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 June 30, 1998
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. 30,958,482 shares of Common
Stock as of July 31, 1998.
FORM 10-Q
---------
CONTENTS
--------
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
---------------------
Condensed Consolidated Balance Sheets at June 30, 1998
and September 30, 1997........................................... 1
Condensed Consolidated Statements of Income for the Three
Months and Nine Months Ended June 30, 1998 and 1997.............. 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1998 and 1997.............................. 5
Notes to Condensed Consolidated Financial Statements............. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 8
PART II - OTHER INFORMATION
-----------------
Item 1: Legal Proceedings ....................................... 12
Item 2: Changes in Securities ................................... 12
Item 3: Defaults upon Senior Securities ......................... 12
Item 4: Submission of Matters to a Vote of Security Holders ..... 12
Item 5: Other Information ....................................... 12
Item 6: Exhibits and Reports on Form 8-K ........................ 12
Signature ........................................................ 13
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
June 30, September 30,
1998 1997
----------- ------------
(Unaudited) (Note 1)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 7,635,000 $ 15,414,000
Marketable securities 383,000 1,379,000
Accounts receivable, less allowance
for doubtful accounts 112,568,000 105,050,000
Contract costs and recognized
income not yet billed 44,570,000 40,465,000
Inventories (Note 2) 93,228,000 88,123,000
Prepaid expenses and other current
assets 15,728,000 13,676,000
------------ ------------
Total current assets 274,112,000 264,107,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $62,768,000 at
June 30, 1998 and $53,673,000 at
September 30, 1997 100,267,000 77,080,000
OTHER ASSETS 46,329,000 43,572,000
------------ ------------
$420,708,000 $384,759,000
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
June 30, September 30,
1998 1997
----------- ------------
(Unaudited) (Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts and notes payable $ 58,040,000 $ 52,612,000
Other current liabilities 61,822,000 76,488,000
------------ ------------
Total current liabilities 119,862,000 129,100,000
------------ ------------
LONG-TERM DEBT (Notes 4 and 5) 67,149,000 47,689,000
------------ ------------
MINORITY INTEREST AND OTHER 11,397,000 6,165,000
------------ ------------
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
31,698,077 shares at June 30, 1998
and 31,278,830 shares at September 30,
1997, and 817,902 shares and 603,700
shares in treasury at June 30, 1998
and September 30, 1997, respectively 7,925,000 7,820,000
Other shareholders' equity 214,375,000 193,985,000
------------ ------------
Total shareholders' equity 222,300,000 201,805,000
------------ ------------
$420,708,000 $384,759,000
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
THREE MONTHS ENDED JUNE 30,
--------------------------
1998 1997
---- ----
Net sales $229,407,000 $193,120,000
Cost of sales 172,294,000 142,310,000
------------ ------------
Gross profit 57,113,000 50,810,000
Selling, general and administrative
expenses 46,096,000 36,359,000
------------ ------------
Income from operations 11,017,000 14,451,000
------------ ------------
Other income (expense):
Interest expense (530,000) (582,000)
Interest income 36,000 220,000
Other, net 197,000 10,000
------------ ------------
(297,000) (352,000)
------------ ------------
Income before income taxes 10,720,000 14,099,000
------------ ------------
Provision for income taxes:
Federal 3,124,000 4,477,000
State and other 843,000 740,000
------------ ------------
3,967,000 5,217,000
------------ ------------
Net income $ 6,753,000 $ 8,882,000
============ ============
Net income per share of common stock (Note 3):
Basic $ .22 $ .29
============ ============
Diluted $ .22 $ .29
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
NINE MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
Net sales $658,297,000 $535,671,000
Cost of sales 494,500,000 398,591,000
------------ ------------
Gross profit 163,797,000 137,080,000
Selling, general and administrative
expenses 132,400,000 102,626,000
------------ ------------
Income from operations 31,397,000 34,454,000
------------ ------------
Other income (expense):
Interest expense (2,539,000) (2,061,000)
Interest income 359,000 847,000
Other, net (32,000) 144,000
------------ ------------
(2,212,000) (1,070,000)
------------ ------------
Income before income taxes 29,185,000 33,384,000
------------ ------------
Provision for income taxes:
Federal 8,362,000 10,687,000
State and other 2,437,000 1,912,000
------------ ------------
10,799,000 12,599,000
------------ ------------
Net income $ 18,386,000 $ 20,785,000
============ ============
Net income per share of common stock (Note 3):
Basic $ .60 $ .70
============ ============
Diluted $ .59 $ .67
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
NINE MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,386,000 $20,785,000
Adjustments to reconcile net income to net cash ----------- -----------
provided by operating activities:
Depreciation and amortization 10,704,000 8,302,000
Provision for losses on accounts receivable 1,334,000 1,124,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable and
contract costs and recognized income not yet billed (12,773,000) 3,926,000
Increase in inventories (4,807,000) (2,105,000)
Increase in prepaid expenses and other assets (2,998,000) (5,725,000)
Decrease in accounts payable and accrued
liabilities (8,605,000) (8,156,000)
Other changes, net 4,114,000 (120,000)
----------- -----------
Total adjustments (13,031,000) (2,754,000)
----------- -----------
Net cash provided by operating activities 5,355,000 18,031,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in marketable securities 996,000 2,918,000
Acquisition of property, plant and equipment (32,657,000) (20,470,000)
Acquired businesses (733,000) (2,232,000)
Proceeds from sales of discontinued operations - 10,518,000
Other, net 715,000 (367,000)
----------- -----------
Net cash used in investing activities (31,679,000) (9,633,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (3,146,000) (3,422,000)
Proceeds from issuance of long-term debt 20,685,000 5,731,000
Payment of long-term debt (792,000) (15,369,000)
Increase (decrease) in short-term borrowings 122,000 (2,955,000)
Other, net 1,676,000 (169,000)
----------- -----------
Net cash provided by (used in) financing activities 18,545,000 (16,184,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,779,000) (7,786,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,414,000 17,846,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,635,000 $10,060,000
=========== ===========
See notes to condensed consolidated financial statements.
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 and nine month periods ended
June 30, 1998 are not necessarily indicative of the results that may be expected
for the year ended September 30, 1998. The balance sheet at September 30, 1997
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, 1997.
(2) Inventories -
-----------
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
June 30, September 30,
1998 1997
----------- ------------
Finished goods . . . . . . . . . . $52,877,000 $43,722,000
Work in process . . . . . . . . . 22,157,000 21,228,000
Raw materials and supplies . . . . 18,194,000 23,173,000
----------- -----------
$93,228,000 $88,123,000
=========== ===========
(3) Net Income Per Share -
--------------------
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
which became effective for the fiscal year beginning October 1, 1997,
establishes new standards for computing and presenting earnings per share (EPS).
The new standard requires the presentation of basic EPS and diluted EPS. Basic
EPS is calculated by dividing income available to common shareholders by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS is calculated by dividing income available to common shareholders by
the weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. Previously reported EPS amounts have been
restated under the new standard.
The following table sets forth the computation of basic and diluted net
income per share:
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
Net Income $6,753,000 $8,882,000 $18,386,000 $20,785,000
Preferred Stock dividends --- --- --- (7,000)
Numerator for basic net income ---------- ---------- ----------- -----------
per share -- income available
to common stockholders 6,753,000 8,882,000 18,386,000 20,778,000
Effect of dilutive securities:
Preferred Stock dividends --- --- --- 7,000
--------- ---------- ----------- -----------
Numerator for diluted net
income per share -- income
available to common stock-
holders after assumed
conversions $6,753,000 $8,882,000 $18,386,000 $20,785,000
========== ========== =========== ===========
Denominator:
Denominator for basic net
income per share -- weighted
average shares 30,625,000 30,180,000 30,533,000 29,473,000
----------- ----------- ----------- ------------
Effect of dilutive securities:
Convertible Preferred Stock --- --- --- 856,000
Employee stock options and
other 693,000 950,000 880,000 893,000
Dilutive potential common ----------- ---------- ---------- -----------
shares 693,000 950,000 880,000 1,749,000
----------- ---------- ---------- -----------
Denominator for diluted net
income per share -- adjusted
weighted average shares and
assumed conversions 31,318,000 31,130,000 31,413,000 31,222,000
============ =========== =========== ===========
(4) Long-term Debt -
--------------
In April 1998 the specialty plastic films' joint venture entered into a
credit agreement with a bank to finance new production lines. The agreement
provides for borrowings of approximately $28 million and bears interest based
upon LIBOR. Existing joint venture borrowings of approximately $7 million at
March 31, 1998 were refinanced under the agreement.
(5) Subsequent Event -
----------------
In July 1998 the specialty plastic films business acquired, in a cash
transaction, a plastic packaging manufacturer located in Germany with annual
sales of approximately $35 million. The purchase price of approximately $28
million was substantially financed by borrowings of approximately $20 million at
interest rates based upon LIBOR under a subsidiary's bank credit agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
Three Months Ended June 30,1998
-------------------------------
Net sales were $229.4 million for the three-month period ended June 30,
1998, an increase of $36.3 million or 18.8% over last year.
Net sales of the building products business were $149.5 million, an
increase of $30.6 million or 25.8% over last year. Net sales of acquired
companies accounted for $24.2 million of the increase. The balance of the
increase was accounted for by higher garage door unit sales and internal growth
in the service business, partly offset by competitive pricing. Net sales of the
specialty plastic films business were $39.5 million compared to $44.2 million
last year. The decrease was primarily due to lower than anticipated sales from
new programs in the infant diaper market. Net sales of the electronic
information and communication systems business were $40.4 million, an increase
of $10.4 million or 34.6% due to new programs and increased funding on existing
programs.
Income from operations for the three-month period ended June 30, 1998 was
$11.0 million compared to $14.5 million last year. Operating income of the
building products business decreased approximately $2 million compared to last
year. The effect of the sales growth was offset by competitive pricing
pressures, capacity constraints and related manufacturing inefficiencies due to
delay in implementing an additional production line, increased operating
expenses associated with new distribution centers and certain manufacturing
inefficiencies related to production of commercial doors. Orders in the garage
door business remain strong. However, near-term capacity constraints and
continued competitive pricing are anticipated to impact this segment's
operating earnings. Additional capacity is being implemented and is expected to
be in place early in fiscal 1999. Recent acquisitions have increased the number
of production facilities in the building products segment. Consequently, the
company is completing the review of its manufacturing structure and expects to
implement related decisions in the last quarter of fiscal 1998 or early in
fiscal 1999. Operating income of the specialty plastic films segment declined
by $1.5 million for the quarter compared to last year. Profitability in this
segment declined due to the sales decrease and price competition in the
commodity end of the segment's business. Although specialty plastic films
continues to be affected by pricing pressures, anticipated volume growth plus
earnings from the recently announced acquisition of a plastic packaging
manufacturer located in Germany are expected to result in improved operating
results from this segment. Operating income of the electronic information and
communication systems business for the quarter increased by approximately $.3
million compared to the prior year. The effect of the increased sales was
partly offset by lower margins on certain development contracts that are
expected to be completed in fiscal 1999.
Nine Months Ended June 30, 1998
-------------------------------
Net sales were $658.3 million for the nine-month period ended June 30,
1998, an increase of $122.6 million or 22.9% over last year.
Net sales of the building products business were $426.6 million, an
increase of $100.1 million or 30.7% over last year, primarily due to acquired
businesses ($70 million), higher garage door unit sales ($14 million), and the
service business' internal growth ($15 million). Net sales of the specialty
plastic films business were $115.2 million compared to $124.0 million last
year. The sales decrease was primarily due to lower than anticipated sales for
new programs in the infant diaper market. Net sales of the electronic
information and communication systems business were $116.5 million, an increase
of $31.2 million or 36.6% compared to last year, principally due to new
programs and increased funding levels on existing programs.
Income from operations for the nine-month period ended June 30, 1998 was
$31.4 million compared to $34.5 million last year. Operating income of the
building products business decreased approximately $1.0 million compared to
last year, with such reduction occurring during the third quarter, for the
reasons discussed above. Operating income of the specialty plastic films
business decreased by $3.3 million compared to last year, due to the reasons
discussed above. Operating income of the electronic information and
communication systems business increased by $1.2 million due to the higher
sales, partly offset by lower margins on certain development contracts.
Interest expense, net for the nine months ended June 30, 1998 increased by
$.9 million compared to the prior year due to higher outstanding borrowings in
connection with an acquisition made in the fourth quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for the nine months was $5.4 million, and
working capital was $154.3 million at June 30, 1998.
Programs to upgrade and enhance the company's strategic business systems
were previously initiated in order to replace aging technologies and provide
the infrastructure to support growth in each of our business segments. In
addition to other benefits that are anticipated from these upgrades and
enhancements, the new systems are designed to be Year 2000 compliant. The
implementation of this new technology has already begun, and is planned to be
completed in stages over the next two years. During the nine months the company
had fixed asset additions of $33 million, including approximately $8 million in
connection with such upgrades and enhancements and construction and equipment
costs of approximately $13 million for its 60%-owned specialty plastic films
joint venture in Germany to expand production capacity in connection with a
multi-year contract with the specialty plastic films segment's major customer.
In April 1998 the specialty plastic films' joint venture entered into a
credit agreement with a bank to finance new production lines. The agreement
provides for borrowings of approximately $28 million and bears interest based
upon LIBOR. Existing joint venture borrowings of approximately $7 million at
March 31, 1998 were refinanced under the agreement.
In July 1998 the specialty plastic films business acquired, in a cash
transaction, a plastic packaging manufacturer located in Germany with annual
sales of approximately $35 million. The purchase price of approximately $28
million was substantially financed by borrowings of approximately $20 million at
interest rates based upon LIBOR under a subsidiary's bank credit agreement.
Anticipated cash flows from operations, together with existing cash and
marketable securities, 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.
All statements other than statements of historical fact included in this
report 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, as well as assumptions made by
and information currently available to the Company's management, identify
forward-looking statements. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors
including, but not limited to, the effect of business and economic conditions;
the impact of competitive products and pricing; and capacity and supply
constraints or difficulties. Such statements reflect the current 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.
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
--------------------------------
27 -- Financial Data Schedule (for electronic submission only)
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: August 4, 1998
--------------
5
9-MOS
SEP-30-1998
JUN-30-1998
7,635,000
383,000
164,779,000
7,641,000
93,228,000
274,112,000
163,035,000
62,768,000
420,708,000
119,862,000
67,149,000
0
0
7,925,000
214,375,000
420,708,000
658,297,000
658,297,000
494,500
494,500
0
1,334,000
2,539,000
29,185,000
10,799,000
18,386,000
0
0
0
18,386,000
.60
.59
