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 March 31, 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 no., 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 May 6, 1994 was 16,103,338.
Page 1 of 14 pages
The Exhibit Index is on page 13
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GROW GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
(Unaudited) - March 31, 1994 and
June 30, 1993
Consolidated Condensed Statement of 4
Operations (Unaudited) - Nine Month
and Three Month Periods Ended
March 31, 1994 and March 31, 1993
Consolidated Condensed Statement of 5
Cash Flows (Unaudited) - Nine Months
Ended March 31, 1994 and
March 31, 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 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
2
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PART I: FINANCIAL INFORMATION
GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEET (UNAUDITED) March June
31, 30,
ASSETS 1994 1993
CURRENT ASSETS (In thousands)
Cash and cash equivalents $38,557 $56,015
Accounts receivable less allowances
of $3,998 and $3,341 57,048 61,852
Inventories, at lower of cost or market:
Finished and in-process products 49,200 40,938
Materials, containers and supplies 13,481 12,437
62,681 53,375
Prepaid expenses and other current
assets 16,572 16,532
Total current assets 174,858 187,774
PROPERTY, PLANT AND EQUIPMENT, at cost 99,093 84,950
Less allowance for depreciation 48,614 45,121
50,479 39,829
OTHER ASSETS 11,114 6,266
TOTAL ASSETS $236,451 $233,869
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $35,749 $34,582
Accrued expenses 42,813 42,303
Income taxes 6,315 10,918
Dividend payable 1,172 961
Current installments on long-term debt 669 1,080
Total current liabilities 86,718 89,844
DEFERRED INCOME TAXES AND OTHER LIABILITIES 14,408 13,321
LONG-TERM DEBT 2,131 2,135
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
(168,493 and 258,538 shares) (1,345) (2,052)
Paid-in-capital 123,428 123,237
Equity adjustments (71) (4)
Deferred compensation (2,693) (2,614)
Retained earnings 12,248 8,375
133,194 128,569
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $236,451 $233,869
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GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands except per share data)
Nine Months Ended Three Months Ended
March 31, March 31,
1994 1993 1994 1993
Revenues from continuing
operations $288,566 $261,983 $91,180 $82,787
Costs and expenses:
Cost of products sold 184,135 165,780 59,436 52,590
Research and development 3,539 3,242 1,226 1,054
Storage and delivery 11,856 9,185 4,019 2,957
Selling and administrative 76,490 71,548 24,288 23,689
Interest expense 683 4,947 235 1,045
Corporate interest income (710) (978) (227) (238)
Unusual item (1,000) (750)
Total costs and expenses 275,993 252,724 88,97 80,347
Income from continuing
operations before income
taxes 12,573 9,259 2,203 2,440
Income taxes 5,281 3,704 925 976
Income from continuing
operations 7,292 5,555 1,278 1,464
Discontinued operations 77 346
Income from operations
before extraordinary item 7,292 5,632 1,278 1,810
Extraordinary item (less
applicable taxes) (446)
Net income $ 7,292 $ 5,186 $ 1,278 $1,810
Net income per common and
common equivalent share:
Income from continuing
operations $.45 $.40 $.08 $.11
Discontinued operations .01 .02
Extraordinary item (less
applicable taxes) (.03)
Net income $.45 $.38 $.08 $.13
Average number of shares 16,100 13,688 16,155 14,012
Cash dividends per share
(common) $.21 $.18 $.07 $.06
4
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GROW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended
March 31,
1994 1993
(In thousands)
Operating Activities
Net income $7,292 $5,186
Adjustments to reconcile net income (loss)
to net cash provided (used)
by operating activities:
Depreciation, amortization and
provision for doubtful accounts 7,048 8,168
Changes in operating assets and
liabilities-net (2,361) (2,458)
Other (557) 467
Net cash provided (used) by
operating activities 11,422 11,363
Investing Activities
Purchase of property, plant and
equipment (3,929) (2,536)
Disposals of plant and equipment 82 1,327
Acquisitions of Zynolyte and
Havco Paint (17,389)
Net cash provided (used) by
investing activities (21,236) (1,209)
Financing Activities
Proceeds from borrowing/payments
of debt - net (5,123) (43,570)
Proceeds from issuance of
Common Stock 89 38,816
Cash dividends (3,419) (2,509)
Net cash provided (used) by
financing activities (7,644) (7,263)
(Decrease) increase in cash
and cash equivalents (17,458) 2,891
Cash and cash equivalents at
beginning of period 56,015 32,128
Cash and cash equivalents at
end of period $38,557 $35,019
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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 nine month periods
ended March 31, 1994 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.
Also, effective March 31, 1994, the Company purchased certain
assets, and assumed certain liabilities of Havco Paint Company, a
chain of four paint stores in the Tampa, Florida area.
d. As at March 31, 1994, the accrued liability for
environmental cleanup and/or remediation amounted to $10,877,000
which is included in current liabilities in the accompanying
balance sheet.
e. Subsequent event: On May 7, 1994, the Company executed an
agreement to purchase certain assets and assume certain
liabilities of Sinclair Paint, a Division of Insilco Corporation,
for a purchase price of $51,000,000 plus other consideration
(subject to adjustment at the closing). Sinclair is a
manufacturer and marketer of architectural paints which generated
approximately $98,000,000 of revenues in calendar 1993.
f. In conjunction with the agreement referred to in Note e
above, the Company is negotiating an increase from $40 million to
$60 million in its revolving credit line.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three and Nine Month Periods Ended March 31, 1994
Compared to
Three and Nine Month Periods Ended March 31, 1993
Results of Operations
Revenues: Consolidated revenues increased $26,583,000
(10.1%) for the nine months and $8,393,000 (10.1%) for the
quarter compared to the same periods of the prior year. The
increases include the effect (6.0 and 7.0 percentage points,
respectively) of including the revenues of Zynolyte Products
Company which was acquired effective August 2, 1993.
Before giving effect to the inclusion of Zynolyte in the
current periods and the effect of initial royalties related to
licensing certain resin technology to a major international
chemical company recorded in the third quarter of the prior year,
Coatings and Chemicals segment revenues increased 4.7% for the
nine months and 4.3% in the quarter.
Revenues from Architectural Paint operations, excluding
Zynolyte, increased 6.9% in the nine months and 7.4% in the
quarter, principally due to higher unit volume, despite the
negative impact of the harsh weather conditions in January and
February which resulted in the closing of a major plant and the
Company's administrative center in Kentucky for a week.
Marine and Maintenance revenues showed an increase of 2.0%
for the nine months (unit volume increase of 6.9% with price and
mix decrease of 4.9%) and a decrease of 3.4% for the quarter
(unit volume increase of 5.5% with price and mix decrease of
8.9%). Revenues from licensing technology to others increased
27.5% in the nine months and 52.4% in the quarter, however,
license royalties are a small part of the overall total amounting
to 2.0% of year-to-date revenues and 3% of revenues in the
quarter. Percentage increases of license royalties between
periods are impacted by the timing of initial royalties. Marine
and Maintenance revenues continued to feel the effects of stiff
competition in a down market in several significant oil and
chemical domestic and international business lines.
The Automotive Division benefited by the increased
production of domestic cars with an increase in revenue due
principally to increased unit volume of 2.7% in the quarter.
Revenues for the nine months decreased 2.2% due primarily to
lower unit volume in the first six months of the year.
7
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Consumer and Professional Products segment revenues
increased 4.3% and 5.8% primarily due to changes in product mix
on substantially the same unit volume for the nine months and the
quarter, respectively. The 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 decreased from 36.7% to 36.2% for the nine
months and from 36.5% to 34.8% in the quarter. The inclusion of
initial royalties related to licensing certain resin technology
to a major international chemical company in the prior year had
the effect of increasing the change in gross profit percentage by
.3 of one percentage point in the nine months and .9 of one
percentage point in the quarter.
Within the Coatings and Chemicals Group, Architectural Paint
operations (excluding the effect of Zynolyte) gross profit
percentages remained the same for the nine months and decreased
by 2.1 percentage points in the quarter, reflecting the harsh
weather in January and February. In the Marine and Maintenance
operations, gross profit percentages were about the same in the
nine months, as royalty income from non-resin technology (which
provided a .3 of one percentage point improvement in the gross
profit percentage) was offset by a reduction of gross profit
caused by competition. Gross profit for these operations in the
quarter were improved by .7 of one percentage point due to higher
royalty income which partially offset the effect of competition
resulting in an overall decrease of .4 of one percentage point.
Gross profit percentages in the Automotive Division decreased .5
of one percentage point in the nine months and increased by 2.7
percentage points in the quarter reflecting the higher volume and
better price/mix in the domestic automotive market. The Consumer
and Professional Products segment gross margin percentage was
decreased by .5 of one percentage point in the nine months and
increased by .4 of one percentage point in the quarter. The
changes in gross profit in both periods were primarily related to
higher material costs and changes in product mix.
Storage and Delivery: The increases of $2,671,000 in the
nine months and $1,062,000 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
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remainder of the Coatings and Chemicals segment and the higher
volume and mix change in the Consumer and Professional Products
Group.
Selling, General and Administrative: These expenses
increased by $4,942,000 and $599,000 in the nine months and
quarter, respectively. These increases were attributable to,
among other factors, the inclusion of Zynolyte in the current
periods, higher store expense for architectural paint operations
(as Company store locations increased over the prior year),
product introduction costs and increased corporate expense.
Interest Expense: The reductions of $4,264,000 and $810,000
in the nine 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).
Net Income: In addition to the factors enumerated above,
the change in net income for the nine months (which increased by
$2,106,000) was impacted by an unusual gain in 1993 related to
insurance of $600,000 (after tax), discontinued operations in
1993 of $77,000 (after tax) and a 1993 extraordinary charge
related to redemption of debt of $446,000. The change in net
income for the quarter (decrease of $532,000) was affected by the
unusual insurance gain in 1993 of $450,000 (after tax) and profit
from discontinued operations of $346,000 in 1993.
Environmental Matters: The Company continues to incur and
accrue costs related to compliance with environmental laws. The
provision for such costs amounted to $2,213,000 and $602,000 for
the nine months and quarter ended March 31, 1994, 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
provisions 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 $10,877,000 as of March 31, 1994. An
9
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anticipated refund of remediation costs from a State agency of
$600,000 ($1,900,000 as of June 30, 1993) is included in
receivables as of March 31, 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 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 nine months, the Company's net income, before
depreciation, amortization and provision for doubtful accounts,
contributed $14,340,000 to cash flow. Changes in operating
assets and liabilities and other items used $2,918,000 in cash
flow principally related to reductions in accounts receivable and
income taxes payable and increases in inventories. Payment of a
loan against the cash surrender value of life insurance and cash
dividends were the principal factors in the use of $7,644,000 for
financing activities.
The acquisition of the stock of Zynolyte Products Company
and the purchase of certain assets of Havco Paint Company for an
aggregate of $17,389,000 in cash and net purchases of fixed
assets resulted in a use of cash for investing activities of
$21,236,000.
The Company has a credit facility expiring in March 1996
with three banks entitling it 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 March 31,
1994). The Company's future short-term and long-term liquidity
requirements are expected to be satisfied from cash flows from
operations, borrowing from banks or other lenders and/or equity
sources.
Subsequent to the end of the quarter, on May 7, 1994, the
Company entered into an agreement to purchase certain assets and
assume certain liabilities of Sinclair Paint, a Division of
Insilco Corporation, for a purchase price of $51,000,000 plus
other consideration (subject to adjustment at the closing).
10
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Sinclair generated approximately $98,000,000 of revenues in
calendar 1993. In conjunction with the agreement referred to
above, the Company is negotiating an increase from $40 million to
$60 million in its revolving credit line.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In April, 1994, the Company received a complaint naming it
and numerous other parties as defendants in litigation pending in
the United States District Court for the District of New Jersey,
Camden Vicinage. The complaint alleges that the Company and
other defendants are liable for environmental cleanup at a site
in the State of New Jersey by virtue of the transport to,
treatment or disposal of wastes at this site.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Computation of Earnings Per Share.
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed by the Company
during the quarter ended March 31, 1994.
11
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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: May 13, 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
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
11 Computation of Earnings 14
Per Share
13
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Exhibit 11
GROW GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
Nine Months Ended Three Months Ended
March 31, March 31,
1994 1993 1994 1993
Primary:
Average shares outstanding 16,047 13,624 16,093 13,940
Dilutive stock options
based on the treasury
stock method using the
average market price 53 64 62 72
16,100 13,688 16,155 14,012
Income (loss) from
continuing operations $7,292 $5,555 $1,278 $1,464
Discontinued operations 77 (346)
Extraordinary item (446)
Net income (loss) $7,292 $5,186 $1,278 $1,810
Per share:
Income (loss) from
continuing operations $.45 $.40 $.08 $.11
Discontinued operations .01 .02
Extraordinary item (.03)
Net income (loss) $.45 $.38 $.08 $.13
14
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