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, 2012
o
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: 1-06620
GRIFFON CORPORATION (Exact name of registrant as specified in its charter)
DELAWARE
11-1893410
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification No.)
712 Fifth Ave, 18th Floor, New York, New York
10019
(Address of principal executive offices)
(Zip Code)
(212) 957-5000 (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 (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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 61,820,463 shares of Common Stock as of April 30, 2012.
Griffon Corporation and Subsidiaries
Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2012 (unaudited) and September 30, 2011
1
Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended March 31, 2012 (unaudited)
Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2012 and 2011 (unaudited)
2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2012 and 2011 (unaudited)
3
Notes to Condensed Consolidated Financial Statements
4
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
36
Item 4 - Controls & Procedures
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
37
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 – Defaults upon Senior Securities
Item 4 – Mine Safety Disclosures
Item 5 – Other Information
Item 6 – Exhibits
Signatures
39
Exhibit Index
40
Part I – Financial Information Item 1 – Financial Statements
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)
(Unaudited)At March 31,2012
At September 30,2011
CURRENT ASSETS
Cash and equivalents
$
164,879
243,029
Accounts receivable, net of allowances of $5,598 and $6,072
289,834
267,471
Contract costs and recognized income not yet billed, net of progress payments of $3,834 and $9,697
66,966
74,737
Inventories, net
285,542
263,809
Prepaid and other current assets
46,458
48,828
Assets of discontinued operations
1,312
1,381
Total Current Assets
854,991
899,255
PROPERTY, PLANT AND EQUIPMENT, net
361,456
350,050
GOODWILL
362,931
357,888
INTANGIBLE ASSETS, net
234,591
223,189
OTHER ASSETS
32,261
31,197
ASSETS OF DISCONTINUED OPERATIONS
3,050
3,675
Total Assets
1,849,280
1,865,254
CURRENT LIABILITIES
Notes payable and current portion of long-term debt
16,255
25,164
Accounts payable
174,989
186,290
Accrued liabilities
96,045
99,631
Liabilities of discontinued operations
3,334
3,794
Total Current Liabilities
290,623
314,879
LONG-TERM DEBT, net of debt discount of $18,183 and $19,693
689,011
688,247
OTHER LIABILITIES
201,493
204,434
LIABILITIES OF DISCONTINUED OPERATIONS
4,788
5,786
Total Liabilities
1,185,915
1,213,346
COMMITMENTS AND CONTINGENCIES - See Note 19
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity
663,365
651,908
Total Liabilities and Shareholders’ Equity
GRIFFON CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)
COMMON STOCK
CAPITAL INEXCESS OF
RETAINED
TREASURY SHARES
ACCUMULATEDOTHERCOMPREHENSIVE
DEFERREDESOP & OTHER
(in thousands)
SHARES
PAR VALUE
EARNINGS
COST
INCOME (LOSS)
COMPENSATION
Total
Balance at 9/30/2011
76,184
19,046
471,928
424,153
14,434
(231,699
)
(7,724
(23,796
Net income
—
4,513
Dividend
(2,374
Tax effect from exercise/vesting of equity awards, net
(219
Amortization of deferred compensation
887
Common stock acquired
283
(2,350
Restricted stock awards granted, net
353
88
(88
ESOP allocation of common stock
Stock-based compensation
4,908
Translation of foreign financial statements
5,048
Pension OCI, net of tax
1,040
Balance at 3/31/2012
76,537
19,134
476,533
426,292
14,717
(234,049
(1,636
(22,909
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) (Unaudited)
Three Months Ended March 31,
Six Months Ended March 31,
2012
2011
Revenue
482,431
476,129
933,462
890,531
Cost of goods and services
379,630
374,986
727,953
701,529
Gross profit
102,801
101,143
205,509
189,002
Selling, general and administrative expenses
86,152
84,363
169,219
164,808
Restructuring and other related charges
1,212
1,795
2,605
Total operating expenses
85,575
171,014
167,413
Income from operations
16,649
15,568
34,495
21,589
Other income (expense)
Interest expense
(13,005
(11,319
(26,068
(22,542
Interest income
86
97
149
166
Loss from debt extinguishment, net
(26,164
Other, net
1,029
1,177
1,076
3,262
Total other income (expense)
(11,890
(36,209
(24,843
(45,278
Income (loss) before taxes
4,759
(20,641
9,652
(23,689
Provision (benefit) for income taxes
2,732
(6,640
5,139
(8,008
Net income (loss)
2,027
(14,001
(15,681
Basic earnings (loss) per common share
0.04
(0.24
0.08
(0.26
Weighted-average shares outstanding
56,037
59,280
56,031
59,277
Diluted earnings (loss) per common share
57,380
57,228
GRIFFON CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income (loss) tonet cash used in operating activities:
Depreciation and amortization
31,836
29,378
Fair value write-up of acquired inventory sold
15,152
4,647
Provision for losses on accounts receivable
611
709
Amortization/write-off of deferred financing costs and debt discounts
3,021
3,677
26,164
Deferred income taxes
(807
(2,539
(Gain) loss on sale/disposal of assets
29
(380
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable and contract costsand recognized income not yet billed
(14,648
(37,789
Increase in inventories
(17,003
(14,705
Decrease in prepaid and other assets
905
2,575
Decrease in accounts payable, accrued liabilitiesand income taxes payable
(19,482
(44,114
Other changes, net
3,909
(2,793
Net cash used in operating activities
(2,208
(35,699
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
(40,205
(41,737
Acquired business, net of cash acquired
(22,432
(855
Change in funds restricted for capital projects
3,875
Change in equipment lease deposits
(351
Proceeds from sale of assets
195
1,333
Net cash used in investing activities
(62,442
(37,735
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury
Proceeds from issuance of long-term debt
4,000
637,737
Payments of long-term debt
(10,398
(498,771
Change in short-term borrowings
(3,331
2,022
Financing costs
(4
(21,239
Purchase of ESOP shares
(8,310
Exercise of stock options
20
834
23
(29
(94
Net cash provided by (used in) financing activities
(13,652
111,388
CASH FLOWS FROM DISCONTINUED OPERATIONS:
(764
(561
Net cash used in discontinued operations
Effect of exchange rate changes on cash and equivalents
916
1,142
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(78,150
38,535
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
169,802
CASH AND EQUIVALENTS AT END OF PERIOD
208,337
GRIFFON CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except share and per share data)(Unaudited)
(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
About Griffon Corporation
Griffon Corporation (the “Company” or “Griffon”), is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
Griffon currently conducts its operations through three segments:
•
Home & Building Products (“HBP”) consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay Building Products (“CBP”):
-
ATT is a global provider of non-powered landscaping products that make work easier for homeowners and professionals.
CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.
Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.
Clopay Plastic Products Company (“Plastics”) is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. As such, they should be read with reference to Griffon’s Annual Report on Form 10-K for the year ended September 30, 2011, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s HBP operations are seasonal and the results of any interim period are not necessarily indicative of the results for the full year.
The condensed consolidated balance sheet information at September 30, 2011 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2011.
The consolidated financial statements include the accounts of Griffon Corporation and all subsidiaries. Intercompany accounts and transactions are eliminated on consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of discontinued assets and liabilities, and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.
Certain amounts in the prior year have been reclassified to conform to current year presentation.
NOTE 2 – FAIR VALUE MEASUREMENTS
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates.
The fair values of Griffon’s 2018 senior notes, 2017 and 2023 4% convertible notes approximated $568,000, $100,000 and $532, respectively, on March 31, 2012. Fair values were based upon quoted market prices (level 1 inputs).
Insurance contracts with a value of $4,309 and trading securities with a value of $409 at March 31, 2012 are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs).
Items Measured at Fair Value on a Recurring Basis
At March 31, 2012, Griffon had $1,750 of Australian dollar contracts at a weighted average rate of $0.96. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. A fair value gain (loss) of $(4) and $41 was recorded in other assets and to other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the three and six months ended March 31, 2012, respectively. The contracts expire in 30 to 90 days.
NOTE 3 – ACQUISITION
On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. (“SSMG”) for $22,432. The acquired business, which markets its products under the Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which was integrated with ATT, had revenue exceeding $40,000 in 2011.
The accounts of the acquired company, after adjustments to reflect fair market values assigned to assets purchased from SSMG, have been included in the consolidated financial statements from the date of acquisition; acquired inventory was not significant. Griffon is in the process of finalizing the adjustment to the purchase price, if any, primarily related to working capital; accordingly, management has used their best estimate in the initial purchase price allocation as of the date of these financial statements.
5
The following table summarizes the fair values of the assets acquired as of the date of the acquisition and the amounts assigned to goodwill and intangible asset classifications:
Inventory
3,673
PP&E
416
Goodwill
4,655
Intangibles
13,688
Total assets acquired
22,432
The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the Southern Patio acquisition are as follows:
AmortizationPeriod (Years)
N/A
Tradenames
2,611
Indefinite
Customer relationships
11,077
25
18,343
NOTE 4 – INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out or average) or market, were comprised of the following:
At March 31,2012
Raw materials and supplies
75,715
76,563
Work in process
71,349
66,585
Finished goods
138,478
120,661
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were comprised of the following:
Land, building and building improvements
126,930
126,340
Machinery and equipment
609,162
571,414
Leasehold improvements
32,715
32,867
768,807
730,621
Accumulated depreciation and amortization
(407,351
(380,571
Depreciation and amortization expense for property, plant and equipment was $14,282 and $13,645 for the quarters ended March 31, 2012 and 2011, respectively, and $27,771 and $25,460 for the six months ended March 31, 2012 and 2011, respectively.
No event or indicator of impairment occurred during the three and six months ended March 31, 2012, which would require additional impairment testing of property, plant and equipment.
6
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
The following table provides the changes in carrying value of goodwill by segment during the six months ended March 31, 2012.
Goodwill from2012acquisitions
Otheradjustmentsincludingcurrencytranslations
Home & Building Products
265,147
269,802
Telephonics
18,545
Plastics
74,196
388
74,584
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:
At March 31, 2012
At September 30, 2011
GrossCarryingAmount
AccumulatedAmortization
AverageLife(Years)
167,906
17,738
155,602
13,862
Unpatented technology
6,734
2,042
11
6,534
1,749
Total amortizable intangible assets
174,640
19,780
162,136
15,611
Trademarks
79,731
76,664
Total intangible assets
254,371
238,800
Amortization expense for intangible assets subject to amortization was $2,038 and $1,908 for the quarters ended March 31, 2012 and 2011, respectively, and $4,065 and $3,918 for the six months ended March 31, 2012 and 2011, respectively. The amortizable intangibles acquired in the Southern Patio acquisition will increase amortization in 2012 and forward by approximately $440 per year.
During the quarter, there were changes in management at both Plastics and Telephonics. Management performed a qualitative assessment as to whether these changes affected these reporting units’ carrying value and concluded that it was more likely than not that the fair value of the units continue to be greater than their respective carrying values.
NOTE 7 – INCOME TAXES
The tax rate for the quarter ended March 31, 2012 was a provision of 57.4 %, compared to a 32.2% benefit in the prior year quarter. The prior year benefit arose on the pretax loss for the quarter, which arose mainly in connection with the debt refinancing, completed in March 2011. The current year rate reflects the impact of permanent differences that are not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and a change in earnings mix. There were no discrete period items in the current quarter.
The tax rate for the six months ended March 31, 2012 was a provision of 53.2%, compared to a 33.8% benefit in 2011. The prior year benefit arose on the pretax loss. The 2012 rate reflects the impact of permanent differences, mainly limited deductibility of restricted stock, tax reserves and a change in earnings mix; the 2011 rate benefited $241 primarily from the retroactively extended research tax credit signed into law on December 22, 2010. There were no discrete items in the current period.
7
NOTE 8 – LONG-TERM DEBT
OutstandingBalance
OriginalIssuerDiscount
BalanceSheet
CapitalizedFees &Expenses
CouponInterest Rate
CouponInterestRate
Senior notes due 2018
(a)
550,000
10,249
7.125
%
11,337
Revolver due 2016
2,574
n/a
2,937
Convert. debt due 2017
(b)
100,000
(18,183
81,817
2,253
4.000
(19,693
80,307
2,474
Real estate mortgages
(c)
14,469
336
18,233
379
ESOP Loans
(d)
23,536
21
24,348
17
Capital lease - real estate
(e)
10,901
251
5.000
11,341
257
Convert. debt due 2023
(f)
532
Term loan due 2013
(g)
18,679
173
24,096
201
Revolver due 2012
33
Foreign line of credit
588
3,780
Foreign term loan
Other long term debt
(j)
744
774
Totals
723,449
705,266
15,857
733,104
713,411
17,635
less: Current portion
(16,255
(25,164
Long-term debt
707,194
707,940
Three Months Ended March 31, 2012
Three Months Ended March 31, 2011
EffectiveInterestRate
Cash Interest
Amort. DebtDiscount
Amort.Deferred Cost& Other Fees
Total InterestExpense
TotalInterestExpense
7.4
9,797
399
10,196
7.5
1,633
68
1,701
156
9.2
1,000
766
111
1,877
703
1,814
5.6
144
22
213
19
232
3.0
176
177
2.6
24
41
5.3
138
5.2
147
153
4.0
6.0
245
55
300
70
10
49
9.1
54
3.8
8
10.0
50
Term loan due 2016
(h)
8.5
6,002
263
6,565
Asset based lending
4.9
586
157
769
Revolver due 2013
(i)
31
80
356
Capitalized interest
(516
(196
11,489
750
13,005
9,486
992
841
11,319
Six Months Ended March 31, 2012
Six Months Ended March 31, 2011
19,594
811
20,405
309
2,000
1,510
222
3,732
9.3
1,386
3,608
294
43
337
344
28
372
355
357
47
280
13
293
5.4
322
6.1
527
77
604
61
34
95
9.5
13,498
572
745
14,815
Asset based loan
6.2
58
341
1,475
159
79
238
686
12
(967
(243
23,047
1,511
26,068
18,865
2,016
1,661
22,542
On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018; interest is payable semi-annually. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 (“Senior Notes”), via an exchange offer.
The Senior Notes can be redeemed prior to April 1, 2014 at a price of 100% of principal plus a make-whole premium and accrued interest; on or after April 1, 2014, the Senior Notes can be redeemed at a certain price (declining from 105.344% of principal on or after April 1, 2014 to 100% of principal on or after April 1, 2017), plus accrued interest. Proceeds from the Senior Notes were used to pay down the outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain covenants, limitations and restrictions.
On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate plus an applicable margin, which will adjust based on financial performance. The margins are 1.75% for base rate loans and 2.75% for LIBOR loans, in each case without a floor. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by certain domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors.
At March 31, 2012, there were $19,523 of standby letters of credit outstanding under the Credit Agreement; $180,477 was available for borrowing at that date.
9
On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The initial conversion rate of the 2017 Notes was 67.0799 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to an initial conversion price of $14.91 per share, a 23% conversion premium over the $12.12 closing price on December 15, 2009. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion, (ii) the 42nd trading day prior to maturity of the notes, and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of June 26, 2012, aggregate dividends of $0.06 per share would result in a cumulative change in the conversion rate of approximately 0.6%. Griffon used 8.75% as the nonconvertible debt-borrowing rate to discount the 2017 Notes and will amortize the debt discount through January 2017. At issuance, the debt component of the 2017 Notes was $75,437 and debt discount was $24,563. At March 31, 2012 and September 30, 2011, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720.
On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans totaling $11,834. The loans mature in February 2016, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3% with the option to swap to a fixed rate.
Griffon has other real estate mortgages, collateralized by real property, which bear interest at 6.3% and mature in 2016. On October 3, 2011, the mortgage at Russia, Ohio was paid in full, on maturity.
Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to borrow $20,000 over a one-year period. The proceeds were used to purchase 1,874,737 shares of Griffon common stock in the open market for $19,973. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at Griffon’s option. In November 2011, Griffon exercised an option to convert the outstanding loan to a five-year term loan; principal is payable in quarterly installments of $250, beginning December 2011, with a balloon payment of $15,223 due at maturity (November 2016). The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. At March 31, 2012, $19,473 was outstanding.
In addition, the ESOP has a loan agreement, guaranteed by Griffon, which requires quarterly principal payments of $156 and interest through the expiration date of September 2012 at which time the $3,900 balance of the loan, and any outstanding interest, will be payable. The primary purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At March 31, 2012, $4,063 was outstanding. Griffon is in process of extending the loan.
In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is secured by a mortgage on the real estate and is guaranteed by Griffon.
At March 31, 2012 and September 30, 2011, Griffon had $532 of 4% convertible subordinated notes due 2023 (the “2023 Notes”) outstanding. Holders of the 2023 Notes may require Griffon to repurchase all or a portion of their 2023 Notes on July 18, 2013 and 2018, if Griffon’s common stock price is below the conversion price of the 2023 Notes, as well as upon a change in control. An adjustment to the conversion rate will be required as the result of payment of a cash dividend only if such adjustment would be greater than 1% (or at such time as the cumulative impact on the conversion rate reaches 1% in the aggregate). As of June 26, 2012, aggregate dividends of $0.06 per share would result in a cumulative change in the conversion rate of approximately 0.6%. At March 31, 2012 and September 30, 2011, the 2023 Notes had no capital in excess of par value component as substantially all of these notes were put to Griffon at par and settled in July 2010.
In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at Euribor plus 2.35% per annum, and the term loan accrues interest at Euribor plus 2.45% per annum. The revolving facility matures in November 2012, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013.
Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. There were no borrowings outstanding under the revolving facility at March 31, 2012, with €10,000 available for borrowing.
In February 2012, Clopay do Brazil, a subsidiary of Plastics, borrowed $4,000 at a rate of 104.5% of Brazilian CDI. The loan was used to refinance existing loans and is collateralized by accounts receivable and a 50% guaranty by Plastics. Starting in August 2012, the loan is to be repaid in four equal, semi-annual installments. Clopay do Brazil also maintains a line of credit of approximately $1,900. Interest on borrowings accrue at a rate of Brazilian CDI plus 6.0%. At March 31, 2012 there was approximately $588 borrowed under the line.
In connection with the ATT acquisition, Clopay Ames True Temper Holding Corp. (“Clopay Ames”), a subsidiary of Griffon, entered into the $375,000 secured term Loan (“Term Loan”) and a $125,000 asset based lending agreement (“ABL”).
On November 30, 2010, Clopay Ames, as required under the Term Loan agreement, entered into an interest rate swap on a notional amount of $200,000 of the Term Loan. The agreement fixed the LIBOR component of the Term Loan interest rate at 2.085% for the notional amount of the swap.
On March 17, 2011, the Term Loan and swap were terminated, and on March 18, 2011, the ABL was terminated, in connection with the issuance of the Senior Notes and Credit Agreement.
In March 2008, Telephonics entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, revolving credit facility of $100,000 (the “TCA”). The TCA terminated in connection with the Credit Agreement.
Includes capital leases.
At March 31, 2012, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.
During the second quarter of 2011, in connection with the termination of the Term Loan, ABL and Telephonics credit agreement, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and $844 of swap and other breakage costs.
NOTE 9 — SHAREHOLDERS’ EQUITY
During the first and second quarters of 2012, the Board of Directors approved two quarterly cash dividends of $0.02 per common share, which were paid on December 27, 2011 and March 27, 2012, to holders of common stock as of close of business on November 29, 2011 and February 28, 2012, respectively. $1,190 and $2,374 was recorded to retained earnings for the dividend for the three and six months ended March 31, 2012, respectively. Dividends paid on allocated shares in the ESOP were used to pay down the ESOP loan and were recorded as a reduction in expense. A dividend payable was established for the holders of restricted shares; such payable will be released upon vesting of the underlying restricted shares.
On May 8, 2012, the Board of Directors declared a third quarterly cash dividend of $0.02 per share, payable on June 26, 2012 to shareholders of record as of the close of business on May 29, 2012.
Griffon expenses the fair value of equity compensation grants over the related vesting period. Compensation cost related to stock-based awards with graded vesting are amortized using the straight-line attribution method.
In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan (“Incentive Plan”) under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 3,000,000 (600,000 of which may be issued as incentive stock options) plus any shares underlying awards outstanding on the effective date of the Incentive Plan under the 2006 Incentive Plan that are subsequently cancelled or forfeited. As of March 31, 2012, 1,766,509 shares were available for grant.
All grants outstanding under the Griffon Corporation 2001 Stock Option Plan, 2006 Equity Incentive Plan and Outside Director Stock Award Plan will continue under their terms; no additional awards will be granted under such plans.
During the first quarter of 2012, Griffon granted 309,500 restricted shares with three-year cliff vesting, 191,000 of which are also subject to certain performance conditions, with a total fair value of $2,881, or a weighted average fair value of $9.31 per share.
During the second quarter of 2012, Griffon granted 110,000 restricted shares, 82,500 of which are three-year cliff vesting and 27,500 of which vest equally over 3 years; 75,000 of the 110,000 shares are subject to certain performance conditions. The total fair value of these grants is $1,119, or a weighted average fair value of $9.83 per share.
During the second quarter of 2011, Griffon granted 590,000 performance shares. Prior to the change in the terms of the grant, the performance shares had a fair value of $7,346, or a weighted average fair value of $12.45 per share, and cliff vested when either Griffon’s common stock closed at or above $16 per share for twenty consecutive trading days or 7 years from the date of grant, whichever came first. In January 2012, the terms of the grant were modified such that the price of Griffon common stock must close at or above $16 per share for thirty consecutive trading days on or prior to January 10, 2016 in order for the shares to vest; otherwise, the shares will be forfeited. The unamortized portion of the original fair value of approximately $6,400 will be expensed over the new service period of 32 months beginning January 2012.
For the three and six months ended March 31, 2012, stock based compensation expense totaled $2,651 and $4,908, respectively. For the three and six months ended March 31, 2011, stock based compensation expense totaled $2,624 and $4,647, respectively.
In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. In the first quarter of 2012, Griffon purchased 283,400 shares of common stock, for a total of $2,351, or $8.29 per share; in total, Griffon has purchased 448,779 shares of common stock, for a total of $3,660, or $8.16 per share, under this repurchase program. $46,340 remains under the $50,000 authorization.
NOTE 10 – EARNINGS PER SHARE (EPS)
Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. The 2023 Notes and the 2017 Notes were anti-dilutive due to the conversion price being greater than the weighted-average stock price during the periods presented. Due to the net loss during the three and six months ended March 31, 2011, the incremental shares from stock based compensation are anti-dilutive.
The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:
Weighted average shares outstanding - basic
Incremental shares from stock based compensation
1,343
1,197
Weighted average shares outstanding - diluted
Anti-dilutive options excluded from diluted EPS computation
989
1,050
1,202
988
Anti-dilutive restricted stock excluded from diluted EPS computation
Griffon has the intent and ability to settle the principal amount of the 2017 Notes in cash, as such, the potential issuance of shares related to the principal amount of the 2017 Notes does not affect diluted shares.
NOTE 11 – BUSINESS SEGMENTS
Griffon’s reportable business segments are as follows:
HBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains, as well as a global provider of non-powered landscaping products that make work easier for homeowners and professionals.
Telephonics develops, designs and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.
Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.
Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income or expense, income taxes, depreciation and amortization, gain (losses) from debt extinguishment, unallocated amounts, restructuring charges and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful to investors. The following tables provide a reconciliation of Segment profit and Segment profit before depreciation, amortization, restructuring and fair value write-up of acquired inventory sold and acquisition costs to Income before taxes and discontinued operations:
For the Three Months Ended March 31,
For the Six Months Ended March 31,
REVENUE
Home & Building Products:
ATT
133,321
145,644
232,061
239,841
CBP
91,269
86,675
202,915
190,741
224,590
232,319
434,976
430,582
113,992
113,525
218,506
211,804
143,849
130,285
279,980
248,145
Total consolidated net sales
INCOME (LOSS) BEFORE TAXES
Segment operating profit (loss):
8,096
6,931
17,930
5,308
13,543
11,225
26,056
21,918
2,492
5,170
4,372
9,312
Total segment operating profit
24,131
23,326
48,358
36,538
Unallocated amounts
(6,453
(6,581
(12,787
(11,687
Net interest expense
(12,919
(11,222
(25,919
(22,376
Segment profit before depreciation, amortization, restructuring, fair value write-up of acquired inventory sold and acquisition costs:
15,853
19,619
33,603
37,153
15,336
12,929
31,024
25,335
9,164
11,231
17,344
21,017
Total Segment profit before depreciation, amortization, restructuring, fair value write-up of acquired inventory sold and acquisition costs
40,353
43,779
81,971
83,505
Unallocated amounts, less acquisition costs
Segment depreciation and amortization
(16,222
(15,453
(31,640
(29,210
Restructuring charges
(1,212
(1,795
(2,605
(3,788
(15,152
Acquisition costs
(178
Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.
DEPRECIATION and AMORTIZATION
Segment:
7,757
7,688
15,222
14,088
1,793
1,704
3,446
3,417
6,672
6,061
12,972
11,705
Total segment depreciation and amortization
16,222
15,453
31,640
29,210
Corporate
99
100
196
168
Total consolidated depreciation and amortization
16,321
15,553
CAPITAL EXPENDITURES
8,305
7,335
14,573
13,775
2,554
3,784
2,138
9,446
14,996
21,774
25,616
Total segment
20,305
23,664
40,131
41,529
143
74
208
Total consolidated capital expenditures
20,313
23,807
40,205
41,737
14
ASSETS
Segment assets:
1,005,209
972,714
254,574
288,968
436,314
450,452
Total segment assets
1,696,097
1,712,134
148,821
148,064
Total continuing assets
1,844,918
1,860,198
4,362
5,056
Consolidated total
NOTE 12 – COMPREHENSIVE INCOME
Comprehensive income was as follows:
Six Months Ended Ended March 31,
Change in fair value of interest rate swap, net of tax
48
Foreign currency translation adjustment
9,620
16,911
16,466
Pension other comprehensive income amortization, net of tax
523
426
851
Comprehensive income
12,170
3,384
10,601
1,636
NOTE 13 – DEFINED BENEFIT PENSION EXPENSE
Defined benefit pension expense was as follows:
Service cost
51
123
174
Interest cost
2,666
2,792
5,568
5,578
Expected return on plan assets
(2,930
(2,843
(5,732
(5,681
Amortization:
Prior service cost
84
Recognized actuarial loss
718
571
1,293
Net periodic expense
589
692
1,420
Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc. Pension Plan. The merged Pension Plan was renamed the Clopay Ames True Temper Plan.
NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
15
NOTE 15 – DISCONTINUED OPERATIONS
The following amounts related to the Installation Services segment, discontinued in 2008, have been segregated from Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:
Current
Long-term
Assets of discontinued operations:
Other long-term assets
Total assets of discontinued operations
Liabilities of discontinued operations:
Other long-term liabilities
Total liabilities of discontinued operations
There was no Installation Services’ operating unit revenue or income for the three and six months ended March 31, 2012 or 2011.
NOTE 16 – RESTRUCTURING AND OTHER RELATED CHARGES
In June 2009, Griffon announced plans to consolidate facilities in CBP. These actions were completed in 2011, consistent with the plan. In completing the consolidation plan, CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of which was cash charges; charges include $1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. The restructuring costs in the three and six months ended March 31, 2011 were $1,153 and $2,482, respectively.
ATT recognized nil and $273, respectively, for the three and six months ended March 31, 2012, and $59 and $123, respectively, for the three and six months ended March 31, 2011, in restructuring and other related charges, primarily related to a facility and related one-time termination costs.
In the first quarter of 2012, Telephonics recognized $1,522 of restructuring and other related charges, primarily for one-time termination benefits and other personnel costs in conjunction with changes to its organizational structure.
A summary of the restructuring and other related charges included in the line item “Restructuring and other related charges” in the Consolidated Statements of Operations recognized was as follows:
Workforce Reduction
Facilities &Exit Costs
Other Related Costs
Amounts incurred in:
Quarter ended December 31, 2010
239
791
363
1,393
Quarter ended March 31, 2011
470
681
Six months ended March 31, 2011
1,261
1,044
Quarter ended December 31, 2011
1,538
Quarter ended March 31, 2012
Six months ended March 31, 2012
16
At March 31, 2012, the accrued liability for the restructuring and related charges consisted of:
Accrued liability at September 30, 2011
2,657
Charges
Payments
(2,972
(234
(3,206
Accrued liability at March 31, 2012
1,223
1,246
NOTE 17 – OTHER INCOME
For the quarters ended March 31, 2012 and 2011, Other income included net foreign exchange losses of $404 and $150, respectively, and $107 and $168, respectively, of investment income.
For the six months ended March 31, 2012 and 2011, Other income included net foreign exchange losses of $668 and $27, respectively, and $172 and $1,307, respectively, of investment income.
NOTE 18 – WARRANTY LIABILITY
Telephonics offers warranties against product defects for periods generally ranging from one to two years, depending on the specific product and terms of the customer purchase agreement. Typical warranties require Telephonics to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience and periodically assesses its warranty obligations and adjusts the liability as necessary. ATT offers an express limited warranty for a period of ninety days on all products unless otherwise stated on the product or packaging from the date of original purchase.
Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:
Balance, beginning of period
8,953
6,701
7,963
6,719
Warranties issued and charges in estimated pre-existing warranties
2,916
845
4,946
1,676
Actual warranty costs incurred
(1,513
(1,033
(2,553
(1,882
Balance, end of period
10,356
6,513
NOTE 19 — COMMITMENTS AND CONTINGENCIES
Subsequently, Griffon was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did conduct accordingly over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.
In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment medias, remediation alternatives having a current net capital cost value, in the aggregate, of approximately $5,000. In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no further obligations under the consent order.
Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater medias, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is approximately $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.
It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.
Improper Advertisement Claim involving Union Tools Products.During December 2004, a customer of ATT was named in litigation that involved Union Tools products. The complaint asserted causes of action against the defendant for improper advertisement to the end consumer. The allegation suggests that advertisements led the consumer to believe that the hand tools sold were manufactured within boundaries of the United States. The allegation asserts cause of action against the customer for common law fraud. In the event that an adverse judgment is rendered against the customer, there is a possibility that the customer would seek legal recourse against ATT for an unspecified amount in contributory damages. Presently, ATT cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against ATT.
Department of Environmental Conservation of New York State, regarding Frankfort, NY site. During fiscal 2009, an underground fuel tank with surrounding soil contamination was discovered at the Frankfort, N.Y. site which is the result of historical facility operations prior to ATT’s ownership. While ATT was actively working with the DEC and the New York State Department of Health to define remediation requirements relative to the underground fuel tank, the DEC took the position that ATT was responsible to remediate other types of contamination on the site. After negotiations with the DEC, on August 15, 2011, ATT executed an Order on Consent with the DEC. The Order is without admission or finding of liability or acknowledgement that there has been a release of hazardous substances at the site. Importantly, the Order does not waive any rights that ATT has under a 1991 Consent Judgment entered into between the DEC and a predecessor of ATT relating to the site. The Order requires that ATT identify Areas of Concern at the site, and formulate a strategy to investigate and remedy both on and off site conditions in compliance with applicable environmental law. At the conclusion of the remedy phase of the remediation to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. On September 26, 2011 ATT submitted a Records Search Report to DEC and on October 24, 2011 filed the draft Remedial Investigation Work Plan (“RIWP”) completing the first two steps under the Order. DEC responded to ATT’s draft work plan and requested certain changes that will be reflected in an amended work plan that is expected to be submitted to DEC in June 2012. Prior to the submission of the RIWP, ATT will perform Interim Remedial Measures at the site, consisting primarily of the demolition of buildings to facilitate the implementation of the RIWP.
18
U.S. Government investigations and claims
Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including, among others, the Defense Contract Audit Agency (“DCAA”) and the Department of Justice, which has responsibility for asserting claims on behalf of the U.S. government. In addition to ongoing audits, pursuant to an administrative subpoena Griffon is currently providing information to the U.S. Department of Defense Office of the Inspector General. No claim has been asserted against Griffon, and Griffon is unaware of any material financial exposure in connection with the Inspector General’s inquiry.
In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have material adverse effect on Telephonics because of its reliance on government contracts.
General legal
Griffon is a party to legal proceedings arising in the ordinary course of business and is subject to various laws and regulations relating to the protection of the environment. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.
NOTE 20 — CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation and Ames True Temper Inc. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of March 31, 2012 and September 30, 2011 and for the three and six months ended March 31, 2012 and 2011. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.
CONDENSED CONSOLIDATING BALANCE SHEETS At March 31, 2012
($ in thousands)
Parent Company
Guarantor Companies
Non-Guarantor Companies
Elimination
Consolidation
101,314
22,315
41,250
Accounts receivable, net of allowances
190,672
99,162
Contract costs and recognized income not yet billed, net of progress payments
64,772
2,194
214,884
70,658
3,435
46,930
(242
(3,665
104,749
539,573
214,334
1,313
237,538
122,605
283,491
79,440
153,305
81,286
INTERCOMPANY RECEIVABLE
539,962
291,998
189,237
(1,021,197
EQUITY INVESTMENTS IN SUBSIDIARIES
2,850,415
750,616
2,397,506
(5,998,537
53,195
57,425
2,782
(81,141
3,549,634
2,313,946
3,090,240
(7,104,540
1,012
14,243
Accounts payable and accrued liabilities
40,367
181,518
52,814
271,034
41,367
182,530
70,391
LONG-TERM DEBT, net of debt discounts
654,884
10,300
23,827
INTERCOMPANY PAYABLES
161,162
860,035
78,941
183,570
20,123
775,192
537,562
979,164
(1,106,003
2,774,442
1,776,384
2,111,076
CONDENSED CONSOLIDATING BALANCE SHEETSAt September 30, 2011
ParentCompany
GuarantorCompanies
Non-GuarantorCompanies
178,448
15,164
49,417
190,986
76,485
73,755
982
194,355
69,454
1,839
40,436
1,913
4,640
180,287
514,696
199,632
1,402
224,193
124,455
74,397
155,242
67,947
449,112
278,344
98,953
(826,409
2,844,527
746,686
2,397,258
(5,988,471
54,354
49,771
14,270
(87,198
3,529,682
2,252,423
2,980,587
(6,897,438
5,375
4,350
15,439
36,765
199,742
44,774
285,921
42,140
204,092
64,007
649,812
10,794
27,641
89,198
737,211
79,655
172,203
39,774
771,607
476,287
874,419
(908,967
2,758,075
1,776,136
2,106,168
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSFor the Three Months Ended March 31, 2012
344,442
151,309
(13,320
264,078
129,241
(13,689
80,364
22,068
369
4,627
65,072
16,546
(93
Income (loss) from operations
(4,627
15,292
5,522
462
Interest income (expense), net
(3,345
(5,327
(4,247
Other intercompany
109
2,746
(1,364
(462
(3,236
(2,581
(5,611
(7,863
12,711
(89
(3,316
(13
Income (loss) before equity in net income (loss) of subsidiaries
(4,547
6,650
(76
Equity in net income (loss) of subsidiaries
6,574
(38
(13,186
6,612
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSFor the Three Months Ended March 31, 2011
363,254
123,554
(10,679
282,809
103,226
(11,049
80,445
20,328
370
5,481
64,308
14,666
(92
1,153
59
65,461
14,725
(5,481
14,984
5,603
(3,572
2,472
(10,122
(397
(25,767
1,560
(3,404
1,986
(34,329
Income (loss) before taxes and discontinued operations
(8,885
16,970
(28,726
(3,651
8,071
(11,060
(5,234
8,899
(17,666
Equity in net income of subsidiaries
(8,767
3,734
(3,866
12,633
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSFor the Six Months Ended March 31, 2012
682,504
278,272
(27,314
517,605
238,401
(28,053
164,899
39,871
739
9,244
129,063
31,097
(185
1,779
130,842
31,113
(9,244
34,057
8,758
924
(6,743
(11,309
(7,867
5,588
(3,762
(924
(6,569
(5,721
(11,629
(15,813
28,336
(2,871
(7,757
12,787
(8,056
15,549
(2,980
12,569
(2,878
(25,240
12,671
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONSFor the Six Months Ended March 31, 2011
668,901
239,372
(17,742
523,413
196,484
(18,368
145,488
42,888
626
10,563
124,961
29,440
(156
2,482
127,443
29,563
(10,563
18,045
13,325
782
(5,397
1,699
(18,678
1,307
(2,231
4,968
(782
(4,090
(929
(39,477
(14,653
17,116
(26,152
(5,886
11,217
(13,339
Income (loss) before equity in net income of subsidiaries
5,899
(12,813
(6,914
14,359
(13,344
20,258
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFor the Six Months Ended March 31, 2012
Net cash provided by (used in) operating activities
(59,324
8,258
48,858
(74
(35,119
(5,012
Intercompany distributions
10,000
(10,000
140
Net cash provided by (used in) investing activities
9,926
(44,979
(27,389
(813
(3,852
(5,733
Decrease in short-term borrowings
(3,332
Intercompany debt
(23,000
23,000
47,723
(47,723
(27,736
43,872
(29,788
NET INCREASE (DECREASE) IN CASH AND EQUIVALENT
(77,134
7,151
(8,167
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSFor the Six Months Ended March 31, 2011
(3,611
(14,241
(17,847
(208
(19,449
(22,080
(1,066
211
Funds restricted for capital projects
Proceeds from sale of investment
Increase in equipment lease deposits
9,792
(26,991
(20,536
558,310
79,427
(312
(30,567
(467,892
(468,372
468,372
(14,272
(6,967
Tax benefit from vesting of restricted stock
39,795
(39,795
Net cash provided by financing activities
66,993
9,228
35,167
73,174
(32,004
(2,635
74,600
57,113
38,089
147,774
25,109
35,454
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS OVERVIEW(in thousands, except per share data)
On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. for $22,432. The acquired business, which markets its products under the Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which was integrated with ATT, had revenue exceeding $40,000 in 2011; acquired inventory was not significant.
Southern Patio’s results of operations are not included in the Griffon consolidated balance sheet, statement of operations or cash flows, or footnotes relating thereto prior to October 17, 2011.
OVERVIEW
Revenue for the quarter ended March 31, 2012 was $482,431, compared to $476,129 in the prior year quarter. Net income was $2,027, or $0.04 per share, compared to a loss of $14,001, or $0.24 per share, in the prior year quarter.
$26,164 ($16,813, net of tax, or $0.28 per share) charge related to debt extinguishment;
$3,788 ($2,462, net of tax, or $0.04 per share) of increased cost of goods related to the sale of inventory recorded at fair value in connection with acquisition accounting for ATT;
Restructuring charges of $1,212 ($788, net of tax, or $0.01 per share); and
Discrete tax expense of $79, or $0.00 per share.
Excluding these items from the prior year quarter, Net income would have been $6,141, or $0.10 per share, compared to $2,027, or $0.04 per, in the current year quarter.
Revenue for the six months ended March 31, 2012 was $933,462, compared to $890,531 in the prior year. Net income was $4,513, or $0.08 per share, compared to a loss of $15,681, or $0.26 per share, in the prior year. Results for the six months ended March 31, 2012 results included:
$1,795 ($1,167, net of tax, or $0.02 per share) of restructuring and related charges; and
$178 ($116, net of tax, or $0.00 per share) of acquisition costs.
Results for the six months ended March 31, 2011 included:
$15,152 ($9,849, net of tax, or $0.17 per share) of increased cost of goods related to the sale of inventory recorded at fair value in connection with acquisition accounting for ATT;
Restructuring charges of $2,605 ($1,693, net of tax, or $0.03 per share); and
Discrete tax benefits of $241, or $0.00 per share.
Excluding these items from both periods, Net income would have been $5,796, or $0.10 per share, compared to $12,433, or $0.21 per share, in the prior year.
Griffon evaluates performance based on Earnings per share and Net income (loss) excluding restructuring charges, gain (loss) from debt extinguishment, discrete tax items, acquisition costs and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful to investors. The following table provides a reconciliation of Earnings (loss) per share and Net income (loss) to Adjusted earnings per share and Adjusted net income:
For the Three MonthsEnded March 31,
For the Six Months EndedMarch 31,
Adjusting items, net of tax:
16,813
2,462
9,849
Restructuring and related
788
1,167
1,693
116
Discrete tax benefits
(241
Adjusted net income
6,141
5,796
12,433
Earnings (loss) per common share
0.28
0.17
Restructuring
0.01
0.02
0.03
0.00
(0.00
Adjusted earnings per share
0.10
0.21
Weighted-average shares outstanding (in thousands)
Note: Due to rounding, the sum of earnings (loss) per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.
27
RESULTS OF OPERATIONS
Three and six months ended March 31, 2012 and 2011
Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income or expense, income taxes, depreciation and amortization, gain (loss) from debt extinguishment, unallocated amounts, restructuring charges, acquisition costs and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful to investors.
The following table provides a reconciliation of Segment operating profit before depreciation, amortization, acquisition costs, restructuring and fair value write up of acquired inventory sold to Income (loss) before taxes:
For the Three Months EndedMarch 31,
Segment profit before depreciation, amortization, restructuring,fair value write-up of acquired inventory sold and acquisitioncosts:
Total Segment profit before depreciation, amortization,restructuring, fair value write-up of acquired inventory sold andacquisition costs
Revenue:
Segment operating profit
3.6%
3.0%
4.1%
1.2%
3,788
273
178
Segment profit before depreciation, amortization,restructuring and acquisition costs
7.1%
8.4%
7.7%
8.6%
For the quarter ended March 31, 2012, revenue decreased $7,729, or 3%, compared to the prior year quarter mainly due to lower volume at ATT. ATT revenue decreased 8% primarily due to weak sales of snow tools, driven by the absence of snow throughout much of the U.S. and Canada this past winter, partially offset by the inclusion of Southern Patio in the current year. For the quarter, CBP revenue increased 5% due to higher volume and favorable mix.
For the quarter ended March 31, 2012, Segment operating profit was $8,096 compared to $6,931 in the prior year.
Excluding the impact of the fair value write-up of acquired inventory sold in the prior year, Segment operating profit decreased by $2,623 primarily due to the impact of lower ATT volume combined with higher material and fuel costs; these factors were partially offset by the inclusion of Southern Patio’s operating profit in the current period’s results, as well as improved production efficiencies.
For the six months ended March 31, 2012, revenue increased $4,394, or 1%. CBP revenue increased 6% due to increased volume and favorable mix, while ATT revenue declined 3% primarily due to the decreased snow tool volume, partially offset by the inclusion of Southern Patio in the current year results.
For the six months ended March 31, 2012, Segment operating profit was $17,930 compared to $5,308 in the prior year. Excluding the impact of the fair value write-up of acquired inventory sold, Segment operating profit decreased $2,530 from the prior year primarily due to lower snow tool volume and the impact of somewhat higher material and fuel costs, partially offset by the inclusion of Southern Patio’s operating profit in the current period’s results, as well as improved production efficiencies.
Current and prior year restructuring and other related charges were primarily related to facilities and for the prior year related compensation costs. The current year acquisition costs were related to the Southern Patio acquisition.
11.9%
9.9%
10.3%
1,522
Segment profit beforedepreciation, amortization and restructuring
13.5%
11.4%
14.2%
12.0%
For the quarter ended March 31, 2012, Telephonics revenue increased $467 compared to the prior year quarter. For the quarters ended March 31, 2012 and 2011, revenue included $13,578 and $19,222, respectively, related to revenue for the Counter Remote Control Improvised Explosive Device Electronic Warfare 3.1 (“CREW 3.1”) program where Telephonics serves as a contract manufacturer. Excluding CREW 3.1 from both quarters, revenue increased 6% over the prior year quarter primarily attributable to NETCOM communication products ($4,228), Maritime Radars ($2,789) and Ground Surveillance Radars (“GSR”) ($2,139).
For the quarter ended March 31, 2012, Segment operating profit increased $2,318, or 21%, and operating profit margin increased 200 basis points in comparison to the prior year quarter primarily due to higher gross profits from program mix, partially offset by higher selling, general and administrative expenses due to the timing of proposal activities.
For the six months ended March 31, 2012, Telephonics revenue increased $6,702, or 3%, compared to the prior year. For the six months ended March 31, 2012 and 2011, revenue included $19,522 and $27,272, respectively, related to revenue for the CREW 3.1 program where Telephonics serves as a subcontractor; excluding CREW 3.1 revenue from both periods, Telephonics’ current period revenue increased 8% over the prior year period primarily attributable to Ground Surveillance Radars (“GSR”) ($6,385) and NETCOM ($7,606).
For the six months ended March 31, 2012, Segment operating profit increased by $4,138, or 19%, and operating profit margin increased 160 basis points from the prior year primarily due to higher gross profits from increased revenue, partially offset by higher selling, general and administrative expenses due to the timing of proposal activities and the restructuring charge. In the first quarter, Telephonics recognized $1,522 of restructuring and other related charges, primarily for one-time termination benefits and other personnel costs, in conjunction with changes to its organizational structure.
During the current quarter, Telephonics was awarded several new contracts and received incremental funding on current contracts totaling $168,000. Contract backlog was $434,000 at March 31, 2012 with 69% expected to be realized in the next 12 months. Backlog was $417,000 at September 30, 2011 and $441,000 at March 31, 2011. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of the U.S. government agencies.
1.7%
4.0%
1.6%
3.8%
Segment profit beforedepreciation and amortization
6.4%
6.2%
8.5%
For the quarter ended March 31, 2012, Plastics revenue increased $13,564, or 10%, compared to the prior year quarter primarily due to higher unit volumes (12%) across all regions and the pass through of higher resin costs in customer selling prices (1%), partially offset by the unfavorable impact of foreign exchange translation (3%). Plastics adjusts customer selling prices based on underling resin costs on a delayed basis.
For the quarter ended March 31, 2012, Segment operating profit decreased $2,678, or 52%, compared to the prior year quarter. The decrease was primarily driven by previously disclosed start up costs related to expanded capacity initiatives in both Germany and Brazil; in both operations, such start up costs have included higher than normal levels of scrap. There have been no significant disruptions in customer service in connection with the scaling up of production of the newly installed assets. Improvements in operations in the newly expanded locations are on plan; however, the locations are contending with market conditions that are less robust than anticipated, and higher resin costs. The Company expects that Plastics will continue to trend towards normal efficiency levels during the second half of fiscal 2012.
For the six months ended March 31, 2012, Plastics revenue increased $31,835, or 13%, compared to the prior year period, primarily due to higher unit volumes (13%) in North America and Europe and the pass through of higher resin costs in customer selling prices (2%), partially offset by the unfavorable impact of foreign exchange translation (2%).
For the six months ended March 31, 2012, Segment operating profit decreased $4,940, or 53%, compared to the prior year mainly due to the same reasons discussed for the current quarter.
Unallocated
For the quarter ended March 31, 2012, unallocated amounts totaled $6,453 compared to $6,581 in the prior year; the increase was primarily related to higher current quarter loan fees. For the six months ended March 31, 2012, unallocated amounts totaled $12,788 compared to $11,687 in the prior year; the increase was primarily related to higher prior year investment income and higher current period loan fees.
Segment Depreciation and Amortization
Segment depreciation and amortization increased $769 and $2,430, respectively, for the three and six-month periods ended March 31, 2012 in comparison to the comparable prior year periods primarily due to capital spending in 2011.
30
During the 2011 quarter, in connection with the termination of the Term Loan, ABL and Telephonics credit agreement, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and $844 of swap and other breakage costs.
Provision for income taxes
Stock based compensation
Discontinued operations – Installation Services
There was no revenue or income from discontinued operations of the Installation Services’ business for the three and six months ended March 31, 2012 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity are: cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital with satisfactory terms. Griffon remains in a strong financial position with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis.
The following table is derived from the Consolidated Statements of Cash Flows:
Cash Flows from Continuing Operations
Net Cash Flows Provided by (Used In):
Operating activities
Investing activities
Financing activities
Cash used in continuing operations for the six months ended March 31, 2012 were $2,208 compared to $35,699 in the prior year. Current assets net of current liabilities, excluding short-term debt and cash, increased to $415,744 at March 31, 2012 compared to $366,511 at September 30, 2011, primarily as a result of increases in accounts receivable and inventories. Operating cash flows were impacted by increases in accounts receivable and inventories as well as the
decrease in accounts payable and accrued liabilities primarily due to normal HBP seasonality.
During the six months ended March 31, 2012, Griffon used cash for investing activities of $62,442 compared to $37,735 in the prior year; the increase was primarily due to the acquisition of Southern Patio with capital expenditures decreasing $1,532 from the comparable prior year period. Griffon expects capital spending to be in the range of $65,000 to $70,000 for 2012.
During the six months ended March 31, 2012, cash used in financing activities totaled $13,652 compared to cash provided by financing activities of $111,388 in the prior year. During the first and second quarters of 2012, the Board of Directors approved two quarterly cash dividends of $0.02 per common share each, which were paid on December 27, 2011 and March 27, 2012, to holders of common stock as of the close of business on November 29, 2011 and February 28, 2012, respectively. In 2011, Griffon issued $140,988 of debt, net of payments, which included issuing $550,000 of 7.125% Senior Notes due 2018 and repaying $430,000 of existing loans.
Payments related to Telephonics revenue are received in accordance with the terms of development and production subcontracts; certain of such receipts are progress or performance based payments. Plastics customers are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. Plastics sales satisfy orders that are received in advance of production, typically with payment terms established in advance. With respect to HBP, there have been no material adverse impacts on payment for sales.
A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the six months ended March 31, 2012:
The United States Government and its agencies, through either prime or subcontractor relationships, represented 19% of Griffon’s consolidated revenue and 79% of Telephonics’ revenue.
Procter & Gamble represented 13% of Griffon’s consolidated revenue and 44% of Plastics’ revenue.
The Home Depot represented 11% of Griffon’s consolidated revenue and 23% of Home & Building Products’ revenue.
No other customers exceeded 9% of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and Griffon’s relationships with them. Orders from these customers are subject to fluctuation and may be reduced materially. The loss of all or a portion of volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and operations.
Cash, Cash Equivalents and Debt(in thousands)
Notes payables and current portion of long-term debt
Long-term debt, net of current maturities
Debt discount
18,183
19,693
Total debt
Net cash and equivalents (debt)
(558,570
(490,075
32
In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at Euribor plus 2.35% per annum, and the term loan accrues interest at Euribor plus 2.45% per annum. The revolving facility matures in November 2012, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. There were no borrowings outstanding under the revolving facility at March 31, 2012, with €10,000 available for borrowing.
Griffon substantially concluded its remaining disposal activities for the Installation Services business, discontinued in 2008, in the second quarter of 2009 and does not expect to incur significant expense in the future. Future net cash outflows to satisfy liabilities related to disposal activities accrued at March 31, 2012 are estimated to be $3,334. Certain of Griffon’s subsidiaries are also contingently liable for approximately $568 related to certain facility leases with varying terms through 2012 that were assigned to the respective purchasers of certain of the Installation Services businesses. Griffon does not believe it has a material exposure related to these contingencies.
During the six months ended March 31, 2012 and 2011, Griffon used cash for discontinued operations of $764 and $561, respectively, related to settling remaining Installation Services liabilities.
CRITICAL ACCOUNTING POLICIES
The preparation of Griffon’s consolidated financial statements in conformity with GAAP requires Griffon to make estimates and judgments that affect reported amounts of assets, liabilities, sales and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. Griffon evaluates these estimates and judgments on an ongoing basis and base the estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Griffon’s actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2011.Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2011. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact, including, without limitation, statements regarding Griffon’s financial position, business strategy and the plans and objectives of Griffon’s management for future operations, are forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend” or the negative of these expressions or comparable terminology. Such forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: general domestic and international business, financial market and economic conditions; the credit market; the housing market; the results of Griffon’s restructuring and disposal efforts; competitive factors; pricing pressures for resin and steel; capacity and supply constraints; weather patterns; Griffon’s ability to identify and successfully consummate and integrate value-adding acquisition opportunities; the ability of Griffon to remain in compliance with the covenants under its respective credit facilities; and the inherent uncertainties relating to resolution of ongoing legal and environmental matters from time to time. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2011. Some of the factors are also discussed elsewhere in this Quarterly Report on Form 10-Q and have been or may be discussed from time to time in Griffon’s filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on Griffon’s forward-looking statements. Griffon does not undertake any obligation to release publicly any revisions to
35
these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Interest Rates
Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate debt and investments in cash and cash equivalents.
Certain of Griffon’s credit facilities have a Libor-based variable interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point change in Libor would not have a material impact on Griffon’s results of operations or liquidity.
Foreign Exchange
Griffon conducts business in various non-U.S. countries, primarily in Canada, Mexico, Europe, Brazil, Australia and China; therefore, changes in the value of the currencies of these countries affect the financial position and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-U.S. operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 5% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows.
Item 4 - Controls and Procedures
Under the supervision and with the participation of Griffon’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), were evaluated as of the end of the period covered by this report. Based on that evaluation, Griffon’s CEO and CFO concluded that Griffon’s disclosure controls and procedures were effective at the reasonable assurance level.During the period covered by this report, there were no changes in Griffon’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, Griffon’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Griffon believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance of achieving their objectives.
PART II - OTHER INFORMATION
Item 1
Legal Proceedings
None
Item 1A
Risk Factors
In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2011, which could materially affect Griffon’s business, financial condition or future results. The risks described in Griffon’s Annual Report on Form 10-K are not the only risks facing Griffon. Additional risks and uncertainties not currently known to Griffon or that Griffon currently deems to be immaterial also may materially adversely affect Griffon’s business, financial condition and/or operating results.
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) TotalNumber ofShares (orUnits)Purchased
(b) AveragePrice Paid PerShare (or Unit)
(c) Total Numberof Shares (orUnits) Purchasedas Part of PubliclyAnnounced Plansor Programs
(d) MaximumNumber (orApproximateDollar Value) ofShares (or Units)That May Yet BePurchased Underthe Plans orPrograms
January 1 - 31, 2012
February 1 - 29, 2012
March 1 - 31, 2012
46,339,708
1.
On August 2, 2011, the Company’s Board of Directors authorized the repurchase of up to an additional $50,000,000 of Griffon common stock; as of March 31, 2012, $46,339,708 remained available for the purchase of Griffon common stock under this program.
Griffon’s revolving credit facility, as well as the indenture governing Griffon’s 7.125% Senior Notes due 2018, each contain limitations regarding the making of restricted payments (which include cash dividends and share repurchases).
Item 3
Defaults upon Senior Securities
Item 4
Mine Safety Disclosures
Not Applicable
Item 5
Other Information
Item 6
Exhibits
10.1
Amended and Restated Restricted Share Award letter made as of January 10, 2012 by and between Griffon Corporation and Ronald J. Kramer (Exhibit 99.1 to Current Report on Form 8-K filed January 10, 2012 (Commission File No. 1-06620)).
10.2
Amended and Restated Restricted Share Award letter made as of January 10, 2012 by and between Griffon Corporation and Douglas J. Wetmore (Exhibit 99.2 to Current Report on Form 8-K filed January 10, 2012 (Commission File No. 1-06620)).
31.1
Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Document*
101.DEF
XBRL Taxonomy Extension Definitions Document*
101.LAB
XBRL Taxonomy Extension Labels Document*
101.PRE
XBRL Taxonomy Extension Presentation Document*
*
In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”
38
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.
GRIFFON CORPORATION
/s/ Douglas J. Wetmore
Douglas J. Wetmore
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Brian G. Harris
Brian G. Harris
Chief Accounting Officer
(Principal Accounting Officer)
Date: May 9, 2012
EXHIBIT INDEX