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 quarter ended December 31, 1993
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 1-4596
GROW GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 11-1665588
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Park Avenue, New York, New York 10166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 599-4400
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, $.10 par value per share, outstanding
as of February 1, 1994 was 16,095,679.
Page 1 of 13 pages
The Exhibit Index is on page 12
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GROW GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
(Unaudited) - December 31, 1993 and
June 30, 1993
Consolidated Condensed Statement of 4
Operations (Unaudited) - Six Month
and Three Month Periods Ended
December 31, 1993 and December 31, 1992
Consolidated Condensed Statement of 5
Cash Flows (Unaudited) - Six Months
Ended September 30, 1993 and
September 30, 1992
Notes to Consolidated Condensed 6
Financial Statements (Unaudited)
Item 2. Management's Discussion and 7
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
2
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PART I: FINANCIAL INFORMATION
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEET (UNAUDITED) Dec. June
31, 30,
ASSETS 1993 1993
CURRENT ASSETS (In thousands)
Cash and cash equivalents $30,588 $56,015
Accounts receivable less allowances
of $3,707 and $3,341 56,176 61,852
Inventories, at lower of cost or market:
Finished and in-process products 46,038 40,938
Materials, containers and supplies 13,969 12,437
60,007 53,375
Prepaid expenses and other current
assets 16,705 16,532
Total current assets 163,476 187,774
PROPERTY, PLANT AND EQUIPMENT, at cost 97,731 84,950
Less allowance for depreciation 47,351 45,121
50,380 39,829
OTHER ASSETS 10,880 6,266
TOTAL ASSETS $224,736 $233,869
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $25,841 $34,582
Accrued expenses 41,085 42,303
Income taxes 5,623 10,918
Dividend payable 1,172 961
Current installments on long-term debt 1,209 1,080
Total current liabilities 74,930 89,844
DEFERRED INCOME TAXES AND OTHER LIABILITIES 14,638 13,321
LONG-TERM DEBT 2,132 2,135
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share:
Authorized 50,000,000 shares;
issued 16,271,831 1,627 1,627
Less treasury stock at cost
(196,639 and 258,538 shares) (1,561) (2,052)
Paid-in-capital 123,369 123,237
Equity adjustments (42) (4)
Deferred compensation (2,454) (2,614)
Retained earnings 12,097 8,375
133,036 128,569
TOTAL LIABILITIES AND $224,736 $233,869
STOCKHOLDERS' EQUITY
3
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GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands except per share data)
Six Months Ended Three Months Ended
December 31, December 31,
1993 1992 1993 1992
Revenues from continuing
operations $197,386 $179,196 $93,458 $82,383
Costs and expenses:
Cost of products sold 124,699 113,190 59,066 52,599
Research and development 2,313 2,188 1,148 1,097
Storage and delivery 7,837 6,228 3,960 2,863
Selling and administrative 52,202 47,862 25,964 23,000
Interest expense 448 3,902 222 1,649
Corporate interest income (483) (740) (204) (353)
Unusual item (250)
Total costs and expenses 187,016 172,380 90,156 80,855
Income from continuing
operations before income
taxes 10,370 6,816 3,302 1,528
Income taxes 4,355 2,726 1,386 611
Income from continuing
operations 6,015 4,090 1,916 917
Discontinued operations (269) (391)
Income from operations
before extraordinary item 6,015 3,821 1,916 526
Extraordinary item (less
applicable taxes) (446) (97)
Net income $ 6,015 $ 3,375 $ 1,916 $429
Net income per common and
common equivalent share:
Income from continuing
operations $.37 $.30 $.12 $.07
Discontinued operations (.02) (.03)
Extraordinary item (less
applicable taxes) (.03) (.01)
Net income $.37 $.25 $.12 $.03
Average number of shares 16,085,000 13,529,000 1 6 , 0 9 1 , 0 0 0
14,000,000
Cash dividends per share
(common) $.14 $.12 $.07 $.06
4
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GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
December 31,
1993 1992
(In thousands)
Operating Activities
Net income $6,015 $3,375
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation, amortization and
provision for doubtful accounts 4,575 5,049
Changes in operating assets and
liabilities-net (10,839) (3,747)
Other 184 (533)
Net cash provided by
operating activities (65) 4,144
Investing Activities
Purchase of property, plant and
equipment (2,572) (2,183)
Disposals of plant and equipment 92 1,303
Acquisition of Zynolyte (16,300)
Net cash provided by
investing activities (18,780) (880)
Financing Activities
Payments of debt - net (4,912) (20,946)
Proceeds from issuance of common stock 623 38,756
Cash dividends (2,293) (1,672)
Net cash provided (used) by
financing activities (6,582) 16,138
(Decrease) increase in cash and
cash equivalents (25,427) 19,402
Cash and cash equivalents at beginning
of period 56,015 32,128
Cash and cash equivalents at end
of period $30,588 $51,530
5
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
a. The accompanying unaudited consolidated condensed 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 Regulation S-X.
Accordingly, they do not include all 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 accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month and six month periods ended
December 31, 1993 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1994. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1993.
b. During the quarter ended September 30, 1993, the Company
adopted the Provisions of Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes". The effect was
not material.
c. Effective August 2, 1993, the Company purchased all of the
outstanding capital stock of Zynolyte Products Company for
$16,300,000 in cash. Zynolyte is a producer of aerosol and
specialty brush-applied paint products. Its annual revenues were
approximately $27 million for the year ended January 31, 1993.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three and Six Month Periods Ended December 31, 1993
Compared to
Three and Six Month Periods Ended December 31, 1992
Results of Operations
Revenues: Consolidated revenues increased $18,190,000
(10.2%) for the six months and $11,075,000 (13.4%) for the
quarter compared to the same periods of the prior year. The
increases include the effect (5.5% and 6.8% respectively) of
including the revenues of Zynolyte Products Company which was
acquired effective August 2, 1993.
Revenues of the Coatings and Chemicals segment increased
11.9% for the six months and 16.0% for the quarter compared to
the same periods of the prior year. The inclusion of Zynolyte
accounted for approximately 58% of the increase in the six months
and approximately 54% of the increase in the quarter. Revenues
from architectural paint operations, excluding Zynolyte,
increased 6.6% in the six months and 5.2% in the quarter,
principally due to higher unit volume. Marine and Maintenance
revenues rebounded somewhat recording increases of 4.3% for the
six months and 14.9% in the quarter on higher volume and slightly
increased royalty income. The Automotive Division also recovered
in the current quarter with slightly increased revenues (3.7%) in
the current quarter partially offsetting a first quarter decline,
resulting in a decrease of 4.7% for the six months.
Consumer and Professional Products segment revenues
increased 3.6% and 4.0% for the six months and the quarter,
respectively. Increases were recorded primarily in the Consumer
Division of this segment. The anticipated slowdown from the
recent rapid growth of club store sales was evident during the
current periods in which sales to club stores were approximately
equal to the corresponding periods of the prior year. Declines
in same store sales of certain customers along with customer
inventory adjustments due to our "just in time" delivery service,
were offset by sales to newly opened stores.
Cost of Products Sold: Consolidated gross profit as a
percentage of revenues remained the same at 36.8% for the six
month periods and increased slightly from 36.2% to 36.8% in the
quarter.
7
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Gross profit percentages in the Coatings and Chemicals
segment increased by 1/10% in the six months and 8/10% in the
quarter over the corresponding periods of the prior year. The
inclusion of Zynolyte in the current periods had a minor negative
impact because Zynolyte has lower gross margin percentages (which
are partially offset by Zynolyte's lower selling, general and
administrative costs) than the Company's other businesses in the
Coatings and Chemicals segment which, generally, have multiple
levels of distribution. The gross profit percentage increases in
the Coatings and Chemicals segment for both the six months and
the quarter were principally the result of higher sales in the
architectural paint operations with gross profit percentage
improvements recorded in the Maintenance and Marine Coatings
Division. Gross profit percentage in the Automotive Division
decreased slightly for the six months reflecting a recovery in
the second quarter in line with the change in revenues. Slightly
lower gross margin percentages were recorded in the Consumer and
Professional Products segment principally due to product mix
changes, higher raw material costs and new product introductions.
Storage and Delivery: The increases of $1,609,000 in the
six months and $1,097,000 in the quarter were principally related
to the inclusion of Zynolyte in the current periods (more than
50% of the change), the higher volume of shipments in the
Coatings and Chemicals segment and the higher volume and mix
change in the Consumer and Professional Products Group.
Selling, General and Administrative: While these expenses
remained at the same levels as a percentage of sales, they
increased by $4,340,000 and $2,964,000 in the six months and
quarter, respectively. These increases were attributable to,
among other factors, higher store expense for architectural paint
operations (as Company store locations increased approximately 5%
over the prior year), increased corporate expense and the
inclusion of Zynolyte in the current periods.
Interest Expense: The reductions of $3,454,000 and
$1,427,000 in the six months and quarter, respectively, were the
result of the payment and conversion of long-term debt.
Income Taxes: The change in the effective rate from 40% to
42% is principally the result of the change in the Federal tax
rate enacted by Congress in August 1993 (retroactive to January
1, 1993).
8
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Environmental Matters: The Company continues to incur and
accrue costs related to compliance with environmental laws. The
provision for such costs amounted to $1,611,000 and $1,176,000
for the six months and quarter ended December 31, 1993,
respectively. The Company periodically reviews its estimates of,
and accrues appropriate amounts for, costs of compliance with
environmental laws and the cleanup of various sites, including
sites as to which governmental agencies have designated the
Company (or have indicated a possibility of designating the
Company) a potentially responsible party. (See the Company's
Annual Report on Form 10-K for the year ended June 30, 1993).
The provision for environmental costs is not necessarily
indicative of future provision for such costs.
Where a minimum cost or a reasonable estimate of the total
costs of cleanup or compliance has been established, the
applicable amount has been accrued. The related accrued
liability totalled $10,490,000 as of December 31, 1993. An
anticipated refund of remediation costs from a State agency of
$1,590,000 ($1,900,000 as of June 30, 1993) is included in
receivables as of December 31, 1993. In many instances,
estimates cannot be made of the total costs of cleanup or
compliance, the Company's share, if any, of such costs, nor the
timing thereof; accordingly, the Company is unable to predict the
effect thereof on future results of operations. In the event of
one or more adverse determinations in any annual or interim
period, the impact on results of operations for those periods
could be material. However, based upon the Company's present
belief as to its relative involvement at these sites, other
viable entities' responsibilities for cleanup, potential
insurance coverage and the extended period over which any costs
would be incurred, the Company presently believes that these
matters will not have a material adverse effect on the Company's
consolidated financial position.
LIQUIDITY:
During the six months, the Company's net income, adjusted
for depreciation, amortization and provision for doubtful
accounts, contributed $10,590,000 to cash flow. Changes in
operating assets and liabilities and other items used $10,655,000
in cash flow principally related to reductions in accounts
payable and income taxes payable, increases in inventories and
reductions in receivables. Payment of a loan against the cash
surrender value of life insurance and cash dividends were the
principal factors in the use of $6,582,000 for financing
activities.
The acquisition of the stock of Zynolyte Products Company
for $16,300,000 in cash and net purchases of fixed assets
resulted in a use of cash for investing activities of
$18,780,000.
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9
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The Company has a credit facility expiring in March 1996
with three banks to borrow, at prime (or, at the Company's
option, LIBOR plus 2%) up to $40 million less the amount of
outstanding letters of credit ($13,693,000 at December 31, 1993).
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company was notified in January 1994 that it is
considered a potentially responsible party at a former drum
recycling facility in Michigan as a result of the use of this
facility by a former subsidiary of the Company. The Company and
other potentially responsible parties are attempting to form a
group to respond to the Michigan Department of Natural Resources
demand for payment of past and future costs, and its request that
responsible parties take necessary and appropriate response
actions to address environmental contamination at the site.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Computation of Earnings Per Share.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1993, the
Company filed a Current Report on Form 8-K dated November 15,
1993, reporting under Item 5, "Other Information". No financial
statements were filed with that Report.
10
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SIGNATURES
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.
GROW GROUP, INC.
Date: February 7, 1993 By: /s/ R. Banks
Russell Banks, President
(Chief Executive Officer)
By: /s/ Frank V. Esser
Frank V. Esser, Treasurer
(Chief Financial and Chief
Accounting Officer)
11
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
11 Computation of Earnings 13
Per Share
12
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Exhibit 11
GROW GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
Six Months Ended Three Months Ended
December 31, December 31,
1993 1992 1993 1992
Primary:
Average shares outstanding 16,028,000 13,469,000 16,034,000 3,934,000
Dilutive stock options based
on the treasury stock method
using the average market
price 57,000 60,000 57,000 66,000
16,085,000 13,529,000 16,091,000 14,000,000
Income (loss) from continuing
operations $6,015,000 $4,090,000 $1,916,000 $917,000
Discontinued operations (269,000) (391,000)
Extraordinary item (446,000) (97,000)
Net income (loss) $6,015,000 $3,375,000 $1,916,000 $ 429,000
Per share:
Income (loss) from continuing
operations $.37 $.30 $.12 $.07
Discontinued operations (.02) (.03)
Extraordinary item (.03) (.01)
Net income (loss) $.37 $.25 $.12 $.03
13
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