UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-6620
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 JERICHO QUADRANGLE, JERICHO, NEW YORK 11753
(Address of principal executive offices) (Zip Code)
(516) 938-5544
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 33,271,832 shares of Common
Stock as of April 30, 2002.
FORM 10-Q
CONTENTS
PAGE
PART I - FINANCIAL INFORMATION (Unaudited)
---------------------
Condensed Consolidated Balance Sheets at March 31, 2002
and September 30, 2001........................................ 1
Condensed Consolidated Statements of Operations for the Three
Months and Six Months Ended March 31, 2002 and 2001 .......... 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 2002 and 2001 ..................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
Quantitative and Qualitative Disclosure about Market Risk..... 14
PART II - OTHER INFORMATION
-----------------
Item 1: Legal Proceedings .................................... 15
Item 2: Changes in Securities ................................ 15
Item 3: Defaults upon Senior Securities ...................... 15
Item 4: Submission of Matters to a Vote of Security Holders... 15
Item 5: Other Information .................................... 15
Item 6: Exhibits and Reports on Form 8-K ..................... 15
Signature .................................................... 16
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2002 2001
----------- -------------
(Unaudited) (Note 1)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 41,352,000 $ 40,096,000
Accounts receivable, less allowance for
doubtful accounts 131,660,000 146,425,000
Contract costs and recognized income not
yet billed 59,792,000 66,116,000
Inventories (Note 2) 96,348,000 98,044,000
Prepaid expenses and other current assets 21,119,000 18,148,000
------------ ------------
Total current assets 350,271,000 368,829,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $113,734,000 at
March 31, 2002 and $104,231,000 at
September 30, 2001 145,845,000 145,931,000
------------ ------------
OTHER ASSETS:
Costs in excess of fair value of net
assets of businesses acquired (Note 5) 33,542,000 60,232,000
Other 12,783,000 10,001,000
------------ ------------
46,325,000 70,233,000
------------ ------------
$542,441,000 $584,993,000
============ ============
See notes to condensed consolidated financial statements.
1
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2002 2001
----------- -------------
(Unaudited) (Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts and notes payable $ 55,454,000 $ 63,740,000
Other current liabilities 100,784,000 99,211,000
------------ ------------
Total current liabilities 156,238,000 162,951,000
------------ ------------
LONG-TERM DEBT 84,163,000 108,615,000
------------ ------------
MINORITY INTEREST AND OTHER 19,082,000 19,574,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.25 per
share, authorized 3,000,000 shares,
no shares issued --- ---
Common Stock, par value $.25 per share,
authorized 85,000,000 shares, issued
35,961,717 shares at March 31, 2002
and 35,023,437 shares at September 30,
2001; 2,824,085 and 2,284,802 shares
in treasury at March 31, 2002
and September 30, 2001, respectively 8,990,000 8,756,000
Other shareholders' equity 273,968,000 285,097,000
------------ ------------
Total shareholders' equity 282,958,000 293,853,000
------------ ------------
$542,441,000 $584,993,000
============ ============
See notes to condensed consolidated financial statements.
2
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
---- ----
Net sales $267,308,000 $264,189,000
Cost of sales 192,533,000 196,870,000
------------ ------------
Gross profit 74,775,000 67,319,000
Selling, general and administrative expenses 63,248,000 56,522,000
------------ ------------
Income from operations (Note 6) 11,527,000 10,797,000
------------ ------------
Other income (expense):
Interest expense (1,177,000) (3,258,000)
Interest income 278,000 597,000
Other, net (183,000) (385,000)
------------ ------------
(1,082,000) (3,046,000)
------------ ------------
Income before income taxes 10,445,000 7,751,000
Provision for income taxes 4,178,000 3,178,000
------------ ------------
Income before minority interest 6,267,000 4,573,000
Minority interest (1,452,000) (1,596,000)
------------ ------------
Net income $ 4,815,000 $ 2,977,000
============ ============
Basic and diluted earnings per share of common stock
(Note 3) $ .14 $ .09
============ ============
See notes to condensed consolidated financial statements.
3
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED MARCH 31,
2002 2001
---- ----
Net sales $569,210,000 $552,384,000
Cost of sales 410,595,000 409,864,000
------------ ------------
Gross profit 158,615,000 142,520,000
Selling, general and administrative expenses 125,660,000 113,858,000
------------ ------------
Income from operations 32,955,000 28,662,000
------------ ------------
Other income (expense):
Interest expense (2,538,000) (6,723,000)
Interest income 578,000 1,168,000
Other, net (256,000) (369,000)
------------ ------------
(2,216,000) (5,924,000)
------------ ------------
Income before income taxes 30,739,000 22,738,000
Provision for income taxes 12,295,000 9,323,000
------------ ------------
Income before minority interest and cumulative
effect of a change in accounting principle 18,444,000 13,415,000
Minority interest (3,047,000) (2,935,000)
------------ ------------
Income before cumulative effect of a change in
accounting principle 15,397,000 10,480,000
Cumulative effect of a change in accounting
principle, net of income taxes of $2,457,000 (Note 5) (24,118,000) ---
------------ ------------
Net income (loss) $ (8,721,000) $ 10,480,000
============ ============
Basic earnings (loss) per share of common stock (Note 3):
Income before cumulative effect of a change in
accounting principle $ .47 $ .32
Cumulative effect of a change in accounting principle (.73) ---
------------ ------------
$ (.26) $ .32
============ ============
Diluted earnings (loss) per share of common stock (Note 3):
Income before cumulative effect of a change in
accounting principle $ .44 $ .32
Cumulative effect of a change in accounting principle (.69) ---
------------ ------------
$ (.25) $ .32
============ ============
See notes to condensed consolidated financial statements.
4
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(8,721,000) $10,480,000
------------ ------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 10,641,000 12,084,000
Pension curtailment gain --- (3,156,000)
Minority interest 3,047,000 2,935,000
Cumulative effect of a change in accounting
principle 24,118,000 ---
Provision for losses on accounts receivable 1,138,000 1,767,000
Change in assets and liabilities:
Decrease in accounts receivable and contract
costs and recognized income not yet billed 20,700,000 21,888,000
Decrease in inventories 1,367,000 1,255,000
Decrease in prepaid expenses and other assets 1,579,000 1,648,000
Decrease in accounts payable, accrued
liabilities and income taxes (10,998,000) (12,147,000)
Other changes, net 1,156,000 4,374,000
------------ ------------
Total adjustments 52,748,000 30,648,000
------------ ------------
Net cash provided by operating activities 44,027,000 41,128,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (12,085,000) (8,650,000)
(Increase) decrease in equipment lease deposits
and other (92,000) 2,438,000
------------ ------------
Net cash used in investing activities (12,177,000) (6,212,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (4,606,000) ---
Proceeds from issuance of long-term debt 2,000,000 1,406,000
Payments of long-term debt (25,942,000) (18,122,000)
Decrease in short-term borrowings (1,800,000) (2,240,000)
Exercise of stock options 3,545,000 ---
Other, net (3,791,000) (1,903,000)
------------ ------------
Net cash used in financing activities (30,594,000) (20,859,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,256,000 14,057,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 40,096,000 26,616,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $41,352,000 $40,673,000
============ ============
See notes to condensed consolidated financial statements.
5
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month and six-month periods
ended March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2002. The balance sheet at September
30, 2001 has been derived from the audited financial statements at that date.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the company's annual report to shareholders for
the year ended September 30, 2001.
(2) Inventories -
-----------
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
March 31, September 30,
2002 2001
------------ ------------
Finished goods......................... $44,624,000 $53,613,000
Work in process........................ 31,105,000 27,809,000
Raw materials and supplies............. 20,619,000 16,622,000
------------ ------------
$96,348,000 $98,044,000
============ ============
(3) Earnings per share (EPS) -
------------------------
Earnings per share amounts and the weighted average number of shares used
in their calculation for the three-month and six-month periods ended March 31,
2001 have been restated to reflect the effect of a 10% Common Stock dividend
paid in September 2001.
Basic EPS is calculated by dividing income by the weighted average number
of shares of common stock outstanding during the period. The weighted average
number of shares of common stock used in determining basic EPS was 33,208,000
and 32,989,000 for the three months ended March 31, 2002 and 2001, respectively
and 33,132,000 and 32,978,000 for the six months ended March 31, 2002 and 2001,
respectively.
Diluted EPS is calculated by dividing income by the weighted average number
of shares of common stock outstanding plus additional common shares that could
be issued in connection with potentially dilutive securities. The weighted
average number of shares of common stock used in determining diluted EPS was
35,276,000 and 33,171,000 for the three months ended March 31, 2002 and 2001,
respectively and 34,924,000 and 33,161,000 for the six months ended March 31,
2002 and 2001, respectively, and reflects additional shares issuable in
connection with stock option and other stock-based compensation plans.
6
Options to purchase approximately 5,206,000 shares of common stock were not
included in the computation of diluted earnings per share for the three and six
months ended March 31, 2001, because the effects would have been antidilutive.
(4) Business segments -
-----------------
The company's reportable business segments are as follows - Garage Doors
(manufacture and sale of residential and commercial/industrial garage doors, and
related products); Installation Services (sale and installation of building
products primarily for new construction, such as garage doors, garage door
openers, manufactured fireplaces and surrounds, and cabinets); Electronic
Information and Communication Systems (communication and information systems for
government and commercial markets); and Specialty Plastic Films (manufacture and
sale of plastic films and film laminates for baby diapers, adult incontinence
care products, disposable surgical and patient care products and plastic
packaging).
Information on the company's business segments is as follows:
Electronic
Information
Specialty and
Garage Installation Plastic Communication
Doors Services Films Systems Totals
----- ------------ ---------- -------------- ------
Revenues from external
customers -
Three months ended
March 31, 2002 $ 88,220,000 $ 63,465,000 $ 68,948,000 $46,675,000 $267,308,000
March 31, 2001 82,061,000 62,399,000 77,044,000 42,685,000 264,189,000
Six months ended
March 31, 2002 200,836,000 134,498,000 141,514,000 92,362,000 569,210,000
March 31, 2001 184,977,000 130,206,000 149,754,000 87,447,000 552,384,000
Intersegment revenues -
Three months ended
March 31, 2002 $ 5,082,000 $ 55,000 $ --- $ --- $ 5,137,000
March 31, 2001 5,796,000 79,000 --- --- 5,875,000
Six months ended
March 31, 2002 12,203,000 132,000 --- --- 12,335,000
March 31, 2001 12,248,000 134,000 --- --- 12,382,000
Segment profit -
Three months ended
March 31, 2002 $ 336,000 $ 721,000 $ 10,064,000 $ 3,086,000 $ 14,207,000
March 31, 2001 (1,435,000) 727,000 11,914,000 1,849,000 13,055,000
Six months ended
March 31, 2002 9,581,000 3,105,000 19,884,000 5,526,000 38,096,000
March 31, 2001 3,500,000 1,915,000 21,626,000 6,128,000 33,169,000
7
Following is a reconciliation of segment profit to amounts reported in the
consolidated financial statements:
Three Months Ended March 31, Six Months Ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Profit for all
segments $14,207,000 $13,055,000 $38,096,000 $33,169,000
Unallocated amounts (2,863,000) (2,643,000) (5,397,000) (4,876,000)
Interest expense, net (899,000) (2,661,000) (1,960,000) (5,555,000)
------------ ------------ ------------ ------------
Income before
income taxes $10,445,000 $ 7,751,000 $30,739,000 $22,738,000
============ ============ ============ ============
(5) Changes in accounting principles -
--------------------------------
Effective October 1, 2001, the company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS
142). SFAS 142 addresses accounting and reporting for acquired goodwill. It
eliminates the previous requirement to amortize goodwill and establishes new
requirements with respect to evaluating goodwill for impairment. With the
assistance of a third-party valuation expert, the company ascertained the fair
value of its reporting units as part of adopting SFAS 142 and determined that
goodwill of the installation services segment was impaired pursuant to the new
standard. The fair value of the installation services segment used in computing
the impairment loss was determined through a combination of market based
approaches and present value techniques. Results for the six months ended March
31, 2002 include the related cumulative effect of a change in accounting
principle in the amount of $24,118,000 (net of an income tax benefit of
$2,457,000) to reflect the impairment.
Had SFAS 142 been in effect for the three and six months ended March 31,
2001, the related elimination of goodwill amortization would have increased the
company's net income and earnings per share as follows:
For the Three Months Ended For the Six Months Ended
March 31, 2001 March 31, 2001
As Reported Increase Pro Forma As Reported Increase Pro Forma
----------- -------- --------- ----------- -------- ---------
Net income $ 2,977,000 $ 477,000 $3,454,000 $10,480,000 $ 950,000 $11,430,000
============ ========= ========== =========== ========= ===========
Basic earnings per share
of common stock $.09 $.10 $.32 $.35
==== ==== ==== ====
Diluted earnings per share
of common stock $.09 $.10 $.32 $.34
==== ==== ==== ====
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards Nos. 143, "Accounting for Asset Retirement
Obligations" and 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 143 addresses accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs, and will become effective in fiscal 2003. SFAS 144 addresses
accounting and reporting for the impairment or disposal of long-lived assets and
also becomes effective in fiscal 2003. The company anticipates that adoption of
these new standards will not have a material effect on its financial position
and results of operations.
8
(6) Pension curtailment gain -
------------------------
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits," modifications to certain employee benefits
and related benefit freezes resulted in the recognition of a pretax curtailment
gain of approximately $3,100,000 in the three and six months ended March 31,
2001.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating results for the three and six month periods ended March 31, 2001
included a pretax pension curtailment gain of approximately $3.1 million, which
was evenly divided between the specialty plastic films and garage doors
segments. Prior year operating results also included goodwill amortization of
$.6 million and $1.2 million for the three and six month periods.
THREE MONTHS ENDED MARCH 31, 2002
Following are operating results (in thousands) by business segment for the
three-month periods ended March 31:
Segment
Net Sales Operating Profit
2002 2001 2002 2001
---- ---- ---- ----
Garage doors $ 93,302 $ 87,857 $ 336 $(1,435)
Installation services 63,520 62,478 721 727
Specialty plastic films 68,948 77,044 10,064 11,914
Electronic information
and communication systems 46,675 42,685 3,086 1,849
Intersegment revenues (5,137) (5,875) - -
-------- -------- -------- --------
$267,308 $264,189 $14,207 $13,055
======== ======== ======== ========
Garage Doors
- ------------
Net sales of the garage doors segment increased by $5.4 million or 6.2%
compared to last year principally due to higher unit sales. Increased demand due
to continued service level improvements and mild weather conditions resulted in
the unit sales increase.
Excluding the effect of the fiscal 2001 pension curtailment gain, operating
profit of the garage doors segment increased $3.3 million compared to last year.
Gross margin percentage increased to approximately 29.1% in 2002 from 24.1% last
year. The increased margin was due primarily to the sales growth, increased
manufacturing efficiencies and lower raw material costs. Selling, general and
administrative expenses increased as a percentage of sales to 28.7% from 25.8%
last year. Freight costs billed to customers were included in net sales;
previously such recoverable costs were treated as a reduction of freight
expense. This change in classification had no effect on segment operating
profit. Excluding the impact of the pension curtailment gain and the
classification of recoverable freight costs, expense levels were held to the
same level as in the prior year. Steel suppliers to the garage doors segment
have begun to raise prices. It is anticipated that such increases will not have
a significant effect on fiscal 2002 operating profit; at this time, we cannot
predict the impact that raw material price increases and any related selling
price adjustments will have on operating results thereafter.
Installation Services
- ---------------------
Net sales of the installation services segment increased by $1.0 million or
1.7% compared to last year. The increase was principally due to the segment's
expanded product offering and stronger new construction markets.
Operating profit of the installation services segment was approximately the
same as last year. Gross margin percentage increased to 27.3% from 26.4% last
year. Selling, general and administrative expenses as a percentage of sales
increased to 26.2% from 25.3% last year, primarily due to costs associated with
systems upgrades.
10
Specialty Plastic Films
- -----------------------
Net sales of the specialty plastic films segment decreased $8.1 million or
10.5% compared to the prior year. Selling price adjustments to pass through raw
material cost decreases to customers ($3.7 million), the impact of a stronger
U.S. dollar on translated foreign sales ($2.1 million) and lower unit volume
($1.5 million) were the principal reasons for the decrease.
Excluding the effect of the fiscal 2001 pension curtailment gain, operating
profit of the specialty plastic films segment was approximately the same as last
year. Gross margin percentage increased to 27.3% from 25.6% last year,
reflecting the effect of lower raw material costs and manufacturing
efficiencies, partly offset by selling price adjustments. Selling, general and
administrative expenses as a percentage of sales increased to 12.4% from 9.8%
last year, due to the effect of the sales decrease and increased marketing and
product development costs. This segment is now experiencing upward pressure on
raw material (resin) costs. The segment is generally able to pass price
increases on to some of its customers. Although there could be some impact on
future operating results due to the extent of raw material price increases and
the timing and amount of resultant selling price adjustments, we do not expect
such impact to be significant.
Electronic Information and Communication Systems
- ------------------------------------------------
Net sales of the electronic information and communication systems segment
increased $4.0 million or 9.3% compared to last year. The increase was primarily
due to increased sales in connection with defense communications and systems
integration programs, partly offset by lower sales in the segment's integrated
circuit business.
Operating profit of the electronic information and communication systems
segment increased $1.2 million or 66.9% compared to last year. The increase is
principally attributable to the effect of higher sales, partly offset by
increased expenditures of approximately $1.7 million associated with its
previously announced technology initiatives. These development initiatives are
expected to aggregate $5-6 million for 2002 with the objective of generating
incremental revenue commencing in 2003. Gross margin percentage increased to
24.2% from 22.8% last year due primarily to higher sales and margins in
connection with certain defense programs.
Net Interest Expense
- --------------------
Net interest expense decreased by $1.8 million compared to last year due to
the effect of debt repayments and lower interest rates. Debt levels were reduced
considerably compared to last year, with outstanding borrowings declining
approximately $59 million from March 31, 2001 to March 31, 2002.
11
SIX MONTHS ENDED MARCH 31, 2002
Operating results (in thousands) by business segment were as follows for
the six-month periods ended March 31:
Segment
Net Sales Operating Profit
--------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Garage doors $213,039 $197,225 $ 9,581 $ 3,500
Installation services 134,630 130,340 3,105 1,915
Specialty plastic films 141,514 149,754 19,884 21,626
Electronic information
and communication systems 92,362 87,447 5,526 6,128
Intersegment revenues (12,335) (12,382) - -
-------- -------- -------- --------
$569,210 $552,384 $38,096 $33,169
======== ======== ======== ========
Garage Doors
- ------------
Net sales of the garage doors segment increased by $15.8 million or 8.0%
compared to last year primarily due to higher unit sales. The unit sales
increase was attributable to service level improvements and mild weather
conditions.
Excluding the pension curtailment gain, operating profit of the garage
doors segment increased approximately $7.6 million compared to last year. Gross
margin percentage increased to 29.9% in 2002 from 25.4% last year. The increased
margin was due primarily to the sales growth, lower raw material costs and
increased manufacturing efficiencies. Selling, general and administrative
expenses increased as a percentage of sales to 25.4% from 23.7% last year.
Freight costs billed to customers were included in net sales; previously such
recoverable costs were treated as a reduction of freight expense. This change in
classification had no effect on segment operating profit.
Installation Services
- ---------------------
Net sales of the installation services segment increased by $4.3 million or
3.3% compared to last year. The increase was principally due to the segment's
expanded product offering and stronger new construction markets.
Operating profit of the installation services segment increased $1.2
million compared to last year. Gross margin percentage increased to 27.5% from
approximately 26.5% last year. The increased margin was due to the sales
increase and improved product mix compared to the prior year. Selling, general
and administrative expenses as a percentage of sales was 25.2% compared to 25.1%
last year.
Specialty Plastic Films
- -----------------------
Net sales of the specialty plastic films segment were $141.5 million
compared to $149.8 million in the prior year. The decrease was primarily due to
the impact of selling price adjustments to pass through raw material cost
decreases to customers ($6.7 million), the effect of a stronger U.S. dollar on
translated foreign sales ($1.2 million) and lower pricing on certain products
($2.2 million), partly offset by higher unit volume ($1.9 million).
12
Excluding the pension curtailment gain, operating profit of the specialty
plastic films segment was approximately the same as last year. Gross margin
percentage increased to 25.9% from 25.3%, reflecting lower raw material costs
and manufacturing efficiencies, partly offset by the effect of selling price
adjustments and costs associated with a production line installed during the
first quarter in one of our European operations. Selling, general and
administrative expenses as a percentage of sales increased to approximately
11.7% from 10.5% due to the effect of the sales decrease; selling, general and
administration expenses were substantially the same as in the prior year.
Electronic Information and Communication Systems
- ------------------------------------------------
Net sales of the electronic information and communication systems segment
increased $4.9 million or 5.6% compared to last year. The increase was primarily
due to increased sales in connection with defense communications and systems
integration programs, partly offset by lower sales in the segment's integrated
circuit business.
Operating profit of the electronic information and communication systems
segment decreased $.6 million compared to last year. The decrease is principally
attributable to increased expenditures of approximately $2.7 million associated
with its previously announced technology initiatives. Gross margin percentage
increased to 22.6% from 22.3% last year due primarily to higher margins in
connection with the sales increase and manufacturing efficiencies.
Net Interest Expense
- --------------------
Net interest expense decreased by $3.6 million compared to last year due to
the effect of debt repayments and lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated by operations for the six months ended March 31, 2002
was $44.0 million compared to $41.1 million last year and working capital was
$194.0 million at March 31, 2002. Operating cash flows increased compared to
last year due to increased earnings and improved working capital management.
During the six months ended March 31, 2002, the company had capital
expenditures of approximately $12 million, principally made in connection with
increasing production capacity.
Financing cash flows principally consisted of repayments of bank
indebtedness of approximately $26 million and treasury stock purchases of $4.6
million during the quarter. If the anticipated level of operating cash flows is
achieved, debt levels will be further reduced and purchases of the company's
Common Stock under its stock buyback program will be made, depending upon market
conditions, at prices deemed appropriate by management.
13
At March 31, 2002, future minimum payments under noncancellable operating
leases and payments to be made for notes payable and maturities of long-term
debt over the next five years are as follows (000's omitted):
Operating Debt
Year Leases Repayments Total
---- --------- ---------- -----
2003 $20,200 $8,300 $28,500
2004 14,900 6,300 21,200
2005 10,300 7,600 17,900
2006 6,200 2,800 9,000
2007 3,600 9,500 13,100
Anticipated cash flows from operations, together with existing cash, bank
lines of credit and lease line availability, should be adequate to finance
presently anticipated working capital and capital expenditure requirements and
to repay long-term debt as it matures.
CHANGES IN ACCOUNTING PRINCIPLES
See Note 5 of notes to condensed consolidated financial statements for a
description of the effect of the company's adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and two
other recently issued accounting standards.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
report, including without limitation statements regarding the company's
financial position, business strategy, and the plans and objectives of the
company's management for future operations, are forward-looking statements. When
used in this report, words such as "anticipate", "believe", "estimate",
"expect", "intend" and similar expressions, as they relate to the company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the company's management, as well as assumptions
made by and information currently available to the company's management. Actual
results could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to,
business and economic conditions, competitive factors and pricing pressures,
capacity and supply constraints. Such statements reflect the views of the
company with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity of the company. Readers are cautioned not to place
undue reliance on these forward-looking statements. The company 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments that is required to be
disclosed.
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PART II - OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
None
Item 2 Changes in Securities
---------------------
None
Item 3 Defaults upon Senior Securities
-------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
None
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K dated April 30, 2002
covering Item 4 -- Changes in Registrant's Certifying
Accountant
15
SIGNATURE
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
By /s/ Robert Balemian
------------------------------------
Robert Balemian
President and Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 2002
16