GRIFFON CORP - Quarter Report: 2009 March (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

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 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).  o 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

 

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. 59,514,466 shares of Common Stock as of April 30, 2009.

 

 

Table of Contents

 

Griffon Corporation and Subsidiaries

 

Contents

 

	Page
PART I - FINANCIAL INFORMATION (Unaudited)
Item 1 — Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2009 and September 30, 2008	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2009 and 2008	2
Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended March 31, 2009 and 2008	3
Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended March 31, 2009	4
Notes to Condensed Consolidated Financial Statements	5
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	29
Item 4 - Controls & Procedures	29
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings	30
Item 1A — Risk Factors	30
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3 — Defaults upon Senior Securities	30
Item 4 — Submission of Matters to a Vote of Security Holders	30
Item 5 — Other Information	31
Item 6 — Exhibits	31
Signature	32

 

Table of Contents

 

Part I — Financial Information

Item 1 — Financial Statements

 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

 

		March 31, 2009			September 30, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	274,315		$	311,921
Accounts receivable, less allowance for doubtful accounts of $4,790 at March 31, 2009 and $5,609 at September 30, 2008		154,113			163,586
Contract costs and recognized income not yet billed		59,777			69,001
Inventories		155,908			167,158
Prepaid expenses and other current assets		54,190			52,430
Assets of discontinued operations		4,417			9,495
Total current assets		702,720			773,591
PROPERTY, PLANT AND EQUIPMENT, at cost, net of depreciation and amortization		222,515			239,003
COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED		86,450			93,782
INTANGIBLE ASSETS, net		31,664			34,777
OTHER ASSETS		24,147			22,067
ASSETS OF DISCONTINUED OPERATIONS		9,025			8,346
		$	1,076,521		$	1,171,566
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt		$	3,508		$	2,258
Accounts payable		101,295			129,823
Accrued liabilities		60,776			64,450
Liabilities of discontinued operations		7,586			14,917
Total current liabilities		173,165			211,448
LONG-TERM DEBT		192,918			230,930
OTHER LIABILITIES		60,872			59,460
LIABILITIES OF DISCONTINUED OPERATIONS		9,462			10,048
Total Liabilities		436,417			511,886
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 71,721,183 shares at March 31, 2009 and 71,095,399 shares at September 30, 2008		17,930			17,774
Capital in excess of par value		417,072			415,505
Retained earnings		419,411			415,991
Treasury shares, at cost, 12,440,015 common shares at March 31, 2009 and September 30, 2008		(213,310		)	(213,310		)
Accumulated other comprehensive income		4,733			25,469
Deferred ESOP compensation		(5,732		)	(1,749		)
Total shareholders’ equity		640,104			659,680
		$	1,076,521		$	1,171,566

 

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

 

1

Table of Contents

 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2009			2008			2009			2008
Net sales		$	276,087		$	298,571		$	578,421		$	593,373
Cost of sales		222,112			241,121			465,489			471,165
Gross profit		53,975			57,450			112,932			122,208
Selling, general and administrative expenses		55,545			60,114			112,073			119,101
Restructuring and other related charges		—			701			—			2,392
Total operating expenses		55,545			60,815			112,073			121,493
Income (loss) from operations		(1,570		)	(3,365		)	859			715
Other income (expense):
Interest expense		(2,919		)	(3,498		)	(5,633		)	(6,634		)
Interest income		231			599			667			1,480
Gain from debt extinguishment, net		—			—			6,714			—
Other, net		(200		)	782			(557		)	1,579
Total other income (expense)		(2,888		)	(2,117		)	1,191			(3,575		)
Income (loss) from continuing operations before income taxes		(4,458		)	(5,482		)	2,050			(2,860		)
Benefit for income taxes		(2,955		)	(1,336		)	(718		)	(253		)
Income (loss) from continuing operations before discontinued operations		(1,503		)	(4,146		)	2,768			(2,607		)
Discontinued operations:
Income (loss) from operations of the discontinued Installation Services business		1,046			(19,208		)	1,051			(24,223		)
Provision (benefit) for income taxes		397			(1,985		)	399			(4,106		)
Income (loss) from discontinued operations		649			(17,223		)	652			(20,117		)
Net income (loss)		$	(854	)	$	(21,369	)	$	3,420		$	(22,724	)
Basic earnings (loss) per common share:
Continuing operations		$	(.03	)	$	(.13	)	$	.05		$	(.08	)
Discontinued operations		.01			(.53		)	.01			(.62		)
		$	(.02	)	$	(.66	)	$	.06		$	(.70	)
Diluted earnings (loss) per common share:
Continuing operations		$	(.03	)	$	(.13	)	$	.05		$	(.08	)
Discontinued operations		.01			(.53		)	.01			(.62		)
		$	(.02	)	$	(.66	)	$	.06		$	(.70	)
Weighted-average shares outstanding - basic		58,467			32,485			58,660			32,482
Weighted-average shares outstanding - diluted		58,467			32,485			58,745			32,482

 

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

 

2

Table of Contents

 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

		Six Months Ended March 31,
		2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES — CONTINUING OPERATIONS:
Net income (loss)		$	3,420		$	(22,724	)
Loss (income) from discontinued operations		(652		)	20,117
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
Depreciation and amortization		20,910			21,149
Stock-based compensation		1,841			1,194
Recovery of losses on accounts receivable		379			246
Amortization of deferred financing costs		1,071			495
Gain from debt extinguishment, net		(6,714		)	—
Deferred income taxes		(1,975		)	707
Change in assets and liabilities:
Decrease in accounts receivable and contract costs and recognized income not yet billed		14,680			18,312
Decrease (increase) in inventories		9,582			(8,492		)
Decrease (increase) in prepaid expenses and other assets		1,277			(8,692		)
Increase (decrease) in accounts payable, accrued liabilities and income taxes payable		(36,914		)	11,438
Other changes, net		(1,618		)	(4,159		)
		1,867			52,315
Net cash provided by operating activities — continuing operations		5,287			29,591
CASH FLOWS FROM INVESTING ACTIVITIES — CONTINUING OPERATIONS:
Acquisition of property, plant and equipment		(12,088		)	(11,796		)
Acquired businesses		—			(1,750		)
Proceeds from sale of investment		—			1,000
Decrease (increase) in equipment lease deposits		(345		)	4,024
Net cash used in investing activities — continuing operations		(12,433		)	(8,522		)
CASH FLOWS FROM FINANCING ACTIVITIES — CONTINUING OPERATIONS:
Proceeds from issuance of shares from rights offering		5,274			—
Purchase of shares for treasury		—			(579		)
Proceeds from issuance of long-term debt		10,431			50,000
Payments of long-term debt		(41,240		)	(76,716		)
Increase in short-term borrowings		904			377
Financing costs		(227		)	(1,044		)
Purchase of ESOP shares		(4,370		)	—
Other, net		629			480
Net cash used in financing activities — continuing operations		(28,599		)	(27,482		)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities		(759		)	340
Net cash used in investing activities		—			(254		)
Net cash provided by (used in) discontinued operations		(759		)	86
Effect of exchange rate changes on cash and cash equivalents		(1,102		)	981
NET DECREASE IN CASH AND CASH EQUIVALENTS		(37,606		)	(5,346		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		311,921			44,747
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	274,315		$	39,401

 

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

 

3

Table of Contents

 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2009

(in thousands, except share data)

(Unaudited)

 

		COMMON STOCK					CAPITAL IN EXCESS OF			RETAINED			TREASURY SHARES					ACCUMULATED OTHER  COMPREHENSIVE			DEFERRED ESOP						COMPREHENSIVE
		SHARES		PAR VALUE			PAR VALUE			EARNINGS			SHARES		COST			INCOME			COMPENSATION			Total			INCOME (LOSS)
Balances, October 1, 2008		71,095,399		$	17,774		$	415,505		$	415,991		12,440,015		$	(213,310	)	$	25,469		$	(1,749	)	$	659,680
Foreign currency translation adjustment		—		—			—			—			—		—			(20,736		)	—			(20,736		)	$	(20,736	)
Net income		—		—			—			3,420			—		—			—			—			3,420			3,420
Comprehensive income																											$	(17,316	)
Amortization of deferred compensation										—			—		—			—			354			354
Restricted stock vesting		5,298		1			(1		)	—			—		—			—			—			—
ESOP purchase of common stock		—		—			—			—			—		—			—			(4,370		)	(4,370		)
Stock-based compensation		—		—			1,808			—			—		—			—			33			1,841
Issuance of common stock pursuant to rights offering, net of financing costs		620,486		155			(192		)	—			—		—			—			—			(37		)
Other		—		—			(48		)	—			—		—			—			—			(48		)
Balances, March 31, 2009		71,721,183		$	17,930		$	417,072		$	419,411		12,440,015		$	(213,310	)	$	4,733		$	(5,732	)	$	640,104

 

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

 

4

Table of Contents

 

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(Unaudited)

 

NOTE 1 — BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Griffon Corporation and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three-month and six-month periods ended March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2009. The unaudited condensed consolidated balance sheet information as of September 30, 2008 was derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2008. The interim condensed consolidated financial statements contained herein should be read in conjunction with that Report.

 

In preparing its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventory reserves, goodwill and intangible assets. The Company bases its estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

Certain amounts in the condensed consolidated financial statements at March 31, 2008 have been reclassified to conform to the current period’s presentation.

 

NOTE 2 — FAIR VALUE MEASUREMENTS

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The statement emphasizes that fair value is a market-based measurement and not an entity-specific measurement. It also establishes a fair value hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value. For financial assets and liabilities, this statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements. In February 2008, the FASB Staff Position No. 157-2 (“FSP 157-2”) was issued which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

 

The Company adopted the provisions of SFAS 157, as amended by FSP 157-2, on October 1, 2008. Pursuant to the provisions of FSP 157-2, the Company will not apply the provisions of SFAS 157 until October 1, 2009 for non-financial assets and liabilities (principally goodwill and intangible assets).

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), to provide companies the option to report selected financial assets and liabilities at fair value. Upon adoption of the provisions of SFAS 159 on October 1, 2008, the Company did not elect the fair value

 

5

Table of Contents

 

option to report its financial assets and liabilities at fair value. Accordingly, the adoption of SFAS 159 did not have an impact on the Company’s financial position or results of operations.

 

Fair Value Hierarchy

 

SFAS 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:

 

·		Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
·		Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.
·		Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

SFAS 157 requires the use of observable market data if such data is available without undue cost and effort.

 

Measurement of Fair Value

 

The Company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments.

 

Items Measured at Fair Value on a Recurring Basis

 

The following table presents the Company’s assets and liabilities that are measured and recorded at fair value on a recurring basis at March 31, 2009 consistent with the fair value hierarchy provisions of SFAS 157:

 

									Fair Value Measurements at Reporting Date Using
									Quoted Prices					Significant
									in Active Markets					Other					Significant
								for Identical Assets					Observable					Unobservable
			Carrying					and Liabilities					Inputs					Inputs
				Value					(Level 1)					(Level 2)					(Level 3)
Cash and cash equivalents:
Cash and US Government money market funds				$	274,315				$	274,315				$	—				$	—
Other assets:
Deferred non-qualified retirement plan assets				3,009					3,009					—					—
Total assets measured at fair value				$	277,324				$	277,324				$	—				$	—

 

6

Table of Contents

 

NOTE 3 — 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,
		2009			2008
Finished goods		$	38,348		$	50,859
Work in process		81,708			70,716
Raw materials and supplies		35,852			45,583
		$	155,908		$	167,158

 

NOTE 4 — LONG-TERM DEBT

 

In June 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 $100,000 (the “Clopay Credit Agreement”). At March 31, 2009 and September 30, 2008, $34,925 and $33,900, respectively, were outstanding under the Clopay Credit Agreement and approximately $24,529 was available for borrowing at March 31, 2009. BPC and PPC were in compliance with all of their financial covenants under the Clopay Credit Agreement at March 31, 2009.

 

In March 2008, Telephonics Corporation (“Telephonics”), 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 a five-year, revolving credit facility of $100,000 (the “Telephonics Credit Agreement”). At March 31, 2009 and September 30, 2008, $38,000 and $44,500, respectively, were outstanding under the Telephonics Credit Agreement and approximately $56,084 was available for borrowing at March 31, 2009. Telephonics was in compliance with all of its financial covenants under the Telephonics Credit Agreement at March 31, 2009.

 

The Company had outstanding $130,000 of 4% convertible subordinated notes due 2023 (the “Notes”) at September 30, 2008. Holders may convert the Notes at a conversion price of $22.41 per share, as adjusted pursuant to the recent rights offering of the Company and subject to possible further adjustment, as defined, which is equal to a conversion rate of approximately 44.6229 shares per $1 principal amount of Notes.

 

In October 2008, the Company purchased $35,500 face value of the Notes from certain Noteholders for $28,400. The Company recorded a pre-tax gain from debt extinguishment of approximately $7,100, offset by a $386 proportionate reduction in the related deferred financing costs for a net gain of $6,714 in the first quarter of fiscal 2009. The amount of Notes outstanding at March 31, 2009 was $94,500.

 

In April 2009, the Company purchased $15,120 face value of the Notes from certain Noteholders for $14,341. The Company expects to record a pre-tax gain from debt extinguishment of approximately $779, offset by a $101 proportionate reduction in the related deferred financing costs for a net gain of $678 in the third quarter of fiscal 2009.

 

The Company’s Employee Stock Ownership Plan (“ESOP”) has a loan agreement guaranteed by the Company, the proceeds of which were used to purchase equity securities of the Company. The loan bears interest at rates based upon the prime rate or LIBOR. In addition, the ESOP had a $5,000 line of credit that expired on October 31, 2008. In September 2008, $630 was drawn under the ESOP line of credit to purchase equity securities associated with the rights offering and was outstanding at September 30, 2008. In October 2008, the remaining balance of the available ESOP line of credit of $4,370 was drawn for the purpose of purchasing an aggregate of 547,605 shares of the Company’s Common Stock. In accordance with the terms of the ESOP line of credit agreement, the $5,000 outstanding at October 31, 2008 was refinanced along with the balance of the then outstanding ESOP loan amount of $1,250. The new ESOP loan provides for quarterly payments of principal and interest through September 2012, at which time the balance of the loan of approximately $3,900 will be payable.

 

7

Table of Contents

 

NOTE 5 — SHAREHOLDERS’ EQUITY

 

In August 2008, the Company’s Board of Directors authorized a 20,000,000 share Common Stock rights offering to its shareholders in order to raise equity capital for general corporate purposes and to fund future growth. The rights had an exercise price of $8.50 per share. In conjunction with the rights offering, GS Direct, L.L.C., an affiliate of Goldman, Sachs & Co. (“GS Direct”), agreed to back stop the rights offering by purchasing, on the same terms, any and all shares not subscribed through the exercise of rights. GS Direct also agreed to purchase additional shares of common stock at the rights offering price if it did not acquire a minimum of 10,000,000 shares of Common Stock as a result of its back stop commitment. In September 2008, the Company received $241,344 of gross proceeds from the first closing of its rights offering and the closing of the related investments by GS Direct and by the Company’s Chief Executive Officer, and issued 28,393,323 shares of its Common Stock. An additional $5,274 of rights offering proceeds, which were reflected as a component of prepaid expenses and other current assets in the condensed consolidated balance sheet at September 30, 2008, were received in October 2008 and the Company issued 620,486 shares of Common Stock in connection with the second closing of the rights offering. An additional $1,983 of rights offering proceeds were received in April 2009 and the Company issued 233,298 shares of Common Stock.

 

In accordance with the terms of an employment agreement, in October 2008, the Company’s Chief Executive Officer received a restricted stock grant of 75,000 shares of Common Stock, such grant vesting in April 2011. Aggregate compensation expense related to the restricted stock grant of $675 will be amortized over the vesting period. In addition, the Company’s Chief Executive Officer received a ten-year option to purchase 350,000 shares of Common Stock at an exercise price of $20 per share, vesting in three equal annual installments beginning April 2009. Aggregate compensation expense related to the option of $721 will be amortized over the respective vesting periods.

 

In March 2009, the Company’s Chief Executive Officer received a restricted stock grant of 675,000 shares of Common Stock, such grant vesting in March 2013. Aggregate compensation expense related to the restricted stock grant of $5,063 will be amortized over the vesting period.

 

NOTE 6 — EARNINGS PER SHARE (EPS)

 

Basic EPS is calculated by dividing income available to common shareholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS is 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 potentially dilutive securities. Management determined that the rights offering contained a bonus element to existing shareholders that required the Company to adjust the shares used in the computation of basic and fully-diluted weighted-average shares outstanding for the three and six months ended March 31, 2008. Basic and diluted EPS from continuing operations for the three and six-month periods ended March 31, 2009 and 2008 were determined using the following information:

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2009			2008			2009			2008
Income (loss) from continuing operations available to common stockholders		$	(1,503	)	$	(4,146	)	$	2,768		$	(2,607	)
Weighted-average shares outstanding — basic		58,467,489			32,484,697			58,660,082			32,481,549
Incremental shares from stock-based compensation		—			—			84,669			—
Weighted-average shares outstanding — diluted		58,467,489			32,484,697			58,744,751			32,481,549

 

At March 31, 2009 and 2008 and during the three-month and six-month periods ended March 31, 2009 and 2008, there were outstanding stock options whose exercise prices were lower than the average market values of the underlying common stock for the period. Such options are typically considered to be dilutive. However, for the three-month periods ended March 31, 2009 and 2008 and for the six-month period ended March 31, 2008, such options were

 

8

Table of Contents

 

considered antidilutive because of the loss from continuing operations in the respective periods. At March 31, 2009 and 2008 and during the three-month and six-month periods ended March 31, 2009 and 2008, 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. All antidilutive options are excluded from the computation of EPS. The weighted average antidilutive options outstanding for the three-month periods ended March 31, 2009 and 2008 were 1,326,466 and 1,775,340, respectively, and for the six-month periods ended March 31, 2009 and 2008 were 1,326,466 and 1,060,340, respectively.

 

NOTE 7 — 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 reportable segments are distinguished from each other by types of products and services offered, classes of customers, production and distribution methods, and separate management. 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 (see Note 10).

 

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

 

				Electronic
			Information
			and										Specialty
			Communication					Garage					Plastic
				Systems					Doors					Films					Totals
Revenues from external customers -
Three months ended
March 31, 2009				$	96,567				$	79,251				$	100,269				$	276,087
March 31, 2008				98,397					85,499					114,675					298,571
Six months ended
March 31, 2009				$	177,394				$	188,069				$	212,958				$	578,421
March 31, 2008				174,257					198,043					221,073					593,373
Sales to discontinued segments -
Three months ended
March 31, 2009				$	—				$	—				$	—				$	—
March 31, 2008				—					2,569					—					2,569
Six months ended
March 31, 2009				$	—				$	—				$	—				$	—
March 31, 2008				—					6,696					—					6,696
Segment profit (loss) -
Three months ended
March 31, 2009				$	8,252				$	(11,841		)		$	6,578				$	2,989
March 31, 2008				7,139					(8,946			)		4,352					2,545
Six months ended
March 31, 2009				$	13,630				$	(16,234		)		$	12,114				$	9,510
March 31, 2008				12,622					(10,321			)		10,350					12,651

 

9

Table of Contents

 

Segment assets -
Six months ended
March 31, 2009		$	267,460		$	164,189		$	325,132		$	756,781
March 31, 2008		264,151			189,040			363,789			816,980
Segment capital expenditures -
Three months ended
March 31, 2009		$	2,126		$	1,243		$	3,866		$	7,235
March 31, 2008		1,796			1,924			1,626			5,346
Six months ended
March 31, 2009		$	2,837		$	3,694		$	5,528		$	12,059
March 31, 2008		3,122			5,700			2,963			11,785
Depreciation and amortization expense -
Three months ended
March 31, 2009		$	1,543		$	3,254		$	5,247		$	10,044
March 31, 2008		1,465			3,221			5,586			10,272
Six months ended
March 31, 2009		$	3,030		$	6,486		$	11,010		$	20,526
March 31, 2008		2,918			6,480			11,170			20,568

 

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

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2009			2008			2009			2008
Profit for all segments		$	2,989		$	2,545		$	9,510		$	12,651
Unallocated amounts		(4,759		)	(5,128		)	(2,494		)	(10,357		)
Interest expense, net		(2,688		)	(2,899		)	(4,966		)	(5,154		)
Income (loss) from continuing operations before income taxes		$	(4,458	)	$	(5,482	)	$	2,050		$	(2,860	)

 

Unallocated amounts typically include general corporate expenses not attributable to any reportable segment. For the six months ended March 31, 2009, unallocated amounts included a net gain from the extinguishment of debt of $6,714.

 

Goodwill at March 31, 2009 includes $18,600 attributable to the Electronic Information and Communication Systems segment and $67,900 attributable to the Specialty Plastic Films segment. The change in goodwill from September 30, 2008 was primarily due to Specialty Plastic Films’ foreign currency translation adjustments.

 

NOTE 8 — COMPREHENSIVE INCOME (LOSS) AND DEFINED BENEFIT PENSION EXPENSE

 

Comprehensive income (loss), which consists of net income (loss) and foreign currency translation adjustments, was $(9,100) and $(5,300) for the three-month periods ended March 31, 2009 and 2008, respectively, and was $(17,300) and $(432) for the six-month periods ended March 31, 2009 and 2008, respectively.

 

10

Table of Contents

 

Defined benefit pension expense was recognized as follows:

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2009			2008			2009			2008
Service cost		$	112		$	137		$	224		$	381
Interest cost		1,056			1,001			2,112			2,002
Expected return on plan assets		(431		)	(520		)	(861		)	(1,040		)
Amortization of net actuarial loss		230			239			461			478
Amortization of prior service cost		84			84			168			168
		$	1,051		$	941		$	2,104		$	1,989

 

NOTE 9 — RECENT ACCOUNTING PRONOUNCEMENTS

 

Effect of newly issued but not yet effective accounting pronouncements

 

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.

 

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 does not believe that the adoption of SFAS 160 will have a material effect on its consolidated financial position, results of operations or cash flows.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133” which 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 FASB Statement 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. Although early adoption is encouraged, SFAS 161 is effective for the Company as of October 1, 2009. The Company does not believe that the adoption of SFAS 161 will have a material effect on its consolidated financial position, results of operations or cash flows.

 

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions that are used to determine the useful life of a recognized intangible asset under SFAS No. 142,

 

11

Table of Contents

 

“Goodwill and Other Intangible Assets”, and requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008, the Company’s fiscal year 2010. The Company is currently in the process of determining the effect, if any, that the adoption of FSP 142-3 may have on its consolidated financial position, results of operations or cash flows.

 

In May 2008, the FASB issued Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“APB 14-1”) to clarify that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”. Additionally, APB 14-1 specifies that issuers of such instruments 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. APB 14-1 is effective for the Company as of October 1, 2009. The Company is currently evaluating the impact that the adoption of APB 14-1 may have on its consolidated financial position, results of operations or cash flows.

 

NOTE 10 — 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. As part of the decision to exit certain markets, the Company closed three units of the Installation Services segment in the second quarter of fiscal 2008.

 

Subsequently, during the third quarter of fiscal 2008, the Company’s Board of Directors approved a plan to exit all other operating activities of the Installation Services segment in 2008, with the exception of two units which were merged into the Garage Doors segment. As part of this plan, the Company closed one additional unit during the third quarter of fiscal 2008, sold nine units to one buyer in the third quarter of fiscal 2008 and sold its two remaining units in Phoenix and Las Vegas in the fourth quarter of fiscal 2008. The plan met the criteria for discontinued operations classification in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Operating results of substantially all of the Installation Services segment have been reported as discontinued operations in the condensed consolidated statements of operations for all periods presented and the Installation Services segment is excluded from segment reporting.

 

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:

 

		March 31, 2009						September 30, 2008
		Current			Long-term			Current			Long-term
Assets of discontinued operations:
Accounts receivable		$	—		$	—		$	3,414		$	—
Prepaid expenses and other current assets		4,417			—			6,081			—
Other assets		—			9,025			—			8,346
Total assets of discontinued operations		$	4,417		$	9,025		$	9,495		$	8,346
Liabilities of discontinued operations:
Accounts payable		$	—		$	—		$	340		$	—
Accrued liabilities		7,586			—			14,577			—
Other liabilities		—			9,462			—			10,048
Total liabilities of discontinued operations		$	7,586		$	9,462		$	14,917		$	10,048

 

Net sales of the Installation Services’ operating units were $30,139 and $76,735 for the three and six months ended March 31, 2008.

 

12