1
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 December 31, 1999
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. 29,836,247 shares of Common
Stock as of January 31, 2000.
2
FORM 10-Q
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1999
and September 30, 1999........................................ 1
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 1999 and 1998 ...................... 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1999 and 1998 ................ 4
Notes to Condensed Consolidated Financial Statements.......... 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
Quantitative and Qualitative Disclosure about Market Risk..... 10
PART II - OTHER INFORMATION
Item 1: Legal Proceedings .................................... 11
Item 2: Changes in Securities ................................ 11
Item 3: Defaults upon Senior Securities ...................... 11
Item 4: Submission of Matters to a Vote of Security Holders... 11
Item 5: Other Information .................................... 11
Item 6: Exhibits and Reports on Form 8-K ..................... 11
Signature .................................................... 12
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 1999
(Unaudited) (Note 1)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,929,000 $ 21,242,000
Accounts receivable, less allowance for
doubtful accounts 124,559,000 123,008,000
Contract costs and recognized income not
yet billed 70,920,000 65,527,000
Inventories (Note 2) 103,897,000 94,419,000
Prepaid expenses and other current assets 27,512,000 22,832,000
------------ ------------
Total current assets 344,817,000 327,028,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $76,549,000 at
December 31, 1999 and $72,152,000 at
September 30, 1999 134,822,000 134,882,000
OTHER ASSETS 72,424,000 71,530,000
------------ ------------
$552,063,000 $533,440,000
============ ============
See notes to condensed consolidated financial statements.
1
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1999 1999
(Unaudited) (Note 1)
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable $ 56,180,000 $ 64,540,000
Other current liabilities 78,036,000 73,465,000
------------ ------------
Total current liabilities 134,216,000 138,005,000
------------ ------------
LONG-TERM DEBT 146,652,000 127,652,000
------------ ------------
MINORITY INTEREST AND OTHER 16,444,000 17,562,000
------------ ------------
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 31,735,349 shares
at December 31, 1999 and September 30,
1999; 1,416,702 and 1,387,402 shares in
treasury at December 31, 1999 and
September 30, 1999, respectively 7,934,000 7,934,000
Other shareholders' equity 246,817,000 242,287,000
------------ ------------
Total shareholders' equity 254,751,000 250,221,000
------------ ------------
$552,063,000 $533,440,000
============ ============
See notes to condensed consolidated financial statements.
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
1999 1998
------------- -------------
Net sales $ 280,761,000 $ 258,557,000
Cost of sales 208,909,000 196,431,000
------------- -------------
Gross profit 71,852,000 62,126,000
Selling, general and administrative expenses 55,437,000 49,334,000
------------- -------------
Income from operations 16,415,000 12,792,000
------------- -------------
Other income (expense):
Interest expense (2,355,000) (1,498,000)
Interest income 303,000 61,000
Other, net (13,000) (3,000)
------------- -------------
(2,065,000) (1,440,000)
------------- -------------
Income before income taxes 14,350,000 11,352,000
------------- -------------
Provision for income taxes:
Federal 2,909,000 3,374,000
State and foreign 2,791,000 826,000
------------- -------------
5,700,000 4,200,000
------------- -------------
Income before minority interest and cumulative
effect of a change in accounting principle 8,650,000 7,152,000
Minority interest (Note 5) 1,082,000 --
------------- -------------
Income before cumulative effect of a change in
accounting principle 9,732,000 7,152,000
Cumulative effect of a change in accounting
principle, net of income taxes (Note 5) (5,290,000) --
------------- -------------
Net income $ 4,442,000 $ 7,152,000
============= =============
Basic earnings per share of common stock (Note 3):
Income before cumulative effect of a change in
accounting principle $ .32 $ .24
Cumulative effect of a change in accounting
principle (.17) --
------------- -------------
$ .15 $ .24
============= =============
Diluted earnings per share of common stock (Note 3):
Income before cumulative effect of a change in
accounting principle $ .32 $ .23
Cumulative effect of a change in accounting
principle (.17) --
------------- -------------
$ .15 $ .23
============= =============
See notes to condensed consolidated financial statements
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,442,000 $ 7,152,000
------------ ------------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 5,552,000 5,223,000
Minority interest (1,082,000) --
Cumulative effect of a change in accounting
principle, net 5,290,000 --
Provision for losses on accounts receivable 455,000 447,000
Change in assets and liabilities:
Increase in accounts receivable and
contract costs and recognized income not
yet billed (7,974,000) (7,633,000)
(Increase) decrease in inventories (6,024,000) 401,000
Increase in prepaid expenses and other
assets (2,000,000) (2,226,000)
Decrease in accounts payable, accrued
liabilities and federal income taxes (934,000) (5,975,000)
Other changes, net 1,048,000 1,258,000
------------ ------------
Total adjustments (5,669,000) (8,505,000)
------------ ------------
Net cash used in operating activities (1,227,000) (1,353,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (7,421,000) (7,027,000)
Acquired businesses (12,112,000) --
Other, net 2,048,000 (1,430,000)
------------ ------------
Net cash used in investing activities (17,485,000) (8,457,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (224,000) --
Proceeds from issuance of long-term debt 16,500,000 6,829,000
Payment of long-term debt (311,000) (297,000)
Other, net (566,000) 143,000
------------ ------------
Net cash provided by financing activities 15,399,000 6,675,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,313,000) (3,135,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,242,000 19,326,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,929,000 $ 16,191,000
============ ============
See notes to condensed financial statements
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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 period
ended December 31, 1999 are not necessarily indicative of the results that may
be expected for the year ending September 30, 2000. The balance sheet at
September 30, 1999 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, 1999.
(2) Inventories -
Inventories, stated at the lower of cost (first-in, first-out or
average) or market, are comprised of the following:
December 31, September 30,
1999 1999
------------ ------------
Finished goods $ 57,476,000 $ 51,157,000
Work in process 23,535,000 23,405,000
Raw materials and supplies 22,886,000 19,857,000
------------ ------------
$103,897,000 $ 94,419,000
============ ============
(3) Earnings per share (EPS)-
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
30,466,000 for the three months ended December 31, 1999 and 30,377,000 for the
three months ended December 31, 1998.
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8
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
30,628,000 and 30,596,000 for the three months ended December 31, 1999 and 1998,
respectively, and reflects additional shares in connection with stock option and
other stock-based compensation plans (162,000 shares for the three months ended
December 31, 1999 and 219,000 shares for the three months ended December 31,
1998).
Options to purchase approximately 4,319,000 and 2,836,000 shares of
common stock were not included in the computations of diluted earnings per share
for the three months ended December 31, 1999 and 1998, respectively, 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
and Specialty
Garage Installation Communication Plastic
Doors Services Systems Films Totals
------------ ------------ ------------ ------------ ------------
Revenues from
external customers -
Three months ended
December 31, 1999 $111,090,000 $ 68,684,000 $ 40,146,000 $ 60,841,000 $280,761,000
Three months ended
December 31, 1998 115,702,000 50,481,000 42,036,000 50,338,000 258,557,000
Intersegment revenues -
Three months ended
December 31, 1999 $ 8,765,000 $ 169,000 $ -- $ -- $ 8,934,000
Three months ended
December 31, 1998 8,257,000 339,000 -- -- 8,596,000
Segment profit -
Three months ended
December 31, 1999 $ 7,980,000 $ 2,382,000 $ 3,751,000 $ 4,658,000 $ 18,771,000
Three months ended
December 31, 1998 8,562,000 1,814,000 2,949,000 1,669,000 14,994,000
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9
Following is a reconciliation of segment profit to amounts reported in
the consolidated financial statements:
Three Months Ended December 31,
1999 1998
------------ ------------
Profit for all segments $ 18,771,000 $ 14,994,000
Unallocated amounts (2,369,000) (2,205,000)
Interest expense, net (2,052,000) (1,437,000)
------------ ------------
Income before income taxes $ 14,350,000 $ 11,352,000
============ ============
As a result of an acquisition during the quarter ended December 31,
1999, the electronic information and communication systems segment's assets
increased by approximately $16,000,000.
(5) Start-up costs -
Effective October 1, 1999 the company adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position No.
98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities". SOP 98-5
requires that, at the date of adoption, costs of start-up activities previously
capitalized be written-off as a cumulative effect of a change in accounting
principle, and that after adoption, such costs are to be expensed as incurred.
Consequently, in the first quarter of fiscal 2000, the company's
60%-owned joint venture wrote-off costs that were previously capitalized in
connection with the start-up of the venture and the implementation of additional
production capacity. The cumulative effect of this change in accounting
principle is $5,290,000 (net of $3,784,000 income tax effect). The minority
interest's share of the net charge is $2,116,000 and is included as an
offsetting credit in "Minority interest" in the accompanying Condensed
Consolidated Statements of Income.
(6) Restructuring charge -
In March 1999 the company recorded a restructuring charge in connection
with the closing of a garage door manufacturing facility in order to streamline
operations and improve efficiency. Approximately $1,350,000 of restructuring
costs were accrued and were expected to be paid within one year; through
December 31, 1999 approximately $645,000 has been paid for employee severance
and related benefits and $255,000 has been paid for lease and related costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following information is presented in accordance with related
segment results presented in Note 4 of "Notes to Condensed Consolidated
Financial Statements."
Results of Operations
Net sales were $280.8 million for the three-month period ended December
31, 1999, an increase of $22.2 million or 8.6% over last year.
Net sales of the garage door segment were $119.9 million, a decrease of
$4.1 million or 3.3% compared to last year. The decrease was principally due to
the sale in fiscal 1999 of a commercial product line which had net sales of
approximately $4 million in the first quarter of 1999 and the effect of
competitive pricing, partly offset by increased unit sales of residential garage
doors to the construction and related retail markets. Net sales of the
installation services segment were $68.9 million, an increase of $18.0 million,
or 35.5% compared to last year. The increase was due to an operation acquired in
the second quarter of 1999 ($16 million) and internal growth from expanded
product offerings. Net sales of the specialty plastic films segment were $60.8
million, an increase of $10.5 million or 20.9% over last year. The increased
sales were principally due to higher unit sales in the segment's European joint
venture, partly offset by lower volumes in the segment's domestic business.
Management expects that this improvement in Europe will continue, and
anticipates that new domestic programs with the segment's major customer should
result in improvement towards the end of the fiscal year. Net sales of the
electronic information and communication systems segment were $40.1 million, a
decrease of $1.9 million or 4.5% compared to last year due to delays in
anticipated orders on international radar programs. Management expects these
programs to be funded and generate orders for the segment within the fiscal
year.
Operating profit for all business segments for the three-month period
ended December 31, 1999 was $18.8 million, an increase of $3.8 million or 25.2%
compared to last year. Operating profit of the garage door segment decreased
approximately $.6 million compared to last year. The effect of decreased sales
and higher costs associated with new distribution centers and geographic
expansion were partly offset by improved manufacturing efficiencies and the 1999
divestiture of an unprofitable commercial product line. Operating profit of the
installation services segment increased by $.6 million or 31.3% compared to last
year principally due to the acquired business, partly offset by higher
distribution and labor costs. Operating profit of the specialty plastic films
segment increased $3.0 million or 179.1% compared to last year primarily due to
increased unit sales and manufacturing efficiencies in the segment's European
joint venture, partly offset by higher raw material costs. Operating profit of
the electronic information and communication systems segment increased by
approximately $.8 million or 27.2% compared to last year due to improved
profitability on certain programs that are transitioning from funded development
to production and increased contribution from the custom integrated circuit
portion of the segment's business.
Net interest expense increased by $.6 million compared to last year due
to higher levels of outstanding debt from acquisitions in 1999 and from
borrowings to finance new production lines for specialty plastic films' joint
venture.
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Liquidity and Capital Resources
Cash flow used by operations for the quarter was $1.2 million and
working capital was $210.6 million at December 31, 1999.
During the quarter, the company had capital expenditures of
approximately $7 million, principally made in connection with increasing
production capacity. Also, the electronic information and communication systems
segment acquired a search and weather radar business for approximately $16
million, of which $12 million was financed under bank credit lines with the
balance to be paid during the second quarter of fiscal 2000.
Since December 31, 1999 the company has purchased approximately 500,000
shares of its Common Stock, and increased its stock buyback program from
1,500,000 shares to 3,000,000 shares. Additional purchases will be made from
time-to-time, depending upon market conditions, at prices deemed appropriate by
management.
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.
YEAR 2000
As described in its annual report for the year ended September 30,
1999, the company believes that it has adequately addressed Year 2000 issues
within the company's application software, hardware and related operating
platforms, embedded technology such as microcontrollers used in production
equipment or products, and relationships with third parties. There are no
significant changes from the information contained in the annual report with
respect to the nature and extent of the company's Year 2000 readiness or the
costs involved.
In evaluating the impact of Year 2000 on significant third parties,
each business segment identified and contacted the parties involved or otherwise
attained an understanding of such third parties' Year 2000 readiness. Based on
the results of this process, the company does not anticipate a major
interruption of its business activities. However, that will be dependent on the
ability of significant third parties to be Year 2000 compliant, a factor beyond
the ability of the company to control. Consequently, while the company believes
that its actions are responsive to Year 2000 risks regarding significant third
parties, it is not possible to eliminate such risks or to estimate the ultimate
effect that significant third parties' Year 2000 readiness will have on the
company's operating results.
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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, Year 2000 readiness 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 and
the impact of any disruption or failure in normal business activities at the
company and its customers and suppliers as a consequence of Year 2000 related
problems. 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 are
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
(a) The Registrant held its Annual Meeting of Stockholders
on February 8, 2000
(b) Not applicable
(c)(i) Four directors were elected at the Annual Meeting to
serve until the Annual Meeting of Stockholders in 2003.
The names of these directors and votes cast in favor of
their election and shares withheld are as follows:
Name Votes For Votes Withheld
---- --------- --------------
Robert Balemian 23,575,809 4,869,598
Harvey R. Blau 23,572,221 4,873,186
Ronald J. Kramer 23,584,524 4,860,883
Lieutenant General
James W. Stansberry (Ret.) 23,590,823 4,854,584
(ii) In addition to the election of directors, the
stockholders rejected a shareholder proposal
recommending that the Board of Directors appoint a
Special Committee of the Board of Directors to solicit,
review and negotiate offers to acquire the company.
13,237,958 shares were voted against this proposal,
10,170,091 shares were voted in favor and 434,675
shares abstained.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 -- Financial Data Schedule (for electronic
submission only)
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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
(Principal Financial Officer)
Date: February 11, 2000
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