Edgar Filing: GRIFFON CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-06620

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)



DELAWARE		11-1893410
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

712 Fifth Ave, 18th Floor, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

(212) 957-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý	Accelerated filer	o
Non-accelerated filer o
	Smaller reporting company	o
	Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No

The number of shares of common stock outstanding at April 30, 2019 was 46,800,571.

Griffon Corporation and Subsidiaries

Contents



	Page
PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at March 31, 2019 (unaudited) and September 30, 2018	1

Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended March 31, 2019 and 2018 (unaudited)	2

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2019 and 2018 (unaudited)	4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2018 (unaudited)	5

Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	56

Item 4 - Controls & Procedures	57

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	58

Item 1A – Risk Factors	58

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3 – Defaults Upon Senior Securities	58

Item 4 – Mine Safety Disclosures	58

Item 5 – Other Information	58

Item 6 – Exhibits	59

Signatures	60

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



	(Unaudited)
	March 31, 2019		September 30, 2018
CURRENT ASSETS
Cash and equivalents	$	57,979	$	69,758
Accounts receivable, net of allowances of $10,025 and $6,408	344,049		280,509
Contract costs and recognized income not yet billed, net of progress payments of $5,300 and $3,172	83,904		121,803
Inventories	457,071		398,359
Prepaid and other current assets	45,778		42,121
Assets of discontinued operations	324		324
Total Current Assets	989,105		912,874
PROPERTY, PLANT AND EQUIPMENT, net	332,852		342,492
GOODWILL	439,118		439,395
INTANGIBLE ASSETS, net	364,740		370,858
OTHER ASSETS	15,192		16,355
ASSETS OF DISCONTINUED OPERATIONS	2,901		2,916
Total Assets	$	2,143,908	$	2,084,890

CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	10,807	$	13,011
Accounts payable	223,188		233,658
Accrued liabilities	120,532		139,192
Liabilities of discontinued operations	11,657		7,210
Total Current Liabilities	366,184		393,071
LONG-TERM DEBT, net	1,206,195		1,108,071
OTHER LIABILITIES	94,938		106,710
LIABILITIES OF DISCONTINUED OPERATIONS	2,307		2,647
Total Liabilities	1,669,624		1,610,499
COMMITMENTS AND CONTINGENCIES - See Note 19
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	474,284		474,391
Total Liabilities and Shareholders’ Equity	$	2,143,908	$	2,084,890

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

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GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Six Months Ended March 31, 2019

(Unaudited)



	COMMON STOCK			CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			TREASURY SHARES				ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION
(in thousands)	SHARES	PAR VALUE		CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			SHARES	COST			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION			TOTAL
Balance at September 30, 2018	81,520	$	20,380	$	503,396		$	550,523		35,846	$	(534,830	)	$	(34,112	)	$	(30,966	)	$	474,391
Net income	—	—		—			8,753			—	—			—			—			8,753
Cumulative catch-up adjustment related to adoption of ASC 606(1)	—	—		—			(5,673		)	—	—			—			—			(5,673		)
Dividend	—	—		—			(3,143		)	—	—			—			—			(3,143		)
Shares withheld on employee taxes on vested equity awards	—	—		—			—			83	(1,058		)	—			—			(1,058		)
Amortization of deferred compensation	—	—		—			—			—	—			—			856			856
Common stock acquired	—	—		—			—			29	(290		)	—			—			(290		)
Equity awards granted, net	1,201	300		(300		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		(8		)	—			—	—			—			—			(8		)
Stock-based compensation	—	—		2,933			—			—	—			—			—			2,933
Stock-based consideration	—	—		250			—			—	—			—			—			250
Other comprehensive income, net of tax	—	—		—			—			—	—			(5,450		)	—			(5,450		)
Balance at December 31, 2018	82,721	$	20,680	$	506,271		$	550,460		35,958	$	(536,178	)	$	(39,562	)	$	(30,110	)	$	471,561
Net income (loss)							(1,156		)											(1,156		)
Dividend	—	—		—			(3,704		)	—	—			—			—			(3,704		)
Shares withheld on employee taxes on vested equity awards	—	—		—			—			3	(48		)	—			—			(48		)
Amortization of deferred compensation	—	—		—			—			—	—			—			507			507
Common stock acquired	—	—		—			—			8	(82		)	—			—			(82		)
Equity awards granted, net	48	12		(12		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		601			—			—	—			—			—			601
Stock-based compensation	—	—		3,422			—			—	—			—			—			3,422
Stock-based consideration	—	—		303			—			—	—			—			—			303
Other comprehensive income, net of tax	—	—		—			—			—	—			2,880			—			2,880
Balance at March 31, 2019	82,769	$	20,692	$	510,585		$	545,600		35,969	$	(536,308	)	$	(36,682	)	$	(29,603	)	$	474,284

^{(1) See Note 14 - Recent Accounting Pronouncements and Note 3 - Revenue for additional information.}

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Six Months Ended March 31, 2018

(Unaudited)



	COMMON STOCK					CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			TREASURY SHARES				ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION
(in thousands)	SHARES		PAR VALUE			CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			SHARES	COST			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION			TOTAL
Balance at September 30, 2017	80,663		$	20,166		$	487,077		$	480,347		33,557	$	(489,225	)	$	(60,481	)	$	(39,076	)	$	398,808
Net income	—		—			—			30,989			—	—			—			—			30,989
Dividend	—		—			—			(2,990		)	—	—			—			—			(2,990		)
Shares withheld on employee taxes on vested equity awards	—		—			—			—			191	(4,332		)	—			—			(4,332		)
Amortization of deferred compensation	—		—			—			—			—	—			—			817			817
Equity awards granted, net	895		223			(223		)	—			—	—			—			—			—
ESOP allocation of common stock	—		—			608			—			—	—			—			—			608
Stock-based compensation	—		—			2,555			—			—	—			—			—			2,555
Other comprehensive income, net of tax	—		—			—			—			—	—			8,358			—			8,358
Balance at December 31, 2017	81,558		$	20,389		$	490,017		$	508,346		33,748	$	(493,557	)	$	(52,123	)	$	(38,259	)	$	434,813
Net income	—		—			—			90,280			—	—			—			—			90,280
Dividend	—		—			—			(46,660		)	—	—			—			—			(46,660		)
Shares withheld on employee taxes on vested equity awards	—		—			—			—			6	(114		)	—			—			(114		)
Amortization of deferred compensation	—		—			—			—			—	—			—			855			855
Common stock acquired	—		—			—			—			1,438	(28,415		)	—			—			(28,415		)
Equity awards granted, net	(84	)	(20		)	20			—			—	—			—			—			—
ESOP allocation of common stock	—		—			493			—			—	—			—			—			493
Stock-based compensation	—		—			2,365			—			—	—			—			—			2,365
Other comprehensive income, net of tax	—		—			—			—			—	—			20,401			—			20,401
Balance at March 31, 2018	81,474		$	20,369		$	492,895		$	551,966		35,192	$	(522,086	)	$	(31,722	)	$	(37,404	)	$	474,018

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

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GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(Unaudited)



	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Revenue	$	549,633		$	478,560		$	1,060,155		$	915,863
Cost of goods and services	412,129			357,181			779,605			673,705
Gross profit	137,504			121,379			280,550			242,158

Selling, general and administrative expenses	111,783			104,493			225,537			211,117

Income from operations	25,721			16,886			55,013			31,041

Other income (expense)
Interest expense	(17,517		)	(16,806		)	(34,046		)	(33,645		)
Interest income	212			762			410			959
Other, net	1,268			2,346			2,272			2,760
Total other expense, net	(16,037		)	(13,698		)	(31,364		)	(29,926		)

Income before taxes from continuing operations	9,684			3,188			23,649			1,115
Provision (benefit) from income taxes	3,194			1,237			8,406			(23,667		)
Income from continuing operations	$	6,490		$	1,951		$	15,243		$	24,782

Discontinued operations:
Income (loss) from operations of discontinued operations	$	(11,000	)	$	113,376		(11,000		)	124,842
Provision (benefit) for income taxes	(3,354		)	25,047			(3,354		)	28,355
Income (loss) from discontinued operations	$	(7,646	)	$	88,329		(7,646		)	96,487
Net income (loss)	$	(1,156	)	$	90,280		$	7,597		$	121,269

Income from continuing operations	$	0.16		$	0.05		$	0.37		$	0.59
Income (loss) from discontinued operations	(0.19		)	2.13			(0.19		)	2.31
Basic earnings per common share	$	(0.03	)	$	2.18		$	0.19		$	2.91

Weighted-average shares outstanding	40,949			41,477			40,849			41,700

Income from continuing operations	$	0.15		$	0.05		$	0.36		$	0.58
Income (loss) from discontinued operations	(0.18		)	2.07			(0.18		)	2.24
Diluted earnings per common share	$	(0.03	)	$	2.11		$	0.18		$	2.82

Weighted-average shares outstanding	42,832			42,765			42,376			43,062

Dividends paid per common share	$	0.0725		$	0.0700		$	0.1450		$	0.1400

Net income (loss)	$	(1,156	)	$	90,280		$	7,597		$	121,269
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	2,885			19,714			(2,851		)	18,425
Pension and other post retirement plans	184			247			368			9,806
Change in cash flow hedges	(189		)	440			(87		)	528
Total other comprehensive income (loss), net of taxes	2,880			20,401			(2,570		)	28,759
Comprehensive income, net	$	1,724		$	110,681		$	5,027		$	150,028

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

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GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



	Six Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS:
Net income	$	7,597		$	121,269
Net (income) loss from discontinued operations	7,646			(96,487		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	30,577			26,271
Stock-based compensation	6,355			4,920
Provision (recovery) for losses on accounts receivable	316			(201		)
Amortization of debt discounts and issuance costs	2,841			2,754
Deferred income taxes	(865		)	(23,136		)
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable and contract costs and recognized income not yet billed	(47,669		)	(16,631		)
Increase in inventories	(37,852		)	(48,295		)
Decrease in prepaid and other assets	2,323			2,613
Decrease in accounts payable, accrued liabilities and income taxes payable	(28,945		)	(21,021		)
Other changes, net	2,670			844
Net cash used in operating activities - continuing operations	(55,006		)	(47,100		)
CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Acquisition of property, plant and equipment	(17,418		)	(21,628		)
Acquired businesses, net of cash acquired	(9,219		)	(246,230		)
Proceeds from sale of business	—			473,977
Insurance proceeds (payments)	(10,604		)	8,254
Proceeds from sale of assets	62			454
Investment purchase	(149		)	—
Net cash provided by (used in) investing activities - continuing operations	(37,328		)	214,827
CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Dividends paid	(6,847		)	(5,872		)
Purchase of shares for treasury	(1,478		)	(32,861		)
Proceeds from long-term debt	143,101			347,898
Payments of long-term debt	(48,169		)	(229,941		)
Financing costs	(945		)	(7,451		)
Contingent consideration for acquired businesses	(1,686		)	—
Other, net	83			126
Net cash provided by financing activities - continuing operations	84,059			71,899
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities	(3,438		)	(15,080		)
Net cash used in investing activities	—			(10,762		)
Net cash used in financing activities	—			(22,541		)

Net cash used in discontinued operations	(3,438		)	(48,383		)
Effect of exchange rate changes on cash and equivalents	(66		)	(2,468		)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(11,779		)	188,775
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	69,758			47,681
CASH AND EQUIVALENTS AT END OF PERIOD	$	57,979		$	236,456

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF).

Griffon currently conducts its operations through two reportable segments:


•	Home & Building Products (“HBP”) segment consists of two companies, The AMES Companies, Inc. (“AMES”) and Clopay Building Products Company, Inc, (“CBP”):

AMES, founded in 1774, is the leading North American manufacturer and a global provider of branded consumer and professional tools, landscaping products, and outdoor lifestyle solutions. In 2018, we acquired ClosetMaid LLC ("ClosetMaid"), a leader in wood and wire closet organization, general living storage and wire garage storage products for homeowners and professionals.

CBP, since 1964, is a leading manufacturer and marketer of residential and commercial garage doors and sells to professional dealers and some of the largest home center retail chains in North America. In 2018, we acquired CornellCookson, a leading U.S. manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional, and retail use.


•	Defense Electronics segment consists of Telephonics Corporation ("Telephonics"), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

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 (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2018, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s HBP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet information at September 30, 2018 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2018.

The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of fixed and intangible assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of assets and liabilities of discontinued operations, acquisition assumptions used and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.

Certain amounts in the prior year have been reclassified to conform to current year presentation.

NOTE 2 – FAIR VALUE MEASUREMENTS

The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates.

Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows:


•	Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets.

•

Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.


•	Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair values of Griffon’s 2022 senior notes approximated $985,770 on March 31, 2019. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with values of $2,481 at March 31, 2019 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets.

Items Measured at Fair Value on a Recurring Basis

At March 31, 2019, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $2,825 ($2,233 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of March 31, 2019, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in US dollars.

At March 31, 2019, Griffon had $8,000 of Australian dollar contracts at a weighted average rate of $1.41 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current

assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred gains of $549 ($384, net of tax) at March 31, 2019 and a gain of $242 and $934 was recorded in COGS during the three and six months ended March 31, 2019, respectively, for all settled contracts. All contracts expire in 30 to 88 days.

At March 31, 2019, Griffon had $1,460 of Canadian dollar contracts at a weighted average rate of $1.33. The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and six months ended March 31, 2019, fair value gains (losses) of $ $18 and $(23) was recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gain of $68 and $58 were recorded in Other income during the three and six months ended March 31, 2019, respectively, for all settled contracts. All contracts expire in 29 to 120 days.

NOTE 3 – REVENUE

On October 1, 2018, the Company adopted the requirements of Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective method applied to those contracts that were not completed as of October 1, 2018. The Company’s comparative consolidated results over the prior period have not been adjusted and continue to be reported under previously issued guidance, ASC 605 - Revenue Recognition, which required that revenue was accounted for when the earnings process was complete.

This accounting standard did not materially impact the Company’s revenue recognition practices in our Home and Building Products (“HBP”) Segment, however, it impacted revenue recognition practices in our Defense Electronics Segment. The impact of adopting this accounting standard was not material to the Company’s consolidated financial statements as of and for the three and six months ended March 31, 2019. Under the modified retrospective method, the Company recognized the cumulative effect of initially applying this accounting standard as an adjustment to the opening balance in retained earnings of approximately $5,673 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and / or no right to payment. For these contracts, the Company now recognizes revenue at a point in time, rather than over time as this measure more accurately depicts the transfer of control to the customer relative to the goods or services promised under the contract.

The cumulative effect of the changes made to the Company's Consolidated October 1, 2018 Balance Sheet for the adoption of ASC 606 is as follows:



Balance Sheet	As Reported at September 30, 2018		Adjustments			Balance as of October 1, 2018
CURRENT ASSETS
Contract costs and recognized income not yet billed, net of progress payments	$	121,803	$	(20,982	)	$	100,821
Inventories	398,359		22,025			420,384
Total Current Assets	912,874		1,043			913,917
Total Assets	2,084,890		1,043			2,085,933

CURRENT LIABILITIES
Accounts payable	233,658		8,282			241,940
Billings in excess of costs ⁽¹⁾	17,559		8,282			25,841
Total Current Liabilities	393,071		8,282			401,353
OTHER LIABILITIES	106,710		(1,566		)	105,144
Total Liabilities	1,610,499		6,716			1,617,215

SHAREHOLDERS' EQUITY
Retained Earnings	550,523		(5,673		)	544,850
Total Shareholders' Equity	474,391		(5,673		)	468,718
Total Liabilities and Shareholders’ Equity	$	2,084,890	$	1,043		$	2,085,933

⁽¹⁾ Billings in excess of costs is reported in Accounts payable on the Company's Consolidated Balance Sheets.

The impact to the Company's Consolidated Statement of Operations for the three and six months ended March 31, 2019 and to the Company's Balance Sheet as of March 31, 2019 was as follows:



	For the Three Months Ended March 31, 2019
Income Statement	As Reported		Balances Without Adoption of ASC 606		Effect of Adoption Higher/(Lower)
Net sales	$	549,633	$	548,053	$	1,580
Cost of goods and services	412,129		410,898		1,231
Income (loss) before taxes from continuing operations	9,684		9,335		349
Provision (benefit) from income taxes	3,194		3,118		76
Income from continuing operations	6,490		6,217		273



	For the Six Months Ended March 31, 2019
Income Statement	As Reported		Balances Without Adoption of ASC 606		Effect of Adoption Higher/(Lower)
Net sales	$	1,060,155	$	1,053,969	$	6,186
Cost of goods and services	779,605