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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q


ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                              

Commission File Number: 1-6620

GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE   11-1893410
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)



 

 
100 JERICHO QUADRANGLE, JERICHO, NEW YORK   11753
(Address of principal executive offices)   (Zip Code)

(516) 938-5544
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.          ý Yes          No o

        Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).          ý Yes          No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.          29,514,980 shares of Common Stock as of April 30, 2004.





FORM 10-Q
CONTENTS

 
   
  PAGE

PART I—

 

FINANCIAL INFORMATION (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2004 and September 30, 2003

 

1

 

 

Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2004 and 2003

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2004 and 2003

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

10

 

 

Quantitative and Qualitative Disclosure about Market Risk

 

14

 

 

Controls & Procedures

 

14

PART II—

 

OTHER INFORMATION

 

 

 

 

Item 1: Legal Proceedings

 

15

 

 

Item 2: Changes in Securities and Use of Proceeds

 

15

 

 

Item 3: Defaults upon Senior Securities

 

15

 

 

Item 4: Submission of Matters to a Vote of Security Holders

 

15

 

 

Item 5: Other Information

 

15

 

 

Item 6: Exhibits and Reports on Form 8-K

 

15

 

 

Signature

 

16


GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
  March 31,
2004

  September 30,
2003

 
  (Unaudited)

  (Note 1)

ASSETS            
  CURRENT ASSETS:            
    Cash and cash equivalents   $ 58,540,000   $ 69,816,000
    Accounts receivable, less allowance for doubtful accounts     164,927,000     173,942,000
    Contract costs and recognized income not yet billed     31,675,000     46,642,000
    Inventories (Note 2)     134,019,000     114,003,000
    Prepaid expenses and other current assets     57,011,000     39,280,000
   
 
      Total current assets     446,172,000     443,683,000
   
 
  PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation and amortization of $164,138,000 at March 31, 2004 and $148,493,000 at September 30, 2003
    184,698,000     169,852,000
   
 
  OTHER ASSETS:            
    Costs in excess of fair value of net assets of businesses acquired     50,245,000     49,983,000
    Other     15,178,000     15,212,000
   
 
      65,423,000     65,195,000
   
 
    $ 696,293,000   $ 678,730,000
   
 

See notes to condensed consolidated financial statements.

1



GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
  March 31,
2004

  September 30,
2003

 
  (Unaudited)

  (Note 1)

LIABILITIES AND SHAREHOLDERS' EQUITY            
  CURRENT LIABILITIES:            
    Accounts and notes payable   $ 84,322,000   $ 75,387,000
    Other current liabilities     109,885,000     118,676,000
   
 
      Total current liabilities     194,207,000     194,063,000
  LONG-TERM DEBT     152,824,000     155,483,000
  OTHER LIABILITIES AND DEFERRED CREDITS     29,622,000     27,539,000
   
 
      Total liabilities and deferred credits     376,653,000     377,085,000
   
 
  MINORITY INTEREST     20,101,000     17,591,000
   
 
  SHAREHOLDERS' EQUITY:            
    Preferred stock, par value $.25 per share, authorized 3,000,000 shares, no shares issued        
    Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 37,917,039 shares at March 31, 2004 and 36,625,717 shares at September 30, 2003; 8,395,909 and 7,165,919 shares in treasury at March 31, 2004 and September 30, 2003, respectively     9,479,000     9,156,000
  Other shareholders' equity     290,060,000     274,898,000
   
 
      Total shareholders' equity     299,539,000     284,054,000
   
 
    $ 696,293,000   $ 678,730,000
   
 

See notes to condensed consolidated financial statements.

2



GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
  THREE MONTHS ENDED MARCH 31,
 
 
  2004
  2003
 

Net sales

 

$

317,636,000

 

$

277,330,000

 

Cost of sales

 

 

225,607,000

 

 

201,486,000

 
   
 
 
 
Gross profit

 

 

92,029,000

 

 

75,844,000

 

Selling, general and administrative expenses

 

 

70,841,000

 

 

63,845,000

 
   
 
 
 
Income from operations

 

 

21,188,000

 

 

11,999,000

 
   
 
 

Other income (expense):

 

 

 

 

 

 

 
 
Interest expense

 

 

(2,049,000

)

 

(987,000

)
 
Other, net

 

 

209,000

 

 

224,000

 
   
 
 

 

 

 

(1,840,000

)

 

(763,000

)
   
 
 
 
Income before income taxes

 

 

19,348,000

 

 

11,236,000

 

Provision for income taxes

 

 

7,159,000

 

 

4,269,000

 
   
 
 
 
Income before minority interest

 

 

12,189,000

 

 

6,967,000

 

Minority interest

 

 

(3,527,000

)

 

(2,350,000

)
   
 
 
 
Net income

 

$

8,662,000

 

$

4,617,000

 
   
 
 

Basic earnings per share of common stock (Note 3)

 

$

..29

 

$

..14

 
   
 
 

Diluted earnings per share of common stock (Note 3)

 

$

..27

 

$

..14

 
   
 
 

See notes to condensed consolidated financial statements.

3



GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
  SIX MONTHS ENDED MARCH 31,
 
 
  2004
  2003
 

Net sales

 

$

656,138,000

 

$

579,484,000

 

Cost of sales

 

 

466,489,000

 

 

416,642,000

 
   
 
 
 
Gross profit

 

 

189,649,000

 

 

162,842,000

 

Selling, general and administrative expenses

 

 

141,649,000

 

 

129,191,000

 
   
 
 
 
Income from operations

 

 

48,000,000

 

 

33,651,000

 
   
 
 

Other income (expense):

 

 

 

 

 

 

 
 
Interest expense

 

 

(4,090,000

)

 

(2,092,000

)
 
Other, net

 

 

1,096,000

 

 

758,000

 
   
 
 

 

 

 

(2,994,000

)

 

(1,334,000

)
   
 
 
 
Income before income taxes

 

 

45,006,000

 

 

32,317,000

 

Provision for income taxes

 

 

16,652,000

 

 

12,280,000

 
   
 
 
 
Income before minority interest

 

 

28,354,000

 

 

20,037,000

 

Minority interest

 

 

(6,577,000

)

 

(4,500,000

)
   
 
 
 
Net income

 

$

21,777,000

 

$

15,537,000

 
   
 
 

Basic earnings per share of common stock (Note 3)

 

$

..73

 

$

..47

 
   
 
 

Diluted earnings per share of common stock (Note 3)

 

$

..69

 

$

..46

 
   
 
 

See notes to condensed consolidated financial statements.

4



GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
  SIX MONTHS ENDED MARCH 31,
 
 
  2004
  2003
 
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income   $ 21,777,000   $ 15,537,000  
   
 
 
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Depreciation and amortization     14,097,000     12,502,000  
    Minority interest     6,577,000     4,500,000  
    Provision for losses on accounts receivable     928,000     701,000  
    Change in assets and liabilities:              
      Decrease in accounts receivable and contract costs and recognized income not yet billed     24,211,000     23,587,000  
      Increase in inventories     (19,339,000 )   (5,791,000 )
      Increase in prepaid expenses and other assets     (4,638,000 )   (3,378,000 )
      Decrease in accounts payable, accrued liabilities and income taxes     (3,285,000 )   (33,183,000 )
      Other changes, net     2,789,000     (1,987,000 )
   
 
 
Total adjustments     21,340,000     (3,049,000 )
   
 
 
        Net cash provided by operating activities     43,117,000     12,488,000  
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Acquisition of property, plant and equipment     (24,333,000 )   (22,092,000 )
  Balance paid for acquired business         (13,112,000 )
  Proceeds from divestiture         3,826,000  
  (Increase) decrease in equipment lease deposits     (10,831,000 )   2,490,000  
   
 
 
        Net cash used in investing activities     (35,164,000 )   (28,888,000 )
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Purchase of treasury shares     (15,211,000 )   (6,921,000 )
  Proceeds from issuance of long-term debt     3,774,000     17,000,000  
  Payments of long-term debt     (8,200,000 )   (12,336,000 )
  Increase in short-term borrowings         1,972,000  
  Distributions to minority interests     (4,992,000 )   (5,072,000 )
  Exercise of stock options     4,610,000     56,000  
  Other, net     (61,000 )    
   
 
 
        Net cash used in financing activities     (20,080,000 )   (5,301,000 )
   
 
 
Effect of exchange rates on cash and cash equivalents     851,000     1,474,000  
   
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (11,276,000 )   (20,227,000 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     69,816,000     45,749,000  
   
 
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 58,540,000   $ 25,522,000  
   
 
 

See notes to condensed consolidated financial statements.

5



GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation—

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. The balance sheet at September 30, 2003 has been derived from the audited financial statements at that date. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's annual report to shareholders for the year ended September 30, 2003.

(2) Inventories—

        Inventories, stated at the lower of cost (first-in, first-out or average) or market, are comprised of the following:

 
  March 31,
2004

  September 30,
2003

Finished goods   $ 45,781,000   $ 50,270,000
Work in process     61,971,000     42,029,000
Raw materials and supplies     26,267,000     21,704,000
   
 
    $ 134,019,000   $ 114,003,000
   
 

(3) Earnings per share (EPS) and accounting for stock-based compensation—

        Basic EPS is calculated by dividing income by the weighted average number of shares of common stock outstanding during the period. The weighted average number of shares of common stock used in determining basic EPS was 29,900,000 and 32,934,000 for the three months ended March 31, 2004 and 2003, respectively, and 29,860,000 and 33,028,000 for the six months ended March 31, 2004 and 2003, respectively.

        Diluted EPS is calculated by dividing income by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with potentially dilutive securities. Holders of the company's 4% convertible subordinated notes are entitled to convert their notes into the company's common stock upon the occurrence of certain events described in Note 2 of Notes to Consolidated Financial Statements in the company's annual report to shareholders for the year ended September 30, 2003. Shares potentially issuable upon conversion are not included in the calculation of diluted EPS because the conditions for conversion had not been met. The weighted average number of shares of common stock used in determining diluted EPS was 31,773,000 and 34,009,000 for the three months ended March 31, 2004 and 2003, respectively, and 31,753,000 and 34,025,000 for the six months ended March 31, 2004 and 2003, respectively, and reflects additional shares issuable in connection with stock option and other stock based compensation plans.

6


        Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", 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 such compensation. The company has elected to continue to account for stock-based compensation under Opinion No. 25. Accordingly, no compensation expense has been recognized in connection with options granted. Had compensation expense for options granted been determined based on the fair value at the date of grant in accordance with Statement No. 123, the company's net income and earnings per share would have been as follows:

 
  Three Months Ended
March 31,

  Six Months Ended
March 31,

 
 
  2004
  2003
  2004
  2003
 
Net income, as reported   $ 8,662,000   $ 4,617,000   $ 21,777,000   $ 15,537,000  
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects     (496,000 )   (653,000 )   (1,083,000 )   (1,279,000 )
   
 
 
 
 
Pro forma net income   $ 8,166,000   $ 3,964,000   $ 20,694,000   $ 14,258,000  
   
 
 
 
 
Earnings per share:                          
 
Basic—as reported

 

$

..29

 

$

..14

 

$

..73

 

$

..47

 
   
 
 
 
 
  Basic—pro forma   $ .27   $ .12   $ .69   $ .43  
   
 
 
 
 
  Diluted—as reported   $ .27   $ .14   $ .69   $ .46  
   
 
 
 
 
  Diluted—pro forma   $ .25   $ .12   $ .65   $ .42  
   
 
 
 
 

(4) Business segments—

       The company's reportable business segments are as follows—Garage Doors (manufacture and sale of residential and commercial/industrial garage doors, and related products); Installation Services (sale and installation of building products primarily for new construction, such as garage doors, garage door openers, manufactured fireplaces and surrounds, flooring and cabinets); 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, disposable surgical and patient care products and plastic packaging).

7


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

 
  Garage
Doors

  Installation
Services

  Specialty
Plastic
Films

  Electronic
Information
and
Communication
Systems

  Totals
Revenues from external customers—                              
Three months ended                              
  March 31, 2004   $ 91,457,000   $ 72,307,000   $ 106,613,000   $ 47,259,000   $ 317,636,000
  March 31, 2003     77,928,000     66,661,000     92,129,000     40,612,000     277,330,000
Six months ended                              
  March 31, 2004   $ 207,650,000   $ 148,975,000   $ 210,614,000   $ 88,899,000   $ 656,138,000
  March 31, 2003     184,691,000     138,949,000     179,471,000     76,373,000     579,484,000
Intersegment revenues—                              
Three months ended                              
  March 31, 2004   $ 4,636,000   $ 25,000   $   $   $ 4,661,000
  March 31, 2003     4,958,000     11,000             4,969,000
Six months ended                              
  March 31, 2004   $ 10,303,000   $ 62,000   $   $   $ 10,365,000
  March 31, 2003     11,658,000     43,000             11,701,000
Segment profit—                              
Three months ended                              
  March 31, 2004   $ 3,964,000   $ 1,692,000   $ 15,142,000   $ 3,669,000   $ 24,467,000
  March 31, 2003     2,966,000     528,000     9,156,000     2,894,000     15,544,000
Six months ended                              
  March 31, 2004   $ 17,224,000   $ 4,698,000   $ 28,082,000   $ 5,699,000   $ 55,703,000
  March 31, 2003     13,883,000     2,207,000     19,822,000     4,616,000     40,528,000

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

 
  Three Months Ended March 31,
  Six Months Ended March 31,
 
 
  2004
  2003
  2004
  2003
 
Profit for all segments   $ 24,467,000   $ 15,544,000   $ 55,703,000   $ 40,528,000  
Unallocated amounts     (3,360,000 )   (3,450,000 )   (7,088,000 )   (6,584,000 )
Interest expense, net     (1,759,000 )   (858,000 )   (3,609,000 )   (1,627,000 )
   
 
 
 
 
Income before income taxes   $ 19,348,000   $ 11,236,000   $ 45,006,000   $ 32,317,000  
   
 
 
 
 

        Goodwill at March 31, 2004 includes $12.9 million attributable to the garage doors segment, $14.3 million to the electronic information and communication systems segment and $23.1 million to the specialty plastic films segment.

(5) Comprehensive income and defined benefit pension expense—

        Comprehensive income, which consists of net income and foreign currency translation adjustments, was $7.7 million and $6.2 million for the three-month periods and $24.0 and $19.6 million for the six-month periods ended March 31, 2004 and 2003, respectively.

8


        Defined benefit pension expense was recognized as follow:

 
  Three Months Ended March 31,
  Six Months Ended March 31,
 
 
  2004
  2003
  2004
  2003
 
Service cost   $ 357,000   $ 261,000   $ 714,000   $ 522,000  
Interest cost     576,000     517,000     1,152,000     1,034,000  
Expected return on plan assets     (264,000 )   (218,000 )   (528,000 )   (436,000 )
Amortization of net actuarial loss     227,000     135,000     454,000     270,000  
Amortization of prior service cost     2,000     3,000     4,000     6,000  
Amortization of transition obligation     78,000     78,000     156,000     156,000  
   
 
 
 
 
    $ 976,000   $ 776,000   $ 1,952,000   $ 1,552,000  
   
 
 
 
 

9



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

        Net sales for the quarter ended March 31, 2004 increased to $317,636,000, up from $277,330,000 for the second quarter of fiscal 2003. Income before income taxes increased to $19,348,000 from $11,236,000 last year. Each segment of the company achieved improved operating results in the second quarter, with increases in sales, operating income and operating margins. The building products operations performed particularly well in what has historically been their weakest quarter due to seasonality, and specialty plastic films continued its positive operating trend. Garage doors, specialty plastic films and electronic information and communication systems contributed equally to the sales growth, each with increases of approximately 16%. Specialty plastic films contributed a substantial portion of the consolidated operating profit improvement by achieving a 65% increase over its operating profit in last year's second quarter.

        In October 2003, the electronic information and communication system segment received a $35 million contract for ground surveillance radar providing protection of U.S. Air Force bases. Most or all of this project will be completed in the last half of fiscal 2004 resulting in sales and earnings for this segment substantially above last year.

        During the second quarter the specialty plastic films segment continued to add film capacity in its North American operations and additional printing capacity 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

        See Note 4 of Notes to Condensed Consolidated Financial Statements.

THREE MONTHS ENDED MARCH 31, 2004

        Operating results (in thousands) by business segment were as follows for the three-month periods ended March 31:

 
  Net Sales
  Segment
Operating Profit

 
  2004
  2003
  2004
  2003
Garage doors   $ 96,093   $ 82,886   $ 3,964   $ 2,966
Installation services     72,332     66,672     1,692     528
Specialty plastic films     106,613     92,129     15,142     9,156
Electronic information and communication systems     47,259     40,612     3,669     2,894
Intersegment revenues     (4,661 )   (4,969 )      
   
 
 
 
    $ 317,636   $ 277,330   $ 24,467   $ 15,544
   
 
 
 

Garage Doors

        Net sales of the garage door segment increased by $13.2 million or 15.9% compared to last year. Higher unit sales ($12.4 million) in all channels of distribution from continued strength in the repair and remodeling segment of the economy and favorable product mix accounted for the increase.

        Operating profit of the garage doors segment increased $1.0 million compared to last year, principally due to the higher sales. Gross margin percentage was 32.1% for the quarter compared to 31.9% last year. Selling, general and administrative expenses increased to support the sales growth, but due to effective expense control declined to

10


28.0% from 28.4% as a percentage of sales. This segment has continued to see higher market prices for raw material (steel) and, effective in the third fiscal quarter, has instituted selling price increases to pass increased costs to customers.

Installation Services

        Net sales of the installation services segment increased by $5.7 million or 8.5% compared to last year due to higher housing starts in new construction markets served by the segment.

        Operating profit of the installation services segment increased $1.2 million compared to last year. Gross margin percentage increased to 27.7% from 26.7% last year. Selling, general and administrative expenses as a percentage of sales decreased to 25.5% compared to 26.0% last year. The increased profitability was due to the sales growth, the recognition last year of costs in connection with eliminating an underperforming location and the positive effect of that realignment on current year operations.

Specialty Plastic Films

        Net sales of the specialty plastic films segment increased $14.5 million or 15.7% compared to the prior year. The effect of a weaker U.S. dollar on translated foreign sales accounted for $8 million of the increase. The remainder of the sales increase was principally due to the effect of favorable product mix and selling price adjustments to pass through raw material (resin) cost increases to customers.

        Operating profit of the specialty plastic films segment increased $6.0 million compared to last year. Gross margin percentage increased to 26.7% from 22.0% last year. The increased margin was principally due to the favorable product mix, increased manufacturing efficiencies and the recognition last year of costs associated with manufacturing facility expansion. Segment operating profit was also positively affected by a benefit from resin price changes and exchange rate differences. Resin price changes are not expected to significantly impact operating results in the second half of the year. Selling, general and administrative expenses as a percentage of sales was 12.5% compared to 12.2% last year.

Electronic Information and Communication Systems

        Net sales of the electronic information and communication systems segment increased $6.6 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 $.8 million. Gross margin percentage decreased to 26.0% from 27.2% last year. The positive effect on gross margin percentage of improved performance in military production programs was offset by a lower margin product mix in commercial programs. The effect of the lower gross margin percentage was offset by the sales increase. Selling, general and administrative expenses grew slightly, but as a percentage of sales was 18.4% compared to 20.9% due to the sales increase.

Interest Expense

        Interest expense increased by $1.1 million compared to last year principally due to the sale in July 2003 of $130 million of 4% convertible subordinated notes.

11


SIX MONTHS ENDED MARCH 31, 2004

        Operating results (in thousands) by business segment were as follows for the six-month periods ended March 31:

 
  Net Sales
  Operating Profit
 
  2004
  2003
  2004
  2003
Garage doors   $ 217,953   $ 196,349   $ 17,224   $ 13,883
Installation services     149,037     138,992     4,698     2,207
Specialty plastic films     210,614     179,471     28,082     19,822
Electronic information and communication systems     88,899     76,373     5,699     4,616
Intersegment revenues     (10,365 )   (11,701 )      
   
 
 
 
    $ 656,138   $ 579,484   $ 55,703   $ 40,528
   
 
 
 

Garage Doors

        Net sales of the garage doors segment increased by $21.6 million or 11.0% compared to last year. Higher unit sales ($19.8 million) in all channels of distribution from continued strength in the repair and remodeling segment of the economy and favorable product mix accounted for the increase.

        Operating profit of the garage doors segment increased approximately $3.3 million compared to last year. Gross margin percentage increased to 33.2% from 32.3% last year. The increased margin was principally due to the higher volume and improved product mix. Selling, general and administrative expenses as a percentage of sales was 25.3% compared to 25.2% last year.

Installation Services

        Net sales of the installation services segment increased by $10.0 million or 7.2% compared to last year. The increase was principally due to stronger new construction markets.

        Operating profit of the installation services segment increased $2.5 million compared to last year. Gross margin percentage was 27.8% compared to 27.0% last year. Selling, general and administrative expenses as a percentage of sales was 24.7% compared to 25.5% last year. The increased profitability was 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 $31.1 million or 17.4% compared to the prior year. The increase was principally due to the impact ($11 million) of favorable product mix and higher unit volumes and the effect of a weaker U.S. dollar on translated foreign sales ($18 million).

        Operating profit of the specialty plastic films segment increased $8.3 million compared to last year. Gross margin percentage increased to 25.6% from 23.1% last year. The increased margin was principally due to the favorable product mix, increased manufacturing efficiencies, exchange rate differences and the recognition last year of costs associated with manufacturing facility expansion, partly offset by the effect of higher raw material (resin) costs in the first quarter of this year. Selling, general and administrative expenses as a percentage of sales was 12.5% compared to 12.2% last year. Selling, general and administrative expenses increased in connection with the sales growth and higher product development expenditures.

12


Electronic Information and Communication Systems

        Net sales of the electronic information and communication systems segment increased $12.5 million or 16.4% compared to last year due primarily to new contract awards and higher volume in military production programs.

        Operating profit of the electronic information and communication systems segment increased $1.1 million compared to last year. Gross margin percentage decreased to 24.1% from 26.3% last year. The positive effect on gross margin percentage of improved performance in military production programs was offset by a lower margin mix and cost growth in certain commercial programs in the early part of the year. The effect of the lower gross margin percentage was offset by the sales increase. Selling, general and administrative expenses were flat compared to last year but as a percentage of sales was 18.1% compared to 21.1% last year due to the sales increase.

Interest Expense

        Interest expense increased by $2.0 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 six months ended March 31, 2004 was $43.1 million compared to $12.5 million last year and working capital was $252.0 million at March 31, 2004. Operating cash flows increased compared to last year due primarily to higher profitability and changes in operating assets and current liabilities.

        During the six months ended March 31, 2004 the company had capital expenditures of approximately $24.3 million and an increase of $10.8 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 included treasury stock purchases of $15.2 million to acquire approximately 730,000 shares of the company's common stock. Approximately 1,600,000 additional shares are available for purchase pursuant to the company's previously announced stock buyback program, and additional purchases under the plan will be made, depending upon market conditions, at prices deemed appropriate by management. Other financing cash flows consisted of net repayments of bank borrowings totaling approximately $4.4 million, distributions to minority shareholders of $5.0 million and proceeds of $4.6 million from stock option exercises.

        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,

13


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.

14



PART II—OTHER INFORMATION


Item 1    Legal Proceedings

        None


Item 2    Changes in Securities and Use of Proceeds

(e)
Purchases of Equity Securities by the Issuer and Affiliated Purchasers


Period

  Total Number
of Shares
Purchased(1)

  Average
Price Paid
per Share

  Total Number
of Shares
Purchased as
part of
Publicly
Announced
Plans or
Programs

  Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs at
Month End


January 1 – 31

 

175,300

 

$

21.44

 

175,300

 

886,695

February 1 – 29

 

66,000

 

$

22.53

 

66,000

 

1,820,695

March 1 – 31

 

176,500

 

$

21.84

 

176,500

 

1,644,195
   
       
   
Total   417,800         417,800    
   
       
   

(1)
All purchases were made in open market transactions. The company's stock buyback program has been in effect since 1993, under which a total of 14.4 million shares have been purchased for $169.9 million. In February 2004 the company's Board of Directors authorized a 1,000,000 share increase in the program.


Item 3    Defaults upon Senior Securities

        None


Item 4    Submission of Matters to a Vote of Security Holders

        None


Item 5    Other Information

        None


Item 6    Exhibits and Reports on Form 8-K

(a)
Exhibit 31.1—Certification pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b)
Reports on Form 8-K—Current Report on Form 8-K dated April 29, 2004 covering information furnished pursuant to Item 12.

15



SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    GRIFFON CORPORATION

 

 

By

/s/ Robert Balemian

Robert Balemian
President and Chief Financial Officer
(Principal Financial Officer)

Date: May 7, 2004

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QuickLinks

FORM 10-Q CONTENTS
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II—OTHER INFORMATION
SIGNATURE