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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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. 29,908,813 shares of Common Stock as of April 30, 2008.

 

 

FORM 10-Q

 

CONTENTS

 

			PAGE
PART I  – FINANCIAL INFORMATION (Unaudited)
Item 1	–	Financial Statements
		Condensed Consolidated Balance Sheets at March 31, 2008 and September 30, 2007	1
		Condensed Consolidated Statements of Operations for the Three And Six Months Ended March 31, 2008 and 2007	3
		Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2008 and 2007	5
		Condensed Consolidated Statement of Shareholders’ Equity for the Six Months ended March 31, 2008	6
		Notes to Condensed Consolidated Financial Statements	7
Item 2	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	–	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4	–	Controls & Procedures	23
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	26
Item 6	–	Exhibits	26
Signature			27

 

 

Part I – Financial Information

Item 1 – Financial Statements

 

GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		March 31, 2008			September 30, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	39,401,000		$	44,747,000
Accounts receivable, less allowance for doubtful accounts of $7,808,000 at March 31, 2008 and $7,492,000 at September 30, 2007		177,353,000			199,834,000
Contract costs and recognized income not yet billed		73,327,000			77,184,000
Inventories, net		163,695,000			154,565,000
Assets of discontinued operations		6,532,000			19,212,000
Prepaid expenses and other current assets		54,457,000			49,884,000
Total current assets		514,765,000			545,426,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $283,906,000 at March 31, 2008 and $256,688,000 at September 30, 2007		232,492,000			233,078,000
OTHER ASSETS:
Costs in excess of fair value of net assets of businesses acquired, net		120,912,000			114,756,000
Intangible assets and other		74,934,000			66,598,000
		195,846,000			181,354,000
		$	943,103,000		$	959,858,000

 

See notes to condensed consolidated financial statements.

 

1

 

GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		March 31, 2008			September 30, 2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt		$	3,987,000		$	3,392,000
Accounts payable		115,732,000			103,833,000
Accrued liabilities		76,952,000			77,628,000
Liabilities of discontinued operations		4,211,000			2,919,000
Income taxes		510,000			14,153,000
Total current liabilities		201,392,000			201,925,000
LONG-TERM DEBT		202,612,000			229,438,000
OTHER LIABILITIES AND DEFERRED CREDITS		76,451,000			61,556,000
Total liabilities and deferred credits		480,455,000			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 42,348,828 shares and 42,328,821 shares at March 31, 2008 and September 30, 2007, respectively		10,587,000			10,582,000
Capital in excess of par		181,147,000			180,022,000
Retained earnings		433,771,000			461,163,000
Treasury shares, at cost, 12,440,015 common shares at March 31, 2008 and 12,399,115 common shares at September 30, 2007		(213,310,000		)	(212,731,000		)
Accumulated other comprehensive income		51,814,000			29,522,000
Deferred compensation		(1,361,000		)	(1,619,000		)
Total shareholders’ equity		462,648,000			466,939,000
		$	943,103,000		$	959,858,000

 

See notes to condensed consolidated financial statements.

 

2

 

GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		THREE MONTHS ENDED MARCH 31,
		2008			2007
Net sales		$	320,347,000		$	369,140,000
Cost of sales		256,783,000			292,296,000
Gross profit		63,564,000			76,844,000
Selling, general and administrative expenses		71,968,000			73,712,000
Restructuring and other related charges		2,992,000			—
Total operating expenses		74,960,000			73,712,000
Income (loss) from operations		(11,396,000		)	3,132,000
Other income (expense):
Interest expense		(3,286,000		)	(3,052,000		)
Interest income		599,000			752,000
Other, net		802,000			569,000
		(1,885,000		)	(1,731,000		)
Income (loss) from continuing operations before income taxes		(13,281,000		)	1,401,000
Provision (benefit) for income taxes		(522,000		)	563,000
Income (loss) from continuing operations before discontinued operations		(12,759,000		)	838,000
Discontinued operations (net of taxes):
Loss from operation of discontinued operations (net of tax benefit of $2,800,000 and $121,000 for the three-month periods ended March 31, 2008 and 2007, respectively)		(8,611,000		)	(583,000		)
Net income (loss)		$	(21,370,000	)	$	255,000
Basic earnings (loss) per share:
Continuing operations		$	(.42	)	.03
Discontinued operations		(.29		)	(.02		)
		$	(.71	)	$	.01
Diluted earnings (loss) per share:
Continuing operations		$	(.42	)	.03
Discontinued operations		(.29		)	(.02		)
		$	(.71	)	$	.01
Weighted-average shares outstanding – basic		30,057,000			29,948,000
Weighted-average shares outstanding – diluted		30,057,000			31,166,000

 

See notes to condensed consolidated financial statements.

 

3

 

GRIFFON CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		SIX MONTHS ENDED MARCH 31,
		2008			2007
Net sales		$	648,841,000		$	782,128,000
Cost of sales		511,201,000			617,317,000
Gross profit		137,640,000			164,811,000
Selling, general and administrative expenses		143,895,000			145,368,000
Restructuring and other related charges		4,683,000			—
Total operating expenses		148,578,000			145,368,000
Income (loss) from operations		(10,938,000		)	19,443,000
Other income (expense):
Interest expense		(6,201,000		)	(5,996,000		)
Interest income		1,480,000			1,372,000
Other, net		1,605,000			1,183,000
		(3,116,000		)	(3,441,000		)
Income (loss) from continuing operations before income taxes		(14,054,000		)	16,002,000
Provision (benefit) for income taxes		(553,000		)	6,434,000
Income (loss) from continuing operations before discontinued operations		(13,501,000		)	9,568,000
Discontinued operations (net of taxes):
Loss from operation of discontinued operations (net of tax benefit of $3,807,000 and $99,000 for the six-month periods ended March 31, 2008 and 2007, respectively)		(9,224,000		)	(848,000		)
Net income (loss)		$	(22,725,000	)	$	8,720,000
Basic earnings (loss) per share:
Continuing operations		$	(.45	)	.32
Discontinued operations		(.31		)	(.03		)
		$	(.76	)	$	.29
Diluted earnings (loss) per share:
Continuing operations		$	(.45	)	.31
Discontinued operations		(.31		)	(.03		)
		$	(.76	)	$	.28
Weighted-average shares outstanding – basic		30,054,000			29,950,000
Weighted-average shares outstanding – diluted		30,054,000			31,117,000

 

See notes to condensed consolidated financial statements.

 

4

 

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		SIX MONTHS ENDED MARCH 31,
		2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(22,725,000	)	$	8,720,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		22,033,000			19,765,000
Stock-based compensation		1,194,000			1,303,000
Provision for losses on accounts receivable		5,480,000			734,000
Write-off of unamortized deferred financing costs		495,000			—
Deferred income taxes		707,000			706,000
Change in assets and liabilities:
Decrease in accounts receivable and contract costs and recognized income not yet billed		32,123,000			32,828,000
Increase in inventories		(2,433,000		)	(6,658,000		)
Increase in prepaid expenses and other assets		(8,624,000		)	(1,217,000		)
Increase (decrease) in accounts payable, accrued liabilities and income taxes payable		86,000			(36,989,000		)
Other changes, net		551,000			155,000
		51,612,000			10,627,000
Net cash provided by operating activities		28,887,000			19,347,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(12,050,000		)	(19,477,000		)
Acquisition of business		(1,750,000		)	(17,167,000		)
Proceeds from sale of investment		1,000,000			—
Decrease (increase)in equipment lease deposits		4,024,000			(1,473,000		)
Funds restricted for capital projects		—			(4,421,000		)
Net cash used in investing activities		(8,776,000		)	(42,538,000		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury		(579,000		)	(2,300,000		)
Proceeds from issuance of long-term debt		50,000,000			42,891,000
Payments of long-term debt		(76,716,000		)	(482,000		)
Increase (decrease)in short-term borrowings		377,000			(5,625,000		)
Exercise of stock options		—			1,111,000
Tax benefit from exercise of stock options		—			278,000
Other, net		480,000			(1,238,000		)
Net cash provided by (used in) financing activities		(26,438,000		)	34,635,000
Effect of exchange rate changes on cash and cash equivalents		981,000			541,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,346,000		)	11,985,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		44,747,000			22,389,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	39,401,000		$	34,374,000

 

See notes to condensed consolidated financial statements.

 

5

 

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 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		—		—			—			—			—		—			22,292,000			—			22,292,000			$	22,292,000
Net loss		—		—			—			(22,725,000		)	—		—			—			—			(22,725,000		)	(22,725,000		)
Comprehensive income (loss)		—		—			—			—			—		—			—			—			—			$	(433,000	)
Amortization of deferred compensation		—		—			—			—			—		—			—			207,000			207,000
Purchase of treasury shares		—		—			—			—			40,900		(579,000		)	—			—			(579,000		)
Stock-based compensation		—		—			1,143,000			—			—		—			—			51,000			1,194,000
Impact of the adoption of FIN 48		—		—			—			(4,667,000		)	—		—			—			—			(4,667,000		)
Other		20,007		5,000			(18,000		)	—			—		—			—			—			(13,000		)
Balances, March 31, 2008		42,348,828		$	10,587,000		$	181,147,000		$	433,771,000		12,440,015		$	(213,310,000	)	$	51,814,000		$	(1,361,000	)	$	462,648,000

 

See notes to condensed consolidated financial statements.

 

6

 

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 six-month periods ended March 31, 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:

 

		March 31,			September 30,
		2008			2007
Finished goods		$	53,799,000		$	58,955,000
Work in process		67,160,000			52,404,000
Raw materials and supplies		42,736,000			43,206,000
		$	163,695,000		$	154,565,000

 

(3)  Long-term debt

 

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.

 

7

 

Proceeds of a $50 million 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.

 

The company expects to enter into a senior secured credit facility for its other principal wholly-owned subsidiary, Clopay Corporation, in the third quarter.

 

(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 will retain. 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).

 

 

8

 

(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 six-month periods ended March 31, 2008 and 2007 were determined using the following information:

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2008			2007			2008			2007
Income (loss) from continuing operations available to common stockholders		$	(12,759,000	)	$	838,000		$	(13,501,000	)	$	9,568,000
Weighted-average shares outstanding - basic		30,057,000			29,948,000			30,054,000			29,950,000
Incremental shares from Stock-based compensation		—			1,136,000			—			1,123,000
Incremental shares from 4% convertible notes		—			82,000			—			44,000
Weighted-average shares outstanding - diluted		30,057,000			31,166,000			30,054,000			31,117,000

 

 At March 31, 2008 and 2007 and during the three-month and six-month periods ended March 31, 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. However, for the three-month and six-month periods ended March 31, 2008, such options are considered antidilutive because of the net loss in the respective periods. At March 31, 2008 and 2007 and during the three-month and six-month periods ended March 31, 2008 and 2007, there were outstanding stock options whose exercise prices were lower than the average market values of the underlying common stock for the period but are considered antidilutive. Antidilutive options are excluded from the computation of income (loss) per share. The antidilutive stock options outstanding were as follows:

 

		Three Months Ended March 31,				Six Months Ended March 31,
		2008		2007		2008		2007
Antidilutive stock options		2,196,000		134,000		2,196,000		134,000

 

(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); 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); and Installation Services (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).

 

9

 

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

 

					Electronic
					Information
					and						Specialty
					Communication			Garage			Plastic			Installation
		Totals			Systems			Doors			Films			Services
Revenues from external customers -
Three months ended
March 31, 2008		$	320,347,000		$	98,397,000		$	81,384,000		$	114,675,000		$	25,891,000
March 31, 2007		369,140,000			124,164,000			101,217,000			99,730,000			44,029,000
Six months ended
March 31, 2008		$	648,841,000		$	174,257,000		$	188,320,000		$	221,073,000		$	65,191,000
March 31, 2007		782,128,000			254,014,000			225,105,000			203,385,000			99,624,000
Intersegment revenues -
Three months ended
March 31, 2008		$	2,569,000		$	—		$	2,462,000		$	—		$	107,000
March 31, 2007		4,054,000			—			4,039,000			—			15,000
Six months ended
March 31, 2008		$	6,696,000		$	—		$	6,572,000		$	—		$	124,000
March 31, 2007		8,819,000			—			8,790,000			—			29,000
Segment profit (loss) -
Three months ended
March 31, 2008		$	(5,085,000	)	$	7,139,000		$	(8,575,000	)	$	5,200,000		$	(8,849,000	)
March 31, 2007		8,669,000			12,430,000			(4,564,000		)	4,934,000			(4,131,000		)
Six months ended
March 31, 2008		$	1,002,000		$	12,622,000		$	(9,742,000	)	$	10,406,000		$	(12,284,000	)
March 31, 2007		29,291,000			25,351,000			(543,000		)	9,279,000			(4,796,000		)

 

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

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2008			2007			2008			2007
Profit (loss) for all segments		$	(5,085,000	)	$	8,669,000		$	1,002,000		$	29,291,000
Unallocated amounts		(5,509,000		)	(4,968,000		)	(10,335,000		)	(8,665,000		)
Interest and other, net		(2,687,000		)	(2,300,000		)	(4,721,000		)	(4,624,000		)
Income (loss) from continuing operations before income taxes		$	(13,281,000	)	$	1,401,000		$	(14,054,000	)	$	16,002,000

 

Unallocated amounts include general corporate expenses not attributable to any reportable segment. Goodwill at March 31, 2008 includes $18.6 million attributable to the Electronic Information and Communication Systems segment, $12.9 million attributable to the Garage Doors segment, $83.1 million attributable to the Specialty Plastic Films segment and $6.3 million attributable to the Installation Services 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 $(5.3) million and $4.1 million for the three-month periods ended March 31, 2008 and 2007, respectively, and was $(433,000) and $19.4 million for the six-month periods ended March 31, 2008 and 2007, respectively.

 

Defined benefit pension expense was recognized as follows:

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2008			2007			2008			2007
Service cost		$	137,000		$	312,000		$	381,000		$	624,000
Interest cost		1,001,000			932,000			2,002,000			1,864,000
Expected return on plan assets		(520,000		)	(449,000		)	(1,040,000		)	(898,000		)
Amortization of net actuarial loss		239,000			628,000			478,000			1,256,000
Amortization of prior service cost		84,000			80,000			168,000			160,000
		$	941,000		$	1,503,000		$	1,989,000		$	3,006,000

 

(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”). This Statement 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 does anticipate 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.

 

(9)  Discontinued operations

 

During the second quarter of fiscal 2008, the company’s management initiated a plan to exit certain markets within the Installation Services segment through the sale or disposition of business units. During the second quarter of fiscal 2008, certain operating units were closed and the related assets are in the process of being liquidated. The following amounts related to the disposition of these operating units have been reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:

 

		March 31,			September 30,
		2008			2007
Assets held for sale and assets of discontinued operations:
Current:
Accounts receivable, net		$	2,555,000		$	10,506,000
Inventories		2,847,000			7,210,000
Prepaid expenses and other current assets		840,000			1,005,000
Property, plant and equipment		180,000			371,000
Intangible assets and other		110,000			120,000
Total assets of discontinued operations		$	6,532,000		$	19,212,000
Liabilities of discontinued operations:
Current:
Accounts payable		$	371,000		$	1,491,000
Accrued liabilities		3,840,000			1,428,000
Total liabilities of discontinued operations		$	4,211,000		$	2,919,000

 

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