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, 2000 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. 29,681,197 shares of Common Stock as of January 31, 2001.
FORM 10-Q --------- CONTENTS -------- PAGE ---- PART I - FINANCIAL INFORMATION (Unaudited) --------------------- Condensed Consolidated Balance Sheets at December 31, 2000 and September 30, 2000........................................ 1 Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2000 and 1999 ...................... 3 Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2000 and 1999 ................ 4 Notes to Condensed Consolidated Financial Statements.......... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 8 Quantitative and Qualitative Disclosure about Market Risk..... 9 PART II - OTHER INFORMATION ----------------- Item 1: Legal Proceedings .................................... 10 Item 2: Changes in Securities ................................ 10 Item 3: Defaults upon Senior Securities ...................... 10 Item 4: Submission of Matters to a Vote of Security Holders... 10 Item 5: Other Information .................................... 10 Item 6: Exhibits and Reports on Form 8-K ..................... 10 Signature .................................................... 11
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- <TABLE> <CAPTION> December 31, September 30, 2000 2000 ------------ ------------- (Unaudited) (Note 1) ASSETS - ------ <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 37,126,000 $ 26,616,000 Accounts receivable, less allowance for doubtful accounts 140,737,000 144,259,000 Contract costs and recognized income not yet billed 73,794,000 77,513,000 Inventories (Note 2) 95,380,000 98,440,000 Prepaid expenses and other current assets 18,837,000 18,891,000 ------------ ------------ Total current assets 365,874,000 365,719,000 PROPERTY, PLANT AND EQUIPMENT at cost, less accumulated depreciation and amortization of $93,156,000 at December 31, 2000 and $87,533,000 at September 30, 2000 142,420,000 142,944,000 OTHER ASSETS 73,294,000 73,363,000 ------------ ------------ $581,588,000 $582,026,000 ============ ============ <FN> See notes to condensed consolidated financial statements. </FN> </TABLE> 1
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- <TABLE> <CAPTION> December 31, September 30, 2000 2000 ------------ ------------ (Unaudited) (Note 1) LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ <S> <C> <C> CURRENT LIABILITIES: Accounts and notes payable and current portion of long-term debt $ 76,184,000 $ 90,435,000 Other current liabilities 92,311,000 83,621,000 ------------ ------------ Total current liabilities 168,495,000 174,056,000 ------------ ------------ LONG-TERM DEBT 119,073,000 125,916,000 ------------ ------------ MINORITY INTEREST AND OTHER 19,884,000 18,093,000 ------------ ------------ 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 31,749,199 shares at December 31, 2000 and September 30, 2000; 2,068,002 shares in treasury at December 31, 2000 and September 30, 2000 7,937,000 7,937,000 Other shareholders' equity 266,199,000 256,024,000 ------------ ------------ Total shareholders' equity 274,136,000 263,961,000 ------------ ------------ $581,588,000 $582,026,000 ============ ============ <FN> See notes to condensed consolidated financial statements. </FN> </TABLE> 2
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2000 1999 ------------ ------------ <S> <C> <C> Net sales $288,195,000 $280,761,000 Cost of sales 212,994,000 208,909,000 ------------ ------------ Gross profit 75,201,000 71,852,000 Selling, general and administrative expenses 57,336,000 55,437,000 ------------ ------------ Income from operations 17,865,000 16,415,000 ------------ ------------ Other income (expense): Interest expense (3,465,000) (2,355,000) Interest income 571,000 303,000 Other, net 16,000 (13,000) ------------ ------------ (2,878,000) (2,065,000) ------------ ------------ Income before income taxes 14,987,000 14,350,000 Provision for income taxes 6,145,000 5,700,000 ------------ ------------ Income before minority interest and cumulative effect of a change in accounting principle 8,842,000 8,650,000 Minority interest (Note 5) (1,339,000) 1,082,000 ------------ ------------ Income before cumulative effect of a change in accounting principle 7,503,000 9,732,000 Cumulative effect of a change in accounting principle, net of income taxes (Note 5) --- (5,290,000) ------------ ------------ Net income $ 7,503,000 $ 4,442,000 ============ ============ Basic and diluted earnings per share of common stock (Note 3): Income before cumulative effect of a change in accounting principle $ .25 $ .32 Cumulative effect of a change in accounting principle -- (.17) ------------ ------------ $ .25 $ .15 ============ ============ <FN> See notes to condensed consolidated financial statements </FN> </TABLE> 3
GRIFFON CORPORATION AND SUBSIDIARIES ------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2000 1999 ----------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,503,000 $ 4,442,000 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 6,007,000 5,552,000 Minority interest 1,339,000 (1,082,000) Cumulative effect of a change in accounting principle --- 5,290,000 Provision for losses on accounts receivable 778,000 455,000 Change in assets and liabilities: (Increase) decrease in accounts receivable and contract costs and recognized income not yet billed 7,276,000 (7,974,000) (Increase) decrease in inventories 3,497,000 (6,024,000) Increase in prepaid expenses and other assets (1,342,000) (2,000,000) Decrease in accounts payable, accrued liabilities and federal income taxes (14,200,000) (934,000) Other changes, net 2,790,000 1,048,000 ----------- ----------- Total adjustments 6,145,000 (5,669,000) ----------- ----------- Net cash provided by (used in) operating activities 13,648,000 (1,227,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (4,011,000) (7,421,000) Acquired businesses --- (12,112,000) Decrease in equipment lease deposits 2,150,000 793,000 Other, net 22,000 1,255,000 ----------- ----------- Net cash used in investing activities (1,839,000) (17,485,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares --- (224,000) Proceeds from issuance of long-term debt 1,406,000 16,500,000 Payments of long-term debt (1,936,000) (311,000) Other, net (769,000) (566,000) ----------- ----------- Net cash provided by (used in) financing activities (1,299,000) 15,399,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,510,000 (3,313,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,616,000 21,242,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $37,126,000 $17,929,000 =========== =========== <FN> See notes to condensed financial statements </FN> </TABLE> 4
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, 2000 are not necessarily indicative of the results that may be expected for the year ending September 30, 2001. The balance sheet at September 30, 2000 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, 2000. (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, 2000 2000 ----------- ----------- <S> <C> <C> Finished goods......................... $57,135,000 $58,390,000 Work in process........................ 18,897,000 20,842,000 Raw materials and supplies............. 19,348,000 19,208,000 ----------- ----------- $95,380,000 $98,440,000 =========== =========== </TABLE> (3) Earnings per share (EPS) - ------------------------ Basic EPS is calculated by dividing income by the weighted average number of shares of common stock outstanding during the period. The weighted average number of shares of common stock used in determining basic EPS was 29,971,000 for the three months ended December 31, 2000 and 30,466,000 for the three months ended December 31, 1999. 5
Diluted EPS is calculated by dividing income by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with potentially dilutive securities. The weighted average number of shares of common stock used in determining diluted EPS was 30,138,000 and 30,628,000 for the three months ended December 31, 2000 and 1999, respectively, and reflects additional shares in connection with stock option and other stock-based compensation plans. Options to purchase approximately 5,899,000 and 4,319,000 shares of common stock were not included in the computations of diluted earnings per share for the three months ended December 31, 2000 and 1999, respectively, because the effects would have been antidilutive. (4) Business segments - ----------------- The company's reportable business segments are as follows - Garage Doors (manufacture and sale of residential and commercial/industrial garage doors, and related products); Installation Services (sale and installation of building products primarily for new construction, such as garage doors, garage door openers, manufactured fireplaces and surrounds, and cabinets); Electronic Information and Communication Systems (communication and information systems for government and commercial markets); and Specialty Plastic Films (manufacture and sale of plastic films and film laminates for baby diapers, adult incontinence care products, disposable surgical and patient care products and plastic packaging). Information on the company's business segments is as follows: <TABLE> <CAPTION> Electronic Information Specialty and Garage Installation Plastic Communication Doors Services Films Systems Totals ------ ------------ --------- ------------- ------ <S> <C> <C> <C> <C> <C> Revenues from external customers - Three months ended December 31, 2000 $102,916,000 $ 67,807,000 $ 72,710,000 $ 44,762,000 $288,195,000 Three months ended December 31, 1999 111,090,000 68,684,000 60,841,000 40,146,000 280,761,000 Intersegment revenues - Three months ended December 31, 2000 $ 6,452,000 $ 55,000 $ --- $ --- $ 6,507,000 Three months ended December 31, 1999 8,765,000 169,000 --- --- 8,934,000 Segment profit - Three months ended December 31, 2000 $ 4,935,000 $ 1,188,000 $ 9,712,000 $ 4,279,000 $ 20,114,000 Three months ended December 31, 1999 7,980,000 2,382,000 4,658,000 3,751,000 18,771,000 </TABLE> 6
Following is a reconciliation of segment profit to amounts reported in the consolidated financial statements: <TABLE> <CAPTION> Three Months Ended December 31, ------------------------------- 2000 1999 ---- ---- <S> <C> <C> Profit for all segments $20,114,000 $18,771,000 Unallocated amounts (2,233,000) (2,369,000) Interest expense, net (2,894,000) (2,052,000) ----------- ----------- Income before income taxes $14,987,000 $14,350,000 =========== =========== </TABLE> (5) Start-up costs - -------------- Effective October 1, 1999 the company adopted the provisions of the American Institute of Certified Public Accountants' Statement of Position No. 98-5 (SOP 98- 5), "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that, at the date of adoption, costs of start-up activities previously capitalized be written-off as a cumulative effect of a change in accounting principle, and that after adoption, such costs are to be expensed as incurred. Consequently, in the first quarter of fiscal 2000, the company's 60%-owned joint venture wrote-off costs that were previously capitalized in connection with the start-up of the venture and the implementation of additional production capacity. The cumulative effect of this change in accounting principle is $5,290,000 (net of $3,784,000 income tax effect). The minority interest's share of the net charge is $2,116,000 and is included as an offsetting credit in "Minority interest" in the accompanying Condensed Consolidated Statement of Income for the three months ended December 31, 1999. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- RESULTS OF OPERATIONS Net sales were $288.2 million for the three-month period ended December 31, 2000, an increase of $7.4 million or 2.6% over last year. Net sales of the garage door segment were $109.4 million, a decrease of $10.5 million or 8.7% compared to last year. The decrease was principally due to lower unit sales of residential garage doors due primarily to the effect of a slowing economy, competitive markets and harsh winter weather conditions. Net sales of the installation services segment were $67.9 million, a decrease of $1.0 million, or 1.4% compared to last year. Internal growth from expanded product offerings and a full quarter's results from an operation acquired in the second quarter of last year were offset by the effect of softer housing markets. Net sales of the specialty plastic films segment were $72.7 million, an increase of $11.9 million or 19.5% over last year. The increase was principally due to higher unit sales in both the segment's domestic and foreign operations, partly offset by the effect of a stronger U.S. dollar on foreign operations. Net sales of the electronic information and communication systems segment were $44.8 million, an increase of $4.6 million or 11.5% compared to last year due to higher funding levels on existing programs and a full quarter's operating results from the search and weather radar business acquired last year. Operating income for all business segments for the three-month period ended December 31, 2000 was $20.1 million, an increase of $1.3 million or 7.2% compared to last year. The increase was principally due to substantially improved operations in the specialty plastic films and electronic information and communication systems segments. Operating income of the garage door segment decreased approximately $3.0 million or 38.2% compared to last year. The effects of the decreased sales and lower margins were partly offset by cost reduction programs. The garage door segment's operating results also included a loss of approximately $1.2 million from a commercial door product line for which strategic alternatives are being explored. The outlook for garage doors' near-term prospects remains guarded while cost containment steps are being taken to enhance operating results when its markets improve. Operating income of the installation services segment decreased by $1.2 million or 50.1% compared to last year. Higher margins from improved product mix and expanded product offerings were offset by higher distribution and selling costs. Operating income of the specialty plastic films segment increased $5.1 million or 108.5% compared to last year. The increase was primarily due to higher unit sales in both the segment's domestic and European operations and related manufacturing efficiencies. It is anticipated that specialty plastic films will further improve profitability through additional sales growth and increased efficiencies. Operating income of the electronic information and communication systems segment increased by approximately $.5 million or 14.1% over last year due primarily to the higher sales, partly offset by increased marketing and research 8
and development expenses. Technology initiatives, which are expected to total approximately $5 million for the year, aggregated less than $.5 million during the first quarter as the programs commenced. Telephonics' core business remains strong, and though near-term earnings will be impacted by the increased research and development activities, the company is optimistic that this segment will generate increased sales and orders for the year. Net interest expense increased by $.8 million compared to last year due to higher levels of outstanding debt used to pay for acquisitions in 2000 and 1999. LIQUIDITY AND CAPITAL RESOURCES Cash flow generated by operations for the quarter was $13.6 million compared to cash used in operations of $1.2 million last year and working capital was $197.4 million at December 31, 2000. During the quarter, the company had capital expenditures of approximately $4 million, principally made in connection with increasing production capacity. Anticipated cash flows from operations, together with existing cash, 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. FORWARD-LOOKING STATEMENTS All statements other than statements of historical fact included in this report, including without limitation statements regarding the company's financial position, business strategy, and the plans and objectives of the company's management for future operations, are forward-looking statements. When used in this report, words such as "anticipate", "believe", "estimate", "expect", "intend" and similar expressions, as they relate to the company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the company's management, as well as assumptions made by and information currently available to the company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, business and economic conditions, competitive factors and pricing pressures, capacity and supply constraints. Such statements reflect the views of the company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the company. Readers are cautioned not to place undue reliance on these forward-looking statements. The company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that are required to be disclosed. 9
PART II - OTHER INFORMATION Item 1 Legal Proceedings ----------------- None Item 2 Changes in Securities --------------------- None Item 3 Defaults upon Senior Securities ------------------------------- None Item 4 Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Registrant held its Annual Meeting of Stockholders on February 7, 2001 (b) Not applicable (c)(i) Four directors were elected at the Annual Meeting to serve until the Annual Meeting of Stockholders in 2004. 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 22,476,025 4,835,200 Abraham M. Buchman 21,874,924 5,436,301 Lt. Gen. James W. Stansberry (Ret.) 21,882,537 5,428,688 Rear Admiral Clarence A. Hill, Jr. (Ret.) 21,873,262 5,437,963 </TABLE> (ii) In addition to the election of directors, the stockholders approved a proposal to adopt the Griffon Corporation 2001 Stock Option Plan. 17,647,918 shares were voted in favor of this proposal, 8,849,294 shares were voted against and 814,013 shares abstained. Item 5 Other Information ----------------- None Item 6 Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- None 10
SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GRIFFON CORPORATION By/s/ Robert Balemian ------------------------------------- Robert Balemian President and Chief Financial Officer (Principal Financial Officer) Date: February 7, 2001 11