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For Clopay Plastic Products, 2005 is a year of transition with the rollout of new products, expansion into new facilities, addition of new production lines, and challenges driven by historically high cost of raw materials. Through all of this activity we are keeping our focus on the strategic pillars that make the company successful: product innovation, operational excellence, product line diversification and global expansion.
In North America and Europe the addition of multi-color printing to our operations was completed, an advanced technology film line is starting up in Europe and construction of our new facility in Brazil is on schedule to operate a new extrusion line this summer. Clopay Plastic Products excels by working as a uniquely capable partner with its global customers to develop new product concepts for rollout on a timely and cost-effective basis across its multi-national network of manufacturing plants. We look forward to a year of significant infrastructure achievements in 2005 and anticipate a resumption of growth in our plastics business in the future.
Our second quarter results
reflect a difficult economic environment for our businesses. It is clearly a disappointing period compared to the record operating performance achieved last year.
Net sales for the quarter were $322,473,000 compared to $317,636,000 for the second quarter of fiscal 2004. Income before income taxes was $6,101,000 compared to $19,348,000 last year. Net income was $4,144,000 in the current quarter, down from $8,662,000 in the second quarter of 2004. Diluted earnings per share for the quarter was $.13 compared to $.27 in last year’s second quarter.
Operating results in the second quarter of fiscal 2005 were impacted by the continued raw material price escalation in the specialty plastic films and garage doors segments. The garage doors segment experienced significant raw material (steel) cost increases in the second quarter. In specialty plastic films, raw material (resin) costs also increased over first quarter levels in North America and advanced more sharply in Europe. Although the company has continued to raise selling prices in both of these segments, the raw material cost increases have not been fully recovered. In garage doors, higher net sales were driven primarily by selling price increases and by favorable product mix. Specialty plastic films continued to experience reduced unit volume related to product design changes by its major customer. These reductions were partly offset by the effects of higher selling prices to pass through raw material cost increases. Sales volume and profitability in installation services continued to be negatively affected by narrower margins due to higher costs of products with significant steel content (garage doors and fireplaces), a weaker construction environment in certain of its markets and by increased competition. Net sales of the electronic information and communication systems segment, Telephonics, increased principally due to growth in international radar programs. Telephonics profitability was reduced slightly compared to last year primarily due to operating costs associated with companies acquired during the quarter.
In addition, in connection with the preparation of the consolidated financial statements for the second quarter of fiscal 2005, the company ascertained that in the first quarter of the year there was an inventory
valuation error in determining the garage door segment’s cost of goods sold. This inventory valuation error was caused by the unprecedented increases
in the segment’s raw material costs and correction of this error was included in the press release which previously reported operating results for the second quarter of 2005. The company has since determined to reflect the adjustment to correct cost of goods sold in the first quarter of 2005 by restating that period’s operating results. The restatement did not change previously reported earnings, cash flows, or financial position for the six months ended March 31, 2005 and resulted in a $1,260,000 change to decrease previously reported first quarter net income to $9,192,000 with a corresponding increase to previously reported second quarter net income. First
quarter diluted earnings per share decreased $.05 to $.29 per share and second quarter diluted earnings per share
increased $.04 to $.13 per share.
Cash flow from operations during the quarter was $25,000,000 which was used to fund acquisitions of $9,000,000, capital expenditures of $6,000,000, and long-term debt reductions of $6,000,000.
We are working extremely closely with the management of our various businesses and feel that appropriate steps are being taken that should result in improved profitability, especially in our garage door segment.
Harvey R. Blau
Chairman of the Board
Eric Edelstein
Executive Vice President and Chief Financial Officer |
