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 March 31, 1998
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. 30,701,785 shares of Common
Stock as of April 30, 1998.
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
---------------------
Condensed Consolidated Balance Sheets at March 31, 1998
and September 30, 1997........................................... 1
Condensed Consolidated Statements of Income for the Three
Months and Six Months Ended March 31, 1998 and 1997.............. 3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1998 and 1997... ......................... 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 ....................................... 13
Item 2: Changes in Securities ................................... 13
Item 3: Defaults upon Senior Securities ......................... 13
Item 4: Submission of Matters to a Vote of Security Holders ..... 13
Item 5: Other Information ....................................... 13
Item 6: Exhibits and Reports on Form 8-K ........................ 13
Signature ........................................................ 14
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,081,000 $ 15,414,000
Marketable securities 383,000 1,379,000
Accounts receivable, less allowance
for doubtful accounts 101,264,000 105,050,000
Contract costs and recognized
income not yet billed 41,668,000 40,465,000
Inventories (Note 2) 89,640,000 88,123,000
Prepaid expenses and other current
assets 20,032,000 13,676,000
------------ ------------
Total current assets 258,068,000 264,107,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $59,575,000 at
March 31, 1998 and $53,673,000 at
September 30, 1997 90,268,000 77,080,000
OTHER ASSETS 45,668,000 43,572,000
------------ ------------
$394,004,000 $384,759,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
--------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts and notes payable $ 58,915,000 $ 52,612,000
Other current liabilities 58,575,000 76,488,000
------------ ------------
Total current liabilities 117,490,000 129,100,000
------------ ------------
LONG-TERM DEBT AND OTHER
LIABILITIES (Note 4) 61,786,000 53,854,000
------------ ------------
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
31,399,250 shares at March 31, 1998
and 31,278,830 shares at September 30,
1997, and 671,900 shares and 603,700
shares in treasury at March 31, 1998
and September 30, 1997, respectively 7,850,000 7,820,000
Other shareholders' equity 206,878,000 193,985,000
------------ ------------
Total shareholders' equity 214,728,000 201,805,000
------------ ------------
$394,004,000 $384,759,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $199,859,000 $160,807,000
Cost of sales 151,098,000 120,520,000
------------ ------------
Gross profit 48,761,000 40,287,000
Selling, general and administrative
expenses 42,686,000 33,010,000
------------ ------------
Income from operations 6,075,000 7,277,000
------------ ------------
Other income (expense):
Interest expense (1,044,000) (704,000)
Interest income 116,000 304,000
Other, net (198,000) 80,000
------------ ------------
(1,126,000) (320,000)
------------ ------------
Income before income taxes 4,949,000 6,957,000
------------ ------------
Provision for income taxes:
Federal 1,303,000 2,148,000
State and other 528,000 426,000
------------ ------------
1,831,000 2,574,000
------------ ------------
Net income $ 3,118,000 $ 4,383,000
============ ============
Net income per share of common stock (Note 3):
Basic $ .10 $ .15
============ ============
Diluted $ .10 $ .14
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $428,890,000 $342,551,000
Cost of sales 322,206,000 256,281,000
------------ ------------
Gross profit 106,684,000 86,270,000
Selling, general and administrative
expenses 86,304,000 66,267,000
------------ ------------
Income from operations 20,380,000 20,003,000
------------ ------------
Other income (expense):
Interest expense (2,009,000) (1,479,000)
Interest income 323,000 627,000
Other, net (229,000) 134,000
----------- ------------
(1,915,000) (718,000)
----------- ------------
Income before income taxes 18,465,000 19,285,000
----------- ------------
Provision for income taxes:
Federal 5,238,000 6,210,000
State and other 1,594,000 1,172,000
------------ ------------
6,832,000 7,382,000
------------ ------------
Net income $ 11,633,000 $ 11,903,000
============ ============
Net income per share of common stock (Note 3):
Basic $ .38 $ .41
============ ============
Diluted $ .37 $ .38
============ ============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
GRIFFON CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $11,633,000 $11,903,000
Adjustments to reconcile net income to net cash ----------- -----------
provided by operating activities:
Depreciation and amortization 6,734,000 5,511,000
Provision for losses on accounts receivable 927,000 793,000
Change in assets and liabilities:
Decrease in accounts receivable and contract
costs and recognized income not yet billed 1,840,000 15,824,000
(Increase) decrease in inventories (1,219,000) 245,000
Increase in prepaid expenses and other assets (3,826,000) (920,000)
Decrease in accounts payable and accrued
liabilities (10,905,000) (16,278,000)
Other changes, net 1,229,000 367,000
----------- -----------
Total adjustments (5,220,000) 5,542,000
----------- -----------
Net cash provided by operating activities 6,413,000 17,445,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in marketable securities 996,000 2,918,000
Acquisition of property, plant and equipment (19,031,000) (12,448,000)
Acquired businesses (733,000) (2,232,000)
Proceeds from sale of discontinued operation --- 2,771,000
Other, net (3,801,000) (112,000)
----------- -----------
Net cash used in investing activities (22,569,000) (9,103,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (1,181,000) (2,402,000)
Proceeds from issuance of long-term debt 7,000,000 1,282,000
Payment of long-term debt (814,000) (3,260,000)
Decrease in short-term borrowings (249,000) (2,605,000)
Other, net 1,067,000 (383,000)
----------- -----------
Net cash provided by (used in) financing activities 5,823,000 (7,368,000)
----------- -----------
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (10,333,000) 974,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,414,000 17,846,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,081,000 $18,820,000
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<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. 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, 1998 are not necessarily indicative of the results that may be
expected for the year ended September 30, 1998. The balance sheet at September
30, 1997 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, 1997.
(2) Inventories -
-----------
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -----------
<S> <C> <C>
Finished goods . . . . . . . . . . $48,902,000 $43,722,000
Work in process . . . . . . . . . 20,325,000 21,228,000
Raw materials and supplies . . . . 20,413,000 23,173,000
----------- -----------
$89,640,000 $88,123,000
=========== ===========
</TABLE>
(3) Net Income Per Share -
--------------------
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
which became 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 have been
restated under the new standard.
<PAGE>
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 3,118,000 $4,383,000 $ 11,633,000 $11,903,000
Preferred Stock dividends --- 91,000 --- (7,000)
Numerator for basic net income ----------- ---------- ------------ -----------
per share -- income available
to common stockholders 3,118,000 4,474,000 11,633,000 11,896,000
Effect of dilutive securities:
Preferred Stock dividends --- (91,000) --- 7,000
----------- ---------- ------------ ----------
Numerator for diluted net
income per share -- income
available to common
stockholders after assumed
conversions $ 3,118,000 $4,383,000 $ 11,633,000 $11,903,000
=========== ========== ============ ===========
Denominator:
Denominator for basic net
income per share -- weighted
average shares 30,498,000 29,332,000 30,488,000 29,120,000
----------- ---------- ------------ -----------
Effect of dilutive securities:
Convertible Preferred Stock --- 963,000 --- 1,284,000
Employee stock options and
other 1,014,000 1,000,000 972,000 863,000
Dilutive potential common ----------- ---------- ------------ -----------
shares 1,014,000 1,963,000 972,000 2,147,000
----------- ---------- ------------ -----------
Denominator for diluted net
income per share -- adjusted
weighted average shares and
assumed conversions 31,512,000 31,295,000 31,460,000 31,267,000
=========== ========== ============ ===========
</TABLE>
(4) Long-term Debt and Other Liabilities -
------------------------------------
In April 1998 the specialty plastic films' joint venture entered into a
credit agreement with a German bank to finance new production lines. The
agreement provides for borrowings of approximately $28 million and bears
interest based upon LIBOR. Existing joint venture borrowings of approximately $7
million at March 31, 1998 were refinanced under the agreement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998
- ----------------------------------
Net sales were $199.9 million for the three-month period ended March 31,
1998, an increase of $39.1 million or 24.3% over last year.
Net sales of the building products business were $123.5 million, an
increase of $32.1 million or 35.1% over last year. Net sales of acquired
companies accounted for $22.5 million of the increase with higher garage door
unit sales ($5.4 million) due to continued strong demand in construction and
related retail markets and internal growth in the service business ($4.2
million) accounting for the remainder of the increase. Net sales of the
specialty plastic films business were $36.2 million compared to $40.7 million
last year. The decrease was primarily due to delays in the anticipated start up
of new programs in the infant diaper market. Net sales of the electronic
information and communication systems business were $40.2 million, an increase
of $11.4 million or 39.8% due to new programs and increased funding on existing
programs.
Income from operations for the three-month period ended March 31, 1998 was
$6.1 million compared to $7.3 million last year. Operating income of the
building products business, in what has historically been its weakest quarter,
increased approximately $.8 million compared to last year. The effect of the
sales growth was offset in part by higher costs for hardware and packaging,
increased operating expenses associated with new distribution centers and
certain manufacturing inefficiencies related to production of commercial doors.
Recent acquisitions have increased the number of production facilities in the
building products segment. Consequently, the company is reviewing its
manufacturing structure with a view towards consolidating operations and
expects to complete the review and implement related decisions in fiscal 1998.
Operating income of the specialty plastic films segment declined by $2.2
million for the quarter compared to last year. Profitability in this segment
declined due to the sales decrease and price competition in the commodity end
of the segment's business. Operating income of the electronic information and
communication systems business for the quarter increased by approximately $.2
million compared to the prior year. The effect of the increased sales was
partly offset by lower margins on certain development contracts that are
nearing completion.
Interest expense, net for the three months ended March 31, 1998 increased
by $.5 million compared to the prior year due to higher outstanding borrowings
in connection with an acquisition made in the fourth quarter of fiscal 1997.
Six Months Ended March 31, 1998
- -------------------------------
Net sales were $428.9 million for the six-month period ended March 31,
1998, an increase of $86.3 million or 25.2% over last year.
<PAGE>
Net sales of the building products business were $277.1 million, an
increase of $69.5 million or 33.5% over last year, primarily due to acquired
businesses ($47 million), higher garage door unit sales ($10 million), and the
service business' internal growth ($10 million). Net sales of the specialty
plastic films business were $75.8 million compared to $79.7 million last year.
The sales decrease, which occurred in the second quarter, was primarily due to
delays in the anticipated start up of new programs in the infant diaper market.
Net sales of the electronic information and communication systems business were
$76.1 million, an increase of $20.8 million or 37.7% compared to last year,
principally due to new programs and increased funding levels on existing
programs.
Income from operations for the six-month period ended March 31, 1998 was
$20.4 million, an increase of $.4 million compared to last year. Operating
income of the building products business increased approximately $1.3 million
compared to last year, for the reasons discussed above. Operating income of the
specialty plastic films business decreased by $1.8 million compared to last
year, with such reduction occurring in the second quarter, due to the reasons
discussed above. Operating income of the electronic information and
communication systems business increased by $.9 million due to the higher
sales, partly offset by lower margins on certain development contracts that are
nearing completion.
Interest expense, net for the six months ended March 31, 1998 increased by
$.8 million compared to the prior year due to higher outstanding borrowings in
connection with an acquisition made in the fourth quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for the six months was $6.4 million, and
working capital was $140.6 million at March 31, 1998.
Programs to upgrade and enhance the company's strategic business systems
were previously initiated in order to replace aging technologies and provide
the infrastructure to support growth in each of our business segments. In
addition to other benefits that are anticipated from these upgrades and
enhancements, the new systems are designed to be Year 2000 compliant. The
implementation of this new technology has already begun, and is planned to be
completed in stages over the next two years. During the six months the company
had fixed asset additions of $19 million, including approximately $5 million in
connection with such upgrades and enhancements and construction and equipment
costs of approximately $6 million for its 60%-owned specialty plastic films
joint venture in Germany to expand production capacity in connection with a
multi-year contract with the specialty plastic films segment's major customer.
In April 1998 the specialty plastic films' joint venture entered into a
credit agreement with a German bank to finance new production lines. The
agreement provides for borrowings of approximately $28 million and bears
interest based upon LIBOR. Existing joint venture borrowings of approximately
$7 million at March 31, 1998 were refinanced under the agreement.
During the six months $1.2 million was used to acquire approximately 74,000
shares of Common Stock.
Anticipated cash flows from operations, together with existing cash and
marketable securities, bank lines of credit 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 that are not historical facts are
forward-looking statements subject to risks and uncertainties that could cause
actual results to differ materially from those set forth or implied, including
the effect of business and economic conditions; the impact of competitive
products and pricing; capacity and supply constraints or difficulties; and
other risks and uncertainties.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1 Legal Proceedings
-----------------
None
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)
<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
(Principal Financial Officer)
Date: May 4, 1998
-----------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the period ended March 31, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,081,000
<SECURITIES> 383,000
<RECEIVABLES> 150,425,000
<ALLOWANCES> 7,493,000
<INVENTORY> 89,640,000
<CURRENT-ASSETS> 258,068,000
<PP&E> 149,843,000
<DEPRECIATION> 59,575,000
<TOTAL-ASSETS> 394,004,000
<CURRENT-LIABILITIES> 117,490,000
<BONDS> 59,499,000
0
0
<COMMON> 7,850,000
<OTHER-SE> 206,878,000
<TOTAL-LIABILITY-AND-EQUITY> 394,004,000
<SALES> 428,890,000
<TOTAL-REVENUES> 428,890,000
<CGS> 322,206,000
<TOTAL-COSTS> 322,206,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 927,000
<INTEREST-EXPENSE> 2,009,000
<INCOME-PRETAX> 18,465,000
<INCOME-TAX> 6,832,000
<INCOME-CONTINUING> 11,633,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,633,000
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
