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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-6620
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 JERICHO QUADRANGLE, JERICHO, NEW YORK 11753
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 938-5544
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF CLASS WHICH REGISTERED
-------------- ----------------
COMMON STOCK, $.25 PAR VALUE NEW YORK STOCK EXCHANGE
SECOND PREFERRED STOCK, SERIES I
$.25 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. (The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing.) As of November 15, 1996 -- approximately $306,000,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only to
corporate registrants). As of November 15, 1996 -- 28,918,948.
Documents incorporated by reference: Part III - Registrant's definitive
proxy statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934.
PART I
ITEM ONE - BUSINESS
GENERAL
Griffon Corporation ("the Company") is a diversified manufacturer with
operations in three business segments: Building Products, Specialty Plastic
Films and Electronic Information and Communication Systems.
In November 1996, the Company announced the sale of its synthetic batting
business and the decision to sell its specialty hardware business. Accordingly,
the operating results of these businesses have been reclassified as discontinued
operations. See Note 5 of "Notes to Consolidated Financial Statements."
BUILDING PRODUCTS
Management believes that its wholly-owned subsidiary, Clopay, is among the
largest manufacturers of residential garage doors in the United States. Clopay
sells a broad line of steel and wood garage doors for residential and commercial
use which are manufactured in stock sizes and styles as well as special order
to customer specifications.
Clopay's strategy is to produce a broad line of high quality garage doors
for distribution throughout North America to professional installer, retail and
wholesale channels. Clopay has focused on increasing its market share by
introducing new products, expanding its distribution, sales and marketing
programs and through strategic acquisitions. In October 1995 Clopay acquired
the Atlas Roll-Lite Door Corporation, a manufacturer of heavy duty rolling steel
doors, grilles and counter shutters for industrial and commercial markets;
sectional garage doors for residential applications; and doors and components
for the self-storage market. A company involved in the installation of building
products was also acquired. These businesses have annual sales of approximately
$80,000,000.
Clopay sells residential garage doors to a large number of retailers
throughout North America, including home centers and building material
cooperative buying groups. Significant customers include The Home Depot Inc.,
Menards, Inc., Lowe's Companies, Inc., Builders Square, Inc. and 84 Lumber.
Residential and commercial garage doors and related products for professional
installation are sold directly to a national network of installation
specialists.
Clopay distributes garage doors directly from its manufacturing facilities
and through its network of 37 company-owned distribution centers throughout the
United States and Canada. Under Clopay's "installed sales" program, consumers
purchase garage doors through local retailers and Clopay manages the
installation through authorized installing dealers.
Clopay continues to make substantial capital investments in its
manufacturing facilities and believes that its automated continuous production
plants enable it to produce garage doors cost effectively. Steel garage doors,
including insulated doors, are fabricated from pre-painted, galvanized steel,
specially selected for rust resistance and low maintenance. Wood garage doors
are produced from kiln dried lumber and are constructed for ease of operation
and durability. The lumber and steel used in the manufacturing operations are
generally available from a variety of sources. All products are designed for
safe operation and easy specification by architects and contractors.
The garage door market is characterized by several large national
manufacturers, including Clopay, and many smaller regional and local
manufacturers. In addition to price, Clopay believes that it competes favorably
on the basis of diversity of product line, quality, service and merchandising
capability.
Clopay also operates a service company that installs and services
manufactured fireplaces, garage doors and openers and a range of related
products. This part of Clopay's business grew substantially in 1996 through
internal growth and acquisitions, while expanding into new markets. Management
believes that the service business is one of the country's leading fireplace
dealers.
SPECIALTY PLASTIC FILMS
Clopay is a leading manufacturer of customized plastic film and laminates
made from plastic resin and non-woven fabrics for use in consumer and health-
care products. Clopay's strategy is to offer technologically advanced products
for use in niche markets to major consumer and health-care product companies.
Clopay believes that its research and development activities and capital
investment in related equipment enable it to efficiently manufacture products
in large volume and meet changing consumer needs. These factors, together with
its technical expertise, allow Clopay to compete favorably in its markets.
Clopay sells its products primarily throughout the United States with sales also
in Canada, Latin America and the Pacific Rim. Clopay has formed a 60%-owned
joint venture, headquartered in Germany, to develop and market laminates and
films for use in the infant diaper, health-care and other markets in Europe,
South Africa and the Middle East. The joint venture is constructing and will
operate a manufacturing facility in Germany, the cost of which is expected to
be approximately $12,000,000. The investment in the joint venture to fund
Clopay's share of the initial construction and equipment costs will be made
during the first half of 1997.
Clopay manufactures thin gauge embossed barrier and breathable films and
coated laminates of plastic film and non-woven fabric to customer specifications
for sale to consumer product and other companies. These products are used
primarily as the backsheet in disposable diapers as well as the moisture barrier
in adult incontinent products and sanitary napkins. These products are
differentiated by strength, barrier and other properties. A substantial
portion of the specialty plastic film sales over the last five years have been
to The Procter & Gamble Company. The loss of this customer would have a
material adverse effect on the Company's business.
Clopay also manufactures plastic films and laminates for a wide variety of
disposable health-care products including surgical drapes, patient care
underpads and medical garments. These plastic products are also sold for use
in garments worn by workers in hazardous industrial environments.
Clopay manufactures these products on high speed equipment to meet
stringent tolerances. The manufacturing process consists of melting a mixture
of plastic resins (primarily polyolefins) and additives, and forcing this
mixture through a computer controlled die and rollers to produce embossed films.
In addition, the process can involve extruding the melted plastic film directly
onto a non-woven fabric to form a laminate. Certain products involve further
processes such as a secondary lamination of the film to a non-woven material.
Through statistical process control methods, Clopay personnel monitor and
control the entire production process. The plastic resins used in Clopay's
products are commodities generally available from several sources.
Clopay is engaged in several joint efforts with the research and
development departments of its major specialty plastic film customers. Clopay
employs chemists, scientists and engineers at a technical center to study
polymers and manufacturing processes that will assist in the development of its
specialty plastic film products. Clopay's research and development efforts have
resulted in inventions covering embossing patterns, improved processing methods,
product applications and other proprietary technology. Clopay's research and
development costs for this business amounted to approximately $1,700,000,
$1,800,000 and $1,800,000 in 1994, 1995 and 1996, respectively.
ELECTRONIC INFORMATION AND COMMUNICATION SYSTEMS
The Company's wholly-owned subsidiary, Telephonics, is an electronics
systems company specializing in advanced information and communications systems
for government, aerospace, civil, industrial and commercial markets. In recent
years, Telephonics has expanded its customer base with increasing emphasis in
non-military markets. These efforts have resulted in a series of new contract
awards in the transit industry as well as international air traffic control
projects.
Telephonics designs, manufactures and logistically supports maritime
surveillance radars, air traffic control systems, advanced military
communication systems, IFF equipment, transit communication systems, command and
control systems, VLSI/LSI circuits, microwave landing systems and avionics for
commercial airlines. A substantial portion of Telephonics' sales (approximately
56% for 1996) were to agencies of the U.S. Government or to prime contractors
or subcontractors on government, military or aerospace programs. Telephonics'
funded backlog at September 30, 1996 was approximately $78 million as compared
to $91 million at September 30, 1995. Approximately 70% of the September 30,
1996 backlog is expected to be shipped within twelve months.
Telephonics participates in approximately 40 government, aerospace and
commercial programs. Approximately 65% of Telephonics' sales for 1996 were
attributable to upgrades, enhancements and follow-on options to existing long-
term products and programs.
Some of the major programs in which Telephonics participates include the
following:
Description of
Program Customer Product Purpose
- -------------- -------- ------- -------
C-17 (Air Force Cargo McDonnell Integrated Radio Centralized digitally
Transport) Douglas Management System controlled audio
distribution system
Wireless Intercomm System Wireless communication
system
LAMPS MARK III Lockheed Multi-Mode Radar Upgraded avionics for
(Antisubmarine Warfare Martin (MMR) the LAMPS MARK III
Helicopter) Intercommunication Helicopter with
and Radio Management maritime surveillance
System radar with identifi-
Identification Friend cation friend/or foe
or Foe (IFF) capability and inter-
communication and
radio management
systems
Joint-STARS (Airborne Northrop- Distributed Digital Manages all inter-
Surveillance System) Grumman Intercommunications and communication and
Corporation Radio Control System radio transmissions
SEPTA ABB Traction Communications, Wayside Car-borne
Video Surveillance communications for rail
Systems cars
Zhuhai Airport Guangdong Air Traffic Control System Manage air traffic at
Machinex Zhuhai, China Airport
Corporation
Long Island Rail Road Kawasaki Communications, Vehicle Car-borne
Health Monitoring communications for
rail cars
Airborne Warning and Boeing IFF System Upgrade IFF equipment
Control System (AWACS) for AWACS aircraft
Telephonics also designs and produces custom large-scale integrated
circuits, which replace conventional circuits and components with a single
microchip. Telephonics provides microchips to manufacturers of complex control
circuitry for telecommunications signal processing equipment, security systems,
home appliances, automated hand tools, military airborne interior communication
systems, and fast down windows, fuel monitoring and air bag sensors for
automobiles. Telephonics also provides specialized design services which
supplement customers' in-house capabilities. Telephonics also produces a wide
variety of microwave components and test instruments.
Headsets, microphones, earphones and cables manufactured by Telephonics are
used in military and commercial aircraft and ground vehicles, especially in high
noise environments.
Telephonics' other commercial projects include contracts with Kawasaki, ABB
Traction, Long Island Rail Road and other rail suppliers under which Telephonics
produces communication equipment which provides passenger and crew interior
communications among train cars, radio communications between the train and the
central control facility, automated voice announcement, passenger information
signage and vehicle performance monitoring systems. Telephonics is under
contract with McDonnell Douglas to produce passenger and cabin address intercom
systems for the MD-80 and MD-95 aircraft.
Government programs in which Telephonics is involved frequently provide for
purchases under a series of independently priced contracts, each calling for
delivery of a lot, consisting of a portion of the units in the overall program.
Each contract is treated separately and there is no requirement that upon
delivery of the lot which is the subject of one contract, the government must
contract to purchase, or the supplier must contract to sell, additional lots.
Telephonics accounts for its long-term contracts using the
percentage-of-completion method. Under this method, the Company recognizes
revenues and gross profit based upon the costs incurred as a percentage of the
total estimated cost.
Most of Telephonics' production contracts are fixed price, which means that
Telephonics generally bears the risk of cost overruns. In a fixed price
contract, progress payments are received during performance as stages are
reached for which fixed payments are established in the contract.
In accordance with Department of Defense and NASA procedures, all contracts
involving government programs permit the government to terminate the contract
at any time, at its convenience, without cause. In the event of such
termination, Telephonics is entitled to reimbursement for its costs and to
receive a proportionate share of its profits, if any, on the work performed
prior to termination.
Telephonics' staff of approximately 250 engineers and marketing personnel,
many of whom have technical backgrounds, advise government and commercial
planning and design personnel in an attempt to include Telephonics' products in
their programs.
Telephonics competes on the basis of technology, design, price and
performance. The products sold by Telephonics utilize technologies which are
constantly changing. Telephonics' expertise in these technologies enables it
to compete with several major manufacturers of electronic information and
communications systems which have greater financial resources than Telephonics.
Telephonics also competes with several smaller manufacturers of similar
products.
A major part of Telephonics' product development is performed under
government contracts under which such costs are generally recoverable. Research
and development costs not recoverable under contractual arrangements are charged
to expense as incurred. These costs were approximately $1,400,000, $1,600,000
and $2,200,000 for 1994, 1995 and 1996, respectively.
EMPLOYEES
The Company has approximately 3,600 employees located throughout the United
States and in Canada at its various plants, warehouses and offices.
Approximately 100 of its employees are covered by collective bargaining
agreements, primarily with affiliates of the AFL-CIO. The Company believes its
relationships with employees are satisfactory.
OFFICERS OF THE REGISTRANT
Served as Positions and
Name Age Officer Since Offices
---- --- ------------- -------------
Harvey R. Blau 61 1983 Chairman of the Board
Robert Balemian 57 1976 President
Patrick L. Alesia 48 1979 Vice President and Treasurer
Susan E. Rowland 38 1983 Secretary
ITEM TWO - PROPERTIES
The Company occupies approximately 2,500,000 square feet of general office,
factory and warehouse space and showrooms throughout the United States and in
Canada. The following table sets forth certain information as to each of the
Company's major facilities:
Approximate Owned
Square or
Location Business Segment Primary Use Footage Leased
-------- ---------------- ----------- ------- ------
Jericho, NY Corporate Headquarters Office 10,000 Leased
Farmingdale, NY Electronic Information Manufacturing 167,000 Owned
and Communication
Systems
Huntington, NY Electronic Information Manufacturing 89,000 Owned
and Communication
Systems
Cincinnati, OH Building Products Office 39,000 Leased
Specialty Plastic Films
Cincinnati, OH Specialty Plastic Films Research and 38,000 Leased
Development
Russia, OH Building Products Manufacturing 274,000 Leased
Baldwin, WI Building Products Manufacturing 216,000 Leased
Kennesaw, GA Building Products Distribution 41,000 Leased
Norcross, GA Building Products Distribution 102,000 Leased
Augusta, KY Specialty Plastic Films Manufacturing 143,000 Owned
Nashville, TN Specialty Plastic Films Manufacturing 86,000 Leased
Fresno, CA Specialty Plastic Films Manufacturing 37,000 Leased
Orlando, FL Building Products Manufacturing 196,000 Leased
Chandler, AZ Building Products Manufacturing 79,000 Leased
Nesbitt, MS Building Products Manufacturing 40,000 Owned
Grand Prairie, TX Building Products Distribution 45,000 Leased
The Company has aggregate minimum annual rental commitments under real
estate leases of approximately $7,500,000. The majority of the leases have
escalation clauses related to increases in real property taxes on the leased
property and some for cost of living adjustments. Certain of the leases have
renewal options. The Company also leases space for the building products
segment's distribution centers in numerous facilities throughout the United
States which aggregate approximately 564,000 square feet. All plants and
equipment of the Company are believed to be in adequate condition and contain
sufficient space for current needs.
ITEM THREE - LEGAL PROCEEDINGS
A. Warwick Administrative Group, et al. v. Avon Products, et al. By way
of background, in February 1989, Lightron Corporation ("Lightron"), a wholly-
owned subsidiary of the Company, initially received notification from the
Environmental Protection Agency ("EPA") that it was being named as one of
several potentially responsible parties who could be liable for cleanup and
natural resource damages relating to a landfill located in the Town of Warwick,
Orange County, New York (the "Site"). Subsequently, the EPA conducted a
remedial investigation and feasibility study at the Site to determine the extent
of the contamination and the various alternative measures which are appropriate
for remediation. On June 27, 1991, a Record of Decision was signed setting
forth the selected course of remediation for the Site. Thereafter, pursuant to
an Administrative Order issued by the EPA which directed them to do so, the
potentially responsible parties named in the Order (the "Warwick Group") agreed
to undertake to perform a second operable unit Remediation Investigation and
Feasibility Study.
In January 1993, the Warwick Group instituted the within action in the
United States District Court for the Southern District of New York against
Lightron and several other potentially responsible parties. According to their
complaint, the plaintiffs are seeking, inter alia, a declaratory judgment
decreeing that Lightron and the other defendants are jointly and severally
responsible under CERCLA to contribute their share of the actual response costs
already incurred and the future response costs to be incurred by the plaintiffs
in connection with the remediation of the Site.
Subject to final Court approval, this action has been settled with the
plaintiffs for the sum of $75,000. In addition, a settlement has been reached
with the EPA on a de minimis basis to provide Lightron with statutory
contribution protection and to bar the EPA from instituting a future action
against Lightron in connection with the Site.
B. Department of Environmental Conservation with Lightron Corporation
(Peekskill). Lightron once conducted operations at a location in Peekskill in
the Town of Cortland, New York owned by ISC Properties, Inc., a wholly-owned
subsidiary of the Company (the "Peekskill Site"). ISC Properties, Inc. sold the
Peekskill Site in November 1982.
Subsequently, the Company was advised by the New York State Department of
Environmental Conservation ("DEC") that random sampling at the Peekskill Site
and in a creek near the Peekskill Site indicated concentrations of solvents and
other chemicals common to Lightron's prior plating operations. ISC Properties
has entered into a consent order with the DEC to perform a remedial
investigation and prepare a feasibility study.
C. Linke Enterprises of Oregon, Inc. v. Champion Laboratories, Inc. and
Instrument Systems Corporation. In September 1990, a private cost recovery
action under federal and state environmental statutes was commenced in the
United States District Court of the District of Oregon. Plaintiff sought to
recover from the Company response costs in an amount exceeding $250,000 which
the plaintiff allegedly had expended to investigate and remediate an existing
environmental problem at the Site. The Site was previously leased by one of the
Company's former subsidiaries, Sun Battery, Inc., for the period from 1966 to
1971. According to the terms of the settlement agreement which resolved the
action, the Company was obligated to contribute to the plaintiff's remediation
costs the sum of $97,992.87. Champion Laboratories, Inc. also was required to
make a contribution to the plaintiff's remediation costs in the amount of
$49,011.13. In consideration of these contributions, both the Company and
Champion Laboratories, Inc. have been indemnified by the plaintiff against any
further liability with regard to the environmental matter, except to the extent
that either the EPA or the comparable state environmental agency initiates
enforcement proceedings or prosecutes a claim for environmental damages.
In June 1992, the Company was notified pursuant to the settlement agreement
that the State of Oregon had renewed its investigation of the Site and that such
investigation could lead to a final determination that further cleanup actions
will be necessary.
D. Atlantic Richfield Company (ARCO) v. Current Controls, et al. By way
of background, the Atlantic Richfield Company ("ARCO") initially notified the
Company in 1991 that based upon ARCO's investigation of the groundwater at the
Sinclair Refinery Superfund Site in Wellsville, New York, a portion of which
("Operable Unit II") allegedly is owned currently by an indirect, wholly-owned
subsidiary of the Company, ISC Development Corp., the shallow aquifer underlying
the Site was found to be contaminated with various hazardous substances. It is
ARCO's contention that manufacturing operations conducted at ISC Development
Corp.'s premises (which were leased to a third party) may have contributed to
this contamination, and that as an owner and/or operator, the Company would be
jointly and severally liable as a responsible party for the costs of remediation
under Section 107 of CERCLA.
On or about January 26, 1994, ARCO served the Company with a summons and
complaint in this action pending in the United States District Court for the
Western District of New York. The Company has been named as one of several
defendants whom the plaintiff claims should be held jointly and severally liable
for the costs incurred and to be incurred by ARCO in the remediation and cleanup
of portions of the Sinclair Refinery Superfund Site.
Management believes, based on facts presently known to it, that the outcome
of the litigation proceedings described above will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM FOUR - SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
ITEM FIVE - MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Second Preferred Stock, Series I, are listed
for trading on the New York Stock Exchange. As of November 15, 1996 there were
approximately 17,000 record holders of the Company's Common Stock. The
following table shows for the periods indicated the quarterly range in the high
and low sales prices for these securities.
SECOND PREFERRED
COMMON STOCK STOCK, SERIES I
------------ ----------------
FISCAL QUARTER ENDED HIGH LOW HIGH LOW
-------------------- ------- ------- ------- -------
December 31, 1994 $ 8 5/8 $ 7 3/8 $ 8 5/8 $ 7 7/8
March 31, 1995 9 1/2 8 1/8 9 1/2 8 1/4
June 30, 1995 8 3/4 7 5/8 9 1/4 8 1/8
September 30, 1995 8 7/8 7 1/2 9 1/8 7 5/8
December 31, 1995 9 8 9 1/4 8 1/2
March 31, 1996 10 1/8 8 3/4 10 9 1/8
June 30, 1996 9 1/2 8 1/8 9 7/8 8 3/4
September 30, 1996 9 7/8 7 1/4 10 8
ITEM SIX - SELECTED FINANCIAL DATA
YEARS ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- ------------
Net sales $655,063,000 $506,116,000 $451,166,000 $401,757,000 $361,931,000
============ ============ ============ ============ ============
Income from
continuing
operations $ 28,067,000 $ 23,245,000 $ 29,394,000 $ 26,340,000 $ 21,189,000
============ ============ ============ ============ ============
Per share $ .88 $ .69 $ .79 $ .69 $ .58
============ ============ ============ ============ ============
Total assets $311,169,000 $285,616,000 $293,215,000 $270,270,000 $246,750,000
============ ============ ============ ============ ============
Long-term
obligations $ 32,458,000 $ 16,074,000 $ 15,538,000 $ 26,147,000 $ 28,406,000
============ ============ ============ ============ ============
No dividends on Common Stock were declared or paid during the five years ended
September 30, 1996.
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
General
In November 1996, the Company announced the sale of its synthetic batting
business and the decision to sell its specialty hardware business. Accordingly,
the operating results of these businesses have been reclassified as discontinued
operations.
Fiscal 1996 Compared to Fiscal 1995
Net sales for all business segments were $655.1 million, an increase of
$148.9 million or 29.4% over 1995. Net sales of the building products segment
increased by $105.7 million or 35.3% compared to 1995. Acquired companies
accounted for $80 million of the sales increase, higher unit sales of garage
doors and internal growth in our service business aggregated $21 million of the
increase, with selling price increases of $5 million accounting for the
remainder. Net sales of the specialty plastic films segment increased by $16.2
million or 14.6% due to increased unit sales principally attributable to sales
of new products to its major customer for the infant diaper market, partially
offset by net lower average selling prices ($5 million) driven by resin price
reductions early in the year. Net sales of the electronic information and
communication systems segment increased by $27.1 million or 28.2% compared to
last year principally due to new program awards in the segment's defense and
international business.
Operating income for all business segments was $53.0 million, an increase
of $10.0 million over 1995. Operating income of the building products segment
in 1996 increased by $8.2 million over 1995. Higher garage door unit sales,
primarily in the second half of the year due to strengthening in the
construction and related retail markets, internal growth in the service business
and the earnings of acquired companies, partly offset by severe winter weather
conditions and additional costs to phase-out an unprofitable product line were
the principal reasons for the increase. Operating income of the specialty
plastic films segment was approximately the same as last year. The effect of
higher sales was offset by development costs and manufacturing inefficiencies
attributable to new programs and product start-up costs, and unstable raw
material costs. Operating income of the electronic information and
communication systems segment increased by $1.8 million due to the increased
sales.
Net interest expense increased by $1.4 million compared to last year due
to borrowings in the first half of the year in connection with acquisitions and
the Company's self-tender offer for 2 million shares of its Common Stock.
Fiscal 1995 Compared to Fiscal 1994
Net sales for all business segments were $506.1 million, an increase of
$55.0 million or 12.2% over 1994. Net sales of the building products segment
increased by $56.5 million or 23.3% compared to 1994. Acquired companies
accounted for $35.6 million of the increase with the remainder primarily
attributable to increased unit sales of garage doors ($12.1 million) and price
increases ($9.3 million). Higher market share and expanded distribution were
the principal reasons for the unit sales increase. Net sales of the specialty
plastic films segment were $111.2 million compared to $114.6 million in 1994.
As previously reported, a major customer of the specialty plastic films segment
made a design change which substantially phased out a thin laminate program
during 1995. The decreased sales of this laminate ($21.9 million) were
partially offset by the effects of higher selling prices ($8.6 million) and
increased sales of other film products ($9.9 million). Net sales of the
electronic information and communication systems segment were $95.8 million
compared to $94.0 million in 1994.
Operating income for all business segments was $43.0 million compared to
$54.8 million in 1994. Operating income of the building products segment in
1995 increased $.4 million over 1994. Increased profitability in the beginning
of the year was partly offset by lower than anticipated garage door sales in the
latter half due to weakness in the construction and related retail markets.
Operating results of this segment were also negatively impacted ($2.4 million)
by an unprofitable product line (passage doors) that was discontinued and by
increased raw material and operating costs. Operating income of the specialty
plastic films segment was $9.0 million in 1995 compared to $20.8 million in
1994. The decrease was primarily due to the phase-out of the thin laminate
program, delays in receipt of anticipated orders and substantial raw material
(polyethylene resin) cost increases. The Company has generally been able to
pass on such increases to customers in the past. However, the specialty plastic
films industry experienced a period of soft demand and excess production
capacity. As a result, although the Company implemented selling price
increases, due to the magnitude of the cost increases and the economic
conditions, such selling price adjustments did not fully compensate for the cost
increases. Operating income of the electronic information and communication
systems segment was $9.1 million in 1995 compared to $9.6 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for 1996 was $36.7 million and working
capital was $123.3 million at September 30, 1996.
During 1996, approximately $22 million was used to acquire companies for
the building products business, including a manufacturer of heavy rolling doors,
sectional garage doors, grilles and other door products for commercial,
industrial and residential applications with annual sales of $60 million.
In March 1996, the Company completed a self-tender offer for 2 million
shares of its Common Stock at a price of $9.75 per share. During the year,
$21.7 million was used to acquire approximately 2.2 million shares of capital
stock. Since 1993, approximately 7.5 million shares of the Company's Common
Stock have been purchased under its stock repurchase program. In November 1996,
the program to purchase the Company's stock was increased from 1.5 million
shares to 3 million shares.
The Company rents various real property and equipment through
noncancellable operating leases. Related future minimum lease payments due in
1997 aggregate $15.4 million and are expected to be funded through operating
cash flows.
The specialty plastic films segment has formed a 60%-owned joint venture,
headquartered in Germany, to develop and market films and laminates for use in
the infant diaper, health-care and other markets in Europe, South Africa and the
Middle East. The joint venture will construct and operate a manufacturing
facility in Germany, the cost of which is expected to be approximately $12
million. The investment in the joint venture to fund our share of the initial
construction and equipment costs will be made during the first half of 1997.
There are no other significant commitments for future capital expenditures or
investments though it is likely that cash outflows for business acquisitions,
capital expenditures and leases will continue.
Anticipated cash flows from operations, together with existing cash and
marketable securities 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.
Statement of Financial Accounting Standards No. 121, "Accounting for Long-
Lived Assets and Long-Lived Assets to Be Disposed Of," establishes financial
accounting and reporting standards for long-lived assets and is effective for
the fiscal year beginning October 1, 1996. Adoption of this standard will not
have a material effect on the Company's financial position or results of
operations. Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," which becomes effective for the fiscal year
beginning October 1, 1996, permits an entity to continue to account for employee
stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued
to Employees," or adopt a fair value based method of accounting for employee
stock-based compensation. The Company expects to continue to account for
employee stock-based compensation under Opinion No.25 and provide the required
pro forma disclosures of net income and income per share in accordance with the
new standard's fair value based method of accounting.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and its subsidiaries and the report
thereon of Arthur Andersen LLP, dated November 6, 1996 are included herein:
- Report of Independent Public Accountants.
- Consolidated Balance Sheets at September 30, 1996 and 1995.
- Consolidated Statements of Income, Cash Flows and Shareholders'
Equity for the years ended September 30, 1996, 1995, 1994.
- Notes to Consolidated Financial Statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Griffon Corporation:
We have audited the accompanying consolidated balance sheets of Griffon
Corporation (a Delaware corporation) and subsidiaries as of September 30, 1996
and 1995 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended September
30, 1996. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Griffon Corporation and
subsidiaries as of September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements and schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Roseland, New Jersey Arthur Andersen LLP
November 6, 1996
GRIFFON CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,846,000 $ 9,656,000
Marketable securities (Note 1) 4,297,000 12,197,000
Accounts receivable, less allowance
for doubtful accounts of $4,519,000
in 1996 and $3,727,000 in 1995
(Note 1) 87,113,000 71,461,000
Contract costs and recognized income
not yet billed (Note 1) 33,670,000 31,490,000
Inventories (Note 1) 69,886,000 78,823,000
Prepaid expenses and other current
assets (Note 5) 16,203,000 8,419,000
------------ ------------
Total current assets 229,015,000 212,046,000
------------ ------------
Property, Plant and Equipment, at
cost, net of depreciation and
amortization (Note 1) 55,706,000 48,401,000
------------ ------------
Other Assets:
Costs in excess of fair value of
net assets of businesses acquired,
net (Note 1) 22,834,000 21,267,000
Other 3,614,000 3,902,000
------------ ------------
26,448,000 25,169,000
------------ ------------
$311,169,000 $285,616,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
GRIFFON CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30,
1996 1995
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 2) $ 5,553,000 $ 7,073,000
Accounts payable 42,131,000 40,032,000
Accrued liabilities (Note 1) 52,270,000 45,911,000
Federal income taxes 5,797,000 4,790,000
------------ ------------
Total current liabilities 105,751,000 97,806,000
------------ ------------
Long-Term Debt (Note 2) 32,458,000 16,074,000
------------ ------------
Commitments and Contingencies
(Note 4)
Shareholders' Equity (Note 3):
Preferred stock, par value $.25 per
share, authorized 3,000,000 shares --
Second Preferred Stock, Series I,
authorized 1,950,000 shares,
issued 1,618,844 shares in 1996
and 1,669,537 shares in 1995
(liquidation value $16,188,000
and $16,695,000, respectively) 405,000 417,000
Common stock, par value $.25 per share,
authorized 85,000,000 shares, issued
29,253,848 shares in 1996 and
31,081,499 shares in 1995 7,313,000 7,770,000
Capital in excess of par value 32,764,000 52,149,000
Retained earnings 135,508,000 113,101,000
------------ ------------
175,990,000 173,437,000
Less --
Deferred compensation (179,000) (424,000)
Treasury shares, at cost, 334,896
common shares in 1996 and 162,796
common shares in 1995 (2,851,000) (1,277,000)
------------ ------------
Total shareholders' equity 172,960,000 171,736,000
------------ ------------
$311,169,000 $285,616,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
Net sales $655,063,000 $506,116,000 $451,166,000
Cost of sales 489,460,000 368,794,000 312,802,000
------------ ------------ ------------
165,603,000 137,322,000 138,364,000
Selling, general and administrative
expenses 118,085,000 98,684,000 89,102,000
------------ ------------ ------------
47,518,000 38,638,000 49,262,000
------------ ------------ ------------
Other income (expense):
Interest expense (3,409,000) (2,162,000) (1,776,000)
Interest income 1,180,000 1,312,000 1,885,000
Other, net 668,000 258,000 411,000
------------ ------------ ------------
(1,561,000) (592,000) 520,000
------------ ------------ ------------
Income from continuing operations
before income taxes 45,957,000 38,046,000 49,782,000
------------ ------------ ------------
Provision for income taxes (Note 1):
State and foreign 2,663,000 2,366,000 3,471,000
Federal 15,227,000 12,435,000 16,917,000
------------ ------------ ------------
17,890,000 14,801,000 20,388,000
------------ ------------ ------------
Income from continuing operations 28,067,000 23,245,000 29,394,000
------------ ------------ ------------
Discontinued operations, net of
income tax effect (Note 5):
Operating income 256,000 562,000 311,000
Provision for loss on disposal (5,500,000) --- ---
------------ ------------ ------------
(5,244,000) 562,000 311,000
------------ ------------ ------------
Net income $ 22,823,000 $ 23,807,000 $ 29,705,000
============ ============ ============
Income per share of common stock
(Note 1):
Continuing operations $ .88 $ .69 $ .79
Discontinued operations (.16) .02 .01
------------ ------------ ------------
Net income $ .72 $ .71 $ .80
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,823,000 $ 23,807,000 $ 29,705,000
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,317,000 7,830,000 8,878,000
Provision for losses on accounts
receivable 1,166,000 858,000 622,000
Deferred income taxes (2,557,000) 1,396,000 (133,000)
(Income) loss from discontinued
operations 8,244,000 (562,000) (311,000)
Change in assets and liabilities:
Increase in accounts receivable
and contract costs and recognized
income not yet billed (13,422,000) (12,059,000) (1,477,000)
(Increase) decrease in inventories 8,741,000 (6,431,000) (12,385,000)
(Increase) decrease in prepaid
expenses and other assets 1,050,000 (111,000) (429,000)
Increase (decrease) in accounts
payable, accrued liabilities and
Federal income taxes 1,400,000 (3,205,000) 10,185,000
Other changes, net (1,092,000) (336,000) 939,000
------------ ------------ ------------
Total adjustments 13,847,000 (12,620,000) 5,889,000
------------ ------------ ------------
Net cash provided by operating
activities 36,670,000 11,187,000 35,594,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in marketable
securities 7,900,000 17,530,000 (18,632,000)
Acquisition of property, plant and
equipment (9,359,000) (7,313,000) (8,836,000)
Net proceeds from sale of stock of
affiliate --- --- 11,615,000
Acquired businesses (23,148,000) (7,758,000) (1,946,000)
(Increase) decrease in equipment lease
deposits and other 2,180,000 (801,000) 1,294,000
------------ ------------ ------------
Net cash provided by (used in)
investing activities (22,427,000) 1,658,000 (16,505,000)
------------ ------------ ------------
The accompanying notes to consolidated financial statements are an integral part of these
statements.
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (21,727,000) (28,233,000) (15,415,000)
Proceeds from issuance of long-term
debt 34,000,000 --- 7,100,000
Payment of long-term debt (16,537,000) (9,528,000) (8,464,000)
Increase (decrease) in short-term borrowings (1,500,000) 6,500,000 ---
Other, net (289,000) (587,000) (117,000)
------------ ------------ ------------
Net cash used in financing
activities (6,053,000) (31,848,000) (16,896,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 8,190,000 (19,003,000) 2,193,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 9,656,000 28,659,000 26,466,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,846,000 $ 9,656,000 $ 28,659,000
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these
statements.
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
For the Years Ended September 30, 1996, 1995 and 1994
SECOND PREFERRED CAPITAL IN
STOCK, SERIES I COMMON STOCK EXCESS OF RETAINED DEFERRED TREASURY SHARES
SHARES PAR VALUE SHARES PAR VALUE PAR VALUE EARNINGS COMPENSATION SHARES COST
Balances, September 30, 1993 1,680,491 $420 35,803,344 $8,951 $94,159 $ 60,426 $1,298 202,900 $ 1,345
Amortization of deferred
compensation --- --- --- --- --- --- (563) --- ---
Cash dividend on Second
Preferred Stock, Series I
(Note 3) --- --- --- --- --- (420) --- --- ---
Purchase of treasury shares
(Note 3) --- --- --- --- --- --- --- 1,930,600 15,415
Exercise of stock options
(Note 3) --- --- 114,500 29 152 --- --- --- ---
Retirement of treasury shares --- --- (2,099,000) (525) (15,968) --- --- (2,099,000) (16,493)
Other (3,362) (1) 68,895 17 271 --- 165 --- ---
Net income --- --- --- --- --- 29,705 --- --- ---
--------- ---- ---------- ------ ------- -------- ------ ---------- -------
Balances, September 30, 1994 1,677,129 419 33,887,739 8,472 78,614 89,711 900 34,500 267
Amortization of deferred
compensation --- --- --- --- --- --- (570) --- ---
Cash dividend on Second
Preferred Stock, Series I
(Note 3) --- --- --- --- --- (417) --- --- ---
Purchase of treasury shares
(Note 3) --- --- --- --- --- --- --- 3,131,136 28,233
Exercise of stock options
(Note 3) --- --- 236,000 59 427 --- --- --- ---
Retirement of treasury shares --- --- (3,002,840) (751) (26,472) --- --- (3,002,840) (27,223)
Other (7,592) (2) (39,400) (10) (420) --- 94 --- ---
Net income --- --- --- --- --- 23,807 --- --- ---
--------- ---- ---------- ------ ------- -------- ------ ---------- -------
Balances, September 30, 1995 1,669,537 417 31,081,499 7,770 52,149 113,101 424 162,796 1,277
Amortization of deferred
compensation --- --- --- --- --- --- (345) --- ---
Cash dividend on Second
Preferred Stock, Series I
(Note 3) --- --- --- --- --- (416) --- --- ---
Purchase of treasury shares
(Note 3) --- --- --- --- --- --- --- 2,189,100 21,727
Exercise of stock options
(Note 3) --- --- 148,750 37 364 --- --- --- ---
Retirement of treasury shares (17,000) (4) (2,000,000) (500) (19,649) --- --- (2,017,000) (20,153)
Other (33,693) (8) 23,599 6 (100) --- 100 --- ---
Net income --- --- --- --- --- 22,823 --- --- ---
--------- ---- ----------- ------ ------- -------- ------ ---------- -------
Balances, September 30, 1996 1,618,844 $405 29,253,848 $7,313 $32,764 $135,508 $ 179 334,896 $ 2,851
========= ==== ========== ====== ======= ======== ====== ========== =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include the accounts of Griffon
Corporation and all subsidiaries. All significant intercompany items have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOWS, INVESTMENTS AND CREDIT RISK
Marketable securities consist primarily of U.S. government obligations and
are carried at amortized cost which approximates market. The company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash payments for interest expense were
$3,372,000, $2,132,000 and $1,797,000 in 1996, 1995 and 1994, respectively.
A substantial portion of the company's trade receivables are from customers
of the building products segment whose financial condition is dependent on the
construction and related retail sectors of the economy.
ACCOUNTING FOR LONG-TERM CONTRACTS
The company records sales and gross profits on its long-term contracts on
a percentage-of-completion basis. The company determines sales and gross
profits by (1) relating costs incurred to current estimates of total
manufacturing costs of such contracts or (2) based upon a unit of shipment
basis. General and administrative expenses are expensed as incurred. Revisions
in estimated profits are made in the period in which the circumstances requiring
the revision become known. Provisions are made currently for anticipated losses
on uncompleted contracts.
"Contract costs and recognized income not yet billed" consists of
recoverable costs and accrued profit on long-term contracts for which billings
had not been presented to the customers because the amounts were not billable
at the balance sheet date.
INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, include material, labor and manufacturing overhead costs and are
comprised of the following:
SEPTEMBER 30,
1996 1995
------------ ------------
Finished goods $ 23,910,000 $ 22,824,000
Work in process 22,706,000 31,048,000
Raw materials and supplies 23,270,000 24,951,000
------------ ------------
$ 69,886,000 $ 78,823,000
============ ============
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment is provided primarily on a
straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the life of the lease or life of
the improvement, whichever is shorter.
Property, plant and equipment consists of the following:
SEPTEMBER 30,
1996 1995
------------ ------------
Land, buildings and building
improvements $ 25,940,000 $ 25,113,000
Machinery and equipment 66,444,000 63,370,000
Leasehold improvements 8,332,000 8,251,000
------------ ------------
100,716,000 96,734,000
Less--Accumulated
depreciation and
amortization 45,010,000 48,333,000
------------ ------------
$ 55,706,000 $ 48,401,000
============ ============
ACQUISITIONS AND COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS OF BUSINESSES
ACQUIRED ("GOODWILL")
Goodwill is being amortized on a straight-line basis over a period of forty
years. At September 30, 1996 and 1995, accumulated amortization of goodwill was
$4,988,000 and $4,245,000, respectively.
In October 1995 the company acquired a manufacturer of heavy rolling doors,
sectional garage doors, grilles and other door products for commercial,
industrial and residential applications. Also acquired was a company involved
in the installation of building products. These businesses were acquired for
approximately $22,000,000 and have annual sales of approximately $80,000,000.
In 1995 the company acquired two companies involved in the installation of
building products for an aggregate purchase price of $7,758,000.
The above acquisitions have been accounted for as purchases and resulted
in an increase in goodwill of $2,310,000 in 1996 and $3,650,000 in 1995.
Statement of Financial Accounting Standards No. 121, "Accounting for Long-
Lived Assets and Long-Lived Assets to Be Disposed Of," establishes financial
accounting and reporting standards for long-lived assets and is effective for
the fiscal year beginning October 1, 1996. Adoption of this standard will not
have a material effect on the company's financial position or results of
operations.
INCOME TAXES
The provision for income taxes included in continuing operations is
comprised of the following:
1996 1995 1994
----------- ----------- -----------
Current $17,447,000 $13,375,000 $20,641,000
Deferred 443,000 1,426,000 (253,000)
----------- ----------- -----------
$17,890,000 $14,801,000 $20,388,000
=========== =========== ===========
The deferred taxes result primarily from differences in the reporting of
depreciation, the allowance for doubtful accounts and other nondeductible
accruals.
Cash payments for income taxes were $16,525,000, $19,882,000 and
$16,809,000 in 1996, 1995 and 1994, respectively.
The following table indicates the significant elements contributing to the
difference between the U.S. Federal statutory tax rate and the company's
effective tax rate:
1996 1995 1994
---- ---- ----
U.S. Federal statutory
tax rate 35.0% 35.0% 35.0%
State and foreign
income taxes 3.8 4.0 4.5
Other .1 (.1) 1.5
---- ---- ----
Effective tax rate 38.9% 38.9% 41.0%
==== ==== ====
RESEARCH AND DEVELOPMENT COSTS
Research and development costs not recoverable under contractual
arrangements are charged to expense as incurred. Approximately $5,500,000,
$4,400,000 and $4,000,000 in 1996, 1995 and 1994, respectively, was incurred on
such research and development.
ACCRUED LIABILITIES
At September 30, 1996 and 1995, accrued liabilities included $15,483,000
and $12,931,000, respectively, for payroll and other employee benefits.
INCOME PER SHARE OF COMMON STOCK
Income per share is calculated using the weighted average number of shares
of Common Stock outstanding during each period, adjusted to reflect the dilutive
effect of shares issuable for common stock equivalents. Shares used in
computing income per share were 31,915,000 in 1996, 33,629,000 in 1995 and
37,102,000 in 1994.
2. NOTES PAYABLE AND LONG-TERM DEBT:
At September 30, 1996 the company had outstanding notes payable to banks
of $5,000,000 under short-term lines of credit. Borrowings under the lines bear
interest at rates (7.2% as of September 30, 1996) based on the London Interbank
Offered Rate ("LIBOR"), or the prime rate.
During 1995 the company entered into an eight-year loan agreement with two
banks. The agreement provides for up to $60,000,000 of revolving credit for
three years after which outstanding borrowings may be converted into a five-year
term loan. Borrowings bear interest at rates (6.9% as of September 30, 1996)
based upon LIBOR or at the prime rate and are secured by the capital stock of
certain of the company's wholly-owned subsidiaries and the capital stock of
newly acquired subsidiaries financed by the borrowings under the loan agreement.
This credit agreement was utilized to finance an acquisition (see Note 1) and
to finance purchases of the company's Common Stock (see Note 3). As of
September 30, 1996, $18,000,000 was outstanding under this agreement.
The balance of the company's long-term debt outstanding at September 30,
1996 relates primarily to real estate mortgages, with interest rates ranging
from 8.5% to 8.9% and maturities through 2006.
The following are the maturities of long-term debt outstanding at
September 30, 1996 for each of the succeeding five years:
1997 $ 553,000
1998 1,489,000
1999 4,224,000
2000 4,241,000
2001 6,299,000
3. SHAREHOLDERS' EQUITY:
In connection with its stock repurchase program, the company acquired
1,930,600 shares of Common Stock in 1994 for $15,415,000, 3,131,136 shares of
Common Stock in 1995 for $28,233,000 and 2,189,100 shares of Common Stock and
Second Preferred Stock in 1996 for $21,727,000.
The company's Second Preferred Stock, Series I --
a) is convertible into Common Stock on the basis of one share of Common
Stock for each share of Second Preferred Stock, Series I, subject to
certain adjustments;
b) is redeemable at $10.00 per share at the option of the company;
c) has a liquidation value of $10.00 per share; and
d) has the same voting rights and privileges as Common Stock.
The holders of Second Preferred Stock, Series I are entitled to receive for
each share of Second Preferred Stock, an annual dividend of --
a) $.25 in cash; or
b) shares of Common Stock of the company having a market value of $.25,
but in no event more than one quarter of a share of Common Stock per
share of Second Preferred Stock.
The Board of Directors, at the time of the dividend declaration, shall
determine (in its discretion) whether the dividend shall be in cash or Common
Stock.
The company has an Employee Stock Ownership Plan ("ESOP") which covers most
of the company's nonunion employees. During 1996 the outstanding balance under
the ESOP's prior loan agreement was paid in full. Subsequent to year-end the
ESOP will borrow $3,000,000 which will be used to purchase equity securities of
the company. The outstanding balance of the loan will be guaranteed by the
company and will be reflected as a liability in the consolidated balance sheet
with a like amount of deferred compensation recorded as a reduction of
shareholders' equity.
The company has three stock option plans under which options for an
aggregate of 3,000,000 shares of Common Stock may be granted. As of September
30, 1996 options for 42,750 shares remain available for future grants. The
plans provide for the granting of options at an exercise price of not less than
100% of the fair market value per share at date of grant. Options generally
expire five or ten years after date of grant and become exercisable in
installments as determined by the Board of Directors. Transactions under the
plans are as follows:
NUMBER OPTION
OF SHARES PRICE
--------- ----------------
Outstanding at September 30,
1994 1,842,000 $1.50 to $9.125
Granted 713,000 $7.50 to $8.625
Exercised (236,000) $1.625 to $7.00
Terminated (22,250) $7.00 to $8.625
---------
Outstanding at September 30,
1995 2,296,750 $1.50 to $9.125
Granted 618,000 $8.375 to $8.875
Exercised (148,750) $2.25 to $7.50
Terminated (22,000) $7.00 to $8.625
---------
Outstanding at September 30,
1996 2,744,000 $1.50 to $9.125
=========
The outstanding options expire at various dates through 2006. Options for
1,104,250 shares are exercisable at September 30, 1996 at $1.50 to $9.125 per
share.
The company has an Outside Director Stock Award Plan (the "Outside Director
Plan"), which was approved by the shareholders in 1994, under which 300,000
shares may be issued to non-employee directors. Annually, each eligible
director is awarded shares of the company's Common Stock having a value of
$10,000 which vests over a three-year period. For shares issued under the
Outside Director Plan, the fair market value of the shares at the date of
issuance will be amortized to compensation expense over the vesting period. The
related deferred compensation has been reflected as a reduction of shareholders'
equity. In 1996, 1995 and 1994, 10,740, 11,630 and 10,770 shares, respectively,
were issued under the Outside Director Plan.
During 1996, the company adopted a new shareholder rights plan which
provides for one right to be attached to each share of Common Stock. The rights
are currently not exercisable or transferable apart from the Common Stock, and
have no voting power. Under certain circumstances, each right entitles the
holder to purchase, for $34, one one-thousandth of a share of a new series of
participating preferred stock, which is substantially equivalent to one share
of Common Stock. These rights would become exercisable if a person or group
acquires 10% or more of the company's Common Stock or announces a tender offer
which would increase the person's or group's beneficial ownership to 10% or more
of the company's Common Stock, subject to certain exceptions. After a person
or group acquires 10% or more of the company's Common Stock, each right (other
than those held by the acquiring party) will entitle the holder to purchase
Common Stock having a market price of two times the exercise price. If the
company is acquired in a merger or other business combination, each exercisable
right entitles the holder to purchase common stock of the acquiring company or
an affiliate having a market price of two times the exercise price of the right.
In certain events the Board of Directors may exchange each right (other than
those held by an acquiring party) for one share of the company's Common Stock
or one one-thousandth of a share of a new series of participating preferred
stock. The rights expire on May 9, 2006, and can be redeemed at $.01 per right
at any time prior to becoming exercisable.
As of September 30, 1996, shares of the company's authorized but unissued
Common Stock were reserved in connection with the following:
SHARES
---------
Conversion of outstanding Second
Preferred Stock, Series I 1,618,844
Stock option and award plans 3,053,610
Exercise of Common Stock purchase
warrants 226,414
---------
4,898,868
=========
4. COMMITMENTS AND CONTINGENCIES:
The company and its subsidiaries rent real property and equipment under
operating leases expiring at various dates. Most of the real property leases
have escalation clauses related to increases in real property taxes.
Future minimum payments under noncancellable operating leases consisted of
the following at September 30, 1996:
1997 $15,400,000
1998 12,500,000
1999 10,100,000
2000 6,400,000
2001 3,700,000
Later years 3,600,000
Rent expense for all operating leases, net of subleases, totalled
approximately $19,000,000, $18,100,000 and $17,500,000 in 1996, 1995 and 1994,
respectively.
The company is subject to various laws and regulations concerning the
environment and is currently participating in administrative or court
proceedings involving several sites under these laws, usually as one of a group
of potentially responsible parties. These proceedings are at a preliminary
stage, and it is impossible to estimate with any certainty the amount of the
liability, if any, of the company alone or in relation to that of any other
responsible parties, or the total cost of remediation and the timing and extent
of remedial actions which may ultimately be required by governmental
authorities.
In view of the inherent difficulty in predicting the outcome of litigation
and governmental proceedings, management cannot state what the eventual outcome
of such litigation and proceedings will be. However, management believes, based
on facts presently known to it, that the outcome of such litigation and
proceedings will not have a material adverse effect on the company's
consolidated financial position or results of operations.
Two officers of the company have employment agreements, as amended, for a
term ending in 2000. The agreements provide for salary and, under certain
conditions, incentive bonuses. The agreements also provide that in the event
there is a change in the control of the company, as defined therein, the
officers have the option to terminate the agreements and receive a lump sum
payment based upon the compensation payable over the balance of the agreements.
As of September 30, 1996, the amount payable in the event of such termination
would be approximately $27,000,000.
5. DISCONTINUED OPERATIONS:
In November 1996, the company announced the sale of its synthetic batting
business and the decision to sell its specialty hardware business. Accordingly,
the company provided for a loss on disposal of $5,500,000 (net of income tax
effect of $3,000,000) and reclassified the financial statements to reflect the
operating results of these businesses as discontinued operations. The
discontinued businesses had net sales of $43,452,000, $40,243,000 and
$37,791,000 in 1996, 1995, and 1994, respectively. Net assets of the
discontinued operations at September 30, 1996 are included in prepaid expenses
and other current assets and consist primarily of accounts receivable and
inventories, less operating liabilities.
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarterly results of operations for the years ended September 30, 1996 and
1995 are as follows:
QUARTERS ENDED
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1996 1995
------------ ------------ ------------ ------------
Net sales $193,734,000 $168,857,000 $139,109,000 $153,363,000
Gross profit 49,491,000 43,929,000 33,779,000 38,404,000
Income from continuing
operations 10,581,000 7,860,000 3,794,000 5,832,000
Discontinued operations (5,490,000) 143,000 72,000 31,000
Net income 5,091,000 8,003,000 3,866,000 5,863,000
Income per share of
common stock:
Continuing operations $ .34 $ .25 $ .12 $ .18
Discontinued operations (.18) .01 --- ---
------------ ------------ ------------ ------------
$ .16 $ .26 $ .12 $ .18
============ ============ ============ ============
QUARTERS ENDED
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1995 1995 1995 1994
------------ ------------ ------------ ------------
Net sales $147,496,000 $125,046,000 $109,652,000 $123,922,000
Gross profit 38,143,000 32,758,000 29,600,000 36,821,000
Income from continuing
operations 7,643,000 4,929,000 3,073,000 7,600,000
Discontinued operations 139,000 123,000 178,000 122,000
Net income 7,782,000 5,052,000 3,251,000 7,722,000
Income per share of
common stock:
Continuing operations $ .23 $ .15 $ .09 $ .22
Discontinued operations .01 --- .01 ---
------------ ------------ ------------ ------------
$ .24 $ .15 $ .10 $ .22
============ ============ ============ ============
Earnings per share are computed independently for each of the quarters
presented, on the basis described in Note 1. The sum of the quarters may not
be equal to the full year earnings per share amounts.
7. BUSINESS SEGMENTS:
The company's principal business segments are as follows -- Building
Products (manufacture, sale and installation of garage doors and other building
products); Electronic Information and Communication Systems (communication and
information systems for government and commercial markets); and Specialty
Plastic Films (manufacture and sale of plastic films and film laminates for baby
diapers, adult incontinence care products and disposable surgical and patient
care products).
Information on the company's business segments is as follows:
SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
Net sales --
Building products $404,781,000 $299,090,000 $242,551,000
Electronic information and
communication systems 122,880,000 95,816,000 94,001,000
Specialty plastic films 127,402,000 111,210,000 114,614,000
------------ ------------ ------------
$655,063,000 $506,116,000 $451,166,000
============ ============ ============
Operating income --
Building products $ 33,051,000 $ 24,866,000 $ 24,454,000
Electronic information and
communication systems 10,959,000 9,145,000 9,577,000
Specialty plastic films 9,035,000 9,006,000 20,752,000
------------ ------------ ------------
Total operating income 53,045,000 43,017,000 54,783,000
General corporate expenses (4,859,000) (4,121,000) (5,110,000)
Interest income (expense), net (2,229,000) (850,000) 109,000
Income from continuing operations ------------ ------------ ------------
before income taxes $ 45,957,000 $ 38,046,000 $ 49,782,000
============ ============ ============
Identifiable assets --
Building products $136,429,000 $100,502,000 $ 86,899,000
Electronic information and
communication systems 97,781,000 99,138,000 86,962,000
Specialty plastic films 47,370,000 40,003,000 43,205,000
Corporate 29,589,000 45,973,000 76,149,000
------------ ------------ ------------
$311,169,000 $285,616,000 $293,215,000
============ ============ ============
Capital expenditures --
Building products $ 3,962,000 $ 3,952,000 $ 1,891,000
Electronic information and
communication systems 2,082,000 2,320,000 1,941,000
Specialty plastic films 3,160,000 929,000 793,000
Corporate 155,000 112,000 4,211,000
------------ ------------ ------------
$ 9,359,000 $ 7,313,000 $ 8,836,000
============ ============ ============
Depreciation and amortization --
Building products $ 4,964,000 $ 2,616,000 $ 2,247,000
Electronic information and
communication systems 2,402,000 2,533,000 3,150,000
Specialty plastic films 2,461,000 2,273,000 3,169,000
Corporate 490,000 408,000 312,000
------------ ------------ ------------
$ 10,317,000 $ 7,830,000 $ 8,878,000
============ ============ ============
Sales to the United States Government and its agencies, either as a prime
contractor or subcontractor, aggregated approximately $69,000,000 for 1996,
$52,000,000 for 1995 and $62,000,000 for 1994, all of which are included in the
electronic information and communication systems segment. Sales between
business segments are not material. In computing operating income, none of the
following have been added or deducted -- general corporate expenses, net
interest income or expense and income taxes. Assets by business segment are
those identifiable assets that are used in the company's operations in each
segment. Corporate assets are principally cash, marketable securities and
assets of discontinued operations.
ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders scheduled to be held in February, 1997, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended September 30, 1996. Information relating to the
officers of the Registrant appears under Item I of this report.
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
The following consolidated financial statements of Griffon Corporation and
subsidiaries are included in Item 8:
(a) 1. Financial Statements
Consolidated Balance Sheets at September 30,
1996 and 1995
Consolidated Statements of Income for the Years
Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for the Years Ended September 30, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
(a) 2. Schedule
II Valuation and Qualifying Accounts
(1) Schedules other than those listed are omitted because they are not
applicable or because the information required is included in the
consolidated financial statements.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
Exhibit No.
3.1 Restated Certificate of Incorporation (Exhibit 3.1 of Annual
Report on Form 10-K for the year ended September 30, 1995)
3.2 By-laws as amended (Exhibit 3 of Current Report on Form 8-K
dated November 8, 1994)
4.1 Rights Agreement dated as of May 9, 1996 between Registrant and
American Stock Transfer Company (Exhibit 1.1 of Current Report
on Form 8-K dated May 9, 1996)
4.2 Loan Agreement dated June 8, 1995 between the Registrant and
lending institutions (Exhibit 4.2 of Annual Report on Form 10-K
for the year ended September 30, 1995)
10.1 Employment Agreement dated March 1, 1983 between the Registrant
and Robert Balemian, as amended (Exhibit 10 of Current Report on
Form 8-K dated March 1, 1983, Exhibit 10 of Current Report on
Form 8-K dated March 2, 1983, Exhibit 10(a) of Current Report on
Form 8-K dated March 15, 1984, Exhibit 10 of Current Report on
Form 8-K dated May 4, 1987, Exhibit 10(a) of Current Report on
Form 8-K dated February 13, 1989, Exhibit 10 of Current Report
on Form 8-K dated February 28, 1990, Exhibit 10 of Current
Report on Form 8-K dated February 25, 1991 and Exhibit 10 of
Current Report on Form 8-K dated May 28, 1991)
10.2 Employment Agreement dated March 1, 1983 between the Registrant
and Harvey R. Blau, as amended (Exhibit 10 of Current Report on
Form 8-K dated March 1, 1983, Exhibit 10 of Current Report on
Form 8-K dated March 2, 1983, Exhibit 10(b) of Current Report on
Form 8-K dated March 15, 1984, Exhibit 10 of Current Report on
Form 8-K dated May 4, 1987, Exhibit 10(a) of Current Report on
Form 8-K dated February 13, 1989, and Exhibit 10 of Current
Report on Form 8-K dated February 28, 1990, Exhibit 10 of
Current Report on Form 8-K dated February 25, 1991 and Exhibit
10 of Current Report on Form 8-K dated May 28, 1991)
10.3 Form of Trust Agreement between the Registrant and U.S. Trust
Company of California, N.A., as Trustee, relating to the
Company's Employee Stock Ownership Plan (Exhibit 10.3 of Annual
Report on Form 10-K for the year ended September 30, 1994)
10.4 Warrant Agreement to Officer (Exhibit 28 of Current Report on
Form 8-K dated March 2, 1983)
10.5 1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual
Report on Form 10-K for the year ended September 30, 1993)
10.6 Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report
on Form 10-K for the year ended September 30, 1988)
10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors (Exhibit 28 to Current Report on Form 8-K
dated May 3, 1990)
10.8 Outside Director Stock Award Plan (Exhibit 4 of Form S-8
Registration Statement No. 33-52319)
10.9 1995 Stock Option Plan (Exhibit 4 of Form S-8 Registration
Statement No. 33-57683)
21 The following lists the Company's significant subsidiaries all
of which are wholly-owned by the Company. The names of certain
subsidiaries which do not, when considered in the aggregate
constitute a significant subsidiary, have been omitted.
State of
Name of Subsidiary Incorporation
------------------ -------------
Clopay Corporation Delaware
Telephonics Corporation Delaware
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule (for electronic submission only)
- ---------------
* Filed herewith. All other exhibits are incorporated herein by reference
to the exhibit indicated in the parenthetical references.
The following undertakings are incorporated into the Company's Registration
Statements on Form S-8 (Registration Nos. 33-39090, 33-62966, 33-52319 and
33-57683).
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 26th day of
November, 1996.
GRIFFON CORPORATION
By: Harvey R. Blau
---------------------
Harvey R. Blau
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on November 26, 1996 by the following persons in
the capacities indicated:
Harvey R. Blau Chairman of the Board
- ------------------------ (Principal Executive Officer)
Harvey R. Blau
Robert Balemian President and Director
- ------------------------ (Principal Operating and Financial Officer)
Robert Balemian
Patrick L. Alesia Vice President and Treasurer
- ------------------------ (Chief Accounting Officer)
Patrick L. Alesia
Henry A. Alpert Director
- ------------------------
Henry A. Alpert
Bertrand M. Bell Director
- ------------------------
Bertrand M. Bell
Robert Bradley Director
- ------------------------
Robert Bradley
Abraham M. Buchman Director
- ------------------------
Abraham M. Buchman
Clarence A. Hill, Jr. Director
- ------------------------
Clarence A. Hill, Jr.
Ronald J. Kramer Director
- ------------------------
Ronald J. Kramer
James W. Stansberry Director
- ------------------------
James W. Stansberry
Martin S. Sussman Director
- ------------------------
Martin S. Sussman
William H. Waldorf Director
- ------------------------
William H. Waldorf
Lester L. Wolff Director
- ------------------------
Lester L. Wolff
SCHEDULE II
GRIFFON CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Additions Deductions
--------------------------- --------------------------
Balance at Charged to Charged to Accounts Balance at
Beginning Profit and Other Written End
Description of Period Loss Accounts Off Other of Period
- ------------------------------------- ---------- ----------- ------------- ---------- ------------- ----------
FOR THE YEAR ENDED SEPTEMBER 30, 1996:
Allowance for doubtful accounts $3,727,000 $1,166,000 $2,530,000 (1) $2,213,000 $ 691,000 (2) $4,519,000
========== ========== ============= ========== ============= ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1995:
Allowance for doubtful accounts $3,659,000 $ 990,000 $ 179,000 (1) $1,101,000 $ --- $3,727,000
========== ========== ============= ========== ============= ==========
FOR THE YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts $3,860,000 $ 805,000 $ 95,000 (3) $1,101,000 $ --- $3,659,000
========== ========== ============= ========== ============= ==========
(1) Principally related to acquired businesses.
(2) Represents reclassification of amounts related to discontinued operations.
(3) Recoveries of amounts previously written off.