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 December 31, 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. 30,684,712 shares of Common Stock as of January 31, 1998.
FORM 10-Q --------- CONTENTS -------- PAGE ---- PART I - FINANCIAL INFORMATION (Unaudited) --------------------- Condensed Consolidated Balance Sheets at December 31, 1997 and September 30, 1997 ........................................... 1 Condensed Consolidated Statements of Income for the Three Months Ended December 31, 1997 and 1996 .......................... 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 1997 and 1996 .......................... 4 Notes to Condensed Consolidated Financial Statements ............. 5 Management's Discussion and Analysis of Financial Condition and Results of Operations .............................. 7 PART II - OTHER INFORMATION ----------------- Item 1: Legal Proceedings ....................................... 9 Item 2: Changes in Securities ................................... 9 Item 3: Defaults upon Senior Securities ......................... 9 Item 4: Submission of Matters to a Vote of Security Holders ..... 9 Item 5: Other Information ....................................... 9 Item 6: Exhibits and Reports on Form 8-K ........................ 9 Signature ........................................................ 10
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- <TABLE> <CAPTION> December 31, September 30, 1997 1997 ----------- ------------- (Unaudited) (Note 1) <S> <C> <C> ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 12,673,000 $ 15,414,000 Marketable securities 382,000 1,379,000 Accounts receivable, less allowance for doubtful accounts 100,608,000 105,050,000 Contract costs and recognized income not yet billed 42,288,000 40,465,000 Inventories (Note 2) 83,072,000 88,123,000 Prepaid expenses and other current assets 16,193,000 13,676,000 ------------ ------------ Total current assets 255,216,000 264,107,000 PROPERTY, PLANT AND EQUIPMENT at cost, less accumulated depreciation and amortization of $56,536,000 at December 31, 1997 and $53,673,000 at September 30, 1997 76,962,000 77,080,000 OTHER ASSETS 46,437,000 43,572,000 ------------ ------------ $378,615,000 $384,759,000 ============ ============ <FN> See notes to condensed consolidated financial statements. </FN> </TABLE>
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- <TABLE> <CAPTION> December 31, September 30, 1997 1997 ----------- ------------- (Unaudited) (Note 1) <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts and notes payable $ 46,603,000 $ 52,612,000 Other current liabilities 71,168,000 76,488,000 ------------ ------------ Total current liabilities 117,771,000 129,100,000 ------------ ------------ LONG-TERM DEBT AND OTHER LIABILITIES 49,819,000 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 31,350,612 shares at December 31, 1997 and 31,278,830 shares at September 30, 1997, and 671,900 shares and 603,700 shares in treasury at December 31, 1997 and September 30, 1997, respectively 7,838,000 7,820,000 Other shareholders' equity 203,187,000 193,985,000 ------------ ------------ Total shareholders' equity 211,025,000 201,805,000 ------------ ------------ $378,615,000 $384,759,000 ============ ============ <FN> See notes to condensed consolidated financial statements. </FN> </TABLE>
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1997 1996 ---- ---- <S> <C> <C> Net sales $229,031,000 $181,744,000 Cost of sales 171,108,000 135,761,000 ------------ ------------ Gross profit 57,923,000 45,983,000 Selling, general and administrative expenses 43,618,000 33,257,000 ------------ ------------ Income from operations 14,305,000 12,726,000 ------------ ------------ Other income (expense): Interest expense (965,000) (775,000) Interest income 207,000 323,000 Other, net (31,000) 54,000 ------------ ------------ (789,000) (398,000) ------------ ------------ Income before income taxes 13,516,000 12,328,000 ------------ ------------ Provision for income taxes: Federal 3,935,000 4,062,000 State and other 1,066,000 746,000 ------------ ------------ 5,001,000 4,808,000 ------------ ------------ Net income $ 8,515,000 $ 7,520,000 ============ ============ Net income per share of common stock (Note 3): Basic $ .28 $ .26 ============ ============ Diluted $ .27 $ .24 ============ ============ <FN> See notes to condensed consolidated financial statements. </FN> </TABLE>
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, --------------------------- 1997 1996 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,515,000 $ 7,520,000 Adjustments to reconcile net income to net cash ----------- ----------- provided by operating activities: Depreciation and amortization 3,271,000 2,749,000 Provision for losses on accounts receivable 403,000 522,000 Change in assets and liabilities: Decrease in accounts receivable and contract costs and recognized income not yet billed 2,216,000 5,978,000 Decrease in inventories 5,051,000 1,535,000 Increase in prepaid expenses and other assets (2,777,000) (1,800,000) Decrease in accounts payable and accrued liabilities (14,605,000) (6,355,000) Other changes, net 877,000 (626,000) ----------- ----------- Total adjustments (5,564,000) 2,003,000 ----------- ----------- Net cash provided by operating activities 2,951,000 9,523,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease in marketable securities 997,000 1,931,000 Acquisition of property, plant and equipment (3,810,000) (4,043,000) Acquired business --- (1,320,000) Proceeds from sale of discontinued operation --- 2,771,000 Other, net (1,834,000) 562,000 ----------- ----------- Net cash used in investing activities (4,647,000) (99,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares (1,181,000) --- Payment of long-term debt (408,000) (129,000) Decrease in short-term borrowings (139,000) (2,500,000) Other, net 683,000 9,000 ----------- ----------- Net cash used in financing activities (1,045,000) (2,620,000) ----------- ----------- NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (2,741,000) 6,804,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,414,000 17,846,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,673,000 $24,650,000 =========== =========== <FN> See notes to condensed consolidated financial statements. </FN> </TABLE>
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 month period ended December 31, 1997 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> December 31, September 30, 1997 1997 ------------ ------------- <S> <C> <C> Finished goods . . . . . . . . . . $43,840,000 $43,722,000 Work in process . . . . . . . . . 17,309,000 21,228,000 Raw materials and supplies . . . . 21,923,000 23,173,000 ----------- ----------- $83,072,000 $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.
Options to purchase 735,000 shares of Common Stock were not included in the computation of diluted net income per share for the three months ended December 31, 1997 because the effect would have been antidilutive. The following table sets forth the computation of basic and diluted net income per share: <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1997 1996 ---- ---- <S> <C> <C> Numerator: Net Income $ 8,515,000 $ 7,520,000 Preferred Stock dividends --- (98,000) Numerator for basic net income ----------- ----------- per share -- income available to common stockholders 8,515,000 7,422,000 Effect of dilutive securities: Preferred Stock dividends --- 98,000 ----------- ----------- Numerator for diluted net income per share -- income available to common stockholders after assumed conversions $ 8,515,000 $ 7,520,000 =========== =========== Denominator: Denominator for basic net income per share -- weighted average shares 30,477,000 28,907,000 ----------- ----------- Effect of dilutive securities: Convertible Preferred Stock --- 1,606,000 Employee stock options and other 931,000 727,000 ----------- ----------- Dilutive potential common shares 931,000 2,333,000 ----------- ----------- Denominator for diluted net income per share -- adjusted weighted average shares and assumed conversions 31,408,000 31,240,000 =========== =========== </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Results of Operations - --------------------- Net sales were $229.0 million for the three-month period ended December 31, 1997, an increase of $47.3 million or 26.0% over last year. Net sales of the building products business were $153.6 million, an increase of $37.4 million or 32.2% over last year. Net sales of acquired companies accounted for $24.5 million of the increase with higher garage door unit sales due to stronger construction and related retail markets and internal growth in the service business accounting for the remainder of the increase. Net sales of the specialty plastic films business were $39.5 million, approximately the same as last year. Net sales of the electronic information and communication systems business were $35.9 million, an increase of $9.4 million or 35.4% over last year due to new programs and increased funding levels on existing programs. Income from operations for the three-month period ended December 31, 1997 was $14.3 million, an increase of $1.6 million or 12.4% over last year. Operating income of the building products business increased approximately $.5 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 increased approximately $.4 million compared to last year due to increased manufacturing efficiencies. Operating income of the electronic information and communication systems operation increased by approximately $.7 million due to the increased sales. Liquidity and Capital Resources - ------------------------------- Cash flow provided by operations for the quarter was $3.0 million and working capital was $137.4 million at December 31, 1997. 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 three years. During the quarter the company had capital expenditures of $2 million in connection with such upgrades and enhancements. Future capital expenditures of approximately $15 million are expected in connection with these
ongoing programs. During the quarter $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.
PART II - OTHER INFORMATION --------------------------- Item 1 Legal Proceedings ----------------- Atlantic Richfield Company (ARCO) v. Current Controls, et al. -------------------------------------------------------------- Without acknowledging any responsibility, fault or liability in connection with the Site, the Company has entered into an agreement with the plaintiff to settle the action for an insignificant amount. Item 2 Changes in Securities --------------------- None Item 3 Defaults upon Senior Securities ------------------------------- None Item 4 Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Registrant held its Annual Meeting of Stockholders on February 5, 1998. (b) Not applicable (c)(i) Four directors were elected at the Annual Meeting to serve until the Annual Meeting of Stockholders in 2001. The names of these directors and votes cast in favor of their election and shares withheld are as follows: <TABLE> <CAPTION> Name Votes For Votes Withheld ---- ---------- -------------- <S> <C> <C> Henry A. Alpert 26,528,938 1,146,000 Abraham M. Buchman 26,561,863 1,113,075 Rear Admiral Clarence A. Hill, Jr. 26,887,199 787,639 William H. Waldorf 26,570,170 1,104,668 </TABLE> (ii) In addition to the election of directors, the stockholders (1) approved a proposal to adopt a 1998 Stock Option Plan; 17,674,904 shares were voted in favor of this proposal, 9,821,996 shares against and 178,138 shares abstained, and (2) approved a proposal to approve the company's Senior Management Incentive Compensation Plan; 21,523,278 shares were voted in favor this proposal, 2,195,592 shares against and 228,738 shares abstained. Item 5 Other Information ----------------- None Item 6 Exhibits and Reports on Form 8-K -------------------------------- 27.1 -- Financial Data Schedule (for electronic submission only) 27.2 -- Financial Data Schedule (for electronic submission only) 27.3 -- Financial Data Schedule (for electronic submission only)
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/ Patrick L. Alesia ----------------------------- Patrick L. Alesia Vice President and Treasurer (Chief Accounting Officer) Date: February 11, 1998 ----------------