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, 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) 93 8-5544
--------------------------------------------------
(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. 30,434,237 shares of Common
Stock as of January 31, 1999.
FORM 10-Q
---------
CONTENTS
--------
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
---------------------
Condensed Consolidated Balance Sheets at December 31, 1998
and September 30, 1998 ........................................... 1
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 1998 and 1997 .......................... 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1998 and 1997 .......................... 4
Notes to Condensed Consolidated Financial Statements ............. 5
Management?s Discussion and Analysis of Financial
Condition and Results of Operations .............................. 7
Quantitive and Qualitative Disclosure about Market Risk........... 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ....................................... 9
Item 2: Changes in Securities ................................... 9
Item 3: Defaults upon Senior Securities ......................... 9
Item 4: Submission of Matters to a Vote of Security Holders ..... 9
Item 5: Other Information ....................................... 9
Item 6: Exhibits and Reports on Form 8-K ......................... 9
Signature .........................................................10
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
December 31, September 30,
1998 1998
------------ -------------
(Unaudited) (Note 1)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 16,191,000 $ 19,326,000
Accounts receivable, less allowance
for doubtful accounts 117,980,000 114,784,000
Contract costs and recognized
income not yet billed 51,314,000 47,324,000
Inventories (Note 2) 104,116,000 104,517,000
Prepaid expenses and other current
assets 21,404,000 20,675,000
------------ ------------
Total current assets 311,005,000 306,626,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $67,019,000 at
December 31, 1998 and $62,729,000 at
September 30, 1998 134,814,000 132,214,000
OTHER ASSETS 51,253,000 49,098,000
------------ ------------
$497,072,000 $487,938,000
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
December 31, September 30,
1998 1998
------------ -------------
(Unaudited) (Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts and notes payable $ 65,428,000 $ 65,305,000
Other current liabilities 66,742,000 72,839,000
------------ ------------
Total current liabilities 132,170,000 138,144,000
------------ ------------
LONG-TERM DEBT 114,003,000 107,458,000
------------ ------------
MINORITY INTEREST AND OTHER 12,424,000 12,247,000
------------ ------------
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
31,721,239 shares at December 31, 1998
and 31,706,362 shares at September 30,
1998; 1,287,002 shares in treasury
at December 31, 1998 and September 30,
1998 7,930,000 7,927,000
Other shareholders' equity 230,545,000 222,162,000
------------ ------------
Total shareholders' equity 238,475,000 230,089,000
------------ ------------
$497,072,000 $487,938,000
============ ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1998 1997
---- ----
Net sales $258,557,000 $229,031,000
Cost of sales 196,431,000 171,108,000
----------- ------------
Gross profit 62,126,000 57,923,000
Selling, general and administrative
expenses 49,334,000 43,618,000
----------- ------------
Income from operations 12,792,000 14,305,000
----------- ------------
Other income (expense):
Interest expense (1,498,000) (965,000)
Interest income 61,000 207,000
Other, net (3,000) (31,000)
----------- ------------
(1,440,000) (789,000)
----------- ------------
Income before income taxes 11,352,000 13,516,000
----------- ------------
Provision for income taxes:
Federal 3,374,000 3,935,000
State and other 826,000 1,066,000
----------- ------------
4,200,000 5,001,000
----------- ------------
Net income $ 7,152,000 $ 8,515,000
=========== ============
Earnings per share of common stock (Note 3):
Basic $ .24 $ .28
=========== ============
Diluted $ .23 $ .27
=========== ============
See notes to condensed consolidated financial statements.
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,152,000 $ 8,515,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,223,000 3,271,000
Provision for losses on accounts receivable 447,000 403,000
Change in assets and liabilities:
(Increase)decrease in accounts receivable and
contract costs and recognized income
not yet billed (7,633,000) 2,216,000
Decrease in inventories 401,000 5,051,000
Increase in prepaid expenses and other assets (2,226,000) (2,777,000)
Decrease in accounts payable and accrued
liabilities (5,975,000) (14,605,000)
Other changes, net 1,258,000 877,000
----------- -----------
Total adjustments (8,505,000) (5,564,000)
----------- -----------
Net cash provided by (used in)
operating activities (1,353,000) 2,951,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in marketable securities --- 997,000
Acquisition of property, plant and equipment (7,027,000) (3,810,000)
Increase in equipment lease
deposits and other, net (1,430,000) (1,834,000)
----------- -----------
Net cash used in investing activities (8,457,000) (4,647,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares --- (1,181,000)
Proceeds from issuance of long-term debt 6,829,000 ---
Payment of long-term debt (297,000) (408,000)
Other, net 143,000 544,000
----------- -----------
Net cash provided by (used in) financing
activities 6,675,000 (1,045,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,135,000) (2,741,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,326,000 15,414,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $16,191,000 $12,673,000
=========== ===========
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 month period
ended December 31, 1998 are not necessarily indicative of the results that may
be expected for the year ending September 30, 1999. The balance sheet at
September 30, 1998 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, 1998.
(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,
1998 1998
------------ -------------
Finished goods . . . . . . . . . . $ 64,971,000 $ 58,176,000
Work in process . . . . . . . . . 22,833,000 27,011,000
Raw materials and supplies . . . . 16,312,000 19,330,000
------------ ------------
$104,116,000 $104,517,000
============ ============
(3) Earnings per share -
------------------
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. The weighted average number of shares of common
stock used in determining basic EPS was 30,377,000 for the three months ended
December 31, 1998 and 30,477,000 for the three months ended December 31, 1997.
Diluted EPS is calculated by dividing income available to common
shareholders, adjusted to add back dividends or interest on convertible
securities, 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 30,596,000 and 31,408,000 for the
three months ended December 31, 1998 and 1997, respectively and reflects
additional shares in connection with stock option and other stock-based
compensation plans (219,000 shares for the three months ended December 31, 1998
and 931,000 shares for the three months ended December 31, 1997).
Options to purchase approximately 2,836,000 and 735,000 shares of common
stock were not included in the computations of diluted earnings per share for
the three months ended December 31, 1998 and 1997, respectively, because the
effects would have been antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations
- ---------------------
Net sales were $258.6 million for the three-month period ended December
31, 1998, an increase of $29.5 million or 12.9% over last year.
Net sales of the building products business were $166.2 million, an
increase of $12.6 million or 8.2% over last year. The increase was principally
due to higher garage door unit sales due to stronger construction and related
retail markets and internal growth in the installation services business
attributable to market share growth and mild weather, partly offset by the
effect of competitive pricing. Net sales of the specialty plastic films business
were $50.3 million, an increase of $10.8 million or 27.3% over last year. Net
sales of an acquired company accounted for $8.2 million of the sales increase.
The remainder of the increase was due to higher unit volume, the effects of
which were partly offset by price competition in the commodity end of the
business and a pass-through to customers of lower resin prices. Net sales of the
electronic information and communication systems business were $42.0 million, an
increase of $6.1 million or 17.1% over last year due to new programs and
increased funding levels on existing programs.
Income from operations for the three-month period ended December 31,
1998 was $12.8 million compared to $14.3 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 continued competitive
pricing pressures and 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
also impacted profitability. Additional capacity is currently being implemented.
Operating income of the specialty plastic films segment increased slightly
compared to last year primarily due to earnings of an acquired business, partly
offset by the effects of competitive pricing. Operating income of the electronic
information and communication systems operation increased by approximately $.5
million due to the increased sales.
Net interest expense increased by $.7 million compared to last year due
to higher levels of outstanding debt from an acquisition in late 1998, from
borrowings to finance new production lines for specialty plastic films' joint
venture and from lower investable balances.
Liquidity and Capital Resources
- -------------------------------
Cash flow used by operations for the quarter was $1.4 million and
working capital was $178.8 million at December 31, 1998.
During the first quarter, the company had capital expenditures of
approximately $7 million, including $2.6 million to upgrade and enhance
strategic business systems and approximately $1.2 million for new production
lines for its specialty plastic films joint venture in Germany. The balance of
capital expenditures were principally made in connection with increasing
production capacity.
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.
As described in the company's Annual Report for the year ended September
30, 1998, the company is taking actions in each of its businesses to address
Year 2000 issues. These efforts in connection with the company's application
software, hardware and related operating platforms ("IT Systems"), embedded
technology such as microcontrollers used in production equipment or products,
and third parties, principally suppliers and customers, are currently proceeding
as planned. 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 remediation efforts, its state of readiness or the costs involved. However,
there can be no assurance that information resulting from the company's
remediation efforts or other changes in circumstances might not result in a
different assessment of Year 2000 issues, readiness or related costs.
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.
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.
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 4,
1999.
(b) Not applicable
(c)(i) Four directors were elected at the Annual Meeting to serve until the
Annual Meeting of Stockholders in 2002. The names of these directors
and votes cast in favor of their election and shares withheld are as
follows:
Name Votes For Votes Withheld
---- --------- --------------
Bertrand M. Bell 24,635,567 3,671,084
Robert Bradley 24,529,090 3,677,561
Martin S. Sussman 24,536,612 3,670,039
Lester L. Wolff 24,527,404 3,679,247
Item 5 Other Information
-----------------
None
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
27 -- Financial Data Schedule (for electronic submission only)
(b) Reports on Form 8-K
-------------------
Current report on Form 8-K dated November 5, 1998 containing
Item 5, other events and Item 7, exhibits.
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 8, 1999
5
3-MOS
SEP-30-1999
DEC-31-1998
16,191,000
0
177,778,000
8,484,000
104,116,000
311,005,000
201,833,000
67,019,000
497,072,000
132,170,000
114,003,000
0
0
7,930,000
230,545,000
497,072,000
258,557,000
258,557,000
196,431,000
196,431,000
0
447,000
1,498,000
11,352,000
4,200,000
7,152,000
0
0
0
7,152,000
.24
.23
