UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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Commission File Number: 1-6620
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)
| DELAWARE | 11-1893410 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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. ý Yes No o
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ý Yes No o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 29,514,980 shares of Common Stock as of April 30, 2004.
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PAGE |
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PART I— |
FINANCIAL INFORMATION (Unaudited) |
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Condensed Consolidated Balance Sheets at March 31, 2004 and September 30, 2003 |
1 |
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Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2004 and 2003 |
3 |
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Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2004 and 2003 |
5 |
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Notes to Condensed Consolidated Financial Statements |
6 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
10 |
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Quantitative and Qualitative Disclosure about Market Risk |
14 |
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Controls & Procedures |
14 |
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PART II— |
OTHER INFORMATION |
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Item 1: Legal Proceedings |
15 |
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Item 2: Changes in Securities and Use of Proceeds |
15 |
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Item 3: Defaults upon Senior Securities |
15 |
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Item 4: Submission of Matters to a Vote of Security Holders |
15 |
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Item 5: Other Information |
15 |
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Item 6: Exhibits and Reports on Form 8-K |
15 |
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Signature |
16 |
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, 2004 |
September 30, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| |
(Unaudited) |
(Note 1) |
|||||||
| ASSETS | |||||||||
| CURRENT ASSETS: | |||||||||
| Cash and cash equivalents | $ | 58,540,000 | $ | 69,816,000 | |||||
| Accounts receivable, less allowance for doubtful accounts | 164,927,000 | 173,942,000 | |||||||
| Contract costs and recognized income not yet billed | 31,675,000 | 46,642,000 | |||||||
| Inventories (Note 2) | 134,019,000 | 114,003,000 | |||||||
| Prepaid expenses and other current assets | 57,011,000 | 39,280,000 | |||||||
| Total current assets | 446,172,000 | 443,683,000 | |||||||
| PROPERTY, PLANT AND EQUIPMENT at cost, less accumulated depreciation and amortization of $164,138,000 at March 31, 2004 and $148,493,000 at September 30, 2003 |
184,698,000 | 169,852,000 | |||||||
| OTHER ASSETS: | |||||||||
| Costs in excess of fair value of net assets of businesses acquired | 50,245,000 | 49,983,000 | |||||||
| Other | 15,178,000 | 15,212,000 | |||||||
| 65,423,000 | 65,195,000 | ||||||||
| $ | 696,293,000 | $ | 678,730,000 | ||||||
See notes to condensed consolidated financial statements.
1
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, 2004 |
September 30, 2003 |
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|---|---|---|---|---|---|---|---|---|---|
| |
(Unaudited) |
(Note 1) |
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| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| CURRENT LIABILITIES: | |||||||||
| Accounts and notes payable | $ | 84,322,000 | $ | 75,387,000 | |||||
| Other current liabilities | 109,885,000 | 118,676,000 | |||||||
| Total current liabilities | 194,207,000 | 194,063,000 | |||||||
| LONG-TERM DEBT | 152,824,000 | 155,483,000 | |||||||
| OTHER LIABILITIES AND DEFERRED CREDITS | 29,622,000 | 27,539,000 | |||||||
| Total liabilities and deferred credits | 376,653,000 | 377,085,000 | |||||||
| MINORITY INTEREST | 20,101,000 | 17,591,000 | |||||||
| 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 37,917,039 shares at March 31, 2004 and 36,625,717 shares at September 30, 2003; 8,395,909 and 7,165,919 shares in treasury at March 31, 2004 and September 30, 2003, respectively | 9,479,000 | 9,156,000 | |||||||
| Other shareholders' equity | 290,060,000 | 274,898,000 | |||||||
| Total shareholders' equity | 299,539,000 | 284,054,000 | |||||||
| $ | 696,293,000 | $ | 678,730,000 | ||||||
See notes to condensed consolidated financial statements.
2
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
THREE MONTHS ENDED MARCH 31, |
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|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
||||||
Net sales |
$ |
317,636,000 |
$ |
277,330,000 |
||||
Cost of sales |
225,607,000 |
201,486,000 |
||||||
Gross profit |
92,029,000 |
75,844,000 |
||||||
Selling, general and administrative expenses |
70,841,000 |
63,845,000 |
||||||
Income from operations |
21,188,000 |
11,999,000 |
||||||
Other income (expense): |
||||||||
Interest expense |
(2,049,000 |
) |
(987,000 |
) |
||||
Other, net |
209,000 |
224,000 |
||||||
(1,840,000 |
) |
(763,000 |
) |
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Income before income taxes |
19,348,000 |
11,236,000 |
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Provision for income taxes |
7,159,000 |
4,269,000 |
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Income before minority interest |
12,189,000 |
6,967,000 |
||||||
Minority interest |
(3,527,000 |
) |
(2,350,000 |
) |
||||
Net income |
$ |
8,662,000 |
$ |
4,617,000 |
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Basic earnings per share of common stock (Note 3) |
$ |
..29 |
$ |
..14 |
||||
Diluted earnings per share of common stock (Note 3) |
$ |
..27 |
$ |
..14 |
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See notes to condensed consolidated financial statements.
3
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
SIX MONTHS ENDED MARCH 31, |
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|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
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Net sales |
$ |
656,138,000 |
$ |
579,484,000 |
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Cost of sales |
466,489,000 |
416,642,000 |
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Gross profit |
189,649,000 |
162,842,000 |
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Selling, general and administrative expenses |
141,649,000 |
129,191,000 |
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Income from operations |
48,000,000 |
33,651,000 |
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Other income (expense): |
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Interest expense |
(4,090,000 |
) |
(2,092,000 |
) |
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Other, net |
1,096,000 |
758,000 |
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(2,994,000 |
) |
(1,334,000 |
) |
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Income before income taxes |
45,006,000 |
32,317,000 |
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Provision for income taxes |
16,652,000 |
12,280,000 |
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Income before minority interest |
28,354,000 |
20,037,000 |
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Minority interest |
(6,577,000 |
) |
(4,500,000 |
) |
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Net income |
$ |
21,777,000 |
$ |
15,537,000 |
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Basic earnings per share of common stock (Note 3) |
$ |
..73 |
$ |
..47 |
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Diluted earnings per share of common stock (Note 3) |
$ |
..69 |
$ |
..46 |
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See notes to condensed consolidated financial statements.
4
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
SIX MONTHS ENDED MARCH 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|
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2004 |
2003 |
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| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | 21,777,000 | $ | 15,537,000 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 14,097,000 | 12,502,000 | |||||||||
| Minority interest | 6,577,000 | 4,500,000 | |||||||||
| Provision for losses on accounts receivable | 928,000 | 701,000 | |||||||||
| Change in assets and liabilities: | |||||||||||
| Decrease in accounts receivable and contract costs and recognized income not yet billed | 24,211,000 | 23,587,000 | |||||||||
| Increase in inventories | (19,339,000 | ) | (5,791,000 | ) | |||||||
| Increase in prepaid expenses and other assets | (4,638,000 | ) | (3,378,000 | ) | |||||||
| Decrease in accounts payable, accrued liabilities and income taxes | (3,285,000 | ) | (33,183,000 | ) | |||||||
| Other changes, net | 2,789,000 | (1,987,000 | ) | ||||||||
| Total adjustments | 21,340,000 | (3,049,000 | ) | ||||||||
| Net cash provided by operating activities | 43,117,000 | 12,488,000 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of property, plant and equipment | (24,333,000 | ) | (22,092,000 | ) | |||||||
| Balance paid for acquired business | — | (13,112,000 | ) | ||||||||
| Proceeds from divestiture | — | 3,826,000 | |||||||||
| (Increase) decrease in equipment lease deposits | (10,831,000 | ) | 2,490,000 | ||||||||
| Net cash used in investing activities | (35,164,000 | ) | (28,888,000 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Purchase of treasury shares | (15,211,000 | ) | (6,921,000 | ) | |||||||
| Proceeds from issuance of long-term debt | 3,774,000 | 17,000,000 | |||||||||
| Payments of long-term debt | (8,200,000 | ) | (12,336,000 | ) | |||||||
| Increase in short-term borrowings | — | 1,972,000 | |||||||||
| Distributions to minority interests | (4,992,000 | ) | (5,072,000 | ) | |||||||
| Exercise of stock options | 4,610,000 | 56,000 | |||||||||
| Other, net | (61,000 | ) | — | ||||||||
| Net cash used in financing activities | (20,080,000 | ) | (5,301,000 | ) | |||||||
| Effect of exchange rates on cash and cash equivalents | 851,000 | 1,474,000 | |||||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (11,276,000 | ) | (20,227,000 | ) | |||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 69,816,000 | 45,749,000 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 58,540,000 | $ | 25,522,000 | |||||||
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 and six-month periods ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. The balance sheet at September 30, 2003 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, 2003.
(2) Inventories—
Inventories, stated at the lower of cost (first-in, first-out or average) or market, are comprised of the following:
| |
March 31, 2004 |
September 30, 2003 |
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|---|---|---|---|---|---|---|
| Finished goods | $ | 45,781,000 | $ | 50,270,000 | ||
| Work in process | 61,971,000 | 42,029,000 | ||||
| Raw materials and supplies | 26,267,000 | 21,704,000 | ||||
| $ | 134,019,000 | $ | 114,003,000 | |||
(3) Earnings per share (EPS) and accounting for stock-based compensation—
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 29,900,000 and 32,934,000 for the three months ended March 31, 2004 and 2003, respectively, and 29,860,000 and 33,028,000 for the six months ended March 31, 2004 and 2003, 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. Holders of the company's 4% convertible subordinated notes are entitled to convert their notes into the company's common stock upon the occurrence of certain events described in Note 2 of Notes to Consolidated Financial Statements in the company's annual report to shareholders for the year ended September 30, 2003. Shares potentially issuable upon conversion are not included in the calculation of diluted EPS because the conditions for conversion had not been met. The weighted average number of shares of common stock used in determining diluted EPS was 31,773,000 and 34,009,000 for the three months ended March 31, 2004 and 2003, respectively, and 31,753,000 and 34,025,000 for the six months ended March 31, 2004 and 2003, respectively, and reflects additional shares issuable in connection with stock option and other stock based compensation plans.
6
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", permits an entity to continue to account for employee stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees", or adopt a fair value based method of accounting for such compensation. The company has elected to continue to account for stock-based compensation under Opinion No. 25. Accordingly, no compensation expense has been recognized in connection with options granted. Had compensation expense for options granted been determined based on the fair value at the date of grant in accordance with Statement No. 123, the company's net income and earnings per share would have been as follows:
| |
Three Months Ended March 31, |
Six Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
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| Net income, as reported | $ | 8,662,000 | $ | 4,617,000 | $ | 21,777,000 | $ | 15,537,000 | ||||||
| Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (496,000 | ) | (653,000 | ) | (1,083,000 | ) | (1,279,000 | ) | ||||||
| Pro forma net income | $ | 8,166,000 | $ | 3,964,000 | $ | 20,694,000 | $ | 14,258,000 | ||||||
| Earnings per share: | ||||||||||||||
Basic—as reported |
$ |
..29 |
$ |
..14 |
$ |
..73 |
$ |
..47 |
||||||
| Basic—pro forma | $ | .27 | $ | .12 | $ | .69 | $ | .43 | ||||||
| Diluted—as reported | $ | .27 | $ | .14 | $ | .69 | $ | .46 | ||||||
| Diluted—pro forma | $ | .25 | $ | .12 | $ | .65 | $ | .42 | ||||||
(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, flooring 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).
7
Information on the company's business segments is as follows:
| |
Garage Doors |
Installation Services |
Specialty Plastic Films |
Electronic Information and Communication Systems |
Totals |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues from external customers— | ||||||||||||||||
| Three months ended | ||||||||||||||||
| March 31, 2004 | $ | 91,457,000 | $ | 72,307,000 | $ | 106,613,000 | $ | 47,259,000 | $ | 317,636,000 | ||||||
| March 31, 2003 | 77,928,000 | 66,661,000 | 92,129,000 | 40,612,000 | 277,330,000 | |||||||||||
| Six months ended | ||||||||||||||||
| March 31, 2004 | $ | 207,650,000 | $ | 148,975,000 | $ | 210,614,000 | $ | 88,899,000 | $ | 656,138,000 | ||||||
| March 31, 2003 | 184,691,000 | 138,949,000 | 179,471,000 | 76,373,000 | 579,484,000 | |||||||||||
| Intersegment revenues— | ||||||||||||||||
| Three months ended | ||||||||||||||||
| March 31, 2004 | $ | 4,636,000 | $ | 25,000 | $ | — | $ | — | $ | 4,661,000 | ||||||
| March 31, 2003 | 4,958,000 | 11,000 | — | — | 4,969,000 | |||||||||||
| Six months ended | ||||||||||||||||
| March 31, 2004 | $ | 10,303,000 | $ | 62,000 | $ | — | $ | — | $ | 10,365,000 | ||||||
| March 31, 2003 | 11,658,000 | 43,000 | — | — | 11,701,000 | |||||||||||
| Segment profit— | ||||||||||||||||
| Three months ended | ||||||||||||||||
| March 31, 2004 | $ | 3,964,000 | $ | 1,692,000 | $ | 15,142,000 | $ | 3,669,000 | $ | 24,467,000 | ||||||
| March 31, 2003 | 2,966,000 | 528,000 | 9,156,000 | 2,894,000 | 15,544,000 | |||||||||||
| Six months ended | ||||||||||||||||
| March 31, 2004 | $ | 17,224,000 | $ | 4,698,000 | $ | 28,082,000 | $ | 5,699,000 | $ | 55,703,000 | ||||||
| March 31, 2003 | 13,883,000 | 2,207,000 | 19,822,000 | 4,616,000 | 40,528,000 | |||||||||||
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, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
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| Profit for all segments | $ | 24,467,000 | $ | 15,544,000 | $ | 55,703,000 | $ | 40,528,000 | |||||
| Unallocated amounts | (3,360,000 | ) | (3,450,000 | ) | (7,088,000 | ) | (6,584,000 | ) | |||||
| Interest expense, net | (1,759,000 | ) | (858,000 | ) | (3,609,000 | ) | (1,627,000 | ) | |||||
| Income before income taxes | $ | 19,348,000 | $ | 11,236,000 | $ | 45,006,000 | $ | 32,317,000 | |||||
Goodwill at March 31, 2004 includes $12.9 million attributable to the garage doors segment, $14.3 million to the electronic information and communication systems segment and $23.1 million to the specialty plastic films segment.
(5) Comprehensive income and defined benefit pension expense—
Comprehensive income, which consists of net income and foreign currency translation adjustments, was $7.7 million and $6.2 million for the three-month periods and $24.0 and $19.6 million for the six-month periods ended March 31, 2004 and 2003, respectively.
8
Defined benefit pension expense was recognized as follow:
| |
Three Months Ended March 31, |
Six Months Ended March 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
|||||||||
| Service cost | $ | 357,000 | |||||||||||