UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q


x

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

 

 

 

For the quarterly period ended June 30, 2013

 

 

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. x Yes     o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes     o No

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

Accelerated filer

x

 

Non-accelerated filer    o

Smaller reporting company

o

 

(Do not check if a smaller reporting company)

 

 

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

The number of shares of common stock outstanding at July 31, 2013 was 59,651,842.


Griffon Corporation and Subsidiaries

Contents

 

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1 – Financial Statements

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2013 (unaudited) and September 30, 2012

1

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2013 (unaudited)

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2013 and 2012 (unaudited)

2

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2013 and 2012 (unaudited)

3

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

4

 

 

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

26

 

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

37

 

 

Item 4 - Controls & Procedures

37

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1 – Legal Proceedings

38

 

 

Item 1A – Risk Factors

38

 

 

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

38

 

 

Item 3 – Defaults Upon Senior Securities

38

 

 

Item 4 – Mine Safety Disclosures

38

 

 

Item 5 – Other Information

38

 

 

Item 6 – Exhibits

39

 

 

Signatures

40

 

 

Exhibit Index

41



Part I – Financial Information
Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

 

 

 

 

 

 

 

 

 

 

(Unaudited)
At June 30,
2013

 

At September 30,
2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and equivalents

 

$

126,104

 

$

209,654

 

Accounts receivable, net of allowances of $5,525 and $5,433

 

 

271,743

 

 

239,857

 

Contract costs and recognized income not yet billed, net of progress payments of $4,062 and $3,748

 

 

117,273

 

 

70,777

 

Inventories, net

 

 

219,329

 

 

257,868

 

Prepaid and other current assets

 

 

58,711

 

 

47,472

 

Assets of discontinued operations

 

 

554

 

 

587

 

 

 

   

 

   

 

Total Current Assets

 

 

793,714

 

 

826,215

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

348,440

 

 

356,879

 

GOODWILL

 

 

356,375

 

 

358,372

 

INTANGIBLE ASSETS, net

 

 

221,783

 

 

230,473

 

OTHER ASSETS

 

 

25,668

 

 

31,317

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

2,646

 

 

2,936

 

 

 

   

 

   

 

Total Assets

 

$

1,748,626

 

$

1,806,192

 

 

 

   

 

   

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

13,384

 

$

17,703

 

Accounts payable

 

 

144,438

 

 

141,704

 

Accrued liabilities

 

 

94,213

 

 

110,337

 

Liabilities of discontinued operations

 

 

1,690

 

 

3,639

 

 

 

   

 

   

 

Total Current Liabilities

 

 

253,725

 

 

273,383

 

LONG-TERM DEBT, net of debt discount of $14,116 and $16,607

 

 

678,307

 

 

681,907

 

OTHER LIABILITIES

 

 

181,589

 

 

193,107

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

2,631

 

 

3,643

 

 

 

   

 

   

 

Total Liabilities

 

 

1,116,252

 

 

1,152,040

 

COMMITMENTS AND CONTINGENCIES - See Note 18

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

632,374

 

 

654,152

 

 

 

   

 

   

 

Total Liabilities and Shareholders’ Equity

 

$

1,748,626

 

$

1,806,192

 

 

 

   

 

   

 

GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


COMMON STOCK

 

CAPITAL IN
EXCESS OF
PAR VALUE

 

RETAINED
EARNINGS

 

TREASURY SHARES

 

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)

 

DEFERRED
ESOP & OTHER
COMPENSATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

SHARES

 

PAR VALUE

 

 

 

SHARES

 

COST

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 9/30/2012

 

 

76,509

 

$

19,127

 

$

482,009

 

$

436,421

 

 

15,621

 

$

(242,081

)

$

(19,559

)

$

(21,765

)

$

654,152

 

Net income

 

 

 

 

 

 

 

 

3,342

 

 

 

 

 

 

 

 

 

 

3,342

 

Dividend

 

 

 

 

 

 

 

 

(4,384

)

 

 

 

 

 

 

 

 

 

(4,384

)

Tax effect from exercise/vesting of equity awards, net

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

150

 

Amortization of deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,498

 

 

1,498

 

Common stock acquired

 

 

 

 

 

 

 

 

 

 

2,310

 

 

(25,689

)

 

 

 

 

 

(25,689

)

Equity awards granted, net

 

 

1,140

 

 

285

 

 

(502

)

 

 

 

 

 

 

 

 

 

 

 

(217

)

ESOP allocation of common stock

 

 

 

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

148

 

Stock-based compensation

 

 

 

 

 

 

9,327

 

 

 

 

 

 

 

 

 

 

 

 

9,327

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,953

)

 

 

 

(5,953

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

Balance at 6/30/2013

 

 

77,649

 

$

19,412

 

$

491,132

 

$

435,379

 

 

17,931

 

$

(267,770

)

$

(25,512

)

$

(20,267

)

$

632,374

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

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

1


GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

509,826

 

$

480,246

 

$

1,422,318

 

$

1,413,709

 

Cost of goods and services

 

 

401,515

 

 

364,601

 

 

1,110,840

 

 

1,092,555

 

 

 

   

 

   

 

   

 

   

 

Gross profit

 

 

108,311

 

 

115,645

 

 

311,478

 

 

321,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

86,345

 

 

87,443

 

 

254,623

 

 

256,661

 

Restructuring and other related charges

 

 

1,604

 

 

 

 

12,048

 

 

1,795

 

 

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

87,949

 

 

87,443

 

 

266,671

 

 

258,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

20,362

 

 

28,202

 

 

44,807

 

 

62,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(13,279

)

 

(12,932

)

 

(39,446

)

 

(39,000

)

Interest income

 

 

142

 

 

77

 

 

321

 

 

225

 

Other, net

 

 

607

 

 

(354

)

 

1,515

 

 

723

 

 

 

   

 

   

 

   

 

   

 

Total other income (expense)

 

 

(12,530

)

 

(13,209

)

 

(37,610

)

 

(38,052

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

7,832

 

 

14,993

 

 

7,197

 

 

24,646

 

Provision for income taxes

 

 

4,229

 

 

5,945

 

 

3,855

 

 

11,083

 

 

 

   

 

   

 

   

 

   

 

Net income

 

$

3,603

 

$

9,048

 

$

3,342

 

$

13,563

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.07

 

$

0.16

 

$

0.06

 

$

0.24

 

 

 

   

 

   

 

   

 

   

 

Weighted-average shares outstanding

 

 

54,265

 

 

56,034

 

 

54,588

 

 

56,032

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.06

 

$

0.16

 

$

0.06

 

$

0.24

 

 

 

   

 

   

 

   

 

   

 

Weighted-average shares outstanding

 

 

56,204

 

 

57,495

 

 

56,735

 

 

57,311

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,603

 

$

9,048

 

$

3,342

 

$

13,563

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(7,884

)

 

(18,527

)

 

(10,805

)

 

(13,479

)

Pension amortization

 

 

490

 

 

523

 

 

4,839

 

 

1,562

 

Gain on cash flow hedge

 

 

(158

)

 

 

 

13

 

 

 

 

 

   

 

   

 

   

 

   

 

Total other comprehensive income (loss), net of taxes

 

 

(7,552

)

 

(18,004

)

 

(5,953

)

 

(11,917

)

 

 

   

 

   

 

   

 

   

 

Comprehensive income (loss)

 

$

(3,949

)

$

(8,956

)

$

(2,611

)

$

1,646

 

 

 

   

 

   

 

   

 

   

 

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

2


GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30,

 

 

 

 

 

 

 

2013

 

2012

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

3,342

 

$

13,563

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

52,787

 

 

48,668

 

Stock-based compensation

 

 

9,327

 

 

7,599

 

Fixed asset impairment charges - restructuring

 

 

3,122

 

 

 

Provision for losses on accounts receivable

 

 

824

 

 

532

 

Amortization/write-off of deferred financing costs and debt discounts

 

 

4,651

 

 

4,497

 

Deferred income taxes

 

 

(897

)

 

(1,185

)

(Gain) loss on sale/disposal of assets

 

 

(788

)

 

59

 

Change in assets and liabilities, net of assets and liabilities acquired:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed

 

 

(81,381

)

 

10,601

 

(Increase) decrease in inventories

 

 

36,588

 

 

(4,171

)

(Increase) decrease in prepaid and other assets

 

 

2,890

 

 

(3,970

)

Decrease in accounts payable, accrued liabilities and income taxes payable

 

 

(28,767

)

 

(49,574

)

Other changes, net

 

 

856

 

 

3,728

 

 

 

   

 

   

 

Net cash provided by operating activities

 

 

2,554

 

 

30,347

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(45,886

)

 

(57,695

)

Acquired business, net of cash acquired

 

 

 

 

(22,432

)

Proceeds from sale of assets

 

 

1,326

 

 

281

 

 

 

   

 

   

 

Net cash used in investing activities

 

 

(44,560

)

 

(79,846

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Dividends paid

 

 

(4,384

)

 

(3,564

)

Purchase of shares for treasury

 

 

(25,689

)

 

(5,670

)

Proceeds from issuance of long-term debt

 

 

303

 

 

4,000

 

Payments of long-term debt

 

 

(12,842

)

 

(14,563

)

Change in short-term borrowings

 

 

2,408

 

 

(1,262

)

Financing costs

 

 

(759

)

 

(97

)

Tax effect from exercise/vesting of equity awards, net

 

 

150

 

 

834

 

Other, net

 

 

261

 

 

67

 

 

 

   

 

   

 

Net cash used in financing activities

 

 

(40,552

)

 

(20,255

)

CASH FLOWS FROM DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(486

)

 

(1,690

)

 

 

   

 

   

 

Net cash used in discontinued operations

 

 

(486

)

 

(1,690

)

Effect of exchange rate changes on cash and equivalents

 

 

(506

)

 

327

 

 

 

   

 

   

 

NET DECREASE IN CASH AND EQUIVALENTS

 

 

(83,550

)

 

(71,117

)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

209,654

 

 

243,029

 

 

 

   

 

   

 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

126,104

 

$

171,912

 

 

 

   

 

   

 

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

3


GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

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

Griffon currently conducts its operations through three segments:

 

 

 

 

 

Home & Building Products (“HBP”) consists of two companies, Ames True Temper, Inc. (“ATT”) and Clopay Building Products Company, Inc. (“CBP”):

 

 

 

 

 

 

-

ATT is a global provider of non-powered landscaping products that make work easier for homeowners and professionals.

 

 

 

 

 

 

-

CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.

 

 

 

 

 

Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.

 

 

 

 

 

Clopay Plastic Products Company, Inc. (“Plastics”) is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. As such, they should be read with reference to Griffon’s Annual Report on Form 10-K for the year ended September 30, 2012, 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, 2012 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2012.

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

4


The preparation of financial statements in conformity with U.S. 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 intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of discontinued assets and liabilities, and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.

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

NOTE 2 – FAIR VALUE MEASUREMENTS

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

The fair values of Griffon’s 2018 senior notes and 2017 4% convertible notes approximated $594,000 and $106,900, respectively, on June 30, 2013. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts and trading securities with values of $3,922 and $2,198 at June 30, 2013, respectively, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs).

Items Measured at Fair Value on a Recurring Basis

At June 30, 2013, Griffon had $1,000 of Australian dollar contracts at a weighted average rate of $1.09. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and a fair value gain of $135 and $122 was recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the three and nine months ended June 30, 2013, respectively. All contracts expire in 15 to 60 days.

In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates. In order to manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. During the second and third quarters of 2013, Clopay Europe and Clopay Plastics entered into forward exchange contracts to receive $3,375 USD and $1,313 USD at the fixed exchange rate of 1.35 USD/EUR and 1.31 USD/EUR on April 3, 2013 and July 2, 2013, respectively. These contracts were created in order to lock into a foreign currency rate for a planned settlement of inter-company liabilities payable in USD. At inception, the hedges were deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current assets until settlement. Upon settlement, gains and losses are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) as Other income. A gain of $171 was recorded in Other income in the three and nine months ended June 30, 2013, respectively. Amounts recorded as Prepaid and other current assets in the Condensed Consolidated Balance Sheet were $13 and nil as of June 30, 2013 and September 30, 2012, respectively, for the fair value of these contracts, based on similar contract values (level 2 inputs).

5


NOTE 3 – ACQUISITION

On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. (“SSMG”) for $22,432. The acquired business, which markets its products under the Southern PatioTM brand (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which was integrated with ATT, had revenue exceeding $40,000 in 2011.

The accounts of the acquired company, after adjustment to reflect fair market values assigned to assets purchased, have been included in the consolidated financial statements from date of acquisition.

The following table summarizes the fair values of the Southern Patio assets as of the date of acquisition:

 

 

 

 

 

Inventory

 

$

3,673

 

PP&E

 

 

416

 

Goodwill

 

 

4,655

 

Amortizable intangible assets

 

 

11,077

 

Indefinite life intangible assets

 

 

2,611

 

 

 

   

 

Total assets acquired

 

$

22,432

 

 

 

   

 

 

 

 

 

 

The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the Southern Patio acquisition are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization
Period (Years)

 

 

 

 

 

 

   

 

Goodwill

 

$

4,655

 

 

N/A

 

Tradenames

 

 

2,611

 

 

Indefinite

 

Customer relationships

 

 

11,077

 

 

25

 

 

 

   

 

 

 

 

 

 

$

18,343

 

 

 

 

 

 

   

 

 

 

 

NOTE 4 - INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out or average) or market.

The following table details the components of inventory:

 

 

 

 

 

 

 

 

 

 

At June 30,
2013

 

At September 30,
2012

 

 

 

 

 

 

 

Raw materials and supplies

 

$

66,373

 

$

63,596

 

Work in process

 

 

56,280

 

 

67,077

 

Finished goods

 

 

96,676

 

 

127,195

 

 

 

 

 

 

 

Total

 

$

219,329

 

$

257,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6


NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

The following table details the components of property, plant and equipment, net:

 

 

 

 

 

 

 

 

 

 

At June 30,
2013

 

At September 30,
2012

 

 

 

 

 

 

 

Land, building and building improvements

 

$

128,415

 

$

125,330

 

Machinery and equipment

 

 

645,023

 

 

622,983

 

Leasehold improvements

 

 

35,583

 

 

34,890

 

 

 

   

 

   

 

 

 

 

809,021

 

 

783,203

 

Accumulated depreciation and amortization

 

 

(460,581

)

 

(426,324

)

 

 

   

 

   

 

Total

 

$

348,440

 

$

356,879

 

 

 

   

 

   

 

Depreciation and amortization expense for property, plant and equipment was $15,781 and $14,826 for the quarters ended June 30, 2013 and 2012, respectively, and $46,846 and $42,597 for the nine months ended June 30, 2013, and 2012, respectively.

No event or indicator of impairment occurred during the quarter ended June 30, 2013, which would require additional impairment testing of property, plant and equipment.

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

The following table provides changes in the carrying value of goodwill by segment during the nine months ended June 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30,
2012

 

Other adjustments
including currency
translations

 

At June 30, 2013

 

 

 

         

 

Home & Building Products

 

$

269,802

 

$

 

$

269,802

 

Telephonics

 

 

18,545

 

 

 

 

18,545

 

Plastics

 

 

70,025

 

 

(1,997

)

 

68,028

 

 

 

               

 

Total

 

$

358,372

 

$

(1,997

)

$

356,375

 

 

 

               

 

The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2013

 

 

 

At September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Average
Life
(Years)

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

165,250

 

$

26,837

 

 

25

 

$

167,603

 

$

21,799

 

Unpatented technology

 

 

6,803

 

 

2,770

 

 

12.5

 

 

6,751

 

 

2,334

 

 

 

   

 

   

 

 

 

 

   

 

   

 

Total amortizable intangible assets

 

 

172,053

 

 

29,607

 

 

 

 

 

174,354

 

 

24,133

 

Trademarks

 

 

79,337

 

 

 

 

 

 

 

80,252

 

 

 

 

 

   

 

   

 

 

 

 

   

 

   

 

Total intangible assets

 

$

251,390

 

$

29,607

 

 

 

 

$

254,606

 

$

24,133

 

 

 

   

 

   

 

 

 

 

   

 

   

 

Amortization expense for intangible assets was $1,969 and $2,006 for the quarters ended June 30, 2013 and 2012, respectively, and $5,941 and $6,071 for the nine months ended June 30, 2013 and 2012, respectively.

No event or indicator of impairment occurred during the quarter ended June 30, 2013, which would require impairment testing of long-lived intangible assets including goodwill.

7


NOTE 7 – INCOME TAXES

The effective tax rates for the quarter and nine-month period ended June 30, 2013 were 54.0% and 53.6%, respectively, compared to 39.7% and 45.0% in the comparable prior year periods, respectively. The rates include discrete benefits in the current and prior year quarter of $1,495 and $1,626, respectively, and in the current and prior year nine-month periods of $1,859 and $1,626, respectively, primarily resulting from the release of previously established reserves for uncertain tax positions on conclusion of certain tax audits, and benefits arising on the filing of tax returns in various jurisdictions.

Excluding discrete items, the effective tax rates for the quarter and nine-month period ended June 30, 2013 were 73.1% and 79.4%, respectively, compared to 50.5% and 51.6% in the comparable prior year periods, respectively. Rates in all periods reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and of changes in earnings mix between domestic and non-domestic operations, all of which are material relative to the level of pretax result.

NOTE 8 – LONG-TERM DEBT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2013

 

At September 30, 2012

 

 

 

 

 

 

 

 

 

Outstanding
Balance

 

Original
Issuer
Discount

 

Balance
Sheet

 

Capitalized
Fees &
Expenses

 

Coupon
Interest Rate

 

Outstanding
Balance

 

Original
Issuer
Discount

 

Balance
Sheet

 

Capitalized
Fees &
Expenses

 

Coupon
Interest Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes due 2018

(a)

$

550,000

 

$

 

$

550,000

 

$

7,644

 

 

7.100

%

$

550,000

 

$

 

$

550,000

 

$

8,862

 

 

7.125

%

Revolver due 2016

(a)

 

 

 

 

 

 

 

2,490

 

 

n/a

 

 

 

 

 

 

 

 

2,175

 

 

n/a

 

Convert. debt due 2017

(b)

 

100,000

 

 

(14,116

)

 

85,884

 

 

1,588

 

 

4.000

%

 

100,000

 

 

(16,607

)

 

83,393

 

 

1,921

 

 

4.000

%

Real estate mortgages

(c)

 

13,446

 

 

 

 

13,446

 

 

206

 

 

n/a

 

 

14,063

 

 

 

 

14,063

 

 

271

 

 

n/a

 

ESOP Loans

(d)

 

21,504

 

 

 

 

21,504

 

 

26

 

 

n/a

 

 

22,723

 

 

 

 

22,723

 

 

32

 

 

n/a

 

Capital lease - real estate

(e)

 

9,764

 

 

 

 

9,764

 

 

213

 

 

5.000

%

 

10,455

 

 

 

 

10,455

 

 

232

 

 

5.000

%

Term loan due 2013

(f)

 

5,203

 

 

 

 

5,203

 

 

43

 

 

n/a

 

 

12,873

 

 

 

 

12,873

 

 

107

 

 

n/a

 

Revolver due 2013

(f)

 

 

 

 

 

 

 

 

 

n/a

 

 

 

 

 

 

 

 

 

 

n/a

 

Foreign lines of credit

(g)

 

4,078

 

 

 

 

4,078

 

 

 

 

n/a

 

 

2,064

 

 

 

 

2,064

 

 

 

 

n/a

 

Foreign term loan

(g)

 

915

 

 

 

 

915

 

 

8

 

 

n/a

 

 

2,693

 

 

 

 

2,693

 

 

19

 

 

n/a

 

Other long term debt

(h)

 

897

 

 

 

 

897

 

 

 

 

n/a

 

 

1,346

 

 

 

 

1,346

 

 

 

 

n/a

 

 

 

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

Totals

 

 

705,807

 

 

(14,116

)

 

691,691

 

$

12,218

 

 

 

 

 

716,217

 

 

(16,607

)

 

699,610

 

$

13,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

less: Current portion

 

 

(13,384

)

 

 

 

(13,384

)

 

 

 

 

 

 

 

(17,703

)

 

 

 

(17,703

)

 

 

 

 

 

 

 

 

   

 

   

 

   

 

 

 

 

 

 

 

   

 

   

 

   

 

 

 

 

 

 

 

Long-term debt

 

$

692,423

 

$

(14,116

)

$

678,307

 

 

 

 

 

 

 

$

698,514

 

$

(16,607

)

$

681,907

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

 

 

 

 

 

 

   

 

   

 

   

 

 

 

 

 

 

 

8



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2013

 

Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Effective
Interest Rate

 

Cash Interest

 

Amort. Debt
Discount

 

Amort.
Deferred Cost
& Other Fees

 

Total Interest
Expense

 

Effective
Interest Rate

 

Cash Interest

 

Amort. Debt
Discount

 

Amort.
Deferred Cost
& Other Fees

 

Total
Interest
Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes due 2018

(a)

 

7.4

%

$

9,797

 

$

 

$

406

 

$

10,203

 

 

7.4

%

$

9,797

 

$

 

$

406

 

$

10,203

 

Revolver due 2016

(a)

 

n/a

 

 

179

 

 

 

 

131

 

 

310

 

 

n/a

 

 

440

 

 

 

 

157

 

 

597

 

Convert. debt due 2017

(b)

 

9.1

%

 

1,000

 

 

846

 

 

110

 

 

1,956

 

 

9.2

%

 

1,000

 

 

777

 

 

111

 

 

1,888

 

Real estate mortgages

(c)

 

4.9

%

 

133

 

 

 

 

22

 

 

155

 

 

5.6

%

 

142

 

 

 

 

22

 

 

164

 

ESOP Loans

(d)

 

2.8

%

 

151

 

 

 

 

2

 

 

153

 

 

3.0

%

 

177

 

 

 

 

2

 

 

179

 

Capital lease - real estate

(e)

 

5.3

%

 

125

 

 

 

 

6

 

 

131

 

 

5.3

%

 

136

 

 

 

 

6

 

 

142

 

Term loan due 2013

(f)

 

4.1

%

 

58

 

 

 

 

22

 

 

80

 

 

3.4

%

 

164

 

 

 

 

21

 

 

185

 

Revolver due 2013

(f)

 

n/a

 

 

16

 

 

 

 

 

 

16

 

 

n/a

 

 

 

 

 

 

 

 

 

Foreign lines of credit

(g)

 

13.6

%

 

139

 

 

 

 

 

 

139

 

 

15.0

%

 

26

 

 

 

 

 

 

26

 

Foreign term loan

(g)

 

10.8

%

 

51

 

 

 

 

4

 

 

55

 

 

10.9

%

 

101

 

 

 

 

8

 

 

109

 

Other long term debt

(h)

 

 

 

 

272

 

 

 

 

 

 

272

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Capitalized interest

 

 

 

 

 

(191

)

 

 

 

 

 

(191

)

 

 

 

 

(591

)

 

 

 

 

 

(591

)

 

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

Totals

 

 

 

 

$

11,730

 

$

846

 

$

703

 

$

13,279

 

 

 

 

$

11,422

 

$

777

 

$

733

 

$

12,932

 

 

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2013

 

Nine Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

Effective
Interest Rate

 

Cash Interest

 

Amort. Debt
Discount

 

Amort.
Deferred Cost
& Other Fees

 

Total Interest
Expense

 

Effective
Interest Rate

 

Cash Interest

 

Amort. Debt
Discount

 

Amort.
Deferred Cost
& Other Fees

 

Total
Interest
Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes due 2018

(a)

 

7.4

%

$

29,391

 

$

 

$

1,217

 

$

30,608

 

 

7.4

%

$

29,391

 

$

 

$

1,218

 

$

30,609

 

Revolver due 2016

(a)

 

0.0

%

 

603

 

 

 

 

444

 

 

1,047

 

 

n/a

 

 

440

 

 

 

 

466

 

 

906

 

Convert. debt due 2017

(b)

 

9.2

%

 

3,000

 

 

2,491

 

 

332

 

 

5,823

 

 

9.2

%

 

3,000

 

 

2,286

 

 

332

 

 

5,618

 

Real estate mortgages

(c)

 

4.9

%

 

407

 

 

 

 

65

 

 

472

 

 

5.6

%

 

436

 

 

 

 

65

 

 

501

 

ESOP Loans

(d)

 

2.9

%

 

476

 

 

 

 

6

 

 

482

 

 

3.0

%

 

532

 

 

 

 

4

 

 

536

 

Capital lease - real estate

(e)

 

5.3

%

 

381

 

 

 

 

19

 

 

400

 

 

5.3

%

 

417

 

 

 

 

19

 

 

436

 

Term loan due 2013

(f)

 

3.8

%

 

232

 

 

 

 

66

 

 

298

 

 

4.8

%

 

691

 

 

 

 

66

 

 

757

 

Revolver due 2013

(f)

 

n/a

 

 

51

 

 

 

 

 

 

51

 

 

n/a

 

 

 

 

 

 

 

 

 

Foreign lines of credit

(g)

 

12.0

%

 

364

 

 

 

 

 

 

364

 

 

9.8

%

 

182

 

 

 

 

 

 

182

 

Foreign term loan

(g)

 

10.5

%

 

183

 

 

 

 

11

 

 

194

 

 

10.6

%

 

151

 

 

 

 

7

 

 

158

 

Other long term debt

(h)

 

 

 

 

523

 

 

 

 

 

 

523

 

 

 

 

 

785

 

 

 

 

34

 

 

819

 

Capitalized interest

 

 

 

 

 

(816

)

 

 

 

 

 

(816

)

 

 

 

 

(1,522

)

 

 

 

 

 

(1,522

)

 

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 

Totals

 

 

 

 

$

34,795

 

$

2,491

 

$

2,160

 

$

39,446

 

 

 

 

$

34,503

 

$

2,286

 

$

2,211

 

$

39,000

 

 

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

   

 

   

 

   

 

   

 


 

 

(a)

On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest is payable semi-annually. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer.

 

 

 

The Senior Notes can be redeemed prior to April 1, 2014 at a price of 100% of principal plus a make-whole premium and accrued interest; on or after April 1, 2014, the Senior Notes can be redeemed at a certain price (declining from 105.344% of principal on or after April 1, 2014 to 100% of principal on or after April 1, 2017), plus accrued interest. Proceeds from the Senior Notes were used to pay down outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain covenants, limitations and restrictions.

 

 

 

On March 28, 2013, Griffon amended and increased the amount available under its Revolving Credit Facility (“Credit Agreement”) from $200,000 to $225,000 and extended its maturity from March 17, 2016 to March 28, 2018. The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of an event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. The current margins are 1.25% for base rate loans and 2.25% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors.

9



 

 

 

At June 30, 2013, there were $25,867 of standby letters of credit outstanding under the Credit Agreement; $199,133 was available, subject to certain covenants, for borrowing at that date.

 

 

(b)

On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The current conversion rate of the 2017 Notes is 67.8495 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.74 per share. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion, (ii) the 42nd trading day prior to maturity of the notes, and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of June 30, 2013, aggregate dividends since the last conversion price adjustment of $0.05 per share would have resulted in an adjustment to the conversion ratio of approximately 0.44%. At June 30, 2013 and September 30, 2012, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720.

 

 

(c)

On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans totaling $11,834. The loans mature in February 2016, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3% with the option to swap to a fixed rate.

 

 

 

Griffon has other real estate mortgages, collateralized by real property, which bear interest at 6.3% and mature in 2016.

 

 

(d)

Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to borrow $20,000 over a one-year period. The proceeds were used to purchase 1,874,737 shares of Griffon common stock in the open market for $19,973. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at Griffon’s option. In November 2011, Griffon exercised an option to convert the outstanding loan to a five-year term loan; principal is payable in quarterly installments of $250, beginning December 2011, with a balloon payment of $15,223 due at maturity (November 2016). The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. At June 30, 2013, $18,223 was outstanding.

 

 

 

In addition, the ESOP is party to a loan agreement which requires quarterly principal payments of $156 and interest through the extended expiration date of December 2013 at which time the $3,125 balance of the loan, and any outstanding interest, will be payable. Griffon has the intent and ability to refinance the December 2013 balance, and has classified the balance in Long-Term Debt. The primary purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At June 30, 2013, $3,281 was outstanding.

 

 

(e)

In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2021, bears interest at a fixed rate of 5.3%, is secured by a mortgage on the real estate and is guaranteed by Griffon.

 

 

(f)

In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at EURIBOR plus 2.45% per annum and the term loan accrues interest at EURIBOR plus 2.20% per annum. The revolving facility matures in November 2013, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA.

 

 

(g)

In February 2012, Clopay do Brazil, a subsidiary of Plastics, borrowed $4,000 at a rate of 104.5% of Brazilian CDI (7.7% at June 30, 2013). The loan was used to refinance existing loans, is collateralized by accounts receivable and a 50% guaranty by Plastics and is to be repaid in four equal, semi-annual installments of principal plus accrued interest beginning in August 2012. Clopay do Brazil also maintains lines of credit of approximately $5,000.

10



 

 

 

Interest on borrowings accrue at a rate of Brazilian CDI plus 6.0% (13.7%, at June 30, 2013). At June 30, 2013 there was approximately $4,100 borrowed under the lines.

 

 

 

In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 revolving credit facility. The facility accrues interest at LIBOR or the Bankers Acceptance Rate plus 1.3% per annum (1.49% and 2.45% as of June 30, 2013). The revolving facility matures in November 2015. Garant is required to maintain a certain minimum equity. At June 30, 2013, there were no borrowings under the revolving credit facility with CAD $15,000 available for borrowing.

 

 

(h)

At September 30, 2012, Griffon had $532 of 4% convertible subordinated notes due 2023 (“2023 Notes”) outstanding. On April 15, 2013, the 2023 Notes were redeemed at par plus accrued interest. Other long term debt also includes capital leases.


At June 30, 2013, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

NOTE 9 — SHAREHOLDERS’ EQUITY

On November 17, 2011, the Company began declaring quarterly cash dividends. During 2012, the Company declared and paid quarterly dividends of $0.02 per share, totaling $0.08 per share for the year. During the first, second and third quarters of 2013, the Board of Directors approved quarterly cash dividends of $0.025 per common share, which were paid on December 26, 2012, March 27, 2013, June 26, 2013, to holders of common stock as of close of business on November 29, 2012, February 27, 2013 and May 28, 2013, respectively. Dividends paid on allocated shares in the ESOP were used to pay down the ESOP loan and recorded as a reduction in expense. A dividend payable was established for the holders of restricted shares; such payable will be released upon vesting of the underlying restricted shares.

On August 6, 2013, the Board of Directors declared a quarterly cash dividend of $0.025 per share, payable on September 25, 2013 to shareholders of record as of the close of business on August 27, 2013.

Compensation expense for restricted stock is recognized ratably over the required service period based on the fair value of the grant calculated as the number of shares granted multiplied by the stock price on the date of grant, and for performance shares, the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting is amortized using the straight-line attribution method.

In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan (as amended, the “Incentive Plan”) under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 3,000,000 (600,000 of which may be issued as incentive stock options) plus any shares underlying awards outstanding on the effective date of the Incentive Plan under the 2006 Incentive Plan that are subsequently cancelled or forfeited. As of June 30, 2013, 689,668 shares were available for grant.

All grants outstanding under the Griffon Corporation 2001 Stock Option Plan, 2006 Equity Incentive Plan and Outside Director Stock Award Plan will continue under their terms; no additional awards will be granted under such plans.

During the first quarter of 2013, Griffon granted 883,500 restricted stock awards with vesting periods up to four years, 829,100 of which are also subject to certain performance conditions, with a total fair value of $9,433, or a weighted average fair value of $10.68 per share.

11


During the second quarter of 2013, Griffon granted 278,330 restricted stock awards with vesting periods up to four years, 241,667 of which are also subject to certain performance conditions, with a total fair value of $3,333, or a weighted average fair value of $11.97 per share.

During the third quarter of 2013, Griffon granted 43,500 restricted stock awards with vesting periods up to four years, which are also subject to certain performance conditions, with a total fair value of $506 or a weighted average fair value of $11.63 per share.

For the three and nine months ended June 30, 2013, stock based compensation expense totaled $3,029 and $9,327, respectively. For the three and nine months ended June 30, 2012, stock based compensation expense totaled $2,691 and $7,599, respectively.

In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. In the first quarter of 2013, Griffon purchased 723,630 shares of common stock, for a total of $7,331, or $10.13 per share, pursuant to the repurchase program. In the second quarter of 2013, Griffon purchased 881,998 shares of common stock, for a total of $10,265, or $11.64 per share pursuant to the repurchase program. In the third quarter of 2013, Griffon purchased 272,698 shares of common stock, for a total of $3,014, or $11.05 per share pursuant to the repurchase program. As of June 30, 2013, Griffon has purchased 3,230,771 shares of common stock, for a total of $32,299, or $10.00 per share; $17,701 remains under the $50,000 authorization.

In addition to the repurchases under the $50,000 program, during the third quarter, 53,459 shares, with a market value of $566, or $10.58 per share, were withheld to settle employee taxes due upon the vesting of restricted stock. For the nine months ended June 30, 2013, 432,116 shares, with a market value of $5,079, or $11.75 per share, were withheld to settle employee taxes due upon the vesting of restricted stock.

NOTE 10 – EARNINGS PER SHARE (EPS)

Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. The 2023 Notes and the 2017 Notes were anti-dilutive due to the conversion price being greater than the weighted-average stock price during the periods presented.

The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

54,265

56,034

54,588

56,032

Incremental shares from stock based compensation

1,939

1,461

2,147

1,279

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

Weighted average shares outstanding - diluted

56,204

57,495

56,735

57,311

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

Anti-dilutive options excluded from diluted EPS computation

715

963

715

963

Griffon has the intent and ability to settle the principal amount of the 2017 Notes in cash, as such, the potential issuance of shares related to the principal amount of the 2017 Notes does not affect diluted shares.

12


NOTE 11 – BUSINESS SEGMENTS

 

 

 

Griffon’s reportable business segments are as follows:

 

 

 

 

HBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains, as well as a global provider of non-powered landscaping products that make work easier for homeowners and professionals.

 

 

 

 

Telephonics develops, designs and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.

 

 

 

 

Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

 

 

 

Information on Griffon’s business segments is as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

For the Nine Months Ended
June 30,

 

 

 

 

 

 

REVENUE

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products:

 

 

 

 

ATT

$

128,332

$

130,311

$

341,878

$

362,374

CBP

112,285

106,910

314,651

309,825

 

 

   

 

   

 

   

 

   

 

Home & Building Products

240,617

237,221

656,529

672,199

Telephonics

129,997

101,116

347,678

319,621

Plastics

139,212

141,909

418,111

421,889

 

 

   

 

   

 

   

 

   

 

Total consolidated net sales

$

509,826

$

480,246

$

1,422,318

$

1,413,709

 

 

   

 

   

 

   

 

   

 

The following table reconciles segment operating profit to income before taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE TAXES

For the Three Months Ended
June 30,

For the Nine Months Ended
June 30,

 

 

 

 

 

 

Segment operating profit:

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Home & Building Products

$

11,549

$

17,482

$

22,655

$

35,412

Telephonics

10,592

14,113

38,990

40,171

Plastics

5,401

3,506

8,959

7,879

 

 

   

 

   

 

   

 

   

 

Total segment operating profit

27,542

35,101

70,604

83,462

Net interest expense

(13,137

)

(12,855

)

(39,125

)

(38,775

)

Unallocated amounts

(6,573

)

(7,253

)

(22,140

)

(20,041

)

Loss on pension settlement

(2,142

)

 

 

   

 

   

 

   

 

   

 

Income before taxes

$

7,832

$

14,993

$

7,197

$

24,646

 

 

   

 

   

 

   

 

   

 

Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses, and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason.

The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes:

13



 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

For the Nine Months Ended
June 30,

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Segment adjusted EBITDA:

 

 

 

 

Home & Building Products

$

21,478

$

25,831

$

56,272

$

59,434

Telephonics

13,146

15,886

45,015

46,912

Plastics

12,161

10,117

33,832

27,462

 

 

   

 

   

 

   

 

   

 

Total Segment adjusted EBITDA

46,785

51,834

135,119

133,808

Net interest expense

(13,137

)

(12,855

)

(39,125

)

(38,775

)

Segment depreciation and amortization

(17,639

)

(16,733

)

(52,467

)

(48,373

)

Unallocated amounts

(6,573

)

(7,253

)

(22,140

)

(20,041

)

Restructuring charges

(1,604

)

(12,048

)

(1,795

)

Acquisition costs

(178

)

Loss on pension settlement

(2,142

)

 

 

   

 

   

 

   

 

   

 

Income before taxes

$

7,832

$

14,993

$

7,197

$

24,646

 

 

   

 

   

 

   

 

   

 

Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEPRECIATION and AMORTIZATION

For the Three Months Ended
June 30,

For the Nine Months Ended
June 30,

 

 

 

 

 

 

Segment:

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products

$

9,075

$

8,349

$

27,092

$

23,571

Telephonics

1,804

1,773

5,275

5,219

Plastics

6,760

6,611

20,100

19,583

 

 

   

 

   

 

   

 

   

 

Total segment depreciation and amortization

17,639

16,733

52,467

48,373

Corporate

110

99

320

295

 

 

   

 

   

 

   

 

   

 

Total consolidated depreciation and amortization

$

17,749

$

16,832

$

52,787

$

48,668

 

 

   

 

   

 

   

 

   

 

CAPITAL EXPENDITURES

 

 

 

 

Segment:

 

 

 

 

Home & Building Products

$

6,534

$

5,974

$

22,352

$

20,547

Telephonics

2,401

4,462

5,853

8,246

Plastics

5,947

7,037

17,648

28,811

 

 

   

 

   

 

   

 

   

 

Total segment

14,882

17,473

45,853

57,604

Corporate

9

17

33

91

 

 

   

 

   

 

   

 

   

 

Total consolidated capital expenditures

$

14,891

$

17,490

$

45,886

$

57,695

 

 

   

 

   

 

   

 

   

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

At June 30,
2013

At September
30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets:

 

 

 

 

Home & Building Products

$

945,087

$

943,766

 

 

Telephonics

283,723

255,420

 

 

Plastics

415,692

430,395

 

 

 

 

   

 

   

 

 

 

 

 

 

 

Total segment assets

1,644,502

1,629,581

 

 

Corporate

100,924

173,088

 

 

 

 

   

 

   

 

 

 

 

 

 

 

Total continuing assets

1,745,426

1,802,669

 

 

Assets of discontinued operations

3,200

3,523

 

 

 

 

   

 

   

 

 

 

 

 

 

 

Consolidated total

$

1,748,626

$

1,806,192

 

 

 

 

   

 

   

 

 

 

 

 

 

 

14


NOTE 12 – DEFINED BENEFIT PENSION EXPENSE

Defined benefit pension expense was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

51

 

$

46

 

$

149

 

$

150

 

Interest cost

 

 

2,427

 

 

2,652

 

 

7,274

 

 

7,988

 

Expected return on plan assets

 

 

(3,139

)

 

(2,918

)

 

(9,413

)

 

(8,782

)

Amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

5

 

 

84

 

 

15

 

 

252

 

Recognized actuarial loss

 

 

840

 

 

718

 

 

2,520

 

 

2,154

 

Loss on pension settlement

 

 

 

 

 

 

2,142

 

 

 

 

 

   

 

   

 

   

 

   

 

Net periodic expense

 

$

184

 

$

582

 

$

2,687

 

$

1,762

 

 

 

   

 

   

 

   

 

   

 

Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper, Inc. Pension Plan. The merged Pension Plan was renamed the Clopay Ames True Temper Pension Plan.

In the first quarter of 2013, Selling, general and administrative expenses included a $2,142, non-cash, pension settlement loss resulting from the lump-sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472 and increased Accumulated Other Comprehensive Income (Loss) by $3,649.

NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued new accounting guidance requiring the presentation of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The new accounting rules were effective for the Company beginning in 2013 and did not have a material effect on the Company’s financial condition or results of operations and the Company presented comparable financial results.

In September 2011, the FASB issued new accounting guidance that allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment testing of goodwill and indefinite life intangibles. This guidance is effective for the Company beginning in 2013 and did not have an impact on the Company’s financial condition or results of operations.

In February 2013, the FASB issued new accounting guidance requiring enhanced disclosures for items reclassified out of accumulated other comprehensive income. The guidance does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2012, with early adoption permitted. As this new guidance is related to presentation only, the implementation of this guidance in the first quarter of fiscal year 2014 will not have a material effect on the Company’s financial condition or results of operations.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

15


NOTE 14 – DISCONTINUED OPERATIONS

The following amounts related to the Installation Services segment, discontinued in 2008, have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

At June 30,
2013

 

At September 30,
2012

 

 

 

     

 

Assets of discontinued operations:

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

554

 

$

587

 

Other long-term assets

 

 

2,646

 

 

2,936

 

 

 

   

 

   

 

Total assets of discontinued operations

 

$

3,200

 

$

3,523

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Liabilities of discontinued operations:

 

 

 

 

 

 

 

Accrued liabilities, current

 

$

1,690

 

$

3,639

 

Other long-term liabilities

 

 

2,631

 

 

3,643

 

 

 

   

 

   

 

Total liabilities of discontinued operations

 

$

4,321

 

$

7,282

 

 

 

   

 

   

 

There was no Installation Services’ operating unit revenue or income for the three or nine months ended June 30, 2013 or 2012.

NOTE 15 – RESTRUCTURING AND OTHER RELATED CHARGES

In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of fiscal 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs.

ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $5,388 and $8,385 in restructuring costs and capital expenditures, respectively.

During the second quarter of 2013, BPC completed the consolidation of its Auburn, Washington facility into its Russia, Ohio facility.

HBP recognized $854 and $6,525, respectively, for the three and nine months ended June 30, 2013, and nil and $273, respectively, for the three and nine months ended June 30, 2012, in restructuring and other related exit costs. In 2013, restructuring and other related charges primarily related to one-time termination benefits, facility costs, other personnel costs and asset impairment charges related to the ATT and BPC plant consolidation initiatives. In 2012, restructuring and other related charges primarily related to one-time termination benefits and other personnel costs at ATT.

During the second quarter of 2013, PPC Europe announced plans to exit low margin products and eliminate approximately 80 positions, resulting in a restructuring cash charge of $4,773.

During the third quarter of 2013, Telephonics recognized $750 in restructuring costs in connection with the termination of a facility lease. The facility was vacated as a result of the headcount reductions and changes in organizational structure Telephonics undertook in the past two years. In the first quarter of 2012, Telephonics recognized $1,522 of restructuring and other related charges, primarily for one-time termination benefits and other personnel costs in conjunction with changes to its organizational structure.

16


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 and Comprehensive Income (Loss) were recognized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workforce
Reduction

 

Facilities &
Exit Costs

 

Other Related
Costs

 

Non-cash
Facility and
Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts incurred in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended December 31, 2011

 

$

1,538

 

$

257

 

$

 

$

 

$

1,795

 

 

 

   

 

   

 

   

 

   

 

   

 

Nine Months Ended June 30, 2012

 

$

1,538

 

$

257

 

$

 

$

 

$

1,795

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended December 31, 2012

 

$

994

 

$

39

 

$

75

 

$

 

$

1,108

 

Quarter ended March 31, 2013

 

 

3,635

 

 

683

 

 

1,517

 

 

3,501

 

 

9,336

 

Quarter ended June 30, 2013

 

 

641

 

 

926

 

 

37

 

 

 

 

1,604

 

 

 

   

 

   

 

   

 

   

 

   

 

Nine Months Ended June 30, 2013

 

$

5,270

 

$

1,648

 

$

1,629

 

$

3,501

 

$

12,048

 

 

 

   

 

   

 

   

 

   

 

   

 

The activity in the restructuring accrual recorded in accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workforce
Reduction

 

Facilities &
Exit Costs

 

Other Related
Costs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liability at September 30, 2012

 

$

3,500

 

$

140

 

$

 

$

3,640

 

Charges

 

 

5,270

 

 

1,648

 

 

1,629

 

 

8,547

 

Payments

 

 

(4,360

)

 

(1,352

)

 

(1,302

)

 

(7,014

)

 

 

   

 

   

 

   

 

   

 

Accrued liability at June 30, 2013

 

$

4,410

 

$

436

 

$

327

 

$

5,173

 

 

 

   

 

   

 

   

 

   

 

NOTE 16 – OTHER INCOME

For the quarters ended June 30, 2013 and 2012, Other income (expense) included $168 and ($707) respectively, of currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries as well as $12 and ($39), respectively, of investment income (loss).

For the nine months ended June 30, 2013 and 2012, Other income (expense) included ($299) and ($1,375) respectively, of currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries as well as $365 and $133, respectively, of investment income (loss).

NOTE 17 – WARRANTY LIABILITY

Telephonics offers warranties against product defects for periods generally ranging from one to two years, depending on the specific product and terms of the customer purchase agreement. Typical warranties require Telephonics to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience and periodically assesses its warranty obligations and adjusts the liability as necessary. ATT offers an express limited warranty for a period of ninety days on all products unless otherwise stated on the product or packaging from the date of original purchase.

17


Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

     

 

 

 

 

 

 

 

Balance, beginning of period

 

$

7,424

 

$

10,356

 

$

8,856

 

$

7,963

 

Warranties issued and changes in estimated pre-existing warranties

 

 

1,309

 

 

579

 

 

1,965

 

 

5,525

 

Actual warranty costs incurred

 

 

(1,342

)

 

(1,174

)

 

(3,430

)

 

(3,727

)

 

 

   

 

   

 

   

 

   

 

Balance, end of period

 

$

7,391

 

$

9,761

 

$

7,391

 

$

9,761

 

 

 

   

 

   

 

   

 

   

 

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 Griffon, 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 Griffon. ISC sold the Peekskill Site in November 1982.

Subsequently, Griffon was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did conduct accordingly over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.

In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment medias, remediation alternatives having a current net capital cost value, in the aggregate, of approximately $5,000. In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no further obligations under the consent order.

Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater medias, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is approximately $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.

It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

18


Improper Advertisement Claim involving Union Tools Products. Since December 2004, a customer of ATT has been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters have asserted causes of action against the customer of ATT for improper advertisement to end consumers. The allegations suggest that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States. The complaints assert various causes of action against the customer of ATT under federal and state law, including common law fraud. At some point, likely once the litigation against the customer of ATT ends, the customer may seek indemnity (including recovery of its legal fees and costs) against ATT for an unspecified amount. Presently, ATT cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against ATT.

Department of Environmental Conservation of New York State, regarding Frankfort, NY site. During fiscal 2009, an underground fuel tank with surrounding soil contamination was discovered at the Frankfort, N.Y. site, which is the result of historical facility operations prior to ATT’s ownership. While ATT was actively working with the DEC and the New York State Department of Health to define remediation requirements relative to the underground fuel tank, the DEC took the position that ATT was responsible to remediate other types of contamination on the site. After negotiations with the DEC, on August 15, 2011, ATT executed an Order on Consent with the DEC. The Order is without admission or finding of liability or acknowledgement that there has been a release of hazardous substances at the site. Importantly, the Order does not waive any rights that ATT has under a 1991 Consent Judgment entered into between the DEC and a predecessor of ATT relating to the site. The Order requires that ATT identify Areas of Concern at the site, and formulate a strategy to investigate and remedy both on and off site conditions in compliance with applicable environmental law. At the conclusion of the remedy phase of the remediation to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. On August 1, 2012, a fire occurred during the course of demolition of certain structures at the Frankfort, NY site, requiring cleanup and additional remediation under the oversight of the DEC. Demolition of the structures on the property has been substantially completed. The DEC has inspected the progress of the work and is satisfied with the results thus far. On February 12, 2013, the DEC issued comments to the Remedial Investigation Work Plan previously submitted by ATT in October 2011, and in response, ATT issued a Revised Remedial Investigation Work Plan. Completion of the remedial investigation is dependent on timing of the DEC approval; no additional comments have been provided by the DEC to date.

U.S. Government investigations and claims

Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency (“DCAA”), the Defense Criminal Investigative Service (“DCIS”), and the Department of Justice which has responsibility for asserting claims on behalf of the U.S. government. In addition to ongoing audits, pursuant to an administrative subpoena Griffon is currently providing information to the U.S. Department of Defense Office of the Inspector General. No claim has been asserted against Griffon, and Griffon is unaware of any material financial exposure in connection with the Inspector General’s inquiry.

In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have material adverse effect on Telephonics because of its reliance on government contracts.

General legal

Griffon is 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 Griffon’s consolidated financial position, results of operations or cash flows.

19


NOTE 19 — CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, Ames True Temper, Inc. and ATT Southern, Inc. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of June 30, 2013 and September 30, 2012 and for the three and nine months ended June 30, 2013 and 2012. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. On June 29, 2012, ATT Southern, Inc. was added as a guarantor. On June 30, 2012, to allocate debt related to operations, three guarantors entered into intercompany debt agreements with a non-guarantor to borrow a total of $491,372.

CONDENSED CONSOLIDATING BALANCE SHEETS
At June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

35,260

 

$

23,036

 

$

67,808

 

$

 

$

126,104

 

Accounts receivable, net of allowances

 

 

 

 

230,970

 

 

73,943

 

 

(33,170

)

 

271,743

 

Contract costs and recognized income not yet billed, net of progress payments

 

 

 

 

117,281

 

 

(8

)

 

 

 

117,273

 

Inventories, net

 

 

 

 

161,642

 

 

57,395

 

 

292

 

 

219,329

 

Prepaid and other current assets

 

 

1,185

 

 

24,258

 

 

18,659

 

 

14,609

 

 

58,711

 

Assets of discontinued operations

 

 

 

 

 

 

554

 

 

 

 

554

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Current Assets

 

 

36,445

 

 

557,187

 

 

218,351

 

 

(18,269

)

 

793,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

987

 

 

246,079

 

 

101,374

 

 

 

 

348,440

 

GOODWILL

 

 

 

 

288,147

 

 

68,228

 

 

 

 

356,375

 

INTANGIBLE ASSETS, net

 

 

 

 

161,421

 

 

60,362

 

 

 

 

221,783

 

INTERCOMPANY RECEIVABLE

 

 

576,447

 

 

889,614

 

 

590,955

 

 

(2,057,016

)

 

 

EQUITY INVESTMENTS IN SUBSIDIARIES

 

 

2,187,091

 

 

532,330

 

 

2,690,519

 

 

(5,409,940

)

 

 

OTHER ASSETS

 

 

47,265

 

 

57,942

 

 

7,659

 

 

(87,198

)

 

25,668

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

2,646

 

 

 

 

2,646

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Assets

 

$

2,848,235

 

$

2,732,720

 

$

3,740,094

 

$

(7,572,423

)

$

1,748,626

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

1,156

 

$

1,070

 

$

11,158

 

$

 

$

13,384

 

Accounts payable and accrued liabilities

 

 

26,463

 

 

163,612

 

 

67,137

 

 

(18,561

)

 

238,651

 

Liabilities of discontinued operations

 

 

 

 

 

 

1,690

 

 

 

 

1,690

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Current Liabilities

 

 

27,619

 

 

164,682

 

 

79,985

 

 

(18,561

)

 

253,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net of debt discounts

 

 

656,230

 

 

9,277

 

 

12,800

 

 

 

 

678,307

 

INTERCOMPANY PAYABLES

 

 

20,519

 

 

817,784

 

 

1,187,936

 

 

(2,026,239

)

 

 

OTHER LIABILITIES

 

 

64,419

 

 

176,856

 

 

27,512

 

 

(87,198

)

 

181,589

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

2,631

 

 

 

 

2,631

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Liabilities

 

 

768,787

 

 

1,168,599

 

 

1,310,864

 

 

(2,131,998

)

 

1,116,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

2,079,448

 

 

1,564,121

 

 

2,429,230

 

 

(5,440,425

)

 

632,374

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Liabilities and Shareholders’ Equity

 

$

2,848,235

 

$

2,732,720

 

$

3,740,094

 

$

(7,572,423

)

$

1,748,626

 

 

 

   

 

   

 

   

 

   

 

   

 

20


CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

125,093

 

$

34,782

 

$

49,779

 

$

 

$

209,654

 

Accounts receivable, net of allowances

 

 

 

 

187,487

 

 

81,274

 

 

(28,904

)

 

239,857

 

Contract costs and recognized income not yet billed, net of progress payments

 

 

 

 

69,216

 

 

1,561

 

 

 

 

70,777

 

Inventories, net

 

 

 

 

194,618

 

 

63,203

 

 

47

 

 

257,868

 

Prepaid and other current assets

 

 

(851

)

 

23,929

 

 

21,968

 

 

2,426

 

 

47,472

 

Assets of discontinued operations

 

 

 

 

 

 

587

 

 

 

 

587

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Current Assets

 

 

124,242

 

 

510,032

 

 

218,372

 

 

(26,431

)

 

826,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

1,224

 

 

244,261

 

 

111,394

 

 

 

 

356,879

 

GOODWILL

 

 

 

 

288,147

 

 

70,225

 

 

 

 

358,372

 

INTANGIBLE ASSETS, net

 

 

 

 

164,633

 

 

65,840

 

 

 

 

230,473

 

INTERCOMPANY RECEIVABLE

 

 

508,984

 

 

648,347

 

 

542,025

 

 

(1,699,356

)

 

 

EQUITY INVESTMENTS IN SUBSIDIARIES

 

 

2,143,427

 

 

528,411

 

 

2,650,083

 

 

(5,321,921

)

 

 

OTHER ASSETS

 

 

49,718

 

 

60,609

 

 

8,188

 

 

(87,198

)

 

31,317

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

2,936

 

 

 

 

2,936

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Assets

 

$

2,827,595

 

$

2,444,440

 

$

3,669,063

 

$

(7,134,906

)

$

1,806,192

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

1,625

 

$

1,032

 

$

15,046

 

$

 

$

17,703

 

Accounts payable and accrued liabilities

 

 

44,649

 

 

167,230

 

 

66,640

 

 

(26,478

)

 

252,041

 

Liabilities of discontinued operations

 

 

 

 

 

 

3,639

 

 

 

 

3,639

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Current Liabilities

 

 

46,274

 

 

168,262

 

 

85,325

 

 

(26,478

)

 

273,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net of debt discounts

 

 

655,023

 

 

9,782

 

 

17,102

 

 

 

 

681,907

 

INTERCOMPANY PAYABLES

 

 

 

 

558,905

 

 

1,149,748

 

 

(1,708,653

)

 

 

OTHER LIABILITIES

 

 

68,827

 

 

183,989

 

 

27,489

 

 

(87,198

)

 

193,107

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

3,643

 

 

 

 

3,643

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Liabilities

 

 

770,124

 

 

920,938

 

 

1,283,307

 

 

(1,822,329

)

 

1,152,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

2,057,471

 

 

1,523,502

 

 

2,385,751

 

 

(5,312,572

)

 

654,152

 

 

 

   

 

   

 

   

 

   

 

   

 

Total Liabilities and Shareholders’ Equity

 

$

2,827,595

 

$

2,444,440

 

$

3,669,058

 

$

(7,134,901

)

$

1,806,192

 

 

 

   

 

   

 

   

 

   

 

   

 

21


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

408,371

 

$

114,005

 

$

(12,550

)

$

509,826

 

Cost of goods and services

 

 

 

 

317,156

 

 

95,461

 

 

(11,102

)

 

401,515

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

 

 

91,215

 

 

18,544

 

 

(1,448

)

 

108,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

4,141

 

 

69,014

 

 

14,794

 

 

(1,604

)

 

86,345

 

Restructuring and other related charges

 

 

 

 

1,565

 

 

39

 

 

 

 

1,604

 

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

4,141

 

 

70,579

 

 

14,833

 

 

(1,604

)

 

87,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(4,141

)

 

20,636

 

 

3,711

 

 

156

 

 

20,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(3,559

)

 

(6,982

)

 

(2,596

)

 

 

 

(13,137

)

Other, net

 

 

12

 

 

2,767

 

 

(1,710

)

 

(462

)

 

607

 

 

 

   

 

   

 

   

 

   

 

   

 

Total other income (expense)

 

 

(3,547

)

 

(4,215

)

 

(4,306

)

 

(462

)

 

(12,530

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(7,688

)

 

16,421

 

 

(595

)

 

(306

)

 

7,832

 

Provision (benefit) for income taxes

 

 

(2,912

)

 

6,744

 

 

397

 

 

 

 

4,229

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) before equity in net income of subsidiaries

 

 

(4,776

)

 

9,677

 

 

(992

)

 

(306

)

 

3,603

 

Equity in net income (loss) of subsidiaries

 

 

8,685

 

 

(969

)

 

9,677

 

 

(17,393

)

 

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

3,909

 

$

8,708

 

$

8,685

 

$

(17,699

)

$

3,603

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,909

 

$

8,708

 

$

8,685

 

$

(17,699

)

$

3,603

 

Other comprehensive income (loss), net of taxes

 

 

211

 

 

1,092

 

 

(8,855

)

 

 

 

(7,552

)

 

 

   

 

   

 

   

 

   

 

   

 

Comprehensive income (loss)

 

$

4,120

 

$

9,800

 

$

(170

)

$

(17,699

)

$

(3,949

)

 

 

   

 

   

 

   

 

   

 

   

 

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

375,836

 

$

120,457

 

$

(16,047

)

$

480,246

 

Cost of goods and services

 

 

 

 

270,653

 

 

104,030

 

 

(10,082

)

 

364,601

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

 

 

105,183

 

 

16,427

 

 

(5,965

)

 

115,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,420

 

 

72,300

 

 

15,405

 

 

(5,682

)

 

87,443

 

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

5,420

 

 

72,300

 

 

15,405

 

 

(5,682

)

 

87,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(5,420

)

 

32,883

 

 

1,022

 

 

(283

)

 

28,202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(3,801

)

 

(6,094

)

 

(2,960

)

 

 

 

(12,855

)

Other, net

 

 

(40

)

 

2,761

 

 

(2,613

)

 

(462

)

 

(354

)

 

 

   

 

   

 

   

 

   

 

   

 

Total other income (expense)

 

 

(3,841

)

 

(3,333

)

 

(5,573

)

 

(462

)

 

(13,209

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(9,261

)

 

29,550

 

 

(4,551

)

 

(745

)

 

14,993

 

Provision (benefit) for income taxes

 

 

(4,824

)

 

10,604

 

 

165

 

 

 

 

5,945

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) before equity in net income of subsidiaries

 

 

(4,437

)

 

18,946

 

 

(4,716

)

 

(745

)

 

9,048

 

Equity in net income (loss) of subsidiaries

 

 

14,231

 

 

(4,694

)

 

18,947

 

 

(28,484

)

 

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

9,794

 

$

14,252

 

$

14,231

 

$

(29,229

)

$

9,048

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

9,794

 

$

14,252

 

$

14,231

 

$

(29,229

)

$

9,048

 

Other comprehensive income (loss), net of taxes

 

 

238

 

 

(10,190

)

 

(8,052

)

 

 

 

(18,004

)

 

 

   

 

   

 

   

 

   

 

   

 

Comprehensive income (loss)

 

$

10,032

 

$

4,062

 

$

6,179

 

$

(29,229

)

$

(8,956

)

 

 

   

 

   

 

   

 

   

 

   

 

22


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

1,109,275

 

$

352,514

 

$

(39,471

)

$

1,422,318

 

Cost of goods and services

 

 

 

 

848,342

 

 

297,826

 

 

(35,328

)

 

1,110,840

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

 

 

260,933

 

 

54,688

 

 

(4,143

)

 

311,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

15,419

 

 

198,601

 

 

45,327

 

 

(4,724

)

 

254,623

 

Restructuring and other related charges

 

 

 

 

8,045

 

 

4,003

 

 

 

 

12,048

 

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

15,419

 

 

206,646

 

 

49,330

 

 

(4,724

)

 

266,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(15,419

)

 

54,287

 

 

5,358

 

 

581

 

 

44,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(10,781

)

 

(20,685

)

 

(7,659

)

 

 

 

(39,125

)

Other, net

 

 

367

 

 

7,032

 

 

(4,498

)

 

(1,386

)

 

1,515

 

 

 

   

 

   

 

   

 

   

 

   

 

Total other income (expense)

 

 

(10,414

)

 

(13,653

)

 

(12,157

)

 

(1,386

)

 

(37,610

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(25,833

)

 

40,634

 

 

(6,799

)

 

(805

)

 

7,197

 

Provision (benefit) for income taxes

 

 

(12,672

)

 

15,693

 

 

834

 

 

 

 

3,855

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) before equity in net income of subsidiaries

 

 

(13,161

)

 

24,941

 

 

(7,633

)

 

(805

)

 

3,342

 

Equity in net income (loss) of subsidiaries

 

 

17,308

 

 

(7,565

)

 

24,941

 

 

(34,684

)

 

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

4,147

 

$

17,376

 

$

17,308

 

$

(35,489

)

$

3,342

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,147

 

$

17,376

 

$

17,308

 

$

(35,489

)

$

3,342

 

Other comprehensive income (loss), net of taxes

 

 

633

 

 

(41,047

)

 

34,461

 

 

 

 

(5,953

)

 

 

   

 

   

 

   

 

   

 

   

 

Comprehensive income (loss)

 

$

4,780

 

$

(23,671

)

$

51,769

 

$

(35,489

)

$

(2,611

)

 

 

   

 

   

 

   

 

   

 

   

 

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

1,077,454

 

$

379,617

 

$

(43,362

)

$

1,413,709

 

Cost of goods and services

 

 

 

 

804,521

 

 

325,917

 

 

(37,883

)

 

1,092,555

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

 

 

272,933

 

 

53,700

 

 

(5,479

)

 

321,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

14,665

 

 

200,474

 

 

47,389

 

 

(5,867

)

 

256,661

 

Restructuring and other related charges

 

 

 

 

1,779

 

 

16

 

 

 

 

1,795

 

 

 

   

 

   

 

   

 

   

 

   

 

Total operating expenses

 

 

14,665

 

 

202,253

 

 

47,405

 

 

(5,867

)

 

258,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(14,665

)

 

70,680

 

 

6,295

 

 

388

 

 

62,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(10,545

)

 

(18,156

)

 

(10,074

)

 

 

 

(38,775

)

Other, net

 

 

135

 

 

8,350

 

 

(6,376

)

 

(1,386

)

 

723

 

 

 

   

 

   

 

   

 

   

 

   

 

Total other income (expense)

 

 

(10,410

)

 

(9,806

)

 

(16,450

)

 

(1,386

)

 

(38,052

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(25,075

)

 

60,874

 

 

(10,155

)

 

(998

)

 

24,646

 

Provision (benefit) for income taxes

 

 

(12,583

)

 

23,401

 

 

265

 

 

 

 

11,083

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) before equity in net income of subsidiaries

 

 

(12,492

)

 

37,473

 

 

(10,420

)

 

(998

)

 

13,563

 

Equity in net income (loss) of subsidiaries

 

 

27,053

 

 

(10,296

)

 

37,473

 

 

(54,230

)

 

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

14,561

 

$

27,177

 

$

27,053

 

$

(55,228

)

$

13,563

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

14,561

 

$

27,177

 

$

27,053

 

$

(55,228

)

$

13,563

 

Other comprehensive income (loss), net of taxes

 

 

714

 

 

22,778

 

 

(35,409

)

 

 

 

(11,917

)

 

 

   

 

   

 

   

 

   

 

   

 

Comprehensive income (loss)

 

$

15,275

 

$

49,955

 

$

(8,356

)

$

(55,228

)

$

1,646

 

 

 

   

 

   

 

   

 

   

 

   

 

23


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,147

 

$

17,376

 

$

17,308

 

$

(35,489

)

$

3,342

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

(67,628

)

 

23,214

 

 

46,968

 

 

 

 

2,554

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(33

)

 

(40,324

)

 

(5,529

)

 

 

 

(45,886

)

Intercompany distributions

 

 

10,000

 

 

(10,000

)

 

 

 

 

 

 

Proceeds from sale of investment

 

 

 

 

1,172

 

 

154

 

 

 

 

1,326

 

 

 

   

 

   

 

   

 

   

 

   

 

Net cash provided by (used in) investing activities

 

 

9,967

 

 

(49,152

)

 

(5,375

)

 

 

 

(44,560

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of shares for treasury

 

 

(25,689

)

 

 

 

 

 

 

 

(25,689

)

Proceeds from issuance of long-term debt

 

 

 

 

303

 

 

 

 

 

 

303

 

Payments of long-term debt

 

 

(1,751

)

 

(772

)

 

(10,319

)

 

 

 

(12,842

)

Change in short-term borrowings

 

 

 

 

 

 

2,408

 

 

 

 

2,408

 

Financing costs

 

 

(759

)

 

 

 

 

 

 

 

(759

)

Tax effect from exercise/vesting of equity awards, net

 

 

150

 

 

 

 

 

 

 

 

150

 

Dividend

 

 

(4,384

)

 

 

 

 

 

 

 

(4,384

)

Other, net

 

 

261

 

 

14,661

 

 

(14,661

)

 

 

 

261

 

 

 

   

 

   

 

   

 

   

 

   

 

Net cash provided by (used in) financing activities

 

 

(32,172

)

 

14,192

 

 

(22,572

)

 

 

 

(40,552

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in discontinued operations

 

 

 

 

 

 

(486

)

 

 

 

(486

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and equivalents

 

 

 

 

 

 

(506

)

 

 

 

(506

)

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

 

(89,833

)

 

(11,746

)

 

18,029

 

 

 

 

(83,550

)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

125,093

 

 

34,782

 

 

49,779

 

 

 

 

209,654

 

 

 

   

 

   

 

   

 

   

 

   

 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

35,260

 

$

23,036

 

$

67,808

 

$

 

$

126,104

 

 

 

   

 

   

 

   

 

   

 

   

 

24


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent
Company

 

Guarantor
Companies

 

Non-Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

14,561

 

$

27,177

 

$

27,053

 

$

(55,228

)

$

13,563

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

(52,124

)

 

48,598

 

 

33,873

 

 

 

 

30,347

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(91

)

 

(51,582

)

 

(6,022

)

 

 

 

(57,695

)

Acquired business, net of cash acquired

 

 

 

 

(22,432

)

 

 

 

 

 

(22,432

)

Intercompany distributions

 

 

10,000

 

 

(10,000

)

 

 

 

 

 

 

Proceeds from sale of investment

 

 

 

 

183

 

 

98

 

 

 

 

281

 

 

 

   

 

   

 

   

 

   

 

   

 

Net cash provided by (used in) investing activities

 

 

9,909

 

 

(83,831

)

 

(5,924

)

 

 

 

(79,846

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of shares for treasury

 

 

(5,670

)

 

 

 

 

 

 

 

(5,670

)

Proceeds from issuance of long-term debt

 

 

 

 

491,372

 

 

4,000

 

 

(491,372

)

 

4,000

 

Payments of long-term debt

 

 

(1,219

)

 

(4,101

)

 

(9,243

)

 

 

 

(14,563

)

Change in short-term borrowings

 

 

 

 

 

 

(1,262

)

 

 

 

(1,262

)

Intercompany debt

 

 

(23,000

)

 

 

 

(468,372

)

 

491,372

 

 

 

Financing costs

 

 

(65

)

 

 

 

(32

)

 

 

 

(97

)

Tax effect from exercise/vesting of equity awards, net

 

 

834

 

 

 

 

 

 

 

 

834

 

Dividend

 

 

(3,564

)

 

(219,516

)

 

219,516

 

 

 

 

(3,564

)

Other, net

 

 

67

 

 

(221,132

)

 

221,132

 

 

 

 

67

 

 

 

   

 

   

 

   

 

   

 

   

 

Net cash provided by (used in) financing activities

 

 

(32,617

)

 

46,623

 

 

(34,261

)

 

 

 

(20,255

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in discontinued operations

 

 

 

 

 

 

(1,690

)

 

 

 

(1,690

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and equivalents

 

 

 

 

 

 

327

 

 

 

 

327

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

 

(74,832

)

 

11,390

 

 

(7,675

)

 

 

 

(71,117

)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

178,448

 

 

15,164

 

 

49,417

 

 

 

 

243,029

 

 

 

   

 

   

 

   

 

   

 

   

 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

103,616

 

$

26,554

 

$

41,742

 

$

 

$

171,912

 

 

 

   

 

   

 

   

 

   

 

   

 

25


(Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)

Item 2 - Management’s 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. 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. Griffon, to further diversify, also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

Griffon currently conducts its operations through three businesses: Home & Building Products (“HBP”), Telephonics Corporation (“Telephonics”) and Clopay Plastic Products Company (“Plastics”).

 

 

HBP consists of two companies, Ames True Temper, Inc. (“ATT”) and Clopay Building Products Company, Inc. (“CBP”):

 

 

 

 

-

ATT is a global provider of non-powered landscaping products that make work easier for homeowners and professionals.

 

 

 

 

-

CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.

 

 

Telephonics designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide.

 

 

Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of fiscal 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. Management estimates that, upon completion, these actions will result in annual cash savings exceeding $10,000, based on current operating levels.

ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $5,388 and $8,385 in restructuring costs and capital expenditures, respectively.

In the first quarter of 2013, Selling, general and administrative expenses included a $2,142, non-cash, pension settlement loss resulting from the lump-sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472.

On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. for $22,432. The acquired business, which markets its products under the Southern PatioTM brand (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio’s results of operations are not included in the Griffon consolidated statement of operations or cash flows, or footnotes relating thereto prior to October 17, 2011.

26


OVERVIEW

Revenue for the quarter ended June 30, 2013 was $509,826 compared to $480,246 in the prior year quarter. Net income was $3,603 or $0.06 per share, compared to $9,048 or $0.16 per share, in the prior year quarter.

The current quarter included:

 

 

 

 

-

Restructuring charges of $1,604 ($994, net of tax or $0.02 per share); and

 

-

Discrete tax benefits, net, of $1,495 or $0.03 per share.

The prior year quarter included a discrete tax benefit of $1,626, or $0.03 per share.

Excluding these items from the respective quarter results, net income would have been $3,102 or $0.06 per share in the current quarter compared to $7,422 or $0.13 per share in the prior year quarter.

Revenue for the nine months ended June 30, 2013 was $1,422,318 compared to $1,413,709 in the prior year period. Net income was $3,342 or $0.06 per share, compared to $13,563 or $0.24 per share, in the prior year.

Results for the nine months ended June 30, 2013 included:

 

 

 

 

-

Restructuring charges of $12,048 ($7,502, net of tax or $0.13 per share);

 

-

Loss on pension settlement of $2,142 ($1,392, net of tax or $0.02 per share); and

 

-

Discrete tax benefits, net, of $1,859 or $0.03 per share.


Results for the nine months ended June 30, 2012 included:

 

 

 

 

-

Restructuring charges of $1,795 ($1,167, net of tax or $0.02 per share);

 

-

Acquisition costs of $178 ($116, net of tax, or $0.00 per share); and

 

-

Discrete tax benefits of $1,626 or $0.03 per share.

Excluding these items from the respective periods, net income would have been $10,377 or $0.18 per share in the nine months ended June 30, 2013 compared to $13,220 or $0.23 per share in the prior year period.

27


Griffon evaluates performance based on Earnings per share and Net income excluding restructuring charges, acquisition-related expenses, gains (losses) from pension settlement and debt extinguishment and discrete tax items, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Earnings per share and Net income to Adjusted earnings per share and Adjusted net income:

GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) TO ADJUSTED INCOME
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,603

 

$

9,048

 

$

3,342

 

$

13,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting items, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and related

 

 

994

 

 

 

 

7,502

 

 

1,167

 

Acquisition costs

 

 

 

 

 

 

 

 

116

 

Loss on pension settlement

 

 

 

 

 

 

1,392

 

 

 

Discrete tax benefits

 

 

(1,495

)

 

(1,626

)

 

(1,859

)

 

(1,626

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income

 

$

3,102

 

$

7,422

 

$

10,377

 

$

13,220

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.06

 

$

0.16

 

$

0.06

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting items, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring

 

 

0.02

 

 

 

 

0.13

 

 

0.02

 

Acquisition costs

 

 

 

 

 

 

 

 

0.00

 

Loss on pension settlement

 

 

 

 

 

 

0.02

 

 

 

Discrete tax benefits

 

 

(0.03

)

 

(0.03

)

 

(0.03

)

 

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per share

 

$

0.06

 

$

0.13

 

 

0.18

 

$

0.23

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding (in thousands)

 

 

56,204

 

 

57,495

 

 

56,735

 

 

57,311

 

 

 

   

 

   

 

   

 

   

 

Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.

RESULTS OF OPERATIONS

Three and nine months ended June 30, 2013 and 2012

Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason.

28


The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

For the Nine Months Ended
June 30,

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Segment adjusted EBITDA:

 

 

 

 

Home & Building Products

$

21,478

$

25,831

$

56,272

$

59,434

Telephonics

13,146

15,886

45,015

46,912

Plastics

12,161

10,117

33,832

27,462

 

 

   

 

   

 

   

 

   

 

Total Segment adjusted EBITDA

46,785

51,834

135,119

133,808

Net interest expense

(13,137

)

(12,855

)

(39,125

)

(38,775

)

Segment depreciation and amortization

(17,639

)

(16,733

)

(52,467

)

(48,373

)

Unallocated amounts

(6,573

)

(7,253

)

(22,140

)

(20,041

)

Restructuring charges

(1,604

)

(12,048

)

(1,795

)

Acquisition costs

(178

)

Loss on pension settlement

(2,142

)

 

 

   

 

   

 

   

 

   

 

Income before taxes

$

7,832

$

14,993

$

7,197

$

24,646

 

 

   

 

   

 

   

 

   

 

Home & Building Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

Nine Months Ended June 30,

 

 

 

 

 

 

2013

2012

2013

2012

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

ATT

$

128,332

 

$

130,311

 

$

341,878

 

$

362,374

 

CBP

112,285

 

106,910

 

314,651

 

309,825

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

Home & Building Products

$

240,617

 

$

237,221

 

$

656,529

 

$

672,199

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

Segment operating profit

$

11,549

4.8%

$

17,482

7.4%

$

22,655

3.5%

$

35,412

5.3%

Depreciation and amortization

9,075

 

8,349

 

27,092

 

23,571

 

Restructuring charges

854

 

 

6,525

 

273

 

Acquisition costs

 

 

 

178

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

Segment adjusted EBITDA

$

21,478

8.9%

$

25,831

10.9%

$

56,272

8.6%

$

59,434

8.8%

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

For the quarter ended June 30, 2013, revenue increased $3,396 or 1%, compared to the prior year quarter. ATT revenue decreased 2% in comparison to the prior year quarter primarily due to lower demand, driven by cold and wet weather conditions in North America. For the quarter, CBP revenue increased 5%, primarily due to higher volume and favorable mix.

For the quarter ended June 30, 2013, Segment operating profit was $11,549 compared to $17,482 in the prior year quarter. The decline resulted primarily from the lower ATT revenue, which also affected absorption of manufacturing expenses, partially offset by the benefit of higher volume and favorable mix at CBP. ATT also had manufacturing inefficiencies in connection with its plant consolidation initiative. These inefficiencies are expected to continue until the initiative is completed in 2014. Segment depreciation and amortization increased $726 from the prior year period and the current year quarter included $854 of restructuring charges primarily related to the previously announced manufacturing and operations consolidation initiative at ATT.

For the nine months ended June 30, 2013, revenue decreased $15,670, or 2%, compared to the prior year period. ATT revenue decreased 6%, mainly driven by cold and wet spring weather conditions in North America and reduced snow tool sales. For ATT, both 2012 and 2013 year to date sales were impacted by lack of snow and resultant reduced sales of snow tools; retailers held high levels of snow tool inventory carried over from the prior year, further affecting 2013 snow tool sales. For the nine months ended June 30, 2013, CBP revenue increased 2% from the prior year period, primarily due to somewhat higher volume and favorable mix.

29


For the nine months ended June 30, 2013, Segment operating profit was $22,655 compared to $35,412 in the prior year period. The current year period included $6,525 of restructuring charges primarily related to the previously announced manufacturing and operations consolidation initiative at ATT. Excluding restructuring charges, current year Segment operating profit was $29,180. The decrease from the prior year resulted from the impact of lower ATT revenue, which also affected absorption of manufacturing expenses and manufacturing inefficiencies arising in connection with the plant consolidation initiative, partially offset by reduced ATT warehouse and distribution costs, other cost control initiatives and $873 in Byrd Amendment receipts (anti-dumping compensation from the U.S. government). CBP higher volume, favorable mix and improved distribution and manufacturing efficiencies contributed to the reported profit. Segment depreciation and amortization increased $3,521 from the prior year period.

In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of fiscal 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs.

ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $5,388 and $8,385 in restructuring costs and capital expenditures, respectively.

During the second quarter of 2013, BPC completed the consolidation of its Auburn, Washington facility into its Russia, Ohio facility.

HBP recognized $854 and $6,525, respectively, for the three and nine months ended June 30, 2013, and nil and $273, respectively, for the three and nine months ended June 30, 2012, in restructuring and other related exit costs. In 2013, restructuring and other related charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the ATT and BPC plant consolidation initiatives. In 2012, restructuring and other related charges primarily related to one-time termination benefits and other personnel costs at ATT.

Telephonics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

Nine Months Ended June 30,

 

 

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Revenue

$

129,997

$

101,116

$

347,678

$

319,621

 

 

   

 

 

     

 

 

 

   

 

 

 

   

 

 

 

Segment operating profit

$

10,592

8.1%

$

14,113

14.0%

$

38,990

11.2%

$

40,171

12.6%

Depreciation and amortization

1,804

 

1,773

 

5,275

 

5,219

 

Restructuring charges

750

 

 

750

 

1,522

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

Segment adjusted EBITDA

$

13,146

10.1%

$

15,886

15.7%

$

45,015

12.9%

$

46,912

14.7%

 

 

   

 

 

     

 

 

 

   

 

 

 

   

 

 

 

For the quarter ended June 30, 2013, revenue increased $28,881 or 29% compared to the prior year quarter. The current and prior year quarters included $20,033 and $2,733 respectively, of revenue related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs, current quarter revenue increased 12% from the prior year quarter, primarily due to the timing of work performed on Multi-mode Surveillance Radar (“MMSR”) contracts.

For the quarter ended June 30, 2013, Segment operating profit decreased $3,521, or 25%, and operating profit margin decreased 590 basis points compared to the prior year quarter. The decrease in Segment operating profit was primarily due to lower gross profit associated with product mix and a restructuring charge, which were partially offset by lower than anticipated expenditures associated with the timing of research and development (“R&D”) initiatives and proposal efforts. The prior year quarter benefitted from higher gross profit and favorable manufacturing efficiencies, both of which were primarily due to an increased level of Light Airborne Multi-purpose Systems Multi Mode Radar (“LAMPS MMR”) deliveries.

30


For the nine months ended June 30, 2013, revenue increased $28,057 or 9% compared to the prior year period. The current and prior year periods included $33,257 and $22,255, respectively, of revenue related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs, current period revenue increased 6% from the prior year period, primarily due to the timing of work performed on MMSR contracts.

For the nine months ended June 30, 2013, Segment operating profit decreased $1,181, or 3%. Excluding the current and prior year restructuring charges, segment operating profit decreased 5% and operating margin decreased 160 basis points compared to the prior year period. The decrease was primarily due to lower gross profit associated with product mix, which was partially offset by lower than anticipated expenditures associated with the timing of R&D initiatives and proposal efforts. The prior year period also benefitted from the LAMPS MMR profitability discussed above.

During the third quarter of 2013, Telephonics recognized $750 in restructuring costs in connection with the termination of a facility lease. The facility was vacated as a result of the headcount reductions and changes in organizational structure Telephonics undertook in the past two years. In 2012 and 2011, Telephonics recognized $3,815 and $3,046 of restructuring charges in connection with two discrete voluntary early retirement plans and other costs related to changes in organizational structure and facilities; such charges were primarily personnel-related, reducing headcount by 185 employees over the two-year period. In the nine months ended June 30, 2012, Telephonics recognized $1,522 of restructuring and other related charges primarily for one-time termination benefits and other personnel costs, in conjunction with changes to its organizational structure.

During the current quarter, Telephonics was awarded several new contracts and incremental funding on existing contracts approximating $93,400. Contract backlog was $440,000 at June 30, 2013 with 67% expected to be realized in the next 12 months. Backlog was $451,000 at September 30, 2012 and $422,000 at June 30, 2012. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of the U.S. government agencies.

Plastics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

Nine Months Ended June 30,

 

 

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

139,212

 

$

141,909

 

$

418,111

 

$

421,889

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

Segment operating profit

$

5,401

3.9%