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, 1995 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 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 [ X ]. 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, 1995 -- approximately $247,000,000.
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, 1995 -- 30,918,723. 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: Home and Commercial Products, Specialty Plastic Films and Electronic Information and Communication Systems. The Company's shareholders approved changing the name from Instrument Systems Corporation, effective March 1995. Home and Commercial 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 retail, professional installer 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. Atlas Roll-Lite has annual sales of approximately $60,000,000. 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., Payless Cashways, Inc., Builders Square, Inc., Hechinger Company, Home Base, Wickes Lumber Company, Wolohan Lumber Co., 84 Lumber and Grossman's Inc. 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 in Canada. Under Clopay's "installed sales" program, consumers purchase garage doors through local retailers and Clopay distribution centers manage 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. Wood garage doors are produced from kiln dried lumber and are constructed for ease of operation and durability. Steel garage doors, including insulated doors, are fabricated from pre-painted, galvanized steel, specially selected for rust resistance and low maintenance. The lumber and steel used in the manufacturing operations are generally available from a variety of sources. All products are designed for safe operation, building code compliance 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 garage doors and openers, manufactured fireplaces and a range of related products. This part of Clopay's business grew substantially in 1995 with the acquisition of businesses which added in excess of $30,000,000 in revenues and expanded the scope of the operations into new markets. Management believes that the service business is now one of the country's leading fireplace dealers. The Company also manufactures and sells a broad line of specialty hardware primarily for the food service industry under the name "Standard-Keil" and components for beverage dispensing equipment under the name "Tap-Rite." Specialty hardware products include commercial refrigeration fittings, locks, hinges and lighting components for coolers, walk-in refrigeration equipment, environmental control units and filters used to contain grease. The beverage dispensing equipment includes carbon dioxide regulators, beer faucets, picnic pumps and tavern taps. The Company also manufactures and sells synthetic batting. Batting is material used in layers or sheeting for lining, as a furniture filling, for packaging and as filters. 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 manufactures thin gauge embossed barrier films and coated laminates of plastic film and non-woven fabrics to customer specifications for sale to consumer product and other companies. These products are used primarily as the backsheet barrier 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 and other proprietary technology. Clopay's research and development costs for this business amounted to approximately $1,600,000, $1,700,000 and $1,800,000 in 1993, 1994 and 1995, respectively. Electronic Information and Communication Systems The Company's wholly-owned subsidiary, Telephonics, founded in 1933 and acquired by the Company in 1962, 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 advanced military communications systems, avionics for commercial airlines, transit communication systems, wireless products, command and control systems, strategic communications systems, VLSI/LSI circuits, microwave components, test instrumentation, microwave landing systems, maritime surveillance radars and air traffic control systems. A substantial portion of Telephonics' sales (approximately 54% for 1995) 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, 1995 was approximately $91 million as compared to $125 million at September 30, 1994. Approximately 65% of the September 30, 1995 backlog is expected to be shipped within twelve months. Telephonics participates in approximately 40 government, aerospace and commercial programs. Approximately 70% of Telephonics' sales for 1995 were attributable to upgrades, enhancements and follow-on options to existing long- term products and programs. Some of the major programs under which Telephonics participates include the following:
<TABLE> <CAPTION> Description of Program Customer Product Purpose - -------------- -------- ------- ------- <S> <C> <C> <C> C-17 (Air Force Cargo McDonnell Integrated Radio Centralized digitally Transport) Douglas Management System controlled audio distribution system Wireless Intercomm System Wireless communication system Transponder Test Unit On-board test equipment LAMPS MARK III Loral Multi-Mode Radar Upgraded avionics for (Antisubmarine Warfare (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 AATC (Amphibious U.S. Navy Amphibious Air Traffic Processing and display Assault Ships) Control equipment used for air traffic control SEPTA ABB Traction Communications, Wayside Car-borne Video Surveillance communications for rail Systems cars Zhuhai 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 AWACS Boeing IFF System Upgrade IFF equipment for AWACS aircraft </TABLE>
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 military airborne interior communication systems, telecommunications signal processing equipment, security systems, home appliances, automated hand tools, 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' commercial products 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 also supplies and logistically supports multiplex in-flight passenger entertainment and service systems for wide-bodied aircraft which permit various audio channels to be transmitted simultaneously over a single line and distributed as separate channels to each passenger. 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 215 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 $1,600,000, $1,400,000 and $1,600,000 for 1993, 1994 and 1995, 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 400 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 <TABLE> <CAPTION> Served as Positions and Name Age Officer Since Offices ---- --- ------------- ------------- <S> <C> <C> <C> Harvey R. Blau 60 1983 Chairman of the Board Robert Balemian 56 1976 President Patrick L. Alesia 47 1979 Vice President and Treasurer Susan E. Rowland 37 1983 Secretary </TABLE> ITEM TWO - PROPERTIES The Company occupies approximately 2,400,000 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:
<TABLE> <CAPTION> Approximate Owned Square or Location Business Segment Primary Use Footage Leased -------- ---------------- ----------- ----------- ------ <S> <C> <C> <C> <C> 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 Huntington, NY Electronic Information Manufacturing 41,000 Leased and Communication Systems Carson, CA Home and Commercial Products Manufacturing 125,000 Owned Allenwood, NJ Home and Commercial Products Manufacturing 144,000 Owned Cincinnati, OH Home and Commercial Products Office 36,000 Leased Specialty Plastic Films Cincinnati, OH Specialty Plastic Films Research and 38,000 Leased Development Russia, OH Home and Commercial Products Manufacturing 274,000 Leased Baldwin, WI Home and Commercial Products Manufacturing 216,000 Leased Norcross, GA Home and Commercial 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 Home and Commercial Products Manufacturing 160,000 Leased Chandler, AZ Home and Commercial Products Manufacturing 79,000 Leased Nesbitt, MS Home and Commercial Products Manufacturing 40,000 Owned </TABLE>
The Company has aggregate minimum annual rental commitments under real estate leases of approximately $6,700,000. 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 home and commercial products segment's distribution centers in numerous facilities throughout the United States which aggregate approximately 535,000 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 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. Consistent with its contention that it did not dump or have delivered or carted to the Site for disposal any hazardous or toxic wastes, Lightron has served and filed an answer to the amended pleadings in which it generally denies the plaintiffs' allegations and asserted several affirmative defenses to liability, as well as counterclaims against the plaintiffs. Lightron also has entered into a Stipulation with the other defendants regarding the implicit assertion of mutual cross-claims among the several defendants. B. Department of Environmental Conservation with Lightron Corporation (Peekskill). Lightron once conducted operations at a location in Peekskill in the Town of Cortlandt, 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. Based upon these findings, ISC Properties, Inc. is involved in the negotiation of a consent order which the DEC will provide for the performance of a field investigation and feasibility study at the Peekskill Site.
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. E. The Town of New Windsor v. Tesa Tuck, et al. In or about March 1993, the Town of New Windsor instituted an action in the United States District Court for the Southern District of New York against Lightron Corporation and other defendants in which it is seeking, inter alia, a declaratory judgment decreeing that Lightron and the other defendants are jointly and severally responsible to contribute to the response costs incurred and to be incurred by the plaintiff in connection with the remediation of a landfill located in the Town of New Windsor, New York (the "Site"). The plaintiff's claim against Lightron is premised upon its contention that Lightron of Cornwall, Inc., a former division of Lightron Corporation, allegedly disposed of full and empty drums of lacquer paints and thinners at the Site. The plaintiff has alleged in its complaint that total response costs for the Site are estimated to be approximately $8,000,000. Lightron has served and filed an answer denying the material allegations of the complaint and asserting several affirmative defenses to liability, as well as cross-claims against the other defendants and counterclaims against the plaintiff. Also, the original defendants recently
have impleaded as third party defendants several other parties whom the defendants are claiming have contributed to the contamination found to exist at the 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 1, 1995 there were approximately 18,000 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. <TABLE> <CAPTION> SECOND PREFERRED COMMON STOCK STOCK, SERIES I ----------------- ----------------- FISCAL QUARTER ENDED HIGH LOW HIGH LOW -------------------- ------ ------ ------ ------ <S> <C> <C> <C> <C> December 31, 1993 $9 1/8 $8 $9 $8 1/4 March 31, 1994 9 3/4 7 3/4 9 3/4 8 3/4 June 30, 1994 9 6 5/8 9 1/8 7 1/8 September 30, 1994 8 1/8 6 7/8 8 1/8 7 1/4 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 </TABLE> ITEM SIX - SELECTED FINANCIAL DATA <TABLE> <CAPTION> YEARS ENDED SEPTEMBER 30, 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> Net sales $546,359,000 $488,957,000 $436,949,000 $398,761,000 $343,343,000 ============ ============ ============ ============ ============ Income from continuing operations $ 23,807,000 $ 29,705,000 $ 26,560,000 $ 21,594,000 $ 13,443,000 ============ ============ ============ ============ ============ Per share $ .71 $ .80 $ .70 $ .59 $ .45 ============ ============ ============ ============ ============ Total assets $285,616,000 $293,215,000 $270,270,000 $246,750,000 $303,592,000 ============ ============ ============ ============ ============ Long-term obligations $ 16,074,000 $ 15,538,000 $ 26,147,000 $ 28,406,000 $ 79,738,000 ============ ============ ============ ============ ============ <FN> No dividends on Common Stock were declared or paid during the five years ended September 30, 1995. </FN> </TABLE>
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal 1995 Compared to Fiscal 1994 Net sales for all business segments were $546.4 million, an increase of $57.4 million or 11.7% over 1994. Net sales of the home and commercial products segment increased by $59.0 million or 21.0% compared to last year. Acquired companies accounted for $35.6 million of the increase with the remainder of the increase 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 last year. As previously reported, a major customer of the specialty plastic films segment made a design change which substantially phased out the segment's 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 last year. Operating income for all business segments was $44.3 million compared to $55.4 million in 1994. Operating income of the home and commercial products segment in 1995 increased $1.1 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 phaseout 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. Raw material costs declined toward the end of the year. Although further cost decreases are anticipated, the Company cannot predict the extent of any such decreases or the amount that will be retained by the business. Toward the end of the year the specialty plastic films segment was successful in introducing new products in its diaper and health-care markets, including a new program with its major customer, which are anticipated to positively impact operating results in subsequent periods. Operating income of the electronic information and communication systems segment was $9.1 million in 1995 compared to $9.6 million last year.
Fiscal 1994 Compared to Fiscal 1993 Net sales for all business segments were $489.0 million, an increase of $52.0 million over 1993. Net sales of the home and commercial products segment increased by $49.5 million or 21.5% in 1994 compared to 1993. The increase is principally attributable to higher unit sales of garage doors ($40.8 million) due to expanded distribution and increased market share. Net sales of the specialty plastic films segment increased by $1.3 million or 1.2% in 1994 compared to 1993 primarily due to increased unit sales. Net sales of the electronic information and communication systems segment increased by $1.2 million or 1.3% in 1994 compared to 1993 due to new contract awards. Operating income for all business segments was $55.4 million, an increase of $5.6 million or 11.3% over 1993. Operating income of the home and commercial products segment increased by $3.5 million or 16.4% in 1994 compared to 1993 principally due to the increased garage door sales partly offset by increased distribution costs and start-up expenses for a new garage door product line. Operating income of the specialty plastic films segment increased by $2.0 million or 10.8% compared to 1993 primarily due to the increased sales and production efficiencies. Operating income of the electronic information and communication systems segment increased slightly compared to 1993 due to the effect of the higher net sales offset by increased bid and proposal expenditures. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operations was $12.0 million. The reduction in operating cash flows compared to last year reflects the lower net income and higher working capital levels. In December 1994, the Company completed a self- tender offer for 3,002,840 shares of its Common Stock at a price of $8.75 per share. During the year a total of $28.2 million was used to acquire 3.1 million shares of Common Stock. These purchases were funded by existing cash and marketable securities, which decreased due to the stock purchases and $7.8 million used for two acquisitions for the building products business. In June 1995, the Company entered into a $60 million eight-year loan agreement with two banks that provides revolving credit for three years after which outstanding borrowings may be converted into a five-year term loan. Borrowings bear interest at rates based upon the London Interbank Offered Rate or at the prime rate and may be used for general corporate purposes, including business acquisitions. Subsequent to the end of the year, the Company acquired for its home and commercial products segment a manufacturer of heavy rolling doors, sectional garage doors, grilles and other door products for commercial, industrial and residential applications with annual sales of approximately $60 million. The business was acquired for approximately $19 million and the purchase was financed under the above-mentioned loan agreement. The Company rents various real property and equipment through noncancellable operating leases. Related future minimum lease payments due in 1996 aggregate $14.7 million and are expected to be funded through operating cash flows. There are no material commitments for future capital expenditures 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. 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, 1995 are included herein: - Report of Independent Public Accountants. - Consolidated Balance Sheets at September 30, 1995 and 1994. - Consolidated Statements of Income, Cash Flows and Shareholders' Equity for the years ended September 30, 1995, 1994, 1993. - 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, formerly Instrument Systems Corporation) and subsidiaries as of September 30, 1995 and 1994 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 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, 1995
GRIFFON CORPORATION CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> SEPTEMBER 30, 1995 1994 ------------ ------------ <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 9,656,000 $ 28,659,000 Marketable securities (Note 1) 12,197,000 29,727,000 Accounts receivable, less allowance for doubtful accounts of $3,727,000 in 1995 and $3,659,000 in 1994 (Note 1) 71,461,000 59,191,000 Contract costs and recognized income not yet billed (Note 1) 31,490,000 29,194,000 Inventories (Note 1) 78,823,000 68,918,000 Prepaid expenses and other current assets 8,419,000 6,987,000 ------------ ------------ Total current assets 212,046,000 222,676,000 ------------ ------------ Property, Plant and Equipment, at cost, net of depreciation and amortization (Note 1) 48,401,000 49,890,000 ------------ ------------ Other Assets: Costs in excess of fair value of net assets of businesses acquired, net (Note 1) 21,267,000 18,240,000 Other 3,902,000 2,409,000 ------------ ------------ 25,169,000 20,649,000 ------------ ------------ $285,616,000 $293,215,000 ============ ============ </TABLE>
GRIFFON CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) <TABLE> <CAPTION> SEPTEMBER 30, 1995 1994 ------------ ------------ <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable and current portion of long-term debt (Note 2) $ 7,073,000 $ 9,542,000 Accounts payable 40,032,000 33,704,000 Accrued liabilities (Note 1) 45,911,000 48,058,000 Federal income taxes 4,790,000 10,324,000 ------------ ------------ Total current liabilities 97,806,000 101,628,000 ------------ ------------ Long-Term Debt (Note 2) 16,074,000 15,538,000 ------------ ------------ 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 1,669,537 shares in 1995 and 1,677,129 shares in 1994 (liquidation value $16,695,000 and $16,771,000, respectively) 417,000 419,000 Common stock, par value $.25 per share, authorized 85,000,000 shares, issued 31,081,499 shares in 1995 and 33,887,739 shares in 1994 7,770,000 8,472,000 Capital in excess of par value 52,149,000 78,614,000 Retained earnings 113,101,000 89,711,000 ------------ ------------ 173,437,000 177,216,000 Less -- Deferred compensation (424,000) (900,000) Treasury shares, at cost, 162,796 common shares in 1995 and 34,500 common shares in 1994 (1,277,000) (267,000) ------------ ------------ Total shareholders' equity 171,736,000 176,049,000 ------------ ------------ $285,616,000 $293,215,000 ============ ============ <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. </FN> </TABLE>
GRIFFON CORPORATION CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> YEARS ENDED SEPTEMBER 30, 1995 1994 1993 ------------ ------------ ------------ <S> <C> <C> <C> Net sales $546,359,000 $488,957,000 $436,949,000 Cost of sales 402,658,000 344,485,000 308,711,000 ------------ ------------ ------------ 143,701,000 144,472,000 128,238,000 Selling, general and administrative expenses 104,058,000 94,529,000 83,979,000 ------------ ------------ ------------ 39,643,000 49,943,000 44,259,000 ------------ ------------ ------------ Other income (expense): Interest expense (2,192,000) (1,803,000) (1,942,000) Interest income 1,312,000 1,885,000 929,000 Other, net 265,000 322,000 1,020,000 ------------ ------------ ------------ (615,000) 404,000 7,000 ------------ ------------ ------------ Income from continuing operations before income taxes 39,028,000 50,347,000 44,266,000 ------------ ------------ ------------ Provision for income taxes (Note 1): State and foreign 2,483,000 3,558,000 3,330,000 Federal 12,738,000 17,084,000 14,376,000 ------------ ------------ ------------ 15,221,000 20,642,000 17,706,000 ------------ ------------ ------------ Income from continuing operations 23,807,000 29,705,000 26,560,000 ------------ ------------ ------------ Discontinued operations, net of income tax effect (Note 5): Operating loss --- --- (537,000) Provision for loss on disposal --- --- (7,938,000) ------------ ------------ ------------ --- --- (8,475,000) ------------ ------------ ------------ Net income $ 23,807,000 $ 29,705,000 $ 18,085,000 ============ ============ ============ Income per share of common stock (Note 1): Continuing operations $ .71 $ .80 $ .70 Discontinued operations -- -- (.22) ------------ ------------ ------------ Net income $ .71 $ .80 $ .48 ============ ============ ============ <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. </FN> </TABLE>
GRIFFON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEARS ENDED SEPTEMBER 30, 1995 1994 1993 ------------ ------------ ------------ <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,807,000 $ 29,705,000 $ 18,085,000 ------------ ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,670,000 9,754,000 9,458,000 Provision for losses on accounts receivable 990,000 805,000 627,000 Deferred income taxes 1,396,000 (133,000) (1,593,000) Loss from discontinued operations --- --- 10,681,000 Change in assets and liabilities: Increase in accounts receivable and contract costs and recognized income not yet billed (12,059,000) (1,477,000) (16,922,000) Increase in inventories (6,431,000) (12,385,000) (8,702,000) (Increase) decrease in prepaid expenses and other assets (111,000) (429,000) 513,000 Increase (decrease) in accounts payable, accrued liabilities and Federal income taxes (3,205,000) 10,185,000 7,274,000 Other changes, net (1,103,000) (26,000) 195,000 ------------ ------------ ------------ Total adjustments (11,853,000) 6,294,000 1,531,000 ------------ ------------ ------------ Net cash provided by operating activities 11,954,000 35,999,000 19,616,000 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in marketable securities 17,530,000 (18,632,000) (4,676,000) Acquisition of property, plant and equipment (8,080,000) (9,241,000) (8,438,000) Net proceeds from sale of stock of affiliate --- 11,615,000 --- Acquired businesses (7,758,000) (1,946,000) --- (Increase) decrease in equipment lease deposits and other (801,000) 1,294,000 2,639,000 ------------ ------------ ------------ Net cash provided by (used in) investing activities 891,000 (16,910,000) (10,475,000) ------------ ------------ ------------ </TABLE>
GRIFFON CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) <TABLE> <CAPTION> YEARS ENDED SEPTEMBER 30, 1995 1994 1993 ------------ ------------ ------------ <S> <C> <C> <C> CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares (28,233,000) (15,415,000) (1,562,000) Proceeds from issuance of long-term debt --- 7,100,000 4,500,000 Payment of long-term debt (9,528,000) (8,464,000) (3,580,000) Increase in short-term borrowings 6,500,000 --- --- Other, net (587,000) (117,000) (40,000) ------------ ------------ ------------ Net cash used in financing activities (31,848,000) (16,896,000) (682,000) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,003,000) 2,193,000 8,459,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 28,659,000 26,466,000 18,007,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,656,000 $ 28,659,000 $ 26,466,000 ============ ============ ============ <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. </FN> </TABLE>
GRIFFON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS) For the Years Ended September 30, 1995, 1994 and 1993 <TABLE> <CAPTION> 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 <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balances, September 30, 1992 1,680,561 $420 39,109,878 $9,777 $99,637 $ 42,761 $1,875 3,457,884 $6,359 Amortization of deferred compensation --- --- --- --- --- --- (577) --- --- Cash dividend on Second Preferred Stock, Series I (Note 3) --- --- --- --- --- (420) --- --- --- Purchase of treasury shares (Note 3) --- --- --- --- --- --- --- 249,400 1,562 Exercise of stock options (Note 3) --- --- 186,500 47 302 --- --- --- --- Retirement of treasury shares --- --- (3,504,384) (876) (5,700) --- --- (3,504,384) (6,576) Other (70) --- 11,350 3 (80) --- --- --- --- Net income --- --- --- --- --- 18,085 --- --- --- --------- ---- ---------- ------ ------- -------- ------ ---------- ------ 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 ========= ==== ========== ====== ======= ======== ====== ========== ======= <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. </FN> </TABLE>
GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Consolidation The consolidated financial statements include the accounts of Griffon Corporation (formerly Instrument Systems Corporation) and all subsidiaries. All significant intercompany items have been eliminated in consolidation. Cash flows, investments and credit risk Marketable securities consist primarily of U.S. government obligations and are carried at amortized cost which approximates market. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," establishes financial accounting and reporting standards for investments and was effective for the fiscal year beginning October 1, 1994. Adoption of this standard did not have a material effect on the Company's financial position or results of operations. 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 $2,162,000, $1,824,000 and $1,875,000 in 1995, 1994 and 1993, respectively. A substantial portion of the Company's trade receivables are from customers of the home and commercial 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:
<TABLE> <CAPTION> SEPTEMBER 30, 1995 1994 ----------- ----------- <S> <C> <C> Finished goods $22,824,000 $16,664,000 Work in process 31,048,000 26,674,000 Raw materials and supplies 24,951,000 25,580,000 ----------- ----------- $78,823,000 $68,918,000 =========== =========== </TABLE> 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: <TABLE> <CAPTION> SEPTEMBER 30, 1995 1994 ----------- ----------- <S> <C> <C> Land, buildings and building improvements $25,113,000 $27,304,000 Machinery and equipment 63,370,000 59,454,000 Leasehold improvements 8,251,000 7,975,000 ----------- ----------- 96,734,000 94,733,000 Less--Accumulated depreciation and amortization 48,333,000 44,843,000 ----------- ----------- $48,401,000 $49,890,000 =========== =========== </TABLE> Maintenance and repair expense was $8,938,000, $8,208,000 and $8,096,000 in 1995, 1994 and 1993, respectively. 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, 1995 and 1994, accumulated amortization of goodwill was $4,245,000 and $3,618,000, respectively. In 1995 the Company acquired two companies involved in the installation of building products for an aggregate purchase price of $7,758,000. These acquisitions have been accounted for as purchases and resulted in an increase in goodwill of $3,650,000.
Subsequent to the end of fiscal 1995, the Company acquired a manufacturer of heavy rolling doors, sectional garage doors, grilles and other door products for commercial, industrial and residential applications. The business was acquired for approximately $19,000,000 and has annual sales of approximately $60,000,000. 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 components of income tax expense included in continuing operations were as follows: <TABLE> <CAPTION> 1995 1994 1993 ----------- ----------- ----------- <S> <C> <C> <C> Current $13,825,000 $20,775,000 $17,093,000 Deferred 1,396,000 (133,000) 613,000 ----------- ----------- ----------- $15,221,000 $20,642,000 $17,706,000 =========== =========== =========== </TABLE> The primary components of deferred taxes result from differences in the reporting of depreciation, the allowance for doubtful accounts, and other non- deductible accruals. Cash payments for income taxes were $19,882,000, $16,809,000 and $15,151,000 in 1995, 1994 and 1993, respectively. The following table indicates the significant elements contributing to the difference between the U.S. Federal statutory tax rate and the effective tax rate: <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> U.S. Federal statutory tax rate 35.0% 35.0% 34.8% State and foreign income taxes 4.1 4.6 4.9 Other (.1) 1.4 .3 ---- ---- ---- Effective tax rate 39.0% 41.0% 40.0% ==== ==== ==== </TABLE> Research and development costs Research and development costs not recoverable under contractual arrangements are charged to expense as incurred. Approximately $4,400,000, $4,000,000 and $3,600,000 for 1995, 1994 and 1993, respectively, was incurred on such research and development.
Accrued liabilities At September 30, 1995 and 1994, accrued liabilities included $12,931,000 and $13,856,000, 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 33,629,000 in 1995, 37,102,000 in 1994 and 37,989,000 in 1993. 2. NOTES PAYABLE AND LONG-TERM DEBT: At September 30, 1995 the Company had outstanding notes payable to banks of $6,500,000 under short-term lines of credit. Borrowings under the lines bear interest at rates (7.5% as of September 30, 1995) based on the London Interbank Offered Rate ("LIBOR"), or the prime rate. The Company's long-term debt outstanding at September 30, 1995 relates primarily to real estate mortgages, with interest rates ranging from 8.0% to 8.7% and maturities through 2004. The following are the maturities of long-term debt outstanding at September 30, 1995 for each of the succeeding five years: 1996 $ 573,000 1997 8,927,000 1998 279,000 1999 265,000 2000 265,000 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 based upon LIBOR or at the prime rate and are secured by the capital stock of one of the company's wholly-owned subsidiaries and the capital stock of newly acquired subsidiaries financed by borrowings under the loan agreement. In October 1995, $19,000,000 was drawn down under this credit agreement in connection with an acquisition (see Note 1). 3. SHAREHOLDERS' EQUITY: In connection with its stock repurchase program covering up to 7,000,000 shares of common and preferred stock, the Company acquired 249,400 shares of Common Stock in 1993 for $1,562,000, 1,930,600 shares of Common Stock in 1994 for $15,415,000 and 3,131,136 shares of Common Stock in 1995 for $28,233,000. The 1995 purchases include approximately 3,000,000 shares of Common Stock acquired under a self-tender offer at a price of $8.75 per share. 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. The ESOP has a loan agreement, which is guaranteed by the Company, the proceeds of which were used to purchase equity securities of the Company. The outstanding balance of the loan has been reflected as a liability in the accompanying consolidated balance sheets 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. 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: <TABLE> <CAPTION> NUMBER OPTION OF SHARES PRICE ---------- ---------------- <S> <C> <C> Outstanding at September 30, 1993 1,051,000 $1.00 to $7.00 Granted 907,000 $7.125 to $9.125 Exercised (114,500) $1.00 to $7.00 Terminated (1,500) $7.00 --------- 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 ========= </TABLE>
The outstanding options expire at various dates through 2005. Options for 844,500 shares are exercisable at September 30, 1995 at $1.50 to $9.125 per share. Outstanding options include grants in 1994 covering 680,000 shares of stock that do not become exercisable unless the market price of the Common Stock has attained an average price of $10 per share for 10 consecutive trading days, or 60 days before the options expire, whether or not the price target has been met. As of September 30, 1995, options for 638,750 shares were available for future grants. 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 1995 and 1994, 11,630 and 10,770 shares, respectively, were issued under the Outside Director Plan. In April 1986, the Board of Directors declared a dividend distribution of one Common Stock purchase Right for each outstanding share of Common Stock. The Rights were amended in November 1994. These Rights will expire in 1996 unless redeemed earlier and, initially, will trade with the Common Stock. They are not presently exercisable and have no voting power. In the event a person acquires 15% or more, or makes a tender offer which if consummated would result in such person owning 15% or more of the Common Stock, the Rights detach from the Common Stock and become exercisable and entitle a holder to buy one-half of one share of Common Stock for $6.00 (adjustable to prevent dilution). If a person or group acquires beneficial ownership of 15% or more of the Company's outstanding Common Stock, each Right will entitle its holder (other than such person or group) to purchase, at the then-current exercise price of the Right, a number of shares of the Company's Common Stock having a market value of twice the then- current exercise price of the Right. In addition, if the Company is acquired in a merger or other business combination, each Right will entitle its holder to purchase, at the then-current exercise price, a number of the acquiring company's common shares having a market value of twice the then-current exercise price of the Right. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's outstanding Common Stock, the Rights are redeemable for $.01 per Right at the option of the Board of Directors. As of September 30, 1995, shares of the Company's authorized but unissued Common Stock were reserved in connection with the following: <TABLE> <CAPTION> SHARES --------- <S> <C> Conversion of outstanding Second Preferred Stock, Series I 1,669,537 Stock option and award plans 3,213,100 Exercise of Common Stock purchase warrants 226,414 Exercise of Common Stock purchase Rights 18,013,877 ---------- 23,122,928 ========== </TABLE>
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, 1995: 1996 $14,700,000 1997 12,800,000 1998 9,200,000 1999 7,400,000 2000 4,200,000 Later years 3,300,000 Rent expense for all operating leases, net of subleases, totalled approximately $18,900,000, $18,600,000 and $16,900,000 in 1995, 1994 and 1993, 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, 1995, the amount payable in the event of such termination would be approximately $32,000,000. 5. DISCONTINUED OPERATIONS: During 1993, the Company decided to withdraw from the apparel business and sell its 25% interest in Oneita Industries, Inc.. The sale of the investment was completed in October 1993 for approximately $11,600,000 and the financial statements reflect a related charge in 1993 of $7,938,000 (net of income tax effect of $1,930,000).
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): Quarterly results of operations for the years ended September 30, 1995 and 1994 are as follows: <TABLE> <CAPTION> QUARTERS ENDED SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, 1995 1995 1995 1994 ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $157,410,000 $135,238,000 $120,149,000 $133,562,000 Gross profit 39,783,000 34,257,000 31,315,000 38,346,000 Net income 7,782,000 5,052,000 3,251,000 7,722,000 Income per share of common stock $ .24 $ .15 $ .10 $ .22 ============ ============ ============ ============ </TABLE> <TABLE> <CAPTION> QUARTERS ENDED SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, 1994 1994 1994 1993 ------------- ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $141,658,000 $125,287,000 $105,857,000 $116,155,000 Gross profit 42,185,000 36,621,000 31,299,000 34,367,000 Net income 10,603,000 7,371,000 4,926,000 6,805,000 Income per share of common stock $ .29 $ .20 $ .13 $ .18 ============ ============ ============ ============ </TABLE> 7. BUSINESS SEGMENTS: The Company's principal business segments are as follows -- Home and Commercial Products (manufacture and sale of garage doors and other building products, hardware primarily for the food service industry, and synthetic batting); Electronic Information and Communication Systems (communication and information systems for government and commercial markets); and Specialty Plastic Films (manufacture and sale of plastic films for baby diapers, adult incontinence care products and disposable surgical and patient care products).
Information on the Company's business segments is as follows: <TABLE> <CAPTION> SEPTEMBER 30, 1995 1994 1993 ------------ ------------ ------------ <S> <C> <C> <C> Net sales -- Home and commercial products $339,333,000 $280,342,000 $230,809,000 Electronic information and communication systems 95,816,000 94,001,000 92,835,000 Specialty plastic films 111,210,000 114,614,000 113,305,000 ------------ ------------ ------------ $546,359,000 $488,957,000 $436,949,000 ============ ============ ============ Operating income -- Home and commercial products $ 26,177,000 $ 25,103,000 $ 21,569,000 Electronic information and communication systems 9,145,000 9,577,000 9,514,000 Specialty plastic films 9,006,000 20,752,000 18,737,000 ------------ ------------ ------------ Total operating income 44,328,000 55,432,000 49,820,000 General corporate expenses (4,420,000) (5,167,000) (4,541,000) Interest income (expense), net (880,000) 82,000 (1,013,000) ------------ ------------ ------------ Income from continuing operations before income taxes $ 39,028,000 $ 50,347,000 $ 44,266,000 ============ ============ ============ Identifiable assets -- Home and commercial products $127,087,000 $112,799,000 $ 96,198,000 Electronic information and communication systems 99,138,000 86,962,000 89,264,000 Specialty plastic films 40,003,000 43,205,000 41,592,000 Corporate 19,388,000 50,249,000 43,216,000 ------------ ------------ ------------ $285,616,000 $293,215,000 $270,270,000 ============ ============ ============ Capital expenditures -- Home and commercial products $ 4,719,000 $ 6,446,000 $ 2,831,000 Electronic information and communication systems 2,320,000 1,941,000 2,231,000 Specialty plastic films 929,000 793,000 3,374,000 Corporate 112,000 61,000 2,000 ------------ ------------ ------------ $ 8,080,000 $ 9,241,000 $ 8,438,000 ============ ============ ============ Depreciation and amortization -- Home and commercial products $ 3,668,000 $ 3,284,000 $ 2,799,000 Electronic information and communication systems 2,533,000 3,150,000 3,277,000 Specialty plastic films 2,273,000 3,169,000 3,194,000 Corporate 196,000 151,000 188,000 ------------ ------------ ------------ $ 8,670,000 $ 9,754,000 $ 9,458,000 ============ ============ ============ </TABLE>
Sales to the United States Government and its agencies, either as a prime contractor or subcontractor, aggregated approximately $52,000,000 for 1995, $62,000,000 for 1994 and $60,000,000 for 1993, 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 and marketable securities. Included in capital expenditures in 1994 of the home and commercial products segment was $4,200,000 for the purchase of a building that was previously leased. 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, 1996, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year ended September 30, 1995. 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, 1995 and 1994............................................... Consolidated Statements of Income for the Years Ended September 30, 1995, 1994 and 1993..................... Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994 and 1993............... Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1995, 1994 and 1993.................................................... 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 3.2 By-laws as amended (Exhibit 3 of Current Report on Form 8-K dated November 8, 1994) 4.1 Amendment to Rights Agreement dated as of November 8, 1994 between Registrant and American Stock Transfer Company (Exhibit 4.1 of Current Report on Form 8-K dated November 8, 1994) 4.2 Loan Agreement dated June 8, 1995 between the Registrant and lending institutions 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. <TABLE> <CAPTION> State of Name of Subsidiary Incorporation ------------------ ------------- <S> <C> Clopay Corporation Delaware Telephonics Corporation Delaware Standard-Keil Industries, Inc. Delaware Lightron Corporation Delaware </TABLE> 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule (for electronic submission only) 99 Additional Exhibit The following undertakings are incorporated into the Company's Registration Statements on Form S-8 (Registration Nos. 2-82183, 2-99536, 33-14259, 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 17th day of November, 1995. 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 17, 1995 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, 1995, 1994 AND 1993 <TABLE> <CAPTION> Additions Deductions ------------------------- ---------- Balance at Charged to Charged to Accounts Balance at Beginning Profit and Other Written End Description of Period Loss Accounts Off of Period - -------------------------------------- ---------- ---------- ------------ ---------- ---------- <S> <C> <C> <C> <C> <C> 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 (2) $1,101,000 $3,659,000 ========== ======== ======== ========== ========== FOR THE YEAR ENDED SEPTEMBER 30, 1993: Allowance for doubtful accounts $3,913,000 $627,000 $ 38,000 (2) $ 718,000 $3,860,000 ========== ======== ======== ========== ========== <FN> (1) Principally related to an acquired company. (2) Recoveries of amounts previously written off. </FN> </TABLE>