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| GFF > SEC Filings for GFF > Form 10-Q on 17-Feb-2004 | All Recent SEC Filings |
17-Feb-2004
Quarterly Report
OVERVIEW
Net sales for the quarter ended December 31, 2003 increased to $338,502,000, up from $302,154,000 for the first quarter of fiscal 2003. Income before income taxes increased to $25,658,000 from $21,081,000 last year. The first quarter saw continued emphasis on operating margins, with each segment improving its profitability over last year. The specialty plastic films segment had a strong quarter, accounting for almost half of the sales increase. Both specialty plastic films and garage doors contributed equally to the profit growth with both segments achieving a 21% operating profit increase.
Capital expansion remains a significant operational focus of the specialty plastic films segment. Additional film capacity has been added in its North American operations and additional printing capacity is being added in Europe and North America. Substantial additional film capacity to be added over the balance of the year and into fiscal 2005 is planned for operations in Germany and in Brazil. These investments, which will incorporate engineering and technology upgrades, are expected to provide for future geographic expansion and development of new markets.
RESULTS OF OPERATIONS
Operating results (in thousands) by business segment were as follows for the quarters ended December 31:
Segment
Net Sales Operating Profit
--------------------- --------------------
2003 2002 2003 2002
--------- --------- --------- --------
Garage doors $ 121,860 $ 113,463 $ 13,260 $ 10,917
Installation services 76,705 72,320 3,006 1,679
Specialty plastic films 104,001 87,342 12,940 10,666
Electronic information
and communication systems 41,640 35,761 2,030 1,722
Intersegment revenues (5,704 ) (6,732 ) — —
--------- --------- --------- --------
$ 338,502 $ 302,154 $ 31,236 $ 24,984
--------- --------- --------- --------
Garage Doors
Net sales of the garage door segment increased by $8.4 million or 7.4% compared to last year. Higher unit sales ($7.4 million) from improved economic conditions and favorable product mix accounted for the increase.
Operating profit of the garage doors segment increased $2.3 million compared to last year. Gross margin percentage increased to 34.0% in 2003 from 32.5% last year. The increased margin was due to the increased volume and improved product mix. Selling, general and administrative expenses increased to support the higher sales volume and as a percentage of sales were 23.2% compared to 22.9% last year. This segment is beginning to see higher market prices for raw material (steel), but expects to adjust selling prices in order to pass increased costs to customers.
Installation Services
Net sales of the installation services segment increased by $4.4 million or 6.1% compared to last year. The increase was principally due to stronger new construction markets.
Operating profit of the installation services segment increased $1.3 million
compared to last year. Gross margin percentage was 27.8% compared to 27.3% last year. Selling, general and administrative expenses as a percentage of sales decreased to approximately 24.0% from 25.0% last year due to the sales increase. The segment's increased profitability was primarily due to the sales growth and the elimination last year of an underperforming location.
Specialty Plastic Films
Net sales of the specialty plastic films segment increased $16.7 million or 19.1% compared to last year. The increase was principally due to the impact ($8 million) of higher unit volumes and favorable product mix and the effect of a weaker U.S. dollar on translated foreign sales ($9 million).
Operating profit of the specialty plastic films segment increased $2.3 million compared to last year. Gross margin percentage increased to 24.6% from 24.1% last year. The increased margin was principally due to product mix, higher unit volumes and increased manufacturing efficiencies, partly offset by the effect of higher raw material (resin) costs ($2.5 million) compared to last year. The higher resin costs resulted from a price increase that was effective for the first quarter. Although a further price increase became effective in the second quarter, it is anticipated that upward pressure on resin prices has peaked, with slight reductions anticipated over the balance of the year. Selling, general and administrative expenses as a percentage of sales increased to approximately 12.5% from 12.1% last year principally due to higher administrative costs associated with the sales growth and increased product development expenditures.
Electronic Information and Communication Systems
Net sales of the electronic information and communication systems segment increased $5.9 million or 16.4% compared to last year. The increase was primarily due to recently awarded contracts and higher volume in military production programs.
Operating profit of the electronic information and communication systems segment increased $.3 million compared to last year. The increase is principally attributable to the higher sales. Gross margin percentage decreased to 22.0% from 25.3% last year. The positive effect on gross margin percentage of new contract awards and improved performance in military production programs was offset by cost growth in connection with certain commercial programs. Selling, general and administrative expenses decreased compared to last year and as a percentage of sales were 17.7% compared to 21.3% primarily due to the sales increase.
Interest Expense
Interest expense increased by $.9 million compared to last year principally due to the sale in July 2003 of $130 million of 4% convertible subordinated notes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated by operations for the quarter was $25.2 million compared to $9.8 million last year and working capital was $253.1 million at December 31, 2003. Operating cash flows increased compared to last year primarily due to higher profitability and reduced accounts receivable and inventory levels.
During the quarter the company had capital expenditures of approximately $14.5 million and an increase of $6.9 million for deposits on equipment to be leased, both principally in connection with the specialty plastic films segment's capital expansion program that began in 2003. During the remainder of the year additional expenditures will be made under the program to add capacity both domestically and internationally.
Financing cash flows consisted primarily of treasury stock purchases aggregating $6.1 million in the quarter. Through January 2004, a total of $10 million was expended
to acquire approximately 500,000 shares of the company's Common Stock. The Board of Directors has authorized a one million share increase in the company's stock buyback program, bringing the current authorization to 1.9 million shares. Additional purchases of the company's Common Stock under its stock buyback program will be made, depending upon market conditions, at prices deemed appropriate by management.
Anticipated cash flows from operations, together with existing cash, bank lines of credit and lease line availability, should be adequate to finance presently anticipated working capital and capital expenditure requirements and to repay long-term debt as it matures.
CRITICAL ACCOUNTING POLICIES
The company's significant accounting policies are set forth in Note 1 of Notes to Consolidated Financial Statements in the company's annual report to shareholders for the year ended September 30, 2003. A discussion of those policies that require management judgment and estimates and are most important in determining the company's operating results and financial condition are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the 2003 Annual Report.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this report, including without limitation statements regarding the company's financial position, business strategy, and the plans and objectives of the company's management for future operations, are forward-looking statements. When used in this report, words such as "anticipate", "believe", "estimate", "expect", "intend" and similar expressions, as they relate to the company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the company's management, as well as assumptions made by and information currently available to the company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, business and economic conditions, competitive factors and pricing pressures, capacity and supply constraints. Such statements reflect the views of the company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the company. Readers are cautioned not to place undue reliance on these forward-looking statements. The company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that is required to be disclosed.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the company's disclosure controls and procedures were evaluated as of the end of the period covered by this report. Based on that evaluation, the company's CEO and CFO concluded that the company's disclosure controls and procedures were effective.
During the period covered by this report there were no changes in the company's internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information.
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