UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
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:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ------------------------
<S> <C>
Common Stock, $.25 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
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 and non-voting common equity
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 December 15, 2000 - approximately $224,000,000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of December 15,
2000 - 29,681,197.
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.
<PAGE>
PART I
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ITEM 1 - BUSINESS
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THE COMPANY
Griffon is a diversified manufacturing company with operations in four
business segments: Garage Doors; Installation Services; Specialty Plastic Films;
and Electronic Information and Communication Systems. The company's Garage Doors
segment designs and manufactures garage doors for use in the residential housing
and commercial building markets. The Installation Services segment sells,
installs and services garage doors, garage door openers, manufactured
fireplaces, floor coverings, cabinetry and a range of related building products
primarily for the residential housing market. The company's Specialty Plastic
Films segment develops, produces and sells plastic films and film laminates for
use in infant diapers, adult incontinence products, feminine hygiene products
and disposable surgical and patient care products. The company's Electronic
Information and Communication Systems segment designs, manufactures, and
provides logistical support for communications, radar, information, command and
control systems and large-scale integrated circuits.
The company has made strategic investments in each of its business segments
to enhance its market position, expand into new markets and further accelerate
growth. Garage Doors and Installation Services have acquired several
manufacturing and installation companies in recent years. In fiscal 1997, the
company acquired a West Coast-based garage door manufacturing and installation
company, which enhanced the company's national market position. In 1999,
Installation Services acquired an operation located in the Southwest that sells
and installs a range of specialty products to the new residential construction
market, expanding the products and services offered by the company. In 2000 the
company acquired a Michigan garage door wholesale and installation company and a
Seattle fireplace and garage door installation business. In 1998 Specialty
Plastic Films acquired a manufacturer of plastic packaging and specialty films
located in Germany, expanding its markets, and in 1998 and 1999 added additional
production capacity in its European joint venture in connection with multi-year
contracts from a major international consumer products company. In 2000 the
Electronic Information and Communication Systems segment acquired a search and
weather radar business.
GARAGE DOORS
The company believes that its wholly owned subsidiary, Clopay, is the
largest manufacturer and marketer of residential garage doors and among the
largest manufacturers of commercial doors in the United States. The company's
building products are sold under Clopay(R), Ideal Door(R), Holmes(R), AtlasTM
and other brand names through an extensive distribution network throughout the
United States. The company estimates that the majority of Garage Doors' net
sales are from sales of garage doors to the home remodeling market, with the
balance from the new housing and commercial construction markets. Sales into the
home remodeling market are being driven by the continued aging of the housing
stock and the conversion by homeowners from wood doors to lighter weight, easier
to maintain steel doors.
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Industry
According to industry sources, the garage door market for 1999 was
estimated to be $1.5 billion, comprised of residential garage doors and
commercial/industrial doors. Over the past decade there have been several key
trends driving the garage door industry including the shift from wood to steel
doors and the growth of the home center channel of distribution. The company
estimates that over 90% of the total garage door market today is steel doors.
Superior strength, reduced weight and low maintenance have favored the steel
door. Other product innovations during this period include insulated double-
sided steel doors and new springing systems.
The growth of the home center channel of distribution in the United States
has resulted in a shift from traditional channels, including professional
installers and wholesalers. Over the past decade, an increasing number of garage
doors have been sold through home center retail chains such as The Home Depot,
Inc. These home centers offer garage doors for the do-it-yourself market and
commercial contractors, as well as installation services for other customers.
Distribution through the retail channel requires a different approach than that
traditionally utilized by garage door manufacturers. Factors such as immediately
available inventory, national distribution, point-of-sale merchandising and
special packaging are all important to the retailer.
Key Competitive Strengths
The company believes that the following strengths will continue to enhance
the market position of Garage Doors:
National Distribution Network. The company distributes its building
products through a wide range of distribution channels including installing
dealers, retailers and wholesalers. The company owns and operates a national
network of 47 distribution centers including two larger regional distribution
centers targeted to handle retail distribution. The company's building products
are sold to approximately 2,000 independent professional installing dealers and
to major home center retail chains, including The Home Depot, Inc., Menards,
Inc. and Lowe's Companies, Inc. The company maintains strong relationships with
its installing dealers and believes it is the largest supplier of residential
garage doors to retail channels.
Strong Brand Franchise. The company's brand names, particularly Clopay(R),
Holmes(R) and Ideal Door(R) residential doors and AtlasTM commercial doors, are
widely recognized in the building products industry. The company believes that
it has earned a reputation among installing dealers, retailers and wholesalers
for producing a broad range of high-quality doors. The company's market
leadership and strong brand recognition are key marketing tools for expanding
its customer base, leveraging its distribution network and increasing its market
share.
Low-Cost Manufacturing Capabilities. The company believes it has low-cost
manufacturing capabilities as a result of its automated, continuous production
manufacturing facilities and its reduced costs for raw materials based on volume
purchases. These manufacturing facilities produce a broad line of high quality
garage doors for distribution to professional installer, retail and wholesale
channels.
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Strategy
The company intends to increase its market share in Garage Doors by
capitalizing on what it believes to be its leadership position as the largest
manufacturer and marketer of residential garage doors and one of the largest
manufacturers of commercial garage doors in the United States. Specifically, the
company intends to: (i) continue expansion of its dealer network; (ii) increase
brand awareness through merchandising programs and trade and consumer
advertising; (iii) maintain a leadership position in new product development;
and (iv) expand its production and presence nationally through continued
strategic acquisitions.
Products and Services
The company manufactures a broad line of residential garage doors,
commercial sectional and coiling doors and related products with a variety of
options at varying prices. The company's primary manufactured product lines
include residential garage doors and commercial/industrial doors. The company
also sells related products such as garage door openers. The company offers
garage doors made from several materials, including steel and wood. In fiscal
2000 Garage Doors launched The Clopay Reserve Collection(R), a new line of
premium wood garage doors. Steel doors accounted for over 90% of garage doors
sold by the company in fiscal 2000.
The company markets its line of residential garage doors in three primary
product categories: Value, Value Plus and Premium. The Value series door
construction consists of a single layer of steel or wood doors targeting the
construction market and the cost conscious consumer market. The Value Plus
series consists of insulated steel doors targeting the construction market and
the quality-oriented consumer market. The Premium series consists of steel doors
with a layer of insulation bonded between two sheets of steel targeting
consumers who desire exceptional strength, durability, high insulation value,
quiet operation, and a finished interior appearance. The company also markets
garage door openers that are manufactured by a third party.
The company markets commercial doors in two basic categories: sectional
doors and slatted steel coiling doors. Commercial sectional doors are similar to
residential garage doors, but are designed to meet more demanding
specifications. Slatted steel coiling doors and their openers are generally
utilized in more demanding commercial and industrial applications, providing an
attractive combination of flexibility and durability. The slatted steel coiling
door product line, which includes service doors, thermal doors, and fire doors
which can be found in warehouses, manufacturing and military installations as
well as in public and other institutional buildings, has been unprofitable and
the company is exploring its strategic alternatives. It is likely that this
segment's near-term operating results will continue to be impacted until this
matter is resolved. The company also provides (i) counter shutters, fire
shutters and grilles that are used in shopping malls, schools, hospitals and the
concession areas of large arenas and convention centers, and (ii) commercial
sectional door openers.
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Sales and Marketing
The company sells residential and commercial doors for professional
installation directly to a national network of professional installing dealers.
The company also sells garage doors to retailers such as The Home Depot, Inc.,
Menards, Inc. and Lowe's Companies, Inc. In fiscal 2000 the company became the
principal supplier of residential garage doors throughout the United States and
Canada to The Home Depot, Inc., with Clopay(R) brand doors being sold
exclusively to this retail customer in the retail channel of distribution. Sales
of the Clopay(R) brand outside the retail channel of distribution are not
restricted, and the company continues to sell doors to other retailers under the
Ideal Door(R) and Holmes(R) brands. Also, in fiscal 2000 Clopay was awarded an
exclusive, multi-year contract with Lennar Corporation, the largest homebuilder
in the United States. The company distributes its garage doors directly from its
manufacturing facilities to customers, through its network of 47 company-owned
distribution centers, including two regional distribution centers, throughout
the United States and in Canada. These distribution centers allow the company to
maintain an inventory of garage doors near installing dealers and to provide
quick-ship service to retail customers.
Acquisitions
In 1997, the company acquired Holmes-Hally Industries, a West Coast
manufacturer and installer of residential garage doors and related hardware.
This acquisition has increased the company's manufacturing, distribution and
installation presence in the West Coast and Southwestern markets.
Manufacturing and Raw Materials
The company currently operates five garage door manufacturing facilities. A
key aspect of Garage Doors' research and development efforts has been the
ability to continually improve and streamline its manufacturing process. The
company's engineering and technological expertise, combined with its capital
investment in equipment, generally has enabled the company to efficiently
manufacture products in large volume and meet changing customer needs. The
company's facilities use proprietary manufacturing processes to produce the
majority of its products. Certain of the company's equipment and machinery are
internally modified to achieve its manufacturing objectives.
The principal raw material used in the company's manufacturing operations
is galvanized steel. The company also utilizes certain hardware components as
well as wood and insulated foam. All of these raw materials are generally
available from a number of sources.
Research and Development
The company operates a technical development center where its engineers
work to design, develop and implement new products and technologies and perform
durability and performance testing of new and existing products, materials and
finishes.
Competition
The garage door industry is characterized by several large national
manufacturers and many smaller regional and local manufacturers. Several of the
national garage door manufacturers, including the company, have been
consolidating the industry through the acquisition of regional and local
manufacturers. During 2000, Garage Doors experienced continued competitive
pricing pressures, resulting in selling price reductions and increased costs
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associated with retail home center programs that narrowed margins. The company
competes on the basis of product line diversity, quality, service, price and
brand awareness.
INSTALLATION SERVICES
The company has developed a substantial network of specialty building
products installation and service operations. These 37 locations in 23 markets,
covering many of the key new single family home markets in the United States,
offer an increasing variety of building products and services to the residential
construction and remodeling industries. The company believes that it is one of
the leading installing dealers of both garage doors and manufactured fireplaces
in the United States.
Industry
The company provides installed specialty building products to residential
builders and to consumers. Builders are increasingly acting as developers and
marketers, sub-contracting substantially all of the actual construction of a
home. Consumers require professional installation services of the company's
building products due to the skill levels required for installation and/or the
lack of time to perform the installation themselves. Traditionally, the market
for installation services has been very fragmented, characterized by small
operations offering a single type of building product in a single market.
Recently, national home center chains have begun to offer installation services
to consumers, provided through sub-contractors (including the company), for some
of its product categories.
Key competitive Strengths
The company believes that the following strengths will continue to enhance
the market position of the Installation Services business:
Scale of Operations. In what has historically been an undercapitalized,
fragmented industry, the company has sufficient capital and the scale to attract
professional management, achieve operating economies, and serve the needs of
even the largest national builders.
Multiple product and service offerings. The company believes it is unique
in its offering of products and services in several product categories. This
offering is leveraged over a common customer base, providing efficiencies and
convenience for the customer.
Selection Centers. The company operates well-appointed product showrooms
that facilitate selection of products by the consumer, enhancing customer
service and providing an environment conducive to up-selling into higher margin
products.
Strategy
The company believes that Installation Services has distinguished itself in
the marketplace as an expert in select building product categories, with a focus
on value-added service.
Installation Services has targeted geographic markets that have a sizeable
population or significant growth demographics. The company currently serves 20
of the top 100 metropolitan markets based on population and 9 of the top 20 new
single family residential construction markets. The markets served contain 24%
of all new residential housing permits in the United States. The company seeks
to
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promote the continued growth of the Installation Services business through both
internal growth and strategic acquisitions of new operations in high growth
construction markets.
Installation Services' multiple product offering is primarily targeted at
new construction, wherein all products are consumed at approximately the same
time in the construction process. Products offered are selected by the customer
in the company's selection centers. The company believes that its multi-product
offering provides strategic marketing advantages over traditional, single
product competitors, and provides the company with operational efficiencies. The
company seeks to increase the cross-selling of its multiple products to its
existing customers. Additionally, the company plans further growth through the
introduction of additional installed building products. The replacement and
remodeling markets are additional markets for the company's products and
professional installation services.
Products and Services
Installation Services sells and installs a variety of building products:
Garage Doors and Openers - garage doors are distributed, professionally
installed and serviced in the new construction and replacement markets. This is
the largest product category by volume for Installation Services. Installation
Services sources the majority of its garage doors from Garage Doors.
Fireplaces - manufactured wood and gas fireplaces and related products such
as stone or marble surrounds, wood mantels and gas logs are distributed,
professionally installed and serviced primarily to the new construction market.
Flooring - flooring products distributed and installed to the new
construction market include carpeting, tile and stone, wood and vinyl.
Appliances - appliances distributed to the new construction market include
refrigerators, stoves, cooktops, ovens and dishwashers.
Kitchen and Bath Cabinets - cabinetry, with options in wood varieties, door
styles and organizer inserts are offered for distribution and installation to
the new construction market.
Other - other products include seamless gutters, closet systems, window
coverings, bath enclosures, and security and house wiring. Tile and stone
applications for shower and bath walls, counter tops and fireplace surrounds are
also offered.
Acquisitions
The Installation Services business has entered new markets primarily
through acquisition. Once established in a market, the company introduces
additional product categories to the acquired company's product offerings. Since
1993, the company has completed thirteen acquisitions of building products
service and installation operations.
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Competition
The installation services industry is fragmented, consisting primarily of
small, single-market companies which have less financial resources than the
company. The company competes on the basis of service, product line diversity,
price and brand awareness.
SPECIALTY PLASTIC FILMS
The company believes that, through Clopay, it is a leading developer and
producer of plastic films and laminates for a variety of hygienic, health care
and industrial uses in domestic and certain international markets. Specialty
Plastic Films' products include thin gauge embossed and printed films,
elastomeric films and laminates of film and non-woven fabrics. These products
are used primarily as moisture barriers in disposable infant diapers, adult
incontinence products and feminine hygiene products, as protective barriers in
single-use surgical and industrial gowns, drapes, equipment covers, and as
packaging for hygienic products. Specialty Plastic Films' products are sold
through the company's direct sales force primarily to multinational consumer and
medical products companies.
Industry
The specialty plastic films industry has been affected by several key
trends over the past five years. These trends include the increased use of
disposable products in emerging countries and favorable demographics in most
countries, such as high birth rates in third world countries and the aging of
the population. Other key trends representing significant opportunities for
manufacturers include the continued demand for new advanced products such as
breathable and laminated products and the need of major customers for global
supply partners.
Key Competitive Strengths
The company believes that the following strengths will continue to enhance
the market position of Specialty Plastic Films:
Technological Expertise and Product Development. The company believes that,
as a result of ongoing research and development activities and continued capital
investment, it is a leader in new product development for specialty plastic
films and laminates. The company has developed technologically advanced embossed
films, elastomeric films, breathable films, laminates and cloth-like barrier
products for diapers, feminine hygiene products and disposable health care
products. The company believes that its technical expertise and product
development capabilities enhance its market position and customer relationships.
Long-Term Customer Relationships and Expanding International Presence. The
company has developed strong, long-term relationships with leading consumer and
health care products companies. The company believes that these relationships,
combined with its technological expertise, product development and production
capabilities, have positioned it to meet changing customer needs, which the
company expects will drive growth. In addition, the company believes its strong,
long-term relationships provide it with increasing opportunities to enter new
international markets, such as South America and Asia Pacific.
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Strategy
The company seeks to expand its market presence for Specialty Plastic Films
by capitalizing on its technological and manufacturing expertise and on its
relationships with major international consumer products companies.
Specifically, the company believes that it can increase its domestic sales and
expand internationally through continued product development and enhancement and
by marketing its technologically advanced breathable films and laminates for use
in all of its markets. The company believes that its Finotech joint venture and
1998 acquisition of Bohme (see European Operations) provide a strong platform
for additional sales growth in certain international markets.
Products
Specialty Plastic Films manufactures a wide variety of embossed and printed
specialty films and laminates for the hygienic, healthcare and other markets.
Specialty Plastic Films' products are used as moisture barriers for disposable
infant diapers, adult incontinence and feminine hygiene products and as
protective barriers in single-use surgical and industrial gowns, drapes,
equipment covers and packaging. A specialty plastic film is a thin-gauge film
(typically 0.0005" to 0.003") that is manufactured from polyolefin resins and
engineered to provide certain performance characteristics. A laminate is the
combination of a plastic film and a non-woven fabric. These products are
produced using both cast and blown extrusion and laminating processes. High
speed, multi-color custom printing of films and customized embossing patterns
further differentiate the products. The company's specialty plastic film
products typically provide a unique combination of performance characteristics
that meet specific, proprietary customer needs. Examples of such characteristics
include strength, breathability, barrier properties, processibility and
aesthetic appeal.
Sales and Marketing
The company sells its products primarily in the United States and Europe
with sales also in Canada, Latin America and Asia Pacific. The company utilizes
an internal direct sales force and manufacturer representatives, organized by
customer accounts. Senior management actively participates by developing and
maintaining close contacts with customers.
The company's largest customer is Procter & Gamble, which has accounted for
a substantial portion of Specialty Plastic Films' sales over the last five
years. The loss of this customer would have a material adverse effect on the
company's business. Specialty plastic films also are sold to a diverse group of
other leading consumer and health care companies.
Research and Development
The company believes it is an industry leader in the research, design and
development of specialty plastic films and laminate products. The company
operates a technical center where approximately 30 chemists, scientists and
engineers work independently and in strategic partnerships with the company's
customers to develop new technologies, products and product applications.
Currently, the company is engaged in several joint efforts with the research and
development departments of its specialty plastic film customers.
The company's research and development efforts have resulted in many
inventions covering embossing patterns, improved processing methods, product
formulations, product applications and other proprietary technology. Recent new
products include microporous breathable films and cost-effective cloth-like
films and laminates. Microporous breathability provides for airflow while
maintaining
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barrier properties resulting in improved comfort and skin care. Cloth-like films
and laminates provide consumer preferred aesthetics such as softness and visual
appeal. The company holds a number of patents for its current specialty film and
laminate products and related manufacturing processes. Such patents are believed
to be a less significant factor in the company's success than its proprietary
know-how and the knowledge, ability and experience of its employees.
European Operations
In 1996, the company formed Finotech, a joint venture with Corovin GmbH, a
manufacturer of non-woven fabrics headquartered in Germany and a subsidiary of
BBA Group PLC, a publicly owned diversified U.K. manufacturer. The joint venture
was created to develop, manufacture and market specialty plastic film and
laminate products for use in the infant diaper, healthcare and other markets.
Finotech, which is 60% owned by the company, focuses on selling its products in
Europe.
In 1997, Finotech constructed and began to operate a manufacturing facility
in Germany, the cost of which was approximately $9 million. Subsequently,
Finotech made capital expenditures of approximately $25 million for new
production lines. This expansion was designed to meet demand under multi-year
contracts with a major international consumer products company.
In July 1998, the company acquired Bohme Verpackungsfolien GmbH & Co., a
German manufacturer of high-quality printed and conventional plastic packaging
and specialty films. The acquisition provides a platform to further expand
Specialty Plastic Films' European operations and the opportunity to broaden the
segment's product line by bringing Bohme technology and products to domestic and
other international markets. These products include printed and unprinted film
and flexible packaging for hygienic products.
Manufacturing and Raw Materials
The company manufactures its specialty plastic film and laminate products
on high-speed equipment designed to meet stringent tolerances. The manufacturing
process consists of melting a mixture of polyolefin resins (primarily
polyethylene) and additives, and forcing this mixture through a computer
controlled die and rollers to produce embossed films. In addition, the
lamination processes involve extruding the melted plastic films directly onto a
non-woven fabric and bonding these materials to form a laminate. Through
statistical process control methods, company personnel monitor and control the
entire production process.
Plastic resins, such as polyethylene and polypropylene, and non-woven
fabrics are the basic raw materials used in the manufacture of substantially all
of Specialty Plastic Films' products. The company currently purchases its
plastic resins in pellet form from several suppliers. The purchases are made
under annual supply agreements that do not specify fixed pricing terms. The
company's sources for raw materials are believed to be adequate for its current
and anticipated needs.
Competition
The market for the company's specialty plastic film and laminate products
is highly competitive. The company has a number of competitors in the specialty
plastic films and laminates market, some of which are larger and have greater
resources than the company. The company competes primarily on the basis of
technical expertise, quality, service and price.
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ELECTRONIC INFORMATION AND COMMUNICATION SYSTEMS
The company, through its wholly-owned subsidiary, Telephonics, specializes
in advanced electronic information and communication systems for defense,
aerospace, civil, industrial and commercial markets worldwide. The company
designs, manufactures, and provides logistical support for aircraft
communication systems, radar, air traffic management systems, identification
friend or foe ("IFF") equipment, transit communications and application specific
mixed-signal large scale integrated circuits. The company continues to maintain
a significant presence in the markets for airborne maritime surveillance radar
and aircraft communication systems, two of the segment's largest product lines.
In addition to defense applications, in recent years the company has
successfully adapted its core technologies to a number of dual use applications
and expanded its presence in non-defense government, commercial, and
international markets.
Industry
The United States defense electronics procurement budget is expected to
grow between 5% and 8% per year over the next 5 years, according to the
Department of Defense's Five Year Defense Expenditure Plan and reflects the
government's plan to upgrade the technology in existing weapon systems platforms
rather than purchase entirely new platforms and systems.
Some of the major programs in which the company currently participates
include:
<TABLE>
<CAPTION>
Description Customers Products
----------- --------- --------
<S> <C> <C>
SH-60R/CH-60 Lockheed Martin Multi-mode radar,
(U.S. Navy Multi- intercommunication and
mission Helicopter) radio management, and IFF
systems
NIMROD 2000 (U.K. Royal BAE Systems Integration of
Maritime Patrol communications and radio
Aircraft) management systems
C-17 (U.S. Air Force The Boeing Company Integrated radio
Cargo Transport) management and wireless
communication systems
AWACS (U.S. Air The Boeing Company IFF and radio management
Force/NATO Airborne and others systems
Warning and Control
System)
Joint-STARS (U.S. Air Northrop Grumman Intercommunication and
Force Airborne radio management systems
Surveillance System)
Numerous Maritime Sikorsky Aircraft, Airborne coastal
Surveillance Radar Kaman Aerospace and surveillance radars
Programs Northrop Grumman
</TABLE>
The segment's markets are changing from its more traditional lines in the
defense and other government programs, to an increasing proportion of commercial
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contracts, both domestic and international.
The Electronic Information and Communication Systems segment has expanded
its customer base with increasing emphasis on non-defense government,
commercial, industrial and new international markets. For example, sales to
customers other than the U.S. Department of Defense and its contractors and
subcontractors increased from approximately 30% of the segment's net sales in
fiscal 1992 to approximately 51% of net sales in fiscal 2000.
Some of the major commercial or non-defense related programs in which the
company currently participates include:
<TABLE>
<CAPTION>
Description Customers Products
----------- --------- --------
<S> <C> <C>
Rail Transit Kawasaki, Bombardier Car-borne and wayside
Communications and others communications
and vehicle health
monitoring systems for
rail cars
Air Traffic Control Civil Aviation Air traffic control
Equipment Authority of China systems
Commercial Weather China, India, Low cost airborne weather
Radar Eurocopter and radar
others
Audio equipment for Boeing, Aviall and Audio testing equipment,
aircraft and other others head phones, etc.
commercial markets
</TABLE>
One of the major non-defense markets for the segment's products in the
United States is the mass transit market. The company believes that there will
be increased funding over the next several years to upgrade the infrastructure
of mass transit systems. This market is serviced by a limited number of
manufacturers who are capable of providing the required electronics, logistics
support and installation support.
Electronic Information and Communication Systems' commercial projects
include contracts with Kawasaki, Bombardier, Breda, New Jersey Transit, and
other rail suppliers for rail communications systems as well as audio products
for commercial aircraft.
In recent years, the segment has significantly expanded its customer base
in international markets as well. The company's international projects include a
contract with BAE Systems as part of the United Kingdom's upgrade of the NIMROD
surveillance aircraft and several contracts with the Civil Aviation Authority of
China for air traffic management systems. As a result of these and other
developments, the segment's sales to these markets increased from 8% of net
sales in fiscal 1992 to 34% of net sales in fiscal 2000.
Key Competitive Strengths
The company believes that the following strengths will continue to enhance
Telephonics' market position:
Innovative Design and Engineering Capability. The company believes that its
reputation for innovative product design and engineering capabilities,
especially in the areas of communications and audio technologies, radio
frequency (RF)
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design, digital signal processing, networking systems, inverse synthetic
aperture radar and analog, digital and mixed-signal integrated circuits
manufactured in various technologies including CMOS, BiPolar and BiCMOS, has
enhanced its ability to secure, retain and expand key contracts in its markets.
Telephonics' technological prowess was recognized in 2000 by an industry group
that identified it as a leader in the airborne synthetic aperture radar market.
The company is capable of meeting a full range of customer requirements
including product conceptual design, engineering, production and logistical
support. As a result, the company has been successful in increasing its presence
in both domestic and international markets and in applying its defense
technologies in non-military markets.
Broad Base of Long-Life Programs. The company participates in a range of
long-term defense and non-military government programs, both domestically and
internationally. The company has developed a base of installed products in these
programs that generate significant recurring revenue and retrofit, spare parts
and customer support sales. The company believes that its recent awards of
significant contracts will add to its installed base and further enhance its
ability to generate recurring revenues.
Strategy
The company intends to increase the market penetration of Electronic
Information and Communication Systems' products in the defense and non-military
government markets both domestically and internationally by leveraging its
design and engineering capabilities. For example, during 2000 Telephonics was
awarded a contract valued at over $21 million for the next generation of an
integrated radio management system for the U.S. Air Force C-17A air transport.
The company also expects substantial sales growth as it transitions from
development to the production phase of the SH-60R helicopter program, which is
now expected to occur in 2003.
Due to increasing demand for broadband wireless data communications,
Telephonics is focusing on product development in this area with a view toward
creating significant Internet and telecommunications market opportunities. For
example, the segment is developing equipment whose purpose is to substantially
increase the speed, capacity and quality of service of existing wireless
cellular networks and is developing steerable, broadband satellite tracking
antennas for voice, data and video applications. TLSI, Telephonics' integrated
circuit design subsidiary, also plans to expand its markets by leveraging its
expertise to develop application specific standard integrated circuits targeted
at the telecommunications, computer and computer peripherals industries.
Products
The company manufactures specialized electronic products for a variety of
applications. Electronic Information and Communication Systems' products include
communication systems, radar systems, information and command and control
systems, and mixed-signal application specific large scale integrated circuits
used in defense, non-military government and commercial markets. The company
also manufactures audio products for commercial aircraft, such as headsets,
microphones and handsets.
The company specializes in communication systems and products and is a
leading manufacturer of aircraft intercommunication systems with products in
digital and analog communication management, digital audio distribution and
control, and communication systems integration. The company's communication
products are used on the U.S. Navy's SH-60R multi-mission and CH-60 Utility
helicopters, the United Kingdom's NIMROD surveillance aircraft, U.S. Air Force
C-17 cargo transport, the
12
<PAGE>
U.S. Air Force's Joint Surveillance and Target Acquisition Radar System (Joint-
STARS), and AWACS. The company has expanded its communications expertise into
the mass transit rail market and its communication systems have been selected
for installation by several major mass transit authorities, including the New
York City Transit Authority, Long Island Railroad, Southeastern Pennsylvania
Transit Authority, Massachusetts Bay Transit Authority and California Transit
Authority.
The company's command and control systems include airborne maritime
surveillance and commercial weather and search radar systems, air traffic
management systems and landing systems. During 2000 Telephonics acquired a
search and weather radar business from Honeywell, rounding out its radar product
line. The company provides both the expertise and equipment for detecting and
tracking targets in a maritime environment and flight path management systems
for air traffic control applications. Its maritime radar systems, which are used
in more than 20 countries, are fitted aboard helicopters, fixed-wing aircraft
and aerostats for use at sea. The company's aerospace electronic systems include
IFF systems used by the U.S. Air Force and NATO on the AWACS aircraft and
microwave landing systems used by NASA and other customers for ground and ship
based applications.
The company also manufactures mixed-signal application specific large scale
integrated circuits primarily for customers in the security, automotive and
telecommunications industries. Security applications include smoke and motion
detectors as well as intrusion alarm systems. Suppliers to the automotive
industry feature the company's custom circuits in engine controllers, power
window controllers, airbag sensors, fluid level sensors and rear window
defoggers. In addition, the company's custom integrated circuits are important
components in various computer peripheral devices.
Backlog
The company's funded backlog for Electronic Information and Communication
Systems was approximately $190 million on September 30, 2000, compared to $170
million on September 30, 1999.
Sales and Marketing
Telephonics has approximately 15 technical business development personnel
who act as the focal point for its marketing activities and approximately 30
sales representatives who introduce its products and systems to customers
worldwide.
Research and Development
A portion of this segment's product development activities are generally
performed under government contracts. The segment also regularly updates its
core technologies through internally funded research and development. The
selection of these projects is based on available opportunities in the
marketplace as well as input from the company's customers. These projects have
usually represented an evolution of existing products rather than entirely new
pursuits. The company's recent internally funded research and development
activities are exemplified by the development of a next generation airborne
radar system and an all digital interior communication management system. In
order to create additional growth opportunities and enter new markets,
Telephonics is undertaking a series of development initiatives related to
broadband, wireless and integrated circuit operations (see "Strategy"). These
development initiatives, which are estimated at approximately $5,000,000 for
fiscal 2001 will impact the segment's near-term profitability.
13
<PAGE>
Competition
Electronic Information and Communication Systems competes with major
manufacturers of electronic information and communication systems that have
greater financial resources than the company, and with several smaller
manufacturers of similar products. The company competes on the basis of
technology, design, quality, price and program performance.
EMPLOYEES
The company has approximately 5,400 employees located throughout the United
States and in Europe. Approximately 100 of its employees are covered by a
collective bargaining agreement, primarily with an affiliate of the AFL-CIO. The
company believes its relationships with its employees are satisfactory.
RESEARCH AND DEVELOPMENT
Research and development costs not recoverable under contractual
arrangements are charged to expense as incurred. Research and development costs
for all business segments were approximately $10,700,000 in 2000, $8,900,000 in
1999 and $7,700,000 in 1998.
OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Served as Positions and
Name Age Officer Since Offices
---- --- ------------- --------------
<S> <C> <C> <C>
Harvey R. Blau 65 1983 Chairman of the
Board and Chief
Executive Officer
Robert Balemian 61 1976 President and Chief
Financial Officer
Patrick L. Alesia 52 1979 Vice President and
Treasurer
Edward I. Kramer 66 1997 Vice President,
Administration and
Secretary
</TABLE>
14
<PAGE>
ITEM 2 - PROPERTIES
----------
The company occupies approximately 4,200,000 square feet of general office,
factory and warehouse space and showrooms throughout the United States and in
Germany. The following table sets forth certain information related to 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 and research
Systems and develop-
ment
Huntington, NY Electronic Information Manufacturing 89,000 Owned
and Communication
Systems
Cincinnati, OH Garage Doors Office 50,000 See below
Installation Services
Specialty Plastic Films
Cincinnati, OH Garage Doors Research and 52,000 See below
Specialty Plastic Films development
Aschersleben, Specialty Plastic Films Manufacturing 395,000 Owned
Germany
Dombhl, Specialty Plastic Films Manufacturing 398,000 Owned
Germany
Augusta, KY Specialty Plastic Films Manufacturing 143,000 Owned
Nashville, TN Specialty Plastic Films Manufacturing 126,000 Leased
Russia, OH Garage Doors Manufacturing 274,000 Owned
Baldwin, WI Garage Doors Manufacturing 177,000 Leased
Nesbit, MS Garage Doors Manufacturing 70,000 Owned
Los Angeles, CA Garage Doors Garage door 40,000 Leased
hardware man-
ufacturing
Auburn, WA Garage Doors Manufacturing 123,000 Leased
Tempe, AZ Garage Doors Manufacturing 143,000 Leased
Installation Services Warehousing
</TABLE>
The company also leases approximately 1,800,000 square feet of space for
the Garage Doors distribution centers and Installation Services locations in
numerous facilities throughout the United States.
15
<PAGE>
The company has aggregate minimum annual rental commitments under real
estate leases of approximately $11.5 million. 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 and purchase options. Clopay, the company's wholly owned subsidiary, is
in the process of relocating its offices and a research and development
facility. It is anticipated that these two locations, which are leased and
presently aggregate 102,000 square feet, will be replaced in fiscal 2002 by
newly constructed premises in the Cincinnati, OH area that will provide
approximately 126,000 square feet under a long-term lease with an option to
purchase. Annual rent expense for the new facility is expected to be
approximately the same as for the locations being replaced. The plants and
equipment of the company are believed to be in adequate condition and contain
sufficient space for current and presently foreseeable needs.
ITEM 3 LEGAL PROCEEDINGS
-----------------
Department of Environmental Conservation with Lightron Corporation.
Lightron, a wholly-owned subsidiary of the company, once conducted operations at
a location in Peekskill in the Town of Cortland, New York owned by ISC
Properties, Inc., a wholly-owned subsidiary of the company (the "Peekskill
Site"). ISC Properties, Inc. sold the Peekskill Site in November 1982.
Subsequently, the company was advised by the New York State Department of
Environmental Conservation ("DEC") that random sampling at the Peekskill Site
and in a creek near the Peekskill Site indicated concentrations of solvents and
other chemicals common to Lightron's prior plating operations. ISC Properties
has entered into a consent order with the DEC to perform a remedial
investigation and prepare a feasibility study, which has been completed.
Management believes, based on facts presently known to it, that the outcome of
this matter will not have a material adverse effect on the company's
consolidated financial position or results of operations.
ITEM 4 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.
16
<PAGE>
PART II
-------
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
-------------------------------------
(a) The company's Common Stock is listed for trading on the New York Stock
Exchange. The following table shows for the periods indicated the quarterly
range in the high and low sales prices for the company's Common Stock.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH LOW
---- ---
<S> <C> <C>
December 31, 1998 $ 11 3/16 $ 7 5/8
March 31, 1999 10 7/8 6 7/8
June 30, 1999 8 3/8 6 7/16
September 30, 1999 8 6 5/8
December 31, 1999 8 3/16 6 3/4
March 31, 2000 8 1/2 6 7/8
June 30, 2000 7 13/16 5 1/4
September 30, 2000 8 1/16 5 5/8
</TABLE>
(b) As of November 1, 2000, there were approximately 14,500 recordholders
of the company's Common Stock.
(c) No dividends on Common Stock were declared or paid during the five
years ended September 30, 2000.
17
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 1,118,386,000 $1,032,697,000 $914,874,000 $770,227,000 $655,063,000
=============== ============== ============ ============ ============
Income before
cumulative
effect of a
change in
accounting
principle $ 24,880,000 $ 20,211,000 $ 29,321,000 $ 33,164,000 $ 28,067,000
=============== ============== ============ ============ ============
Per share:
Basic $ .83 $ .67 $ .96 $ 1.12 $ .93
=============== ============== ============ ============ ============
Diluted $ .82 $ .66 $ .94 $ 1.06 $ .88
=============== ============== ============ ============ ============
Total assets $ 582,026,000 $ 533,440,000 $487,938,000 $384,759,000 $311,169,000
=============== ============== ============ ============ ============
Long-term
obligations $ 134,942,000 $ 135,284,000 $112,829,000 $ 53,854,000 $ 32,458,000
=============== ============== ============ ============ ============
</TABLE>
Operating results for 1999 include a $3,500,000 pre-tax restructuring
charge which had the effect of reducing earnings per share by $.07.
18
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
---------------------------------------
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
Net sales by business segment were as follows:
<TABLE>
<CAPTION>
Percentage
2000 1999 Change
---- ---- ----------
(thousands)
<S> <C> <C> <C>
Garage doors $ 431,213 $ 447,713 (3.7%)
Installation services 268,398 240,669 11.5%
Specialty plastic films 262,075 197,474 32.7%
Electronic information
and communication systems 186,592 177,091 5.4%
Intersegment revenues (29,892) (30,250)
---------- ----------
$1,118,386 $1,032,697 8.3%
========== ==========
</TABLE>
Net sales of the garage doors segment decreased by $16.5 million compared
to 1999. The decrease was principally due to unit volume decreases in sales of
residential and commercial garage doors by approximately 6% and 15%,
respectively, and the effect of the sale last year of a commercial product line
that had net sales of approximately $7 million in the first half of 1999, offset
in part by improved product mix.
Net sales of the installation services segment increased by $27.7 million
compared to 1999. The increase was principally due to the inclusion in fiscal
2000 operating results of a company which was acquired during the second quarter
of fiscal 1999, internal growth from expanded product offerings and a business
acquired in the latter part of the year, partly offset by the impact of softer
housing markets.
Net sales of the specialty plastic films segment increased $64.6 million
compared to the prior year. Approximately $49.4 million of the increase was
attributable to substantially higher unit sales volume at Finotech, the
segment's European joint venture, partly offset by the effect of a stronger U.S.
dollar compared to last year. The remainder of the increase is principally due
to increased unit sales volume in the segment's domestic operations.
Net sales of the electronic information and communication systems segment
increased $9.5 million compared to last year due to increased sales on defense
programs transitioning from development to production in the latter part of the
year and by sales of an acquired search and weather radar business.
Operating profit by business segment was as follows:
<TABLE>
<CAPTION>
Percentage
2000 1999 Change
---- ---- ----------
(thousands)
<S> <C> <C> <C>
Garage doors $17,002 $27,933 (39.1%)
Installation services 6,842 6,518 5.0%
Specialty plastic films 20,315 550 3,593.6%
Electronic information
and communication systems 19,097 15,616 22.3%
------- -------
$63,256 $50,617 25.0%
======= =======
</TABLE>
19
<PAGE>
Operating profit of the garage doors segment decreased by $10.9 million
compared to last year. Increased profitability due to favorable product mix and
manufacturing efficiencies was offset by the effect of the sales decrease,
higher operating costs associated with establishing regional distribution
centers, brand development and merchandising and service programs for the
segment's retail distribution channel and the effect of competitive pricing.
Also contributing to the decrease was an increased loss of approximately $3
million from a commercial door product line for which strategic alternatives are
being explored. This product line had an operating loss in 2000 of approximately
$5.7 million and it is anticipated that, pending resolution of this matter, the
segment's near-term operating results will continue to be impacted.
Operating profit of the installation services segment increased $.3
million versus the prior year due primarily to earnings of acquired businesses,
partially offset by increased distribution and labor costs.
Operating profit of the specialty plastic films segment increased $19.8
million. The majority of the increase was due to substantially higher unit sales
volume of the segment's European joint venture and resultant manufacturing
efficiencies, partly offset by the unfavorable impact of a stronger U.S. dollar
compared to last year. The remainder of the increase was due to improved
domestic operations from unit sales increases, including sales of new, higher
margin products, partly offset by the effect of higher raw material costs.
Operating profit of the electronic information and communication systems
segment increased by $3.5 million compared to last year. The increase reflects
improved profitability on certain programs that have transitioned from
development to production and earnings of an acquired search and weather radar
business, partly offset by increased research and development expenditures. This
segment has begun an effort to penetrate markets for broadband, wireless and
application specific standard integrated circuits. Increased research and
development expenditures and an aggressive and extensive technology conversion
program designed to capitalize on advanced technologies previously developed for
defense applications are being implemented with the objective of creating
significant incremental market opportunities for the segment. We anticipate that
these development initiatives, which are estimated at approximately $5 million
for fiscal 2001, will impact the unit's near-term profitability.
Net interest expense increased by $3.7 million compared to last year due
to higher levels of outstanding debt used to pay for acquisitions in 2000 and
1999.
Fiscal 1999 Compared to Fiscal 1998
Net sales by business segment were as follows:
<TABLE>
<CAPTION>
Percentage
1999 1998 Change
---- ---- ------
(thousands)
<S> <C> <C> <C>
Garage doors $ 447,713 $444,007 .8%
Installation services 240,669 177,116 35.9%
Specialty plastic films 197,474 167,503 17.9%
Electronic information
and communication systems 177,091 156,864 12.9%
Intersegment revenues (30,250) (30,616)
---------- --------
$1,032,697 $914,874 12.9%
========== ========
</TABLE>
20
<PAGE>
Net sales of the garage doors segment increased by $3.7 million compared
to 1998. The increase was principally attributable to higher unit sales of
garage doors ($18.9 million) due to strong construction and related retail
markets and additional production capacity, partly offset by the effects of
competitive pricing and the second quarter sale of a commercial product line.
Net sales of the installation services segment increased by $63.6
million compared to 1998. The second quarter acquisition of an operation that
sells and installs a range of specialty products to the residential construction
market accounted for $39.0 million of the increase. The remainder of the
increase was principally attributable to the segment's internal growth due to
the strong housing market, increased market share and expanded product line
offerings.
Net sales of the specialty plastic films segment increased $30.0 million
compared to 1998. Net sales of a 1998 fourth quarter acquisition accounted for
$21.7 million of the increase. The remainder of the increase was principally
attributable to higher unit volume in the segment's 60%-owned joint venture,
partially offset by price competition in the commodity end of the business.
Net sales of the electronic information and communication systems
segment increased $20.2 million compared to last year due to new programs and
increased funding on existing programs in the segment's defense, international
and transit markets.
Operating profit by business segment was as follows:
<TABLE>
<CAPTION>
Percentage
1999 1998 Change
---- ---- ----------
(thousands)
<S> <C> <C> <C>
Garage doors $27,933 $32,107 (13.0%)
Installation services 6,518 4,611 41.4%
Specialty plastic films 550 7,446 (92.6%)
Electronic information
and communication systems 15,616 13,665 14.3%
------- -------
$50,617 $57,829 (12.5%)
======= =======
</TABLE>
Operating profit of the garage doors segment decreased by $4.2 million
compared to 1998. The decrease was principally due to competitive pricing
pressures, expenses associated with new distribution centers, and through the
first six months, capacity constraints and related manufacturing inefficiencies
and the operating loss related to a divested commercial product line, partly
offset by lower raw material costs and improved manufacturing efficiencies in
the second half of the year.
Operating profit of the installation services segment increased by $1.9
million primarily due to the earnings from an acquired company. The effect of
remaining revenue growth was offset primarily by higher distribution and labor
costs to support the business' continuing expansion.
Operating profit of the specialty plastic films segment decreased by
$6.8 million compared to 1998. Earnings of a late 1998 acquisition were offset
by the effects of competitive pricing, increased raw material costs and
manufacturing inefficiencies related to the ramp-up of the segment's joint
venture operation.
Operating profit of the electronic information and communication systems
segment increased by $2.0 million compared to 1998 due to the effect of
increased sales, partly offset by increased research and development
expenditures.
21
<PAGE>
In addition to the operating results described above, in the second
quarter of fiscal 1999 the company recorded a $3.5 million restructuring charge
in connection with the closing of a garage door manufacturing facility in order
to streamline operations and improve efficiency. In addition to divesting a
commercial product line, since the last half of 1998 and continuing into 1999
the company has consolidated or closed several of garage doors' manufacturing or
distribution facilities. As a result of these actions, facilities employed in
the garage doors segment were reduced by approximately 400,000 square feet and
the workforce was reduced by 244 employees, including approximately 100,000
square feet and 100 manufacturing employees in connection with the 1999 plant
closure.
Net interest expense increased by $3.7 million compared to 1998 due to
higher levels of outstanding debt from acquisitions in late 1998 and in 1999,
from borrowings to finance new production lines for specialty plastic films'
joint venture and from lower investable balances.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for 2000 was $29.2 million, and working
capital was $191.7 million at September 30, 2000.
During 2000 net cash used in investing activities was approximately
$49.0 million. The company had capital expenditures of approximately $37.4
million, principally made in connection with increasing production capacity and
with the purchase of a previously leased garage door manufacturing facility for
approximately $4.5 million. Also, the electronic information and communication
systems segment acquired a search and weather radar business for approximately
$15 million, which was substantially financed under bank credit lines. During
2001 the company anticipates capital expenditures of approximately $25 to $30
million. A substantial portion of these anticipated expenditures are for
additional capacity and improvements in the specialty plastic films segment and
for garage doors' product development and expansion of operations in the western
part of the country.
Net cash provided by financing activities during 2000 was approximately
$25.2 million. Borrowings under bank credit lines were used to finance
acquisitions and capital expenditures. Also, during the year the company
purchased approximately 681,000 shares of its Common Stock for approximately
$4.6 million, and increased its stock buyback program from 1,500,000 shares to
3,000,000 shares. Additional purchases will be made from time-to-time, depending
upon market conditions, at prices deemed appropriate by management.
The company rents various real property and equipment through
noncancellable operating leases. Related future minimum lease payments due in
2001 approximate $21 million and are expected to be funded through operating
cash flows.
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.
22
<PAGE>
CHANGE IN ACCOUNTING PRINCIPLE
Effective October 1, 1999 the company adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position No.
98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires that, at the date of adoption, costs of start-up activities previously
capitalized be written-off as a cumulative effect of a change in accounting
principle, and that after adoption, such costs are to be expensed as incurred.
Consequently, in the first quarter of fiscal 2000, the company's 60%-
owned joint venture wrote off costs that were previously capitalized in
connection with the start-up of the venture and the implementation of additional
production capacity. The cumulative effect of this change in accounting
principle is $5,290,000 (net of $3,784,000 income tax effect). The minority
interest's share of the net charge is $2,116,000 and is included as an
offsetting credit in "Minority interest" in the Consolidated Statement of Income
for the year ended September 30, 2000.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
annual report, including without limitation statements regarding the company's
financial position, business strategy, and the plans and objectives of the
company's management for future operations, are forward-looking statements. When
used in this annual 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.
23
<PAGE>
ITEM 7A - 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 would require
disclosure under this item.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements of the company and its subsidiaries and the report
thereon of Arthur Andersen LLP, dated November 10, 2000 are included herein:
-- Report of Independent Public Accountants.
-- Consolidated Balance Sheets at September 30, 2000 and 1999.
-- Consolidated Statements of Income, Cash Flows and Shareholders' Equity
for the years ended September 30, 2000, 1999 and 1998.
-- Notes to Consolidated Financial Statements.
24
<PAGE>
Report of Independent Public Accountants
To Griffon Corporation:
We have audited the accompanying consolidated balance sheets of Griffon
Corporation (a Delaware corporation) and subsidiaries as of September 30, 2000
and 1999 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended September
30, 2000. These financial statements and the schedule referred to below are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States.
As explained more fully in Note 1 to the consolidated financial statements, in
fiscal 2000 the company changed its method of accounting for start-up costs to
conform with Statement of Position 98-5.
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.
/s/ Arthur Andersen LLP
Roseland, New Jersey
November 10, 2000
25
<PAGE>
GRIFFON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,616,000 $ 21,242,000
Accounts receivable, less allowance
for doubtful accounts of $9,494,000
in 2000 and $8,068,000 in 1999 (Note 1) 144,259,000 123,008,000
Contract costs and recognized income
not yet billed (Note 1) 77,513,000 65,527,000
Inventories (Note 1) 98,440,000 94,419,000
Prepaid expenses and other current assets 18,891,000 22,832,000
------------ ------------
Total current assets 365,719,000 327,028,000
------------ ------------
Property, Plant and Equipment, at cost, net
of depreciation and amortization (Note 1) 142,944,000 134,882,000
------------ ------------
Other Assets:
Costs in excess of fair value of net assets
of businesses acquired, net (Note 1) 62,463,000 51,315,000
Other 10,900,000 20,215,000
------------ ------------
73,363,000 71,530,000
------------ ------------
$582,026,000 $533,440,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term
debt (Note 2) $ 44,709,000 $ 17,836,000
Accounts payable 61,895,000 58,540,000
Accrued liabilities (Note 1) 65,725,000 61,629,000
Federal income taxes (Note 1) 1,727,000 ---
------------ ------------
Total current liabilities 174,056,000 138,005,000
------------ ------------
Long-Term Debt (Note 2) 125,916,000 127,652,000
------------ ------------
Minority Interest and Other 18,093,000 17,562,000
------------ ------------
Commitments and Contingencies (Note 4)
Shareholders' Equity (Note 3):
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
31,749,199 shares in 2000 and
31,735,349 shares in 1999 7,937,000 7,934,000
Capital in excess of par value 42,167,000 41,232,000
Retained earnings 237,786,000 218,196,000
Treasury shares, at cost, 2,068,002
common shares in 2000 and 1,387,402
common shares in 1999 (19,133,000) (14,548,000)
Accumulated other comprehensive income (Note 1) (3,769,000) (1,074,000)
Deferred compensation (1,027,000) (1,519,000)
------------ ------------
Total shareholders' equity 263,961,000 250,221,000
------------ ------------
$582,026,000 $533,440,000
============ ============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>
26
<PAGE>
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended September 30,
2000 1999 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Net sales $1,118,386,000 $1,032,697,000 $914,874,000
Cost of sales 833,404,000 783,505,000 685,230,000
-------------- -------------- ------------
284,982,000 249,192,000 229,644,000
Selling, general and administrative
expenses 230,060,000 207,499,000 180,211,000
Restructuring charge (Note 1) --- 3,500,000 ---
-------------- -------------- ------------
54,922,000 38,193,000 49,433,000
-------------- -------------- ------------
Other income (expense):
Interest expense (11,785,000) (7,871,000) (3,934,000)
Interest income 1,092,000 864,000 627,000
Other, net (780,000) 895,000 416,000
-------------- -------------- ------------
(11,473,000) (6,112,000) (2,891,000)
-------------- -------------- ------------
Income before income taxes 43,449,000 32,081,000 46,542,000
-------------- -------------- ------------
Provision for income taxes (Note 1) 17,380,000 11,870,000 17,221,000
-------------- -------------- ------------
Income before minority interest and
cumulative effect of a change in
accounting principle 26,069,000 20,211,000 29,321,000
Minority interest (1,189,000) --- ---
-------------- -------------- ------------
Income before cumulative effect of a
change in accounting principle 24,880,000 20,211,000 29,321,000
Cumulative effect of a change in
accounting principle, net of income
taxes (Note 1) (5,290,000) --- ---
-------------- -------------- ------------
Net income $ 19,590,000 $ 20,211,000 $ 29,321,000
============== ============== ============
Basic earnings per share of common stock (Note 1):
Income before cumulative effect of a
change in accounting principle $.83 $.67 $.96
Cumulative effect of a change in
accounting principle (.18) --- ---
-------------- -------------- ------------
$.65 $.67 $.96
============== ============== ============
Diluted earnings per share of common stock (Note 1):
Income before cumulative effect of a
change in accounting principle $.82 $.66 $.94
Cumulative effect of a change in
accounting principle (.17) --- ---
-------------- -------------- ------------
$.65 $.66 $.94
============== ============== ============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>
27
<PAGE>
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998
-------------- -------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,590,000 $ 20,211,000 $ 29,321,000
-------------- -------------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 23,703,000 23,013,000 16,255,000
Minority interest 1,189,000 --- ---
Cumulative effect of a change in
accounting principle 5,290,000 --- ---
Provision for losses on accounts receivable 3,276,000 2,780,000 1,907,000
Deferred income taxes (1,798,000) --- (1,039,000)
Non-cash asset write-downs from restructuring --- 2,150,000 ---
Change in assets and liabilities:
Increase in accounts receivable
and contract costs and recognized
income not yet billed (36,940,000) (22,727,000) (15,070,000)
(Increase) decrease in inventories (1,045,000) 9,105,000 (14,058,000)
Increase in prepaid expenses and
other assets (2,433,000) (8,382,000) (5,587,000)
Increase (decrease) in accounts
payable, accrued liabilities and
Federal income taxes 12,042,000 (12,854,000) 4,393,000
Other changes, net 6,309,000 2,622,000 4,677,000
-------------- -------------- ------------
Total adjustments 9,593,000 (4,293,000) (8,522,000)
-------------- -------------- ------------
Net cash provided by operating activities 29,183,000 15,918,000 20,799,000
-------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in marketable securities --- --- 1,379,000
Acquisition of property, plant and
equipment (37,366,000) (27,697,000) (48,002,000)
Proceeds from sale of product line --- 4,300,000 ---
Acquired businesses (19,841,000) (20,172,000) (26,445,000)
(Increase) decrease in equipment lease deposits 3,917,000 (1,051,000) (1,684,000)
Other, net 4,271,000 79,000 3,826,000
-------------- -------------- ------------
Net cash used in investing activities (49,019,000) (44,541,000) (70,926,000)
-------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (4,585,000) (725,000) (5,580,000)
Proceeds from issuance of long-term debt 26,585,000 38,629,000 60,600,000
Payments of long-term debt (17,060,000) (10,107,000) (1,062,000)
Increase in short-term borrowings 22,540,000 3,214,000 65,000
Other, net (2,270,000) (472,000) 16,000
-------------- -------------- ------------
Net cash provided by financing activities 25,210,000 30,539,000 54,039,000
-------------- -------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,374,000 1,916,000 3,912,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,242,000 19,326,000 15,414,000
-------------- -------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 26,616,000 $ 21,242,000 $ 19,326,000
============== ============== ============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>
28
<PAGE>
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
For the Years Ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
IN OTHER
COMMON STOCK EXCESS OF RETAINED TREASURY SHARES COMPREHENSIVE DEFERRED COMPREHENSIVE
SHARES PAR VALUE PAR VALUE EARNINGS SHARES COST INCOME COMPENSATION INCOME
---------- --------- --------- -------- ------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1997 31,278,830 $7,820 $34,564 $168,664 603,700 $ 6,622 $ --- $2,621
Net income --- --- --- 29,321 --- --- --- --- $ 29,321
Amortization of deferred ========
compensation --- --- --- --- --- --- --- (668)
Purchase of treasury shares --- --- --- --- 562,700 5,580 --- ---
Exercise of stock options 426,786 107 4,427 --- --- --- --- ---
Retirement of treasury shares (5,717) (2) (96) --- (5,717) (98) --- ---
Other 6,463 2 1,158 --- 126,319 1,719 --- 100
---------- ------ ------- -------- --------- ------- -------- ------
Balances, September 30, 1998 31,706,362 7,927 40,053 197,985 1,287,002 13,823 --- 2,053
Foreign currency translation
adjustment --- --- --- --- --- --- (631) --- $ (631)
Minimum pension liability
adjustment --- --- --- --- --- --- (443) --- (443)
Net income --- --- --- 20,211 --- --- --- --- 20,211
--------
Comprehensive income (Note 1) --- --- --- --- --- --- --- --- $ 19,137
========
Amortization of deferred
compensation --- --- --- --- --- --- --- (634)
Purchase of treasury shares --- --- --- --- 100,400 725 --- ---
Exercise of stock options 19,400 5 156 --- --- --- --- ---
Other 9,587 2 1,023 --- --- --- --- 100
---------- ------ ------- -------- --------- ------- -------- ------
Balances, September 30, 1999 31,735,349 7,934 41,232 218,196 1,387,402 14,548 (1,074) 1,519
Foreign currency translation
adjustment --- --- --- --- --- --- (2,582) --- $ (2,582)
Minimum pension liability
adjustment --- --- --- --- --- --- (113) --- (113)
Net income --- --- --- 19,590 --- --- --- --- 19,590
--------
Comprehensive income (Note 1) --- --- --- --- --- --- --- --- $ 16,895
Amortization of deferred ========
compensation --- --- --- --- --- --- --- (592)
Purchase of treasury shares --- --- --- --- 680,600 4,585 --- ---
Other 13,850 3 935 --- --- --- --- 100
---------- ------ ------- -------- --------- ------- -------- ------
Balances, September 30, 2000 31,749,199 $7,937 $42,167 $237,786 2,068,002 $19,133 $ (3,769) $1,027
========== ====== ======= ======== ========= ======= ======== ======
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
</TABLE>
29
<PAGE>
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Griffon
Corporation and all subsidiaries. All significant intercompany items have been
eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash flows, investments and credit risks
The company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents. Cash payments
for interest were approximately $11,853,000, $9,141,000 and $5,353,000 in 2000,
1999 and 1998, respectively.
A substantial portion of the company's trade receivables are from customers
of the garage doors and installation services segments whose financial condition
is dependent on the construction and related retail sectors of the economy.
Comprehensive income
Comprehensive income is presented in the consolidated statements of
shareholders' equity and consists of net income and other items of comprehensive
income such as minimum pension liability adjustments and foreign currency
translation adjustments.
The components of accumulated other comprehensive income at September 30,
2000 were a foreign currency translation adjustment of $3,213,000 and a minimum
pension liability adjustment of $556,000.
Foreign currency
The financial statements of foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. Dollars based on the
current exchange rate at the end of the period for the balance sheet and average
exchange rates for results of operations.
Revenue recognition
Sales are generally recorded as products are shipped and title has passed
to customers.
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.
30
<PAGE>
"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,
2000 1999
----------- -----------
<S> <C> <C>
Finished goods $58,390,000 $51,157,000
Work in process 20,842,000 23,405,000
Raw materials and supplies 19,208,000 19,857,000
----------- -----------
$98,440,000 $94,419,000
=========== ===========
</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,
2000 1999
------------ ------------
<S> <C> <C>
Land, buildings and building
improvements $ 43,648,000 $ 37,384,000
Machinery and equipment 175,829,000 157,122,000
Leasehold improvements 11,000,000 12,528,000
------------ ------------
230,477,000 207,034,000
Less-Accumulated depreciation and
amortization 87,533,000 72,152,000
------------ ------------
$142,944,000 $134,882,000
============ ============
</TABLE>
Acquisitions and costs in excess of fair value of net assets of businesses
acquired ("Goodwill")
In fiscal 2000 the company acquired a search and weather radar business for
approximately $15,000,000 and an operation which installs residential garage
doors and fireplaces for approximately $2,500,000.
In February 1999 the company acquired an operation with annual sales of
approximately $50,000,000 that sells and installs a range of specialty products
to the residential construction market. The purchase price was approximately
$20,000,000.
In July 1998 the company acquired Bohme Verpackungsfolien GmbH & Co., a
German plastic packaging manufacturer with annual sales of approximately
$35,000,000. The purchase price was approximately $28,000,000.
31
<PAGE>
The above acquisitions, substantially financed by bank borrowings, have
been accounted for as purchases and resulted in an increase in goodwill of
$13,977,000 in 2000 and $14,486,000 in 1999. Goodwill is being amortized on a
straight-line basis over a period of twenty to forty years. At September 30,
2000 and 1999, accumulated amortization of goodwill was $11,413,000 and
$9,208,000, respectively. The operating results of acquired businesses have been
included in the consolidated statements of income since the dates of
acquisition.
Income taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current $19,178,000 $11,870,000 $18,260,000
Deferred (1,798,000) --- (1,039,000)
----------- ----------- -----------
$17,380,000 $11,870,000 $17,221,000
=========== =========== ===========
2000 1999 1998
----------- ----------- -----------
Federal $ 8,585,000 $ 9,632,000 $13,194,000
Foreign 6,610,000 191,000 1,260,000
State and local 2,185,000 2,047,000 2,767,000
----------- ----------- -----------
$17,380,000 $11,870,000 $17,221,000
=========== =========== ===========
The components of income before income taxes are as follows:
2000 1999 1998
----------- ----------- -----------
Domestic $27,764,000 $31,646,000 $43,519,000
Foreign 15,685,000 435,000 3,023,000
----------- ----------- -----------
$43,449,000 $32,081,000 $46,542,000
=========== =========== ===========
</TABLE>
The deferred taxes result primarily from differences in the reporting of
depreciation, the allowance for doubtful accounts and other nondeductible
accruals.
Cash payments for income taxes were $10,295,000, $16,938,000 and
$19,670,000 in 2000, 1999 and 1998, respectively.
The following table indicates the significant elements contributing to the
difference between the U.S. Federal statutory tax rate and the company's
effective tax rate:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory
tax rate 35.0% 35.0% 35.0%
State and foreign
income taxes 5.7 4.4 5.6
Other (.7) (2.4) (3.6)
---- ---- ----
Effective tax rate 40.0% 37.0% 37.0%
==== ==== ====
</TABLE>
32
<PAGE>
Research and development costs
Research and development costs not recoverable under contractual
arrangements are charged to expense as incurred. Approximately $10,700,000,
$8,900,000 and $7,700,000 in 2000, 1999 and 1998, respectively, was incurred on
such research and development.
Accrued liabilities
At September 30, 2000 and 1999, accrued liabilities included $20,532,000
and $16,434,000, respectively, for payroll and other employee benefits.
Earnings per share (EPS)
Basic EPS is calculated by dividing income available to common shareholders
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 30,072,000 in 2000, 30,374,000 in 1999 and 30,553,000
in 1998.
Diluted EPS is calculated by dividing income available to common
shareholders 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. The weighted average number of shares of
Common Stock used in determining diluted EPS was 30,244,000 in 2000, 30,551,000
in 1999 and 31,316,000 in 1998 and reflects additional shares in connection with
stock option and other stock-based compensation plans.
Options to purchase approximately 4,170,000, 3,088,000 and 1,000,000 shares
were not included in the computation of diluted earnings per share for the years
2000, 1999 and 1998, respectively, because the effects would be anti-dilutive.
Start-up costs
Effective October 1, 1999 the company adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position No.
98-5 (SOP 98- 5), "Reporting on the Costs of Start-up Activities." SOP 98-5
requires that, at the date of adoption, costs of start-up activities previously
capitalized be written-off as a cumulative effect of a change in accounting
principle, and that after adoption, such costs are to be expensed as incurred.
Consequently, in the first quarter of fiscal 2000, the company's 60%-owned
joint venture wrote off costs that were previously capitalized in connection
with the start-up of the venture and the implementation of additional production
capacity. The cumulative effect of this change in accounting principle is
$5,290,000 (net of $3,784,000 income tax effect). The minority interest's share
of the net charge is $2,116,000 and is included as an offsetting credit in
"Minority interest" in the Consolidated Statement of Income for the year ended
September 30, 2000.
33
<PAGE>
Restructuring charge and sale of product line
In March 1999 the company recorded a restructuring charge aggregating
$3,500,000 in connection with the closing of a garage door manufacturing
facility in order to streamline operations and improve efficiency. The charge
consists of the following:
<TABLE>
<S> <C>
Non-cash asset write-downs $2,150,000
Employee severance and related benefits 900,000
Lease and related costs 450,000
----------
$3,500,000
==========
</TABLE>
Since the last half of 1998 and continuing into 1999 the company has
consolidated or closed several garage door manufacturing or distribution
facilities. Also, in March 1999 the company completed the sale, at approximately
book value, of a peripheral product line, which was operating at a loss. As a
result of these actions, facilities employed in the garage door operation were
reduced by approximately 400,000 square feet and the workforce was reduced by
244 employees, including approximately 100,000 square feet and 100 manufacturing
employees in connection with the March 1999 plant closure. The cash expenditures
included in the restructuring charge were paid as of September 30, 2000.
2. NOTES PAYABLE AND LONG-TERM DEBT:
The company has unsecured short-term lines of credit aggregating
$55,000,000. Borrowings under these lines bear interest at rates based upon
LIBOR or at the prime rate. At September 30, 2000, $28,540,000 was outstanding
under these lines, and the weighted average interest rate was 8.3%.
The company has a $120,000,000 revolving credit facility available through
2002, after which outstanding borrowings may be converted into a four-year term
loan. Borrowings bear interest at rates (8.3% as of September 30, 2000) based
upon LIBOR or at the prime rate and are secured by the capital stock of certain
of the company's subsidiaries. As of September 30, 2000 $92,000,000 was
outstanding under this agreement.
In April 1998 the company's German joint venture entered into a credit
agreement with a bank to finance new production lines. Borrowings under the
agreement are payable in installments through 2001, and bear interest at rates
(4.9% as of September 30, 2000) based upon LIBOR. As of September 30, 2000
approximately $11,118,000 was outstanding under this agreement.
In connection with an acquisition in July 1998 (see Note 1), a subsidiary
of the company entered into a credit agreement with a bank for borrowings of
approximately $20,000,000, payable in installments through 2005. Outstanding
borrowings under the agreement bear interest at rates (6.0% as of September 30,
2000) based upon LIBOR. As of September 30, 2000 approximately $11,593,000 was
outstanding under this agreement.
The balance of the company's long-term debt outstanding at September 30,
2000 relates primarily to real estate mortgages and industrial revenue bond
financing, with interest rates ranging from 4.4% to 10.8% and maturities through
2014.
34
<PAGE>
The following are the maturities of long-term debt outstanding at September
30, 2000 for each of the succeeding five years:
<TABLE>
<S> <C>
2001 $16,169,000
2002 12,699,000
2003 20,461,000
2004 27,105,000
2005 26,173,000
</TABLE>
3. SHAREHOLDERS' EQUITY:
The company has stock option plans under which options for an aggregate of
6,250,000 shares of Common Stock may be granted. As of September 30, 2000
options for 656,250 shares remain available for future grants. The plans provide
for the granting of options at an exercise price of not less than 100% of the
fair market value per share at date of grant. Options generally expire 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 WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at September 30,
1997 3,300,036 $ 8.74
Granted 2,061,500 $13.35
Exercised (426,786) $ 4.06
Terminated (43,250) $13.10
---------
Outstanding at September 30,
1998 4,891,500 $11.05
Granted 1,127,500 $ 8.38
Exercised (19,400) $ 8.29
Terminated (815,100) $ 7.97
---------
Outstanding at September 30,
1999 5,184,500 $10.97
Granted 690,000 $ 7.12
Terminated (192,250) $10.09
---------
Outstanding at September 30,
2000 5,682,250 $10.53
=========
</TABLE>
35
<PAGE>
At September 30, 2000 option groups outstanding and exercisable are as
follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------
Weighted Weighted
Average Average
Range of Number of Remaining Exercise
Exercise Prices Options Life Price
----------------- --------- --------- --------
<S> <C> <C> <C>
$10.875 to $15.75 2,722,500 7.3 years $13.25
$ 6.00 to $10.00 2,959,750 6.8 8.02
</TABLE>
<TABLE>
<CAPTION>
Exercisable Options
----------------------------------------------
Weighted
Average
Range of Number of Exercise
Exercise Prices Options Price
----------------- --------- --------
<S> <C>
$10.875 to $15.75 2,685,000 $13.29
$ 6.625 to $10.00 1,888,625 8.34
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", 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:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income
As reported $19,590,000 $20,211,000 $29,321,000
Pro forma 16,214,000 15,071,000 24,902,000
Earnings per share
As reported -
Basic $.65 $.67 $.96
Diluted .65 .66 .94
Pro forma -
Basic $.54 $.50 $.82
Diluted .54 .49 .80
</TABLE>
The fair value of options granted is estimated on the date of grant using
the Black-Scholes option pricing model. The weighted average fair values of
options granted in fiscal 2000, 1999 and 1998 were $3.36, $3.89 and $6.52,
respectively, based upon the following weighted average assumptions: expected
volatility (.324 in 2000, .321 in 1999 and .350 in 1998), risk-free interest
rate (6.24% in 2000, 5.67% in 1999 and 5.67% in 1998), expected life (7 years in
2000, 1999 and 1998), and expected dividend yield (0% in 2000, 1999 and 1998).
36
<PAGE>
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 is amortized
to compensation expense over the vesting period. The related deferred
compensation has been reflected as a reduction of shareholders' equity. In 2000,
1999 and 1998, 13,850, 9,710 and 6,660 shares, respectively, were issued under
the Outside Director Plan.
As of September 30, 2000, a total of approximately 7,067,000 shares of the
company's authorized Common Stock were reserved for issuance primarily in
connection with stock option plans.
The company has a shareholder rights plan which provides for one right to
be attached to each share of Common Stock. The rights are currently not
exercisable or transferable apart from the Common Stock, and have no voting
power. Under certain circumstances, each right entitles the holder to purchase,
for $34, one one-thousandth of a share of a new series of participating
preferred stock, which is substantially equivalent to one share of Common Stock.
These rights would become exercisable if a person or group acquires 10% or more
of the company's Common Stock or announces a tender offer which would increase
the person's or group's beneficial ownership to 10% or more of the company's
Common Stock, subject to certain exceptions. After a person or group acquires
10% or more of the company's Common Stock, each right (other than those held by
the acquiring party) will entitle the holder to purchase Common Stock having a
market price of two times the exercise price. If the company is acquired in a
merger or other business combination, each exercisable right entitles the holder
to purchase common stock of the acquiring company or an affiliate having a
market price of two times the exercise price of the right. In certain events the
Board of Directors may exchange each right (other than those held by an
acquiring party) for one share of the company's Common Stock or one
one-thousandth of a share of a new series of participating preferred stock. The
rights expire on May 9, 2006 and can be redeemed at $.01 per right at any time
prior to becoming exercisable.
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, 2000:
<TABLE>
<S> <C>
2001 $20,945,000
2002 16,533,000
2003 12,627,000
2004 9,958,000
2005 7,404,000
Later years 6,584,000
</TABLE>
37
<PAGE>
Rent expense for all operating leases, net of subleases, totaled
approximately $29,900,000, $27,400,000 and $24,500,000 in 2000, 1999 and 1998,
respectively.
The company is subject to various laws and regulations concerning the
environment and is currently participating in proceedings under these laws
involving sites formerly owned or occupied by the company. 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, or the total cost of
remediation and the timing and extent of remedial actions which may ultimately
be required by governmental authorities. However, management believes, based on
facts presently known to it, that the outcome of such proceedings will not have
a material adverse effect on the company's consolidated financial position or
results of operations.
5. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarterly results of operations for the years ended September 30, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
2000 2000 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $300,017,000 $278,719,000 $258,889,000 $280,761,000
Gross profit 78,301,000 71,380,000 63,449,000 71,852,000
Net income 7,597,000 6,248,000 1,303,000 4,442,000
Earnings per
share of common
stock:
Basic $.25 $.21 $.04 $.15
Diluted $.25 $.21 $.04 $.15
QUARTERS ENDED
---------------------------------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1998
------------ ------------ ------------ ------------
Net sales $275,367,000 $262,413,000 $236,360,000 $258,557,000
Gross profit 72,273,000 64,468,000 50,325,000 62,126,000
Net income (loss) 9,703,000 5,817,000 (2,461,000) 7,152,000
Earnings (loss) per
share of common
stock:
Basic $.32 $.19 $(.08) $.24
Diluted $.32 $.19 $(.08) $.23
</TABLE>
Earnings per share are computed independently for each of the quarters
presented, on the basis described in Note 1. The sum of the quarters may not be
equal to the full year earnings per share amounts. Net income for the quarter
ended December 31, 1999 includes a charge of $5,290,000 for the cumulative
effect of a change in accounting principle (see Note 1). Net loss for the
quarter ended March 31, 1999 includes a $3,500,000 pre-tax restructuring charge
(see Note 1).
38
<PAGE>
6. 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, 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). The company's reportable segments are distinguished from each other
by types of products and services offered, classes of customers, production and
distribution methods, and separate management.
The company evaluates performance and allocates resources based on
operating results before interest income or expense, income taxes and certain
nonrecurring items of income or expense. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales are based on prices
negotiated between the segments, and intersegment sales and profits are not
eliminated in evaluating performance of a segment.
Information on the company's business segments is as follows:
<TABLE>
<CAPTION>
Electronic
Information
and Specialty
Garage Installation Communication Plastic
Doors Services Systems Films Totals
------------ ------------ ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers -
2000 $401,787,000 $267,932,000 $186,592,000 $262,075,000 $1,118,386,000
1999 418,395,000 239,737,000 177,091,000 197,474,000 1,032,697,000
1998 414,588,000 175,919,000 156,864,000 167,503,000 914,874,000
Intersegment revenues -
2000 $ 29,426,000 $ 466,000 $ --- $ --- $ 29,892,000
1999 29,318,000 932,000 --- --- 30,250,000
1998 29,419,000 1,197,000 --- --- 30,616,000
Segment profit -
2000 $ 17,002,000 $ 6,842,000 $ 19,097,000 $ 20,315,000 $ 63,256,000
1999 27,933,000 6,518,000 15,616,000 550,000 50,617,000
1998 32,107,000 4,611,000 13,665,000 7,446,000 57,829,000
Segment assets -
2000 $171,861,000 $ 92,282,000 $164,602,000 $113,320,000 $ 542,065,000
1999 158,747,000 89,231,000 124,766,000 124,760,000 497,504,000
1998 159,864,000 62,488,000 111,033,000 127,736,000 461,121,000
Segment capital
expenditures -
2000 $ 16,937,000 $ 730,000 $ 3,266,000 $ 16,298,000 $ 37,231,000
1999 15,804,000 797,000 2,728,000 8,254,000 27,583,000
1998 13,501,000 1,773,000 3,889,000 28,765,000 47,928,000
Depreciation and
amortization expense -
2000 $ 7,338,000 $ 2,293,000 $ 3,579,000 $ 9,978,000 $ 23,188,000
1999 6,562,000 1,884,000 3,047,000 11,000,000 22,493,000
1998 6,170,000 1,407,000 2,698,000 5,466,000 15,741,000
</TABLE>
39
<PAGE>
Following are reconciliations of segment profit, assets, capital expenditures
and depreciation and amortization expense to amounts reported in the
consolidated financial statements:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Profit -
Profit for all segments $ 63,256,000 $ 50,617,000 $ 57,829,000
Unallocated amounts (9,114,000) (8,029,000) (7,980,000)
Restructuring charge (Note 1) --- (3,500,000) ---
Interest expense, net (10,693,000) (7,007,000) (3,307,000)
------------ ------------ ------------
Income before income taxes $ 43,449,000 $ 32,081,000 $ 46,542,000
============ ============ ============
Assets -
Total for all segments $542,065,000 $497,504,000 $461,121,000
Unallocated amounts 42,589,000 38,219,000 33,639,000
Intersegment eliminations (2,628,000) (2,283,000) (6,822,000)
------------ ------------ ------------
Total consolidated assets $582,026,000 $533,440,000 $487,938,000
============ ============ ============
Capital expenditures -
Total for all segments $ 37,231,000 $ 27,583,000 $ 47,928,000
Unallocated amounts 135,000 114,000 74,000
------------ ------------ ------------
Total consolidated capital expenditures $ 37,366,000 $ 27,697,000 $ 48,002,000
============ ============ ============
Depreciation and amortization expense -
Total for all segments $ 23,188,000 $ 22,493,000 $ 15,741,000
Unallocated amounts 515,000 520,000 514,000
------------ ------------ ------------
Total consolidated depreciation
and amortization $ 23,703,000 $ 23,013,000 $ 16,255,000
============ ============ ============
</TABLE>
Revenues, based on the customers' locations, and property, plant and equipment
attributed to the United States and all other countries are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------- ---------------- ------------
<S> <C> <C> <C>
Revenues by geographic
area -
United States $ 879,729,000 $ 834,057,000 $760,009,000
Germany 72,266,000 64,666,000 37,865,000
United Kingdom 41,487,000 44,697,000 37,756,000
All other countries 124,904,000 89,277,000 79,244,000
-------------- -------------- -----------
Consolidated net sales $1,118,386,000 $1,032,697,000 $914,874,00
============== ============== ===========
Property, plant and
equipment by geographic area -
United States $ 107,266,000 $ 90,874,000 $ 79,979,000
Germany 35,678,000 44,008,000 52,235,000
-------------- -------------- ------------
Consolidated property, plant and equipment $ 142,944,000 $ 134,882,000 $132,214,000
============== ============== ============
</TABLE>
Sales to a customer of the specialty plastic films segment were
approximately $182,000,000 in 2000, $115,000,000 in 1999 and $96,000,000 in
1998. Sales to the United States Government and its agencies, either as a prime
contractor or subcontractor, aggregated approximately $91,000,000 in 2000,
$86,000,000 in 1999 and $79,000,000 in 1998, all of which are included in the
electronic information and communication systems segment. Unallocated amounts
include general corporate expenses and assets, which consist mainly of cash,
investments, and other assets not attributable to any reportable segment.
40
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
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, 2001, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
company's fiscal year ended September 30, 2000. Information relating to the
officers of the Registrant appears under Item 1 of this report.
41
<PAGE>
PART IV
-------
ITEM 14 - 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:
Page
----
(a) 1. Financial Statements
--------------------
Consolidated Balance Sheets at September 30,
2000 and 1999........................................... 26
Consolidated Statements of Income for the Years
Ended September 30, 2000, 1999 and 1998................. 27
Consolidated Statements of Cash Flows for the
Years Ended September 30, 2000, 1999 and 1998........... 28
Consolidated Statements of Shareholders' Equity
for the Years Ended September 30, 2000, 1999
and 1998................................................ 29
Notes to Consolidated Financial Statements................. 30
42
<PAGE>
Page
----
(a) 2. Schedule
--------
II Valuation and Qualifying Accounts....................... S-1
Schedules other than those listed are omitted because they are not
applicable or because the information required is included in the
consolidated financial statements.
(b) Reports on Form 8-K:
-------------------
None
(c) Exhibits:
--------
Exhibit No.
3.1 Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form
10-K for the year ended September 30, 1995)
3.2 By-laws as amended (Exhibit 3 of Current Report on Form 8-K dated November
8, 1994)
4.1 Rights Agreement dated as of May 9, 1996 between the Registrant and
American Stock Transfer Company (Exhibit 1.1 of Current Report on Form 8-K
dated May 9, 1996)
4.2 Loan Agreement dated as of August 31, 1999 between the Registrant and
lending institutions (Exhibit 4.2 of Annual Report on Form 10-K for the
year ended September 30, 1999)
10.1 Employment Agreement dated as of October 1, 1998 between the Registrant and
Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K dated November
5, 1998)
10.2 Employment Agreement dated as of October 1, 1998 between the Registrant and
Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K dated November
5, 1998)
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 1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on
Form 10-K for the year ended September 30, 1993)
10.5 Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form
10-K for the year ended September 30, 1998)
10.6 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)
43
<PAGE>
10.7 Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration
Statement No. 33-52319)
10.8 1995 Stock Option Plan (Exhibit 4 of Form S-8 Registration Statement No.
33-57683)
10.9 1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No.
333-21503)
10.10 1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No.
333-62319)
10.11 Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8
Registration Statement No. 333-62319)
10.12 1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.3 of
Form S-8 Registration Statement No. 333-62319 and Exhibit 4.1 of Form S-8
Registration Statement No. 333-84409)
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 subsid-
iary, have been omitted.
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation
------------------ -------------
<S> <C>
Clopay Corporation Delaware
Telephonics Corporation Delaware
</TABLE>
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule (for electronic submission only)
-------
* Filed herewith. All other exhibits are incorporated herein by reference to
the exhibit indicated in the parenthetical references.
44
<PAGE>
The following undertakings are incorporated into the company's Registration
Statements on Form S-8 (Registration Nos. 33-39090, 33-62966, 33-52319,
33-57683, 333-21503, 333-62319 and 333-84409).
(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.
45
<PAGE>
(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.
46
<PAGE>
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 20th day of
December, 2000.
GRIFFON CORPORATION
By: /s/ 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 December 20, 2000 by the following persons in
the capacities indicated:
/s/ Harvey R. Blau Chairman of the Board
Harvey R. Blau (Chief Executive Officer)
/s/ Robert Balemian President and Director
Robert Balemian (Chief Operating and Financial Officer)
/s/ Patrick L. Alesia Vice President and Treasurer
Patrick L. Alesia (Chief Accounting Officer)
/s/ Henry A. Alpert Director
Henry A. Alpert
/s/ Bertrand M. Bell Director
Bertrand M. Bell
/s/ Abraham M. Buchman Director
Abraham M. Buchman
/s/ Clarence A. Hill, Jr. Director
Clarence A. Hill, Jr.
/s/ Ronald J. Kramer Director
Ronald J. Kramer
/s/ James W. Stansberry Director
James W. Stansberry
/s/ Martin S. Sussman Director
Martin S. Sussman
/s/ William H. Waldorf Director
William H. Waldorf
/s/ Joseph J. Whalen Director
Joseph J. Whalen
/s/ Lester L. Wolff Director
Lester L. Wolff
47
<PAGE>
SCHEDULE II
GRIFFON CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Additions Deductions
---------------------------- --------------------
Balance at Charged to Accounts Balance at
Beginning Profit and Written End
Description of Period Loss Other Off Other of Period
-------------------------------------- --------- ---------- ---------- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 2000:
Allowance for doubtful accounts $ 8,068,000 $ 3,276,000 $ 765,000(l) $ 2,615,000 $ --- $ 9,494,000
============ ============ =========== ============ =========== ============
FOR THE YEAR ENDED SEPTEMBER 30, 1999:
Allowance for doubtful accounts $ 7,476,000 $ 2,780,000 $ 154,000 $ 2,342,000 $ --- $ 8,068,000
============ ============ =========== ============ =========== ============
FOR THE YEAR ENDED SEPTEMBER 30, 1998:
Allowance for doubtful accounts $ 6,627,000 $ 1,907,000 $ 243,000 $ 1,301,000 $ --- $ 7,476,000
============ ============ =========== ============ =========== ============
<FN>
(1) Includes acquired businesses and other
</FN>
</TABLE>
S-1
