GRIFFON CORP - Quarter Report: 2008 June (Form 10-Q)

Table of Contents

 

 

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, 2008
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)

 

 

(516) 938-5544

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x	Accelerated filero
Non-accelerated filer o	(Do not check if a smaller reporting company)
Smaller reporting company) o

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 30,186,433 shares of Common Stock as of July 31, 2008.

 

 

Table of Contents

 

FORM 10-Q

 

CONTENTS

 

		PAGE
PART I – FINANCIAL INFORMATION (Unaudited)
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2008 and September 30, 2007		1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2008 and 2007		3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2008 and 2007		5
Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2008		6
Notes to Condensed Consolidated Financial Statements		7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3 – Quantitative and Qualitative Disclosures about Market Risk		24
Item 4 – Controls & Procedures		24
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings		25
Item 1A – Risk Factors		25
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3 – Defaults upon Senior Securities		25
Item 4 – Submission of Matters to a Vote of Security Holders		25
Item 5 – Other Information		25
Item 6 – Exhibits		25
Signature		27

 

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Part I – Financial Information

Item 1 – Financial Statements

 

GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		June 30, 2008			September 30, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	47,039,000		$	44,747,000
Accounts receivable, less allowance for doubtful accounts of $5,871,000 at June 30, 2008 and $4,392,000 at September 30, 2007		166,141,000			172,333,000
Contract costs and recognized income not yet billed		68,050,000			77,184,000
Inventories, net		165,280,000			143,962,000
Prepaid expenses and other current assets		66,427,000			47,670,000
Assets of discontinued operations		16,139,000			62,897,000
Total current assets		529,076,000			548,793,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $286,979,000 at June 30, 2008 and $249,602,000 at September 30, 2007		258,953,000			230,232,000
OTHER ASSETS:
Costs in excess of fair value of net assets of businesses acquired, net		117,517,000			108,417,000
Intangible assets and other		64,779,000			58,818,000
		182,296,000			167,235,000
ASSETS OF DISCONTINUED OPERATIONS		5,435,000			13,598,000
		$	975,760,000		$	959,858,000

 

See notes to condensed consolidated financial statements.

 

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		June 30, 2008			September 30, 2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt		$	2,944,000		$	3,392,000
Accounts payable		118,292,000			99,007,000
Accrued liabilities		63,650,000			60,764,000
Income taxes		1,720,000			14,153,000
Liabilities of discontinued operations		15,560,000			17,287,000
Total current liabilities		202,166,000			194,603,000
LONG-TERM DEBT		231,740,000			229,438,000
OTHER LIABILITIES AND DEFERRED CREDITS		71,727,000			62,429,000
LIABILITIES OF DISCONTINUED OPERATIONS		10,135,000			6,449,000
Total liabilities and deferred credits		515,768,000			492,919,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued		—			—
Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 42,626,448 shares and 42,328,821 shares at June 30, 2008 and September 30, 2007, respectively		10,657,000			10,582,000
Capital in excess of par		182,749,000			180,022,000
Retained earnings		423,970,000			461,163,000
Treasury shares, at cost, 12,440,015 common shares and 12,399,115 common shares at June 30, 2008 and September 30, 2007, respectively		(213,310,000		)	(212,731,000		)
Accumulated other comprehensive income		57,164,000			29,522,000
Deferred compensation		(1,238,000		)	(1,619,000		)
Total shareholders’ equity		459,992,000			466,939,000
		$	975,760,000		$	959,858,000

 

See notes to condensed consolidated financial statements.

 

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GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		THREE MONTHS ENDED JUNE 30,
		2008			2007
Net sales		$	322,267,000		$	337,194,000
Cost of sales		248,887,000			264,236,000
Gross profit		73,380,000			72,958,000
Selling, general and administrative expenses		62,739,000			61,045,000
Restructuring and other related charges		180,000			79,000
Total operating expenses		62,919,000			61,124,000
Income from operations		10,461,000			11,834,000
Other income (expense):
Interest expense		(2,399,000		)	(3,223,000		)
Interest income		276,000			534,000
Other, net		946,000			1,118,000
		(1,177,000		)	(1,571,000		)
Income from continuing operations before income taxes		9,284,000			10,263,000
Provision (benefit) for income taxes		(72,000		)	4,118,000
Income from continuing operations before discontinued operations		9,356,000			6,145,000
Discontinued operations:
Loss from operations of the discontinued Installation Services business (including a loss on disposal of $23,324,000 for the three-month period ended June 30, 2008)		(28,113,000		)	(2,863,000		)
Income tax benefit		(8,957,000		)	(1,115,000		)
Loss from discontinued operations		(19,156,000		)	(1,748,000		)
Net income (loss)		$	(9,800,000	)	$	4,397,000
Basic earnings (loss) per share:
Continuing operations		$	.31		$	.21
Discontinued operations		(.64		)	(.06		)
		$	(.33	)	$	.15
Diluted earnings (loss) per share:
Continuing operations		$	.31		$	.20
Discontinued operations		(.64		)	(.06		)
		$	(.33	)	$	.14
Weighted-average shares outstanding – basic		30,062,000			29,977,000
Weighted-average shares outstanding – diluted		30,261,000			31,032,000

 

See notes to condensed consolidated financial statements.

 

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		NINE MONTHS ENDED JUNE 30,
		2008			2007
Net sales		$	915,640,000		$	1,032,319,000
Cost of sales		720,052,000			816,574,000
Gross profit		195,588,000			215,745,000
Selling, general and administrative expenses		182,273,000			179,900,000
Restructuring and other related charges		2,572,000			79,000
Total operating expenses		184,845,000			179,979,000
Income from operations		10,743,000			35,766,000
Other income (expense):
Interest expense		(8,600,000		)	(9,219,000		)
Interest income		1,756,000			1,906,000
Other, net		2,525,000			2,294,000
		(4,319,000		)	(5,019,000		)
Income from continuing operations before income taxes		6,424,000			30,747,000
Provision (benefit) for income taxes		(325,000		)	12,625,000
Income from continuing operations before discontinued operations		6,749,000			18,122,000
Discontinued operations:
Loss from operations of the discontinued Installation Services business (including a loss on disposal of $36,213,000 for the nine-month period ended June 30, 2008)		(52,336,000		)	(8,292,000		)
Income tax benefit		(13,063,000		)	(3,287,000		)
Loss from discontinued operations		(39,273,000		)	(5,005,000		)
Net income (loss)		$	(32,524,000	)	$	13,117,000
Basic earnings (loss) per share:
Continuing operations		$	.23		$	.61
Discontinued operations		(1.31		)	(.17		)
		$	(1.08	)	$	.44
Diluted earnings (loss) per share:
Continuing operations		$	.22		$	.58
Discontinued operations		(1.30		)	(.16		)
		$	(1.08	)	$	.42
Weighted-average shares outstanding – basic		30,057,000			29,959,000
Weighted-average shares outstanding – diluted		30,229,000			31,089,000

 

See notes to condensed consolidated financial statements.

 

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GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		NINE MONTHS ENDED JUNE 30,
		2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES – CONTINUING OPERATIONS:
Net income (loss)		$	(32,524,000	)	$	13,117,000
Loss from discontinued operations – net of taxes		39,273,000			5,005,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
Depreciation and amortization		32,225,000			29,474,000
Stock-based compensation		2,012,000			1,884,000
Provision for losses on accounts receivable		447,000			121,000
Write-off of unamortized deferred financing costs		495,000			—
Deferred income taxes		874,000			1,003,000
Change in assets and liabilities:
Decrease in accounts receivable and contract costs and recognized income not yet billed		17,650,000			7,165,000
Increase in inventories		(18,746,000		)	(3,446,000		)
Increase in prepaid expenses and other assets		(18,231,000		)	(735,000		)
Increase (decrease) in accounts payable, accrued liabilities and income taxes payable		29,327,000			(40,504,000		)
Other changes, net		(3,260,000		)	(311,000		)
		82,066,000			(344,000		)
Net cash provided by operating activities – continuing operations		49,542,000			12,773,000
CASH FLOWS FROM INVESTING ACTIVITIES – CONTINUING OPERATIONS:
Acquisition of property, plant and equipment		(49,101,000		)	(23,027,000		)
Acquisition of business		(1,829,000		)	(817,000		)
Proceeds from sale of investment		1,000,000			—
Decrease (increase) in equipment lease deposits		3,235,000			(4,597,000		)
Funds restricted for capital projects		—			(4,471,000		)
Net cash used in investing activities – continuing operations		(46,695,000		)	(32,912,000		)
CASH FLOWS FROM FINANCING ACTIVITIES – CONTINUING OPERATIONS:
Purchase of shares for treasury		(579,000		)	(3,287,000		)
Proceeds from issuance of long-term debt		84,600,000			47,891,000
Payments of long-term debt		(82,130,000		)	(7,449,000		)
Decrease in short-term borrowings		(896,000		)	(6,132,000		)
Financing costs		(2,779,000		)	—
Exercise of stock options		—			2,563,000
Tax benefit from restricted stock vesting and exercise of stock options		909,000			685,000
Other, net		(879,000		)	(1,315,000		)
Net cash provided by (used in) financing activities – continuing operations		(1,754,000		)	32,956,000
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities		(3,842,000		)	17,046,000
Net cash provided by (used in) investing activities		3,928,000			(16,923,000		)
Net cash provided by discontinued operations		86,000			123,000
Effect of exchange rate changes on cash and cash equivalents		1,113,000			695,000
NET INCREASE IN CASH AND CASH EQUIVALENTS		2,292,000			13,635,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		44,747,000			22,389,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	47,039,000		$	36,024,000

 

See notes to condensed consolidated financial statements.

 

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GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2008

 

(Unaudited)

 

		COMMON STOCK					CAPITAL IN EXCESS OF			RETAINED			TREASURY SHARES					ACCUMULATED OTHER COMPREHENSIVE			DEFERRED						COMPREHENSIVE
		SHARES		PAR VALUE			PAR VALUE			EARNINGS			SHARES		COST			INCOME			COMPENSATION			Total			INCOME
Balances, October 1, 2007		42,328,821		$	10,582,000		$	180,022,000		$	461,163,000		12,399,115		$	(212,731,000	)	$	29,522,000		$	(1,619,000	)	$	466,939,000
Foreign currency translation adjustment		—		—			—			—			—		—			27,642,000			—			27,642,000			$	27,642,000
Net loss		—		—			—			(32,524,000		)	—		—			—			—			(32,524,000		)	(32,524,000		)
Comprehensive income (loss)																											$	(4,882,000	)
Amortization of deferred compensation		—		—			—			—			—		—			—			309,000			309,000
Purchase of treasury shares		—		—			—			—			40,900		(579,000		)	—			—			(579,000		)
Stock-based compensation		—		—			1,940,000			—			—		—			—			72,000			2,012,000
Issuance of deferred shares		275,000		69,000			—			—			—		—			—			—			69,000
Tax benefit from vesting of restricted stock		—		—			909,000			—			—		—			—			—			909,000
Impact of the adoption of FIN 48		—		—			—			(4,669,000		)	—		—			—			—			(4,669,000		)
Other		22,627		6,000			(122,000		)				—		—			—			—			(116,000		)
Balances, June 30, 2008		42,626,448		$	10,657,000		$	182,749,000		$	423,970,000		12,440,015		$	(213,310,000	)	$	57,164,000		$	(1,238,000	)	$	459,992,000

 

See notes to condensed consolidated financial statements.

 

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GRIFFON CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of Griffon Corporation (the “company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial statements have been included. Operating results for the three-month and nine-month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending September 30, 2008. The condensed consolidated balance sheet at September 30, 2007 has been derived from the audited financial statements at that date. For further information, refer to the consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ended September 30, 2007.

 

Certain amounts in the condensed consolidated financial statements at September 30, 2007 have been reclassified to conform to the current period’s presentation.

 

(2) Inventories

 

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

 

		June 30,			September 30,
		2008			2007
Finished goods		$	46,086,000		$	48,352,000
Work in process		76,022,000			52,404,000
Raw materials and supplies		43,172,000			43,206,000
		$	165,280,000		$	143,962,000

 

(3) Long-term debt

 

On June 24, 2008, Clopay Building Products Company, Inc. (“BPC”) and Clopay Plastic Products Company, Inc. (“PPC”), each a wholly-owned subsidiary of the company, entered into a credit agreement for their domestic operations with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide a five-year, senior secured revolving credit facility of $100 million. Availability under the credit facility is based upon certain eligible accounts receivable, inventory, cash and cash equivalents and property, plant and equipment. Borrowings under the credit agreement bear interest at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of BPC and PPC and the stock of their subsidiaries. The credit agreement contains certain restrictive and financial covenants, certain of which are only subject to compliance if borrowing availability falls below a certain level. Upon the occurrence of certain events of default specified in the credit agreement, amounts due under the credit agreement may be declared immediately due and payable.

 

Proceeds of a $33 million initial draw under this facility were primarily used to refinance existing maturing lease obligations for certain property, plant and equipment.

 

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On March 31, 2008, Telephonics Corporation, a wholly-owned subsidiary of the company, 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 Telephonics with a five-year, revolving credit facility of $100 million. Commitments under the credit agreement may be increased by up to an additional $50 million under certain circumstances. Borrowings under the credit agreement bear interest at rates based upon LIBOR or the prime rate and are collateralized by the stock and assets of Telephonics and the stock of Telephonics’ subsidiaries pursuant to a Guarantee and Collateral Agreement made by Gritel Holding Co., Inc., a newly-formed subsidiary of the company, and Telephonics in favor of the lenders. The credit agreement contains certain restrictive and financial covenants. Upon the occurrence of certain events of default specified in the credit agreement, amounts due under the credit agreement may be declared immediately due and payable.

 

Proceeds of a $50 million initial draw under this facility, together with internal cash of the company, were used to repay $62.5 million of outstanding debt under the company’s Amended and Restated Credit Agreement, dated as of December 20, 2006, as amended, among the company, Telephonics, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, at which time such Amended and Restated Credit Agreement was terminated.

 

(4) Commitments and Contingencies

 

On March 16, 2008, Harvey R. Blau notified the company of his intention to retire from his position as Chief Executive Officer of the company effective as of April 1, 2008. Mr. Blau remains as non-executive Chairman of the Board of Directors and, pursuant to the terms of his employment agreement, a consultant to the company.

 

On March 16, 2008, the Company entered into an Employment Agreement (the “Employment Agreement”) with Ronald J. Kramer, pursuant to which he became the Chief Executive Officer of the company effective April 1, 2008 (the “Commencement Date”). Mr. Kramer has been a director of the company since 1993 and Vice Chairman of the Board since November 2003, which positions he has retained. Mr. Kramer is the son-in-law of Mr. Blau.

 

Pursuant to the terms of the Employment Agreement, Mr. Kramer’s term of employment with the company will continue for three years from the date on which either party gives notice that the term of employment will not be further renewed (the “Term”). During the Term, Mr. Kramer will receive an annual base salary of $775,000 per annum, subject to cost of living and discretionary increases. Mr. Kramer shall also be entitled to a guaranteed bonus of $581,250 in respect of the company’s 2008 fiscal year, and an annual bonus of between 0% and 250% of his base salary, with a target bonus of 150% of base salary, for fiscal years thereafter based upon achievement of performance objectives. Mr. Kramer shall also be entitled to receive severance payments upon termination of his employment under certain circumstances, as more fully set forth in the Employment Agreement.

 

On the Commencement Date, Mr. Kramer received a restricted stock grant of 250,000 shares of common stock, and on or shortly after October 1, 2008 and October 1, 2009, Mr. Kramer shall receive restricted stock grants of 75,000 shares of common stock and 25,000 shares of common stock, respectively, each vesting three years after the Commencement Date. On or shortly after October 1, 2008, Mr. Kramer shall also receive a ten-year option to purchase 350,000 shares of common stock at an exercise price equal to the greater of $20 per share or the fair market value of the common stock on the date of grant, vesting in three equal installments on each anniversary of the Commencement Date. All equity awards shall immediately vest in the event of termination of Mr. Kramer’s employment without Cause, if he leaves for Good Reason, or upon his death, Disability or a Change in Control (as such terms are defined in the Employment Agreement).

 

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(5) Earnings (loss) per share (EPS)

 

                Basic EPS is calculated by dividing income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing income (loss) by the weighted-average number of shares of common stock outstanding plus additional common shares that could be issued in connection with potentially dilutive securities. Holders of the company’s 4% convertible subordinated notes are entitled to convert their notes into the company’s common stock upon the occurrence of certain events described in Note 2 of Notes to Consolidated Financial Statements in the company’s Annual Report on Form 10-K for the year ended September 30, 2007. Basic and diluted EPS for the three and nine-month periods ended June 30, 2008 and 2007 were determined using the following information:

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2008			2007			2008			2007
Income from continuing operations available to common stockholders		$	9,356,000		$	6,145,000		$	6,749,000		$	18,122,000
Weighted-average shares outstanding - basic		30,062,000			29,977,000			30,057,000			29,959,000
Incremental shares from
stock-based compensation		199,000			1,055,000			172,000			1,101,000
Incremental shares from 4% convertible notes		—			—			—			29,000
Weighted-average shares outstanding – diluted		30,261,000			31,032,000			30,229,000			31,089,000

 

At June 30, 2008 and 2007 and during the three-month and nine-month periods ended June 30, 2008 and 2007, there were outstanding stock options whose exercise prices were higher than the average market values of the underlying common stock for the period. These options are antidilutive and are excluded from the computation of income per share. The antidilutive stock options outstanding were as follows:

 

		Three Months Ended June 30,				Nine Months Ended June 30,
		2008		2007		2008		2007
Antidilutive stock options		1,766,000		115,000		1,766,000		115,000

 

(6) Business segments

 

              The company’s reportable business segments are as follows: Electronic Information and Communication Systems (communication and information systems for government and commercial markets); Garage Doors (manufacture and sale of residential and commercial/industrial garage doors and related products); and Specialty Plastic Films (manufacture and sale of plastic films and film laminates for baby diapers, adult incontinence care products, disposable surgical and patient care products and plastic packaging). The company’s Installation Services segment (sale and installation of building products primarily for new construction, such as garage doors, garage door openers, manufactured fireplaces and surrounds, appliances, flooring and cabinets) has been reflected as discontinued operations in the condensed consolidated financial statements for all periods presented and, accordingly, is excluded from segment disclosures.

 

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Information on the company’s business segments is as follows:

 

					Electronic
					Information
					and						Specialty
					Communication			Garage			Plastic
		Totals			Systems			Doors			Films
Revenues from external customers -
Three months ended
June 30, 2008		$	322,267,000		$	88,251,000		$	112,869,000		$	121,147,000
June 30, 2007		337,194,000			120,553,000			119,793,000			96,848,000
Nine months ended
June 30, 2008		$	915,640,000		$	262,508,000		$	310,912,000		$	342,220,000
June 30, 2007		1,032,319,000			374,567,000			357,519,000			300,233,000
Revenues on sales to discontinued operations -
Three months ended
June 30, 2008		$	1,788,000		$	—		$	1,788,000		$	—
June 30, 2007		4,280,000			—			4,280,000			—
Nine months ended
June 30, 2008		$	8,484,000		$	—		$	8,484,000		$	—
June 30, 2007		13,099,000			—			13,099,000			—
Segment profit (loss) -
Three months ended
June 30, 2008		$	16,931,000		$	9,173,000		$	2,252,000		$	5,506,000
June 30, 2007		17,314,000			9,951,000			4,506,000			2,857,000
Nine months ended
June 30, 2008		$	29,582,000		$	21,795,000		$	(8,069,000	)	$	15,856,000
June 30, 2007		51,465,000			35,302,000			4,027,000			12,136,000

 

Following is a reconciliation of segment profit to amounts reported in the condensed consolidated financial statements:

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2008			2007			2008			2007
Profit for all segments		$	16,931,000		$	17,314,000		$	29,582,000		$	51,465,000
Unallocated amounts		(5,524,000		)	(4,362,000		)	(16,314,000		)	(13,405,000		)
Interest income and expense		(2,123,000		)	(2,689,000		)	(6,844,000		)	(7,313,000		)
Income from continuing operations before income taxes		$	9,284,000		$	10,263,000		$	6,424,000		$	30,747,000

 

Unallocated amounts include general corporate expenses not attributable to any reportable segment. Goodwill at June 30, 2008 includes $18.6 million attributable to the Electronic Information and Communication Systems segment, $12.9 million attributable to the Garage Doors segment and $86.0 million attributable to the Specialty Plastic Films segment. The change in goodwill from September 30, 2007 was primarily due to Specialty Plastic Films’ foreign currency translation adjustments. In December 2007, the Electronic Information and Communication Systems segment acquired certain assets and assumed certain liabilities of a video surveillance systems integration business. The purchase price was approximately $1.75 million in cash plus performance-based cash payments over a three-year period of up to $1.75 million. The purchase price has been preliminarily allocated to intangible assets.

 

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(7) Comprehensive income (loss) and defined benefit pension expense

 

Comprehensive income (loss), which consists of net income (loss) and foreign currency translation adjustments, was $(4.5) million and $9.4 million for the three-month periods ended June 30, 2008 and 2007, respectively, and was $(4.9) million and $28.8 million for the nine-month periods ended June 30, 2008 and 2007, respectively.

 

Defined benefit pension expense was recognized as follows:

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2008			2007			2008			2007
Service cost		$	137,000		$	312,000		$	518,000		$	936,000
Interest cost		1,001,000			932,000			3,003,000			2,796,000
Expected return on plan assets		(520,000		)	(449,000		)	(1,560,000		)	(1,347,000		)
Amortization of net actuarial loss		239,000			628,000			717,000			1,884,000
Amortization of prior service cost		84,000			80,000			252,000			240,000
		$	941,000		$	1,503,000		$	2,930,000		$	4,509,000

 

(8) Recent accounting pronouncements

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for the company as of October 1, 2008. The company is currently evaluating the impact that the adoption of SFAS 157 will have on its results of operations and financial position.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for the company as of October 1, 2008. The company is currently evaluating the impact that the adoption of SFAS 159 will have on its results of operations and financial position.

 

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). The purpose of issuing the statement is to replace current guidance in SFAS 141 to better represent the economic value of a business combination transaction. The changes to be effected with SFAS 141R from the current guidance include, but are not limited to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the liabilities acquired measured at their fair value; all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer. The company anticipates that the adoption of SFAS 141R will have an impact on the way in which business combinations will be accounted for compared to current practice. SFAS 141R will be effective for any business combinations that occur after October 1, 2009.

 

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for the company as of October 1, 2009. The company is currently evaluating the impact that SFAS 160 will have on its financial statements and disclosures.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133” (“SFAS 161”). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b)derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and(c)derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for the company as of January 1, 2009. The company is currently evaluating the impact that the adoption of SFAS 161 will have on its financial statements and disclosures.

 

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the company’s financial statements.

 

In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (“APB 14-1”). APB 14-1 specifies that issuers of convertible debt instruments that permit or require the issuer to pay cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The company will need to apply the guidance retrospectively to all past periods presented, even to instruments that have matured, converted, or otherwise been extinguished as of the effective date. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The company is currently evaluating the impact that the adoption of APB 14-1 will have on its financial statements and disclosures.

 

(9) Discontinued operations

 

As a result of the downturn in the residential housing market and the impact on the Installation Services segment, the company’s management initiated a plan during the second quarter of fiscal 2008 to exit certain markets within the Installation Services segment through the sale or disposition of business units. In that quarter, the company closed three units. In May 2008, the company’s Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment in 2008. In the third quarter of fiscal 2008, the company sold nine units to one buyer, closed one unit and merged two units into its Garage Doors segment. In August 2008, the company entered into an agreement to sell its two remaining units in Phoenix and Las Vegas that is expected to close in the fiscal fourth quarter.

 

The company determined that there was an impairment of the goodwill and intangible assets associated with the Installation Services segment and recorded an

 

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impairment charge of approximately $11.4 million during the quarter ended June 30, 2008 to completely write-off these assets.

 

Net sales of the Installation Services’ operating units were $22.6 million and $61.5 million for the three months ended June 30, 2008 and 2007, respectively, and $99.4 million and $188.1 million for the nine months ended June 30, 2008 and 2007, respectively.

 

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

 

		June 30, 2008						September 30, 2007
		Current			Long-term			Current			Long-term
Assets of discontinued operations:
Accounts receivable		$	10,566,000		$	—		$	38,007,000		$	—
Inventories		2,550,000			—			17,813,000			—
Prepaid expenses and other current assets		1,566,000			—			3,219,000			—
Property and equipment		1,294,000			—			3,217,000			—
Goodwill		—			—			—			6,339,000
Intangible and other assets		163,000			5,435,000			641,000			7,259,000
Total assets of discontinued operations		$	16,139,000		$	5,435,000		$	62,897,000		$	13,598,000
Liabilities of discontinued operations:
Accounts payable and accrued liabilities		$	15,560,000		$	—		$	17,287,000		$	—
Other liabilities		—			10,135,000			—			6,449,000
Total liabilities of discontinued operations		$	15,560,000		$	10,135,000		$	17,287,000		$	6,449,000

 

(10) Restructuring and other related charges

 

As a result of the downturn in the residential housing market and the impact on the Garage Doors segment, the company initiated plans to restructure its operations. This restructuring program includes workforce reductions, closure or consolidation of excess facilities and other charges. The company began its restructuring initiative in the latter part of fiscal 2007 with the closure of its Tempe, AZ manufacturing facility.

 

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