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 September 30, 1994
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 November 8, 1994 was 16,105,838.
Page 1 of 14 pages
The Exhibit Index is on page 13<PAGE>
GROW GROUP, INC.
INDEX
_____
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
(Unaudited) - September 30, 1994 and
June 30, 1994
Consolidated Condensed Statement of 4
Operations (Unaudited) - Three Months
Ended September 30, 1994 and
September 30, 1993
Consolidated Condensed Statement of 5
Cash Flows (Unaudited) - Three Months
Ended September 30, 1994 and
September 30, 1993
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 4. Submission of Matters to a 10
Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K 11
2<PAGE>
PART I: FINANCIAL INFORMATION Sept June
GROW GROUP, INC. AND SUBSIDIARIES 30, 30,
CONSOLIDATED CONDENSED BALANCE 1994 1994
SHEET (UNAUDITED) _________________________
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $14,922 $38,816
Accounts receivable less allowances
of $4,537 and $3,667 74,134 69,622
Inventories, at lower of cost or market:
Finished and in-process products 64,834 48,490
Materials, containers and supplies 17,379 14,413
_________________________
82,213 62,903
Prepaid expenses and other current assets 19,069 16,052
_________________________
Total current assets 190,338 187,393
PROPERTY, PLANT AND EQUIPMENT, at cost 133,122 99,331
Less allowance for depreciation 50,025 48,524
_________________________
83,097 50,807
OTHER ASSETS 25,049 9,721
_________________________
TOTAL ASSETS $298,484 $247,921
_________________________
LIABILITIES AND STOCKHOLDERS' EQUITY _________________________
CURRENT LIABILITIES
Accounts payable $45,658 $37,532
Accrued expenses 42,163 29,036
Income taxes 10,086 10,180
Dividend payable 1,127 1,128
Current installments on long-term debt 2,821 2,270
_________________________
Total current liabilities 101,855 80,146
DEFERRED INCOME TAXES AND OTHER LIABILITIES 27,913 28,178
LONG-TERM DEBT 26,889 914
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share:
Authorized 50,000,000 shares;
issued 16,271,831 shares 1,627 1,627
Less treasury stock at cost
(165,993 and 168,493 shares) (1,325) (1,345)
Paid-in-capital 123,431 123,428
Equity adjustments (18) (49)
Deferred compensation (2,826) (2,907)
Retained earnings 20,938 17,929
_________________________
141,827 138,683
_________________________ TOTAL
LIABILITIES AND $298,484 $247,921
STOCKHOLDERS' EQUITY _________________________
_________________________
3<PAGE>
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands except per share data)
Three Months Ended
September 30
______________________
1994 1993
______________________
Revenues $126,173 $103,928
Costs and expenses:
Cost of products sold 79,746 65,633
Research and development 1,464 1,165
Storage and delivery 4,362 3,877
Selling and administrative 33,157 26,238
Interest expense 464 226
Corporate interest income (151) (279)
______________________
Total costs and expenses 119,042 96,860
______________________
Income before income taxes 7,131 7,068
Income taxes (2,995) (2,969)
______________________
Net Income $ 4,136 $ 4,099
______________________
______________________
Net income per common and
common equivalent share $0.26 $0.25
______________________
______________________
Average number of shares 16,170,000 16,093,000
______________________
______________________
Cash dividends per share (common) $0.07 $0.07
______________________
______________________
4<PAGE>
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30
1994 1993
___________________
(In thousands)
Operating Activities
Net income $4,136 $4,099
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation, amortization and
provision for doubtful accounts 2,627 2,286
Changes in operating assets and
liabilities-net 1,585 (7,973)
Other (337) 199
____________________
Net cash provided by
operating activities 8,011 (1,389)
Investing Activities
Purchase of property, plant and
equipment - net of disposals (1,940) (1,398)
Acquisition of Sinclair (1994) and
Zynolyte (1993) (55,387) (16,300)
___________________
Net cash used by
investing activities (57,327) (17,698)
Financing Activities
Proceeds from borrowing/payments of
debt - net 26,526 (4,798)
Proceeds from issuance of common stock 23 0
Cash dividends (1,127) (1,121)
___________________
Net cash provided (used) by
financing activities 25,422 (5,919)
___________________
(Decrease) in cash and
cash equivalents (23,894) (25,006)
Cash and cash equivalents at beginning
of period 38,816 56,015
___________________
Cash and cash equivalents at end
of period $14,922 $31,009
___________________
___________________
5<PAGE>
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 months ended September 30, 1994
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1995. 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, 1994.
b. Effective August 2, 1993, the Company purchased all of the outstanding
capital stock of Zynolyte Products Company ("Zynolyte") 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.
c. Effective August 1, 1994, the Company acquired substantially all of the
assets and assumed certain liabilities of Sinclair Paint Company ("Sinclair"), a
division of Insilco Corporation, for approximately $55 million in cash.
Sinclair's revenues for calendar year 1993 amounted to approximately $95
million. The transaction resulted in approximately $15 million in cost in
excess of net assets acquired which is being amortized over 40 years. In
connection with the acquisition, the Company's revolving loan facility was
increased from $40 million to $60 million and $26 million was borrowed
thereunder.
d. On October 24, 1994, the Company announced the execution of a letter of
intent to acquire the retail business and certain assets and to assume certain
liabilities of Martin Paint Company ("Martin"). Martin operates a chain of 42
paint and home decorating stores with revenues of approximately $40 million.
6<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 Compared to Three Months
Ended September 30, 1993
Results of Operations
Revenues: Consolidated revenues increased $22,245,000 (21.4%) over the
prior year. The increase was primarily the result of including the revenues of
Sinclair Paint Company ("Sinclair") acquired effective August 1, 1994. Revenues
of the Company's operations exclusive of Sinclair increased nominally (1.8%).
Revenues of the Coatings and Chemicals segment increased 26.8% with
Sinclair accounting for 90% of such increase and with Zynolyte accounting for
6.1% of such increase (Zynolyte, acquired in August 1993, was included for three
months in the current quarter versus two months in the prior period). Revenues
from Architectural Paint operations, other than Sinclair and Zynolyte, increased
2.4% reflecting lower royalty income, a small price increase at one of the
business units and slightly higher volume which was principally the result of an
increase in company-operated stores and higher sales of sundries. Automotive
Division revenues decreased 5.7% which reflects auto manufacturing plant
closures due to work stoppage. Devoe Coatings Company Division (maintenance and
marine products) revenues approximated revenues in the prior year reflecting
higher volume in domestic operations and lower volume in foreign operations.
Increased domestic maintenance and marine sales more than offset a decline in
revenues of 8.2% caused by the decline in the current period of revenues from
"supply and apply" business due to the completion during fiscal 1994 of a major
bridge project in Rhode Island and an average selling price decrease of 1.5%.
Revenues of the Consumer and Professional Products segment decreased 1.5%.
Higher volume in the consumer division of this segment for the most part offset
reductions in professional and club store operations caused by competitive price
reductions. The introduction of several new products and product lines in the
Professional and Club Store operations is expected to result in higher revenues
in subsequent quarters.
7<PAGE>
Cost of Products Sold: Consolidated gross profit as a percentage of
revenues did not change (36.8%). The impact of including Sinclair (which
operates at somewhat higher gross profit margins than some of the Company's
other operations) had the effect of increasing the gross profit percentage by
6/10%. This was offset by lower margins in the Automotive Division and the
Consumer and Professional Products Group. The reduction in the gross profit
margin of 6.7% in the Consumer and Professional Products Group was related to
competitive price reductions and raw material cost increases. Price increases
in the Architectural Paint operations, averaging approximately 1%, were offset
by raw material price increases resulting in a decrease of 5/10% in gross
profit.
Storage and Delivery: The increase of $485,000 was principally due to the
inclusion of Sinclair and three months in the current period versus two months
in the prior period of Zynolyte operations, along with a change in the mix of
shipments in the Consumer and Professional Products Group.
Selling, General and Administrative: The increase of $6,919,000 over the
prior year was attributable to, among other factors, the inclusion of Sinclair
($6,101,000), three months in the current year versus two months of Zynolyte
operations in the prior year (a $311,000 differential), product introduction
costs and somewhat higher store expense for Architectural Paint operations.
Interest Expense: The increase of $238,000 is the result of borrowings to
fund the acquisition of Sinclair. See "Liquidity" below.
Environmental Matters: The Company continues to incur and accrue costs
related to compliance with environmental laws. The provision for such costs
amounted to $222,000 for the quarter ended September 30, 1994. The Company
periodically reviews its estimates of and accrues approximate 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, 1994). The provision for environmental costs for the quarter
ended September 30, 1994 is not necessarily indicative of future 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 $10,898,000 as of September 30, 1994. 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
8<PAGE>
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 quarter, the Company's net income, adjusted for depreciation,
amortization and provision for doubtful accounts, contributed $6,763,000 to cash
flow. Changes in operating assets and liabilities and other items provided
$1,248,000 in cash flow. The changes in all balance sheet categories were
primarily the result of the acquisition of Sinclair.
The acquisition of the assets of Sinclair Paint Company for $55,387,000 in
cash and net purchases of fixed assets of $1,940,000 resulted in a use of cash
for investing activities of $57,327,000.
In connection with the acquisition of Sinclair, the Company borrowed $26
million under its revolving credit line (which has a current interest rate of
approximately 7%). Combined with cash dividends of $1,127,000 and other minor
items, this resulted in net cash provided by financing activities of
$25,422,000.
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 $60
million less the amount of outstanding letters of credit ($13,693,000 at
September 30, 1994). The line of credit is in the process of being expanded to
$75 million and the entire credit facility is expected to be renegotiated in the
near future. Future short-term and long-term liquidity requirements, including
amounts required for acquisitions, are expected to be satisfied from cash flow
from operations, borrowings from banks or other lenders and/or equity sources.
9<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
___________________________________________________
The Company's 1994 Annual Meeting of Shareholders was held on October 26,
1994. Set forth below is a brief description of each matter voted upon at the
meeting, along with the number of votes cast for, against or withheld as to each
such matter. There were no broker non-votes as the matters voted upon at the
meeting were discretionary items.
1. The four Class II directors were elected to serve until the Company's
1997 Annual Meeting of Shareholders and until their respective successors are
elected and qualified.
AUTHORITY
Nominee FOR WITHHELD
_______ _________ _________
Arthur W. Broslat 14,332,422 60,286
Lloyd Frank 14,330,818 61,890
Angus N. MacDonald 14,321,051 71,657
William H. Turner 14,333,341 59,367
The term of office of each of the following other directors continued after
the meeting: Russell Banks, Harold G. Bittle, Philippe Erard, John F. Gleason,
Peter L. Keane, Robert J. Milano, Tully Plesser and Joseph M. Quinn.
2. A proposal to approve amendments to the Company's 1990 Stock Option
Incentive Plan.
FOR AGAINST ABSTAIN
___ _______ _______
12,022,193 2,266,566 103,949
3. A proposal to ratify the appointment of Ernst & Young as the Company's
independent auditors for the fiscal year ending June 30, 1995.
FOR AGAINST ABSTAIN
___ _______ _______
14,321,867 43,930 26,911
10<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended September 30, 1994, the
Company filed the following Current Report on Form 8-K:
(i) Current Report on Form 8-K, date of earliest event reported:
August 3, 1994, reporting under Item 2, "Acquisition or Disposition of Assets",
Item 5, "Other Events" and Item 7, "Financial Statements, Pro Forma Financial
Information and Exhibits". The following financial statements of Sinclair Paint
Company ("Sinclair"), a division of Insilco Corporation, were filed with this
Report:
Independent Auditors' Report
Statement of Assets and Liabilities - Years Ended December 31, 1993 and
1992.
Statement of Operations - Nine Months Ended December 31, 1993, Three Months
Ended March 31, 1993, Year Ended December 31, 1992.
Statements of Cash Flows - Nine Months Ended December 31, 1993, Three
Months Ended March 31, 1993, Year Ended December 31, 1992.
Notes to Financial Statements.
(ii) Current Report on Form 8-K/A No. 1, date of earliest event
reported: August 3, 1994, reporting under Item 7, "Financial Statements, Pro
Forma Financial Information and Exhibits". The following pro forma financial
statements of Sinclair were filed with this Report:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1994.
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
Year Ended June 30, 1994.
Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
11<PAGE>
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: November 11, 1994 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)
12<PAGE>
EXHIBIT INDEX
_____________
EXHIBIT NO. DESCRIPTION PAGE NO.
__________ ___________ _______
27 Financial Data Schedule 14
13<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 14,922,000
<SECURITIES> 0
<RECEIVABLES> 78,671,000
<ALLOWANCES> 4,537,000
<INVENTORY> 82,213,000
<CURRENT-ASSETS> 190,338,000
<PP&E> 133,122,000
<DEPRECIATION> 50,025,000
<TOTAL-ASSETS> 298,484,000
<CURRENT-LIABILITIES> 101,855,000
<BONDS> 0
<COMMON> 1,627,000
0
0
<OTHER-SE> 140,200,000
<TOTAL-LIABILITY-AND-EQUITY> 298,484,000
<SALES> 126,173,000
<TOTAL-REVENUES> 126,173,000
<CGS> 79,746,000
<TOTAL-COSTS> 119,042,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 772,000
<INTEREST-EXPENSE> 464,000
<INCOME-PRETAX> 7,131,000
<INCOME-TAX> 2,995,000
<INCOME-CONTINUING> 4,136,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,136,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<PAGE>
</TABLE>
