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, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-6620
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Jericho Quadrangle, Jericho, New York 11753
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 938-5544
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
Common Stock, $.25 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [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 14, 2001 - approximately $469,000,000.
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 14, 2001-
32,839,460.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III - Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
PART I
ITEM 1 - BUSINESS
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, manufactures and sells 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 new 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, sells and provides logistical support for communications, radar,
information, command and control systems and large-scale integrated circuits for
defense and commercial markets.
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 subsequently 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) and AtlasTM
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 segment of the residential
housing market, with the balance from the new residential housing and commercial
building 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.
1
Industry
According to industry sources, the residential and commercial/industrial
garage door market for 2000 was estimated to be $1.7 billion. 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, new springing systems and,
most recently, residential garage doors with improved safety features.
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, national installation services,
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.
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.
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.
2
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 sales growth through its dealer network and
penetration of the retail market; (ii) increase brand awareness through
merchandising programs and 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.
The company generally markets its lines 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 new
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 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 performance
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
can be found in warehouses, manufacturing facilities, military installations and
in public and institutional buildings. 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.
3
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. The
segment's largest customer is The Home Depot, Inc. The loss of this customer
would have a material adverse effect on the company's business. 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. 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. Also, in fiscal
2000 Clopay was awarded an exclusive, multi-year contract with Lennar
Corporation, one of the largest homebuilders 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.
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 research
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. Also at this facility, the company's process engineering
team works to develop new manufacturing processes and production techniques
aimed at improving manufacturing efficiencies.
Competition
The garage door industry is characterized by several large national
manufacturers and many smaller regional and local manufacturers. The company
competes on the basis of service, quality, innovative products and services,
brand awareness and price.
4
Installation Services
The company has developed a substantial network of specialty building
products installation and service operations. These 38 locations serving 24
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 a substantial portion 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.
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 design
centers 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 19
of the top 100 metropolitan markets based on population and 11 of the top 20 new
single-family residential construction markets. The markets served account for
approximately 25% of all new residential housing permits in the United States.
The company seeks to 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 products are generally consumed at approximately the
same time in the construction process. Products offered can be selected and
upgraded by the customer in the company's design centers. The company believes
5
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 most 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 and
door styles are offered for distribution and installation to the new
construction market.
Other - other products include seamless gutters, closet systems, window
coverings, bath enclosures, and architectural hardware. 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. From
1993 through 2000, the company has completed thirteen acquisitions of building
products service and installation operations.
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.
6
Specialty Plastic Films
The company believes that, through Clopay Plastics Products Company, 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 developing countries and favorable demographics, such as
the aging of the population, in the major global economies. Other key trends
representing significant opportunities for manufacturers include the continued
demand for new advanced products such as cloth-like, 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, disposable health care and
industrial 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.
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 continue to increase its domestic
sales and expand internationally through ongoing 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.
7
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, 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, health care and industrial 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 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 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
8
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, and subsequently increased capacity by adding new state of the art
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.
Electronic Information and Communication Systems
The company, through its wholly-owned subsidiary, Telephonics Corporation,
specializes in advanced electronic information and communication systems for
defense, aerospace, civil, industrial, and commercial markets worldwide. The
company designs, manufactures, sells, and provides logistical support for
aircraft communication systems, radar, air traffic management systems,
identification friend or foe ("IFF") equipment, transit communications and
custom, mixed-signal, application specific integrated circuits. The company is a
leading supplier of airborne maritime surveillance radar and aircraft
intercommunication management systems, two of the segment's largest product
lines. In addition to its traditional defense products used predominantly by the
United States Government, in recent years the company has successfully adapted
its core technologies to products used in military and commercial applications
worldwide and has expanded its presence in both non-defense government and
commercial markets.
9
Industry
The United States defense electronics procurement budget is expected to
grow faster than the overall defense budget. Growth in this budget area reflects
the trend in recent years for the United States' Department of Defense to opt
for the installation of new electronic systems and equipment in existing
aircraft rather than develop totally new weapons systems. Conflicts involving
the country's military have also tended in recent years to require deployment
and significant coordination between air, sea and ground forces, often in
distant parts of the world, underscoring the evolution and growing importance of
electronic systems that provide surveillance, tracking, communication and
command and control. It is anticipated that the need for such systems will also
increase in connection with the increasingly active role that the military is
expected to play in the war on terrorism, both at home and abroad. Telephonics'
advanced systems and sub-systems are well positioned to address the needs of an
electronic battlefield with emphasis on the generation and dissemination of
timely data for use by highly mobile ground, air and naval forces.
The table below lists some of the major programs the company currently
participates in:
Customer Product Description
------- ------- -----------
The Boeing Intercommunications U.S. Air Force C-17A Cargo
Company Management Systems Transport
U.S. Air Force C-130 Hercules Air
Transport
NATO Airborne Warning and Control
System (AWACS)
U.S. Navy F/A-18E/F
Fighter/Attack Aircraft
Identification Friend or U.S./NATO AWACS
Foe System
BAE Systems Intercommunications UK NIMROD Royal Maritime Patrol
System Integration Aircraft
Northrop Grumman Intercommunications Joint STARS Surveillance Aircraft
Management Systems
Maritime Surveillance U.S. Coast Guard HU-25 Aircraft
Radar
Lockheed Martin Intercommunications U.S. Navy P-3 Aircraft
Corporation Management Systems
U.S. Navy MH-60S/MH-60R
Helicopters
Maritime Surveillance U.S. Navy MH-60R LAMPS Helicopter
Radar and Identification
Friend or Foe System
Sikorsky Maritime Surveillance S-70B Maritime Surveillance
Aircraft Company Radar Helicopter
Intercommunications SH-60B Maritime Surveillance
Management Systems Helicopter
10
Telephonics is generally a first tier supplier to prime contractors in the
defense industry such as Boeing, Lockheed Martin, Northrop Grumman and BAE
Systems. With the significant contraction and consolidation that has occurred in
the U.S. and international defense industry, major prime contractors worldwide
are relying more heavily on smaller, key suppliers to provide advances in
technology and greater efficiencies to reduce the cost of major systems and
platforms. We believe that this situation creates an attractive opportunity for
established, first tier suppliers to capitalize on existing relationships with
major prime contractors and play a larger role in the foreseeable future.
In recent years, the segment has also significantly expanded its customer
base in international markets. 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 increasing number of contracts with the Civil Aviation
Authority of China for air traffic management systems for Mainland China. As a
result of these and other developments, the segment's sales to these markets
continues to increase.
Some of the major non-defense related programs in which the company
currently participates include:
Description Customers Products
- ----------- --------- --------
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, Airborne weather
Radar Eurocopter and and search radar
others
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 voice and data communications, radio frequency (RF)
design, digital signal processing, networking systems, inverse synthetic
aperture radar and analog, digital and mixed-signal integrated circuits, has
enhanced its ability to secure, retain and expand its participation in defense
programs and commercial undertakings. The company is capable of meeting a full
range of customer requirements including system requirements definition, product
design and development, manufacturing and test, integration and installation,
and logistical support. As a result, the company has been successful in
developing a number of relationships as an important strategic partner and first
tier supplier to various prime contractors.
Broad Base of Long-Life Programs and Incumbent Supplier Status. 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. Due to the
11
inherent complexity of defense electronics, the company believes that its
incumbent status on major platforms give it a competitive advantage in the
selection process for the upgrades and enhancements that have characterized
defense electronics procurement. Furthermore, the company believes that awards
such as the U.S. Navy's MH-60R LAMPS helicopter program and the recent contract
award from Boeing to develop multiple configurations of Telephonics' Secure
Digital Intercommunications System in support of the U.S. Air Force's C-130
Avionics Modernization Program, provide competitive advantages when such
programs transition from development to the production phase.
Strategy
The company believes that it is a technological leader in its core markets
and intends to pursue new growth opportunities by leveraging its systems design
and engineering capabilities and incumbent position on key platforms. For
example, during 2000 Telephonics was awarded a contract valued at over $21
million for the development of the next generation integrated radio management
system for the U.S. Air Force's C-17A air transport. Following the development
phase, the company expects to upgrade the entire fleet of C-17A's with the new
equipment. The company also expects substantial sales growth as it transitions
from development to the production phase of the MH-60R helicopter program, which
is now expected to commence in 2004.
Telephonics' objective is to anticipate the needs of its core markets and
to invest in research and development in an effort to provide solutions well in
advance of its competitors. To add additional value to customers' products and
solidify relationships and its incumbent status, Telephonics often designs its
products to exceed customers' minimum specifications, providing its customers
with greater performance and flexibility. The company believes that these
practices engender increased coordination and communication with its customers
at the earliest stages of new program development, thereby increasing the
likelihood that Telephonics' products will be selected and integrated as part of
a total system solution.
Due to increasing demand for broadband wireless voice and data
communications, Telephonics is focusing on product development in this area with
a view toward creating significant telecommunications market opportunities. Two
examples where the segment is leveraging its extensive electronic systems design
capability is in the development of equipment whose purpose is to substantially
improve the performance of existing wireless networks by increasing their speed,
capacity and their overall quality of service and in the development of an
electronically steerable, broadband satellite tracking antenna for voice, data
and video applications. Additionally, TLSI, Telephonics' integrated circuit
design subsidiary, also is expanding its markets by leveraging its expertise to
develop application specific standard integrated circuits targeted at the
telecommunications, computer and computer peripherals industries. In 2001, TLSI
introduced a miniature high precision Clock Generator chip which is used to
sequence and synchronize electronic signals. First in a series of application
specific standard integrated circuits, this advanced, single chip solution is
designed into fiber optic network applications.
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.
12
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 MH-60R multi-mission and MH-60S utility
helicopters, the United Kingdom's NIMROD surveillance aircraft, U.S. Air Force
C-17A cargo transport, the U.S. Air Force's Joint Surveillance and Target
Acquisition Radar System (Joint-STARS), and AWACS. The company has also 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.
The company's command and control systems include airborne maritime
surveillance and weather and search radar systems, air traffic management
systems and tactical instrument landing systems. During 2000, Telephonics
acquired a search and weather radar business from Honeywell International,
expanding its maritime 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 tactical microwave
landing systems used by the U.S. Navy, NASA and other customers for ground and
ship based applications.
Through TLSI the company manufactures custom and standard, mixed-signal,
application specific large-scale integrated circuits for customers in the
security, automotive and telecommunications industries and for the military.
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. Defense applications include chips used
in weapon fuses and shipboard test and maintenance equipment used by the U.S.
Navy to repair and maintain aircraft radar and communications equipment. 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 $176 million on September 30, 2001, compared to $190
million on September 30, 2000.
Sales and Marketing
Telephonics has approximately 16 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 research and development activities are
generally performed under government contracts and the segment regularly updates
its core technologies through internally funded research and development. The
selection of these R&D projects is based on available opportunities in the
marketplace as well as input from the company's customers. These projects have
generally represented an evolution of existing products rather than entirely new
pursuits. Recent internally funded research and development has resulted in the
development of a next generation airborne imaging maritime surveillance radar
system and an all digital, totally secure intercommunication management system.
13
By leveraging its extensive military electronics systems' design and
development capability, Telephonics believes it can create additional growth
opportunities and enter new markets, and is undertaking a series of development
initiatives related to broadband, wireless and integrated circuit operations
(see "Strategy"). These development initiatives, which began in 2001 are
estimated at approximately $5-6 million for fiscal 2002 with the objective of
generating incremental revenue commencing in 2003.
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 140 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 $13,800,000 in 2001, $10,700,000 in
2000, and $8,900,000 in 1999.
Officers of the Registrant
Served as Positions and
Name Age Officer Since Offices
---- --- ------------- -------------
Harvey R. Blau 66 1983 Chairman of the
Board and Chief
Executive Officer
Robert Balemian 62 1976 President and Chief
Financial Officer
Patrick L. Alesia 53 1979 Vice President and
Treasurer
Edward I. Kramer 67 1997 Vice President,
Administration and
Secretary
14
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:
Approximate Owned
Square or
Location Business Segment Primary Use Footage Leased
- -------- ---------------- ----------- ------------ ------
Jericho, NY Corporate Headquarters Office 11,000 Leased
Farmingdale, NY Electronic Information Manufacturing 167,000 Owned
and Communication and research
Systems and development
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
Dombuhl, 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 116,000 Leased
Nesbit, MS Garage Doors Manufacturing 70,000 Owned
Los Angeles, CA Garage Doors Garage door 40,000 Leased
hardware
manufacturing
Auburn, WA Garage Doors Manufacturing 123,000 Leased
Tempe, AZ Garage Doors Manufacturing 143,000 Leased
Installation Services Warehousing
The company also leases approximately 1,900,000 square feet of space for
the Garage Doors distribution centers and Installation Services locations in
numerous facilities throughout the United States.
15
The company has aggregate minimum annual rental commitments under real
estate leases of approximately $11.0 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
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 adjusted
for the 10% Common Stock dividend issued in 2001:
FISCAL QUARTER ENDED HIGH LOW
---- ---
December 31, 1999 $ 7.44 $6.14
March 31, 2000 7.73 6.25
June 30, 2000 7.10 4.77
September 30, 2000 7.33 5.11
December 31, 2000 7.27 5.63
March 31, 2001 7.27 6.14
June 30, 2001 10.00 6.98
September 30, 2001 12.20 9.12
(b) As of November 1, 2001, there were approximately 14,300 recordholders
of the company's Common Stock.
(c) The company declared and paid a 10% Common Stock dividend during fiscal
2001. No cash dividends on Common Stock were declared or paid during the five
years ended September 30, 2001.
17
ITEM 6 - SELECTED FINANCIAL DATA
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Net sales $1,160,125,000 $1,118,386,000 $1,032,697,000 $914,874,000 $770,227,000
============== ============== ============== ============ ============
Net income $ 30,593,000 $ 24,880,000 $ 20,211,000 $ 29,321,000 $ 33,164,000
============== ============== ============== ============ ============
Per share:
Basic $ .93 $ .75 $ .60 $ .87 $ 1.02
============== ============== ============== ============ ============
Diluted $ .92 $ .75 $ .60 $ .85 $ .97
============== ============== ============== ============ ============
Total assets $ 584,993,000 $ 582,026,000 $ 533,440,000 $487,938,000 $384,759,000
============== ============== ============== ============ ============
Long-term
obligations $ 117,943,000 $ 134,942,000 $ 135,284,000 $112,829,000 $ 53,854,000
============== ============== ============== ============ ============
Operating results for 2001 include a $3,156,000 pre-tax pension curtailment
gain and for 1999 include a $3,500,000 pre-tax restructuring charge. Net income
for 2000 excludes a $5,290,000 charge for the cumulative effect of a change in
accounting principle.
18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Fiscal 2001 Compared to Fiscal 2000
Operating results (in thousands) by business segment were as follows:
Net Sales Operating Profit
--------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
Garage doors $ 428,601 $ 431,213 $18,223 $17,002
Installation services 268,758 268,398 6,099 6,842
Specialty plastic films 297,100 262,075 41,772 20,315
Electronic information
and communication systems 191,782 186,592 16,076 19,097
Intersegment revenues (26,116) (29,892) - -
---------- ---------- ------- -------
$1,160,125 $1,118,386 $82,170 $63,256
========== ========== ======= =======
Garage Doors
Net sales of the garage door segment decreased by $2.6 million compared to
2000 due to lower unit sales. Unit sales decreases occurred in the first half of
the year primarily due to competitive markets and economic conditions. Operating
results strengthened and unit sales increased in the second half reflecting the
effect of improved service levels and market conditions.
Operating profit of the garage doors segment increased $1.2 million
compared to last year. Gross profit as a percentage of sales was essentially
unchanged compared to the prior year. Lower gross profit margins (approximately
25.4% in 2001 compared to 27.4% last year) and operating profit in the first six
months of the year were offset in the second half by improved gross profit
margins (approximately 29.0% in 2001 compared to 27.0% in 2000) and increased
operating profit due primarily to the sales growth, increased manufacturing
efficiencies and lower expense levels. Selling, general and administrative
expenses decreased by approximately $1.4 million primarily due to the effect in
the second half of the year of cost reduction programs. The profitability
improvement that garage doors experienced in the second half of the year is
expected to continue in 2002 through sales growth and the impact of improved
operational efficiencies.
Installation Services
Net sales of the installation services segment were approximately the same
as last year. The impact of softer housing markets was mitigated by growth from
expanded product offerings.
Operating profit of the installation services segment decreased $.7 million
compared to last year. Gross margin percentage increased from approximately
25.9% last year to 26.4% in 2001 as expanded product offerings resulted in
improved product mix. Selling, general and administrative expenses as a
percentage of sales increased from approximately 23.3% last year to 24.2% in
2001 due to higher selling costs, offsetting the margin improvement.
Specialty Plastic Films
Net sales of the specialty plastic films segment increased $35.0 million
compared to 2000. Domestic sales increased $27.3 million and sales of the
segment's European operations increased by approximately $7.7 million. Both
domestic and foreign unit sales increased approximately 20% compared to last
19
year due primarily to increased demand for its breathable hygienic products used
in infant diapers and health care products. The effect of increased unit volumes
was partly offset by the impact of a stronger U.S. dollar on translated foreign
sales and due to selling price adjustments made to pass through raw material
cost decreases to customers.
Operating profit of the specialty plastic films segment increased $21.5
million compared to last year with substantial increases occurring in both
domestic and European operations. Strong demand was met using modern, state-
of-the-art production facilities and processes that are able to perform at
higher production rates. The increased manufacturing efficiencies, sales growth
and a favorable product mix resulted in the gross margin percentage increasing
from approximately 20.0% last year to 25.4% in 2001. Also contributing to the
profitability improvement in 2001 was reduced selling, general and
administrative expenses as a percentage of sales, which decreased from
approximately 11.9% last year to 11.1% in 2001.
Electronic Information and Communication Systems
Net sales of the electronic information and communication systems segment
increased $5.2 million compared to 2000. The increase was primarily due to
increased sales in connection with the C-17 and other defense communications
programs, partly offset by lower sales in the segment's integrated circuit
business.
Operating profit of the electronic information and communication systems
segment decreased $3.0 million compared to last year. Gross profit as a
percentage of sales was approximately the same as fiscal 2000. The effect of
increased sales in the segment's core business and lower selling, general and
administrative expenses was offset by approximately $4.7 million of costs
associated with its previously announced technology initiatives. These
development initiatives are expected to aggregate $5-6 million for 2002 with the
objective of generating incremental revenue commencing in 2003.
Net Interest Expense
Net interest expense decreased by $1.6 million compared to last year due to
the effect of debt repayments and lower interest rates.
Fiscal 2000 Compared to Fiscal 1999
Operating results (in thousands) by business segment were as follows:
Net Sales Operating Profit
--------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Garage doors $ 431,213 $ 447,713 $17,002 $27,933
Installation services 268,398 240,669 6,842 6,518
Specialty plastic films 262,075 197,474 20,315 550
Electronic information
and communication systems 186,592 177,091 19,097 15,616
Intersegment revenues (29,892) (30,250) - -
---------- ---------- ------- -------
$1,118,386 $1,032,697 $63,256 $50,617
========== ========== ======= =======
Garage Doors
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 in 1999 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.
Operating profit of the garage doors segment decreased by $10.9 million
compared to 1999. 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
20
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.
Installation Services
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.
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.
Specialty Plastic Films
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 1999. The remainder of the increase is principally due to
increased unit sales volume in the segment's domestic operations.
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 effect of a stronger U.S. dollar compared to
1999. 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 effects of higher raw material costs.
Electronic Information and Communication Systems
Net sales of the electronic information and communication systems segment
increased $9.5 million compared to 1999 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 of the electronic information and communication systems
segment increased by $3.5 million compared to 1999. 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.
Net Interest Expense
Net interest expense increased by $3.7 million compared to 1999 due to
higher levels of outstanding debt used to pay for acquisitions in 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations for 2001 was $98.8 million, and working
capital was $205.9 million at September 30, 2001. Operating cash flows increased
compared to last year due to the higher earnings and improved working capital
management.
Net cash used in investing activities during 2001 was approximately $25.5
million. The company had capital expenditures of approximately $26.7 million,
principally made in connection with increasing production capacity and
21
manufacturing efficiencies. During 2002 the company anticipates capital
expenditures of approximately $30 million. A substantial portion of these
anticipated expenditures are for additional capacity in the specialty plastic
films and garage doors segments.
Net cash used for financing activities during 2001 was approximately $59.8
million, primarily notes payable and long-term debt reductions of $57.6 million.
In June 2001 the company's European operations entered into new bank loan
agreements, replacing then existing financing arrangements. Also, in October
2001 the company and a subsidiary entered into a six-year, $160 million credit
agreement with several banks, replacing an existing bank agreement and certain
short-term lines of credit. See Note 2 of Notes to Consolidated Financial
Statements for a further description of the new agreements.
The company rents various real property and equipment through
noncancellable operating leases. Related future minimum lease payments due in
2002 approximate $20 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.
Changes In Accounting Principle
In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 141 and 142 (SFAS 141 and SFAS 142),
"Business Combinations" and "Goodwill and Other Intangible Assets",
respectively. SFAS 141 addresses financial accounting and reporting for business
combinations, requiring the use of the purchase method of accounting. SFAS 142
addresses accounting and reporting for acquired goodwill. It eliminates the
previous requirement to amortize goodwill and establishes new requirements with
respect to the recognition and valuation of goodwill. The company will adopt
these standards for fiscal 2002. Amortization of goodwill has been approximately
$2 million per year. The company is in the process of determining what impact
adoption of the new standards will have on the carrying value of existing
goodwill. Preliminary indications are that all or a substantial portion of
goodwill attributable to the company's installation services segment,
approximately $26.7 million at September 30, 2001, may be impaired pursuant to
the new requirements of SFAS 142. The new standard requires recognizing any
impairment which arises at the date of adoption as a cumulative effect of a
change in accounting principle in the first quarter of fiscal 2002.
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,
22
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.
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 6, 2001 are included herein:
- Report of Independent Public Accountants.
- Consolidated Balance Sheets at September 30, 2001 and 2000.
- Consolidated Statements of Income, Cash Flows and Shareholders'
Equity for the years ended September 30, 2001, 2000, 1999.
- Notes to Consolidated Financial Statements.
23
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, 2001
and 2000 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended September
30, 2001. 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, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001 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
ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 6, 2001
24
GRIFFON CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30,
-----------------------------------
2001 2000
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 40,096,000 $ 26,616,000
Accounts receivable, less allowance
for doubtful accounts of $10,572,000 in
2001 and $9,494,000 in 2000 (Note 1) 146,425,000 144,259,000
Contract costs and recognized income
not yet billed (Note 1) 66,116,000 77,513,000
Inventories (Note 1) 98,044,000 98,440,000
Prepaid expenses and other current assets 18,148,000 18,891,000
------------ ------------
Total current assets 368,829,000 365,719,000
------------ ------------
Property, Plant and Equipment, at cost, net
of depreciation and amortization (Note 1) 145,931,000 142,944,000
------------ ------------
Other Assets:
Costs in excess of fair value of net assets
of businesses acquired, net (Note 1) 60,232,000 62,463,000
Other 10,001,000 10,900,000
------------ ------------
70,233,000 73,363,000
------------ ------------
$584,993,000 $582,026,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term
debt (Note 2) $ 8,346,000 $ 44,709,000
Accounts payable 59,206,000 61,895,000
Accrued liabilities (Note 1) 72,537,000 59,489,000
Income taxes (Note 1) 22,862,000 7,963,000
------------ ------------
Total current liabilities 162,951,000 174,056,000
------------ ------------
Long-Term Debt (Note 2) 108,615,000 125,916,000
------------ ------------
Minority Interest and Other 19,574,000 18,093,000
------------ ------------
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
35,023,437 shares in 2001 and
31,749,199 shares in 2000 8,756,000 7,937,000
Capital in excess of par value 79,761,000 42,167,000
Retained earnings 231,668,000 237,786,000
Treasury shares, at cost, 2,284,802
common shares in 2001 and 2,068,002
common shares in 2000 (19,230,000) (19,133,000)
Accumulated other comprehensive income (Note 1) (4,573,000) (3,769,000)
Deferred compensation (2,529,000) (1,027,000)
------------ ------------
Total shareholders' equity 293,853,000 263,961,000
------------ ------------
$584,993,000 $582,026,000
============ ============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
25
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Net sales $1,160,125,000 $1,118,386,000 $1,032,697,000
Cost of sales 849,436,000 833,404,000 783,505,000
-------------- -------------- --------------
310,689,000 284,982,000 249,192,000
Selling, general and administrative
expenses (Note 1) 239,275,000 230,060,000 207,499,000
Restructuring charge (Note 1) --- --- 3,500,000
-------------- -------------- --------------
71,414,000 54,922,000 38,193,000
-------------- -------------- --------------
Other income (expense):
Interest expense (11,065,000) (11,785,000) (7,871,000)
Interest income 1,959,000 1,092,000 864,000
Other, net (581,000) (780,000) 895,000
-------------- -------------- --------------
(9,687,000) (11,473,000) (6,112,000)
-------------- -------------- --------------
Income before income taxes 61,727,000 43,449,000 32,081,000
-------------- -------------- --------------
Provision for income taxes (Note 1) 25,308,000 17,380,000 11,870,000
-------------- -------------- --------------
Income before minority interest and
cumulative effect of a change in
accounting principle 36,419,000 26,069,000 20,211,000
Minority interest (5,826,000) (1,189,000) ---
-------------- -------------- --------------
Income before cumulative effect of a
change in accounting principle 30,593,000 24,880,000 20,211,000
Cumulative effect of a change in
accounting principle, net of income
taxes (Note 1) --- (5,290,000) ---
-------------- -------------- --------------
Net income $ 30,593,000 $ 19,590,000 $ 20,211,000
============== ============== ==============
Basic earnings per share of common stock (Note 1):
Income before cumulative effect of a
change in accounting principle $.93 $.75 $.60
Cumulative effect of a change in
accounting principle --- (.16) ---
-------------- -------------- --------------
$.93 $.59 $.60
============== ============== ==============
Diluted earnings per share of common stock (Note 1):
Income before cumulative effect of a
change in accounting principle $.92 $.75 $.60
Cumulative effect of a change in
accounting principle --- (.16) ---
-------------- -------------- --------------
$.92 $.59 $.60
============== ============== ==============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
26
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
2001 2000 1999
------------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,593,000 $ 19,590,000 $ 20,211,000
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 24,204,000 23,703,000 23,013,000
Minority interest 5,826,000 1,189,000 ---
Pension curtailment gain (3,156,000) --- ---
Cumulative effect of a change in
accounting principle --- 5,290,000 ---
Provision for losses on accounts receivable 4,836,000 3,276,000 2,780,000
Deferred income taxes 4,268,000 (1,798,000) ---
Non-cash asset write-downs from restructuring --- --- 2,150,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable
and contract costs and recognized
income not yet billed 4,767,000 (36,940,000) (22,727,000)
(Increase) decrease in inventories 625,000 (1,045,000) 9,105,000
Increase in prepaid expenses and
other assets (304,000) (2,433,000) (8,382,000)
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable 22,384,000 12,042,000 (12,854,000)
Other changes, net 4,736,000 6,309,000 2,622,000
------------ ------------ ------------
Total adjustments 68,186,000 9,593,000 (4,293,000)
------------ ------------ ------------
Net cash provided by operating activities 98,779,000 29,183,000 15,918,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and
equipment (26,678,000) (37,366,000) (27,697,000)
Proceeds from sale of product line --- --- 4,300,000
Acquired businesses --- (19,841,000) (20,172,000)
(Increase) decrease in equipment lease deposits 1,469,000 3,917,000 (1,051,000)
Other, net (315,000) 4,271,000 79,000
------------ ------------ ------------
Net cash used in investing activities (25,524,000) (49,019,000) (44,541,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (97,000) (4,585,000) (725,000)
Proceeds from issuance of long-term debt 1,406,000 26,585,000 38,629,000
Payments of long-term debt (52,052,000) (17,060,000) (10,107,000)
Increase (decrease) in short-term borrowings (5,548,000) 22,540,000 3,214,000
Other, net (3,484,000) (2,270,000) (472,000)
------------ ------------ ------------
Net cash provided (used) by
financing activities (59,775,000) 25,210,000 30,539,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,480,000 5,374,000 1,916,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,616,000 21,242,000 19,326,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,096,000 $ 26,616,000 $ 21,242,000
============ ============ ============
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</FN>
27
GRIFFON CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
For the Years Ended September 30, 2001, 2000 and 1999
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
------ --------- --------- -------- ------ ------- -------------- ------------ ------------
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
Foreign currency translation
adjustment --- --- --- --- --- --- 999 --- $ 999
Minimum pension liability
adjustment --- --- --- --- --- --- (1,803) --- (1,803)
Net income --- --- --- 30,593 --- --- --- --- 30,593
--------
Comprehensive income (Note 1) --- --- --- --- --- --- --- --- $ 29,789
========
Amortization of deferred
compensation --- --- --- --- --- --- --- (598)
ESOP purchase of Common Stock --- --- --- --- --- --- --- 2,000
Purchase of treasury shares --- --- --- --- 10,000 97 --- ---
Exercise of stock options 77,000 19 627 --- --- --- --- ---
10% stock dividend 3,183,028 796 35,904 (36,711) 206,800 --- --- ---
Other 14,210 4 1,063 --- --- --- --- 100
---------- ------- ------- ------- --------- ------- ------- -------
Balances, September 30, 2001 35,023,437 $8,756 $79,761 $231,668 2,284,802 $19,230 $(4,573) $2,529
========== ======= ======= ======== ========= ======= ======== ========
28
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Griffon
Corporation and all subsidiaries. All significant intercompany items have been
eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash flows, investments and credit risk
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 $13,577,000, $11,853,000, and $9,141,000 in
2001, 2000 and 1999, 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,
2001 were a foreign currency translation adjustment of $2,214,000 and a minimum
pension liability adjustment of $2,359,000.
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.
29
"Contract costs and recognized income not yet billed" consists of
recoverable costs and accrued profit on long-term contracts for which billings
had not been presented to the customers because the amounts were not billable at
the balance sheet date.
Inventories
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, include material, labor and manufacturing overhead costs and are
comprised of the following:
SEPTEMBER 30,
--------------------------
2001 2000
----------- -----------
Finished goods $53,613,000 $58,390,000
Work in process 27,809,000 20,842,000
Raw materials and supplies 16,622,000 19,208,000
----------- -----------
$98,044,000 $98,440,000
=========== ===========
Property, plant and equipment
Depreciation of property, plant and equipment is provided primarily on a
straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the life of the lease or life of
the improvement, whichever is shorter.
Property, plant and equipment consists of the following:
SEPTEMBER 30,
--------------------------
2001 2000
----------- -----------
Land, buildings and building
improvements $ 45,166,000 $ 43,648,000
Machinery and equipment 193,371,000 175,829,000
Leasehold improvements 11,625,000 11,000,000
------------ ------------
250,162,000 230,477,000
Less-Accumulated depreciation and
amortization 104,231,000 87,533,000
------------ ------------
$145,931,000 $142,944,000
============ ============
Acquisitions and costs in excess of fair value of net assets of businesses
acquired ("Goodwill")
In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 141 and 142 (SFAS 141 and SFAS 142),
"Business Combinations" and "Goodwill and Other Intangible Assets",
respectively. SFAS 141 addresses financial accounting and reporting for business
combinations, requiring the use of the purchase method of accounting. SFAS 142
addresses accounting and reporting for acquired goodwill. It eliminates the
previous requirement to amortize goodwill and establishes new requirements with
respect to the recognition and valuation of goodwill. The company will adopt
these standards for fiscal 2002. Amortization of goodwill has been approximately
$2 million per year. The company is in the process of determining what impact
adoption of the new standard will have on the carrying value of existing
goodwill. Preliminary indications are that all or a substantial portion of
goodwill attributable to the company's installation services segment,
approximately $26,700,000 at September 30, 2001, may be impaired pursuant to the
new requirements of SFAS 142. The new standard requires recognizing any
impairment which arises at the date of adoption as a cumulative effect of a
change in accounting principle in the first quarter of fiscal 2002.
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.
30
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.
The above acquisitions, substantially financed by bank borrowings, have
been accounted for as purchases and resulted in increases in goodwill of
$13,977,000 in 2000 and $14,486,000 in 1999. Goodwill has been amortized on a
straight-line basis over a period of twenty to forty years. At September 30,
2001 and 2000, accumulated amortization of goodwill was $13,840,000 and
$11,413,000, respectively.
Income taxes
The provision for income taxes is comprised of the following:
2001 2000 1999
----------- ----------- -----------
Current $21,040,000 $19,178,000 $11,870,000
Deferred 4,268,000 (1,798,000) ---
----------- ----------- -----------
$25,308,000 $17,380,000 $11,870,000
=========== =========== ===========
2001 2000 1999
----------- ----------- -----------
Federal $13,114,000 $ 8,585,000 $ 9,632,000
Foreign 9,939,000 6,610,000 191,000
State and local 2,255,000 2,185,000 2,047,000
----------- ----------- -----------
$25,308,000 $17,380,000 $11,870,000
=========== =========== ===========
The components of income before income taxes are as follows:
2001 2000 1999
----------- ----------- -----------
Domestic $38,022,000 $27,764,000 $31,646,000
Foreign 23,705,000 15,685,000 435,000
----------- ----------- -----------
$61,727,000 $43,449,000 $32,081,000
=========== =========== ===========
The deferred taxes result primarily from differences in the reporting of
depreciation, the allowance for doubtful accounts and other nondeductible
accruals.
Cash payments for income taxes were $10,350,000, $10,295,000 and
$16,938,000 in 2001, 2000 and 1999, 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:
2001 2000 1999
---- ---- ----
U.S. Federal statutory
tax rate 35.0% 35.0% 35.0%
State and foreign
income taxes 5.0 5.7 4.4
Other 1.0 (.7) (2.4)
---- ---- ----
Effective tax rate 41.0% 40.0% 37.0%
31
Research and development costs and shipping and handling costs
Research and development costs not recoverable under contractual
arrangements are charged to expense as incurred. Approximately $13,790,000,
$10,700,000 and $8,900,000 in 2001, 2000 and 1999, respectively, was incurred on
such research and development. Selling, general and administrative expenses
include shipping and handling costs of $34,400,000 in 2001, $37,200,000 in 2000
and $37,100,000 in 1999.
Accrued liabilities
At September 30, 2001 and 2000, accrued liabilities included $27,889,000
and $20,532,000, respectively, for payroll and other employee benefits.
Earnings per share (EPS)
Earnings per share amounts and the weighted average number of shares used
in their calculation have been restated to reflect the effect of a fiscal 2001
10% Common Stock dividend. (See Note 3)
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 32,965,000 in 2001, 33,079,000 in 2000 and 33,411,000
in 1999.
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 33,406,000 in 2001, 33,268,000
in 2000 and 33,606,000 in 1999 and reflects additional shares in connection with
stock option and other stock-based compensation plans.
Options to purchase approximately 1,790,000, 4,587,000 and 3,396,000,
shares were not included in the computation of diluted earnings per share for
the years 2001, 2000 and 1999, respectively, because the effects would be anti-
dilutive.
Pension curtailment gain
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 88, "Accounting for Settlements and Curtailments of Defined Benefits Pension
Plans and for Termination Benefits," modifications to certain employee benefits
and related benefit freezes resulted in the recognition of a pre-tax curtailment
gain of $3,156,000 in the fiscal year ended September 30, 2001.
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 was
$5,290,000 (net of $3,784,000 income tax effect). The minority interest's share
of the net charge was $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.
32
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:
Non-cash asset write-downs $2,150,000
Employee severance and related benefits 900,000
Lease and related costs 450,000
----------
$3,500,000
==========
In the last half of 1998 and continuing into 1999 the company 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:
In October 2001 the company and a subsidiary entered into a six-year
$160,000,000 credit agreement with several banks. This agreement provides
revolving credit for four years after which the credit facility may be
converted, at the option of the company, into a reducing revolving credit for
two years. Borrowings under the agreement bear interest at rates (5.4% as of the
date the agreement was entered into) based upon LIBOR or the prime rate, and are
secured by the capital stock of a subsidiary. This credit facility replaced an
existing bank agreement and certain short-term lines of credit. At September 30,
2001, $79,600,000 was outstanding under these facilities, and the weighted
average interest rate was 5.8%.
In June 2001 the company's European operations entered into new bank
agreements replacing then existing financing arrangements. The new agreements
include a term loan of approximately $13 million with maturities through 2004
and revolving credits for up to approximately $20 million. Outstanding
borrowings ($16,406,000 as of September 30, 2001) under these agreements bear
interest at rates (5.2% at September 30, 2001) based upon the prime rate or
Euribor.
The balance of the company's long-term debt outstanding at September 30,
2001 relates primarily to real estate mortgages and industrial revenue bond
financing, with interest rates ranging from 2.5% to 8.9% and maturities through
2014.
33
The following are the maturities of long-term debt outstanding at September
30, 2001, after reflecting the October 2001 bank agreement described above, for
each of the succeeding five years:
2002 $3,812,000
2003 5,730,000
2004 5,933,000
2005 8,488,000
2006 5,351,000
3. SHAREHOLDERS' EQUITY:
On August 6, 2001 the company's Board of Directors authorized a 10 percent
Common Stock dividend that was paid on September 4, 2001 to holders of record on
August 20, 2001.
The company has stock option plans under which options for an aggregate of
8,250,000 shares of Common Stock may be granted. As of September 30, 2001
options for 1,017,775 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:
NUMBER
OF SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
------------ -----------------
Outstanding at September 30, 1998 5,380,650 $10.05
Granted 1,240,250 $ 7.62
Exercised (21,340) $ 7.54
Terminated (896,610) $ 7.25
---------
Outstanding at September 30, 1999 5,702,950 $ 9.97
Granted 759,000 $ 6.47
Terminated (211,475) $ 9.17
---------
Outstanding at September 30, 2000 6,250,475 $ 9.57
Granted 1,158,850 $ 7.58
Exercised (84,700) $ 7.63
Terminated (85,250) $ 8.91
---------
Outstanding at September 30, 2001 7,239,375 $ 9.28
=========
34
At September 30, 2001 option groups outstanding and exercisable are as
follows:
Outstanding Options
------------------------------------------------
Weighted Weighted
Average Average
Range of Number of Remaining Exercise
Exercise Prices Options Life Price
- ------------------ --------- --------- ---------
$9.89 to $14.32 2,961,200 6.3 years $12.05
$5.45 to $ 8.52 4,278,175 6.7 7.21
Exercisable Options
------------------------------------------------
Weighted
Average
Range of Number of Exercise
Exercise Prices Options Price
- ----------------- --------- ---------
$9.89 to $14.32 2,961,200 $12.05
$5.45 to $ 8.52 2,830,988 7.13
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:
2001 2000 1999
----------- ----------- -----------
Net income
As reported $30,593,000 $19,590,000 $20,211,000
Pro forma 28,354,000 16,214,000 15,071,000
Earnings per share
As reported -
Basic $.93 $.59 $.60
Diluted .92 .59 .60
Pro forma -
Basic $.86 $.49 $.45
Diluted .85 .49 .45
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 2001, 2000 and 1999 were $3.98, $3.36 and $3.89,
respectively, based upon the following weighted average assumptions: expected
volatility (.338 in 2001, .324 in 2000 and .321 in 1999), risk-free interest
rate (5.57% in 2001, 6.24% in 2000 and 5.67% in 1999), expected life (7 years in
2001, 2000 and 1999), and expected dividend yield (0% in 2001, 2000 and 1999)
35
The company has an Outside Director Stock Award Plan (the "Outside Director
Plan"), which was approved by the shareholders in 1994, under which 330,000
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 2001,
2000 and 1999, 15,631, 15,235 and 10,681 shares, respectively, were issued under
the Outside Director Plan.
As of September 30, 2001, a total of approximately 9,043,000 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, 11 ten-thousandths 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 11
ten-thousandths 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, 2001:
2002 $19,897,000
2003 15,153,000
2004 11,629,000
2005 8,612,000
2006 4,949,000
Later years 2,767,000
36
Rent expense for all operating leases, net of subleases, totalled
approximately $31,800,000, $29,900,000 and $27,400,000 in 2001, 2000 and 1999,
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, 2001 and
2000 are as follows:
QUARTERS ENDED
--------------------------------------------------------------------------------
September 30, June 30, March 31, December 31,
2001 2001 2001 2000
------------- ------------- ------------- -------------
Net sales $318,357,000 $289,384,000 $264,189,000 $288,195,000
Gross profit 92,253,000 75,916,000 67,319,000 75,201,000
Net income 12,382,000 7,731,000 2,977,000 7,503,000
Earnings per
share of common
stock:
Basic $.38 $.23 $.09 $.23
Diluted $.37 $.23 $.09 $.23
QUARTERS ENDED
--------------------------------------------------------------------------------
September 30, June 30, March 31, December 31,
2000 2000 2000 1999
------------- ------------- ------------- -------------
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 $.23 $.19 $.04 $.13
Diluted $.23 $.19 $.04 $.13
Earnings per share are computed independently for each of the quarters
presented, on the basis described in Note 1. Net income for the quarter ended
March 31, 2001 includes a $3,156,000 pre-tax pension curtailment gain (See Note
1). 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).
37
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:
Electronic
Information
and Specialty
Garage Installation Communication Plastic
Doors Services Systems Films Totals
------------ -------- ------- ----- ------
Revenues from external
customers -
2001 $402,788,000 $268,455,000 $191,782,000 $297,100,000 $1,160,125,000
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
Intersegment revenues -
2001 $ 25,813,000 $ 303,000 $ --- $ --- $ 26,116,000
2000 29,426,000 466,000 --- --- 29,892,000
1999 29,318,000 932,000 --- --- 30,250,000
Segment profit -
2001 $ 18,223,000 $ 6,099,000 $ 16,076,000 $ 41,772,000 $ 82,170,000
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
Segment assets -
2001 $165,483,000 $ 89,684,000 $157,590,000 $120,821,000 $ 533,578,000
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
Segment capital expenditures -
2001 $ 6,444,000 $ 3,012,000 $ 6,653,000 $ 10,519,000 $ 26,628,000
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
Depreciation and
amortization expense -
2001 $ 7,520,000 $ 1,995,000 $ 4,052,000 $ 10,161,000 $ 23,728,000
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
38
Following are reconciliations of segment profit, assets, capital
expenditures and depreciation and amortization expense to amounts reported in
the consolidated financial statements:
2001 2000 1999
------------ ------------ ------------
Profit -
Profit for all segments $ 82,170,000 $ 63,256,000 $ 50,617,000
Unallocated amounts (11,337,000) (9,114,000) (8,029,000)
Restructuring charge (Note 1) --- --- (3,500,000)
Interest expense, net (9,106,000) (10,693,000) (7,007,000)
------------ ------------ ------------
Income before income taxes $ 61,727,000 $ 43,449,000 $ 32,081,000
============ ============ ============
Assets -
Total for all segments $533,578,000 $542,065,000 $497,504,000
Unallocated amounts 54,305,000 42,589,000 38,219,000
Intersegment eliminations (2,890,000) (2,628,000) (2,283,000)
------------ ------------ ------------
Total consolidated assets $584,993,000 $582,026,000 $533,440,000
============ ============ ============
Capital expenditures -
Total for all segments $ 26,628,000 $ 37,231,000 $ 27,583,000
Unallocated amounts 50,000 135,000 114,000
------------ ------------ ------------
Total consolidated capital expenditures $ 26,678,000 $ 37,366,000 $ 27,697,000
============ ============ ============
Depreciation and amortization expense -
Total for all segments $ 23,728,000 $ 23,188,000 $ 22,493,000
Unallocated amounts 476,000 515,000 520,000
------------ ------------ ------------
Total consolidated depreciation and amortization $ 24,204,000 $ 23,703,000 $ 23,013,000
============ ============ ============
Revenues, based on the customers' locations, and property, plant and equipment attributed to the United States and all other
countries are as follows:
2001 2000 1999
---- ---- ----
Revenues by geographic
area -
United States $ 921,046,000 $ 879,729,000 $ 834,057,000
Germany 51,179,000 72,266,000 64,666,000
United Kingdom 36,247,000 41,487,000 44,697,000
Canada 24,925,000 23,431,000 12,804,000
Poland 27,494,000 3,319,000 2,221,000
All other countries 99,234,000 98,154,000 74,252,000
-------------- --------------- --------------
Consolidated net sales $1,160,125,000 $1,118,386,000 $1,032,697,000
============== ============== ==============
Property,plant and
equipment by geographic area -
United States $ 108,291,000 $ 107,266,000 $ 90,874,000
Germany 37,640,000 35,678,000 44,008,000
-------------- --------------- --------------
Consolidated property,
plant and equipment $ 145,931,000 $ 142,944,000 $ 134,882,000
============== ============== ==============
Sales to a customer of the specialty plastic films segment were
approximately $209,000,000 in 2001, $182,000,000 in 2000 and $115,000,000 in
1999. Sales to the United States Government and its agencies, either as a prime
contractor or subcontractor, aggregated approximately $100,000,000 in 2001,
$91,000,000 in 2000 and $86,000,000 in 1999, 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.
39
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, 2002, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
company's fiscal year ended September 30, 2001. Information relating to the
officers of the Registrant appears under Item 1 of this report.
40
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,
2001 and 2000........................................... 26
Consolidated Statements of Income for the Years
Ended September 30, 2001, 2000 and 1999................. 27
Consolidated Statements of Cash Flows for the
Years Ended September 30, 2001, 2000 and 1999........... 28
Consolidated Statements of Shareholders' Equity
for the Years Ended September 30, 2001, 2000
and 1999................................................ 29
Notes to Consolidated Financial Statements................. 30
41
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 Amended and restated By-laws (Exhibit 3 of Current Report on Form 8-K
dated May 2, 2001)
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 October 25, 2001 among Registrant and
lending institutions.
10.1 Employment Agreement dated as of July 1, 2001 between the Registrant
and Harvey R. Blau (Exhibit 10.1 of Current Report on Form 8-K
dated May 2, 2001)
10.2 Employment Agreement dated as of July 1, 2001 between the Registrant
and Robert Balemian (Exhibit 10.2 of Current Report on Form 8-K
dated May 2, 2001)
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)
42
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)
10.10(a)2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement
No. 333-67760)
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
subsidiary, have been omitted.
State of
Name of Subsidiary Incorporation
------------------ -------------
Clopay Corporation Delaware
Telephonics Corporation Delaware
23* Consent of Arthur Andersen LLP
- -------
* Filed herewith. All other exhibits are incorporated herein by reference to
the exhibit indicated in the parenthetical references.
43
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, 333-84409 and 333-67760).
(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.
44
(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.
45
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 2001.
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, 2001 by the following persons in
the capacities indicated:
/s/ Harvey R. Blau Chairman of the Board
Harvey R. Blau (Principal 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
46
SCHEDULE II
GRIFFON CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
Additions Deductions
------------------------ ---------------------
Balance at Charged to Charged to Accounts Balance at
Beginning Profit and Other Written End
Description of Period Loss Accounts Off Other of Period
------------ --------- ----------- ---------- ------------- ----- -----------
FOR THE YEAR ENDED SEPTEMBER 30, 2001:
Allowance for doubtful accounts $ 9,494,000 $ 4,836,000 $ 758,000 $ 2,574,000 $ 1,942,000(1) $10,572,000
=========== =========== ========== =========== =========== ===========
FOR THE YEAR ENDED SEPTEMBER 30, 2000:
Allowance for doubtful accounts $ 8,068,000 $ 3,276,000 $ 765,000 (2) $ 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
=========== =========== ========== =========== =========== ===========
<FN>
(1) Reclassified to other balance sheet
accounts
(2) Includes acquired businesses and other
</FN>
S-1