UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2010 |
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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 |
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11-1893410 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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712 Fifth Ave, 18th Floor, New York, New York |
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10019 |
(Address of principal executive offices) |
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(Zip Code) |
(212) 957-5000
(Registrants 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). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. 59,627,781 shares of Common Stock as of April 30, 2010.
Griffon Corporation and Subsidiaries
Part I Financial Information
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
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(Unaudited) |
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At March 31, |
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At September 30, |
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CURRENT ASSETS |
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Cash and equivalents |
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$ |
348,442 |
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$ |
320,833 |
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Accounts receivable, net of allowances of $4,720 and $4,457 |
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188,340 |
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164,619 |
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Contract costs and recognized income not yet billed, net of progress payments of $23,186 and $14,592 |
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74,798 |
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75,536 |
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Inventories, net |
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135,711 |
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139,170 |
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Prepaid and other current assets |
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34,433 |
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39,261 |
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Assets of discontinued operations |
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1,551 |
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1,576 |
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Total Current Assets |
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783,275 |
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740,995 |
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PROPERTY, PLANT AND EQUIPMENT, net |
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232,016 |
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236,019 |
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GOODWILL |
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94,214 |
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97,657 |
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INTANGIBLE ASSETS, net |
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31,085 |
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34,211 |
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OTHER ASSETS |
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21,266 |
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29,132 |
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ASSETS OF DISCONTINUED OPERATIONS |
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5,215 |
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5,877 |
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Total Assets |
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$ |
1,167,071 |
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$ |
1,143,891 |
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CURRENT LIABILITIES |
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Notes payable and current portion of long-term debt net of debt discount of $733 and $2,820 |
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$ |
51,261 |
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$ |
78,590 |
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Accounts payable |
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127,243 |
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125,027 |
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Accrued and other current liabilities |
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54,357 |
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61,120 |
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Liabilities of discontinued operations |
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4,647 |
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4,932 |
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Total Current Liabilities |
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237,508 |
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269,669 |
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LONG-TERM DEBT, net of debt discount of $23,847 and $0 |
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150,360 |
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98,394 |
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OTHER LIABILITIES |
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73,069 |
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78,837 |
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LIABILITIES OF DISCONTINUED OPERATIONS |
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7,853 |
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8,784 |
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Total Liabilities |
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468,790 |
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455,684 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS EQUITY |
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Total Shareholders Equity |
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698,281 |
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688,207 |
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Total Liabilities and Shareholders Equity |
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$ |
1,167,071 |
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$ |
1,143,891 |
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GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
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ACCUMULATED |
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CAPITAL IN |
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OTHER |
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DEFERRED |
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COMMON STOCK |
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EXCESS OF |
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RETAINED |
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TREASURY SHARES |
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COMPREHENSIVE |
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ESOP |
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(in thousands) |
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SHARES |
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PAR VALUE |
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PAR VALUE |
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EARNINGS |
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SHARES |
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COST |
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INCOME (LOSS) |
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COMPENSATION |
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Total |
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Balance at 9/30/2009 |
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72,040 |
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$ |
18,010 |
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$ |
438,843 |
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$ |
421,992 |
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12,466 |
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$ |
(213,560 |
) |
$ |
28,170 |
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$ |
(5,248 |
) |
$ |
688,207 |
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Net income |
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6,324 |
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6,324 |
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Common stock issued for options exercised |
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45 |
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12 |
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274 |
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286 |
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Tax benefit from the exercise of stock options |
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99 |
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99 |
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Amortization of deferred compensation |
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313 |
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313 |
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Restricted stock vesting |
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9 |
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2 |
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(2 |
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ESOP distribution of common stock |
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93 |
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93 |
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Stock-based compensation |
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2,922 |
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13 |
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2,935 |
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Translation of foreign financial statements |
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(14,437 |
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(14,437 |
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Issuance of convertible debt, net |
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13,685 |
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13,685 |
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Pension OCI amortization, net of tax |
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776 |
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776 |
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Balance at 3/31/2010 |
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72,094 |
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$ |
18,024 |
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$ |
455,914 |
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$ |
428,316 |
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12,466 |
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$ |
(213,560 |
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$ |
14,509 |
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$ |
(4,922 |
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$ |
698,281 |
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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)
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Three Months Ended March 31, |
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Six Months Ended March 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenue |
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$ |
313,977 |
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$ |
276,087 |
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$ |
619,134 |
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$ |
578,421 |
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Cost of goods and services |
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244,907 |
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222,112 |
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479,783 |
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465,489 |
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Gross profit |
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69,070 |
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53,975 |
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139,351 |
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112,932 |
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Selling, general and administrative expenses |
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64,055 |
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55,545 |
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126,016 |
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112,073 |
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Restructuring and other related charges |
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1,220 |
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2,231 |
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Total operating expenses |
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65,275 |
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55,545 |
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128,247 |
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112,073 |
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Income (loss) from operations |
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3,795 |
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(1,570 |
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11,104 |
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859 |
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Other income (expense) |
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Interest expense |
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(3,729 |
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(3,814 |
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(6,699 |
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(7,563 |
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Interest income |
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192 |
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231 |
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254 |
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667 |
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Gain (loss) from debt extinguishment, net |
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12 |
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(6 |
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4,304 |
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Other, net |
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589 |
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(200 |
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1,216 |
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(557 |
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Total other income (expense) |
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(2,936 |
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(3,783 |
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(5,235 |
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(3,149 |
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Income (loss) before taxes and discontinued operations |
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859 |
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(5,353 |
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5,869 |
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(2,290 |
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Income tax benefit |
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(1,175 |
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(3,277 |
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(345 |
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(2,280 |
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Income (loss) from continuing operations |
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2,034 |
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(2,076 |
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6,214 |
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(10 |
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Discontinued operations: |
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Income (loss) from operations of the discontinued Installation Services business |
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(1 |
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1,046 |
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169 |
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1,051 |
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Income tax provision |
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397 |
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59 |
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399 |
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Income (loss) from discontinued operations |
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(1 |
) |
649 |
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110 |
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652 |
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Net income (loss) |
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$ |
2,033 |
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$ |
(1,427 |
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$ |
6,324 |
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$ |
642 |
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Basic earnings per common share: |
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Income (loss) from continuing operations |
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$ |
0.03 |
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$ |
(0.04 |
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$ |
0.11 |
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$ |
0.00 |
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Income from discontinued operations |
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0.00 |
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0.01 |
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0.00 |
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0.01 |
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Net income (loss) |
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0.03 |
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(0.02 |
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0.11 |
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0.01 |
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Weighted-average shares outstanding |
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58,977 |
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58,467 |
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58,906 |
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58,660 |
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Diluted earnings per common share: |
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Income (loss) from continuing operations |
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$ |
0.03 |
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$ |
(0.04 |
) |
$ |
0.10 |
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$ |
0.00 |
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Income from discontinued operations |
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0.00 |
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0.01 |
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0.00 |
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0.01 |
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Net income (loss) |
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0.03 |
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(0.02 |
) |
0.11 |
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0.01 |
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Weighted-average shares outstanding |
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59,939 |
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58,467 |
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59,769 |
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58,745 |
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Note: Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations may not equal earnings per share of Net income.
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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Six Months Ended March 31, |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
6,324 |
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$ |
642 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Income from discontinued operations |
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(110 |
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(652 |
) |
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Depreciation and amortization |
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20,208 |
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20,910 |
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Long-term debt discount |
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2,102 |
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1,924 |
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Stock-based compensation |
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2,935 |
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1,841 |
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Provisions for losses on account receivable |
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1,138 |
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379 |
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Amortization/write-off of deferred financing costs |
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609 |
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691 |
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Loss (gain) from debt extinguishment, net |
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6 |
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(4,304 |
) |
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Deferred income taxes |
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(4,384 |
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(3,537 |
) |
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Change in assets and liabilities: |
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(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed |
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(26,170 |
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14,680 |
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Decrease in inventories |
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1,998 |
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9,582 |
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Decrease in prepaid and other assets |
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4,170 |
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1,277 |
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Decrease in accounts payable, accrued liabilities and income taxes payable |
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(3,724 |
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(36,914 |
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Other changes, net |
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409 |
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(1,618 |
) |
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Net cash provided by operating activities |
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5,511 |
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4,901 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Acquisition of property, plant and equipment |
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(17,689 |
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(12,088 |
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(Increase) decrease in equipment lease deposits |
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28 |
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(345 |
) |
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Net cash used in investing activities |
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(17,661 |
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(12,433 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from issuance of shares from rights offering |
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5,274 |
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Proceeds from issuance of long-term debt |
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100,000 |
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10,431 |
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Payments of long-term debt |
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(53,897 |
) |
(40,854 |
) |
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Increase in short-term borrowings |
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|
904 |
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Financing costs |
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(4,145 |
) |
(227 |
) |
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Purchase of ESOP shares |
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(4,370 |
) |
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Exercise of stock options |
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285 |
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Tax benefit from exercise of options/vesting of restricted stock |
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99 |
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Other, net |
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37 |
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629 |
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Net cash provided by (used in) financing activities |
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42,379 |
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(28,213 |
) |
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CASH FLOWS FROM DISCONTINUED OPERATIONS: |
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Net cash used in operating activities of discontinued operations |
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(269 |
) |
(759 |
) |
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Net cash used in discontinued operations |
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(269 |
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(759 |
) |
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Effect of exchange rate changes on cash and equivalents |
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(2,351 |
) |
(1,102 |
) |
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS |
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27,609 |
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(37,606 |
) |
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CASH AND EQUIVALENTS AT BEGINNING OF PERIOD |
|
320,833 |
|
311,921 |
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||
CASH AND EQUIVALENTS AT END OF PERIOD |
|
$ |
348,442 |
|
$ |
274,315 |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(Unaudited)
(Unless otherwise indicated, all references to years or year-end refer to the 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. The Company oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. The Company provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital to further diversify itself.
Griffon currently conducts its operations through Telephonics Corporation (Telephonics), Clopay Building Products Company (Building Products) and Clopay Plastic Products Company (Plastics).
· Telephonics high-technology engineering and manufacturing capabilities provide integrated information, communication and sensor system solutions to military and commercial markets worldwide.
· Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.
· 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 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 of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. As such, they should be read with reference to the Companys Annual Report on Form 10-K for the year ended September 30, 2009, which provides a more complete explanation of the Companys accounting policies, financial position, operating results, business properties and other matters, and with the Companys Current Report on Form 8-K filed on February 4, 2010, updating the Form 10-K for the retroactive application of new accounting guidance for convertible debt (see below). In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. The results of operations of any interim period are not necessarily indicative of the results for the full year.
The unaudited condensed consolidated balance sheet information at September 30, 2009 was derived from the audited financial statements included in the Companys Current Report on Form 8-K filed on February 4, 2010, updating the Companys Annual Report on Form 10-K for the year ended September 30, 2009.
In preparing its consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventory reserves, goodwill and intangible assets. The Company bases its estimates on historical data and experience, when available, and on various
other assumptions that the Company believes are reasonable, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform to the current period presentation.
In May 2008, the Financial Accounting Standards Board (FASB) issued new guidance to clarify that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) must be separately accounted for in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized. This guidance, which is applicable to the Companys 4% convertible subordinated notes due 2023 issued in 2003 (the 2023 Notes) and 4% convertible subordinated notes due 2017 issued in December 2009 (the 2017 Notes), became effective for the Company as of October 1, 2009 and is implemented retrospectively, as required, for the 2023 Notes. For more information, see the Long-Term Debt footnote.
At March 31, 2010, the 2023 Notes had an outstanding balance of $49,998, an unamortized discount of $733, a net carrying value of $49,265 and a capital in excess of par value component balance, net of tax, of $17,061. At September 30, 2009, the 2023 Notes had an outstanding balance of $79,380, an unamortized discount balance of $2,820, a net carrying value of $76,560 and a capital in excess of par value component balance, net of tax, of $18,094. The stock price was below the conversion price for all periods presented. The Company used 8.5% as the nonconvertible debt borrowing rate to discount the 2023 Notes and will amortize the debt discount through July 2010. For more information, see the Long-Term Debt footnote.
For the 2023 Notes, the effective interest rate and interest expense was as follows:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||
(dollar amounts in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Effective interest rate |
|
9.0 |
% |
8.8 |
% |
9.0 |
% |
9.0 |
% |
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest expense related to the coupon |
|
$ |
534 |
|
$ |
945 |
|
$ |
1,328 |
|
$ |
2,008 |
|
Amortization of the discount |
|
565 |
|
923 |
|
1,386 |
|
1,931 |
|
||||
Amortization of deferred issuance costs |
|
59 |
|
93 |
|
137 |
|
198 |
|
||||
Total interest expense on the 2023 Notes |
|
$ |
1,158 |
|
$ |
1,961 |
|
$ |
2,851 |
|
$ |
4,137 |
|
The cumulative effect of the adjustments prior to September 30, 2009 was recorded in the September 30, 2009 balance sheet as follows:
Balance Sheet
(in thousands)
|
|
As of September 30, 2009 |
|
|||||||
|
|
As Reported |
|
Change |
|
As Adjusted |
|
|||
|
|
|
|
|
|
|
|
|||
Other Assets |
|
$ |
30,648 |
|
$ |
(1,516 |
) |
$ |
29,132 |
|
All other assets |
|
1,114,759 |
|
|
|
1,114,759 |
|
|||
Total Assets |
|
$ |
1,145,407 |
|
$ |
(1,516 |
) |
$ |
1,143,891 |
|
|
|
|
|
|
|
|
|
|||
Notes payable & current portion of LT debt |
|
$ |
81,410 |
|
$ |
(2,820 |
) |
$ |
78,590 |
|
All other liabilities |
|
377,094 |
|
|
|
377,094 |
|
|||
Total liabilities |
|
458,504 |
|
(2,820 |
) |
455,684 |
|
|||
Capital in excess of par value |
|
420,749 |
|
18,094 |
|
438,843 |
|
|||
Retained earnings |
|
438,782 |
|
(16,790 |
) |
421,992 |
|
|||
All other shareholders equity |
|
(172,628 |
) |
|
|
(172,628 |
) |
|||
Total Shareholders Equity |
|
686,903 |
|
1,304 |
|
688,207 |
|
|||
Total Liabilities and shareholders equity |
|
$ |
1,145,407 |
|
$ |
(1,516 |
) |
$ |
1,143,891 |
|
The prior year three and six month periods have been adjusted as follows:
Statement of Operations
(in thousands, except per share data)
|
|
Three Months Ending March 31, 2009 |
|
Six Months Ending March 31, 2009 |
|
||||||||||||||
|
|
As Reported |
|
Change |
|
As Adjusted |
|
As Reported |
|
Change |
|
As Adjusted |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income (loss) from operations |
|
$ |
(1,570 |
) |
$ |
|
|
$ |
(1,570 |
) |
$ |
859 |
|
$ |
|
|
$ |
859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest expense |
|
(2,919 |
) |
(895 |
) |
(3,814 |
) |
(5,633 |
) |
(1,930 |
) |
(7,563 |
) |
||||||
Interest income |
|
231 |
|
|
|
231 |
|
667 |
|
|
|
667 |
|
||||||
Gain from debt extinguishment, net |
|
|
|
|
|
|
|
6,714 |
|
(2,410 |
) |
4,304 |
|
||||||
Other, net |
|
(200 |
) |
|
|
(200 |
) |
(557 |
) |
|
|
(557 |
) |
||||||
Total other income (expense) |
|
(2,888 |
) |
(895 |
) |
(3,783 |
) |
1,191 |
|
(4,340 |
) |
(3,149 |
) |
||||||
Income (loss) before taxes and discontinued operations |
|
(4,458 |
) |
(895 |
) |
(5,353 |
) |
2,050 |
|
(4,340 |
) |
(2,290 |
) |
||||||
Provision (benefit) for income taxes |
|
(2,955 |
) |
(322 |
) |
(3,277 |
) |
(718 |
) |
(1,562 |
) |
(2,280 |
) |
||||||
Income (loss) from continuing operations |
|
(1,503 |
) |
(573 |
) |
(2,076 |
) |
2,768 |
|
(2,778 |
) |
(10 |
) |
||||||
Income from discontinued operations |
|
649 |
|
|
|
649 |
|
652 |
|
|
|
652 |
|
||||||
Net income (loss) |
|
$ |
(854 |
) |
$ |
(573 |
) |
$ |
(1,427 |
) |
$ |
3,420 |
|
$ |
(2,778 |
) |
$ |
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from continuing operations |
|
$ |
(0.03 |
) |
|
|
$ |
(0.04 |
) |
$ |
0.05 |
|
|
|
$ |
(0.00 |
) |
||
Discontinued operations |
|
0.01 |
|
|
|
0.01 |
|
0.01 |
|
|
|
0.01 |
|
||||||
Net income |
|
$ |
(0.01 |
) |
|
|
$ |
(0.02 |
) |
$ |
0.06 |
|
|
|
$ |
0.01 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from continuing operations |
|
$ |
(0.03 |
) |
|
|
$ |
(0.04 |
) |
$ |
0.05 |
|
|
|
$ |
(0.00 |
) |
||
Discontinued operations |
|
0.01 |
|
|
|
0.01 |
|
0.01 |
|
|
|
0.01 |
|
||||||
Net income |
|
$ |
(0.01 |
) |
|
|
$ |
(0.02 |
) |
$ |
0.06 |
|
|
|
$ |
0.01 |
|
On December 21, 2009, the Company issued $100,000 aggregate principal amount of the 2017 Notes. The Company used 8.75% as the nonconvertible debt-borrowing rate to discount the 2017 Notes and will amortize the debt discount through January 2017. On the date of issuance, the debt component of the 2017 Notes was $75,437 and the debt discount was $24,563. At March 31, 2010, the 2017 Notes had an outstanding balance of $100,000, an unamortized discount balance of $23,847, a net carrying value of $76,153 and a capital in excess of par component balance, net of tax, of $15,720.
For the 2017 Notes, the effective interest rate and interest expense was as follows:
|
|
Three Months |
|
Six Months |
|
||
(dollar amounts in thousands) |
|
2010 |
|
2010 |
|
||
Effective interest rate |
|
9.2 |
% |
9.2 |
% |
||
|
|
|
|
|
|
||
Interest expense related to the coupon |
|
$ |
1,000 |
|
$ |
1,100 |
|
Amortization of the discount |
|
650 |
|
715 |
|
||
Amortization of deferred issuance costs |
|
108 |
|
108 |
|
||
Total interest expense on the 2017 Notes |
|
$ |
1,758 |
|
$ |
1,923 |
|
NOTE 2 FAIR VALUE MEASUREMENTS
Items Measured at Fair Value on a Recurring Basis
Each quarter, cash and equivalents and the deferred non-qualified retirement plan assets are measured and recorded at fair value based upon quoted prices in active markets for identical assets and liabilities. Life insurance contracts were $4,766 at March 31, 2010 and $4,803 at September 30, 2009. Additionally, accounts receivable and accounts payable approximate fair value due to their short-term nature. Refer to the Long-Term Debt footnote for discussion on the fair value of long-term debt.
NOTE 3 INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out or average) or market, were comprised of the following:
|
|
At March 31, |
|
At September 30, |
|
||
(in thousands) |
|
2010 |
|
2009 |
|
||
Raw materials and supplies |
|
$ |
35,014 |
|
$ |
38,943 |
|
Work in process |
|
56,712 |
|
66,741 |
|
||
Finished goods |
|
43,985 |
|
33,486 |
|
||
Total |
|
$ |
135,711 |
|
$ |
139,170 |
|
NOTE 4 PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment were comprised of the following:
|
|
At March 31, |
|
At September 30, |
|
||
(in thousands) |
|
2010 |
|
2009 |
|
||
Land, building and building improvements |
|
$ |
107,509 |
|
$ |
110,617 |
|
Machinery and equipment |
|
429,223 |
|
423,742 |
|
||
Leasehold improvements |
|
26,649 |
|
23,390 |
|
||
|
|
563,381 |
|
557,749 |
|
||
Accumulated depreciation and amortization |
|
(331,365 |
) |
(321,730 |
) |
||
Total |
|
$ |
232,016 |
|
$ |
236,019 |
|
No event or indicator of impairment occurred during the three and six months ended March 31, 2010, which would require additional impairment testing of property, plant and equipment.
NOTE 5 GOODWILL AND OTHER INTANGIBLES
The following table provides the changes in carrying value of goodwill by segment during the six months ended March 31, 2010.
(in thousands) |
|
At September 30, |
|
Other |
|
At March 31, |
|
|||
Telephonics |
|
$ |
18,545 |
|
$ |
|
|
$ |
18,545 |
|
Building Products |
|
|
|
|
|
|
|
|||
Plastics |
|
79,112 |
|
(3,443 |
) |
75,669 |
|
|||
Total |
|
$ |
97,657 |
|
$ |
(3,443 |
) |
$ |
94,214 |
|
No event or indicator of impairment occurred during the three and six months ended March 31, 2010, which would require impairment testing of goodwill.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:
|
|
At March 31, 2010 |
|
Average |
|
At September 30, 2009 |
|
||||||||
(dollar amounts in thousands) |
|
Gross Carrying |
|
Accumulated |
|
Life |
|
Gross Carrying |
|
Accumulated |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
$ |
28,345 |
|
$ |
5,833 |
|
25 |
|
$ |
30,650 |
|
$ |
5,628 |
|
Unpatented technology |
|
8,729 |
|
746 |
|
12 |
|
2,990 |
|
349 |
|
||||
Total amortizable intangible assets |
|
37,074 |
|
6,579 |
|
22 |
|
33,640 |
|
5,977 |
|
||||
Trademark |
|
590 |
|
|
|
|
|
590 |
|
|
|
||||
Unpatented technology |
|
|
|
|
|
|
|
5,958 |
|
|
|
||||
Total intangible assets |
|
$ |
37,664 |
|
$ |
6,579 |
|
|
|
$ |
40,188 |
|
$ |
5,977 |
|
An unpatented intangible asset with a gross carrying amount of $5,958 at October 1, 2009 was reclassified from indefinite lived to amortizable, as information became available that allowed a useful life to be determined; the intangible asset is being amortized over 10 years, its estimated useful life, with effect from October 1, 2009.
No event or indicator of impairment occurred during the three and six months ended March 31, 2009, which would require additional impairment testing of long-lived intangible assets excluding goodwill.
NOTE 6 INCOME TAXES
The Companys effective tax rate for continuing operations for the quarter ended March 31, 2010 was a benefit of 137% of income before taxes, compared to a benefit of 61.2% of the 2009 quarters loss before income taxes. The 2010 quarter benefited from resolution of certain non-domestic tax audits resulting in the release of $1,541 of tax and accrued interest from previously established reserves for uncertain tax positions. The prior year quarter benefited from tax planning, primarily with respect to foreign tax credits.
The Companys effective tax rate for continuing operations for the six months ended March 31, 2010 was a benefit of 5.9% of income before taxes, compared to 99% of the prior year period loss before income taxes. The 2010 period benefited from resolution of certain non-domestic tax audits resulting in the release of $1,541 of tax and accrued interest from previously established reserves for uncertain tax positions. The prior year period benefited from tax planning, primarily with respect to foreign tax credits.
Excluding the above discrete period items, the effective tax rate on continuing operations for the quarter and six month period ended March 31, 2010 would have been an expense of 26.6% and 25.5%, respectively, of income before taxes. The effective tax rate for the 2009 quarter and six month period ended March 31, 2009, excluding the tax planning items, would have been a benefit on the loss before income taxes of 30% and 35.1%, respectively.
NOTE 7 LONG-TERM DEBT
In June 2008, Building Products and Plastics entered into a credit agreement for their domestic operations 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, senior secured revolving credit facility of $100,000 (the Clopay Credit Agreement). Borrowings under the Clopay Credit Agreement bear interest (2.9% average during the six months ended March 31, 2010) at rates based upon LIBOR or the prime rate and are collateralized by the U.S. stock and assets of Building Products and Plastics. At March 31, 2010 and September 30, 2009, $20,708 and $35,925, respectively, were outstanding under the Clopay Credit Agreement; approximately $41,197 was available for borrowing at March 31, 2010. The Company has been in compliance with all financial covenants under the Clopay Credit Agreement since its inception. The balance of the debt approximates its fair value as the interest rates are indexed to current market rates.
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 Telephonics Credit Agreement). Borrowings under the Telephonics Credit Agreement bear interest (1.8% average during the six months ended March 31, 2010) at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of Telephonics. At March 31, 2010 and September 30, 2009, $30,000 and $38,000, respectively, was outstanding under the Telephonics Credit Agreement; approximately $64,400 was available for borrowing at March 31, 2010. The Company has been in compliance with all financial covenants under the Telephonics Credit Agreement since its inception. The balance of the debt approximates its fair value as the interest rates are indexed to current market rates.
The Telephonics Credit Agreement and the Clopay Credit Agreement include various sublimits for standby letters of credit. At March 31, 2010, approximately $15,795 of aggregate standby letters of credit were outstanding under these credit facilities. Additionally, these agreements limit dividends and advances these subsidiaries may pay to the parent.
On December 21, 2009, the Company issued $100,000 of 2017 Notes. Holders may convert the 2017 Notes at a conversion price of $14.91 per share, which is equal to a conversion rate of 67.0799 shares per $1 principal amount of 2017 Notes. In lieu of delivering shares of its common stock, the Company may settle any conversion of the 2017 Notes through the delivery of cash or a combination of cash and shares of common stock. On March 31, 2010, the Company had outstanding $100,000 of the 2017 Notes, which had a fair value of approximately $108,000, based upon quoted market prices (level 1 inputs).
The Company had outstanding $49,998 of 2023 Notes at March 31, 2010. Holders may convert the 2023 Notes at a conversion price of $22.41 per share, as adjusted pursuant to the Companys 2008 common stock rights offering and subject to possible further adjustment, as defined therein, which is equal to a conversion rate of approximately 44.6229 shares per $1 principal amount of 2023 Notes. The Company has irrevocably elected to pay noteholders at least $1 in cash for each $1 principal amount of 2023 Notes presented for conversion. The excess of the value of the Companys common stock that would have been issuable upon conversion over the cash delivered will be paid to noteholders in shares of the Companys common stock. The fair value is approximately $50,000, based upon quoted market price (level 1 inputs). If the stock price remains below the conversion price, it is likely that the 2023 Notes will be put to the Company in July of 2010; as such, they have been classified as a component of Notes payable and current portion of long-term debt at March 31, 2010, and the debt discount on the 2023 Notes is being amortized through July 2010.
In January 2010, the Company purchased $10,145 face value of the 2023 Notes for $10,246. The Company recorded a pre-tax gain from debt extinguishment of $32, offset by $20 for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $12 in the second quarter of 2010. Capital in excess of par was reduced by $332 related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $219.
In December 2009, the Company purchased $19,237 face value of the 2023 Notes for $19,429. The Company recorded a $26 pre-tax gain from debt extinguishment, offset by $44 for a proportionate reduction in the related deferred financing costs for a net pre-tax loss of $18 in the first quarter of 2010. Capital in excess of par value was reduced by $700 related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $482.
In April 2009, the Company purchased $15,120 face value of the 2023 Notes for $14,341. The Company recorded a pre-tax gain from debt extinguishment of $252, offset by $75 for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $177 in the third quarter of 2009. Capital in excess of par value was reduced by $263 related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $789.
In October 2008, the Company purchased $35,500 face value of the 2023 Notes for $28,400. The Company recorded a pre-tax gain from debt extinguishment of $4,549, offset by $245 for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $4,304 in the first quarter of 2009. No portion of the extinguishment was attributed to capital in excess in par and the debt discount was reduced by $2,544.
The Company had $79,380 and $130,000 of 2023 Notes outstanding at September 30, 2009 and 2008, respectively.
The Companys Employee Stock Ownership Plan has a loan agreement, guaranteed by the Company, which requires payment of principal and interest through the expiration date of September 2012 at which time the balance of the loan,
and any outstanding interest, will be payable. The primary purpose of this loan and its predecessor loans, which were refinanced by this loan in October 2008, was to purchase 547,605 shares of the Companys stock in October 2008. The loan bears interest at rates based upon the prime rate or LIBOR. The balance of the loan was $5,313 at March 31, 2010, and the outstanding balance approximates fair value as the interest rates are indexed to current market rates.
NOTE 8 SHAREHOLDERS EQUITY
In accordance with the terms of an employment agreement, in October 2008, the Companys Chief Executive Officer received a restricted stock grant of 75,000 shares of common stock, which vests in April 2011. The fair value of the restricted stock on the date of grant was $675. In addition, the Companys Chief Executive Officer received a ten-year option to purchase 350,000 shares of common stock at an exercise price of $20 per share. The closing stock price on date of grant was $9.00 per share and the grant vests in three equal annual installments beginning April 2009. The fair value of the options on the date of grant was $721 or $2.06 per share.
In March 2009, the Companys Chief Executive Officer received a restricted stock grant of 675,000 shares of common stock, which vests in March 2013. The fair value of the restricted stock on the date of grant was $5,063 or $7.50 per share.
In addition to the above grants, during 2009, the Company granted 446,500 shares of restricted stock, each with four year cliff vesting, with a total fair value of $4,282, or a weighted average fair value of $9.59 per share.
The fair value of the 2009 option grant was estimated as of the grant dates using the Black-Scholes option-pricing model with the following weighted average assumptions: risk-free interest rate of 3.04%; dividend yield of 0.0%; expected life of seven years; volatility of 38.98%; an option exercise price of $20.00 per share; and a fair value of option granted of $2.06 per share.
During the first and second quarters of 2010, the Company granted 299,700 shares of restricted stock, with two to four-year cliff vesting, and a total fair value of $2,914, or a weighted average fair value of $9.72 per share.
The fair value of restricted stock and option grants is amortized over the respective vesting periods.
For the three months ended March 31, 2010 and 2009, stock based compensation expense totaled $1,505 and $1,027, respectively. For the six months ended March 31, 2010 and 2009, stock based compensation expense totaled $2,935 and $1,841, respectively.
NOTE 9 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 potentially dilutive shares. 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.
The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Weighted average shares outstanding - basic |
|
58,977 |
|
58,467 |
|
58,906 |
|
58,660 |
|
Incremental shares from 4% convertible notes |
|
|
|
|
|
|
|
|
|
Incremental shares from stock based compensation |
|
962 |
|
|
|
863 |
|
85 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted |
|
59,939 |
|
58,467 |
|
59,769 |
|
58,745 |
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from diluted EPS computation |
|
991 |
|
1,326 |
|
1,039 |
|
1,326 |
|
NOTE 10 BUSINESS SEGMENTS
The Companys reportable business segments are as follows:
· Telephonics high-technology engineering and manufacturing capabilities provide integrated information, communication and sensor system solutions to military and commercial markets worldwide.
· Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.
· 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.
The Company evaluates performance and allocates resources based on operating results before interest income or expense, income taxes and certain nonrecurring items of income or expense.
Business segment information is as follows:
GRIFFON CORPORATION
REVENUE, INCOME & OTHER DATA BY SEGMENT
|
|
For the Three Months Ended |
|
For the Six Months Ended |
|
||||||||
(in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
REVENUE |
|
|
|
|
|
|
|
|
|
||||
Telephonics |
|
$ |
116,190 |
|
$ |
96,567 |
|
$ |
219,809 |
|
$ |
177,394 |
|
Building Products |
|
82,204 |
|
79,251 |
|
181,726 |
|
188,069 |
|
||||
Plastics |
|
115,583 |
|
100,269 |
|
217,599 |
|
212,958 |
|
||||
Total consolidated net sales |
|
$ |
313,977 |
|
$ |
276,087 |
|
$ |
619,134 |
|
$ |
578,421 |
|
|
|
|
|
|
|
|
|
|
|
||||
INCOME BEFORE TAXES AND DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
||||
Segment operating profit (loss): |
|
|
|
|
|
|
|
|
|
||||
Telephonics |
|
$ |
10,622 |
|
$ |
8,252 |
|
$ |
17,617 |
|
$ |
13,630 |
|
Building Products |
|
(3,714 |
) |
(11,841 |
) |
3,147 |
|
(16,234 |
) |
||||
Plastics |
|
5,086 |
|
6,578 |
|
5,447 |
|
12,114 |
|
||||
Total segment operating profit |
|
11,994 |
|
2,989 |
|
26,211 |
|
9,510 |
|
||||
Unallocated amounts* |
|
(7,610 |
) |
(4,759 |
) |
(13,891 |
) |
(9,208 |
) |
||||
Gain (loss) from debt extinguishment, net |
|
12 |
|
|
|
(6 |
) |
4,304 |
|
||||
Net interest expense |
|
(3,537 |
) |
(3,583 |
) |
(6,445 |
) |
(6,896 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) before taxes and discontinued operations |
|
$ |
859 |
|
$ |
(5,353 |
) |
$ |
5,869 |
|
$ |
(2,290 |
) |
*Unallocated amounts typically include general corporate expenses not attributable to reportable segment.
DEPRECIATION and AMORTIZATION |
|
|
|
|
|
|
|
|
|
||||
Segment: |
|
|
|
|
|
|
|
|
|
||||
Telephonics |
|
$ |
1,787 |
|
$ |
1,543 |
|
$ |
3,413 |
|
$ |
3,030 |
|
Building Products |
|
2,586 |
|
3,254 |
|
5,183 |
|
6,486 |
|
||||
Plastics |
|
5,833 |
|
5,247 |
|
11,446 |
|
11,010 |
|
||||
Total segment |
|
10,206 |
|
10,044 |
|
20,042 |
|
20,526 |
|
||||
Corporate |
|
84 |
|
315 |
|
166 |
|
384 |
|
||||
Total consolidated depreciation and amortization |
|
$ |
10,290 |
|
$ |
10,359 |
|
$ |
20,208 |
|
$ |
20,910 |
|
|
|
|
|
|
|
|
|
|
|
||||
CAPITAL EXPENDITURES |
|
|
|
|
|
|
|
|
|
||||
Segment: |
|
|
|
|
|
|
|
|
|
||||
Telephonics |
|
$ |
4,291 |
|
$ |
2,126 |
|
$ |
6,367 |
|
$ |
2,837 |
|
Building Products |
|
3,119 |
|
1,243 |
|
6,458 |
|
3,694 |
|
||||
Plastics |
|
96 |
|
3,866 |
|
4,299 |
|
5,528 |
|
||||
Total segment |
|
7,506 |
|
7,235 |
|
17,124 |
|
12,059 |
|
||||
Corporate |
|
173 |
|
22 |
|
565 |
|
29 |
|
||||
Total consolidated capital expenditures |
|
$ |
7,679 |
|
$ |
7,257 |
|
$ |
17,689 |
|
$ |
12,088 |
|
|
|
|
|
|
|
At
March 31, |
|
At |
|
||
ASSETS |
|
|
|
|
|
|
|
|
|
||
Segment assets: |
|
|
|
|
|
|
|
|
|
||
Telephonics |
|
|
|
|
|
$ |
282,681 |
|
$ |
271,809 |
|
Building Products |
|
|
|
|
|
161,535 |
|
169,251 |
|
||
Plastics |
|
|
|
|
|
364,013 |
|
364,626 |
|
||
Total segment assets |
|
|
|
|
|
808,229 |
|
805,686 |
|
||
Corporate (principally cash and equivalents) |
|
|
|
|
|
352,076 |
|
330,752 |
|
||
Total continuing assets |
|
|
|
|
|
1,160,305 |
|
1,136,438 |
|
||
Assets from discontinued operations |
|
|
|
|
|
6,766 |
|
7,453 |
|
||
Consolidated total |
|
|
|
|
|
$ |
1,167,071 |
|
$ |
1,143,891 |
|
NOTE 11 COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was as follows:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||
(in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Net income (loss) |
|
$ |
2,033 |
|
$ |
(1,427 |
) |
$ |
6,324 |
|
$ |
642 |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
(11,566 |
) |
(8,244 |
) |
(14,437 |
) |
(20,736 |
) |
||||
Pension OCI amortization, net of tax |
|
389 |
|
204 |
|
776 |
|
409 |
|
||||
Comprehensive loss |
|
$ |
(9,144 |
) |
$ |
(9,467 |
) |
$ |
(7,337 |
) |
$ |
(19,685 |
) |
NOTE 12 DEFINED BENEFIT PENSION EXPENSE
Defined benefit pension expense was recognized as follows:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||
(in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Service cost |
|
$ |
139 |
|
$ |
112 |
|
$ |
278 |
|
$ |
224 |
|
Interest cost |
|
907 |
|
1,056 |
|
1,814 |
|
2,112 |
|
||||
Expected return on plan assets |
|
(343 |
) |
(431 |
) |
(686 |
) |
(861 |
) |
||||
Amortization: |
|
|
|
|
|
|
|
|
|
||||
Prior service cost |
|
84 |
|
84 |
|
168 |
|
168 |
|
||||
Recognized actuarial loss |
|
512 |
|
230 |
|
1,024 |
|
461 |
|
||||
Net periodic expense |
|
$ |
1,299 |
|
$ |
1,051 |
|
$ |
2,598 |
|
$ |
2,104 |
|
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
Newly issued but not yet effective accounting pronouncements
In October 2009, the FASB issued new guidance on accounting for multiple-deliverable arrangements to enable vendors to account for products and services separately rather than as a combined unit. The guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The new guidance will be effective as of the beginning of the annual reporting period commencing after June 15, 2010, and will be adopted by the Company as of October 1, 2010. Early adoption is permitted. The Company is evaluating the potential impact, if any, of the adoption of the new guidance on its consolidated financial statements.
Recently issued effective accounting pronouncements
In December 2007, the FASB issued new accounting guidance related to the accounting for business combinations. The purpose of the new guidance is to better represent the economic value of a business combination transaction. The new guidance retains the fundamental requirement of existing guidance where the acquisition method of accounting is to be used for all business combinations and for an acquirer to be identified for each business combination. In general the new guidance: 1) broadens the existing guidance by extending its applicability to all events where one entity obtains control over one or more businesses; 2) broadens the use of the fair value measurements used to recognize the assets acquired and liabilities assumed; 3) changes the accounting for acquisition related fees and restructuring costs incurred in connection with an acquisition; and 4) increases required disclosures. The Company anticipates that adoption of the new guidance, effective for Griffon for any business combinations that occur after October 1, 2009, will have an impact on the way in which business combinations are accounted for; however, the impact can only be assessed as each acquisition is consummated.
In December 2007, the FASB issued new accounting guidance related to the accounting for noncontrolling interests in consolidated financial statements. The new guidance was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, the new guidance eliminates the diversity then existing in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. This new guidance was effective for the Company as of October 1, 2009 and the adoption had no material effect on the Companys consolidated financial statements.
In March 2008, the FASB issued new guidance, which enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: 1) an entity uses derivative instruments; 2) derivative instruments and related hedged items are accounted for; and 3) derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. This new guidance was effective for the Company as of October 1, 2009 and the adoption had no material effect on the Companys consolidated financial statements.
In April 2008, the FASB issued new guidance, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset, and requires enhanced related disclosures. The new guidance must be applied prospectively to all intangible assets acquired as of and subsequent to years beginning after December 15, 2008, which for the Company was the fiscal year beginning October 1, 2009. The Company anticipates that adoption of the new guidance will impact the way in which newly acquired intangible assets are accounted for; however, such impact can only be assessed upon the acquisition of intangible assets.
NOTE 14 DISCONTINUED OPERATIONS
The following amounts related to the Installation Services segment, discontinued in 2008, have been segregated from the Companys continuing operations and are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:
|
|
At March 31, 2010 |
|
At September 30, 2009 |
|
||||||||
(in thousands) |
|
Current |
|
Long-term |
|
Current |
|
Long-term |
|
||||
Assets of discontinued operations: |
|
|
|
|
|
|
|
|
|
||||
Prepaid and other current assets |
|
$ |
1,551 |
|
$ |
|
|
$ |
1,576 |
|
$ |
|
|
Other long-term assets |
|
|
|
5,215 |
|
|
|
5,877 |
|
||||
Total assets of discontinued operations |
|
$ |
1,551 |
|
$ |
5,215 |
|
$ |
1,576 |
|
$ |
5,877 |
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities of discontinued operations: |
|
|
|
|
|
|
|
|
|
||||
Accounts payable |
|
$ |
11 |
|
$ |
|
|
$ |
13 |
|
$ |
|
|
Accrued liabilities |
|
4,636 |
|
|
|
4,919 |
|
|
|
||||
Other long-term liabilities |
|
|
|
7,853 |
|
|
|
8,784 |
|
||||
Total liabilities of discontinued operations |
|
$ |
4,647 |
|
$ |
7,853 |
|
$ |
4,932 |
|
$ |
8,784 |
|
There was no Installation Services operating unit revenue for the three and six months ended March 31, 2010 and 2009.
NOTE 15 RESTRUCTURING AND OTHER RELATED CHARGES
In June 2009, the Company announced plans to consolidate facilities in its Building Products segment, scheduled to be completed in early 2011. The Company estimates it will incur pre-tax exit and restructuring costs approximating $12,000, substantially all of which will be cash charges, including $2,000 for one-time termination benefits and other personnel costs, $1,000 for excess facilities and related costs, and $9,000 in other exit costs primarily in connection with production realignment. These charges will occur primarily in 2010 and 2011. To date the Company has incurred $3,500 in related charges.
A summary of the restructuring and other related charges included in the line item Restructuring and other related charges in the Condensed Consolidated Statements of Operations recognized for the three and six months ended March 31, 2010 and for each quarter in 2009 were as follows:
|
|
Workforce |
|
Facilities & |
|
Other related |
|
|
|
||||
(in thousands) |
|
Reduction |
|
Exit Costs |
|
Costs |
|
Total |
|
||||
Amounts incurred in: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Quarter ended December 31, 2008 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Quarter ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
||||
Quarter ended June 30, 2009 |
|
37 |
|
|
|
1 |
|
38 |
|
||||
Quarter ended September 30, 2009 |
|
170 |
|
672 |
|
360 |
|
1,202 |
|
||||
Year ended September 30, 2009 |
|
$ |
207 |
|
$ |
672 |
|
$ |
361 |
|
$ |
1,240 |
|
|
|
|
|
|
|
|
|
|
|
||||
Quarter ended December 31, 2009 |
|
$ |
279 |
|
$ |
694 |
|
$ |
38 |
|
$ |
1,011 |
|
Quarter ended March 31, 2010 |
|
124 |
|
775 |
|
321 |
|
1,220 |
|
||||
Six months ended March 31, 2010 |
|
$ |
403 |
|
$ |
1,469 |
|
$ |
359 |
|
$ |
2,231 |
|
At March 31, 2010, the accrued liability associated with the restructuring and other related charges consisted of the following:
(in thousands) |
|
Workforce |
|
Facilities & |
|
Other related |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Accrued liability at September 30, 2009 |
|
$ |
207 |
|
$ |
|
|
$ |
|
|
$ |
207 |
|
Charges |
|
403 |
|
1,469 |
|
359 |
|
2,231 |
|
||||
Payments |
|
(212 |
) |
(1,469 |
) |
(359 |
) |
(2,040 |
) |
||||
Accrued liability at March 31, 2010 |
|
$ |
398 |
|
$ |
|
|
$ |
|
|
$ |
398 |
|
NOTE 16 OTHER INCOME
Other income included losses of $241 and $306 for the three-month periods and losses of $166 and $874 for the six month periods ended March 31, 2010 and 2009, respectively, of foreign exchange losses in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of the Company and its subsidiaries.
NOTE 17 WARRANTY LIABILITY
The Company offers its customers warranties against product defects for periods ranging from six months to three years, with certain products having a limited lifetime warranty, depending on the specific product and terms of the customer purchase agreement. The Companys typical warranties require it to repair or replace the defective products during the warranty period at no cost to the customer. At the time product revenue is recognized, the Company records an estimated liability for warranty costs, based on historical experience. The Company periodically assesses the adequacy of its warranty liability, and adjusts the liability as necessary. While the Company believes that its liability for product warranties is adequate, actual warranty costs could differ materially from those estimated.
Changes in the warranty liability included in accrued liabilities were as follows:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||
(in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Balance, beginning of year |
|
$ |
4,796 |
|
$ |
5,081 |
|
$ |
5,707 |
|
$ |
5,328 |
|
Warranties issued and charges in estimated pre-existing warranties |
|
1,236 |
|
2,022 |
|
1,319 |
|
3,359 |
|
||||
Actual warranty costs incurred |
|
(1,272 |
) |
(1,579 |
) |
(2,266 |
) |
(3,163 |
) |
||||
Balance, end of period |
|
$ |
4,760 |
|
$ |
5,524 |
|
$ |
4,760 |
|
$ |
5,524 |
|
NOTE 18 COMMITMENTS AND CONTINGENCIES
Legal and environmental
Department of Environmental Conservation of New York State (DEC), with ISC Properties, Inc. Lightron Corporation (Lightron), a wholly-owned subsidiary of the Company, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the Peekskill Site) owned by ISC Properties, Inc. (ISC), a wholly-owned subsidiary of the Company. ISC sold the Peekskill Site in November 1982.
Subsequently, the Company 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 Lightrons 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 conducted over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.
In April 2009, the DEC advised ISCs 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 late December 2009, ISC submitted a revised draft to respond to comments received from the DEC on October 20, 2009.
U.S. Government investigations and claims
Defense contracts and subcontracts, including the Companys 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, the Defense Contract Investigative Service 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, the Company is currently providing information to the U.S. Department of Defense Office of the Inspector General. No claim has been asserted against the Company, and the Company is unaware of any material financial exposure in connection with the Inspector Generals inquiry.
In general, departments and agencies of the U.S. government have the authority to investigate various transactions and operations of the Company, 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 a material adverse effect on Telephonics because of its reliance on government contracts.
General legal
The Company is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. 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 the Companys consolidated financial position, results of operations or cash flows.
Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS OVERVIEW
Griffon Corporation (the Company or Griffon), is a diversified management and holding company that conducts business through wholly-owned subsidiaries. The Company oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. The Company provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital to further diversify itself.
Headquartered in New York, N.Y., the Company was incorporated in New York in 1959, and was reincorporated in Delaware in 1970. The Company changed its name to Griffon Corporation in 1995.
Griffon currently conducts its operations through Telephonics Corporation (Telephonics), Clopay Building Products Company (Building Products) and Clopay Plastic Products Company (Plastics).
· Telephonics high-technology engineering and manufacturing capabilities provide integrated information, communication and sensor system solutions to military and commercial markets worldwide.
· Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.
· 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.
QUARTERLY OVERVIEW
Revenue for the Companys second quarter ended March 31, 2010 was $314.0 million, compared to $276.1 million last year, with revenue increases achieved in all segments. Income from continuing operations was $2.0 million, or $0.03 per diluted share, for the 2010 quarter compared to a loss of $2.1 million, or $0.04 per diluted share, in the prior year quarter. The current quarter results included approximately $0.01 per diluted share of restructuring charges associated with the consolidation of facilities at Building Products. Income from discontinued operations for the 2010 quarter was essentially nil or $0.00 per diluted share, compared to $0.6 million, or $0.01 per diluted share, last year. Net income for the second quarter of 2010 was $2.0 million, or $0.03 per diluted share, compared to a loss of $1.4 million, or $0.02 per diluted share, in the prior year.
RESULTS OF OPERATIONS
Three and six months ended March 31, 2010 and 2009
The Company reviews its Segments excluding depreciation, amortization and restructuring charges to gain a better understanding of the operations and believes this information is useful to investors. The results of each Segment are accompanied by a reconciliation of Segment operating income to Segment income (loss) before depreciation, amortization and restructuring charges, as applicable.
Telephonics
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||||||||||
(dollar amounts in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
116,190 |
|
|
|
$ |
96,567 |
|
|
|
$ |
219,809 |
|
|
|
$ |
177,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment operating income |
|
10,622 |
|
9.1% |
|
8,252 |
|
8.5% |
|
17,617 |
|
8.0% |
|
13,630 |
|
7.7% |
|
||||
Depreciation and amortization |
|
1,787 |
|
|
|
1,543 |
|
|
|
3,413 |
|
|
|
3,030 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment Adjusted EBITDA |
|
$ |
12,409 |
|
10.7% |
|
$ |
9,795 |
|
10.1% |
|
$ |
21,030 |
|
9.6% |
|
$ |
16,660 |
|
9.4% |
|
For the quarter ended March 31, 2010, Telephonics revenue increased $19.6 million, or 20%, compared to the prior year quarter. The revenue increase was primarily the result of higher sales in the Electronic Systems, Radar and Communications divisions, with the largest contribution from the CREW 3.1 Sierra Nevada Corporation contract.
For the quarter ended March 31, 2010, Segment operating profit increased $2.4 million, or 29%, from the prior year quarter, driven by revenue growth. Segment operating profit margin for the quarter increased 60 basis points primarily due to lower material and program management costs in the Communications Systems division and lower material costs, due to volume purchase discounts in the Radar Systems division.
For the six months ended March 31, 2010, revenue increased $42.4 million, or 24%, compared to the prior year. The revenue increase was primarily the result of revenue growth in Radar Systems, attributed to weather and search/rescue radar applications, and in the Electronic Systems division, with the largest contribution from the CREW 3.1 Sierra Nevada Corporation contract.
For the six months ended March 31, 2010, Segment operating profit increased $4.0 million, or 29%, from the prior year driven by revenue growth. Segment operating profit margin for the period increased 30 basis points principally due to favorable program mix, partially offset by higher SG&A expenses. The increase in SG&A expenses was primarily due to higher research expenditures and additional expense necessary to support sales growth.
During the quarter, Telephonics was awarded several new contracts and received incremental funding on current contracts totaling $174 million. Contract backlog was $433 million at March 31, 2010 with 71% expected to be realized in the next 12 months. Backlog was $393 million at September 30, 2009 and $428 million at March 31, 2009.
Following the close of the quarter, Telephonics received official notification that it had been selected as the provider of the maritime surveillance radar system on the Fire Scout, the U.S. Navys Vertical Take-off and Landing Unmanned Aerial Vehicle. This is expected to be a significant, long-term program and more details will be provided when available.
Building Products
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||||||||||
(dollar amounts in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
82,204 |
|
|
|
$ |
79,251 |
|
|
|
$ |
181,726 |
|
|
|
$ |
188,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment operating income (loss) |
|
(3,714 |
) |
NM |
|
(11,841 |
) |
NM |
|
3,147 |
|
1.7% |
|
(16,234 |
) |
NM |
|
||||
Depreciation and amortization |
|
2,586 |
|
|
|
3,254 |
|
|
|
5,183 |
|
|
|
6,486 |
|
|
|
||||
Restructuring charges |
|
1,220 |
|
|
|
|
|
|
|
2,231 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment Adjusted EBITDA |
|
$ |
92 |
|
0.1% |
|
$ |
(8,587 |
) |
NM |
|
$ |
10,561 |
|
5.8% |
|
$ |
(9,748 |
) |
NM |
|
For the quarter ended March 31, 2010, Building Products revenue increased $3.0 million, or 4%, compared to the prior year quarter. The increase was primarily due to higher volume attributable to stabilization in the housing market, amid the continued effects of the weak commercial construction market, and the favorable translation benefit from a weaker U.S. dollar for Canadian based sales.
For the quarter ended March 31, 2010, Segment operating loss decreased $8.1 million, or 69%, compared to the prior year quarter. The improved operating performance was driven by higher volume and associated plant absorption, lower product costs and lower selling, general and administrative expenses driven by the various restructuring activities undertaken in the past several quarters.
For the six months ended March 31, 2010, Building Products revenue decreased $6.3 million, or 3%, compared to the prior year. The decrease was primarily due to the continued effects of the weak commercial construction market, amid stabilization in the housing market; partially offset by the favorable translation benefit from a weaker U.S. dollar for Canadian based sales.
For the six months ended March 31, 2010, Segment operating income (loss) increased $19.4 million compared to the prior year. The improved operating performance, not withstanding the decline in revenue, was primarily due to the same factors noted in the discussion of second quarter results.
The segments facilities consolidation project remains on schedule with expected completion in early calendar 2011.
Plastics
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||||||||||||||
(dollar amounts in thousands) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
115,583 |
|
|
|
$ |
100,269 |
|
|
|
$ |
217,599 |
|
|
|
$ |
212,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment operating income |
|
5,086 |
|
4.4% |
|
6,578 |
|
6.6% |
|
5,447 |
|
2.5% |
|
12,114 |
|
5.7% |
|
||||
Depreciation and amortization |
|
5,833 |
|
|
|
5,247 |
|
|
|
11,446 |
|
|
|
11,010 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment Adjusted EBITDA |
|
$ |
10,919 |
|
9.4% |
|
$ |
11,825 |
|
11.8% |
|
$ |
16,893 |
|
7.8% |
|
$ |
23,124 |
|
10.9% |
|
For the quarter ended March 31, 2010, Plastics revenue increased $15.3 million, or 15%, compared to the prior year quarter. The increase was primarily due to higher volume across all businesses and the benefit of favorable foreign exchange translation, partially offset by unfavorable product mix and lower customer selling prices driven by lower resin costs compared to the prior year quarter.
For the quarter ended March 31, 2010, Segment operating profit decreased by $1.5 million, or 23%, compared to the prior year quarter. The cost of resin has rebounded from early calendar 2009 lows, increasing cost of sales; such increased costs have not yet been reflected in higher customer selling prices, impacting margin. Plastics adjusts customer selling prices based on underlying resin costs, on a delayed basis. The Company expects that, based on current resin price trends, operating profit will slowly rebound from resin cost increases in the third fiscal quarter.
For the six months ended March 31, 2010, Segment revenue increased $4.6 million, or 2%, compared to prior year. The increase was primarily due to the same factors noted in the discussion of second quarter results.
For the six months ended March 31, 2010, Segment operating profit decreased by $6.7 million, or 55%, compared to the prior year due to the same factors noted in the discussion of second quarter results.
Unallocated Expenses
For the quarter ended March 31, 2010, unallocated expenses include approximately $1.5 million of costs incurred in connection with evaluating various acquisition opportunities; there was no comparable expense in the prior year quarter.
Other income (expense)
In the first quarter of 2009, the Company recorded a non-cash, pre-tax gain from debt extinguishment of $4.3 million, net of a proportionate write-off of deferred financing costs, which resulted from its October 2008 purchase of $35.5 million of its outstanding convertible notes at a discount.
In the three and six month periods ended March 31, 2010, interest expense decreased $0.1 million and $0.9 million, respectively, from the prior year, primarily as a result of lower average borrowings outstanding.
In the three and six month periods ended March 31, 2010, interest income decreased $40 thousand and $0.4 million, respectively, from the prior year primarily as a result of lower interest rates.
Other, net in other income included losses of $0.2 million and $0.3 million for the three month periods and losses of $0.2 million and $0.9 million for the six month periods ended March 31, 2010 and 2009, respectively, from foreign losses in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of the Company and its subsidiaries.
Provision for income taxes
The Companys effective tax rate for continuing operations for the quarter ended March 31, 2010 was a benefit of 137% of income before taxes, compared to a benefit of 61.2% of the 2009 quarters loss before income taxes. The 2010 quarter benefited from resolution of certain non-domestic tax audits resulting in the release of $1.5 million of tax and accrued interest from previously established reserves for uncertain tax positions. The prior year quarter benefited from tax planning, primarily with respect to foreign tax credits.
The Companys effective tax rate for continuing operations for the six months ended March 31, 2010 was a benefit of 5.9% of income before taxes, compared to 99% of the prior year loss before income taxes. The 2010 period benefited from resolution of certain non-domestic tax audits resulting in the release of $1.5 million of tax and accrued interest from previously established reserves for uncertain tax positions. The prior year period benefited from tax planning, primarily with respect to foreign tax credits.
Excluding the above discrete period items, the effective tax rate on continuing operations for the quarter and six month periods ended March 31, 2010 would have been an expense of 26.6% and 25.5%, respectively, of income before taxes. The effective tax rate for the 2009 quarter and six month periods ended March 31, 2009, excluding the tax planning items, would have been a benefit on the loss before income taxes of 30% and 35.1%, respectively.
Stock based compensation
For the three months ending March 31, 2010 and 2009, stock based compensation expense totaled $1.5 million and
$1.0 million, respectively. For the six months ending March 31, 2010 and 2009, stock based compensation expense totaled $2.9 million and $1.8 million, respectively.
Discontinued operations Installation Services
As a result of the downturn in the residential housing market, in 2008, the Company exited substantially all of the operating activities of its Installation Services segment, which sold, installed and serviced garage doors, garage door openers, fireplaces, floor coverings, cabinetry and a range of related building products primarily for the new residential housing market. Operating results of substantially all the Installation Services segment have been reported as discontinued operations for all periods presented herein, and the Installation Services segment is excluded from segment reporting.
The Company substantially concluded its remaining disposal activities in the second quarter of 2009. There was no revenue in the three and six month periods ended March 31, 2010 and 2009, as a result of the Companys exit from the segment in 2008.
Net income from discontinued operations of the Installation Services business was nil and $0.6 million for the three months ended and $0.1 million and $0.7 million for the six months ended March 31, 2010 and 2009, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Continuing Operations |
|
Six Months Ended March 31, |
|
||||
(in thousands) |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Net Cash Flows Provided by (Used In): |
|
|
|
|
|
||
Operating activities |
|
$ |
5,511 |
|
$ |
4,901 |
|
Investing activities |
|
(17,661 |
) |
(12,433 |
) |
||
Financing activities |
|
42,379 |
|
(28,213 |
) |
||
Cash flows provided by continuing operations for the six months ended March 31, 2010 were $5.5 million compared to $4.9 million in the prior year period. Working capital increased to $545.8 million at March 31, 2010 compared to $471.3 million at September 30, 2009, primarily as a result of long-term borrowing of $100 million in December 2009, partially offset by debt reductions of $54 million. Operating cash flows from continuing operations were affected by a large increase in receivables as well as a decrease in accounts payable, partially offset by the effect of a decrease in inventories and prepaid and other assets. The increase in receivables is primarily attributable to higher sales volume in the Telephonics and Plastics segments.
Payments related to revenue derived from the Telephonics segment are received in accordance with the terms of development and production subcontracts to which the Company is a party; certain of these receipts are progress 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, and where payment terms are established in advance. With respect to Building Products, there have been no material adverse impacts on payment for sales.
A small number of customers account for a substantial portion of historical net revenue, and the Company expects that this will continue for the foreseeable future. Approximately 18% and 21% of total net sales from continuing operations for the quarters ended March 31, 2010 and 2009, respectively, and 50% and 58% of Plastics sales for the quarters ended March 31, 2010 and 2009, respectively, were to Procter & Gamble, which is the largest customer in the Plastics segment. Approximately 18% and 21% of total net sales from continuing operations for the six months ended March 31, 2010 and 2009, respectively, and 51% and 57% of Plastics sales for the six months ended March 31, 2010 and 2009, respectively, were to Procter & Gamble. The Home Depot, Inc. and Menards, Inc. are significant customers of Building Products and Lockheed Martin Corporation and the Boeing Company are significant customers of Telephonics. Future operating results will continue to substantially depend on the success of the largest customers and the Companys relationships with them. Orders from these customers are subject to fluctuation and may be reduced
materially. The loss of all or a portion of the sales volume from any one of these customers would have an adverse affect on the Companys liquidity and operations.
During the six months ended March 31, 2010, the Company used cash for investing activities of continuing operations of $17.7 million compared to $12.4 million in the prior year period, primarily for capital expenditures. The Company expects capital spending to be in the range of $40 million to $45 million for 2010.
During the six months ended March 31, 2010, cash provided by financing activities totaled $42.4 million compared to cash used by financing activities of $28.2 million in the prior year period, the increase being primarily a result of the issuance of the $100 million principal of 4% convertible subordinated notes on December 21, 2009, due 2017 (the 2107 Notes).
Cash and Equivalents, and Debt |
|
At March 31, |
|
At September 30, |
|
||
(in thousands) |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Cash and equivalents |
|
$ |
348,442 |
|
$ |
320,833 |
|
|
|
|
|
|
|
||
Notes payables and current portion of long-term debt |
|
51,261 |
|
78,590 |
|
||
Long-term debt, net of current maturities |
|
150,360 |
|
98,394 |
|
||
Debt discount |
|
24,580 |
|
2,820 |
|
||
Total debt, excluding debt discount |
|
226,201 |
|
179,804 |
|
||
|
|
|
|
|
|
||
Cash and equivalents, net of debt, excluding debt discount |
|
$ |
122,241 |
|
$ |
141,029 |
|
At March 31, 2010, $20.7 million was outstanding under the Clopay Credit Agreement, a five-year, $100 million senior secured revolving credit facility; approximately $41.2 million was available to borrow under the facility.
At March 31, 2010, $30 million was outstanding under the Telephonics Credit Agreement, a five-year, $100 million senior secured revolving credit facility; approximately $64.4 million was available to borrow under the facility.
The Clopay Credit Agreement and the Telephonics Credit Agreement include various sublimits for standby letters of credit. At March 31, 2010, there were approximately $15.8 million of aggregate standby letters of credit outstanding under these facilities. These credit agreements limit dividends and advances that these subsidiaries may pay to the Company. The agreements permit the payment of income taxes, overhead and expenses, with dividends or advances in excess of these amounts limited based on (a) with respect to the Clopay Credit Agreement, maintaining certain minimum availability under the loan agreement or (b) with respect to the Telephonics Credit Agreement, compliance with certain conditions and limited to an annual maximum.
At March 31, 2010, the Company complied with the covenants under its respective credit facilities, and expects to remain in compliance for the reasonably foreseeable future. The Clopay Credit Agreement provides for credit availability primarily based on working capital assets and imposes only one ratio compliance requirement, which becomes operative only in the event that utilization of that facility were to reach a defined level significantly beyond the March 31, 2010 level. The Telephonics Credit Agreement is a cash flow based facility and compliance with required ratios at March 31, 2010 was well within the parameters set forth in that agreement. Further, the covenants within such credit facilities do not materially affect the Companys ability to undertake additional debt or equity financing for Griffon, the parent company, as such credit facilities are at the subsidiary level and are not guaranteed by Griffon. The debt balances under these credit facilities approximate fair values, as the interest rates are indexed to current market rates.
On December 21, 2009, the Company issued the 2017 Notes - $100 million principal of 4% convertible subordinated notes due 2017. The initial conversion rate of the 2017 Notes was 67.0799 shares of Griffons common stock per $1,000 principal amount of notes, corresponding to an initial conversion price of approximately $14.91 per share. This represents a 23% conversion premium over the $12.12 per share closing price on December 15, 2009. The outstanding balance of these notes on March 31, 2010 was $100 million and the fair value was approximately $108 million, based
on quoted market price (level 1 inputs).
The Company had $50 million outstanding of 4% convertible subordinated notes due 2023 (the 2023 Notes) at March 31, 2010. Holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes on July 18, 2010, 2013 and 2018, if the Companys common stock price is below the conversion price of the 2023 Notes, as well as upon a change in control. The Company anticipates that noteholders will require the Company to repurchase their outstanding 2023 Notes on the earliest of these dates. As such, these notes have been included in notes payable and current portion of long-term debt at March 31, 2010. The fair value approximates $50 million, based on quoted market price (level 1 inputs).
In January 2010, the Company purchased $10.1 million face value of the 2023 Notes for $10.2 million. The Company recorded a pre-tax gain from debt extinguishment of $32 thousand, offset by $20 thousand for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $12 thousand. Capital in excess of par was reduced by $0.3 million related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $0.2 million.
In December 2009, the Company purchased $19.2 million face value of the 2023 Notes for $19.4 million. Including a proportionate reduction in the related deferred financing costs, the Company recorded an immaterial net pre-tax loss on the extinguishment in the first quarter of 2010. Capital in excess of par value was reduced by $0.7 million related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $0.5 million.
In April 2009, the Company purchased $15.1 million face value of the 2023 Notes for $14.3 million. The Company recorded a pre-tax gain from debt extinguishment of $0.3 million, offset by $0.1 million for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $0.2 million in the third quarter of 2009. Capital in excess of par value was reduced by $0.3 million related to the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $0.8 million.
In October 2008, the Company purchased $35.5 million face value of the 2023 Notes for $28.4 million. The Company recorded a pre-tax gain from debt extinguishment of $4.6 million, offset by $0.3 million for a proportionate reduction in the related deferred financing costs for a net pre-tax gain of $4.3 million in the first quarter of 2009. No portion of the extinguishment was attributed to capital in excess of par value and the debt discount was reduced by $2.5 million.
The Company had $79.4 million and $130 million of 2023 Notes outstanding at September 30, 2009 and 2008, respectively.
Approximately 1.4 million shares of common stock are available for purchase pursuant to the Companys stock buyback program and additional purchases, including pursuant to a 10b5-1 plan, may be made, depending upon market conditions and other factors, at prices deemed appropriate by management.
The Companys Employee Stock Ownership Plan has a loan agreement, guaranteed by the Company, which requires payments of principal and interest through the expiration date of September 2012 at which time the $3.9 million balance of the loan, and any outstanding interest, will be payable. The primary purpose of this loan and its predecessor loans, which were refinanced by this loan in October 2008, was to purchase 547,605 shares of the Companys stock in October 2008. The loan bears interest at rates based upon the prime rate or LIBOR. The balance of the loan was $5.3 million at March 31, 2010, and the outstanding balance approximates fair value, as the interest rates are indexed to current market rates.
In June 2009, the Company announced plans to consolidate facilities in its Building Products segment scheduled to be completed in early 2011. When completed, the Company expects annual cost savings of $10 million. The Company estimates that it will incur pre-tax exit and restructuring costs approximating $12 million, substantially all of which will be cash charges, including $2 million for one-time termination benefits and other personnel costs, $1 million for excess facilities and related costs and $9 million in other exit costs primarily in connection with production realignment. In addition, the Company expects to make an investment in capital expenditures of $11 million in order to complete the restructuring plan. These charges and investments will occur primarily in 2010 and 2011. To date the
Company has incurred $3.5 million in related charges and made capital investments of $7.8 million.
The Company 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, 2010 are estimated to be $3.1 million. Certain of the Companys subsidiaries are also contingently liable for approximately $2.4 million related to certain facility leases with varying terms through 2012 that were assigned to the respective purchasers of certain of the Installation Services businesses. The Company does not believe it has a material exposure related to these contingencies.
Anticipated cash flows from operations, together with existing cash and cash equivalents, bank lines of credit and lease line availability, are expected to be adequate to finance presently anticipated working capital and capital expenditure requirements and to repay long-term debt as it matures.
CRITICAL ACCOUNTING POLICIES
The preparation of the Companys consolidated financial statements in conformity with GAAP requires the Company 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. The Company 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. The Companys actual results may materially differ from these estimates. There have been no changes in the Companys critical accounting policies from September 30, 2009.
The Companys 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, 2009. 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. The Company 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 the Company.
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 the Companys financial position, business strategy and the plans and objectives of the Companys 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; results of integrating acquired businesses into existing operations; the results of the Companys restructuring and disposal efforts; competitive factors; pricing pressures for resin and steel; capacity and supply constraints; the Companys ability to identify and successfully consummate and integrate value-adding acquisition opportunities; and the ability of the Company to remain in compliance with the covenants under its respective credit facilities. 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 the Company to differ are discussed under the caption Forward-Looking Statements in the Companys Form 10-K Annual Report for the year ended September 30, 2009. 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 the Companys filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the Companys 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.
Item 3 - 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 is required to be disclosed.
Item 4 - Controls and Procedures
Under the supervision and with the participation of the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the Companys disclosure controls and procedures were evaluated as of the end of the period covered by this report. Based on that evaluation, the Companys CEO and CFO concluded that the Companys disclosure controls and procedures were effective.
During the period covered by this report, there were no changes in the Companys internal control over financial reporting which materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company 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. The Companys disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Companys CEO and CFO have concluded that such controls and procedures are effective at the reasonable assurance level.
|
Legal Proceedings |
|
|
|
None |
|
|
|
|
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 the Companys Annual Report on Form 10-K for the year ended September 30, 2009, which could materially affect the Companys business, financial condition or future results. The risks described in the Companys Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys business, financial condition and/or operating results. |
|
|
|
|
Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
|
None |
|
|
|
|
Defaults upon Senior Securities |
|
|
|
None |
|
|
|
|
[Removed and Reserved] |
|
|
|
|
|
Other Information |
|
|
|
None |
|
|
|
|
Exhibits |
|
|
|
Exhibit 31.1 Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached hereto). |
|
|
Exhibit 31.2 Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (attached hereto). |
|
|
Exhibit 32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto). |
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 6, 2010 |
|
Exhibit 31.1 Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.