XNYS:GFF Griffon Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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, 2012

 

 

o

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

For the transition period from           to

Commission File Number: 1-06620

 

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)


 

 

 

 

 

 

DELAWARE

 

11-1893410

 

 

(State or other jurisdiction 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

APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 61,332,222 shares of Common Stock as of July 31, 2012.



 

 

 

 

Griffon Corporation and Subsidiaries

 

 

 

Contents

 

 

 

Page

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1 – Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2012 (unaudited) and September 30, 2011

 

1

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2012 (unaudited)

 

1

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2012 and 2011 (unaudited)

 

2

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2012 and 2011 (unaudited)

 

3

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

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

 

29

 

 

 

 

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

 

39

 

 

 

 

 

Item 4 - Controls & Procedures

 

39

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1 – Legal Proceedings

 

40

 

 

 

 

 

Item 1A – Risk Factors

 

40

 

 

 

 

 

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

 

40

 

 

 

 

 

Item 3 – Defaults upon Senior Securities

 

40

 

 

 

 

 

Item 4 – Mine Safety Disclosures

 

40

 

 

 

 

 

Item 5 – Other Information

 

40

 

 

 

 

 

Item 6 – Exhibits

 

41

 

 

 

 

 

Signatures

 

42

 

 

 

 

 

Exhibit Index

 

43

 




 

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)
At June 30,
2012

 

At September 30,
2011

 

 

 


 


 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and equivalents

 

$

171,912

 

$

243,029

 

Accounts receivable, net of allowances of $5,212 and $6,072

 

 

261,854

 

 

267,471

 

Contract costs and recognized income not yet billed, net of progress payments of $1,969 and $9,697

 

 

65,537

 

 

74,737

 

Inventories, net

 

 

269,878

 

 

263,809

 

Prepaid and other current assets

 

 

49,897

 

 

48,828

 

Assets of discontinued operations

 

 

1,303

 

 

1,381

 

 

 



 



 

Total Current Assets

 

 

820,381

 

 

899,255

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

357,627

 

 

350,050

 

GOODWILL

 

 

357,916

 

 

357,888

 

INTANGIBLE ASSETS, net

 

 

230,176

 

 

223,189

 

OTHER ASSETS

 

 

27,812

 

 

31,197

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

2,974

 

 

3,675

 

 

 



 



 

Total Assets

 

$

1,796,886

 

$

1,865,254

 

 

 



 



 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

17,581

 

$

25,164

 

Accounts payable

 

 

145,608

 

 

186,290

 

Accrued liabilities

 

 

94,671

 

 

99,631

 

Liabilities of discontinued operations

 

 

3,077

 

 

3,794

 

 

 



 



 

Total Current Liabilities

 

 

260,937

 

 

314,879

 

LONG-TERM DEBT, net of debt discount of $17,406 and $19,693

 

 

685,355

 

 

688,247

 

OTHER LIABILITIES

 

 

193,523

 

 

204,434

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

4,033

 

 

5,786

 

 

 



 



 

Total Liabilities

 

 

1,143,848

 

 

1,213,346

 

COMMITMENTS AND CONTINGENCIES - See Note 19

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

653,038

 

 

651,908

 

 

 



 



 

Total Liabilities and Shareholders’ Equity

 

$

1,796,886

 

$

1,865,254

 

 

 



 



 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)

 

 

 

 

 

 

 

COMMON STOCK

 

CAPITAL IN
EXCESS OF
PAR VALUE

 

 

 

TREASURY SHARES

 

 

DEFERRED
ESOP & OTHER
COMPENSATION

 

 

 

 

 


 

 

RETAINED
EARNINGS

 


 

 

 

 

 

(in thousands)

 

SHARES

 

PAR VALUE

 

 

 

SHARES

 

COST

 

 

 

Total

 

 

 


 


 


 


 


 


 


 


 


 

Balance at 9/30/2011

 

 

76,184

 

$

19,046

 

$

471,928

 

$

424,153

 

 

14,434

 

$

(231,699

)

$

(7,724

)

$

(23,796

)

$

651,908

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

13,563

 

 

 

 

 

 

 

 

 

 

13,563

 

Dividend

 

 

 

 

 

 

 

 

(3,564

)

 

 

 

 

 

 

 

 

 

(3,564

)

Tax effect from exercise/vesting of equity awards, net

 

 

 

 

 

 

(223

)

 

 

 

 

 

 

 

 

 

 

 

(223

)

Amortization of deferred compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,399

 

 

1,399

 

Common stock acquired

 

 

 

 

 

 

 

 

 

 

701

 

 

(5,670

)

 

 

 

 

 

(5,670

)

Restricted stock awards granted, net

 

 

355

 

 

88

 

 

(88

)

 

 

 

 

 

 

 

 

 

 

 

 

ESOP allocation of common stock

 

 

 

 

 

 

(57

)

 

 

 

 

 

 

 

 

 

 

 

(57

)

Stock-based compensation

 

 

 

 

 

 

7,599

 

 

 

 

 

 

 

 

 

 

 

 

7,599

 

Translation of foreign financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,479

)

 

 

 

(13,479

)

Pension OCI, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,562

 

 

 

 

1,562

 

 

 



 



 



 



 



 



 



 



 



 

Balance at 6/30/2012

 

 

76,539

 

$

19,134

 

$

479,159

 

$

434,152

 

 

15,135

 

$

(237,369

)

$

(19,641

)

$

(22,397

)

$

653,038

 

 

 



 



 



 



 



 



 



 



 



 

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
(in thousands, except per share data)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

Revenue

 

$

480,246

 

$

455,282

 

$

1,413,709

 

$

1,345,813

 

Cost of goods and services

 

 

364,601

 

 

356,113

 

 

1,092,555

 

 

1,057,642

 

 

 



 



 



 



 

Gross profit

 

 

115,645

 

 

99,169

 

 

321,154

 

 

288,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

87,443

 

 

82,045

 

 

256,661

 

 

246,853

 

Restructuring and other related charges

 

 

 

 

2,118

 

 

1,795

 

 

4,723

 

 

 



 



 



 



 

Total operating expenses

 

 

87,443

 

 

84,163

 

 

258,456

 

 

251,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

28,202

 

 

15,006

 

 

62,698

 

 

36,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(12,932

)

 

(12,569

)

 

(39,000

)

 

(35,111

)

Interest income

 

 

77

 

 

106

 

 

225

 

 

272

 

Loss from debt extinguishment, net

 

 

 

 

 

 

 

 

(26,164

)

Other, net

 

 

(354

)

 

145

 

 

723

 

 

3,407

 

 

 



 



 



 



 

Total other income (expense)

 

 

(13,209

)

 

(12,318

)

 

(38,052

)

 

(57,596

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

14,993

 

 

2,688

 

 

24,646

 

 

(21,001

)

Provision (benefit) for income taxes

 

 

5,945

 

 

(2,184

)

 

11,083

 

 

(10,192

)

 

 



 



 



 



 

Net income (loss)

 

$

9,048

 

$

4,872

 

$

13,563

 

$

(10,809

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.16

 

$

0.08

 

$

0.24

 

$

(0.18

)

 

 



 



 



 



 

Weighted-average shares outstanding

 

 

56,034

 

 

59,606

 

 

56,032

 

 

59,387

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$

0.16

 

$

0.08

 

$

0.24

 

$

(0.18

)

 

 



 



 



 



 

Weighted-average shares outstanding

 

 

57,495

 

 

60,525

 

 

57,311

 

 

59,387

 

 

 



 



 



 



 

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,

 

 

 


 

 

 

2012

 

2011

 

 

 


 


 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income (loss)

 

$

13,563

 

$

(10,809

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

48,668

 

 

45,078

 

Fair value write-up of acquired inventory sold

 

 

 

 

15,152

 

Stock-based compensation

 

 

7,599

 

 

6,767

 

Provision for losses on accounts receivable

 

 

532

 

 

734

 

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

 

 

4,497

 

 

5,203

 

Loss from debt extinguishment, net

 

 

 

 

26,164

 

Deferred income taxes

 

 

(1,185

)

 

(3,550

)

(Gain) loss on sale/disposal of assets

 

 

59

 

 

(240

)

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

 

 

 

 

 

 

 

Decrease in accounts receivable and contract costs and recognized income not yet billed

 

 

10,601

 

 

1,243

 

Increase in inventories

 

 

(4,171

)

 

(19,994

)

Increase in prepaid and other assets

 

 

(3,970

)

 

(2,243

)

Decrease in accounts payable, accrued liabilities and income taxes payable

 

 

(49,574

)

 

(51,075

)

Other changes, net

 

 

3,728

 

 

625

 

 

 



 



 

Net cash provided by operating activities

 

 

30,347

 

 

13,055

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(57,695

)

 

(64,974

)

Acquired business, net of cash acquired

 

 

(22,432

)

 

(855

)

Change in funds restricted for capital projects

 

 

 

 

3,875

 

Proceeds from sale of assets

 

 

281

 

 

1,333

 

 

 



 



 

Net cash used in investing activities

 

 

(79,846

)

 

(60,621

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Dividend

 

 

(3,564

)

 

 

Purchase of shares for treasury

 

 

(5,670

)

 

 

Proceeds from issuance of long-term debt

 

 

4,000

 

 

640,963

 

Payments of long-term debt

 

 

(14,563

)

 

(495,209

)

Change in short-term borrowings

 

 

(1,262

)

 

12,730

 

Financing costs

 

 

(97

)

 

(21,343

)

Purchase of ESOP shares

 

 

 

 

(15,674

)

Exercise of stock options

 

 

 

 

20

 

Tax effect from exercise/vesting of equity awards, net

 

 

834

 

 

2,334

 

Other, net

 

 

67

 

 

22

 

 

 



 



 

Net cash provided by (used in) financing activities

 

 

(20,255

)

 

123,843

 

CASH FLOWS FROM DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(1,690

)

 

(829

)

 

 



 



 

Net cash used in discontinued operations

 

 

(1,690

)

 

(829

)

Effect of exchange rate changes on cash and equivalents

 

 

327

 

 

1,304

 

 

 



 



 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

 

(71,117

)

 

76,752

 

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

243,029

 

 

169,802

 

 

 



 



 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

171,912

 

$

246,554

 

 

 



 



 

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
(in thousands, except share and per share data)
(Unaudited)

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

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

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

Griffon currently conducts its operations through three segments:

 

 

 

 

 

Home & Building Products (“HBP”) consists of two companies, Ames True Temper, Inc. (“ATT”) and Clopay Building Products 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, 2011, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s HBP operations are seasonal and the results of any interim period are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet information at September 30, 2011 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2011.

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

4


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

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

NOTE 2 – FAIR VALUE MEASUREMENTS

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

The fair values of Griffon’s 2018 senior notes, and 2017 and 2023 4% convertible notes approximated $556,000, $91,000 and $532, respectively, on June 30, 2012. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with a value of $4,213 and trading securities with a value of $290 at June 30, 2012 are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs).

Items Measured at Fair Value on a Recurring Basis

At June 30, 2012, Griffon had $1,250 of Australian dollar contracts at a weighted average rate of $0.97. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. A fair value gain of $15 and $55 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, 2012, respectively. The contracts expire in 30 to 90 days.

NOTE 3 – ACQUISITION

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

The accounts of the acquired company, after adjustments to reflect fair market values assigned to assets purchased from SSMG, have been included in the consolidated financial statements from the date of acquisition; acquired inventory was not significant. Griffon is in the process of finalizing the adjustment to the purchase price, if any, primarily related to working capital; accordingly, management has used their best estimate in the initial purchase price allocation as of the date of these financial statements.

5


The following table summarizes the fair values of the assets acquired as of the date of the acquisition and the amounts assigned to goodwill and intangible asset classifications:

 

 

 

 

 

Inventory

 

$

3,673

 

PP&E

 

 

416

 

Goodwill

 

 

4,655

 

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, stated at the lower of cost (first-in, first-out or average) or market, were comprised of the following:

 

 

 

 

 

 

 

 

 

 

At June 30,
2012

 

At September 30,
2011

 


 


 


 

Raw materials and supplies

 

$

69,047

 

$

76,563

 

Work in process

 

 

73,347

 

 

66,585

 

Finished goods

 

 

127,484

 

 

120,661

 

 

 



 



 

Total

 

$

269,878

 

$

263,809

 

 

 



 



 

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment were comprised of the following:

 

 

 

 

 

 

 

 

 

 

At June 30,
2012

 

At September 30,
2011

 


 


 


 

Land, building and building improvements

 

$

123,641

 

$

126,340

 

Machinery and equipment

 

 

613,528

 

 

571,414

 

Leasehold improvements

 

 

34,058

 

 

32,867

 

 

 



 



 

 

 

 

771,227

 

 

730,621

 

Accumulated depreciation and amortization

 

 

(413,600

)

 

(380,571

)

 

 



 



 

Total

 

$

357,627

 

$

350,050

 

 

 



 



 

 

 

 

 

 

 

 

 

Depreciation and amortization expense for property, plant and equipment was $14,826 and $13,714 for the quarters ended June 30, 2012 and 2011, respectively, and $42,597 and $39,173 for the nine months ended June 30, 2012 and 2011, respectively.

No event or indicator of impairment occurred during the three and nine months ended June 30, 2012, which would require additional impairment testing of property, plant and equipment.

6


NOTE 6 – GOODWILL AND OTHER INTANGIBLES

The following table provides the changes in carrying value of goodwill by segment during the nine months ended June 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30,
2011

 

Goodwill from
2012
acquisitions

 

Other
adjustments
including
currency
translations

 

At June 30, 2012

 


 








 

Home & Building Products

 

$

265,147

 

$

4,655

 

$

 

$

269,802

 

Telephonics

 

 

18,545

 

 

 

 

 

 

18,545

 

Plastics

 

 

74,196

 

 

 

 

(4,627

)

 

69,569

 

 

 












 

Total

 

$

357,888

 

$

4,655

 

$

(4,627

)

$

357,916

 

 

 












 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2012

 

 

 

 

At September 30, 2011

 

 

 


 

 

 

 


 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Average
Life
(Years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 


 


 


 


 


 


 

 

Customer relationships

 

$

165,576

 

$

19,126

 

 

25

 

$

155,602

 

$

13,862

 

Unpatented technology

 

 

6,495

 

 

2,188

 

 

11

 

 

6,534

 

 

1,749

 

 

 



 



 

 

 

 



 



 

Total amortizable intangible assets

 

 

172,071

 

 

21,314

 

 

 

 

 

162,136

 

 

15,611

 

Trademarks

 

 

79,419

 

 

 

 

 

 

 

76,664

 

 

 

 

 



 



 

 

 

 



 



 

Total intangible assets

 

$

251,490

 

$

21,314

 

 

 

 

$

238,800

 

$

15,611

 

 

 



 



 

 

 

 



 



 

Amortization expense for intangible assets subject to amortization was $2,006 and $1,987 for the quarters ended June 30, 2012 and 2011, respectively, and $6,071 and $5,905 for the nine months ended June 30, 2012 and 2011, respectively. The amortizable intangibles acquired in the Southern Patio acquisition will increase amortization in 2012 and forward by approximately $440 per year.

During the nine months ended June 30, 2012, there were changes in management at both Plastics and Telephonics. Management performed a qualitative assessment as to whether these changes affected these reporting units’ carrying value and concluded that it was more likely than not that the fair value of the units continue to be greater than their respective carrying values.

NOTE 7 – INCOME TAXES

The tax rate for the current quarter was a provision of 39.7%, compared to a benefit of 81.3% in the prior year quarter. The current quarter’s rate reflects the benefit from the release of previously established reserves for uncertain tax positions on conclusion of certain tax audits. The prior year effective rate included benefits arising on the filing of the tax returns in various jurisdictions and the impact of tax planning initiatives related to unremitted foreign earnings. Excluding discrete items, the current quarter’s rate was 50.5%, which reflects the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, as well as the impact of tax reserves and a change in earnings mix between domestic and non-domestic operations. Excluding discrete items, the prior year quarter’s rate was 77.7%, which reflected the combined effects of the nominal pretax income in the quarter with a forecast full year pretax loss for 2011, as well as fluctuations in the full year expected effective tax rate driven by changes in earnings mix between domestic and non-domestic operations.

7


The tax rate for the nine months ended June 30, 2012 was a provision of 45.0%, compared to a benefit of 48.5% in the prior year. The current year rate reflects the benefit from the release of previously established reserves for uncertain tax positions on conclusion of certain tax audits. The prior year effective rate included benefits arising in connection with the retroactively extended research tax credit signed into law on December 22, 2010, the filing of tax returns in various jurisdictions, and the impact of tax planning initiatives related to unremitted foreign earnings. Excluding discrete items, the current year rate was 51.6%, which reflected the impact of permanent differences that are not deductible in determining taxable income, mainly limited deductibility of restricted stock, as well as the impact of tax reserves and a change in earnings mix between domestic and non-domestic operations. Excluding discrete items, the prior year rate was a benefit of 27.0% and reflected the impact of permanent differences not deductible in determining taxable income as well as the impact of tax reserves and changes in earnings mix.

NOTE 8 – LONG-TERM DEBT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2012

 

At September 30, 2011

 

 

 

 

 


 


 

 

 

 

 

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

 

$

9,268

 

 

7.125

%

$

550,000

 

$

 

$

550,000

 

$

11,337

 

 

7.125

%

Revolver due 2016

 

(a)

 

 

 

 

 

 

 

 

2,332

 

 

n/a

 

 

 

 

 

 

 

 

2,937

 

 

n/a

 

Convert. debt due 2017

 

(b)

 

 

100,000

 

 

(17,406

)

 

82,594

 

 

2,032

 

 

4.000

%

 

100,000

 

 

(19,693

)

 

80,307

 

 

2,474

 

 

4.000

%

Real estate mortgages

 

(c)

 

 

14,267

 

 

 

 

14,267

 

 

292

 

 

n/a

 

 

18,233

 

 

 

 

18,233

 

 

379

 

 

n/a

 

ESOP Loans

 

(d)

 

 

23,129

 

 

 

 

23,129

 

 

34

 

 

n/a

 

 

24,348

 

 

 

 

24,348

 

 

17

 

 

n/a

 

Capital lease - real estate

 

(e)

 

 

10,679

 

 

 

 

10,679

 

 

238

 

 

5.000

%

 

11,341

 

 

 

 

11,341

 

 

257

 

 

5.000

%

Convert. debt due 2023

 

(f)

 

 

532

 

 

 

 

532

 

 

 

 

4.000

%

 

532

 

 

 

 

532

 

 

 

 

4.000

%

Term loan due 2013

 

(g)

 

 

15,194

 

 

 

 

15,194

 

 

127

 

 

n/a

 

 

24,096

 

 

 

 

24,096

 

 

201

 

 

n/a

 

Revolver due 2012

 

(g)

 

 

1,266

 

 

 

 

1,266

 

 

 

 

n/a

 

 

 

 

 

 

 

 

33

 

 

n/a

 

Foreign line of credit

 

(h)

 

 

1,346

 

 

 

 

1,346

 

 

22

 

 

n/a

 

 

3,780

 

 

 

 

3,780

 

 

 

 

n/a

 

Foreign term loan

 

(h)

 

 

3,225

 

 

 

 

3,225

 

 

 

 

n/a

 

 

 

 

 

 

 

 

 

 

n/a

 

Other long term debt

 

(k)

 

 

704

 

 

 

 

704

 

 

 

 

 

 

 

774

 

 

 

 

774

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 



 



 



 



 

 

 

 

Totals

 

 

 

 

720,342

 

 

(17,406

)

 

702,936

 

$

14,345

 

 

 

 

 

733,104

 

 

(19,693

)

 

713,411

 

$

17,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

less: Current portion

 

 

 

 

(17,581

)

 

 

 

(17,581

)

 

 

 

 

 

 

 

(25,164

)

 

 

 

(25,164

)

 

 

 

 

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 

Long-term debt

 

 

 

$

702,761

 

$

(17,406

)

$

685,355

 

 

 

 

 

 

 

$

707,940

 

$

(19,693

)

$

688,247

 

 

 

 

 

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2012

 

Three Months Ended June 30, 2011

 

 

 

 

 


 


 

 

 

 

 

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

 

 

7.1

%

$

9,780

 

$

 

$

412

 

$

10,192

 

Revolver due 2016

 

(a)

 

 

n/a

 

 

440

 

 

 

 

157

 

 

597

 

 

n/a

 

 

 

 

 

 

149

 

 

149

 

Convert. debt due 2017

 

(b)

 

 

9.2

%

 

1,000

 

 

777

 

 

111

 

 

1,888

 

 

9.2

%

 

1,000

 

 

713

 

 

111

 

 

1,824

 

Real estate mortgages

 

(c)

 

 

5.6

%

 

142

 

 

 

 

22

 

 

164

 

 

5.2

%

 

208

 

 

 

 

36

 

 

244

 

ESOP Loans

 

(d)

 

 

3.0

%

 

177

 

 

 

 

2

 

 

179

 

 

2.9

%

 

123

 

 

 

 

17

 

 

140

 

Capital lease - real estate

 

(e)

 

 

5.3

%

 

136

 

 

 

 

6

 

 

142

 

 

5.3

%

 

147

 

 

 

 

6

 

 

153

 

Convert. debt due 2023

 

(f)

 

 

4.0

%

 

5

 

 

 

 

 

 

5

 

 

4.0

%

 

5

 

 

 

 

 

 

5

 

Term loan due 2013

 

(g)

 

 

3.4

%

 

164

 

 

 

 

21

 

 

185

 

 

n/a

 

 

 

 

 

 

72

 

 

72

 

Revolver due 2012

 

(g)

 

 

n/a

 

 

 

 

 

 

 

 

 

 

n/a

 

 

44

 

 

 

 

9

 

 

53

 

Foreign line of credit

 

(h)

 

 

15.0

%

 

26

 

 

 

 

 

 

26

 

 

3.7

%

 

34

 

 

 

 

 

 

34

 

Foreign term loan

 

(h)

 

 

10.9

%

 

101

 

 

 

 

8

 

 

109

 

 

n/a

 

 

 

 

 

 

 

 

 

Other long term debt

 

(k)

 

 

 

 

 

25

 

 

 

 

 

 

25

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Capitalized interest

 

 

 

 

 

 

 

(591

)

 

 

 

 

 

(591

)

 

 

 

 

(317

)

 

 

 

 

 

(317

)

 

 

 

 

 

 

 



 



 



 



 

 

 

 



 



 



 



 

Totals

 

 

 

 

 

 

$

11,422

 

$

777

 

$

733

 

$

12,932

 

 

 

 

$

11,044

 

$

713

 

$

812

 

$

12,569

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 



 



 



 



 

8



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2012

 

Nine Months Ended June 30, 2011

 

 

 

 

 


 


 

 

 

 

 

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

 

$

 

$

1,218

 

$

30,609

 

 

7.5

%

$

11,436

 

$

 

$

458

 

$

11,894

 

Revolver due 2016

 

(a)

 

 

n/a

 

 

440

 

 

 

 

466

 

 

906

 

 

n/a

 

 

 

 

 

 

172

 

 

172

 

Convert. debt due 2017

 

(b)

 

 

9.2

%

 

3,000

 

 

2,286

 

 

332

 

 

5,618

 

 

9.3

%

 

3,000

 

 

2,099

 

 

332

 

 

5,431

 

Real estate mortgages

 

(c)

 

 

5.6

%

 

436

 

 

 

 

65

 

 

501

 

 

5.6

%

 

552

 

 

 

 

64

 

 

616

 

ESOP Loans

 

(d)

 

 

3.0

%

 

532

 

 

 

 

4

 

 

536

 

 

2.5

%

 

170

 

 

 

 

50

 

 

220

 

Capital lease - real estate

 

(e)

 

 

5.3

%

 

417

 

 

 

 

19

 

 

436

 

 

5.4

%

 

457

 

 

 

 

19

 

 

476

 

Convert. debt due 2023

 

(f)

 

 

4.0

%

 

16

 

 

 

 

 

 

16

 

 

4.0

%

 

16

 

 

 

 

 

 

16

 

Term loan due 2013

 

(g)

 

 

4.8

%

 

691

 

 

 

 

66

 

 

757

 

 

n/a

 

 

 

 

 

 

73

 

 

73

 

Revolver due 2012

 

(g)

 

 

n/a

 

 

61

 

 

 

 

34

 

 

95

 

 

n/a

 

 

54

 

 

 

 

48

 

 

102

 

Foreign line of credit

 

(h)

 

 

9.8

%

 

182

 

 

 

 

 

 

182

 

 

3.8

%

 

42

 

 

 

 

 

 

42

 

Foreign term loan

 

(h)

 

 

10.6

%

 

151

 

 

 

 

7

 

 

158

 

 

n/a

 

 

 

 

 

 

 

 

 

Term loan due 2016

 

(i)

 

 

n/a

 

 

 

 

 

 

 

 

 

 

9.5

%

 

13,405

 

 

572

 

 

838

 

 

14,815

 

Asset based loan

 

(i)

 

 

n/a

 

 

 

 

 

 

 

 

 

 

6.2

%

 

1,076

 

 

58

 

 

341

 

 

1,475

 

Revolver due 2013

 

(j)

 

 

n/a

 

 

 

 

 

 

 

 

 

 

1.6

%

 

160

 

 

 

 

79

 

 

239

 

Other long term debt

 

(k)

 

 

 

 

 

708

 

 

 

 

 

 

708

 

 

 

 

 

91

 

 

 

 

 

 

91

 

Capitalized interest

 

 

 

 

 

 

 

(1,522

)

 

 

 

 

 

(1,522

)

 

 

 

 

(551

)

 

 

 

 

 

(551

)

 

 

 

 

 

 

 



 



 



 



 

 

 

 



 



 



 



 

Totals

 

 

 

 

 

 

$

34,503

 

$

2,286

 

$

2,211

 

$

39,000

 

 

 

 

$

29,908

 

$

2,729

 

$

2,474

 

$

35,111

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 



 



 



 



 


 

 

 

 

(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; interest is payable semi-annually. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 (“Senior Notes”), via an exchange offer.

 

 

 

 

 

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

 

 

 

 

 

On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate plus an applicable margin, which will adjust based on financial performance. The margins are 1.75% for base rate loans and 2.75% for LIBOR loans, in each case without a floor. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by certain domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors.

 

 

 

 

 

At June 30, 2012, there were $21,516 of standby letters of credit outstanding under the Credit Agreement; $178,484 was available for borrowing at that date.

9



 

 

 

 

(b)

On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The initial conversion rate of the 2017 Notes was 67.0799 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to an initial conversion price of $14.91 per share, a 23% conversion premium over the $12.12 closing price on December 15, 2009. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion, (ii) the 42nd trading day prior to maturity of the notes, and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of September 25, 2012, aggregate dividends of $0.08 per share would result in a cumulative change in the conversion rate of approximately 0.9%. Griffon used 8.75% as the nonconvertible debt-borrowing rate to discount the 2017 Notes and will amortize the debt discount through January 2017. At issuance, the debt component of the 2017 Notes was $75,437 and debt discount was $24,563. At June 30, 2012 and September 30, 2011, 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. On October 3, 2011, the mortgage at Russia, Ohio was paid in full, on maturity.

 

 

 

 

(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, 2012, $19,223 was outstanding.

 

 

 

 

 

In addition, the ESOP has a loan agreement, guaranteed by Griffon, 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. 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, 2012, $3,906 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 5.1%, is secured by a mortgage on the real estate and is guaranteed by Griffon.

 

 

 

 

(f)

At June 30, 2012 and September 30, 2011, Griffon had $532 of 4% convertible subordinated notes due 2023 (the “2023 Notes”) outstanding. Holders of the 2023 Notes may require Griffon to repurchase all or a portion of their 2023 Notes on July 18, 2013 and 2018, if Griffon’s common stock price is below the conversion price of the 2023 Notes, as well as upon a change in control. An adjustment to the conversion rate will be required as the result of payment of a cash dividend only if such adjustment would be greater than 1% (or at such time as the cumulative impact on the conversion rate reaches 1% in the aggregate). As of September 25, 2012, aggregate dividends of $0.08 per share would result in a cumulative change in the conversion rate of approximately 0.9%. At June 30, 2012 and September 30, 2011, the 2023 Notes had no capital in excess of par value component as substantially all of these notes were put to Griffon at par and settled in July 2010.

10



 

 

 

 

(g)

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 2.1% per annum, and the term loan accrues interest at Euribor plus 2.2% per annum. The revolving facility matures in November 2012, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. At June 30, 2012, there was €1,000 borrowed on the revolving credit with €9,000 available for borrowing.

 

 

 

 

(h)

In February 2012, Clopay do Brazil, a subsidiary of Plastics, borrowed $4,000 at a rate of 104.5% of Brazilian CDI. The loan was used to refinance existing loans and is collateralized by accounts receivable and a 50% guaranty by Plastics 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 a line of credit of approximately $1,700. Interest on borrowings accrue at a rate of Brazilian CDI plus 6.0%. At June 30, 2012 there was approximately $1,346 borrowed under the line.

 

 

 

 

(i)

In connection with the ATT acquisition, Clopay Ames True Temper Holding Corp. (“Clopay Ames”), a subsidiary of Griffon, entered into a $375,000 secured term Loan (“Term Loan”) and a $125,000 asset based lending agreement (“ABL”).

 

 

 

 

 

On November 30, 2010, Clopay Ames, as required under the Term Loan agreement, entered into an interest rate swap on a notional amount of $200,000 of the Term Loan. The agreement fixed the LIBOR component of the Term Loan interest rate at 2.085% for the notional amount of the swap.

 

 

 

 

 

On March 17, 2011, the Term Loan and swap were terminated, and on March 18, 2011, the ABL was terminated, in connection with the issuance of the Senior Notes and Credit Agreement.

 

 

 

 

(j)

In March 2008, Telephonics entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, revolving credit facility of $100,000 (the “TCA”). The TCA terminated in connection with the Credit Agreement.

 

 

 

 

(k)

Includes capital leases.

At June 30, 2012, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

During the second quarter of 2011, in connection with the termination of the Term Loan, ABL and Telephonics credit agreement, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and $844 of swap and other breakage costs.

NOTE 9 — SHAREHOLDERS’ EQUITY

During the first, second and third quarters of 2012, the Board of Directors approved three quarterly cash dividends of $0.02 per common share, which were paid on December 27, 2011, March 27, 2012 and June 26, 2012, to holders of common stock as of close of business on November 29, 2011, February 28, 2012 and May 29, 2012, respectively. $1,190 and $3,564 was recorded to retained earnings for the dividend for the three and nine months ended June 30, 2012, respectively. Dividends paid on allocated shares in the ESOP were used to pay down the ESOP loan and were recorded as a reduction in expense. A dividend payable was established for the holders of restricted shares; such payable will be released upon vesting of the underlying restricted shares.

11


On August 2, 2012, the Board of Directors declared a fourth quarterly cash dividend of $0.02 per share, payable on September 25, 2012 to shareholders of record as of the close of business on August 28, 2012.

Griffon expenses the fair value of equity compensation grants over the related vesting period. Compensation cost related to stock-based awards with graded vesting are amortized using the straight-line attribution method.

In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan (“Incentive Plan”) under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and must be 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, 2012, 1,770,509 shares were available for grant.

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

During the first quarter of 2012, Griffon granted 309,500 restricted shares with three-year cliff vesting, 191,000 of which are also subject to certain performance conditions, with a total fair value of $2,881, or a weighted average fair value of $9.31 per share.

During the second quarter of 2012, Griffon granted 110,000 restricted shares, 82,500 of which are three-year cliff vesting and 27,500 of which vest equally over 3 years; 37,500 of the 110,000 shares are subject to certain performance conditions. The total fair value of these grants is $1,119, or a weighted average fair value of $9.83 per share.

During the third quarter of 2012, Griffon granted 2,000 restricted shares with three-year cliff vesting. The total fair value of these grants is $19, or a weighted average fair value of $9.33 per share.

During the second quarter of 2011, Griffon granted 590,000 performance shares. Prior to the change in the terms of the grant, the performance shares had a fair value of $7,346, or a weighted average fair value of $12.45 per share, and cliff vested when either Griffon’s common stock closed at or above $16 per share for twenty consecutive trading days or 7 years from the date of grant, whichever came first. In January 2012, the terms of the grant were modified such that the price of Griffon common stock must close at or above $16 per share for thirty consecutive trading days on or prior to January 10, 2016 in order for the shares to vest; otherwise, the shares will be forfeited. The unamortized portion of the original fair value of approximately $6,400 will be expensed over the new service period of 32 months beginning January 2012.

For the three and nine months ended June 30, 2012, stock based compensation expense totaled $2,691 and $7,599, respectively. For the three and nine months ended June 30, 2011, stock based compensation expense totaled $2,120 and $6,767, respectively.

In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. In the first quarter of 2012, Griffon purchased 283,400 shares of common stock, for a total of $2,351, or $8.29 per share. In the third quarter of 2012, Griffon purchased 417,667 shares of common stock, for a total of $3,320, or $7.95 per share; in total, Griffon has purchased 866,446 shares of common stock, for a total of $6,980, or $8.06 per share, under this repurchase program. $43,020 remains under the $50,000 authorization. Subsequent to June 30, 2012, Griffon purchased 66,199 shares of common stock, for a total of $560, or $8.47 per share.

12


NOTE 10 – EARNINGS PER SHARE (EPS)

Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. The 2023 Notes and the 2017 Notes were anti-dilutive due to the conversion price being greater than the weighted-average stock price during the periods presented. Due to the net loss during the nine months ended June 30, 2011, the incremental shares from stock based compensation are anti-dilutive.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

Weighted average shares outstanding - basic

 

 

56,034

 

 

59,606

 

 

56,032

 

 

59,387

 

Incremental shares from stock based compensation

 

 

1,461

 

 

919

 

 

1,279

 

 

 

 

 



 



 



 



 

Weighted average shares outstanding - diluted

 

 

57,495

 

 

60,525

 

 

57,311

 

 

59,387

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive options excluded
from diluted EPS computation

 

 

963

 

 

1,200

 

 

1,202

 

 

1,200

 

 

Anti-dilutive restricted stock excluded
from diluted EPS computation

 

 

 

 

850

 

 

 

 

850

 

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

NOTE 11 – BUSINESS SEGMENTS

Griffon’s reportable business segments are as follows:

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income or expense, income taxes, depreciation and amortization, gain (losses) from debt extinguishment, unallocated amounts, restructuring charges and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful to investors. The following tables provide a reconciliation of Segment profit and Segment profit before depreciation, amortization, restructuring and fair value write-up of acquired inventory sold and acquisition costs to Income before taxes and discontinued operations:

13



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

 

For the Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

ATT

 

$

130,311

 

$

114,144

 

$

362,374

 

$

353,985

 

CBP

 

 

106,910

 

 

100,099

 

 

309,825

 

 

290,840

 

 

 



 



 



 



 

Home & Building Products

 

 

237,221

 

 

214,243

 

 

672,199

 

 

644,825

 

Telephonics

 

 

101,116

 

 

103,530

 

 

319,621

 

 

315,334

 

Plastics

 

 

141,909

 

 

137,509

 

 

421,889

 

 

385,654

 

 

 



 



 



 



 

Total consolidated net sales

 

$

480,246

 

$

455,282

 

$

1,413,709

 

$

1,345,813

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

 

For the Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

INCOME (LOSS) BEFORE TAXES

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products

 

$

17,482

 

$

13,512

 

$

35,412

 

$

18,820

 

Telephonics

 

 

14,113

 

 

9,725

 

 

40,171

 

 

31,643

 

Plastics

 

 

3,506

 

 

(305

)

 

7,879

 

 

9,007

 

 

 



 



 



 



 

Total segment operating profit

 

 

35,101

 

 

22,932

 

 

83,462

 

 

59,470

 

Unallocated amounts

 

 

(7,253

)

 

(7,781

)

 

(20,041

)

 

(19,468

)

Loss from debt extinguishment, net

 

 

 

 

 

 

 

 

(26,164

)

Net interest expense

 

 

(12,855

)

 

(12,463

)

 

(38,775

)

 

(34,839

)

 

 



 



 



 



 

Income (loss) before taxes

 

$

14,993

 

$

2,688

 

$

24,646

 

$

(21,001

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment profit before depreciation, amortization, restructuring, fair value write-up of acquired inventory sold and acquisition costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products

 

$

25,831

 

$

22,487

 

$

59,434

 

$

59,640

 

Telephonics

 

 

15,886

 

 

12,122

 

 

46,912

 

 

37,457

 

Plastics

 

 

10,117

 

 

6,048

 

 

27,462

 

 

27,065

 

 

 



 



 



 



 

Total Segment profit before depreciation, amortization, restructuring, fair value write-up of acquired inventory sold and acquisition costs

 

 

51,834

 

 

40,657

 

 

133,808

 

 

124,162

 

Unallocated amounts, less acquisition costs

 

 

(7,253

)

 

(7,781

)

 

(20,041

)

 

(19,468

)

Loss from debt extinguishment, net

 

 

 

 

 

 

 

 

(26,164

)

Net interest expense

 

 

(12,855

)

 

(12,463

)

 

(38,775

)

 

(34,839

)

Segment depreciation and amortization

 

 

(16,733

)

 

(15,607

)

 

(48,373

)

 

(44,817

)

Restructuring charges

 

 

 

 

(2,118

)

 

(1,795

)

 

(4,723

)

Fair value write-up of acquired inventory sold

 

 

 

 

 

 

 

 

(15,152

)

Acquisition costs

 

 

 

 

 

 

(178

)

 

 

 

 



 



 



 



 

Income (loss) before taxes

 

$

14,993

 

$

2,688

 

$

24,646

 

$

(21,001

)

 

 



 



 



 



 

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

14



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
June 30,

 

For the Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

DEPRECIATION and AMORTIZATION

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment:

 

 

 

 

 

 

 

 

 

Home & Building Products

 

$

8,349

 

$

7,460

 

$

23,571

 

$

21,548

 

Telephonics

 

 

1,773

 

 

1,794

 

 

5,219

 

 

5,211

 

Plastics

 

 

6,611

 

 

6,353

 

 

19,583

 

 

18,058

 

 

 



 



 



 



 

Total segment depreciation and amortization

 

 

16,733

 

 

15,607

 

 

48,373

 

 

44,817

 

Corporate

 

 

99

 

 

93

 

 

295

 

 

261

 

 

 



 



 



 



 

Total consolidated depreciation and amortization

 

$

16,832

 

$

15,700

 

$

48,668

 

$

45,078

 

 

 



 



 



 



 

CAPITAL EXPENDITURES

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products

 

$

5,974

 

$

4,855

 

$

20,547

 

$

18,630

 

Telephonics

 

 

4,462

 

 

3,854

 

 

8,246

 

 

5,992

 

Plastics

 

 

7,037

 

 

14,415

 

 

28,811

 

 

40,031

 

 

 



 



 



 



 

Total segment

 

 

17,473

 

 

23,124

 

 

57,604

 

 

64,653

 

Corporate

 

 

17

 

 

113

 

 

91

 

 

321

 

 

 



 



 



 



 

Total consolidated capital expenditures

 

$

17,490

 

$

23,237

 

$

57,695

 

$

64,974

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30,
2012

 

At September 30,
2011

 

 

 

 

 

 

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Home & Building Products

 

 

 

 

 

 

 

$

963,998

 

$

972,714

 

Telephonics

 

 

 

 

 

 

 

 

253,709

 

 

288,968

 

Plastics

 

 

 

 

 

 

 

 

425,447

 

 

450,452

 

 

 

 

 

 

 

 

 



 



 

Total segment assets

 

 

 

 

 

 

 

 

1,643,154

 

 

1,712,134

 

Corporate

 

 

 

 

 

 

 

 

149,455

 

 

148,064

 

 

 

 

 

 

 

 

 



 



 

Total continuing assets

 

 

 

 

 

 

 

 

1,792,609

 

 

1,860,198

 

Assets of discontinued operations

 

 

 

 

 

 

 

 

4,277

 

 

5,056

 

 

 

 

 

 

 

 

 



 



 

Consolidated total

 

 

 

 

 

 

 

$

1,796,886

 

$

1,865,254

 

 

 

 

 

 

 

 

 



 



 

NOTE 12 – COMPREHENSIVE INCOME

Comprehensive income (loss) was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 


 


 


 


 


 

Net income (loss)

 

$

9,048

 

$

4,872

 

$

13,563

 

$

(10,809

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(18,527

)

 

8,664

 

 

(13,479

)

 

25,130

 

Pension other comprehensive income amortization, net of tax

 

 

523

 

 

426

 

 

1,562

 

 

1,277

 

 

 



 



 



 



 

Comprehensive income (loss)

 

$

(8,956

)

$

13,962

 

$

1,646

 

$

15,598

 

 

 



 



 



 



 

15


NOTE 13 – DEFINED BENEFIT PENSION EXPENSE

Defined benefit pension expense was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 


 


 


 


 


 

Service cost

 

$

46

 

$

88

 

$

150

 

$

263

 

Interest cost

 

 

2,652

 

 

2,792

 

 

7,988

 

 

8,370

 

Expected return on plan assets

 

 

(2,918

)

 

(2,843

)

 

(8,782

)

 

(8,524

)

Amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

84

 

 

84

 

 

252

 

 

252

 

Recognized actuarial loss

 

 

718

 

 

571

 

 

2,154

 

 

1,713

 

 

 



 



 



 



 

Net periodic expense

 

$

582

 

$

692

 

$

1,762

 

$

2,074

 

 

 



 



 



 



 

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

NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS

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

NOTE 15 – DISCONTINUED OPERATIONS

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

 

 

 

 

 

 

 

 

 

 

At June 30,
2012

 

At September 30,
2011

 

 

 


 


 

Assets of discontinued operations:

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

1,303

 

$

1,381

 

Other long-term assets

 

 

2,974

 

 

3,675

 

 

 



 



 

Total assets of discontinued operations

 

$

4,277

 

$

5,056

 

 

 



 



 

 

 

 

 

 

 

 

 

Liabilities of discontinued operations:

 

 

 

 

 

 

 

Accrued liabilities, current

 

$

3,077

 

$

3,794

 

Other long-term liabilities

 

 

4,033

 

 

5,786

 

 

 



 



 

Total liabilities of discontinued operations

 

$

7,110

 

$

9,580

 

 

 



 



 

There was no Installation Services’ operating unit revenue or income for the three and nine months ended June 30, 2012 or 2011.

16


NOTE 16 – RESTRUCTURING AND OTHER RELATED CHARGES

In June 2009, Griffon announced plans to consolidate facilities in CBP. These actions were completed in 2011, consistent with the plan. In completing the consolidation plan, CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of which was cash charges; charges include $1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. The restructuring costs in the three and nine months ended June 30, 2011 were $955 and $3,437, respectively.

ATT recognized nil and $273, respectively, for the three and nine months ended June 30, 2012, and $560 and $683, respectively, for the three and nine months ended June 30, 2011, in restructuring and other related charges, primarily related to a facility and related one-time termination costs.

In the first quarter of 2012, Telephonics recognized $1,522 of restructuring and other related charges, primarily for one-time termination benefits and other personnel costs in conjunction with changes to its organizational structure. In the prior year quarter, Telephonics recognized $603 of restructuring and other related charges related to costs incurred in connection with the consolidation of the management of its Electronic Systems and Communications Systems operating units; such charges were all personnel related.

A summary of the restructuring and other related charges included in the line item “Restructuring and other related charges” in the Consolidated Statements of Operations recognized was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workforce
Reduction

 

Facilities &
Exit Costs

 

Other
Related
Costs

 

Total

 


 


 


 


 


 

Amounts incurred in:

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended December 31, 2010

 

$

239

 

$

791

 

$

363

 

$

1,393

 

Quarter ended March 31, 2011

 

 

61

 

 

470

 

 

681

 

 

1,212

 

Quarter ended June 30, 2011

 

 

1,134

 

 

450

 

 

534

 

 

2,118

 

 

 



 



 



 



 

Nine months ended June 30, 2011

 

$

1,434

 

$

1,711

 

$

1,578

 

$

4,723

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended December 31, 2011

 

$

1,538

 

$

257

 

$

 

$

1,795

 

Quarter ended March 31, 2012

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

Nine months ended June 30, 2012

 

$

1,538

 

$

257

 

$

 

$

1,795

 

 

 



 



 



 



 

At June 30, 2012, the accrued liability for the restructuring and related charges consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Workforce
Reduction

 

Facilities &
Exit Costs

 

Other
Related
Costs

 

Total

 


 


 


 


 


 

 

Accrued liability at September 30, 2011

 

$

2,657

 

$

 

$

 

$

2,657

 

Charges

 

 

1,538

 

 

257

 

 

 

 

1,795

 

Payments

 

 

(3,205

)

 

(235

)

 

 

 

(3,440

)

 

 



 



 



 



 

Accrued liability at June 30, 2012

 

$

990

 

$

22

 

$

 

$

1,012

 

 

 



 



 



 



 

17


NOTE 17 – OTHER INCOME

For the quarters ended June 30, 2012 and 2011, Other income included net foreign exchange gain (loss) of ($707) and $24, respectively, and $38 and $311, respectively, of investment expense.

For the nine months ended June 30, 2012 and 2011, Other income included net foreign exchange loss of $1,375 and $3, respectively, and $134 and $996, respectively, of investment income.

NOTE 18 – WARRANTY LIABILITY

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 


 


 


 


 


 

Balance, beginning of period

 

$

10,356

 

$

6,513

 

$

7,963

 

$

6,719

 

Warranties issued and charges in estimated pre-existing warranties

 

 

579

 

 

1,154

 

 

5,525

 

 

2,830

 

Actual warranty costs incurred

 

 

(1,174

)

 

(988

)

 

(3,727

)

 

(2,870

)

 

 


 


 


 


 

Balance, end of period

 

$

9,761

 

$

6,679

 

$

9,761

 

$

6,679

 

 

 


 


 


 


 

NOTE 19 — 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.

18


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

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

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

Improper Advertisement Claim involving UnionTools Products. Since December 2004, a customer of ATT has been named in various litigation matters relating to certain UnionTools 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 September 26, 2011 ATT submitted a Records Search Report to DEC and on October 24, 2011 filed the draft Remedial Investigation Work Plan (“RIWP”) completing the first two steps under the Order. DEC responded to ATT’s draft work plan and requested that ATT submit an amended work plan reflecting certain changes. On June 1, 2012, ATT submitted to DEC a revised RIWP and Proposed Interim Remedial Measure Work Plan (“IRM”) for the demolition of various buildings at the site. DEC is currently reviewing both submissions.

19


U.S. Government investigations and claims

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

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

General legal

Griffon is a party to legal proceedings arising in the ordinary course of business and is subject to various laws and regulations relating to the protection of the environment. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.

NOTE 20 — CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, 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, 2012 and September 30, 2011 and for the three and nine months ended June 30, 2012 and 2011. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. 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.

20


CONDENSED CONSOLIDATING BALANCE SHEETS
At June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-
Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

103,616

 

$

26,554

 

$

41,742

 

$

 

$

171,912

 

Accounts receivable, net of allowances

 

 

 

 

206,645

 

 

79,198

 

 

(23,989

)

 

261,854

 

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

 

 

 

 

62,831

 

 

2,706

 

 

 

 

65,537

 

Inventories, net

 

 

 

 

200,239

 

 

69,639

 

 

 

 

269,878

 

Prepaid and other current assets

 

 

3,705

 

 

25,861

 

 

17,934

 

 

2,397

 

 

49,897

 

Assets of discontinued operations

 

 

 

 

 

 

1,303

 

 

 

 

1,303

 

 

 



 



 



 



 



 

Total Current Assets

 

 

107,321

 

 

522,130

 

 

212,522

 

 

(21,592

)

 

820,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

1,248

 

 

243,476

 

 

112,903

 

 

 

 

357,627

 

GOODWILL

 

 

 

 

288,147

 

 

69,769

 

 

 

 

357,916

 

INTANGIBLE ASSETS, net

 

 

 

 

165,704

 

 

64,472

 

 

 

 

230,176

 

INTERCOMPANY RECEIVABLE

 

 

529,568

 

 

644,257

 

 

578,408

 

 

(1,752,233

)

 

 

EQUITY INVESTMENTS IN SUBSIDIARIES

 

 

2,183,293

 

 

564,451

 

 

2,653,970

 

 

(5,401,714

)

 

 

OTHER ASSETS

 

 

49,644

 

 

57,219

 

 

8,147

 

 

(87,198

)

 

27,812

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

2,974

 

 

 

 

2,974

 

 

 



 



 



 



 



 

Total Assets

 

$

2,871,074

 

$

2,485,384

 

$

3,703,165

 

$

(7,262,737

)

$

1,796,886

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

1,624

 

$

1,022

 

$

14,935

 

$

 

$

17,581

 

Accounts payable and accrued liabilities

 

 

38,737

 

 

160,731

 

 

62,403

 

 

(21,592

)

 

240,279

 

Liabilities of discontinued operations

 

 

 

 

 

 

3,077

 

 

 

 

3,077

 

 

 



 



 



 



 



 

Total Current Liabilities

 

 

40,361

 

 

161,753

 

 

80,415

 

 

(21,592

)

 

260,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net of debt discounts

 

 

654,630

 

 

10,042

 

 

20,683

 

 

 

 

685,355

 

INTERCOMPANY PAYABLES

 

 

 

 

605,308

 

 

1,146,925

 

 

(1,752,233

)

 

 

OTHER LIABILITIES

 

 

74,335

 

 

181,013

 

 

25,373

 

 

(87,198

)

 

193,523

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

4,033

 

 

 

 

4,033

 

 

 



 



 



 



 



 

Total Liabilities

 

 

769,326

 

 

958,116

 

 

1,277,429

 

 

(1,861,023

)

 

1,143,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

2,101,748

 

 

1,527,268

 

 

2,425,736

 

 

(5,401,714

)

 

653,038

 

 

 



 



 



 



 



 

Total Liabilities and Shareholders’ Equity

 

$

2,871,074

 

$

2,485,384

 

$

3,703,165

 

$

(7,262,737

)

$

1,796,886

 

 

 



 



 



 



 



 

21


CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-
Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

178,448

 

$

15,164

 

$

49,417

 

$

 

$

243,029

 

Accounts receivable, net of allowances

 

 

 

 

190,986

 

 

76,485

 

 

 

 

267,471

 

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

 

 

 

 

73,755

 

 

982

 

 

 

 

74,737

 

Inventories, net

 

 

 

 

194,355

 

 

69,454

 

 

 

 

263,809

 

Prepaid and other current assets

 

 

1,839

 

 

40,436

 

 

1,913

 

 

4,640

 

 

48,828

 

Assets of discontinued operations

 

 

 

 

 

 

1,381

 

 

 

 

1,381

 

 

 



 



 



 



 



 

Total Current Assets

 

 

180,287

 

 

514,696

 

 

199,632

 

 

4,640

 

 

899,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

1,402

 

 

224,193

 

 

124,455

 

 

 

 

350,050

 

GOODWILL

 

 

 

 

283,491

 

 

74,397

 

 

 

 

357,888

 

INTANGIBLE ASSETS, net

 

 

 

 

155,242

 

 

67,947

 

 

 

 

223,189

 

INTERCOMPANY RECEIVABLE

 

 

449,112

 

 

278,344

 

 

98,953

 

 

(826,409

)

 

 

EQUITY INVESTMENTS IN SUBSIDIARIES

 

 

2,844,527

 

 

746,686

 

 

2,397,258

 

 

(5,988,471

)

 

 

OTHER ASSETS

 

 

54,354

 

 

49,771

 

 

14,270

 

 

(87,198

)

 

31,197

 

ASSETS OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

3,675

 

 

 

 

3,675

 

 

 



 



 



 



 



 

Total Assets

 

$

3,529,682

 

$

2,252,423

 

$

2,980,587

 

$

(6,897,438

)

$

1,865,254

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable and current portion of long-term debt

 

$

5,375

 

$

4,350

 

$

15,439

 

$

 

$

25,164

 

Accounts payable and accrued liabilities

 

 

36,765

 

 

199,742

 

 

44,774

 

 

4,640

 

 

285,921

 

Liabilities of discontinued operations

 

 

 

 

 

 

3,794

 

 

 

 

3,794

 

 

 



 



 



 



 



 

Total Current Liabilities

 

 

42,140

 

 

204,092

 

 

64,007

 

 

4,640

 

 

314,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net of debt discounts

 

 

649,812

 

 

10,794

 

 

27,641

 

 

 

 

688,247

 

INTERCOMPANY PAYABLES

 

 

 

 

89,198

 

 

737,211

 

 

(826,409

)

 

 

OTHER LIABILITIES

 

 

79,655

 

 

172,203

 

 

39,774

 

 

(87,198

)

 

204,434

 

LIABILITIES OF DISCONTINUED OPERATIONS

 

 

 

 

 

 

5,786

 

 

 

 

5,786

 

 

 



 



 



 



 



 

Total Liabilities

 

 

771,607

 

 

476,287

 

 

874,419

 

 

(908,967

)

 

1,213,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

2,758,075

 

 

1,776,136

 

 

2,106,168

 

 

(5,988,471

)

 

651,908

 

 

 



 



 



 



 



 

Total Liabilities and Shareholders’ Equity

 

$

3,529,682

 

$

2,252,423

 

$

2,980,587

 

$

(6,897,438

)

$

1,865,254

 

 

 



 



 



 



 



 

22


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
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

 

 

 



 



 



 



 



 

23


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-
Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

344,229

 

$

121,993

 

$

(10,940

)

$

455,282

 

Cost of goods and services

 

 

 

 

255,237

 

 

112,185

 

 

(11,309

)

 

356,113

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

88,992

 

 

9,808

 

 

369

 

 

99,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

6,285

 

 

62,190

 

 

13,663

 

 

(93

)

 

82,045

 

Restructuring and other related charges

 

 

 

 

2,016

 

 

102

 

 

 

 

2,118

 

 

 



 



 



 



 



 

Total operating expenses

 

 

6,285

 

 

64,206

 

 

13,765

 

 

(93

)

 

84,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(6,285

)

 

24,786

 

 

(3,957

)

 

462

 

 

15,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(3,600

)

 

2,667

 

 

(11,530

)

 

 

 

(12,463

)

Other, net

 

 

(1,349

)

 

7,139

 

 

(5,706

)

 

61

 

 

145

 

 

 



 



 



 



 



 

Total other income (expense)

 

 

(4,949

)

 

9,806

 

 

(17,236

)

 

61

 

 

(12,318

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(11,234

)

 

34,592

 

 

(21,193

)

 

523

 

 

2,688

 

Provision (benefit) for income taxes

 

 

(8,708

)

 

10,254

 

 

(3,730

)

 

 

 

(2,184

)

 

 



 



 



 



 



 

Income (loss) before equity in net income of subsidiaries

 

 

(2,526

)

 

24,338

 

 

(17,463

)

 

523

 

 

4,872

 

Equity in net income of subsidiaries

 

 

6,875

 

 

(12,237

)

 

24,338

 

 

(18,976

)

 

 

 

 



 



 



 



 



 

Net income (loss)

 

$

4,349

 

$

12,101

 

$

6,875

 

$

(18,453

)

$

4,872

 

 

 



 



 



 



 



 

24


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

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

 

 

 



 



 



 



 



 

25


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-
Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 


 


 


 


 


 

 

Revenue

 

$

 

$

1,013,130

 

$

361,365

 

$

(28,682

)

$

1,345,813

 

Cost of goods and services

 

 

 

 

778,650

 

 

308,669

 

 

(29,677

)

 

1,057,642

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

234,480

 

 

52,696

 

 

995

 

 

288,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

16,848

 

 

187,151

 

 

43,103

 

 

(249

)

 

246,853

 

Restructuring and other related charges

 

 

 

 

4,498

 

 

225

 

 

 

 

4,723

 

 

 



 



 



 



 



 

Total operating expenses

 

 

16,848

 

 

191,649

 

 

43,328

 

 

(249

)

 

251,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(16,848

)

 

42,831

 

 

9,368

 

 

1,244

 

 

36,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(8,997

)

 

4,366

 

 

(30,208

)

 

 

 

(34,839

)

Loss from debt extinguishment, net

 

 

 

 

(397

)

 

(25,767

)

 

 

 

(26,164

)

Other, net

 

 

(42

)

 

4,908

 

 

(738

)

 

(721

)

 

3,407

 

 

 



 



 



 



 



 

Total other income (expense)

 

 

(9,039

)

 

8,877

 

 

(56,713

)

 

(721

)

 

(57,596

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

(25,887

)

 

51,708

 

 

(47,345

)

 

523

 

 

(21,001

)

Provision (benefit) for income taxes

 

 

(14,594

)

 

21,471

 

 

(17,069

)

 

 

 

(10,192

)

 

 



 



 



 



 



 

Income (loss) before equity in net income of subsidiaries

 

 

(11,293

)

 

30,237

 

 

(30,276

)

 

523

 

 

(10,809

)

Equity in net income (loss) of subsidiaries

 

 

(39

)

 

2,122

 

 

30,237

 

 

(32,320

)

 

 

 

 



 



 



 



 



 

Net income (loss)

 

$

(11,332

)

$

32,359

 

$

(39

)

$

(31,797

)

$

(10,809

)

 

 



 



 



 



 



 

26


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

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

 

 

(52,122

)

 

48,597

 

 

33,874

 

 

(2

)

 

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

)

Decrease 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 operating activities

 

 

 

 

 

 

(1,690

)

 

 

 

(1,690

)

 

 















 

Net cash used in discontinued operations

 

 

 

 

 

 

(1,690

)

 

 

 

(1,690

)

 

Effect of exchange rate changes on cash and equivalents

 

 

 

 

 

 

325

 

 

2

 

 

327

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

 

(74,830

)

 

11,389

 

 

(7,676

)

 

 

 

(71,117

)

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

178,448

 

 

15,164

 

 

49,417

 

 

 

 

243,029

 

 

 



 



 



 



 



 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

103,618

 

$

26,553

 

$

41,741

 

$

 

$

171,912

 

 

 



 



 



 



 



 

27


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Parent
Company

 

Guarantor
Companies

 

Non-
Guarantor
Companies

 

Elimination

 

Consolidation

 

 

 


 


 


 


 


 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(11,332

)

$

32,359

 

$

(39

)

$

(31,797

)

$

(10,809

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

21,279

 

 

35,824

 

 

(44,048

)

 

 

 

13,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(321

)

 

(36,400

)

 

(28,253

)

 

 

 

(64,974

)

Acquired business, net of cash acquired

 

 

 

 

(1,066

)

 

211

 

 

 

 

(855

)

Intercompany distributions

 

 

10,000

 

 

(10,000

)

 

 

 

 

 

 

Funds restricted for capital projects

 

 

 

 

3,875

 

 

 

 

 

 

3,875

 

Proceeds from sale of investment

 

 

 

 

 

 

1,333

 

 

 

 

1,333

 

Increase in equipment lease deposits

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 

Net cash provided by (used in) investing activities

 

 

9,679

 

 

(43,591

)

 

(26,709

)

 

 

 

(60,621

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

565,673

 

 

 

 

75,290

 

 

 

 

640,963

 

Payments of long-term debt

 

 

(469

)

 

(30,850

)

 

(463,890

)

 

 

 

(495,209

)

Decrease in short-term borrowings

 

 

 

 

 

 

12,730

 

 

 

 

12,730

 

Intercompany debt

 

 

(468,372

)

 

 

 

468,372

 

 

 

 

 

Financing costs

 

 

(14,354

)

 

 

 

(6,989

)

 

 

 

(21,343

)

Purchase of ESOP shares

 

 

(15,673

)

 

 

 

(1

)

 

 

 

(15,674

)

Exercise of stock options

 

 

20

 

 

 

 

 

 

 

 

20

 

Tax benefit from vesting of restricted stock

 

 

2,334

 

 

 

 

 

 

 

 

2,334

 

Other, net

 

 

22

 

 

11,415

 

 

(11,415

)

 

 

 

22

 

 

 



 



 



 



 



 

Net cash provided by (used in) financing activities

 

 

69,181

 

 

(19,435

)

 

74,097

 

 

 

 

123,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in discontinued operations

 

 

 

 

 

 

(829

)

 

 

 

(829

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and equivalents

 

 

 

 

 

 

1,304

 

 

 

 

1,304

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

 

100,139

 

 

(27,202

)

 

3,815

 

 

 

 

76,752

 

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

 

 

74,600

 

 

57,113

 

 

38,089

 

 

 

 

169,802

 

 

 



 



 



 



 



 

CASH AND EQUIVALENTS AT END OF PERIOD

 

$

174,739

 

$

29,911

 

$

41,904

 

$

 

$

246,554

 

 

 



 



 



 



 



 

28


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

BUSINESS OVERVIEW (in thousands, except per share data)

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

Griffon currently conducts its operations through three segments:

 

 

 

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

On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. for $22,432. The acquired business, which markets its products under the Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which was integrated with ATT, had revenue exceeding $40,000 in 2011; acquired inventory was not significant.

Southern Patio’s results of operations are not included in the Griffon consolidated balance sheet, statement of operations or cash flows, or footnotes relating thereto prior to October 17, 2011.

OVERVIEW

Revenue for the quarter ended June 30, 2012 was $480,246, compared to $455,282 in the prior year quarter. Net income was $9,048 or $0.16 per share, compared to $4,872 or $0.08 per share, in the prior year quarter.

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

 

 

 

The prior year quarter included:

 

-

Restructuring charges of $2,118 ($1,377, net of tax or $0.02 per share); and

 

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Discrete tax benefits and the quarter impact for updates to the annual effective rate, net, of $3,077 or $0.05 per share.

Excluding these items from the respective quarters, net income would have been $7,422 or $0.13 per share in the current quarter compared to $3,172 or $0.05 per share in the prior year quarter.

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Revenue for the nine months ended June 30, 2012 was $1,413,709, compared to $1,345,813 in the prior year. Net income was $13,563 or $0.24 per share, compared to a loss of $10,809 or $0.18 per share, in the prior year. Results for the nine months ended June 30, 2012 results included:

 

-

Restructuring and related 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.


 

 

 

Results for the nine months ended June 30, 2011 included:

 

-

Charges related to debt extinguishment of $26,164 ($16,813, net of tax or $0.28 per share);

 

-

Increased cost of goods related to the sale of inventory recorded at fair value in connection with acquisition accounting for ATT of $15,152 ($9,849, net of tax or $0.17 per share);

 

-

Restructuring charges of $4,723 ($3,070, net of tax or $0.05 per share); and

 

-

Discrete tax benefits of $4,513 or $0.08 per share.

Excluding these items from both periods, Net income would have been $13,220 or $0.23 per share, compared to $14,410 or $0.24 per share in the prior year.

Griffon evaluates performance based on Earnings per share and Net income (loss) excluding restructuring charges, gain (loss) from debt extinguishment, discrete tax items, acquisition costs and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful to investors. The following table provides a reconciliation of Earnings (loss) per share and Net income (loss) to Adjusted earnings per share and Adjusted net income:

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended June 30,

 

For the Nine Months Ended
June 30,

 

 

 


 


 

 

 

2012

 

2011

 

2012

 

2011

 

 

 


 


 


 


 

 

 

Net income (loss)

 

$

9,048

 

$

4,872

 

$

13,563

 

$

(10,809

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusting items, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from debt extinguishment, net

 

 

 

 

 

 

 

 

16,813

 

Fair value write-up of acquired inventory sold

 

 

 

 

 

 

 

 

9,849

 

Restructuring and related