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 June 30, 1997
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) 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.
[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. 30,356,804 shares of Common
Stock as of July 31, 1997.
<PAGE>
FORM 10-Q
CONTENTS
--------
PAGE
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 1997
and September 30, 1996 ........................................... 1
Condensed Consolidated Statements of Income for the Three
Months and Nine Months Ended June 30, 1997 and 1996 .............. 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1997 and 1996 ............................. 5
Notes to Condensed Consolidated Financial Statements ............. 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ....................................... 10
Item 2: Changes in Securities ................................... 10
Item 3: Defaults upon Senior Securities ......................... 10
Item 4: Submission of Matters to a Vote of Security Holders ..... 10
Item 5: Other Information ....................................... 10
Item 6: Exhibits and Reports on Form 8-K ........................ 10
Signature ........................................................ 11
</TABLE>
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- ---------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,060,000 $ 17,846,000
Marketable securities 1,379,000 4,297,000
Accounts receivable, less allowance
for doubtful accounts 84,772,000 87,113,000
Contract costs and recognized
income not yet billed 31,232,000 33,670,000
Inventories (Note 2) 73,561,000 69,886,000
Prepaid expenses and other current
assets 12,386,000 16,203,000
------------ ------------
Total current assets 213,390,000 229,015,000
PROPERTY, PLANT AND EQUIPMENT at cost,
less accumulated depreciation and
amortization of $52,417,000 at
June 30, 1997 and $45,010,000 at
September 30, 1996 68,787,000 55,706,000
OTHER ASSETS 30,322,000 26,448,000
------------ ------------
$312,499,000 $311,169,000
============ =============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable $ 37,607,000 $ 47,131,000
Other current liabilities 59,455,000 58,620,000
------------ ------------
Total current liabilities 97,062,000 105,751,000
------------ ------------
LONG-TERM DEBT AND OTHER LIABILITIES 23,777,000 31,806,000
------------ ------------
LIABILITY OF EMPLOYEE STOCK OWNERSHIP PLAN 2,125,000 ---
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 1,079,000 652,000
------------ ------------
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, par value $.25 per share,
authorized 3,000,000 shares -- Second
Preferred Stock, Series I, authorized
1,950,000 shares, issued 1,618,844
shares at September 30, 1996 --- 405,000
Common Stock, par value $.25 per share,
authorized 85,000,000 shares, issued
30,925,707 shares at June 30, 1997 and
29,253,848 shares at September 30,
1996, and 549,400 shares and 334,896
shares in treasury at June 30, 1997
and September 30, 1996, respectively 7,732,000 7,313,000
Other shareholders' equity 180,724,000 165,242,000
------------ ------------
Total shareholders' equity 188,456,000 172,960,000
------------ ------------
$312,499,000 $311,169,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $193,120,000 $168,857,000
Cost of sales 142,310,000 124,928,000
------------ ------------
Gross profit 50,810,000 43,929,000
Selling, general and administrative
expenses 36,359,000 30,426,000
------------ ------------
Income from operations 14,451,000 13,503,000
------------ ------------
Other income (expense):
Interest expense (582,000) (1,001,000)
Interest income 220,000 238,000
Other, net 10,000 45,000
------------ ------------
(352,000) (718,000)
------------ ------------
Income from continuing operations
before income taxes 14,099,000 12,785,000
------------ ------------
Provision for income taxes:
Federal 4,477,000 4,175,000
State and other 740,000 750,000
------------ ------------
5,217,000 4,925,000
------------ ------------
Income from continuing operations 8,882,000 7,860,000
Operating income of discontinued operations,
net of income tax effect (Note 5) --- 143,000
------------ ------------
Net income $ 8,882,000 $ 8,003,000
============ ============
Income per share of common stock (Note 3):
Continuing operations $ .29 $ .25
Discontinued operations --- .01
------------ ------------
Net income $ .29 $ .26
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $535,671,000 $461,329,000
Cost of sales 398,591,000 345,217,000
------------ ------------
Gross profit 137,080,000 116,112,000
Selling, general and administrative
expenses 102,626,000 86,043,000
------------ ------------
Income from operations 34,454,000 30,069,000
------------ ------------
Other income (expense):
Interest expense (2,061,000) (2,524,000)
Interest income 847,000 886,000
Other, net 144,000 108,000
------------ ------------
(1,070,000) (1,530,000)
------------ ------------
Income from continuing operations
before income taxes 33,384,000 28,539,000
------------ ------------
Provision for income taxes:
Federal 10,687,000 9,342,000
State and other 1,912,000 1,711,000
------------ ------------
12,599,000 11,053,000
------------ ------------
Income from continuing operations 20,785,000 17,486,000
Operating income of discontinued operations,
net of income tax effect (Note 5) --- 246,000
------------ ------------
Net income $ 20,785,000 $ 17,732,000
============ ============
Income per share of common stock (Note 3):
Continuing operations $ .67 $ .54
Discontinued operations --- .01
------------ ------------
Net income $ .67 $ .55
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20,785,000 $17,732,000
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,302,000 7,281,000
Provision for losses on accounts receivable 1,124,000 866,000
Income from discontinued operations --- (246,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable and
contract costs and recognized income not yet billed 3,926,000 (1,324,000)
(Increase) decrease in inventories (2,105,000) 3,161,000
(Increase) decrease in prepaid expenses and
other assets (5,725,000) 977,000
Decrease in accounts payable and accrued
liabilities (8,156,000) (6,281,000)
Other changes, net (120,000) (137,000)
------------ ------------
Total adjustments (2,754,000) 4,297,000
------------ ------------
Net cash provided by operating activities 18,031,000 22,029,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in marketable securities 2,918,000 8,890,000
Acquisition of property, plant and equipment (20,470,000) (7,640,000)
Acquired businesses (2,232,000) (22,240,000)
Proceeds from sales of discontinued operations 10,518,000 ---
(Increase) decrease in equipment lease deposits and
other, net (367,000) 1,786,000
------------ ------------
Net cash used in investing activities (9,633,000) (19,204,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (3,422,000) (21,574,000)
Proceeds from issuance of long-term debt 5,731,000 34,000,000
Payment of long-term debt (15,369,000) (9,405,000)
Decrease in short-term borrowings (2,955,000) ---
Other, net (169,000) (259,000)
------------ ------------
Net cash provided by (used in) financing
activities (16,184,000) 2,762,000
------------ ------------
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (7,786,000) 5,587,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,846,000 9,656,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,060,000 $15,243,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
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. The balance sheet at September 30, 1996 has been derived
from the audited financial statements at that date. 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 nine-month periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1997. 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, 1996.
(2) Inventories -
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Finished goods . . . . . . . . . . $28,102,000 $23,910,000
Work in process . . . . . . . . . 21,757,000 22,706,000
Raw materials and supplies . . . . 23,702,000 23,270,000
------------ ------------
$73,561,000 $69,886,000
============ ============
</TABLE>
(3) Net Income Per Share -
Net income per share is calculated using the weighted average number of
shares of common stock, and where dilutive, common stock equivalents outstanding
during each period. Shares used in computing per share results were 31,130,000
and 31,013,000 for the three months ended June 30, 1997 and 1996, respectively
and 31,222,000 and 32,224,000 for the nine months ended June 30, 1997 and 1996,
respectively.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
which becomes effective for the fiscal year beginning October 1, 1997,
establishes new standards for computing and presenting earnings per share (EPS).
The new standard requires the presentation of basic EPS and diluted EPS. 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.
Diluted EPS is calculated by dividing income available to common shareholders by
the weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. Previously reported EPS amounts must be
restated under the new standard when it becomes effective.
6
<PAGE>
For the three and nine month periods ending June 30, 1997 and 1996, reported EPS
under the new standard would have been:
Basic:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $.29 $.27 $.70 $.57
Discontinued operations - - - .01
---- ---- ---- ----
Net income $.29 $.27 $.70 $.58
==== ==== ==== ====
</TABLE>
Diluted:
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $.29 $.25 $.67 $.54
Discontinued operations - .01 - .01
---- ---- ---- ----
Net income $.29 $.26 $.67 $.55
==== ==== ==== ====
</TABLE>
Basic EPS amounts calculated for periods including and subsequent to March
31, 1997 will be affected by the February 1997 conversion of substantially all
of the Second Preferred Stock, Series I into Common Stock (see Note 4), and the
inclusion of the newly issued shares of common stock in basic EPS calculations.
(4) Shareholders' Equity -
On February 6, 1997 the company's Board of Directors approved the
redemption of the company's Second Preferred Stock, Series I. The redemption
price of $10.17 consisted of $10.00 plus accrued and unpaid dividends to the
redemption date, March 10, 1997. Holders of 1,524,429 shares of Second Preferred
Stock converted their shares into 1,524,429 shares of Common Stock, and 45,165
shares of Second Preferred Stock were redeemed.
(5) Discontinued Operations -
In April 1997, the company completed, in a cash transaction, the sale of
its specialty hardware business which had been reflected as a discontinued
operation last year.
(6) Acquired Business -
In July 1997, the company acquired, in a cash transaction, a manufacturer
and installer of residential garage doors and related hardware with annual sales
of approximately $80 million for its building products operation. The purchase
price of approximately $35 million was financed by borrowings under an existing
credit facility.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997
Net sales were $193.1 million for the three-month period ended June 30,
1997, an increase of $24.3 million or 14.4% over last year.
Net sales of the building products business were $118.9 million, an
increase of $11.5 million or 10.8% over last year, primarily attributable to
higher unit sales of garage doors ($6.6 million) due to continued strong demand
in the residential and related retail markets and higher sales in our
installation services business ($3.7 million) due to geographic expansion and
internal growth. Net sales of the specialty plastic films business were $44.2
million, an increase of $14.3 million or 47.6% over last year. Increased unit
sales, primarily from growth of new programs for this operation's major customer
in the infant diaper market, was the principal reason for the sales growth. Net
sales of the electronic information and communication systems business were
$30.0 million, compared to $31.5 million a year earlier.
Income from operations for the three-month period ended June 30, 1997 was
$14.5 million, an increase of $1.0 million or 7.0% compared to last year.
Operating income of the building products business declined by approximately $.5
million. The effect of higher sales and reduced raw material costs was offset by
higher operating expenses incurred in connection with the sales growth and
anticipated further expansion of the business. Operating income of the specialty
plastic films segment increased by approximately $1.5 million for the quarter
compared to last year. As expected, earnings in this segment improved due to the
effect of higher volume and lower start-up costs associated with new programs,
partially offset by increased raw material costs. Operating income of the
electronic information and communication systems business was approximately the
same as in the prior year.
Nine Months Ended June 30, 1997
Net sales were $535.7 million for the nine-month period ended June 30,
1997, an increase of $74.3 million or 16.1% over last year.
Net sales of the building products business were $326.5 million, an
increase of $41.3 million or 14.5% over last year, primarily due to unit sales
increases ($22.8 million), the service business' growth ($11.9 million) and
acquired businesses ($6.6 million). Net sales of the specialty plastic films
business were $124.0 million, an increase of $29.8 million or 31.6% over last
year. The increase was due to higher unit sales primarily attributable to
products for its major customer in the infant diaper market. Net sales of the
electronic information and communication systems business were $85.2 million, an
increase of $3.3 million or 4.1% compared to last year, principally due to
increased funding levels on several programs and higher demand for its
integrated circuit products.
8
<PAGE>
Income from operations for the nine-month period ended June 30, 1997 was
$34.5 million, an increase of $4.4 million or 14.6% compared to last year.
Operating income of the building products business increased approximately $4.8
million compared to last year due to the sales growth, operating efficiencies
and lower raw material costs. Operating income of the specialty plastic films
business decreased by $.7 million compared to last year. Lower margins in this
segment in the first half of the year due to development and start-up costs
associated with new programs and increased raw material costs were partly offset
by improved profitability in the third quarter due to higher volume and lower
start-up costs. Operating income of the electronic information and communication
systems business increased by approximately $.4 million due primarily to the
sales increase in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for the nine months was $18.0 million, and
working capital was $116.3 million at June 30, 1997.
During the nine months the company had fixed asset additions of $20.4
million, including construction and equipment costs of approximately $7 million
for its 60%-owned specialty plastic films joint venture in Germany and
approximately $6 million to upgrade and enhance strategic business systems.
Proceeds of approximately $10.5 million were received from the sale and
liquidation of the company's synthetic batting business and its specialty
hardware business which had been reflected as discontinued operations last year.
In July 1997, the company acquired, in a cash transaction, a manufacturer
and installer of residential garage doors and related hardware with annual sales
of approximately $80 million for its building products operations. The purchase
price of approximately $35 million was financed by borrowings under an existing
credit facility.
On February 6, 1997 the company's Board of Directors approved the
redemption of the company's Second Preferred Stock, Series I. The redemption
price of $10.17 consisted of $10.00 plus accrued and unpaid dividends to the
redemption date, March 10, 1997. Holders of 1,524,429 shares of Second Preferred
Stock converted their shares into 1,524,429 shares of Common Stock, and 45,165
shares of Second Preferred Stock were redeemed.
Anticipated cash flows from operations, together with existing cash and
marketable securities 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.
The statements contained in this report which are not historical facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements, including the effect of business and
economic conditions; the impact of competitive products and pricing; capacity
and supply constraints or difficulties; product development, commercialization
or technological difficulties; and other risks and uncertainties.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
-----------------
There are no material changes in the information previously reported
under this item.
Item 2 Changes in Securities
---------------------
None
Item 3 Defaults upon Senior Securities
--------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
None
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
27 -- Financial Data Schedule (for electronic submission only)
10
<PAGE>
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: August 11, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the period ended June 30, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,060,000
<SECURITIES> 1,379,000
<RECEIVABLES> 121,647,000
<ALLOWANCES> 5,643,000
<INVENTORY> 73,561,000
<CURRENT-ASSETS> 213,390,000
<PP&E> 121,204,000
<DEPRECIATION> 52,417,000
<TOTAL-ASSETS> 312,499,000
<CURRENT-LIABILITIES> 97,062,000
<BONDS> 25,902,000
0
0
<COMMON> 7,732,000
<OTHER-SE> 180,724,000
<TOTAL-LIABILITY-AND-EQUITY> 312,499,000
<SALES> 535,671,000
<TOTAL-REVENUES> 535,671,000
<CGS> 398,591,000
<TOTAL-COSTS> 398,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,124,000
<INTEREST-EXPENSE> 2,061,000
<INCOME-PRETAX> 33,384,000
<INCOME-TAX> 12,599,000
<INCOME-CONTINUING> 20,785,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,785,000
<EPS-PRIMARY> .67
<EPS-DILUTED> 0
</TABLE>
