 12 months. Backlog was $407,000 at September 30, 2010 and $405,000 at June 30, 2010. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or congress, in the case of the U.S. government agencies.
For the quarter ended June 30, 2011, Plastics revenue increased $15,221, or 12%, compared to the prior year quarter primarily due to the favorable impact of foreign exchange translation (8%), and the pass through of higher resin costs in customer selling prices (5%); product mix accounted for the balance of the variation.
For the quarter ended June 30, 2011, Segment operating profit decreased $6,996 compared to the prior year quarter. The decline was driven by higher than anticipated start up costs in both Germany and Brazil, related to expanding capacity and product offerings to meet increased customer demand; the start up costs include higher than normal levels of scrap production. There were no significant disruptions in customer service in connection with the scaling up of production of newly installed assets. While improvement in operations in the newly expanded locations is occurring, the Company expects that Plastics will continue to operate at below normal efficiency levels for the next three quarters.
For the nine months ended June 30, 2011, Plastics revenue increased $45,767, or 13%, compared to the prior year period primarily due to higher volumes, the benefit from the pass through of higher resin costs in customer selling prices, product mix and the favorable impact of foreign exchange translation.
For the nine months ended June 30, 2011, segment operating profit decreased $3,131 compared to the prior year for the reasons noted above with respect to the third quarter.
Unallocated
For the quarter ended June 30, 2011, unallocated amounts totaled $7,781 compared to $8,247 in the prior year. The decrease was primarily due to higher legal and consulting expenses related to acquisition due diligence in the prior year. For the nine months ended June 30, 2011, unallocated amounts totaled $19,468 compared to $22,138 in the prior year. The decrease was primarily due to the absence of legal and consulting expenses related to acquisition due diligence, which were incurred in the prior year period.
Segment Depreciation and Amortization
Segment depreciation and amortization increased $6,549 and $15,717 for the three and nine month periods ending June 30, 2011 over the prior year periods primarily due to the increased depreciation and amortization related to the ATT acquisition.
Other income (expense)
For the quarter and nine month period ended June 30, 2011, interest expense increased $8,809 and $24,652, respectively, compared to the prior year periods, primarily as a result of debt incurred for the acquisition of ATT.
During the second quarter, in connection with the termination of the Term Loan, ABL and TCA, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and $844 of swap and other breakage costs.
For the nine months ended June 30, 2010, Griffon recorded a non-cash, pre-tax loss from debt extinguishment of $6, net of a proportionate write-off of deferred financing costs, which resulted from its purchase of $29,392 of its outstanding convertible notes.
For the quarters ended June 30, 2011 and 2010, Other income included a gain (loss) of $24 and ($610), respectively, of foreign exchange gains/losses, net, and $311 and $419, respectively, of investment expense.
For the nine months ended June 30, 2011 and 2010, Other income included losses of $3 and $776, respectively, of foreign exchange gains/losses, net, and $996 and ($419), respectively, of investment income (expense).
Provision for income taxes
Griffon’s effective tax rate for continuing operations for the current quarter was a benefit of 81.3%, compared to a provision of 28.3% in the prior year quarter. The June 30, 2011 quarter effective rate reflected a change in earnings mix between domestic and non-domestic, and the results of ATT, acquired on
33
September 30, 2010. Certain discrete tax benefits impacted the effective rates in both reporting periods. The current quarter included benefits arising on the filing of tax returns in various jurisdictions, and tax planning related to unremitted foreign earnings; the 2010 effective rate reflected benefits arising on the filing of tax returns in various jurisdictions. Excluding these discrete items, the effective rate on continuing operations would have been 77.7% in the current quarter compared to 27.3% in the prior year quarter. The 77.7% tax rate is impacted by the combined effects of the nominal pretax income in the current quarter combined with a forecast full year pretax loss for 2011, as well as fluctuations in the full year expected effective tax rate driven by changes in earnings mix between domestic and non-domestic operations.
Griffon’s effective tax rate for continuing operations for the nine months ended June 30, 2011 was a benefit of 48.5%, compared to a provision of 12.6% in the prior year period. The 2011 effective tax rate reflected a change in earnings mix between domestic and non-domestic and includes the results of ATT, acquired on September 30, 2010. Certain discrete tax benefits impacted the effective tax rates in both reporting periods. The 2011 rate included benefits arising in connection with the retroactively extended research tax credit signed into law on December 22, 2010, the filing of tax returns in various jurisdictions, and tax planning related to unremitted foreign earnings. The 2010 effective rate benefited from resolution of certain non-domestic tax audits resulting in the release of previously established reserves for uncertain tax positions, combined with the benefit of certain tax planning initiatives with respect to non-U.S. operating locations, and a benefit arising on the filing of certain of tax returns in various jurisdictions. Excluding these discrete items, the effective rate on continuing operations for the nine months ended June 30, 2011 would have been a benefit of 27.0% compared to 27.3% in the comparable prior year period.
Stock based compensation
For the three and nine months ended June 30, 2011, stock based compensation expense totaled $2,120 and $6,767, respectively, compared to $1,512 and $4,447, respectively, for the prior year comparable periods.
Discontinued operations – Installation Services
In 2008, Griffon exited substantially all of the operating activities of its Installation Services segment; this segment sold, installed and serviced garage doors, garage door openers, fireplaces, floor coverings, cabinetry and a range of related building products primarily for the new residential housing market. Operating results of substantially all of the segment has been reported as discontinued operations in the Consolidated Statements of Operations for all periods presented; the Installation Services segment is excluded from segment reporting.
Griffon substantially concluded its remaining disposal activities in the second quarter of 2009. There was no revenue in the three and nine-month periods ended June 30, 2011 and 2010.
Net income from discontinued operations of the Installation Services’ business was nil for the three and nine months ended June 30, 2011, and a loss of $21 and income of $89 for the three and nine months ended June 30, 2010, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity are cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital with satisfactory terms. Griffon remains in a strong financial position with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis.
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The following table is derived from the Consolidated Statements of Cash Flows:
| | | | | | | |
| | Nine Months Ended June 30, | |
Cash Flows from Continuing Operations | |
| |
(in thousands) | | 2011 | | 2010 | |
| |
| |
| |
| | | | | | | |
Net Cash Flows Provided by (Used In): | | | | | | | |
Operating activities | | $ | 13,055 | | $ | 48,194 | |
Investing activities | | | (60,621 | ) | | (27,621 | ) |
Financing activities | | | 123,843 | | | 15,395 | |
Cash flows provided by continuing operations for the nine months ended June 30, 2011 were $13,055 compared to $48,194 in the prior year quarter. Current assets net of current liabilities, excluding short-term debt and cash, increased to $386,032 at June 30, 2011 compared to $326,705 at September 30, 2010, primarily as a result of decreases in accounts payable, accrued liabilities and income taxes payable. Operating cash flows were affected by an increase in inventories as well as the decrease in accounts payable and accrued liabilities.
During the nine months ended June 30, 2011, Griffon used cash for investing activities of $60,621 compared to $27,621 in the prior year period, primarily for capital expenditures. Griffon expects capital spending to be in the range of $85,000 to $90,000 for 2011.
During the nine months ended June 30, 2011, cash provided by financing activities totaled $123,843 compared to $15,395 in the prior year period. Griffon issued $145,754 of debt, net of payments, in 2011, which included issuing $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”) and repaying the $375,000 Term Loan, $25,000 under the Clopay Ames ABL and $30,000 under the TCA. In the prior year, Griffon issued $100,000 principal of 4% convertible subordinated notes, due 2017 (the “2017 Notes”).
Payments related to Telephonics revenue are received in accordance with the terms of development and production subcontracts to which Telephonics is a party; certain of these receipts are progress payments. Plastics customers are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. Plastics sales satisfy orders received in advance of production; payment terms are established in advance. With respect to Home & Building Products, there have been no material adverse impacts on payment for sales.
A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the nine months ended June 30, 2011:
| | |
| • | The United States Government and its agencies, through either prime or subcontractor relationships, represented 17% of Griffon’s consolidated revenue and 74% of Telephonics revenue. |
| • | Procter & Gamble represented 14% of Griffon’s consolidated revenue and 48% of Plastics revenue. |
| • | The Home Depot represented 13% of Griffon’s consolidated revenue and 26% of Home & Building Products revenue. |
No other customers exceed 9% of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and Griffon’s relationships with them. Orders from these customers are subject to fluctuation and may be reduced materially. The loss of all or a portion of volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and operations.
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| | | | | | | |
Cash, Cash Equivalents and Debt
(in thousands) | | At June 30,
2011 | | At September 30,
2010 | |
| |
| |
| |
Cash and equivalents | | $ | 246,554 | | $ | 169,802 | |
| |
|
| |
|
| |
| | | | | | | |
Notes payables and current portion of long-term debt | | | 19,307 | | | 20,901 | |
Long-term debt, net of current maturities | | | 674,530 | | | 503,935 | |
Debt discount | | | 20,426 | | | 30,650 | |
| |
|
| |
|
| |
Total debt | | | 714,263 | | | 555,486 | |
| |
|
| |
|
| |
Net cash and equivalents (debt) | | $ | (467,709 | ) | $ | (385,684 | ) |
| |
|
| |
|
| |
On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest on the Senior Notes is payable semi-annually. Proceeds were used to pay down the outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain covenants, limitations and restrictions.
On June 24, 2011, Griffon filed a Registration Statement on Form S-4 with the SEC to effect an offer to exchange the original Senior Notes for new 7.125% Senior Notes due in 2018 that will be identical in all material respects to the original Senior Notes, except that the new Senior Notes will be registered under the Securities Act of 1933. On July 11, 2011, Griffon commenced the exchange offer, which will remain open until 5:00 p.m. Eastern Standard Time on August 9, 2011, unless extended.
On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate plus an applicable margin, which will decrease based on financial performance. The margins are 1.75% for base rate loans and 2.75% for LIBOR loans, in each case without a floor. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by certain domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors. There was no outstanding balance as of June 30, 2011, and, as of such date the Company was in compliance with the terms and covenants of the Credit Agreement.
At June 30, 2011, there were $20,477 of standby letters of credit outstanding under the Credit Agreement; $179,523 was available for borrowing at that date.
In connection with the Senior Notes and Credit Agreement (“New Facilities”), Griffon paid off and terminated the $375,000 term loan and $125,000 asset based lending agreement, both entered into by Clopay Ames on September 30, 2010 in connection with the ATT acquisition, and terminated the Telephonics $100,000 revolving credit agreement. Additionally, in connection with the New Facilities, Clopay Ames terminated the $200,000 interest rate swap that fixed LIBOR to 2.085% for the Clopay Ames term loan.
On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The initial conversion rate of the 2017 Notes was 67.0799 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to an initial conversion price of $14.91 per share, a 23% conversion premium over the $12.12 closing price on December 15, 2009. Griffon used 8.75% as the nonconvertible debt-borrowing rate to discount the 2017 Notes and will amortize the debt discount through January 2017. At issuance, the debt component of the 2017 Notes was $75,437 and debt discount was $24,563. At September 30, 2010 and June 30, 2011, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720.
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On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans totaling $11,834. The loans mature in February 2016, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3% with the option to swap to a fixed rate.
Griffon has other real estate mortgages, collateralized by real property, that bear interest at rates from 6.3% to 6.6% with maturities extending through 2016.
Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to borrow $20,000 over a one-year period, to be used to purchase Griffon common stock in the open market. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate. After the first year, Griffon has the option to convert all or a portion of the outstanding loan to a five-year term. If converted, principal is payable in quarterly installments of $250, beginning September 2011, with the remainder due at maturity. The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. At June 30, 2011, 1,398,677 shares have been purchased (some of which were purchased pursuant to a 10b5-1 repurchase plan); the outstanding balance was $15,673 and $4,327 was available for borrowing under the agreement. The Company expects to enter into an amendment to this loan agreement shortly that would (i) extend the end date for drawing down the $20,000 borrowing availability from August 2011 to November 2011, (ii) change the starting date for quarterly amortization payments from September 2011 to December 2011, and extend the maturity date of the loan from August 2016 to November 2016.
In addition, the ESOP has a loan agreement, guaranteed by Griffon, which requires quarterly principal payments of $156 and interest through the expiration date of September 2012 at which time the $3,900 balance of the loan, and any outstanding interest, will be payable. The primary purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares purchased with the proceeds of the loan, and repayment in guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At June 30, 2011, $4,532 was outstanding.
In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. Approximately $10,000 was used to acquire the building and the remaining amount was restricted for improvements. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is secured by a mortgage on the real estate and is guaranteed by Griffon.
At June 30, 2011 and September 30, 2010, Griffon had $532 of 4% convertible subordinated notes due 2023 (the “2023 Notes”) outstanding. Holders of the 2023 Notes may require Griffon to repurchase all or a portion of their 2023 Notes on July 18, 2013 and 2018, if Griffon’s common stock price is below the conversion price of the 2023 Notes, as well as upon a change in control. At June 30, 2011 and September 30, 2010, the 2023 Notes had no capital in excess of par value component as substantially all of these notes were put to Griffon at par and settled in July 2010.
In January 2010, Griffon purchased $10,100 face value of the 2023 Notes for $10,200 which, after proportionate reduction in related deferred financing costs, resulted in a net pre-tax gain from debt extinguishment of $12. Capital in excess of par was reduced by $300 for the equity portion of the extinguished 2023 Notes, and debt discount was reduced by $200.
In December 2009, Griffon purchased $19,200 face value of the 2023 Notes for $19,400. Including a proportionate reduction in the related deferred financing costs, Griffon recorded an immaterial net pre-tax loss on the extinguishment. Capital in excess of par value was reduced by $700 related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $500.
In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at Euribor plus 2.35% per annum, and the term loan accrues interest at Euribor plus 2.45% per annum. The revolving facility matures in November 2011, but is renewable upon mutual agreement with the bank. The term loan can be drawn until August 2011 and, if drawn, repayment will be in ten equal installments beginning September 2011 with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. There were no borrowings under the term loan at June 30, 2011. Borrowings under the revolving facility at June 30, 2011 were €7,500 and €2,500 was available for borrowing. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility.
37
Clopay do Brazil, a subsidiary of Plastics, maintains lines of credit of approximately $4,500. Interest on borrowings accrue at a rate of LIBOR plus 3.8% or CDI plus 5.6%. $2,000 was borrowed under the lines and $2,500 was available as of as of June 30, 2011.
As part of the acquisition of ATT, Griffon acquired interest rate swaps that had fair values totaling $3,845 at September 30, 2010. These swaps were terminated in October 2010 for $4,303, including accrued interest of $458.
At June 30, 2011, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit agreements and loan agreements.
Griffon’s Board of Directors has authorized the repurchase of up to an additional $50,000 of Griffon’s outstanding common stock. Approximately 1,366,000 shares of common stock remain available for repurchase pursuant to an existing buyback program. Under the repurchase programs, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan.
The consolidation of the CBP manufacturing facilities plan, announced in June 2009, is substantially complete. For the project to date, CBP incurred pre-tax exit and restructuring costs of $8,857, substantially all of which were cash charges; charges include $1,175 for one-time termination benefits and other personnel costs, $4,933 for excess facilities and related costs, and $2,749 for other exit costs, primarily in connection with production realignment. CBP had $10,297 in capital expenditures in order to effect the restructuring plan.
Griffon substantially concluded its remaining disposal activities for the Installation Services business, discontinued in 2008, in the second quarter of 2009 and does not expect to incur significant expense in the future. Future net cash outflows to satisfy liabilities related to disposal activities accrued at June 30, 2011 are estimated to be $4,042. Certain of Griffon’s subsidiaries are also contingently liable for approximately $833 related to certain facility leases with varying terms through 2012 that were assigned to the respective purchasers of certain of the Installation Services businesses. Griffon does not believe it has a material exposure related to these contingencies.
During the nine months ended June 30, 2011 and 2010, Griffon used cash for discontinued operations of $829 and $449, respectively, related to settling remaining Installation Services liabilities.
CRITICAL ACCOUNTING POLICIES
The preparation of Griffon’s consolidated financial statements in conformity with GAAP requires Griffon to make estimates and judgments that affect reported amounts of assets, liabilities, sales and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. Griffon evaluates these estimates and judgments on an ongoing basis and base the estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Griffon’s actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2010.
Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2010. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon.
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RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact, including, without limitation, statements regarding Griffon’s financial position, business strategy and the plans and objectives of Griffon’s management for future operations, are forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend” or the negative of these expressions or comparable terminology. Such forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: general domestic and international business, financial market and economic conditions; the credit market; the housing market; results of integrating acquired businesses into existing operations; the results of Griffon’s restructuring and disposal efforts; competitive factors; pricing pressures for resin and steel; capacity and supply constraints; Griffon’s ability to identify and successfully consummate and integrate value-adding acquisition opportunities; the ability of Griffon to remain in compliance with the covenants under its respective credit facilities; and the inherent uncertainties relating to resolution of ongoing legal and environmental matters from time to time. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Form 10-K Annual Report for the year ended September 30, 2010. Some of the factors are also discussed elsewhere in this Quarterly Report on Form 10-Q and have been or may be discussed from time to time in Griffon’s filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on Griffon’s forward-looking statements. Griffon does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Interest Rates
Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate debt and investments in cash and cash equivalents.
| | |
| • | Certain of Griffon’s credit facilities have a libor-based variable interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point change in libor would not have a material impact on Griffon’s results of operations or liquidity. |
Foreign Exchange
Griffon conducts business in various non-U.S. countries, primarily in Canada, Mexico, Europe, Brazil, Australia and China; therefore, changes in the value of the currencies of these countries affect the financial position and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-U.S. operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 5% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows.
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Item 4 - Controls and Procedures
Under the supervision and with the participation of Griffon’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), were evaluated as of the end of the period covered by this report. Based on that evaluation, Griffon’s CEO and CFO concluded that Griffon’s disclosure controls and procedures were effective at the reasonable assurance level.
During the period covered by this report, there were no changes in Griffon’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, Griffon’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Griffon believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance of achieving their objectives.
PART II - OTHER INFORMATION
| |
Item 1 | Legal Proceedings |
| None |
| |
Item 1A | Risk Factors |
| |
| In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2010, which could materially affect Griffon’s business, financial condition or future results. The risks described in Griffon’s Annual Report on Form 10-K are not the only risks facing Griffon. Additional risks and uncertainties not currently known to Griffon or that Griffon currently deems to be immaterial also may materially adversely affect Griffon’s business, financial condition and/or operating results. |
| |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
| (c) |
| | | | | | | | | | | |
ISSUER PURCHASES OF EQUITY SECURITIES |
| | | | | | | | | | | |
Period | | (a) Total
Number of
Shares (or
Units)
Purchased | | (b) Average
Price Paid Per
Share (or Unit) | | (c) Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs | | Number (or
Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under
the Plans or
Programs | |
| | | | | | | | | | | |
April 1 - 30, 2011 | | 175,000 | 1 | $ | 13.30 | | — | | | | |
May 1 - 31, 2011 | | 323,700 | 2 | | 10.38 | | 323,700 | | | | |
June 1 - 30, 2011 | | 399,129 | 2 | | 9.97 | | 399,129 | | | | |
| |
| | | | |
| | | | |
Total | | 897,829 | | $ | 10.77 | | 722,829 | | $ | 4,369,203 | 3,4 |
| |
| | | | |
| | | | |
| |
| 1. Represents shares acquired by the Company from a holder of restricted stock upon vesting of the restricted stock, to satisfy tax withholding obligations of the holder. |
| |
| 2. Shares were purchased by the Griffon Corporation Employee Stock Ownership Plan (the “ESOP”) in open market transactions (including some purchases pursuant to a 10b5-1 repurchase plan), and are solely for use by the ESOP. |
| |
| 3. Represents the amount that remains available, as of June 30, 2011, for borrowing under the loan agreement entered into by the ESOP on August 6, 2010, which amount can be drawn until August 6, 2011. The proceeds of such loan can be used to purchase shares for the ESOP. |
| |
| 4. Griffon’s Board of Directors has authorized the repurchase of up to an additional $50,000,000 of Griffon’s outstanding common stock. Approximately 1,366,000 shares of common stock remain available for repurchase pursuant to an existing buyback program. Under the repurchase programs, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. |
40
| |
Item 3 | Defaults upon Senior Securities |
| None |
| |
Item 4 | [Removed and Reserved] |
| |
Item 5 | Other Information |
| None |
| |
Item 6 | Exhibits |
| |
31.1 | Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31.2 | Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
32 | Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
101.INS | XBRL Instance Document* |
| |
101.SCH | XBRL Taxonomy Extension Schema Document* |
| |
101.CAL | XBRL Taxonomy Extension Calculation Document* |
| |
101.DEF | XBRL Taxonomy Extension Definitions Document* |
| |
101.LAB | XBRL Taxonomy Extension Labels Document* |
| |
101.PRE | XBRL Taxonomy Extension Presentation Document* |
| |
| | |
* | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.” |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| GRIFFON CORPORATION |
| |
| /s/ Douglas J. Wetmore |
|
| |
| Douglas J. Wetmore |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| |
| |
| /s/ Brian G. Harris |
|
| |
| Brian G. Harris |
| Chief Accounting Officer |
| (Principal Accounting Officer) |
Date: August 3, 2011
42
EXHIBIT INDEX
| |
31.1 | Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31.2 | Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
32 | Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
101.INS | XBRL Instance Document* |
| |
101.SCH | XBRL Taxonomy Extension Schema Document* |
| |
101.CAL | XBRL Taxonomy Extension Calculation Document* |
| |
101.DEF | XBRL Taxonomy Extension Definitions Document* |
| |
101.LAB | XBRL Taxonomy Extension Labels Document* |
| |
101.PRE | XBRL Taxonomy Extension Presentation Document* |
| |
| | |
* | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.” |
| | |
43
