2011 Annual Report
LETTER TO SHAREHOLDERS
I am pleased to report that Griffon performed well in 2011 despite the lack of an economic recovery. Our
revenues increased by 41% to $1.8 billion. Our Segment adjusted EBITDA, which we watch closely to gauge
the ongoing health of our businesses and to maintain a focus on cash, rose even faster than revenues, increasing
53% to $165.6 million, compared to $108.3 million in 2010.
These strong increases over last year were driven largely by growth in our Home and Building Products (“HBP”)
segment. HBP is made up of Clopay Building Products, which focuses on high-quality, energy efficient garage
doors for the residential and commercial construction markets and Ames True Temper (“ATT”), North America’s
largest manufacturer of non-powered lawn and garden tools, which we acquired in September 2010. We completed
our restructuring of the Clopay operations and have maintained profitability throughout the downturn. We have
gained market share and future improvements in the housing market should bring increased profitability. ATT
drove the majority of our year-over-year growth in HBP. ATT traces its roots back over 237 years and has grown
to become one of the best recognized lawn and garden tool brands in North America. We have managed the
business carefully so that we are well positioned to deliver strong performance. As we provide ATT with capital
and strategic guidance, we expect to see expansion in both the range of products offered and in the breadth of
markets served. The Southern Patio acquisition, announced in October 2011, is an excellent example of the
numerous tuck-in opportunities that we believe exist. Our vision for the ATT business is global with growth
initiatives in a number of markets, including Canada, Australia and Europe.
While the ATT deal did much to reinforce our generation of operating cash flow, it also carried significant
acquisition-related expenses and accounting adjustments that blurred our underlying financial performance for
the year. Those non-recurring expenses explain the majority of the difference between the reported loss from
continuing operations of ($0.13) per share and the $0.34 per share of adjusted income from continuing operations,
which we regard as a more appropriate measure of our financial performance for the year.
Telephonics, our defense technology business, is a leader in secure communications and a variety of specialized
Intelligence, Surveillance and Reconnaissance (“ISR”) products. Telephonics maintained a solid technology-
leadership position, perhaps best illustrated by the tremendous technical progress made on the Advanced Radar
Periscope Detection and Discrimination (“ARPDD”) program. We met or exceeded every expectation for this
important program. Telephonics has done a great job of pleasing our customers, as both a sub-contractor and as
a prime, across a range of businesses and we are excited about several new programs. While the defense industry
is very challenging, we are fortunate to do business in a high-priority set of procurement categories and therefore
expect to grow despite budgetary constraints. We are poised to have a very good year in 2012 and beyond. Our
position on the new long term Firescout program is an important example of our success.
Clopay Plastics, which started the year strong, experienced pressure from a very ambitious capacity expansion
project. Our revenues were up 14% for the year, driven by an enhanced product mix. We captured market share
by both deepening our penetration with existing customers and aligning with new ones. To meet this increased
level of demand for our specialty films, we brought new equipment on line and expanded our total capacity by
over 20%. Our gross margin was impacted by start-up costs, mostly manifested in high scrap costs and
underabsorption as the new capacity ramped up production. We nevertheless met all of our customer
requirements and maintained our market share gains. We have already begun to see improvement in our
manufacturing efficiency and I am confident that over the course of 2012 we will return to historical rates of
profitability at higher volume levels. Over time, we expect to exceed historical peak margins and further grow
this business.
One of our continued objectives is to focus on the strength of our balance sheet while expanding and improving
our operations. Last year we successfully refinanced our bank credit agreements and issued long-term bonds to
refinance the debt we incurred in connection with the ATT transaction. As a result we have both long term
liquidity and financial flexibility at a more attractive cost of capital than would be available today. These steps,
together with our current cash position, have provided us with the resources to deal with the current uncertainties
in the worldwide economy and to take advantage of acquisition opportunities that may present themselves.
Despite the challenging business environment this past year, we created growth and benefited from the initiatives
undertaken the past few years to properly position each business. We have relentlessly reduced costs over the past
few years while investing in new plants, equipment, and research and development. Griffon has the luxury of
ample liquidity and profit-generating businesses that are positioned to succeed due to the dedication and
perseverance of our almost 6,000 employees.
We remain committed to driving value to our shareholders through organic growth, additional acquisitions and
stock buybacks. In this regard, I am pleased to note that in November 2011 we announced that our Board of
Directors approved a quarterly cash dividend of $0.02 per share, the first cash dividend in our history. We are
confident in our future.
I thank you for your support. We have accomplished much this year and we consider it just a start to a profitable
road ahead.
Yours sincerely,
Ronald J. Kramer
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)
(cid:134)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended September 30, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-06620
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
712 Fifth Avenue, 18th Floor, New York, New York
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code:
11-1893410
(I.R.S. Employer Identification No.)
10019
(Zip Code)
(212) 957-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.25 par value
Name of each exchange on
which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:134) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:134) No (cid:95)
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 (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:134)
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. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:134)
Non-accelerated filer (cid:134)
(Do not check if a smaller reporting company)
Accelerated filer (cid:95)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95)
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the
close of business March 31, 2011, the registrant’s most recently completed second quarter, was approximately $618,000,000.
The registrant’s closing price as reported by the New York Stock Exchange-Composite Transactions for March 31, 2011 was
$13.13. The number of the registrant’s outstanding shares was 61,497,463 as of October 31, 2011.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III — (Items 10, 11, 12, 13 and 14). Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934.
Special Notes Regarding Forward-Looking Statements
This Annual Report on Form 10-K, especially “Management’s Discussion and Analysis”, contains certain
“forward-looking statements” within the meaning of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.
Such statements relate to, among other things, income, earnings, cash flows, revenue, changes in
operations, operating improvements, industries in which Griffon Corporation (the “Company” or
“Griffon”) operates and the United States and global economies. Statements in this Form 10-K that are
not historical are hereby identified as “forward-looking statements” and may be indicated by words or
phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,”
“could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,”
“explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or
phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause
actual results to differ materially from those expressed in any forward-looking statements. These risks and
uncertainties include, among others: current economic conditions and uncertainties in the housing, credit
and capital markets; Griffon’s ability to achieve expected savings from cost control, integration and
disposal initiatives; the ability to identify and successfully consummate and integrate value-adding
acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s
operating companies; the ability of Griffon’s operating companies to expand into new geographic and
product markets and to anticipate and meet customer demands for new products and product
enhancements and innovations; reduced military spending by the government on projects for which
Griffon’s Telephonics Corporation supplies products; increases in the cost of raw materials such as resin
and steel; changes in customer demand; the potential impact of seasonal variations and uncertain weather
patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a
downgrade in Griffon’s credit ratings; changes in international economic conditions including interest rate
and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third
party suppliers and manufacturers to meet customer demands; the relative mix of products and services
offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity
constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation;
unfavorable results of government agency contract audits of Griffon’s subsidiary, Telephonics
Corporation; Griffon’s ability to adequately protect and maintain the validity of patent and other
intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating
companies; and possible terrorist threats and actions and their impact on the global economy. Readers are
cautioned not to place undue reliance on these forward-looking statements. These forward-looking
statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
(cid:3)(cid:883)
(Unless otherwise indicated, any reference to years or year-end refers to the fiscal year ending
September 30 and dollars are in thousands, except per share data)
PART I
Item 1. Business
The Company
Griffon Corporation (the “Company” or “Griffon”), is a diversified management and holding company
that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its
subsidiaries, allocates resources among them and manages their capital structures. Griffon provides
direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well
as in connection with divestitures. Griffon, to further diversify, also seeks out, evaluates and, when
appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware.
Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.
three businesses: Telephonics Corporation
through
Griffon currently conducts
(“Telephonics”), Home & Building Products (“HBP”) and Clopay Plastic Products Company (“Plastics”).
its operations
(cid:120) HBP, which consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay
Building Products (“CBP”), accounted for 46% of Griffon’s consolidated revenue in 2011
and, on a pro forma basis giving effect to the acquisition of ATT as if it had occurred on
October 1, 2009, accounted for 48% of Griffon’s consolidated revenue in 2010:
- ATT, acquired on September 30, 2010, is a global provider of non-powered landscaping
products that make work easier for homeowners and professionals. Due to the timing of
the acquisition, none of ATT’s 2010 and prior results of operations were included in
Griffon’s results. ATT’s revenue was 24% of Griffon’s consolidated revenue in 2011.
2010 pro forma revenue was $443,634, or 26% of Griffon’s pro forma 2010 revenue of
$1,737,630 (unaudited), giving effect to the acquisition of ATT as if it had occurred on
October 1, 2009.
- CBP is a leading manufacturer and marketer of residential, commercial and industrial
garage doors to professional installing dealers and major home center retail chains.
CBP’s revenue was 22% of Griffon’s consolidated revenue in 2011, 30% in 2010 and
33% in 2009.
(cid:120) Telephonics designs, develops and manufactures high-technology integrated information,
communication and sensor system solutions to military and commercial markets worldwide.
Telephonics’ revenue was 25% of Griffon’s consolidated revenue in 2011, 34% in 2010 and
32% in 2009.
(cid:120) Plastics is an international leader in the development and production of embossed, laminated
and printed specialty plastic films used in a variety of hygienic, health-care and industrial
applications. Plastics’ revenue was 29% of Griffon’s consolidated revenue in 2011, 36% in
2010 and 35% in 2009.
On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing
Group, Inc. for approximately $23,000. The acquired business, which markets its products under the
Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of
(cid:3)(cid:884)
landscape accessories. Southern Patio, which will be integrated with ATT, had revenue exceeding
$40,000 in 2011.
On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon
issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest on the Senior
Notes is payable semi-annually. Proceeds were used to pay down the outstanding borrowings under a
senior secured term loan facility and two senior secured revolving credit facilities of certain Company
subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain
domestic subsidiaries, and are subject to certain covenants, limitations and restrictions. On August 9,
2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under
the Securities Act of 1933, via an exchange offer.
On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit
Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-currency sub-
facility of $50,000 and a swing line sub-facility with a limit of $30,000. Interest is payable on borrowings
at either a LIBOR or base rate benchmark rate plus an applicable margin, which will decrease based on
financial performance. The current margins are 1.5% for base rate loans and 2.5% for LIBOR loans, in
each case without a floor. Borrowings under the Credit Agreement are guaranteed by certain domestic
subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the
guarantors. At September 30, 2011, there were $20,250 of standby letters of credit outstanding under the
Credit Agreement; $179,750 was available for borrowing at that date.
On September 30, 2010, Griffon purchased all of the outstanding stock of CHATT Holdings, Inc. (“ATT
Holdings”), the parent of ATT, on a cash and debt-free basis, for $542,000 in cash, subject to certain
adjustments. As the purchase of ATT occurred on September 30, 2010, ATT’s operating results are not
included in Griffon’s consolidated statements of operations or cash flows, or footnotes relating thereto for
any year presented prior to October 1, 2010, except where explicitly stated as pro-forma results. All pro
forma results are unaudited and, unless otherwise stated, give effect to the acquisition of ATT as if it had
occurred on October 1, 2009. The Griffon consolidated balance sheet at September 30, 2010, and related
notes thereto, include ATT’s balances at that date.
In July 2010, Griffon retired substantially all of the outstanding 4% Convertible Subordinated Notes due
2023 when they were put to Griffon at par.
In December 2009, Griffon issued $100,000 principal amount of 4% Convertible Subordinated Notes due
2017 (the “2017 Notes”) at an initial conversion ratio of 67.0799 shares of Griffon common stock per
$1,000 principal amount of the 2017 Notes, corresponding to an initial conversion price of approximately
$14.91 per share.
Griffon makes available, free of charge through its website at www.griffoncorp.com, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon as
reasonably practicable after such material is filed with or furnished to the Securities and Exchange
Commission (the “SEC”).
For information regarding revenue, profit and total assets of each segment, see the Business Segments
footnote in the Notes to Consolidated Financial Statements.
(cid:3)(cid:885)
Reportable Segments:
Home & Building Products
Home & Building Products consists of two companies, Ames True Temper, Inc and Clopay Building
Products, which are describe below.
Ames True Temper
ATT is the leading U.S. and a global provider of non-powered landscaping products that make work
easier for homeowners and professionals. ATT employs approximately 1,700 employees.
Brands
ATT brands are among the most recognized across primary product categories in the North American,
non-powered landscaping product markets. ATT’s brand portfolio includes Ames®, True Temper®,
Ames True Temper®, Garant®, Hound Dog®, Westmix™ and Dynamic Design®, as well as contractor-
oriented brands including UnionTools®, Razor-Back® Professional Tools and Jackson® Professional
Tools. This strong portfolio of brands enables ATT to build and maintain long-standing relationships
with leading retailers and distributors. In addition, given the breadth of ATT’s brand portfolio and product
category depth, ATT is able to offer specific, differentiated branding strategies for key retail customers.
In addition to the brands listed, ATT also sells private label branded products further enabling channel
management and customer differentiation.
Products
ATT manufactures and markets one of the broadest product portfolios in the non-powered landscaping
product industry. This portfolio is anchored by three core product categories: long handle tools,
wheelbarrows, and snow tools. As a result of ATT’s brand portfolio recognition, high product quality,
industry leading service and strong customer relationships, ATT has earned market-leading positions in
the long handle tool, wheelbarrow, and snow tool product categories. The following is a brief description
of ATT’s primary product lines:
(cid:120) Long Handle Tools: An extensive line of engineered tools including shovels, spades, scoops, rakes,
hoes, cultivators, weeders, post hole diggers, scrapers, edgers and forks, marketed under leading
brand names including Ames®, True Temper®, Jackson® Professional Tools, UnionTools®, Razor-
Back® Professional Tools, and Garant®.
(cid:120) Wheelbarrows: ATT designs, develops and manufactures a full line of wheelbarrows and lawn carts,
primarily under
the Ames®, True Temper®, Jackson® Professional Tools, Razor-Back®
Professional Tools, UnionTools®, Garant® and Westmix™ brand names. The products range in size
(2 cubic feet to 10 cubic feet), material (poly and steel), tray form, tire type, handle length and color
based on the needs of homeowners, landscapers and contractors.
(cid:120) Snow Tools: A complete line of snow tools is marketed under the Ames True Temper®, True
Temper® and Garant® brand names. The snow tool line includes shovels, pushers, roof rakes, sled
sleighs, scoops and ice scrapers.
(cid:120) Planters and Lawn Accessories: ATT is a designer, manufacturer and distributor of indoor and
outdoor planters and accessories, sold under the Dynamic Design® brand name, as well as various
private label brands. The range of planter sizes (from 6 to 32 inches) are available in various designs,
colors and materials. On October 17, 2011, Griffon acquired the pots and planters business which
markets its products under the Southern Patio brand name Southern Patio is a leading designer,
manufacturer and marketer of decorative landscape products. Integrating Dynamic Design® into
(cid:3)(cid:886)
Southern Patio leverages Southern Patio’s capabilities, enhances ATT’s product offering in the pots
and planters category and enables ATT to improve its innovation and speed to market in the category.
(cid:120) Striking Tools: Axes, picks, mattocks, mauls, wood splitters, sledgehammers and repair handles
make up the striking tools product line. These products are marketed under the True Temper®,
Jackson® Professional Tools, UnionTools®, Garant® and Razor-Back® Professional Tools brand
names.
(cid:120) Pruning: The pruning line is made up of pruners, loppers, shears and other tools sold primarily under
the True Temper® brand name.
(cid:120) Garden Hose and Storage: ATT offers a wide range of both manufactured and sourced garden hoses
and hose reels under the Ames®, NeverLeak® and Jackson® Professional Tools brand names.
Customers
ATT sells products throughout North America, Australia, and Europe through (1) retail centers, including
home centers and mass merchandisers, such as Home Depot, Lowe’s Companies, Walmart, Canadian
Tire, Rona, Bunnings, and Woodies (2) wholesale chains, including hardware stores and garden centers,
such as Ace, Do-It-Best and True Value and (3) industrial distributors, such as Grainger and ORS Nasco.
Home Depot and Lowes are significant customers of ATT. The loss of either of these customers would
have a material effect on ATT’s and Griffon’s business.
Product Development
ATT product development efforts focus on both new products and product line extensions. Products are
developed through in-house industrial design and engineering staffs, and through relationships with a
number of outside product engineering and design firms, to introduce new products timely and cost
effectively. Examples of recent new product initiatives include the SnoForce™ combo snow shovel,
NeverLeak® hose reel with patent pending aluminum water system, Total Control™ Wheelbarrow with
patented handle system, and new Stonecraft™ fiber clay planters providing a heavier, more durable
ceramic-like pot.
Sales and Marketing
ATT’s sales organization is structured by distribution channel in the U.S. and by country internationally.
In the U.S., a dedicated team of sales professionals is provided for each of the large retail customers.
Offices are maintained adjacent to each of the three largest customers’ headquarters, as well as dedicated
in-house sales analysts at the corporate office. In addition, sales professionals are assigned to domestic,
wholesale and industrial distribution channels. Sales teams located in Canada, Australia, Mexico and
Ireland handle sales in each of their respective locations.
Raw Materials and Suppliers
ATT’s primary raw material inputs include resin (primarily polypropylene and high density
polyethylene), wood (mainly ash, hickory and poplar logs) and steel (hot rolled and cold rolled). In
addition, some key materials and components are purchased, such as metal fork components,
wheelbarrow tires, shovel heads and fiberglass handles; most final assembly is completed internally in
order to ensure consistent quality. All raw materials used by ATT are generally available from a number
of sources.
(cid:3)(cid:887)
Competition
The non-powered landscaping product industry is highly competitive and fragmented. Most competitors
consist of small, privately-held companies focusing on a single product category. Some competitors such
as Fiskars Corporation and Truper Herramientas S.A. de C.U. compete in various tool categories, Suncast
Corporation in hose reels and accessories, and Colorite Waterworks and Swan, both Techniplex
companies, in garden hoses. In addition, there is competition from imported or sourced products from
China, India and other low-cost producing countries, particularly in long handled tools, wheelbarrows,
planters, striking tools and pruning tools.
The principal factors by which ATT differentiates itself and provides the best value to customers are
innovation, service, quality, performance and reliability with strong brand heritage. ATT’s size, depth and
breadth of product offering, category knowledge, R&D investment and service are competitive
advantages. Offshore manufacturers lack sufficient product innovation, capacity, lead time and
distribution capabilities to service large retailers to compete in highly seasonal, weather related product
categories.
Manufacturing & Distribution
ATT has nine operational distribution centers. In the U.S., the largest of these is a 1.2 million square foot
facility in Carlisle, Pennsylvania and a 400,000 square foot facility in Reno, Nevada. Finished goods
from manufacturing sites are transported to these facilities by an internal fleet, over the road trucking and
rail. Additionally, light assembly is performed at the Carlisle, Pennsylvania and Reno, Nevada locations.
Distribution centers are maintained in Canada and Ireland and ATT utilizes a third party distribution
center in Mexico City, Mexico. ATT has five distribution centers in Australia. ATT has a combination
of internal and external, domestic and foreign manufacturing sources from which it produces products for
sale in North American, Australian and European markets.
(cid:3)
Clopay Building Products
CBP is the largest manufacturer and marketer of residential garage doors, among the largest
manufacturers of commercial sectional doors in the United States and recently introduced a complete line
of entry door systems uniquely designed to complement its popular residential garage door styles. The
majority of CBP’s sales are for home remodeling and renovation, with the balance for 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, existing home sales activity, the trend of improving home
appearance, as well as improved energy efficiency. CBP employs approximately 1,300 employees.
The garage door industry has been negatively impacted by the downturn in overall construction activity,
particularly the single-family residential housing segment. According to the US census, calendar year
2011 new construction single-family homes starts will decrease by 4%, while the repair and remodel
market held at calendar year 2010 spending levels. The commercial segment saw spending drop 6% for
the year (according to estimates from McGraw Hill Construction Dodge). According to industry sources,
the residential and commercial sectional garage door market for calendar year 2010 was estimated to be
$1.5 billion, which was flat compared to the prior year.
Brands
CBP brings nearly 50 years of experience and innovation to the garage door industry. Our strong family
of brands includes Clopay®, America’s Favorite Garage Doors®; Holmes Garage Door Company® and
IDEAL Door®. Clopay is the only residential garage door brand to hold the Good Housekeeping Seal of
Approval.
(cid:3)(cid:888)
Products and Service
CBP manufactures a broad line of residential sectional garage doors with a variety of options, at varying
prices. CBP offers garage doors made primarily from steel, plastic composite and wood, and also sells
related products, such as garage door openers, manufactured by third parties.
CBP also markets commercial sectional doors, which are similar to residential garage doors, but are
designed to meet the more demanding performance specifications of a commercial application.
In 2010 CBP launched a complete line of entry door systems uniquely designed to complement it popular
residential garage door styles.
Customers
CBP is the principal supplier of residential garage doors throughout North America to Home Depot and
Menards. The loss of either of these customers would have a material adverse effect on CBP’s and
Griffon’s business. CBP distributes its garage doors directly to customers from its manufacturing
facilities and through its distribution centers located throughout the United States and Canada. These
distribution centers allow CBP to maintain an inventory of garage doors near installing dealers and
provide quick-ship service to retail and professional dealer customers.
Product Development
CBP product development efforts focus on both new products and improvements to existing products.
Products are developed through in-house design and engineering staffs. In 2010, CBP introduced a
complete line of entry doors systems uniquely designed to complement its popular residential garage door
styles.
CBP 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. CBP continually improves their garage door offerings through
these development efforts, focusing on characteristics such as strength, design and energy efficiency.
Also at this facility, the process engineering team works to develop new manufacturing processes and
production techniques aimed at improving manufacturing efficiencies and ensuring quality made
products.
Sales and Marketing
The CBP sales and marketing organization supports our customers, consults on new product development
and aggressively markets garage door solutions, with a primary focus on the North American market.
Raw Materials and Suppliers
The principal raw material used in CBP’s manufacturing is galvanized steel. CBP 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.
Competition
The garage door industry is characterized by several large national manufacturers and many smaller
regional and local manufacturers. CBP competes on the basis of service, quality, price, brand awareness
and product design.
(cid:3)(cid:889)
CBP’s brand names are widely recognized in the building products industry. CBP believes that it has
earned a reputation among installing dealers, retailers and wholesalers for producing a broad range of
innovative, high-quality doors. CBP’s market position and brand recognition are key marketing tools for
expanding its customer base, leveraging its distribution network and increasing its market share.
Distribution
CBP distributes its products through a wide range of distribution channels, including installing dealers,
retailers and wholesalers. CBP owns and operates a national network of 51 distribution centers.
Additionally, products are sold to approximately 2,000 independent professional installing dealers and to
major home center retail chains. CBP maintains strong relationships with its installing dealers and
believes it is the largest supplier of residential garage doors to the retail and professional installing
channels in North America.
Manufacturing
CBP currently has manufacturing facilities, in Troy, Ohio and Auburn, Washington.
As part of its cost structure review, in June 2009, Griffon announced plans to consolidate facilities in
CBP. These actions were completed in 2011, consistent with the plan. In completing the consolidation
plan, CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of
which was cash charges; charges include $1,160 for one-time termination benefits and other personnel
costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection
with production realignment, and had $10,365 of capital expenditures.
The facility consolidation is part of CBP’s continuing efforts to improve and streamline its manufacturing
processes. CBP’s engineering and technological expertise, combined with its capital investment
programs, has enabled it to efficiently manufacture products in large volume and meet changing customer
needs in a timely manner. CBP uses proprietary manufacturing processes to produce the majority of its
products. Certain machinery and equipment are internally modified to achieve manufacturing objectives.
These manufacturing facilities produce a broad line of high quality garage doors for distribution to
professional installer, retail and wholesale channels.
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Telephonics Corporation
Telephonics specializes in advanced electronic information and communication systems for defense,
aerospace, civil, industrial, and commercial applications for the United States (“U.S.”) and international
markets. Telephonics designs, develops, manufactures, sells, and provides logistical support for aircraft
intercommunication systems, radar, air traffic management, identification friend or foe equipment,
Integrated Homeland Security Systems and custom, mixed-signal, application-specific, integrated circuits.
Telephonics is also a provider of advanced systems engineering services supporting air and missile
defense programs, as well as other threat and situational analysis requirements. Telephonics is a leading
supplier of airborne maritime surveillance radar and aircraft intercommunication management systems,
the segment’s two largest product lines. In addition to its traditional defense products used predominantly
by the U.S. Government and its agencies, Telephonics has adapted its core technologies to products used
in international markets in an effort to further increase its presence in both non-defense government and
commercial markets. In 2011, approximately 75% of the segment’s sales were to the U.S. Government
and agencies thereof, as a prime or subcontractor, 15% to international customers and 10% to U.S.
commercial customers. Telephonics employs approximately 1,300 employees.
Griffon believes that Telephonics’ advanced systems and sub-systems are well-positioned to address the
needs of an electronic battlefield with emphasis on providing situational awareness to the warfighters
through the retrieval and dissemination of timely data for use by highly mobile ground, air and sea-going
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forces. Telephonics anticipates that the need for such systems will increase in connection with the
increasingly active role that the military is playing in the war on terrorism, both at home and abroad. In
recent years, Telephonics has increasingly focused its technologies and core competencies in the growing
Homeland Security, Air Traffic Management, and Unmanned Aerial Vehicle (UAV) markets.
Programs and Products
Based on long-established relationships supported by existing contractual arrangements, Telephonics is a
first-tier supplier to prime contractors in the defense industry such as Lockheed Martin, Boeing, Northrop
Grumman, General Dynamics, BAE Systems, MacDonald Dettwiler, Sierra Nevada Corporation and
Sikorsky Aircraft, and is at times prime contractor to the U.S. Department of Defense and the U.S.
Department of Homeland Security (“Homeland Security”). The significance of each of these customers to
Telephonics’ revenue fluctuates on an annual basis, based on the timing and funding of the Original
Equipment Manufacturers (“OEM”) contract award, and the technological scope of the work required to
be performed. The significant contraction and consolidation in the U.S. and international defense
industry provides opportunities for established first-tier suppliers to capitalize on existing relationships
with major prime contractors and play a larger role in defense systems development and procurement, for
the foreseeable future.
Telephonics continues to direct resources towards Homeland Security programs. Additionally,
Telephonics has completed a contract from the U.S. Customs and Border Protection for mobile
surveillance systems as part of Homeland Security’s initiative to protect the U.S. borders, and in 2011
was awarded another contract to provide additional mobile surveillance systems. These programs
represent strategic advances for Telephonics by enabling it to expand its core technical expertise into the
nascent and growing Homeland Security market. As with many Department of Homeland Security
programs, the system specifications, and operational and test requirements are challenging, exacerbated
by demanding delivery schedules.
In 2010, Telephonics was selected by Northrop Grumman as the radar supplier for the U.S. Navy’s
Firescout MQ-8 program, which is a vertical take-off and landing UAV platform. This strategic win
positions Telephonics, with both its radar and communications products, as a strong competitor in this
growing market segment. Telephonics expects to start recognizing revenue for this project in 2012 and
begin shipping in 2013.
As a result of its performance on a prior manufacturing contract with Syracuse Research Corporation,
Telephonics received a subcontract award from Sierra Nevada Corporation for both production and
support of counter-IED devices which resulted in $44,000, $46,000 and $11,000 in 2011, 2010 and 2009,
respectively.
Backlog
The funded backlog for Telephonics was approximately $417,000 at September 30, 2011, compared to
$407,000 at September 30, 2010. The increase in backlog is primarily attributable to additional funding
received for the MH-60R program, a unique, fully integrated multi-mode radar and identification friend or
foe interrogator system. Approximately 83% of the current backlog is expected to be filled during 2012.
Customers
The U.S. Government through its agencies, Lockheed Martin Corporation and the Boeing Company are
significant customers of Telephonics. The loss of any one of these customers would have a material
adverse effect on Telephonics’ business. Notwithstanding the significance of Lockheed Martin
Corporation and the Boeing Company, Telephonics sells to a diverse group of other domestic and
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international defense industry contractors, as well as others who use Telephonics products for commercial
use.
Telephonics participates in a range of long-term defense and non-military government programs, both in
the U.S. and internationally. Telephonics has developed a base of installed products that generate
significant recurring revenue from product enhancements and retrofits as well as providing spare parts
and customer support. Due to the inherent complexity of these electronic systems, Telephonics believes
that its incumbent status on major platforms provides a competitive advantage in the selection process for
platform upgrades and enhancements. Furthermore, Telephonics believes that its ability to leverage and
apply its advanced technology to new platforms provides a competitive advantage when bidding for new
business.
Research and Development
In an effort to ensure customer satisfaction and loyalty, Telephonics seeks to anticipate the needs of core
markets by investing in research and development (“R&D”) to provide solutions well in advance of its
competitors. Telephonics continually updates its core technologies through internally funded R&D while
coordinating with its customers at the earliest stages of new program development. The selection of R&D
projects is based on available opportunities in the marketplace, as well as input from Telephonics’
customers. Telephonics 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.
In addition to products for defense programs, Telephonics technology is also used in commercial
applications such as airborne weather, search and rescue radar, and air traffic management systems.
Telephonics’ reputation for innovative product design and engineering capabilities, especially in the areas
of voice and data communications, radio frequency design, digital signal processing, networking systems,
inverse synthetic aperture radar and analog, digital and mixed-signal integrated circuits, will continue to
enhance its ability to secure, retain and expand its participation in defense programs and commercial
opportunities.
Telephonics often designs its products to exceed customers’ minimum specifications, providing its
customers with greater performance, flexibility, and value. Telephonics believes that early participation
and communication with its customers in the requirements definition stages of new program development
increases the likelihood that its products will be selected and integrated as part of a total system solution.
Sales and Marketing
Telephonics has technical business development personnel who act as the focal point for its marketing
activities and sales representatives who introduce its products and systems to customers worldwide.
Competition
Telephonics competes with major manufacturers of electronic information and communication systems,
as well as several smaller manufacturers of similar products. Telephonics endeavors to design products
with greater performance and flexibility than its competitors while competing on the basis of technology,
design, quality and price.
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Manufacturing Facilities
Telephonics’ facilities are principally located in the United States, primarily in New York, with one
facility in Sweden. In 2010, Telephonics added an additional New York facility to provide increased
manufacturing capacity, as well as a state-of-the-art Air Traffic Management high-tech development
laboratory and demonstration center. Telephonics also established its Technical Support Services Center
in Elizabeth City, North Carolina which supports aircraft integration and upgrade activities, in addition to
providing support services to customers.
Clopay Plastic Products
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Plastics produces and develops specialty plastic films and laminates for a variety of hygienic, health care
and industrial uses in the United States and certain international markets. Products include thin gauge
embossed and printed films, elastomeric films, laminates of film and non-woven fabrics, and perforated
films and non-wovens. These products are used as moisture barriers in disposable infant diapers, adult
incontinence products and feminine hygiene products, protective barriers in single-use surgical and
industrial gowns, drapes and equipment covers, fluid transfer/distribution layers in absorbent products,
components to enhance comfort and fit in infant diaper and adult incontinence products, packaging for
hygienic products, house wrap and other products. Plastics’ products are sold through a direct sales force,
primarily to multinational consumer and medical products companies. Plastics employs approximately
1,500 employees.
The markets in which Plastics participates have 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, including increasing immigration in major global economies. Other trends
representing significant opportunities include the continued demand for innovative products such as cloth-
like, breathable, laminated and printed products, and large consumer products companies’ need for global
supply partners. Notwithstanding the positive trends affecting the industry, product design changes by the
customer can change the products manufactured by Plastics and the associated demand.
Plastics believes that its business development activities targeting major multinational and regional
producers of hygiene, healthcare and related products and its investments in its technology development
capability and capacity increases will lead to additional sales of new and related products.
Products
Plastics’ specialty plastic film is a thin-gauge film engineered to provide certain performance
characteristics and manufactured from polymer resins. A laminate is the combination of a plastic film and
a woven or non-woven fabric. These products are produced using both cast and blown extrusion and
various laminating processes. High speed, multi-color custom printing of films, customized embossing
patterns, and proprietary perforation technology further differentiate the products. Specialty plastic film
products typically provide a unique combination of performance characteristics, such as breathability,
barrier properties, fluid flow management, elastic properties, process ability and aesthetic appeal, that
meet specific, proprietary customer needs.
Customers
Plastics’ largest customer is Procter & Gamble, Co. (“P&G”), which has accounted for approximately
50% of its revenue over the last five years. The loss of this customer would have a material adverse
effect on the Plastics business. Notwithstanding the significance of P&G, Plastics sells to a diverse group
of other leading consumer, health care and industrial companies.
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Product Development
Plastics is an industry leader in the research, design and development of specialty plastic film and
laminate products. Plastics operates a technical center where polymer chemists, scientists and engineers
work independently and in partnerships with customers to develop new technologies, products, processes
and product applications.
Plastics’ R&D efforts have resulted in many inventions covering embossing patterns, improved
processing methods, product formulations, product applications and other proprietary technology.
Products developed include microporous breathable films and cost-effective printed films and laminates.
Microporous breathability provides for moisture vapor transmission and airflow while maintaining barrier
properties resulting in improved comfort and skin care. Elastic laminates provide the user with improved
comfort and fit. Printed films and laminates provide consumers preferred aesthetics, such as softness and
visual appeal. Perforated films and non-wovens provide engineered fluid transfer with unique softness
and aesthetics. Plastics holds a number of patents for its specialty film and laminate products and related
manufacturing processes. While patents play a significant role, Plastics believes that its proprietary
know-how and the knowledge, ability and experience of its employees are more significant to it long-term
success.
Sales and Marketing
Plastics sells its products primarily in North America, Europe, and South and Central America with
additional sales in Asia Pacific. Plastics utilizes an internal direct sales force, with Plastics’ senior
management actively participating in developing and maintaining close contacts with customers.
Plastics seeks to expand its market presence by providing innovative products and services to major
international consumer products companies. Specifically, Plastics believes that it can continue to increase
its North American sales and expand internationally through ongoing product development and
enhancement, and by marketing its technologically-advanced films, laminates and printed films for use in
all of its markets. Operations in Germany, Brazil and most recently China and Turkey, provide a strong
platform for additional sales growth in international markets.
Raw Materials and Suppliers
Plastic resins, such as polyethylene and polypropylene, and non-woven fabrics are the basic raw materials
used in the manufacture of substantially all Plastics’ products. The price of resin has fluctuated
dramatically over the past five years primarily due to volatility in oil prices and producer capacity. Resins
are purchased in pellet form from several suppliers. Sources for raw materials are believed to be adequate
for current and anticipated needs.
Competition
Plastics has a number of competitors, some of which are larger, in the specialty plastic films and
laminates market. Plastics competes on quality, service and price using its technical expertise, product
development capabilities and broad international footprint to enhance its market position, build and
maintain long-term customer relationships and meet changing customer needs.
Manufacturing
Specialty plastic film and laminate products are manufactured using high-speed equipment designed to
meet stringent tolerances. The manufacturing process consists of melting a mixture of polymer resins and
additives, and forcing this mixture through a die and rollers to produce thin films. Laminates of films and
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non-wovens are manufactured by a variety of techniques to meet customer needs. In addition, films and
laminates can be printed.
Plastics’ U.S. manufacturing facilities are in Augusta, Kentucky and Nashville, Tennessee from which it
sells plastic films throughout the United States and various parts of the world.
Plastics has two manufacturing facilities in Germany from which it sells plastic films throughout Europe
and the Middle East. Plastics also has operations in Brazil, China and Turkey, which manufacture plastic
hygienic and specialty films. Plastics’ international operations provide a platform to broaden
participation in Europe, the Middle East, South America and Asia and strengthen Plastics’ position as a
global supplier.
Griffon Corporation
Employees
Griffon and its subsidiaries employ approximately 5,900 people located primarily throughout the U.S.,
Canada, Europe, Brazil, Australia, China and Mexico. Approximately 528 of these employees are
covered by collective bargaining agreements in the U.S., primarily with an affiliate of the American
Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), United Brotherhood of
Carpenters and Joiners of America (“UBCJA”), International Brotherhood of Teamsters (“IBT”) and the
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy Allied Industrial and Service Workers
International Union. Additionally, approximately 200 employees in Canada are represented by the Trade
Union Advisory Committee. Griffon believes its relationships with its employees are satisfactory.
Regulation
Griffon’s operations are subject to various environmental, health, and employee safety laws and
regulations. Griffon believes that it is in material compliance with these laws and regulations.
Historically, compliance with environmental laws has not materially affected, and is not expected to
materially affect, Griffon’s capital expenditures, earnings or competitive position in the future.
Nevertheless, Griffon cannot guarantee that, in the future, it will not incur additional costs for compliance
or that such costs will not be material.
Telephonics, which sells directly and indirectly to the U.S. government, is subject to certain regulations,
laws and standards set by the U.S. government. Additionally, Telephonics is subject to routine audits and
investigations by U.S. Government Agencies such as the Defense Contract Audit Agency and other
Inspectors General. These agencies review a contractor’s performance under its contracts, cost structure
and compliance with applicable laws, regulations and standards. These agencies also review the
adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the
contractor’s management, purchasing, property, estimating, compensation, and accounting and
information systems.
Customers
A small number of customers account for, and are expected to continue to account for, a substantial
portion of Griffon’s consolidated revenue. For the 2011:
a. The U.S. Government and its agencies, through either prime or subcontractor relationships,
represented 19% of Griffon’s consolidated revenue and 75% of Telephonics revenue.
b. P&G represented 14% of Griffon’s consolidated revenue and 49% of Plastics revenue.
c. Home Depot represented 12% of Griffon’s consolidated revenue and 25% of HBP revenue.
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No other customers exceed 9% of consolidated revenue. Future operating results will continue to
substantially depend on the success of Griffon’s largest customers and Griffon’s relationships with them.
Orders from these customers are subject to fluctuation and may be reduced materially. The loss of all or a
portion of volume from any one of these customers could have a material adverse impact on Griffon’s
liquidity and operations.
Seasonality
Prior to the acquisition of ATT, Griffon’s revenue and income have been lowest in our second quarter
ending March 31 and highest in our fourth quarter ending September 30, primarily due to the seasonality
of CBP’s business, which is driven by residential renovation and construction during warm weather, and
which is generally at reduced levels during the winter months. Because a high percentage of CBP’s
manufacturing overhead and operating expenses are relatively fixed throughout the year, operating
margins have historically been lower in those quarters with lower revenue.
With the inclusion of ATT’s operating results, our first and fourth quarters are expected to be Griffon’s
lower revenue and income quarters. ATT’s lawn and garden products are used primarily in the spring and
summer; in 2011, 59% of ATT’s sales occurred during the second and third quarters.
Demand for lawn and garden products is influenced by weather, particularly weekend weather during the
peak gardening season. ATT’s sales volumes could be adversely affected by certain weather patterns such
as unseasonably cool or warm temperatures, hurricanes, water shortages or floods. In addition, lack of
snow or lower than average snowfall during the winter season may also result in reduced sales of certain
ATT products, such as snow shovels and other snow tools. As a result, ATT’s results of operations,
financial results and cash flows could be adversely impacted.
Financial Information About Geographic Areas
Segment and operating results are included in Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
For geographic financial information, see the Business Segment footnote in the Notes to Consolidated
Financial Statements in Item 8, Financial Statements and Supplementary Data.
Griffon’s non-U.S. businesses are primarily in Germany, Canada, Brazil, Mexico, Australia and Sweden.
Research and Development
Griffon’s companies are encouraged to improve existing products as well as develop new products to
satisfy customer needs; expand revenue opportunities; maintain or extend competitive advantages;
increase market share and reduce production costs. R&D costs, not recoverable under contractual
arrangements, are charged to expense as incurred. R&D costs for Griffon were $23,900 in 2011, $21,400
in 2010 and $17,800 in 2009.
Intellectual Property
Griffon follows a practice of actively protecting and enforcing its proprietary rights in the U.S. and
throughout the world where Griffon's products are sold.
Trademarks are of significant importance to Griffon's HBP business. Principal global and regional
trademarks include Clopay®, Ideal Door®, Holmes®, Ames®, True Temper®, Ames True Temper®,
Garant®, Hound Dog®, Westmix and Dynamic Design™, UnionTools®, Razor-Back® Professional
Tools and Jackson® Professional Tools. The Clopay® trademark is also used by our Plastics business.
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The HBP business has over 490 trademarks and over 85 pending trademark applications. Griffon's rights
in these trademarks endure for as long as they are used and registered.
Patents are significant to Plastics. Technology evolves rapidly in the plastics business, and Plastics’
customers are constantly striving to offer products with innovative features at a competitive price to the
end consumer. As a result, Plastics is constantly seeking to offer new and innovative products to its
customers. Plastics has approximately 27 patents in the U.S., and approximately 162 corresponding
foreign patents, primarily covering breathable and elastic polymer films and laminates and various
methods and machinery for producing these materials. Patents are also important to our HBP segment.
ATT protects its designs and product innovation through the use of patents, and currently has 229 issued
patents and 47 pending patent applications in the United States, as well as 110 and 68 corresponding
foreign patents and patent applications, respectively. Clopay Building Products has 28 patents in the
United States, and over 32 corresponding foreign patents, primarily related to garage door system
components. Design patents are generally valid for fourteen years, and utility patents are generally valid
for twenty years. Our various patents are in different stages of their useful life.
In the government and defense business, formal intellectual property rights are of limited value.
Therefore, our Telephonics business tends to hold most of its important intellectual property as trade
secrets, which it protects through the use of contract terms and carefully restricting access to its
technology.
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Executive Officers of the Registrant
The following is a current list of Griffon’s executive officers:
Name
Ronald J. Kramer
Age
53
Douglas J. Wetmore
54
Patrick L. Alesia
Seth L. Kaplan
63
42
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Positions Held and Prior Business Experience
President since February 2009, Chief Executive Officer since
April 2008, director since 1993 and Vice Chairman of the
Board since November 2003. From 2002 through March 2008,
President and a director of Wynn Resorts, Ltd., a developer,
owner and operator of hotel and casino resorts. From 1999 to
2001, Managing Director at Dresdner Kleinwort Wasserstein,
an investment banking firm, and its predecessor Wasserstein
Perella & Co. Member of the Board of Directors of Leap
Wireless International, Inc. (NASDAQ: LEAP), a wireless
communications company. Formerly on the boards of directors
of Monster Worldwide, Inc. (NYSE: MWW), Sapphire
Industrials Corporation (AMEX: FYR), Lakes Entertainment,
Inc. (NASDAQ: LACO), Republic Property Trust (formerly
(NASDAQ:
NYSE: RPB) and New Valley Corporation
NVAL). Mr. Kramer is the son-in-law of Harvey R. Blau,
Griffon’s Chairman of the Board.
Executive Vice President and Chief Financial Officer since
September 2009. From April 1998 to July 2008, Senior Vice
President and Chief Financial Officer of International Flavors
& Fragrances Inc. (“IFF”), a creator of flavors and fragrances
used in a variety of consumer products (NYSE: IFF). From
October 2007 to July 2008, Treasurer of IFF. From 1991 to
1998, Corporate Controller of IFF. Prior to IFF, Price
Waterhouse for 12 years.
Chief Administrative Officer since September 2009, appointed
Senior Vice President in May 2010, Vice President since 1990,
Treasurer from 1979 to 2010, Ethics Officer since 2005,
Secretary from 2005 to 2010. Served as Chief Financial Officer
from November 2007 to September 2009.
Senior Vice President, General Counsel and Secretary since
May 2010. From July 2008 to May 2010, Assistant General
Counsel and Assistant Secretary at Hexcel Corporation, a
manufacturer of advanced composite materials for space and
defense, commercial aerospace and wind energy applications.
From 2000 to July 2008, Senior Corporate Counsel and
Assistant Secretary at Hexcel. From 1994 to 2000, associate at
the law firm Winthrop, Stimson, Putnam & Roberts (now
Pillsbury Winthrop Shaw Pittman LLP).
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Item 1A. Risk Factors
Griffon’s business, financial condition, operating results and cash flows can be impacted by a number of
factors which could cause Griffon’s actual results to vary materially from recent or anticipated future
results. The risk factors discussed in this section should be carefully considered with all of the
information in this Annual Report on Form 10-K. These risk factors should not be considered the only
risk factors facing Griffon. Additional risks and uncertainties not presently known or that are currently
deemed immaterial may also materially impact Griffon’s business, financial condition, operating results
and cash flows in the future.
In general, Griffon is subject to the same general risks and uncertainties that impact other diverse
manufacturing companies including, but not limited to, general economic, industry and/or market
conditions and growth rates; impact of natural disasters and their effect on global markets; continued
events in the Middle East and possible future terrorist threats and their effect on the worldwide economy;
and changes in laws or accounting rules. Griffon has identified the following specific risks and
uncertainties that it believes has the potential to materially affect its business and financial condition.
Current worldwide economic uncertainty and market volatility could adversely affect Griffon’s
businesses.
The current worldwide economic uncertainty, market volatility and credit crisis will continue to have an
adverse effect on Griffon during 2012, particularly in HBP, which is substantially linked to the U.S.
housing market and the U.S. economy, in general. Also, purchases of ATT products are discretionary for
consumers and consumers are generally more willing to purchase products during periods in which
favorable macroeconomic conditions prevail. Additionally, the current condition of the credit markets
could impact Griffon’s ability to refinance expiring debt, obtain additional credit for investments in
current businesses or for acquisitions, with favorable terms, or there may be no financing available.
Griffon is also exposed to basic economic risks including a decrease in the demand for the products and
services offered or a higher risk of default on its receivables.
Adverse trends in the housing sector and in general economic conditions will directly impact Griffon’s
business.
HBP’s business is influenced by market conditions for new home construction and renovation of existing
homes. For the year ended September 30, 2011, approximately 46% of Griffon’s consolidated revenue
was derived from the HBP segment, which is heavily dependent on new home construction and
renovation of existing homes. The strength of the U.S. economy, the age of existing home stock, job
growth, interest rates, consumer confidence and the availability of consumer credit, as well as
demographic factors such as the migration into the United States and migration of the population within
the United States also have an effect on HBP. In that respect, the significant downturn in the housing
market has had an adverse effect on the operating results of HBP and this effect is likely to continue in
2012, particularly to its CBP business.
Griffon operates in highly competitive industries and may be unable to compete effectively.
Griffon’s operating companies face intense competition in each of the markets served. There are a number
of competitors, some of which are larger and have greater resources than Griffon’s operating companies.
Griffon competes primarily on the basis of competitive prices, technical expertise, product differentiation,
and quality of products and services. There can be no assurance that Griffon will not encounter increased
competition in the future, which could have a material adverse effect on Griffon’s financial results.
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The loss of large customers can harm financial results.
A small number of customers account for, and are expected to continue to account for, a substantial
portion of consolidated revenue. Approximately 14% of consolidated revenue and 49% of the Plastics
segment revenue for the year ended September 30, 2011 was generated from P&G, the largest customer in
the Plastics segment. Home Depot, Lowes and Menards are significant customers of HBP with Home
Depot accounting for approximately 12% of consolidated revenue and 25% of the HBP segment revenue
for the year ended September 30, 2011. The U.S. Government and its agencies, Lockheed Martin
Corporation and the Boeing Company, are significant customers of Telephonics. Future operating results
will continue to substantially depend on the success of Griffon’s largest customers, as well as Griffon’s
relationship with them. Orders from these customers are subject to fluctuation and may be reduced
materially due to changes in these customers’ needs. Any reduction or delay in sales of products to one or
more of these customers could significantly reduce Griffon’s revenue. Griffon’s operating results will also
depend on successfully developing relationships with additional key customers. Griffon cannot assure that
Griffon’s largest customers will be retained or that additional key customers will be recruited. Also, HBP
extends credit to its customers, which exposes it to credit risk. Their largest customer accounted for
approximately 24% and 10% of HBP’s and Griffon’s net accounts receivable as of September 30, 2011,
respectively. If this customer were to become insolvent or otherwise unable to pay its debts, the financial
condition, results of operations and cash flows of the HBP segment would be adversely affected.
Reliance on third party suppliers and manufacturers may impair ability to meet ATT’s customer demands.
ATT relies on a limited number of domestic and foreign companies to supply components and
manufacture certain of its products. The percentage of ATT’s products sourced, based on revenue,
approximated 23% in 2011. Reliance on third party suppliers and manufacturers may reduce control over
the timing of deliveries and quality of ATT’s products. Reduced product quality or failure to deliver
products quickly may jeopardize relationships with certain of ATT’s key customers. In addition, reliance
on third party suppliers or manufacturers may result in failure to meet ATT’s customer demands.
Continued turbulence in the worldwide economy may affect the liquidity and financial condition of
ATT’s suppliers. Should any of these parties fail to manufacture sufficient supply, go out of business or
discontinue a particular component, alternative suppliers may not be found in a timely manner, if at all.
Such events could impact ATT’s ability to fill orders, which would have a material adverse effect on
customer relationships.
If Griffon is unable to obtain raw materials for products at favorable prices it could adversely impact
operating performance.
HBP’s and Plastics’ suppliers primarily provide resin, wood and steel. Assurance cannot be provided that
these segments may not experience shortages of raw materials or components for products or be forced to
seek alternative sources of supply. If temporary shortages due to disruptions in supply caused by weather,
transportation, production delays or other factors require raw materials to be secured from sources other
than current suppliers, the terms may not be as favorable as current terms or material may not be available
at all. In recent years, HBP and Plastics have experienced price increases in steel and plastic resins.
While most key raw materials used in Griffon’s businesses are generally available from numerous
sources, raw materials are subject to price fluctuations. Because raw materials in the aggregate constitute
a significant component of the cost of goods sold, price fluctuations could have a material adverse effect
on Griffon’s results of operations. Griffon’s ability to pass raw material price increases to customers is
limited due to supply arrangements and competitive pricing pressure, and there is generally a time lag
between increased raw material costs and implementation of corresponding price increases for Griffon’s
products. In particular, sharp increases in raw material prices are more difficult to pass through to
customers and may negatively affect short-term financial performance.
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ATT is subject to risks associated with sourcing from Asia.
A substantial amount of ATT’s finished goods sourcing is done through supply agreements with China
based vendors. China does not have a well-developed, consolidated body of laws governing agreements
with international customers. Enforcement of existing laws or contracts based on existing law may be
uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain
enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s
judiciary in many cases creates additional uncertainty as to the outcome of any litigation. In addition,
interpretation of statutes and regulations may be subject to government policies reflecting domestic
political changes. Products entering from China may be subject to import quotas, import duties and other
restrictions. Any inability to import these products into the U.S. and any tariffs that may be levied with
respect to these products may have a material adverse result on ATT’s business and results of operations,
financial position and cash flows.
Griffon’s businesses are subject to seasonal variations and the impact of uncertain weather patterns.
Prior to the acquisition of ATT, Griffon’s revenue and income had been lowest in our second quarter
ending March 31 and highest in our fourth quarter ending September 30, primarily due to the seasonality
of CBP’s business, which is driven by residential renovation and construction, and which is generally at
reduced levels during the winter months and at its highest levels during warm weather. Because a high
percentage of CBP’s manufacturing overhead and operating expenses are relatively fixed throughout the
year, operating margins have historically been lower in those quarters with lower revenue.
With the inclusion of ATT’s operating results, which started on October 1, 2010, our first and fourth
quarters are expected to be Griffon’s lower revenue and income quarters. ATT’s lawn and garden
products are used primarily in the spring and summer; in 2011, 59% of ATT’s sales occurred during the
second and third fiscal quarters.
Demand for lawn and garden products is influenced by weather, particularly weekend weather during the
peak gardening season. ATT’s sales volumes could be adversely affected by certain weather patterns such
as unseasonably cool or warm temperatures, hurricanes, water shortages or floods. In addition, lack of
snow or lower than average snowfall during the winter season may also result in reduced sales of certain
ATT products, such as snow shovels and other snow tools. As a result, ATT’s results of operations,
financial results and cash flows could be adversely impacted.
Further consolidation in the retail industry may adversely affect profitability.
Home centers and mass merchandisers have consolidated and increased in scale. If this trend continues,
customers will likely seek more favorable terms for their purchases of products, which will limit Griffon’s
ability to pass through raw material or other cost increases, or to raise prices for any reason. Sales on
terms less favorable than current terms could have a material adverse effect on profitability.
Unionized employees could strike or participate in a work stoppage.
Griffon employs approximately 5,900 people on a full-time basis, approximately 9% of whom are
covered by collective bargaining or similar labor agreements (all in the Telephonics and ATT businesses).
If unionized employees engage in a strike or other work stoppage, or if Griffon is unable to negotiate
acceptable extensions of agreements with labor unions, a significant disruption of operations and
increased operating costs could occur. In addition, any renegotiation or renewal of labor agreements
could result in higher wages or benefits paid to unionized employees, which could increase operating
costs and could have a material adverse effect on profitability.
(cid:3)(cid:883)(cid:891)
Griffon may be required to record impairment charges for goodwill and indefinite-lived intangible assets.
Griffon is required to assess goodwill and indefinite-lived intangible assets annually for impairment or on
an interim basis if changes in circumstances or the occurrence of events suggest impairment exists. If
impairment testing indicates that the carrying value of reporting units or indefinite-lived intangible assets
exceeds the respective fair value, an impairment charge would be recognized. If goodwill or indefinite-
lived intangible assets were to become impaired, the results of operations could be materially and
adversely affected.
Trends in the baby diaper market will directly impact Griffon’s business.
Recent trends have been for baby diaper manufacturers to specify thinner plastic films for use in their
products which reduces the amount of product sold and Plastics’ revenue; this trend has generally resulted
in Plastics incurring costs to redesign and reengineer products to accommodate required specification
changes. Such decreases, or the inability to meet changing customer specifications, could result in a
material decline in Plastics revenue and profits.
Telephonics’ business depends heavily upon government contracts and, therefore, the defense budget.
Telephonics sells products to the U.S. government and its agencies both directly and indirectly as a first-
tier supplier to prime contractors in the defense industry such as Boeing, Lockheed Martin, Sikorsky and
Northrop Grumman. In the year ended September 30, 2011, U.S. government contracts and subcontracts
accounted for approximately 19% of Griffon’s consolidated revenue. Contracts involving the U.S.
government may include various risks, including:
(cid:120) Termination for convenience by the government;
(cid:120) Reduction or modification in the event of changes in the government’s requirements or budgetary
constraints;
(cid:120) Increased or unexpected costs, causing losses or reduced profits under contracts where
Telephonics’ prices are fixed, or determinations that certain costs are not allowable under
particular government contracts;
(cid:120) The failure or inability of the prime contractor to perform its contract in circumstances where
Telephonics is a subcontractor;
(cid:120) Failure to observe and comply with government business practice and procurement regulations
such that Telephonics could be suspended or barred from bidding on or receiving awards of new
government contracts;
(cid:120) The failure of the government to exercise options for additional work provided for in contracts; and
(cid:120) The government’s right, in certain circumstances, to freely use technology developed under these
contracts.
All of Telephonics’ U.S. Government end-user contracts contain a termination for convenience clause,
regardless if Telephonics is the prime contractor or the subcontractor. This clause generally entitles
Telephonics, upon a termination for convenience, to receive the purchase price for delivered items,
reimbursement of allowable work-in-process costs, and an allowance for profit. Allowable costs would
include the costs to terminate existing agreements with suppliers.
The programs in which Telephonics participates may extend for several years, but are normally funded on
an incremental basis. Decreases in the U.S. defense budget, in particular with respect to programs to
which Telephonics supplies materials, could have a material adverse impact on Telephonics financial
conditions, results of operations and cash flows. The U.S. government may not continue to fund
programs to which Telephonics’ development projects apply. Even if funding is continued, Telephonics
may fail to compete successfully to obtain funding pursuant to such programs.
(cid:3)(cid:884)(cid:882)
If the U.S. government does not complete the budget process before the end of its fiscal year, then
government procurement operations are typically funded through a continuing resolution that enables
agencies of the U.S. Government to continue to operate, but does not authorize new spending initiatives.
When the U.S. Government operates under a continuing resolution, delays can occur in the procurement
of products and services. Delays in procurement awards may affect the timing of revenue recognition
between fiscal periods.
Telephonics’ business could be adversely affected by a negative audit by the U.S. Government
As a government contractor, and a subcontractor to government contractors, Telephonics is subject to
audits and investigations by U.S. Government Agencies such as the Defense Contract Audit Agency,
other Inspectors General and the Department of Justice. These agencies review a contractor’s
performance under its contracts, cost structure and compliance with applicable laws, regulations and
standards. These agencies also review the adequacy of, and a contractor’s compliance with, its internal
control systems and policies, including the contractor’s management, purchasing, property, estimating,
compensation, and accounting and information systems. Any costs found to be misclassified or
improperly allocated to a specific contract will not be reimbursed or must be refunded if already billed
and collected. Griffon could incur significant expenses in complying with audits and subpoenas issued by
the government in aid of inquiries and investigations. If an audit or an investigation uncovers improper or
illegal activities, Telephonics may be subject to civil and criminal penalties and/or administrative
sanctions, which could include contract termination, forfeiture of profit, suspension of payments, fines
and suspension or prohibition from doing business with the U.S. Government. In addition, if allegations
of impropriety are made, Telephonics and Griffon could suffer serious reputational harm.
Many of our contracts contain performance obligations that require innovative design capabilities, are
technologically complex, or are dependent upon factors not wholly within our control. Failure to meet
these obligations could adversely affect customer relations, future business opportunities, and our overall
profitability.
Our Telephonics segment designs, develops and manufactures advanced and innovative surveillance and
communication products for a broad range of applications for use in varying environments. As with
many of our programs, the system specifications, operational requirements and test requirements are
challenging, exacerbated by the need for quick delivery schedules. Technical problems encountered and
delays in the development or delivery of such products could prevent us from meeting contractual
obligations, which could subject us to termination for default. Under a termination for default, the
company is entitled to negotiate payment for undelivered work if the Government requests the transfer of
title and delivery of partially completed supplies and materials. Conversely, if the Government does not
make this request, there is no obligation to reimburse the company for its costs incurred. We may also be
subject to the repayment of advance and progress payments, if any. Additionally, the company may be
liable to the Government for any of its excess costs incurred in acquiring supplies and services similar to
those terminated for default, and for other damages. Should any of the foregoing events occur, it could
result in a material adverse effect on our financial position.
Griffon’s companies must continually improve existing products, design and sell new products and invest
in research and development in order to compete effectively.
The markets for Plastics and Telephonics are characterized by rapid technological change, evolving
industry standards and continuous improvements in products. Due to constant changes in these markets,
future success depends on their ability to develop new technologies, products, processes and product
applications.
(cid:3)(cid:884)(cid:883)
Product and technological developments are accomplished both through internally-funded R&D projects,
as well as through strategic partnerships with customers. Because it is not generally possible to predict the
amount of time required and costs involved in achieving certain R&D objectives, actual development
costs may exceed budgeted amounts and estimated product development schedules may be extended.
Griffon’s financial condition and results of operations may be materially and adversely affected if:
(cid:120) Product improvements are not completed on a timely basis;
(cid:120) New products are not introduced on a timely basis or do not achieve sufficient market penetration;
(cid:120) There are budget overruns or delays in research and development efforts; or
(cid:120) New products experience reliability or quality problems.
Griffon may be unable to implement its acquisition growth strategy, which may result in added expenses
without a commensurate increase in revenue and income and divert management’s attention.
Making strategic acquisitions is a significant part of Griffon’s growth plans. The ability to successfully
complete acquisitions depends on identifying and acquiring, on acceptable terms, companies that either
complement or enhance currently held businesses or expand Griffon into new profitable businesses.
Additionally, Griffon must properly integrate acquired businesses in order to maximize profitability. The
competition for acquisition candidates is intense and Griffon cannot assure that it will successfully
identify acquisition candidates and complete acquisitions at reasonable purchase prices, in a timely
manner or at all. Further, there is a risk that acquisitions will not be properly integrated into Griffon’s
existing structure. In implementing an acquisition growth strategy, the following may be encountered:
(cid:120) Costs associated with incomplete or poorly implemented acquisitions;
(cid:120) Expenses, delays and difficulties of integrating acquired companies into Griffon’s existing
organization;
(cid:120) Dilution of the interest of existing stockholders; or
(cid:120) Diversion of management’s attention.
An unsuccessful implementation of Griffon’s acquisition growth strategy could have an adverse impact
on Griffon’s results of operations, cash flows and financial condition.
The loss of certain key officers or employees could adversely affect Griffon’s business.
The success of Griffon is materially dependent upon the continued services of certain key officers and
employees. The loss of such key personnel could have a material adverse effect on Griffon’s operating
results or financial condition.
Griffon is exposed to a variety of risks relating to non-U.S. sales and operations, including non-U.S.
economic and political conditions and fluctuations in exchange rates.
Griffon and its companies own properties and conduct operations in Europe, Canada, Australia, Brazil,
Mexico, China and Turkey. Sales of products through non-U.S. subsidiaries accounted for approximately
25% of consolidated revenue for the year ended September 30, 2011. These sales could be adversely
affected by changes in political and economic conditions, trade protection measures, differing intellectual
property rights laws and changes in regulatory requirements that restrict the sales of products or increase
costs. Currency fluctuations between the U.S. dollar and the currencies in the non-U.S. regions in which
Griffon does business may also have an impact on future reported financial results.
(cid:3)(cid:884)(cid:884)
Griffon may not be able to protect its proprietary rights.
Griffon relies on a combination of patent, copyright and trademark laws, trade secrets, confidentiality and
non-disclosure agreements and other contractual provisions to protect proprietary rights. Such measures
do not provide absolute protection and Griffon cannot give assurance that measures for protecting these
proprietary rights are and will be adequate, or that competitors will not independently develop similar
technologies.
Griffon may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by
another party.
Griffon is regularly improving its technology and employing existing technologies in new ways. Though
Griffon takes reasonable precautions to ensure it does not infringe on the rights of others, it is possible
that Griffon may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by
others. If Griffon is found to have infringed on the propriety rights held by others, any related litigation
or settlement relating to such infringement may have a material effect on Griffon's financial statements
and financial condition.
Griffon is exposed to product liability claims.
Griffon may be the subject of product liability claims relating to the performance of its products or the
performance of a product in which its products were a component part. There can be no assurance that
future product liability claims will not be brought against Griffon, either by an injured customer of an end
product manufacturer who used one of the products as a component or by a direct purchaser. Moreover,
no assurance can be given that indemnification from customers or coverage under insurance policies will
be adequate to cover future product liability claims against Griffon. In addition, product liability
insurance can be expensive, difficult to maintain and may be unobtainable in the future on acceptable
terms. The amount and scope of any insurance coverage may be inadequate if a product liability claim is
successfully asserted. Furthermore, if any significant claims are made, the business and the related
financial condition of Griffon may be adversely affected by negative publicity.
Griffon has been, and may in the future be, subject to claims and liabilities under environmental laws and
regulations.
Griffon’s operations and assets are subject to environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposal of wastes, including solid and
hazardous wastes, or otherwise relating to health, safety and protection of the environment, in various
jurisdictions in which it operates. Griffon does not expect to make any expenditure with respect to
ongoing compliance with or remediation under these environmental laws and regulations that would have
a material adverse effect on its business, operating results or financial condition. However, the applicable
requirements under environmental laws and regulations may change at any time.
Griffon can incur environmental costs related to sites that are no longer owned or operated, as well as
third-party sites to which hazardous materials are sent. It cannot be assured that material expenditures or
liabilities will not be incurred in connection with such claims. See the Commitment and Contingencies
footnote in the Notes to Consolidated Financial Statements for further information on environmental
contingencies. Based on facts presently known, the outcome of current environmental matters are not
expected to have a material adverse effect on Griffon’s results of operations and financial condition.
However, presently unknown environmental conditions, changes in environmental laws and regulations
or other unanticipated events may give rise to claims that may involve material expenditures or liabilities.
(cid:3)(cid:884)(cid:885)
Changes in income tax laws and regulations or exposure to additional income tax liabilities could
adversely affect profitability.
Griffon is subject to Federal, state and local income taxes in the U.S. and in various taxing jurisdictions
outside the U.S. Tax provisions and liabilities are subject to the allocation of income among various U.S.
and international tax jurisdictions. Griffon’s effective tax rate could be adversely affected by changes in
the mix of earnings in countries with differing statutory tax rates, changes in any valuation allowance for
deferred tax assets or the amendment or enactment of tax laws. The amount of income taxes paid is
subject to audits by U.S. Federal, state and local tax authorities, as well as tax authorities in the taxing
jurisdictions outside the U.S. If such audits result in assessments different from recorded income tax
liabilities, Griffon’s future financial results may include unfavorable adjustments to its income tax
provision.
Compliance with restrictions and covenants in Griffon’s debt agreements may limit its ability to take
corporate actions and harm its business.
The senior secured credit agreement entered into by, and the terms of the senior notes issued by, Griffon
each contain covenants that restrict the ability of Griffon and its subsidiaries to, among other things, incur
additional debt, pay dividends, incur liens and make investments, acquisitions, dispositions, restricted
payments and capital expenditures. Under the credit agreement, Griffon is also required to comply with
specific financial ratios and tests. Griffon may not be able to comply in the future with these covenants or
restrictions as a result of events beyond its control, such as prevailing economic, financial and industry
conditions or a change in control of Griffon. If Griffon defaults in maintaining compliance with the
covenants and restrictions in its credit agreement or the senior notes, its lenders could declare all of the
principal and interest amounts outstanding due and payable and, in the case of the credit agreement,
terminate their commitments to extend credit to Griffon in the future. If Griffon or its subsidiaries are
unable to secure credit in the future, business could be harmed.
Reported earnings per share may be more volatile because of the conversion contingency provision of the
notes.
The outstanding convertible notes are convertible when a “market price” condition is satisfied and also
upon the occurrence of other circumstances as more fully described in the Notes Payable, Capitalized
Leases and Long-Term Debt footnote in the Notes to Consolidated Financial Statements. Upon
conversion, at Griffon’s discretion, note holders will receive $1,000 in cash for each $1,000 principal
amount of notes presented for conversion or value in Griffon’s common stock, and Griffon common stock
for the value above the principal amount of the notes. The potential shares of Griffon common stock
issuable for value above the principal value of the notes are considered in the calculation of diluted
earnings per share and volatility in Griffon’s stock price could cause these notes to be dilutive in one
quarter and not in a subsequent quarter, increasing the volatility of fully diluted earnings per share.
Griffon may be unable to raise additional financing if needed
Griffon may need to raise additional financing in the future in order to implement its business plan,
refinance debt, or to acquire new or complimentary businesses or assets. Any required additional
financing may be unavailable, or only available at unfavorable terms, due to uncertainties in the credit
markets. If Griffon raises additional funds by issuing equity securities, current holders of its common
stock may experience significant ownership interest dilution and the new securities may have rights senior
to the rights associated with current outstanding common stock.
(cid:3)(cid:884)(cid:886)
Griffon’s indebtedness and interest expense could limit cash flow and adversely affect operations and
Griffon’s ability to make full payment on outstanding debt.
Griffon’s indebtedness poses potential risks such as:
(cid:120) A substantial portion of cash flows from operations could be used to pay principal and interest on
debt, thereby reducing the funds available for working capital, capital expenditures, acquisitions,
product development and other general corporate purposes;
(cid:120) Insufficient cash flows from operations may force Griffon to sell assets, or seek additional capital,
which Griffon may not be able to accomplish on favorable terms, if at all; and
(cid:120) The level of indebtedness may make Griffon more vulnerable to economic or industry downturns.
Griffon has the ability to issue additional equity securities, which would lead to dilution of issued and
outstanding common stock.
The issuance of additional equity securities or securities convertible into equity securities would result in
dilution to existing stockholders’ equity interests. Griffon is authorized to issue, without stockholder vote
or approval, 3,000,000 shares of preferred stock in one or more series, and has the ability to fix the rights,
preferences, privileges and restrictions of any such series. Any such series of preferred stock could
contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences or other rights superior to the rights of holders of Griffon’s common stock. There
is no present intention of issuing any such preferred stock, but Griffon reserves the right to do so in the
future. In addition, Griffon is authorized to issue, without stockholder approval, up to 85,000,000 shares
of common stock, of which approximately 61,750,863 shares, net of treasury shares, were outstanding as
of September 30, 2011. Additionally, Griffon is authorized to issue, without stockholder approval,
securities convertible into either shares of common stock or preferred stock.
Item 1B. Unresolved Staff Comments
None.
(cid:3)(cid:884)(cid:887)
Item 2. Properties
Griffon occupies approximately 8,400,000 square feet of general office, factory and warehouse space
throughout the U.S., Germany, Sweden, Mexico, Canada, Australia, Ireland and Brazil. For a description
of the encumbrances on certain of these properties, see the Notes Payable, Capitalized Leases and Long-
Term Debt footnote in the Notes to Consolidated Financial Statements. The following table sets forth
certain information related to Griffon’s major facilities:
Location
Business Segment
Primary Use
Approx.
Square
Footage
Owned/
Leased
Lease
End
Year
New York, NY
Jericho, NY
Farmingdale, NY
Huntington, NY
Huntington, NY
Huntington, NY
Columbia, MD
Stockholm, Sweden
Elizabeth City, NC
Mason, OH
Corporate
Corporate
Telephonics
Telephonics
Telephonics
Telephonics
Telephonics
Telephonics
Telephonics
Home & Building Products/
Clopay Plastic Products
Clopay Plastic Products
Aschersleben, Germany
Clopay Plastic Products
Dombuhl, Germany
Clopay Plastic Products
Augusta, KY
Clopay Plastic Products
Nashville, TN
Clopay Plastic Products
Nashville, TN
Clopay Plastic Products
Jundiai, Brazil
Home & Building Products
Troy, OH
Home & Building Products
Russia, OH
Home & Building Products
Auburn, WA
Home & Building Products
Carlisle, PA
Home & Building Products
Reno, NV
Home & Building Products
Camp Hill, PA
Home & Building Products
Harrisburg, PA
Home & Building Products
St. Francois, Quebec
Home & Building Products
Bernie, MO
Home & Building Products
Lewistown, PA
Home & Building Products
Cork, Ireland
Victoria, Australia
Home & Building Products
New South Wales, Australia Home & Building Products
Home & Building Products
South, Australia
Home & Building Products
Queensland, Australia
Home & Building Products
Western, Australia
Headquarters
Office
Manufacturing/R&D
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Engineering
Repair and Service
Office/R&D
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing, Distribution
Manufacturing, Distribution
Office, Manufacturing
Manufacturing
Manufacturing, Distribution
Manufacturing
Manufacturing
Manufacturing, Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
6,600
6,900
180,000
94,000
55,000
100,000
25,000
22,000
22,000
131,000
289,000
124,000
275,000
210,000
150,000
88,000
867,000
339,000
123,000
1,227,000
400,000
380,000
264,000
353,000
95,000
124,000
74,000
32,000
24,000
13,000
17,000
22,000
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
2016
2014
2015
2016
2013
2012
2039
2014
2021
2013
2020
2017
2020
2015
2016
2013
2012
2012
2015
Griffon also leases approximately 1,200,000 square feet of space for the CBP distribution centers in
numerous facilities throughout the United States and in Canada. In addition, Griffon owns 200,000
square feet of space for the ATT wood mills in the United States.
All facilities are generally well maintained and suitable for the operations conducted.
(cid:3)(cid:884)(cid:888)
Item 3. Legal Proceedings
Griffon is involved in litigation, investigations and claims arising out of the normal conduct of business,
including those relating to commercial transactions, environmental, employment, and health and safety
matters. Griffon estimates and accrues liabilities resulting from such matters based on a variety of
factors, including the stage of the proceeding; potential settlement value; assessments by internal and
external counsel; and assessments by environmental engineers and consultants of potential environmental
liabilities and remediation costs. Such estimates are not discounted to reflect the time value of money due
to the uncertainty in estimating the timing of the expenditures, which may extend over several years.
While it is impossible to ascertain the ultimate legal and financial liability with respect to certain
contingent liabilities and claims, Griffon believes, based upon examination of currently available
information, experience to date, and advice from legal counsel, that the individual and aggregate
liabilities resulting from the ultimate resolution of these contingent matters, after taking into consideration
our existing insurance coverage and amounts already provided for, will not have a material adverse
impact on consolidated results of operations, financial position or cash flows.
(cid:3)
Item 4. Reserved
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Griffon’s Common Stock is listed for trading on the New York Stock Exchange under the symbol “GFF”.
The following table shows for the periods indicated the quarterly range in the high and low sales prices
for Griffon’s Common Stock:
Fiscal First Quarter ended December 31,
Fiscal Second Quarter ended March 31,
Fiscal Third Quarter ended June 30,
Fiscal Fourth Quarter ended September 30,
Dividends
Fiscal 2011
Market Prices
Fiscal 2010
Market Prices
High
Low
High
Low
$
13.62
13.25
13.43
10.42
$
11.56
11.05
9.56
6.66
$
12.55
14.13
15.13
14.31
$
8.58
11.19
10.26
10.32
No cash dividends on Common Stock were declared or paid during the five years ended September 30,
2011. The Company periodically evaluates the merits of paying dividends on its Common Stock. On
November 17, 2011, the Company declared a $0.02 per share dividend payable on December 27, 2011 to
shareholders of record as of November 29, 2011. The Company currently intends to pay dividends each
quarter; however, the payment of dividends is determined by the Board of Directors at its discretion based
on various factors, and no assurance can be provided as to future dividends.
Holders
As of November 1, 2011, there were approximately 12,800 record holders of Griffon’s Common Stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding securities authorized for issuance under Griffon’s equity compensation plans is
contained in Part III, Item 12 of this Form 10-K.
(cid:3)(cid:884)(cid:889)
Issuer Purchase of Equity Securities
The table below presents shares of Griffon Stock which were acquired by Griffon during the fourth
quarter of 2011:
(a) Total
Numbe r of
Share s (or
Units)
Purchase d
(b) Ave rage
Price Paid Pe r
Share (or Unit)
271,060
1,001,222
739,779
1
2
3
$
9.91
7.88
8.24
(c) Total Numbe r
of Share s (or
Units) Purchase d
as Part of Publicly
Announce d Plans
or Programs
271,060
996,600
739,779
Pe riod
July 1 - 31, 2011
August 1 - 31, 2011
Se pte mbe r 1 - 30, 2011
Numbe r (or
Approximate
Dollar Value ) of
Share s (or Units)
That May Ye t Be
Purchase d Unde r
the Plans or
Programs
Total
2,012,061
$
8.28
2,007,439
$
48,690,238
4
1. Shares were purchased by the Griffon Corporation Employee Stock Ownership Plan (the “ESOP”) in open market
transactions pursuant to a 10b5-1 repurchase plan, and are solely for use by the ESOP.
2. Includes (a) 205,000 shares purchased by the ESOP in open market transactions pursuant to a 10b5-1 repurchase plan which
are solely for use by the ESOP; (b) 791,600 shares purchased by the Company in open market purchased pursuant to stock
buyback plans authorized by the Company’s Board of Directors; and (c) 4,622 shares acquired by the Company from a
holder of restricted stock upon vesting of the restricted stock to satisfy tax withholding obligations of the holder.
3. Shares were purchased by the Company in open market purchases pursuant to share repurchase plans authorized by the
Company’s Board of Directors.
4. As of the beginning of the fourth quarter of fiscal 2011, 1,366,295 shares were authorized for repurchase by the Company
pursuant to an authorized stock buyback program; the Company purchased all shares available under this buyback program
during the fourth quarter. On August 2, 2011, the Company’s Board of Directors authorized the repurchase of up to an
additional $50,000,000 of Griffon common stock; as of September 30, 2011, $48,690,238 remained available for the
purchase of Griffon common stock under this program. Purchases by the ESOP were made by drawing borrowings under a
loan agreement entered into by the ESOP on August 6, 2010; as of September 30, 2011, no further borrowings were
available under this loan agreement.
(cid:3)
(cid:3)(cid:884)(cid:890)
Performance Graph
The performance graph does not constitute soliciting material, is not deemed filed with the SEC and is not
incorporated by reference in any of Griffon’s filings under the Securities Act of 1933 or the Exchange Act
of 1934, whether made before or after the date of this Annual Report on Form 10-K and irrespective of
any general incorporation language in any such filings, except to the extent Griffon specifically
incorporates this performance graph by reference therein.
The following graph sets forth the cumulative total return to Griffon’s stockholders during the five years
ended September 30, 2011, as well as an overall stock market (S&P Small Cap 600 Index) and Griffon’s
peer group index (Dow Jones U.S. Diversified Industrials Index). Assumes $100 was invested on
September 30, 2006, including the reinvestment of dividends, in each category.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Griffon Corporation, the S&P Sm allcap 600 Index
and the Dow Jones US Diversified Industrials Index
$140
$120
$100
$80
$60
$40
$20
$0
9/06
9/07
9/08
9/09
9/10
9/11
Griffon Corporation
S&P Smallcap 600
Dow Jones US Diversified Industrials
*$100 invested on 9/30/06 in stock or index, including reinvestment of dividends.
(cid:3)(cid:884)(cid:891)
Item 6. Selected Financial Data
(in thousands, except per share amounts)
2011
For the Years Ended Septe mber 30,
2009
2008
2010
2007
Re ve nue
$
1,830,802
$
1,293,996
$
1,194,050
$
1,269,305
$
1,365,729
Income (loss) before taxes and
discontinued ope rations
Provision (benefit) for income taxes
Income (loss) from continuing ope rations
Income (loss) from discontinued operations
(14,349)
(6,918)
(7,431)
-
13,812
4,308
9,504
88
19,605
1,687
17,918
790
(182)
2,651
(2,833)
(40,591)
37,249
11,764
25,485
(6,086)
Ne t Income (loss)
$
(7,431)
$
9,592
$
18,708
$
(43,424)
$
19,399
Basic e arnings (loss) per share:
Continuing ope rations
Discontinue d operations
Ne t Income (loss)
$
(0.13)
-
(0.13)
$
0.16
0.00
0.16
$
0.31
0.01
0.32
$
(0.09)
(1.24)
(1.33)
$
0.79
(0.19)
0.60
Weighte d ave rage shares outstanding
58,919
58,974
58,699
32,667
32,405
Diluted e arnings (loss) per share:
Continuing ope rations
Discontinue d operations
Ne t Income (loss)
$
(0.13)
-
(0.13)
$
0.16
0.00
0.16
$
0.30
0.01
0.32
$
(0.09)
(1.24)
(1.32)
$
0.76
(0.18)
0.58
Weighte d ave rage shares outstanding
58,919
59,993
59,002
32,836
33,357
Capital expe nditure s
De pre ciation and amortization
Total assets
$
87,617
60,712
1,865,254
$
40,477
40,442
1,753,701
$
32,697
42,346
1,143,891
$
53,116
42,923
1,167,486
$
29,737
39,458
959,415
Current portion of debt, ne t of de bt discount
Long Term portion of debt, net of debt discount
Total de bt, net of debt discount
25,164
688,247
713,411
20,901
503,935
524,836
78,590
98,394
176,984
2,258
230,930
233,188
3,392
229,438
232,830
Notes:
Due to the acquisition of ATT occurring on Se ptember 30, 2010, none of ATT’s 2010 and prior re sults of
ope rations were included in Griffon’s re sults. The Griffon consolidated balance shee t at Se ptember 30, 2011
and 2010, and related notes thereto, include ATT’s balance s at those date s.
2011 include s $26,164 ($16,813, net of tax, or $0.29 pe r share) of loss on debt extinguishment; $15,152
($9,849, net of tax, or $0.17 pe r share) of increased cost of goods sold related to the sale of inventory
recorded at fair value in connection with acquisition accounting for ATT; and $7,543 ($4,903, ne t of tax, or
$0.08 per share) of re structuring charges.
2010 include s $9,805 ($7,704, net of tax, or $0.13 per share ) of ATT related acquisition costs; $4,180
($2,717, net of tax, or $0.05 pe r share) of restructuring charge s; and $1,117 ($726, ne t of tax, or $0.01 per
share ) of loss on debt extinguishment.
2009 include s a $4,488 ($2,917, net of tax, or $0.05 pe r share ) of gain on debt e xtinguishment and $1,240
($806, net of tax, or $0.01 pe r share) of restructuring charge s.
2008 include s a $12,913 ($8,393, net of tax, or $0.26 per share) of goodwill impairme nt charge that is not
deductible for income taxes.
Due to rounding, the sum of e arnings per share of Continuing ope rations and Discontinue d
ope rations may not e qual earnings per share of Net Income.
(cid:3)(cid:885)(cid:882)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Unless otherwise indicated, all references to years or year-end refers to the fiscal year ending
September 30 and dollars are in thousands, except per share data)
OVERVIEW
The Company
Griffon Corporation (the “Company” or “Griffon”), is a diversified management and holding company
that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its
subsidiaries, allocates resources among them and manages their capital structures. Griffon provides
direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well
as in connection with divestitures. Griffon to further diversify, also seeks out, evaluates and, when
appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware.
Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.
Griffon currently conducts
three businesses: Telephonics Corporation
through
(“Telephonics”), Home & Building Products (“HBP”) and Clopay Plastic Products Company (“Plastics”).
its operations
(cid:120) HBP, which consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay
Building Products (“CBP”), accounted for 46% of Griffon’s consolidated revenue in 2011
and, on a pro forma basis giving effect to the acquisition of ATT as if it had occurred on
October 1, 2009, accounted for 48% of Griffon’s consolidated revenue in 2010:
- ATT, acquired on September 30, 2010, is a global provider of non-powered landscaping
products that make work easier for homeowners and professionals. Due to the timing of
the acquisition, none of ATT’s 2010 and prior results of operations were included in
Griffon’s results. ATT’s revenue was 24% of Griffon’s consolidated revenue in 2011.
2010 pro forma revenue was $443,634, or 26% of Griffon’s pro forma 2010 revenue of
$1,737,630 (unaudited), giving effect to the acquisition of ATT as if it had occurred on
October 1, 2009.
- CBP is a leading manufacturer and marketer of residential, commercial and industrial
garage doors to professional installing dealers and major home center retail chains.
CBP’s revenue was 22% of Griffon’s consolidated revenue in 2011, 30% in 2010 and
33% in 2009.
(cid:120) Telephonics designs, develops and manufactures high-technology integrated information,
communication and sensor system solutions to military and commercial markets worldwide.
Telephonics’ revenue was 25% of Griffon’s consolidated revenue in 2011, 34% in 2010 and
32% in 2009.
(cid:120) Plastics is an international leader in the development and production of embossed, laminated
and printed specialty plastic films used in a variety of hygienic, health-care and industrial
applications. Plastics’ revenue was 29% of Griffon’s consolidated revenue in 2011, 36% in
2010 and 35% in 2009.
(cid:3)(cid:885)(cid:883)
ATT revenue decreased $8,845, or 2% compared to pro forma prior year driven mainly by volume,
primarily lawn tools.
On September 30, 2010, Griffon purchased all of the outstanding stock of ATT Holdings, the parent of
ATT, on a cash and debt-free basis, for $542,000 in cash, subject to certain adjustments. ATT is a global
provider of non-powered lawn and garden tools, wheelbarrows, and other outdoor work products to the
retail and professional markets. ATT’s brands include Ames®, True Temper®, Ames True Temper®,
Garant®, Union Tools®, Razor-back®, Jackson®, Hound Dog® and Dynamic DesignTM. ATT’s brands
hold the number one or number two market positions in their respective major product categories.
Due to the timing of the acquisition, ATT’s results of operations for 2009 and 2010 are not included in
the Griffon consolidated statements of operations or cash flows, or footnotes relating thereto, except
where explicitly stated as pro forma results. Griffon’s consolidated balance sheet at September 30, 2010
and related notes thereto include ATT’s balances at that date. All pro forma results are unaudited and,
unless otherwise stated, give effect to the ATT acquisition as if it had occurred on October 1, 2009.
On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing
Group, Inc. for approximately $23,000. The acquired business, which markets its products under the
Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of
landscape accessories. Southern Patio, which will be integrated with ATT, had revenue exceeding
$40,000 in 2011.
In 2011, ATT had $886 in restructuring costs primarily related to termination benefits for administrative
related headcount reductions.
CBP revenue increased $15,581, or 4%, compared to the prior year. Results continued to be impacted by
the sustained downturn in the residential housing and commercial construction markets. CBP remains
committed to retaining its customer base and, where possible, growing market share.
The consolidation of the CBP manufacturing facilities plan, announced in June 2009, was completed in
2011. In completing the consolidation plan, CBP incurred total pre-tax exit and restructuring costs of
$9,031, substantially all of which were cash charges; charges include $1,160 for one-time termination
benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit
costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. The
restructuring costs were $3,611 in 2011, $4,180 in 2010 and $1,240 in 2009.
Telephonics revenue increased $20,837, or 5%, compared to the prior year. In 2011, Telephonics was
awarded significant contracts with awards totaling $465,000. Telephonics backlog at September 30, 2011
was $417,000, approximately 83% of which is expected to be fulfilled in 2012.
Telephonics recognized $3,046 of restructuring charges in 2011 related to a voluntary early retirement
plan and other restructuring costs, reducing headcount by 75.
Plastics’ revenue increased $65,599, or 14%, from the prior year due to higher unit volumes in North
America and Europe, the translation of European results into a weaker U.S. dollar and resin price pass
through; however, segment operating profit decreased $7,161, or 35%, driven by higher than anticipated
start up costs in both Germany and Brazil, related to expanding capacity and product offerings to meet
increased customer demand. Over the past several years, the segment has successfully diversified its
customer portfolio.
(cid:3)(cid:885)(cid:884)
CONSOLIDATED RESULTS OF OPERATIONS
2011 Compared to 2010
Revenue for the year ended September 30, 2011 was $1,830,802, compared to $1,293,996 in the prior
year; the increase was due to the inclusion of ATT’s revenue as well as higher revenue at CBP,
Telephonics and Plastics. On a pro forma basis, as if ATT was purchased on October 1, 2009, current
year revenue increased $93,172 in comparison to 2010. Gross profit for the year was $393,461 compared
to $288,304 in 2010 with gross margin as a percent of sales (“gross margin”) of 21.5% and 22.3%,
respectively. Operating results for 2011 include $15,152 of costs of goods related to the sale of inventory
recorded at fair value in connection with the ATT acquisition accounting; excluding this amount, 2011
gross profit was $408,613 with a gross margin of 22.3%. On a pro forma basis, as if ATT was purchased
on October 1, 2009, 2010 gross profit was $434,053 and gross margin was 25.0%.
Selling, General and Administrative (“SG&A”) expenses increased $68,966 to $330,369 in 2011 from
$261,403 in 2010 due to the inclusion of ATT’s expenses, and in support of the increased level of sales.
In 2010, SG&A expenses included $9,805 of costs related to the ATT acquisition; there were $446 of
such costs incurred in 2011. SG&A expenses as a percent of revenue for 2011 decreased to 18.0% from
20.2% in 2010; excluding the ATT related acquisition expenses, SG&A as a percent of revenue was
19.4% in 2010. On a pro forma basis, as if ATT was purchased on October 1, 2009, SG&A expenses
were $358,607 for 2010 and as a percent of pro forma revenue for 2010 were 20.6%. The pro forma 2010
SG&A expenses included $21,075 of costs related to the sale of ATT to Griffon and other costs relating
to ATT’s prior ownership, excluding these costs, SG&A expenses were $337,532, or 19.4% of pro forma
revenue.
Interest expense in 2011 increased by $35,524 compared to the prior year, primarily as a result of the debt
incurred as a result of the ATT acquisition.
On March 17, 2011, Griffon issued $550,000 aggregate principal amount of senior notes due 2018
(“Senior Notes”), at par, and will pay interest semi-annually at a rate of 7.125% per annum. The Senior
Notes are senior unsecured obligations of Griffon and are guaranteed by certain of its domestic
subsidiaries. Proceeds from issuance of the Senior Notes were used to repay the balances outstanding
under the Clopay Ames True Temper Holding Corp. (“Clopay Ames”) secured term loan (“Term Loan”)
and the Clopay Ames asset based lending agreement (“ABL”).
On March 18, 2011, Griffon entered into a $200,000 five-year revolving credit facility that refinanced and
replaced the existing revolving credit facilities at each of Telephonics and Clopay Ames.
The Senior Notes, along with the revolving credit facility, completed the refinancing of substantially all
of Griffon’s domestic subsidiary debt with new debt at the parent company level.
During 2011, in connection with the termination of the Term Loan, ABL and Telephonics credit
agreement (“TCA”), Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of
deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and
$844 of swap and other breakage costs. During 2010, Griffon recorded a $1,117 loss on extinguishment
of debt resulting from the write-off of unamortized financing costs associated with the existing ABL
facility terminated upon the ATT acquisition.
Other income of $3,714 in 2011 and $4,121 in 2010 consists primarily of currency exchange transaction
gains and losses from receivables and payables held in non functional currencies, and from net gains on
investments.
(cid:3)(cid:885)(cid:885)
Griffon’s effective tax rate for continuing operations for 2011 was a benefit of 48.2% compared to a
31.2% provision in the prior year. The 2011 rate reflected net discrete benefits of $4,570 primarily from
tax planning related to unremitted foreign earnings. The 2010 rate reflected net discrete tax benefits of
$2,307 primarily from the resolution of foreign and domestic income tax audits. Excluding the discrete
tax items from both years, the 2011 tax benefit rate would have been 16.4% and the 2010 tax provision
rate would have been 47.9%. The 2011 rate was also impacted $1,257 from increased tax reserves and
the impact of permanent differences, and the 2010 rate was impacted $1,330 from permanent book to tax
adjustments including non-deductible transaction costs of $3,800 related to the ATT acquisition.
Excluding the impact of the discrete and other period items noted above, the effective tax rate for
continuing operations would have been a benefit of 25.1% in 2011 compared to a provision of 38.3% in
2010.
Loss from continuing operations was $7,431, or $0.13 per share, for 2011 compared to income of $9,504
or $0.16 cents per share in the prior year. The current year results included the following:
- Charges of $26,164 ($16,813, net of tax, or $0.29 per share) resulting from the refinancing of
-
ATT acquisition related debt;
$15,152 ($9,849, net of tax, or $0.17 per share) of increased cost of goods related to the sale
of inventory recorded at fair value in connection with acquisition accounting for ATT;
- Restructuring charges of $7,543 ($4,903, net of tax, or $0.08 per share);
- Acquisition costs of $446 ($290, net of tax, or $0.00 per share); and
- Discrete tax benefits, net, of $4,570, or $0.08 per share.
The prior year results included the following:
- ATT related acquisition costs of $9,805 ($7,704, net of tax, or $0.13 per share);
- Restructuring charges of $4,180 ($2,717, net of tax, or $0.05 per share);
- Charges of $1,117 ($726, net of tax, or $0.01 per share) related to refinancing costs; and
- Discrete tax benefits, net, of $2,307, or $0.04 per share.
Excluding these items from both reporting periods, 2011 income from continuing operations would have
been $19,854, or $0.34 per share compared to $18,344, or $0.31 per share, in 2010.
Income from discontinued operations for 2011 was nil, or $0.00 per share, compared to $88, or $0.00 per
share, in the prior year.
Net loss for 2011 was $7,431, or $0.13 per share, compared to income of $9,592, or $0.16 per share, in
2010.
On a pro forma basis, as if ATT was purchased on October 1, 2009, Loss from continuing operations was
$7,431, or $0.13 per share, in 2011 compared to income of $16,885 or $0.28 cents per share in 2010. The
pro forma prior year results included the following:
- Acquisition and related costs of $21,075 ($13,699, net of tax, or $0.23 per share);
- Restructuring charges of $6,570 ($4,271, net of tax, or $0.07 per share);
- Charges of $1,117 ($726, net of tax, or $0.01 per share) related to refinancing costs; and
- Discrete tax benefits, net of $2,307, or $0.04 per share.
Excluding these items from both reporting periods, 2011 income from continuing operations would have
been $19,854, or $0.34 per share compared to $33,274, or $0.55 per share, as in 2010.
(cid:3)(cid:885)(cid:886)
2010 Compared to 2009
Revenue for the year ended September 30, 2010 was $1,293,996, compared to $1,194,050 in the prior
year; the increase was due to higher revenue at Telephonics and Plastics, partially offset by decreased
revenue at CBP. Gross profit for the year was $288,304 compared to $257,123 in 2009, with gross
margin as a percent of sales of 22% in both years.
SG&A expenses increased $30,667 to $261,403 in 2010 from $230,736 in 2009 primarily in support of
increased sales. SG&A expenses include $9,805 of costs related to the ATT acquisition. SG&A
expenses as a percent of revenue for 2010 increased to 20.2% from 19.3% in 2009; excluding the ATT’s
related acquisition expenses, SG&A as a percent of revenue was 19.4% in 2010.
Interest expense in 2010 decreased by $769 compared to the prior year, principally due to lower levels of
outstanding borrowings.
During 2010, Griffon recorded a $1,117 loss on extinguishment of debt resulting from the write-off of
unamortized financing costs associated with the existing Clopay Asset Based Lending facility terminated
upon the ATT acquisition. During 2009, Griffon recorded a non-cash pre-tax gain from extinguishment
of debt of $4,488, net of a proportionate write-off of deferred financing costs, which resulted from the
purchase of $50,620 of its outstanding convertible notes at a discount.
Other income of $4,121 in 2010 and $1,522 in 2009 consists primarily of currency exchange transaction
gains and losses from receivables and payables held in non functional currencies, and from gains on
investments.
Griffon’s effective tax rate for continuing operations for 2010 was a provision of 31.2% compared to
8.6% in the prior year. The 2010 rate reflected net discrete tax benefits of $2,307 primarily from the
resolution of foreign and domestic income tax audits. The 2009 reflected net discrete tax benefits of
$3,776 from tax planning, primarily with respect to foreign tax credits, and the reversal of previously
established reserves related to uncertain tax positions due to the lapse of applicable statutes of limitation.
Excluding the discrete tax items from both years, the 2010 tax benefit rate would have been 47.9% and
the 2009 tax provision rate would have been 27.9%. The 2010 rate was also impacted $1,330 from
permanent book to tax adjustments including non-deductible transaction costs of $3,800 related to the
ATT acquisition. Excluding the impact of the discrete and other period items noted above, the effective
tax rate for continuing operations would have been 38.3% in 2010 compared to 27.9% in 2009.
Income from continuing operations was $9,504, or $0.16 per diluted share, for 2010 compared to income
of $17,918 or $0.30 cents per diluted share in the prior year. The 2010 results included the following:
- ATT related acquisition costs of $9,805 ($7,704, net of tax, or $0.13 per share);
- Restructuring charges of $4,180 ($2,717, net of tax, or $0.05 per share);
- Charges of $1,117 ($726, net of tax, or $0.01 per share) related to refinancing costs; and
- Discrete tax benefits, net of $2,307, or $0.04 per share.
The 2009 results included the following:
- A gain of $4,488 ($2,917, net of tax, or $0.05 per share) related to debt extinguishment;
- Restructuring charges of $1,240 ($806, net of tax, or $0.01 per share) ; and
- Discrete tax benefits, net, of $3,776, or $0.06 per share.
Excluding these items from both reporting periods, 2010 income from continuing operations would have
been $18,344, or $0.31 per share, compared to $12,031, or $0.20 per share, in 2009.
(cid:3)(cid:885)(cid:887)
Griffon evaluates performance based on Earnings per share and Income (loss) from continuing operations
excluding restructuring charges, gain (loss) from debt extinguishment, discrete tax items, acquisition costs
and costs related to the fair value of inventory for acquisitions. Griffon believes this information is useful
to investors for the same reason. The following table provides a reconciliation of Earnings per share and
Income (loss) from continuing operations to Adjusted earnings per share and Adjusted income (loss) from
continuing operations:
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) TO ADJUSTED INCOME (LOSS)
(Unaudited)
For the Years Ended September 30,
2010
2011
2009
Income (loss) from continuing operations
$
(7,431)
$
9,504
$
17,918
Adjusting items, net of tax:
Loss (gain) from debt extinguishment, net
Fair value write-up of acquired inventory sold
Restructuring
Acquisition costs
Discrete tax benefits, net
16,813
9,849
4,903
290
(4,570)
726
-
2,717
7,704
(2,307)
(2,917)
-
806
-
(3,776)
Adjusted income from continuing operations
$
19,854
$
18,344
$
12,031
Earnings (loss) per common share
$
(0.13)
$
0.16
$
0.30
Adjusting items, net of tax:
Loss from debt extinguishment, net
Fair value write-up of acquired inventory sold
Restructuring
Acquisition costs
Discrete tax benefits, net
0.29
0.17
0.08
0.00
(0.08)
0.01
-
0.05
0.13
(0.04)
(0.05)
-
0.01
-
(0.06)
Adjusted earnings per common share
$
0.34
$
0.31
$
0.20
Weighted-average shares outstanding (in thousands)
58,919
59,993
59,002
Note: Due to rounding, the sum of earnings (loss) per common share and adjusting items, net of tax, may not
equal adjusted earnings per common share.
(cid:3)(cid:885)(cid:888)
BUSINESS SEGMENTS
Griffon evaluates performance and allocates resources based on each segments’ operating results before
interest income or expense, income taxes, depreciation and amortization, gain (losses) from debt
extinguishment, unallocated amounts, restructuring charges, acquisition costs and costs related to the fair
value of inventory for acquisitions. Griffon believes this information is useful to investors for the same
reason.
The following table provides a reconciliation of Segment operating profit before depreciation,
amortization, acquisition costs, restructuring and fair value write up of acquired inventory sold to Income
before taxes and discontinued operations:
For the Years Ended September 30,
2010
2009
2011
Segment profit before depreciation, amortization, restructuring,
fair value write-up of acquired inventory sold and acquisition
costs:
Home & Building Products
Telephonics
Plastics
Total Segment profit before depreciation, amortization,
restructuring and fair value write-up of acquired inventory sold
Unallocated amounts, less acquisition costs
Loss from debt extinguishment, net
Net interest expense
Segment depreciation and amortization
Restructuring charges
Fair value write-up of acquired inventory sold
Acquisition costs
Income (loss) before taxes and discontinued operations
$
77,119
50,875
37,639
$
19,351
46,120
42,853
$
3,137
41,540
46,002
165,633
(22,868)
(26,164)
(47,448)
(60,361)
(7,543)
(15,152)
(446)
(14,349)
$
108,324
(27,394)
(1,117)
(11,913)
(40,103)
(4,180)
-
(9,805)
13,812
$
90,679
(20,960)
4,488
(11,552)
(41,810)
(1,240)
-
-
19,605
$
Unallocated amounts typically include general corporate expenses not attributable to reportable segment.
(cid:3)(cid:885)(cid:889)
Home & Building Products
Revenue:
ATT
CBP
Home & Building Products
Segment operating profit (loss)
Depreciation and amortization
Fair value write-up of acquired inventory sold
Restructuring charges
Acquisition costs
Segment profit before depreciation,
amortization and restructuring
2011 Compared to 2010
2011
Years Ended September 30,
2010
2009
$
$
434,789
404,947
839,736
3.4%
$
28,228
28,796
15,152
4,497
446
-
$
389,366
389,366
$
$
4,986
10,185
-
4,180
-
1.3%
-
$
393,414
393,414
$
$
(11,326)
13,223
-
1,240
-
NM
$
77,119
9.2%
$
19,351
5.0%
$
3,137
0.8%
Segment revenue increased $450,370, or 116%, compared to the prior year primarily due to the
acquisition of ATT. On a pro forma basis, as if ATT was purchased on October 1, 2009, revenue
increased $6,736, or 1%, compared to the prior year. On this same pro forma basis, ATT 2011 revenue
decreased 2% from 2010, driven mainly by lower volume, primarily lawn tools; CBP 2011 revenue
increased 4%, driven mainly by a favorable shift in mix, partially offset by a 1% decrease in volume.
Segment operating profit in 2011 was $28,228 compared to $4,986 in 2010, with the inclusion of ATT
operations the primary source of increase. ATT operating results in 2011 reflected $15,152 of costs of
goods related to the sale of inventory recorded at fair value in connection with the ATT acquisition
accounting. On a pro forma basis, as if ATT was purchased on October 1, 2009, segment operating profit
in 2010 was $47,490 compared to $28,228 in 2011; the $15,152 inventory item was the primary cause of
decline in 2011, augmented by the impact of higher input costs, lower volume and a decline of $2,919 in
Byrd Amendment receipts (anti-dumping compensation from the U.S. Government). The 2010 pro forma
operating income included $7,986 of costs related to ATT acquisition.
2010 Compared to 2009
CBP revenue declined $4,048, or 1%, compared to the prior year. Sales of residential doors stabilized in
line with the housing market, offset by a decline in commercial door revenue, reflecting continued
weakness in the commercial construction market. Overall, a 1% volume increase coupled with a
favorable translation benefit from a weaker U.S. dollar on Canadian dollar-denominated sales were more
than offset by a revenue decline due to a shift in product mix from higher-priced commercial doors to
lower-priced residential doors.
Segment operating profit for 2010 was $4,986, an improvement of $16,312 compared to the prior year.
The improved operating performance was mainly driven by lower overall operating costs resulting from
the various restructuring activities undertaken in the past two years, and the increased volume resulting in
favorable absorption of fixed manufacturing costs.
(cid:3)(cid:885)(cid:890)
Restructuring
The consolidation of the CBP manufacturing facilities plan, announced in June 2009, was completed in
2011. In completing the consolidation plan, CBP incurred total pre-tax exit and restructuring costs of
$9,031, substantially all of which were cash charges; charges include $1,160 for one-time termination
benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit
costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. The
restructuring costs were $3,611 in 2011, $4,180 in 2010 and $1,240 in 2009.
In 2011, ATT recognized $886 in restructuring costs primarily related to termination benefits, reducing
administrative headcount by 25.
Telephonics(cid:3)
(cid:3)
Revenue
Segment operating profit
Depreciation and amortization
Restructuring charges
Segment profit before
depreciation, amortization and restructuring
2011 Compared to 2010
2011
$
455,353
$
40,595
7,234
3,046
Years Ended September 30,
2010
2009
8.9%
$
434,516
$
38,586
7,534
-
8.9%
$
387,881
$
34,883
6,657
-
9.0%
$
50,875
11.2%
$
46,120
10.6%
$
41,540
10.7%
Telephonics revenue increased $20,837, or 5%, compared to 2010 primarily due to increases in radar and
electronic systems, partially offset by a decrease in communication systems. Telephonics continued to
benefit from strong demand for its intelligence, surveillance and reconnaissance products. Electronic
systems growth was primarily from ground surveillance radars (“GSR”) and Mobile Surveillance
Capability (“MSC”) programs, and radar growth was driven by light airborne multi-purpose systems
multi mode radar (“LAMPS MMR”). The increases were partially offset by timing on the Automatic
Radar Periscope Detection and Discrimination (“ARPDD”) program from the development to the
production phase and the lower rate of production on the C-17 program. 2011 and 2010 revenue included
$44,305 and $46,426, respectively, related to revenue for Counter Remote Control Improvised Explosive
Device Electronic Warfare 3.1 (“CREW 3.1”) program, where Telephonics serves as a subcontractor.
Segment operating profit increased $2,009, or 5%, due to revenue growth, partially offset by costs related
to a voluntary early retirement plan and other restructuring costs of $3,046, reducing headcount by 75.
During the year, Telephonics was awarded several new contracts and received incremental funding on
current contracts totaling $465,000. Contract backlog was $417,000 at September 30, 2011 with 83%
expected to be realized in the next 12 months; backlog was $407,000 at September 30, 2010. Due to
timing of awards, backlog is expected to decrease during the first half of 2012, but return to historical
levels in the second half of the year. Backlog is defined as unfilled firm orders for products and services
for which funding has been both authorized and appropriated by the customer, or Congress, in the case of
the U.S. government agencies.
(cid:3)(cid:885)(cid:891)
2010 Compared to 2009
Telephonics’ revenue increased $46,635, or 12%, compared to the prior year, mainly on increased
revenue from radar systems and electronic systems. Radar growth was driven by identification friend or
foe (“IFF”) radar programs, LAMPS and other radar programs. Electronic systems growth resulted
mainly from revenue CREW 3.1 program.
Segment operating profit increased $3,703 to $38,586 in 2010, driven mainly by the strong revenue
growth. Segment operating profit margin remained consistent with the prior year. Operating margin
benefited from the strong revenue growth, although such benefit was substantially offset by increased
SG&A expenses, attributable to increased research and development, and marketing related expenses
incurred in connection with business development initiatives to sustain revenue growth in future periods;
these expenditures were primarily focused on supporting mobile surveillance and unmanned aerial vehicle
(“UAV”) initiatives as well as air traffic management programs. Administrative expenses increased to
support the operations and higher sales.
Plastics
Revenue
Segment operating profit
Depreciation and amortization
Segment profit before
depreciation and amortization
2011 Compared to 2010
2011
$
535,713
$
13,308
24,331
Years Ended September 30,
2010
2009
2.5%
$
470,114
$
20,469
22,384
4.4%
$
412,755
$
24,072
21,930
5.8%
$
37,639
7.0%
$
42,853
9.1%
$
46,002
11.1%
Plastics revenue increased $65,599, or 14%, compared to the prior year primarily due to higher unit
volumes (6%) in North America and Europe, the pass through of higher resin costs in customer selling
prices (5%) and the translation of European results into a weaker U.S. dollar (3%).
Segment operating profit decreased $7,161 compared to the prior year, driven by start up costs, in both
Germany and Brazil, related to expanding capacity and product offerings to meet increased customer
demand; such start up costs included higher than normal levels of scrap production. There were no
significant disruptions in customer service in connection with the scaling up of production of newly
installed assets. The decline was partially offset by higher volume and a timing benefit from resin pricing.
Plastics adjusts customer selling prices based on underlying resin costs, on a delayed basis. While
improvement in operations in the newly expanded locations is occurring, the Company expects that
Plastics is expected to continue to operate at below normal efficiency levels for the first half of fiscal
2012.
2010 Compared to 2009
Plastics’ revenue increased $57,359, or 14%, compared to 2009, mainly due to improved volumes, which
increased in all geographic regions. The favorable translation benefit from a weaker U.S. dollar on
foreign-currency denominated revenue added 2% and the benefit of the pass-through of higher resin costs
added 1%.
Segment operating profit decreased $3,603, or 15%, and operating profit margin decreased 140 basis
points primarily due to increases in the cost of resin; such increased costs were not yet reflected in higher
customer selling prices due to delays in passing on such cost increase, with a resultant unfavorable impact
(cid:3)(cid:886)(cid:882)
on margin. Other factors contributing to the operating profit decline were increases in freight costs as
well as product development costs.
Unallocated Amounts
For 2011, unallocated amounts totaled $22,868 compared to $27,394 in 2010, with the decrease primarily
due to the absence of legal and consulting expenses incurred in connection with the due diligence of
potential acquisition targets in 2010.
For 2010, unallocated amounts totaled $27,394 compared to $20,960 in 2009, with the increase due to
incurrence of legal and consulting expenses in connection with the due diligence of potential acquisition
targets in 2010, and higher compensation expenses.
Segment Depreciation and Amortization
Segment depreciation and amortization of $60,361 increased $20,258 in 2011 compared to 2010,
primarily due to the increased depreciation and amortization related to the ATT acquisition as well as the
capital expansion at Plastics.
Segment depreciation and amortization of $40,103 decreased $1,707 in 2010 compared to 2009, primarily
due to certain HBP assets having become fully depreciated.
DISCONTINUED OPERATIONS – Installation Services
In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all
operating activities of its Installation Services segment which sold, installed and serviced garage doors
and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for
the new residential housing market. Operating results of substantially all this segment has been reported
as discontinued operations in the Consolidated Statements of Operations for all periods presented; the
Installation Services segment is excluded from segment reporting.
In May 2008, Griffon’s Board of Directors approved a plan to exit substantially all operating activities of
the Installation Services segment in 2008. In the third quarter of 2008, Griffon sold nine units to one
buyer, closed one unit and merged two units into CBP. In the fourth quarter of 2008, Griffon sold its two
remaining units in Phoenix and Las Vegas.
Griffon substantially concluded remaining disposal activities in 2009. There was no reported revenue in
2011, 2010 and 2009. Griffon does not expect to incur significant expenses in the future. Future net cash
outflows to satisfy liabilities related to disposal activities accrued as of September 30, 2011 are estimated
to be $3,794. Substantially all such liabilities are expected to be paid during 2012. Certain of Griffon’s
subsidiaries are also contingently liable for approximately $597 related to certain facilities leases with
varying terms through 2012 that were assigned to the respective purchasers of certain of the Installation
Services businesses. Griffon does not believe it has a material exposure related to these contingencies.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating,
investing and financing activities. Significant factors affecting liquidity are: cash flows from operating
activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract
long-term capital with satisfactory terms. Griffon remains in a strong financial position with sufficient
liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its
capital structure on both a short-term and long-term basis.
(cid:3)(cid:886)(cid:883)
The following table is derived from the Consolidated Statements of Cash Flows:
Cash Flows from Continuing Operations
(in thousands)
Years Ended September 30,
2010
2011
Net Cash Flows Provided by (Used In):
Operating activities
Investing activities
Financing activities
$
35,385
(82,333)
122,110
$
83,125
(584,143)
353,293
Cash flows generated by operating activities for 2011 decreased $47,740, to $35,385 compared to
$83,125 in 2010. Current assets net of current liabilities, excluding short-term debt and cash, increased
$44,857 to $367,066 at September 30, 2011 compared to $322,209 at the prior year end, primarily due to
increased accounts receivable and decreased accounts payable and accrued liabilities.
During 2011, Griffon used cash in investing activities of $82,233 compared to $584,143 in 2010; the
2010 uses reflected the acquisition on ATT. In 2011, capital expenditures totaled $87,617 compared to
$40,477 in 2010, with the increase being driven by increased capital expenditures at Plastics.
During 2011, cash provided by financing activities was $122,110 compared to $353,293 in the prior year
primarily due to 2010 borrowings related to the ATT acquisition and the refinancing of subsidiary debt at
the parent level in 2011.
Payments related to Telephonics revenue are received in accordance with the terms of development
and production subcontracts; certain of such receipts are progress or performance based payments.
Plastics customers are generally substantial industrial companies whose payments have been steady,
reliable and made in accordance with the terms governing such sales. Plastics sales satisfy orders that
are received in advance of production, and where payment terms are established in advance. With
respect to HBP, there have been no material adverse impacts on payment for sales.
A small number of customers account for, and are expected to continue to account for, a substantial
portion of Griffon’s consolidated revenue. For 2011:
a. The U.S. Government and its agencies, through either prime or subcontractor relationships,
represented 19% of Griffon’s consolidated revenue and 75% of Telephonics revenue.
b. Procter & Gamble, Co. represented 14% of Griffon’s consolidated revenue and 49% of Plastics
revenue.
c. Home Depot represented 12% of Griffon’s consolidated revenue and 25% of HBP revenue.
No other customer exceeded 9% of consolidated revenue. Future operating results will continue to
substantially depend on the success of Griffon’s largest customers and Griffon’s relationships with them.
Orders from these customers are subject to fluctuation and may fluctuate materially. The loss of all or a
portion of volume from any one of these customers could have a material adverse impact on Griffon’s
liquidity and operations.
(cid:3)(cid:886)(cid:884)
At September 30, 2011, Griffon had debt, net of cash and equivalents, as follows:
Cash, Cash Equivalents and Debt
(in thousands)
Cash and equivalents
At September 30,
At September 30,
2011
2010
$
243,029
$
169,802
Notes payables and current portion of long-term debt
Long-term debt, net of current maturities
Debt discount
Total debt
25,164
688,247
19,693
733,104
20,901
503,935
30,650
555,486
Net cash and equivalents (debt)
$
(490,075)
$
(385,684)
On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon
issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest on the Senior
Notes is payable semi-annually. Proceeds were used to pay down outstanding borrowings under a senior
secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s
subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain
domestic subsidiaries, and are subject to certain covenants, limitations and restrictions. The fair value of
the Senior Notes approximated $518,000 on September 30, 2011 based upon quoted market prices (level
1 inputs). On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior
Notes registered under the Securities Act of 1933, via an exchange offer.
On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit
Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-currency sub-
facility of $50,000 and a swing line sub-facility with a limit of $30,000. Borrowings under the Credit
Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the
occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings
at either a LIBOR or base rate benchmark rate plus an applicable margin, which will decrease based on
financial performance. The margins are 1.50% for base rate loans and 2.50% for LIBOR loans, in each
case without a floor. The Credit Agreement has certain financial maintenance tests including a maximum
total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as
well as customary affirmative and negative covenants and events of default. The Credit Agreement also
includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the
making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed
by certain domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the
Company and the guarantors.
At September 30, 2011, there were $20,250 of standby letters of credit outstanding under the Credit
Agreement; $179,750 was available for borrowing at that date.
In connection with the Senior Notes and Credit Agreement (“New Facilities”), Griffon paid off and
terminated the $375,000 term loan and $125,000 asset based lending agreement, both entered into by
Clopay Ames on September 30, 2010 in connection with the ATT acquisition, and terminated the
Telephonics $100,000 revolving credit agreement. In connection with the New Facilities, Clopay Ames
terminated the $200,000 interest rate swap that fixed LIBOR to 2.085% for the Clopay Ames term loan.
On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017
(the “2017 Notes”). The initial conversion rate of the 2017 Notes was 67.0799 shares of Griffon’s
common stock per $1,000 principal amount of notes, corresponding to an initial conversion price of
$14.91 per share, a 23% conversion premium over the $12.12 closing price on December 15, 2009.
Griffon used 8.75% as the nonconvertible debt-borrowing rate to discount the 2017 Notes and will
(cid:3)(cid:886)(cid:885)
amortize the debt discount through January 2017. At issuance, the debt component of the 2017 Notes was
$75,437 and debt discount was $24,563. At September 30, 2011 and September 30, 2010, the 2017 Notes
had a capital in excess of par component, net of tax, of $15,720. The fair value of the 2017 Notes
approximated $91,400 on September 30, 2011 based upon quoted market prices (level 1 inputs).
(cid:3)
On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans
totaling $11,834. The loans mature in February 2016, are collateralized by the related properties, are
guaranteed by Griffon and bear interest at a rate of LIBOR plus 3%, with the option to swap to a fixed
rate.
Griffon has other mortgages, collateralized by real property, that bear interest at rates from 6.3% to 6.6%
with maturities extending through 2016. Subsequent to year end, the mortgage at Russia, Ohio was fully
repaid.
Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to
borrow $20,000 over a one-year period, to be used to purchase Griffon common stock in the open
market. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at Griffon’s option.
In November 2011, Griffon converted the outstanding loan to a five-year term; principal is payable in
quarterly installments of $250, beginning December 2011, with the remainder due at maturity (November
2016). The loan is secured by shares purchased with the proceeds of the loan, and repayment is
guaranteed by Griffon. At September 30, 2011, 1,874,737 shares have been purchased and the
outstanding balance was $19,973.
In addition, the ESOP has a loan agreement, guaranteed by Griffon, which requires quarterly principal
payments of $156 and interest through the expiration date of September 2012 at which time the $3,900
balance of the loan, and any outstanding interest, will be payable. The primary purpose of this loan was
to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares
purchased with the proceeds of the loan, is guaranteed by Griffon and bears interest at rates based upon
the prime rate or LIBOR. At September 30, 2011, $4,375 was outstanding.
In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio.
Approximately $10,000 was used to acquire the building and the remaining amount was restricted for
improvements. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is secured by a mortgage
on the real estate and is guaranteed by Griffon.
At September 30, 2011 and 2010, Griffon had $532 of 4% convertible subordinated notes due 2023 (the
“2023 Notes”) outstanding. Holders of the 2023 Notes may require Griffon to repurchase all or a portion
of their 2023 Notes on July 18, 2013 and 2018, if Griffon’s common stock price is below the conversion
price of the 2023 Notes, as well as upon a change in control. At September 30, 2011 and September 30,
2010, the 2023 Notes had no capital in excess of par value component as substantially all of these notes
were put to Griffon at par and settled in July 2010. The fair value of the 2023 Notes approximated $544
on September 30, 2011 based upon quoted market prices (level 1 inputs).
In January 2010, Griffon purchased $10,100 face value of the 2023 Notes for $10,200 which, after
proportionate reduction in related deferred financing costs, resulted in a net pre-tax gain from debt
extinguishment of $12. Capital in excess of par was reduced by $300 for the equity portion of the
extinguished 2023 Notes, and debt discount was reduced by $200.
In December 2009, Griffon purchased $19,200 face value of the 2023 Notes for $19,400. Including a
proportionate reduction in the related deferred financing costs, Griffon recorded an immaterial net pre-tax
loss on the extinguishment. Capital in excess of par value was reduced by $700 related to the equity
portion of the extinguished 2023 Notes and the debt discount was reduced by $500.
(cid:3)(cid:886)(cid:886)
In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit
facility and a €20,000 term loan. The facility accrues interest at Euribor plus 2.35% per annum, and the
term loan accrues interest at Euribor plus 2.45% per annum. The revolving facility matures in November
2011, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn
on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit
facility. The term loan is payable in ten equal quarterly installments which began in September 2011 with
maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain
minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt
to EBITDA. There were no borrowings outstanding under the revolving facility at September 30, 2011
and €10,000 was available for borrowing.
Clopay do Brazil, a subsidiary of Plastics, maintains lines of credit of approximately $4,500. Interest on
borrowings accrue at a rate of LIBOR plus 3.8% or CDI plus 5.6%. $3,780 was borrowed under the lines
and $720 was available as of September 30, 2011.
At the time it was acquired, ATT owned interest rate swaps that had fair values totaling $3,845 at
September 30, 2010; such swaps were terminated in October 2010 for $4,303, including accrued interest
of $458.
At September 30, 2011, Griffon and its subsidiaries were in compliance with the terms and covenants of
all credit and loan agreements.
In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s
outstanding common stock; this is in addition to the 1,366,000 shares of common stock authorized for
repurchase under an existing buyback program. Under the repurchase programs, the Company may, from
time to time, purchase shares of its common stock, depending upon market conditions, in open market or
privately negotiated transactions, including pursuant to a 10b5-1 plan. During 2011, Griffon purchased
1,531,379 shares of common stock, for a total of $12,367, or $8.08 per share, exhausting the shares under
the original program; $48,690 remains under the $50,000 authorization.
No cash dividends on Common Stock were declared or paid during the five years ended September 30,
2011. Griffon periodically evaluates the merits of paying dividends on its Common Stock. On
November 17, 2011, Griffon declared a $0.02 per share dividend payable on December 27, 2011 to
shareholders of record as of November 29, 2011. Griffon currently intends to pay dividends each quarter;
however, the payment of dividends is determined by the Board of Directors at its discretion based on
various factors, and no assurance can be provided as to future dividends.
In June 2009, Griffon announced plans to consolidate CBP facilities. These actions were completed in
2011, consistent with the plan. In completing the consolidation plan, CBP incurred total pre-tax exit and
restructuring costs approximating $9,031, substantially all of which were cash charges; charges include
$1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related
costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had
$10,365 of capital expenditures. Restructuring costs were $3,611 in 2011, $4,180 in 2010 and $1,240 in
2009.
In addition, in 2011 there were restructuring charges of $886 and $3,046 for ATT and Telephonics,
respectively, primarily related to termination benefits.
Griffon substantially concluded its remaining disposal activities for the Installation Services business,
discontinued in 2008, in 2009, and does not expect to incur significant expense in the future. Future net
cash outflows to satisfy liabilities related to disposal activities accrued at September 30, 2011 are
estimated to be $3,794. Certain of Griffon’s subsidiaries are also contingently liable for approximately
$597 related to certain facility leases with varying terms through 2012 that were assigned to the respective
(cid:3)(cid:886)(cid:887)
purchasers of certain of the Installation Services businesses. Griffon does not believe it has a material
exposure related to these contingencies.
During the year ended September 30, 2011, Griffon used cash for discontinued operations of $962, related
to settling remaining Installation Services liabilities.
Contractual Obligations
At September 30, 2011, payments to be made pursuant to significant contractual obligations are as
follows:
(in thousands)
Long-term debt
Interest expense
Rental commitments
Purchase obligations (a)
Capital leases
Capital expenditures
Supplemental & post-
retirement benefits (b)
Uncertain tax positions (c)
Total obligations
$
Total
733,104
282,529
111,000
146,790
15,126
13,667
Less Than
1 Year
$
25,164
45,112
29,000
141,202
1,598
13,667
Payments Due by Period
1-3 Years
19,819
$
88,710
39,000
5,487
3,170
-
4-5 Years
16,701
$
88,433
29,000
101
3,029
-
More than
5 Years
$
671,420
60,274
14,000
-
7,329
-
Other
-
$
-
-
-
-
-
47,303
10,153
1,359,672
$
12,519
-
268,262
$
11,359
-
167,545
$
7,611
-
144,875
$
15,814
-
768,837
$
-
10,153
10,153
$
(a) Purchase obligations are generally for the purchase of goods and services in the ordinary
course of business. Griffon uses blanket purchase orders to communicate expected
requirements to certain vendors. Purchase obligations reflect those purchase orders where the
commitment is considered to be firm. Purchase obligations that extend beyond 2011 are
principally related to long-term contracts received from customers of Telephonics.
(b) Griffon funds required payouts under the non-qualified supplemental defined benefit plan
from its general assets and the expected payments are included in each period, as applicable.
(c) Due to the uncertainty of the potential settlement of future uncertain tax positions,
management is unable to estimate the timing of related payments, if any, that will be made
subsequent to 2011. These amounts do not include any potential indirect benefits resulting
from deductions or credits for payments made to other jurisdictions.
Off-Balance Sheet Arrangements
Except for operating leases and purchase obligations as disclosed herein, Griffon is not a party to any off-
balance sheet arrangements.
Off-Set Agreements
Telephonics may enter into industrial cooperation agreements, sometimes referred to as offset
agreements, as a condition to obtaining orders for its products and services from customers in foreign
countries. These agreements promote investment in the country, and may be satisfied through activities
that do not require Griffon to use its cash, including transferring technology, providing manufacturing and
other consulting support. These agreements may also be satisfied through the use of cash for such
activities as purchasing supplies from in-country vendors, setting up support centers, research and
development investments, acquisitions and building or leasing facilities for in-country operations, if
applicable. The amount of the offset requirement is determined by contract value awarded and negotiated
(cid:3)(cid:886)(cid:888)
percentages with customers. At September 30, 2011, Telephonics had outstanding offset agreements
totaling approximately $93,000, primarily related to the Radar Systems segment, some of which extend
through 2016. Offset programs usually extend over several years and in some cases provide for penalties
in the event Griffon fails to perform in accordance with contract requirements. Historically, Telephonics
has not been required to pay any such penalties and as of September 30, 2011, no such penalties are
estimable or probable.
ACCOUNTING POLICIES AND PRONOUNCEMENTS
Critical Accounting Policies
The preparation of Griffon’s consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions,
judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities,
revenue and expenses. These estimates can also affect supplemental information contained in public
disclosures of Griffon, including information regarding contingencies, risk and its financial condition.
These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical
experience, current conditions and various other assumptions, and form the basis for estimating the
carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for
commitments and contingencies. Actual results may materially differ from these estimates.
An estimate is considered to be critical if it is subjective and if changes in the estimate using different
assumptions would result in a material impact on Griffon’s financial position or results of operations.
The following have been identified as the most critical accounting policies and estimates:
Revenue Recognition
Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an
arrangement exists, b) delivery has occurred, title has transferred or services are rendered, c) price is fixed
and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title
and risk of loss at a specified location. Revenue recognition from product sales occurs when all factors are
met, including transfer of title and risk of loss, which occurs either upon shipment or upon receipt by
customers at the location specified in the terms of sale. Other than standard product warranty provisions,
sales arrangements provide for no other significant post-shipment obligations. From time to time and for
certain customers, rebates and other sales incentives, promotional allowances or discounts are offered,
typically related to customer purchase volumes, all of which are fixed or determinable and are classified
as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances
based upon historical returns experience.
Telephonics earns a substantial portion of its revenue as either a prime or subcontractor from contract
awards with the U.S. Government, as well as non-U.S. governments and other commercial customers.
These formal contracts are typically long-term in nature, usually greater than one year. Revenue and
profits from these long-term fixed price contracts are recognized under the percentage-of-completion
method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as
production requirements are recorded based on the ratio of total actual incurred costs to date to the total
estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenue is
recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs
at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized
in prior periods. The profit recorded on a contract using this method is equal to the current estimated total
profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit
previously recorded for the contract in prior periods. As this method relies on the substantial use of
estimates, these projections may be revised throughout the life of a contract. Components of this formula
and ratio that may be estimated include gross profit margin and total costs at completion. The cost
(cid:3)(cid:886)(cid:889)
performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly
basis, as well as when information becomes available that would necessitate a review of the current
estimate. Adjustments to estimates for a contract’s estimated costs at completion and estimated profit or
loss often are required as experience is gained, and as more information is obtained, even though the
scope of work required under the contract may or may not change, or if contract modifications occur. The
impact of such adjustments or changes to estimates is made on a cumulative basis in the period when such
information has become known. Gross profit is affected by a variety of factors, including the mix of
products, systems and services, production efficiencies, price competition and general economic
conditions.
Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on
the contract at an amount equal to the allowable costs plus the estimated profit on those costs. The
estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee
arrangement. Incentive and award fees on these contracts are recorded as revenue when the criteria under
which they are earned are reasonably assured of being met and can be estimated.
For contracts whose anticipated total costs exceed total expected revenue, an estimated loss is recognized
in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a
cumulative basis.
Amounts representing contract change orders or claims are included in revenue only when they can be
reliably estimated and their realization is probable, and are determined on a percentage-of-completion
basis measured by the cost-to-cost method.
Inventories
Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and
manufacturing overhead costs.
Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated.
In general, Telephonics sells products in connection with programs authorized and approved under
contracts awarded by the U.S. Government or agencies thereof, either as prime or subcontractor, and in
accordance with customer specifications. Plastics primarily produces fabricated materials used by
customers in the production of their products and these materials are produced against orders by those
customers. HBP produces doors and non-powered lawn and garden tools in response to orders from
customers of retailers and dealers or based on expected orders, as applicable.
Warranty Accruals
Direct customer and end-user warranties are provided on certain products. These warranties cover
manufacturing defects that would prevent the product from performing in line with its intended and
marketed use. The terms of these warranties vary by product line and generally provide for the repair or
replacement of the defective product. Warranty claims data is collected and analyzed with a focus on the
historical amount of claims, the products involved, the amount of time between the warranty claims and
the products’ respective sales and the amount of current sales. Based on these analyses, warranty accruals
are generally recorded as an increase to cost of sales and regularly reviewed for adequacy.
Stock-based Compensation
Griffon has issued stock-based compensation to certain employees, officers and directors in the form of
stock options and restricted stock. For stock option grants made on or after October 1, 2005, expense is
recognized over the awards’ expected vesting period based on their fair value as calculated using the
(cid:3)(cid:886)(cid:890)
Black-Scholes pricing model. The Black-Scholes pricing model uses estimated assumptions for a
forfeiture rate, the expected life of the options and a volatility rate using historical data.
Compensation expense for restricted stock is recognized ratably over the required service period based on
the fair value of the grant calculated as the number of shares granted multiplied by the stock price on the
date of grant.
Allowances for Discount, Doubtful Account and Returns
Trade receivables are recorded at the stated amount, less allowances for discounts, doubtful accounts and
returns. The allowances represent estimated uncollectible receivables associated with potential customer
defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to
early payment of accounts receivables by customers and estimates for returns. The allowance for doubtful
accounts includes amounts for certain customers where a risk of default has been specifically identified,
as well as an amount for customer defaults based on a general formula when it is determined the risk of
some default is probable and estimable, but cannot yet be associated with specific customers. Allowance
for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance
for doubtful accounts is recorded in SG&A expenses.
Acquisition
For 2010, the consolidated financial statements include an acquired business’ balance sheet, and no
operations as the transaction was completed on September 30, 2010, Griffon’s year end. Acquired
businesses are accounted for using the acquisition method of accounting which requires, among other
things, that most assets acquired and liabilities assumed be recognized at their fair values as of the
acquisition date and that the fair value of acquired in-process research and development (IPR&D) be
recorded on the balance sheet. Related transaction costs are expensed as incurred. Any excess of the
purchase price over the assigned values of the net assets acquired is recorded as goodwill.
Goodwill, Long-Lived Intangible and Tangible Assets, and Impairment
Griffon has significant intangible and tangible long lived assets on its balance sheet which includes
goodwill and other intangible assets related to acquisitions. Goodwill represents the excess of the cost of
net assets acquired in business combinations over the fair value of the identifiable tangible and intangible
assets acquired and liabilities assumed in a business combination. As required under GAAP, goodwill and
indefinite lived intangibles are reviewed for impairment annually, for Griffon as of September 30, or
more frequently whenever events or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount, using discounted future cash flows or each reporting
unit. The testing of goodwill and indefinite lived intangibles for impairment involves significant use of
judgment and assumptions in the determination of a reporting unit’s fair market value. Based upon the
results of the annual impairment review, it was determined that the fair value of each reporting unit
substantially exceeded the carrying value of the assets, and no impairment existed as of September 30,
2011.
Long-lived amortizable intangible assets, such as customer relationships and software, and tangible
assets, primarily Property, Plant and Equipment, are amortized over their expected useful lives, which
involves significant assumptions and estimates. Long-lived intangible and tangible assets are tested for
impairment by comparing estimated future undiscounted cash flows to the carrying value of the asset
when an impairment indicator, such as change in business, customer loss or obsolete technology, exists.
Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions
are subject to inherent uncertainty. Actual results may differ materially from those estimates. Any
changes in key assumptions or management judgment with respect to a reporting unit or its prospects,
(cid:3)(cid:886)(cid:891)
which may result from a decline in Griffon’s stock price, a change in market conditions, market trends,
interest rates or other factors outside of Griffon’s control, or significant underperformance relative to
historical or projected future operating results, could result in a significantly different estimate of the fair
value of Griffon’s reporting units, which could result in an impairment charge in the future.
Restructuring reserves
From time to time, Griffon will establish restructuring reserves at an operation. These reserves for both
termination and other exit costs require the use of estimates. Though Griffon believes the estimates made
are reasonable, they could differ materially from the actual costs.
Income Taxes
Griffon’s effective tax rate is based on income, statutory tax rates and tax planning opportunities available
in the various jurisdictions in which Griffon operates. For interim financial reporting, the annual tax rate
is estimated based on projected taxable income for the full year and a quarterly income tax provision is
recorded in accordance with the anticipated annual rate. As the year progresses, the estimates are refined
based on the year’s taxable income as new information becomes available, including year-to-date
financial results. This continual estimation process often results in a change to the effective tax rate
throughout the year. Significant judgment is required in determining the effective tax rate and in
evaluating tax positions.
Deferred tax assets and liabilities are recognized based on the differences between the financial statement
carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used
as a tax deduction or credit in future tax returns for which a tax benefit has been recorded in the income
statement. The likelihood that the deferred tax asset balance will be recovered from future taxable income
is assessed at least quarterly, and the valuation allowance, if any, is adjusted accordingly.
Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more
likely than not that the position will be sustained upon examination by a taxing authority. For a tax
position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the
largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate
settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted
periodically due to changing circumstances, such as the progress of tax audits, case law developments and
new or emerging legislation. Such adjustments are recognized in the period in which they are identified.
The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and
subsequent adjustments as considered appropriate by management. A number of years may elapse before
a particular matter for which Griffon has recorded a liability related to an unrecognized tax benefit is
audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is
often difficult to predict the final outcome or the timing of resolution of any particular tax matter, Griffon
believes its liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized
tax benefit could be recognized as a reduction in Griffon’s tax provision and effective tax rate in the
period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax
provision and effective tax rate and may require the use of cash in the period of resolution. The liability
for unrecognized tax benefits is generally presented as noncurrent. However, if it is anticipated that a cash
settlement will occur within one year, that portion of the liability is presented as current. Interest and
penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense.
Pension Benefits
Griffon sponsors defined and supplemental benefit pension plans for certain employees and retired
employees. Annual amounts relating to these plans are recorded based on actuarial projections, which
include various actuarial assumptions, including discount rates, assumed rates of return, compensation
(cid:3)(cid:887)(cid:882)
increases and turnover rates. The actuarial assumptions used to determine pension liabilities and assets, as
well as pension expense, are reviewed on an annual basis when modifications to assumptions are made
based on current economic conditions and trends. The expected return on plan assets is determined based
on the nature of the plans’ investments and expectations for long-term rates of return. The discount rate
used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected
future benefit payments with the appropriate spot rate applicable to the timing of the projected future
benefit payments. The assumptions utilized in recording Griffon’s obligations under the defined benefit
pension plans are believed to be reasonable based on experience and advice from independent actuaries;
however, differences in actual experience or changes in the assumptions may materially affect Griffon’s
financial position or results of operations.
The U.S. components of the defined benefit plans, which excludes the supplemental and post retirement
healthcare and insurance benefit plans, are frozen and have stopped accruing benefits.
The Clopay qualified defined benefit plan has been frozen to new entrants since December 2000. Certain
employees who were part of the plan prior to December 2000 continued to accrue a service benefit for an
additional 10 years, at which time all plan participants stopped accruing service benefits.
The ATT qualified defined benefit plan has been frozen to new entrants since November 2009 and
stopped accruing benefits in December 2009.
The ATT supplemental executive retirement plan was frozen to new entrants and participants in the plan
stopped accruing benefits in 2008.
Newly issued but not yet effective accounting pronouncements
In June 2011, the FASB issued new accounting guidance which requires the presentation the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income, or in two separate but
consecutive statements. The new accounting rules eliminate the option to present components of other
comprehensive income as part of the statement of changes in shareholders’ equity. The new accounting
rules will be effective for the Company in 2013 and is not expected to have a material effect on the
Company’s financial condition or results of operations.
In September 2011, the FASB issued new accounting guidance that allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment
testing of goodwill and indefinite life intangibles. This guidance is effective for the Company in 2013
and is not expected to have an impact on the Company’s financial condition or result of operations.
Recently issued effective accounting pronouncements
In October 2009, the FASB issued new guidance on accounting for multiple-deliverable arrangements to
enable vendors to account for products and services separately rather than as a combined unit. The
guidance addresses how to separate deliverables and how to measure and allocate arrangement
consideration to one or more units of accounting. The new guidance was effective as of the beginning of
the annual reporting period commencing after June 15, 2010, and was adopted by Griffon as of October 1,
2010; adoption had no material effect on Griffon’s consolidated financial statements.
(cid:3)(cid:887)(cid:883)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rates
Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate
debt and investments in cash and cash equivalents.
The revolving credit facility and certain other of Griffon’s credit facilities have a LIBOR-based variable
interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point
change in LIBOR would not have a material impact on Griffon’s results of operations or liquidity.
Foreign Exchange
Griffon conducts business in various non-U.S. countries, primarily in Canada, Mexico, Europe, Brazil and
Australia; therefore, changes in the value of the currencies of these countries affect the financial position
and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to
exchange rate movements relative to its non-U.S. operations. Griffon may, from time to time, hedge its
currency risk exposures. A change of 10% or less in the value of all applicable foreign currencies would
not have a material effect on Griffon’s financial position and cash flows.
Item 8. Financial Statements and Supplementary Data
The financial statements of Griffon and its subsidiaries and the report thereon of Grant Thornton LLP are
included herein:
(cid:31) Report of Independent Registered Public Accounting Firm.
(cid:31) Consolidated Balance Sheets at September 30, 2011 and 2010.
(cid:31) Consolidated Statements of Operations for the years ended September 30, 2011, 2010 and 2009.
(cid:31) Consolidated Statements of Cash Flows for the years ended September 30, 2011, 2010 and 2009.
(cid:31) Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the years
ended September 30, 2011, 2010 and 2009.
(cid:31) Notes to Consolidated Financial Statements.
(cid:31) Schedule II – Valuation and Qualifying Account.
(cid:3)(cid:887)(cid:884)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Griffon Corporation
We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and
subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations,
shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended
September 30, 2011. We also have audited the Company’s internal control over financial reporting as of September 30,
2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these financial
statements, for maintaining effective control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our audits of the basic financial statements included the financial statement schedules listed in the index
appearing under Item 15(a)(2). These financial statements and financial statement schedules are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements, financial statement
schedules and an opinion on Griffon Corporation’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Griffon Corporation and subsidiaries as of September 30, 2011 and 2010, and the results of their operations and
their cash flows for each of the three years in the period ended September 30, 2011 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein. In addition, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control –
Integrated Framework issued by COSO.
/s/ GRANT THORNTON LLP
New York, New York
November 18, 2011
(cid:3)(cid:887)(cid:885)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
CURRENT ASSETS
Cash and equivalents
Accounts receivable, net of allowances of $6,072 and $6,581
Contract costs and recognized income not yet billed,
net of progress payments of $9,697 and $1,423
Inventories, net
Prepaid and other current assets
Assets of discontinued operations
Total Current Assets
PROPERTY, PLANT AND EQUIPMENT, net
GOODWILL
INTANGIBLE ASSETS, net
OTHER ASSETS
ASSETS OF DISCONTINUED OPERATIONS
Total Assets
CURRENT LIABILITIES
Notes payable and current portion of long-term debt
Accounts payable
Accrued liabilities
Liabilities of discontinued operations
Total Current Liabilities
LONG-TERM DEBT, net of debt discount of $19,693 and $30,650
OTHER LIABILITIES
LIABILITIES OF DISCONTINUED OPERATIONS
Total Liabilities
COMMITMENTS AND CONTINGENCIES - See Note
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.25 per share, authorized
3,000 shares, no shares issued
Common stock, par value $0.25 per share, authorized
85,000 shares, issued 76,184 shares
and 74,580 shares
Capital in excess of par value
Retained earnings
Treasury shares, at cost, 14,434 common shares
for 2011 and 12,466 common shares for 2010
Accumulated other comprehensive income (loss)
Deferred compensation
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
At September 30,
2011
At September 30,
2010
$
243,029
268,026
$
169,802
252,852
74,737
263,809
48,828
1,381
899,810
350,050
357,333
223,189
31,197
3,675
1,865,254
$
63,155
268,801
55,782
1,079
811,471
314,760
360,749
233,011
27,907
5,803
1,753,701
$
$
25,164
183,136
102,785
3,794
314,879
688,247
204,434
5,786
1,213,346
$
20,901
185,165
130,006
4,289
340,361
503,935
190,244
8,446
1,042,986
-
-
19,046
471,928
424,153
18,645
460,955
431,584
(231,699)
(7,724)
(23,796)
651,908
1,865,254
$
(213,560)
17,582
(4,491)
710,715
1,753,701
$
(cid:3)
The accompanying notes to consolidated financial statements are an integral part of these statements.
(cid:3)
(cid:3)(cid:887)(cid:886)
GRIFFON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue
Cost of goods and services
Gross profit
Selling, general and administrative expenses
Restructuring and other related charges
Total operating expenses
Income from operations
Other income (expense)
Interest expense
Interest income
Gain (loss) from debt extinguishment, net
Other, net
Total other income (expense)
Income (loss) before taxes and discontinued operations
Provision (benefit) for income taxes
Income (loss) from continuing operations
Discontinued operations:
Income from operations of the
discontinued Installation Services business
Provision for income taxes
Income from discontinued operations
Net income (loss)
Basic earnings (loss) per common share:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
$
Years Ended September 30,
2010
1,293,996
1,005,692
288,304
$
2011
1,830,802
1,437,341
393,461
$
2009
1,194,050
936,927
257,123
330,369
7,543
337,912
55,549
(47,846)
398
(26,164)
3,714
(69,898)
(14,349)
(6,918)
(7,431)
261,403
4,180
265,583
22,721
(12,322)
409
(1,117)
4,121
(8,909)
13,812
4,308
9,504
230,736
1,240
231,976
25,147
(13,091)
1,539
4,488
1,522
(5,542)
19,605
1,687
17,918
-
-
-
(7,431)
$
142
54
88
9,592
1,230
440
790
18,708
$
$
$
(0.13)
0.00
(0.13)
$
0.16
0.00
0.16
$
0.31
0.01
0.32
Weighted-average shares outstanding
58,919
58,974
58,699
Diluted earnings (loss) per common share:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
$
(0.13)
0.00
(0.13)
$
0.16
0.00
0.16
$
0.30
0.01
0.32
Weighted-average shares outstanding
58,919
59,993
59,002
The accompanying notes to consolidated financial statements are an integral part of these statements.
(cid:3)(cid:887)(cid:887)
GRIFFON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Income from discontinued operations
Depreciation and amortization
Fair value write-up of acquired inventory sold
Stock-based compensation
Provision for losses on accounts receivable
Amortization/write-off of deferred financing costs and debt discounts
(Gain) loss from debt extinguishment, net
Deferred income taxes
(Gain) loss on sale/disposal of assets
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable and contract costs
and recognized income not yet billed
(Increase) decrease in inventories
(Increase) decrease in prepaid and other assets
Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable
Other changes, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
Acquired business, net of cash acquired
Funds restricted for capital projects
Change in equipment lease deposits
Proceeds from sale of assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
Purchase of shares for treasury
Proceeds from issuance of long-term debt
Payments of long-term debt
Change in short-term borrowings
Financing costs
Purchase of ESOP shares
Exercise of stock options/vesting of restricted stock
Tax benefit from exercise of options/vesting of restricted stock
Other, net
Net cash provided by (used in) financing activities
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities
Net cash used in discontinued operations
Effect of exchange rate changes on cash and equivalents
Ye ars Ende d Se pte mbe r 30,
2010
2009
2011
$
(7,431)
$
9,592
$
18,708
-
60,712
15,152
8,956
1,225
6,733
26,164
(2,749)
(251)
(30,593)
(12,803)
9,065
(42,604)
3,809
35,385
(87,617)
(855)
4,629
-
1,510
(82,333)
-
(18,139)
674,251
(498,572)
3,538
(21,653)
(19,973)
2,306
7
345
122,110
(962)
(962)
(973)
(88)
40,442
-
5,778
2,431
5,059
1,117
(3,666)
74
(25,481)
(10,611)
(14,342)
72,144
676
83,125
(40,477)
(542,000)
-
(1,666)
-
(584,143)
2,823
-
543,875
(176,802)
-
(17,455)
-
343
325
184
353,293
(638)
(638)
(2,668)
(790)
42,346
-
4,145
628
5,209
(4,488)
(3,144)
23
(6,690)
28,498
11,130
(8,650)
(2,825)
84,100
(32,697)
-
200
(336)
-
(32,833)
7,257
-
11,431
(56,676)
(866)
(597)
(4,370)
-
217
402
(43,202)
(1,305)
(1,305)
2,152
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS AT BEGINNING OF YEAR
CASH AND EQUIVALENTS AT END OF YEAR
73,227
169,802
243,029
$
(151,031)
320,833
169,802
$
8,912
311,921
320,833
$
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
Cash paid for taxes
$
21,396
10,219
$
6,489
4,643
$
7,065
7,602
The accompanying notes to consolidated financial statements are an integral part of these statements.
(cid:3)(cid:887)(cid:888)
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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
(Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending
September 30)
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Griffon Corporation (the “Company” or “Griffon”), is a diversified management and holding company
that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its
subsidiaries, allocates resources among them and manages their capital structures. Griffon provides
direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well
as in connection with divestitures. Griffon to further diversify, also seeks out, evaluates and, when
appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware.
Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.
Griffon currently conducts its operations through three segments:
(cid:120) Home & Building Products (“HBP”) consists of two companies, Ames True Temper, Inc
(“ATT”) and Clopay Building Products (“CBP”):
- ATT, acquired by Griffon on September 30, 2010, is a global provider of non-powered
landscaping products that make work easier for homeowners and professionals. Due to
the acquisition of ATT occurring on September 30, 2010, none of ATT’s results of
operations were included in Griffon’s results prior to October 1, 2010.
- CBP is a leading manufacturer and marketer of residential, commercial and industrial
garage doors to professional installing dealers and major home center retail chains.
(cid:120) Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-
technology integrated information, communication and sensor system solutions to military
and commercial markets worldwide.
(cid:120) Clopay Plastic Products Company (“Plastics”) is an international leader in the development
and production of embossed, laminated and printed specialty plastic films used in a variety of
hygienic, health-care and industrial applications.
Consolidation
The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Earnings Per Share
Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations
may not equal earnings per share of Net income.
(cid:3)(cid:887)(cid:890)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Discontinued Operations – Installation Services
In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all
operating activities of its Installation Services segment which sold, installed and serviced garage doors
and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for
the new residential housing market. Operating results of substantially all this segment has been reported
as discontinued operations in the Consolidated Statements of Operations for all periods presented; the
Installation Services segment is excluded from segment reporting.
Reclassifications and Adoption of New Accounting Guidance
Certain amounts in prior years have been reclassified to conform to the current year presentation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States 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 amounts of revenue and expenses during the reporting periods. These estimates may be
adjusted due to changes in economic, industry or customer financial conditions, as well as changes in
technology or demand. Significant estimates include allowances for doubtful accounts receivable and
returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible
assets, percentage of completion method of accounting, pension assumptions, useful lives associated with
depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals,
stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves,
legal reserves, insurance reserves and the valuation of discontinued assets and liabilities, and the
accompanying disclosures. These estimates are based on management’s best knowledge of current events
and actions Griffon may undertake in the future. Actual results may ultimately differ from these
estimates.
Cash and equivalents
Griffon considers all highly liquid investments purchased with an initial maturity of three months or less
to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated
liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as
insured bank deposits. Griffon had cash in non-U.S. bank accounts of approximately $39,738 and $32,765
at September 30, 2011 and 2010, respectively. Substantially all U.S. cash and equivalents are covered by
government insurance or backed by government securities. Griffon regularly evaluates the financial
stability of all institutions and funds that hold its cash and equivalents.
Fair value of financial instruments
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable and
revolving credit debt approximate fair value due to either the short-term nature of such instruments or the
fact that the interest rate of the revolving credit debt is based upon current market rates.
The fair values of Griffon’s 2018 senior notes, 2017 and 2023 4% convertible notes approximated
$518,000, $91,400 and $544, respectively on September 30, 2011. Fair values were based upon quoted
market prices (level 1 inputs).
(cid:3)(cid:887)(cid:891)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Insurance contracts with a value of $4,276 and trading securities with a value of $633 at September 30,
2011, are measured and recorded at fair value based upon quoted prices in active markets for identical
assets (level 1 inputs).
Items Measured at Fair Value on a Recurring Basis
At September 30, 2011, Griffon had $2,750 of Australian dollar contracts at a weighted average rate of
$0.96. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based
purchases, do not qualify for hedge accounting and a fair value gain of $165 was recorded in other assets
and to other income for the outstanding contracts based on similar contract values (level 2 inputs) for the
year ended September 30, 2011. All contracts expire in 30 to 90 days.
At September 30, 2010, Griffon had an aggregate $3,845 of interest rate swaps. The swaps did not
qualify for hedge accounting, there was no pretax gain or loss recognized in other comprehensive income
and they were included in accrued expenses and other current liabilities. As part of the acquisition of
ATT, these swaps were terminated in October 2010.
Pension plan assets with a fair value of $137,678 at September 30, 2011, are measured and recorded at
fair value based upon quoted prices in active markets for identical assets (level 1 and level 2 inputs).
Non-U.S. currency translation
Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have
been translated at year-end exchange rates and profit and loss accounts have been translated using
weighted average exchange rates. Adjustments resulting from currency translation have been recorded in
the equity section of the balance sheet as cumulative translation adjustments. Assets and liabilities of an
entity that are denominated in currencies other than that entity's functional currency are remeasured into
the functional currency using period end exchange rates, or historical rates where applicable to certain
balances. Gains and losses arising on remeasurements are recorded within the Statement of Operations as
a component of Other income (expense).
Revenue recognition
Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an
arrangement exists, b) delivery has occurred, title has transferred or services are rendered, c) price is fixed
and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title
and risk of loss at a specified location. Revenue recognition from product sales occurs when all factors are
met, including transfer of title and risk of loss, which occurs either upon shipment or upon receipt by
customers at the location specified in the terms of sale. Other than standard product warranty provisions,
sales arrangements provide for no other significant post-shipment obligations. From time to time and for
certain customers rebates and other sales incentives, promotional allowances or discounts are offered,
typically related to customer purchase volumes, all of which are fixed or determinable and are classified
as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances
based upon historical returns experience.
Telephonics earns a substantial portion of its revenue as either a prime or subcontractor from contract
awards with the U.S. Government, as well as non-U.S. governments and other commercial customers.
These formal contracts are typically long-term in nature, usually greater than one year. Revenue and
profits from these long-term fixed price contracts are recognized under the percentage-of-completion
method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as
production requirements are recorded based on the ratio of total actual incurred costs to date to the total
(cid:3)(cid:888)(cid:882)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenue is
recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs
at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized
in prior periods. The profit recorded on a contract using this method is equal to the current estimated total
profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit
previously recorded for the contract in prior periods. As this method relies on the substantial use of
estimates, these projections may be revised throughout the life of a contract. Components of this formula
and ratio that may be estimated include gross profit margin and total costs at completion. The cost
performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly
basis, as well as when information becomes available that would necessitate a review of the current
estimate. Adjustments to estimates for a contract’s estimated costs at completion and estimated profit or
loss often are required as experience is gained, and as more information is obtained, even though the
scope of work required under the contract may or may not change, or if contract modifications occur. The
impact of such adjustments or changes to estimates is made on a cumulative basis in the period when such
information has become known. Gross profit is affected by a variety of factors, including the mix of
products, systems and services, production efficiencies, price competition and general economic
conditions.
Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs are incurred on
the contract at an amount equal to the allowable costs plus the estimated profit on those costs. The
estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee
arrangement. Incentive and award fees on these contracts are recorded as revenue when the criteria under
which they are earned are reasonably assured of being met and can be estimated.
For contracts whose anticipated total costs exceed the total expected revenue, an estimated loss is
recognized in the period when identifiable. A provision for the entire amount of the estimated loss is
recorded on a cumulative basis.
Amounts representing contract change orders or claims are included in revenue only when they can be
reliably estimated and their realization is probable, and are determined on a percentage-of-completion
basis measured by the cost-to-cost method.
Accounts receivable, allowance for doubtful accounts and concentrations of credit risk
Accounts receivable is composed principally of trade accounts receivable that arise primarily from the
sale of goods or services on account and is stated at historical cost. A substantial portion of Griffon’s
trade receivables are from customers of HBP, of which the largest customer is Home Depot, whose
financial condition is dependent on the construction and related retail sectors of the economy. In addition,
a significant portion of Griffon’s trade receivables are from one Plastics customer, P&G, whose financial
condition is dependent on the consumer products and related sectors of the economy. Telephonics sells
its products to domestic and international government agencies, as well as commercial customers. As a
percentage of consolidated accounts receivable, the U.S. Government was 20%, while Home Depot and
P&G were under 10%. Griffon performs continuing evaluations of the financial condition of its
customers, and although Griffon generally does not require collateral, letters of credit may be required
from customers in certain circumstances.
Trade receivables are recorded at the stated amount, less allowance for doubtful accounts and, when
appropriate, for customer program reserves and cash discounts. The allowance represents estimated
uncollectible receivables associated with potential customer defaults on contractual obligations (usually
due to customers’ potential insolvency). The allowance for doubtful accounts includes amounts for certain
customers where a risk of default has been specifically identified, as well as an amount for customer
(cid:3)(cid:888)(cid:883)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
defaults based on a formula when it is determined the risk of some default is probable and estimable, but
cannot yet be associated with specific customers. The provision related to the allowance for doubtful
accounts was recorded in SG&A expenses.
Customer program reserves and cash discounts are netted against accounts receivable when it is customer
practice to reduce invoices for these amounts. The amount netted against accounts receivable in 2011 and
2010 was $12,683 and $11,827, respectively.
Contract costs and recognized income not yet billed
Contract costs and recognized income not yet billed consists of amounts accounted for under the
percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be
invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable
contract terms such as the achievement of specified milestones or product delivery, are met.
Inventories
Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and
manufacturing overhead costs.
Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated.
In general, Telephonics sells products in connection with programs authorized and approved under
contracts awarded by the U.S. Government or agencies thereof, either as prime or subcontractor, and in
accordance with customer specifications. Plastics produces fabricated materials used by customers in the
production of their products and these materials are produced against orders by those customers. HBP
produces doors and non-powered lawn and garden tools in response to orders from customers of retailers
and dealers or based on expected orders, as applicable.
(cid:3)(cid:3)
Property, plant and equipment
Property, plant and equipment includes the historical cost of land, buildings, equipment and significant
improvements to existing plant and equipment. Expenditures for maintenance, repairs and minor
renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the
related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is
realized in income.
Depreciation expense, which includes amortization of assets under capital leases, was $52,844, $38,456
and $40,919 for the years ended September 30, 2011, 2010 and 2009, respectively, and was calculated on
a straight-line basis over the estimated useful lives of the assets. Estimated useful lives for property, plant
and equipment are as follows: buildings and building improvements, 25 to 40 years; machinery and
equipment, 2 to 15 years and leasehold improvements, over the term of the lease or life of the
improvement, whichever is shorter.
Capitalized interest costs included in property, plant and equipment were $2,250, $1,700 and $1,400 for
the years ended September 30, 2011, 2010 and 2009, respectively. The original cost of fully-depreciated
property, plant and equipment remaining in use at September 30, 2011 was approximately $183,000.
(cid:3)(cid:888)(cid:884)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Goodwill and indefinite-lived intangibles
Goodwill is the excess of the acquisition cost of a business over the fair value of the identifiable net assets
acquired. Goodwill is not amortized, but is subject to an annual impairment test unless during an interim
period, impairment indicators, such as a significant change in the business climate, exist.
Griffon performed its annual impairment testing of goodwill as of September 30, 2011. The performance
of the test involves a two-step process. The first step involves comparing the fair value of Griffon’s
reporting units with the reporting unit’s carrying amount, including goodwill. Griffon generally
determines the fair value of its reporting units using the income approach methodology of valuation that
includes the present value of expected future cash flows. This method uses Griffon’s own market
assumptions. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, Griffon
performs the second step of the goodwill impairment test to determine the amount of impairment loss.
The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount
of that goodwill.
Griffon defines its reporting units as its three segments.
Griffon used five year projections and a 3% terminal value to which discount rates between 10.00% and
10.25% were applied to calculate each unit’s fair value. To substantiate fair values derived from the
income approach methodology of valuation, the implied fair value was reconciled to Griffon’s market
capitalization, the results of which supported the implied fair values. Any changes in key assumptions or
management judgment with respect to a reporting unit or its prospects, which may result from a decline in
Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside
Griffon’s control, or significant underperformance relative to historical or project future operating results,
could result in a significantly different estimate of the fair value of the reporting units, which could result
in a future impairment charge.
Based upon the results of the annual impairment review, it was determined that the fair value of each
reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and no
impairment existed.
Similar to Goodwill, Griffon tests indefinite-lived intangible assets at least annually unless indicators of
impairment exist. Griffon uses a discounted cash flow method to calculate and compare the fair value of
the intangible to its book value. This method uses Griffon’s own market assumptions which are
reasonable and supportable. If the fair value is less than the book value of the indefinite-lived intangibles,
an impairment charge would be recognized. There was no impairment related to any indefinite-lived
intangible assets in 2011.
Definite-lived long-lived assets
Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting
purposes, definite lived intangible assets are amortized on a straight-line basis over their useful lives,
generally eight to twenty-five years. Long-lived assets and certain identifiable intangible assets to be held
and used are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.
For 2011 and 2010, the future undiscounted cash flows expected to be generated from the use of definite-
lived long-lived assets were substantially greater than the carrying value of the assets, and as such, there
was no impairment.
(cid:3)(cid:888)(cid:885)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Income taxes
Income taxes are accounted for under the liability method. Deferred taxes reflect the tax consequences on
(cid:3)(cid:888)(cid:886)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Pension Benefits
Griffon sponsors defined and supplemental benefit pension plans for certain employees and retired
employees. Annual amounts relating to these plans are recorded based on actuarial projections, which
include various actuarial assumptions, including discount rates, assumed rates of return, compensation
increases and turnover rates. The actuarial assumptions used to determine pension liabilities and assets, as
well as pension expense, are reviewed on an annual basis when modifications to assumptions are made
based on current economic conditions and trends. The expected return on plan assets is determined based
on the nature of the plans’ investments and expectations for long-term rates of return. The discount rate
used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected
future benefit payments with the appropriate spot rate applicable to the timing of the projected future
benefit payments. The assumptions utilized in recording Griffon’s obligations under the defined benefit
pension plans are believed to be reasonable based on experience and advice from independent actuaries;
however, differences in actual experience or changes in the assumptions may materially affect Griffon’s
financial position or results of operations.
The U.S. components of the defined benefit plans, which excludes the supplemental and post retirement
healthcare and insurance benefit plans, are frozen and have stopped accruing benefits.
The ATT qualified defined benefit plan has been frozen to new entrants since November 2009 and
stopped accruing benefits in December 2009.
The ATT supplemental executive retirement plan was frozen to new entrants and participants in the plan
stopped accruing benefits in 2008.
Newly issued but not yet effective accounting pronouncements
In June 2011, the FASB issued new accounting guidance which requires the presentation the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income, or in two separate but
consecutive statements. The new accounting rules eliminate the option to present components of other
comprehensive income as part of the statement of changes in shareholders’ equity. The new accounting
rules will be effective for the Company in 2013 and is not expected to have a material effect on the
Company’s financial condition or results of operations.
In September 2011, the FASB issued new accounting guidance that allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment
testing of goodwill and indefinite life intangibles. This guidance is effective for the Company in 2013
and is not expected to have an impact on the Company’s financial condition or result of operations.
Recently issued effective accounting pronouncements
In October 2009, the FASB issued new guidance on accounting for multiple-deliverable arrangements to
enable vendors to account for products and services separately rather than as a combined unit. The
guidance addresses how to separate deliverables and how to measure and allocate arrangement
consideration to one or more units of accounting. The new guidance was effective as of the beginning of
the annual reporting period commencing after June 15, 2010, and was adopted by Griffon as of October 1,
2010; adoption had no material effect on Griffon’s consolidated financial statements.
(cid:3)(cid:888)(cid:887)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
NOTE 2 — ACQUISITION
On September 30, 2010, Griffon purchased all of the outstanding stock of CHATT Holdings, Inc. (“ATT
Holdings”), the parent of ATT, on a cash and debt-free basis, for $542,000 in cash, subject to certain
adjustments (the “Purchase Price”). ATT is a global provider of non-powered lawn and garden tools,
wheelbarrows, and other outdoor work products to the retail and professional markets. ATT’s brands
include Ames®, True Temper®, Ames True Temper®, Garant®, Union Tools®, Razor-back®,
Jackson®, Hound Dog® and Dynamic DesignTM. ATT’s brands hold the number one or number two
market positions in their respective major product categories. The acquisition of ATT expands Griffon’s
position in the home and building products market and provides Griffon the opportunity to recognize
synergies with its other businesses.
In connection with the ATT acquisition, Clopay Ames True Temper Holding Corp. (“Clopay Ames”), a
subsidiary of Griffon, entered into a $375,000 secured term loan facility (“Term Loan”) and a new
$125,000 Asset Based Lending Agreement (“New ABL”). The acquisition, including all related
transaction costs, was funded by proceeds of the Term Loan, $25,000 drawn under the New ABL, and
$168,000 of Griffon cash. ATT’s previous outstanding debt was defeased in connection with the
acquisition.
ATT’s results of operations are not included in the Griffon consolidated statements of operations or cash
flows, or footnotes relating thereto prior to October 1, 2010, except where explicitly stated as pro-forma
results. The Griffon consolidated balance sheet at September 30, 2010 and related notes thereto include
ATT’s balances at that date.
The accounts of the acquired company, after adjustments to reflect fair market values assigned to assets
and liabilities, have been included in the consolidated financial statements from the date of acquisition.
The following table summarizes the final fair values of the assets acquired and liabilities assumed as of
the date of the acquisition and the amounts assigned to goodwill and intangible asset classifications:
2010
Current assets, net of cash acquired
PP&E
Goodwill *
Intangibles
Other assets
Total assets acquired
Total liabilities assumed
Net assets acquired
$
195,214
72,752
264,592
203,290
1,124
736,972
(194,972)
542,000
$
The amounts assigned to goodwill and major intangible asset classifications by segment for the
acquisition are as follows:
Goodwill (non-deductible) *
Tradenames (non-deductible)
Customer relationships (non-deductible)
2010
$
264,592
76,090
127,200
467,882
$
Amortization
Period (Years)
N/A
Indefinite
25
*During 2011, acquisition date Goodwill was increased $3,528, due to the prospective federal
consolidated tax reporting of ATT and GFF, and accounting for the completion of ATT’s 2010 federal tax
return, and finalization of certain accrual and fixed asset valuations.
(cid:3)(cid:888)(cid:888)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Pro Forma Information
The following unaudited pro forma information illustrates the effect on Griffon’s revenue and net
earnings for the twelve-month period ended September 30, 2010, assuming that the acquisition had taken
place on October 1, 2008.
Revenue from continuing operations:
As reported
Pro forma
Net earnings from continuing operations:
As reported
Pro forma
Diluted earnings per share from continuing operations:
As reported
Pro forma
Years Ended September 30,
2010
2009
$
1,293,996
1,737,630
$
1,194,050
1,659,524
$
9,504
16,885
$
17,918
22,690
$
0.16
0.28
$
0.30
0.38
Average shares - Diluted (in thousands)
59,993
59,002
These pro forma results have been prepared for comparative purposes only and include certain
adjustments to actual financial results for the period presented, such as imputed financing costs, and
estimated additional amortization and depreciation expense as a result of intangibles and fixed assets
acquired, measured at fair value. They do not purport to be indicative of the results of operations that
actually would have resulted had the acquisition occurred on the date indicated or that may result in the
future.
NOTE 3 — INVENTORIES
The following table details the components of inventory:
Raw materials and supplies
Work in process
Finished goods
Total
At September 30,
2011
$
At September 30,
2010
$
76,563
66,585
120,661
263,809
64,933
69,107
134,761
268,801
$
$
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
The following table details the components of property, plant and equipment, net:
At September 30,
2011
Land, building and building improvements
Machinery and equipment
Leasehold improvements
Accumulated depreciation and amortization
Total
(cid:3)(cid:888)(cid:889)
$
126,340
571,414
32,867
730,621
(380,571)
350,050
$
$
At Septembe r 30,
2010
$
126,785
497,851
33,455
658,091
(343,331)
314,760
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
NOTE 5 — GOODWILL AND OTHER INTANGIBLES
The following table provides changes in carrying value of goodwill by segment through the year ended
September 30, 2011:
At September 30,
2009
-
$
18,545
79,112
97,657
$
Goodwill from
2010
acquisitions
264,592
$
-
-
264,592
$
Other
adjustments
including
currency
translations
-
$
-
(1,500)
(1,500)
$
Home & Building Products**
Telephonics
Plastics
Total
At September 30,
2010
$
264,592
18,545
77,612
360,749
Other
adjustments
including
currency
translations
-
$
-
(3,416)
(3,416)
$
At September 30,
2011
$
264,592
18,545
74,196
357,333
$
$
**During 2011, acquisition date Goodwill was increased $3,528, due to the prospective federal
consolidated tax reporting of ATT and GFF, and accounting for the completion of ATT’s 2010 federal tax
return, and finalization of certain accrual and fixed asset valuations.
The following table provides the gross carrying value and accumulated amortization for each major class
of intangible asset:
At September 30, 2011
Gross
Carrying
Amount
Accumulated
Amortization
Average
Life
(Years)
At September 30, 2010
Gross
Carrying
Amount
Accumulated
Amortization
Customer relationships
Unpatented technology
Total amortizable intangible assets
Trademarks
Total intangible assets
155,602
6,534
162,136
76,664
238,800
25
11
13,862
1,749
15,611
-
15,611
155,798
8,154
163,952
76,680
240,632
$
$
$
$
$
$
$
$
6,477
1,144
7,621
-
7,621
An unpatented intangible assets with a gross carrying value of $5,958 at October 1, 2009 was reclassified
from indefinite lived to amortizable, as information became available that allowed a useful life to be
determined; the intangible asset is being amortized over 10 years, its estimated useful life, with effect
from October 1, 2009.
Amortization expense for intangible assets subject to amortization was $7,867, $1,987 and $1,427 for the
years ended September 30, 2011, 2010 and 2009, respectively. Amortization expense for each of the next
five years, based on current intangible balances and classifications, is estimated as follows: 2012 - $7,654;
2013 - $7,467; 2014 - $7,234; 2015 - $7,061 and 2016 - $6,888.
NOTE 6 — DISCONTINUED OPERATIONS
In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all
operating activities of its Installation Services segment which sold, installed and serviced garage doors
and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for
the new residential housing market. Operating results of substantially all this segment has been reported
as discontinued operations in the Consolidated Statements of Operations for all periods presented; the
Installation Services segment is excluded from segment reporting.
(cid:3)(cid:888)(cid:890)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
In May 2008, Griffon’s Board of Directors approved a plan to exit substantially all operating activities of
the Installation Services segment in 2008. In the third quarter of 2008, Griffon sold nine units to one
buyer, closed one unit and merged two units into CBP. In the fourth quarter of 2008, Griffon sold its two
remaining units in Phoenix and Las Vegas.
Griffon substantially concluded its remaining disposal activities in the second quarter of 2009. There was
no reported revenue in 2011, 2010 and 2009.
The following amounts related primarily to the Installation Services segment have been segregated from
Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the
consolidated balance sheets:
At September 30, 2011
Long-term
Current
At September 30, 2010
Long-term
Current
Assets of discontinued operations:
Prepaid and other current assets
Other long-term assets
Total assets of discontinued operations
Liabilities of discontinued operations:
$
$
1,381
-
1,381
-
$
3,675
3,675
$
$
$
1,079
-
1,079
-
$
5,803
5,803
$
Accounts payable
Accrued liabilities
Other long-term liabilities
Total liabilities of discontinued operations
6
$
3,788
-
3,794
$
-
$
-
5,786
5,786
$
$
8
4,281
-
4,289
$
-
$
-
8,446
8,446
$
NOTE 7 — ACCRUED LIABILITIES
The following table details the components of accrued liabilities:
At September 30,
2011
$
At September 30,
2010
$
Compensation
Interest
Warranties and rebates
Insurance
Rent, utilities and freight
Income and other taxes
Marketing and advertising
Professional fees
Deferred income taxes
Other
Total
35,327
22,242
10,439
7,739
3,423
5,014
1,991
1,020
402
15,188
102,785
54,136
6,099
9,007
10,717
3,210
19,302
1,551
4,139
4,719
17,126
130,006
(cid:3)
$
$
NOTE 8 – RESTRUCTURING AND OTHER RELATED CHARGES
In June 2009, Griffon announced plans to consolidate facilities in CBP. These actions were completed in
2011, consistent with the plan. In completing the consolidation plan, CBP incurred total pre-tax exit and
restructuring costs approximating $9,031, substantially all of which was cash charges; charges include
(cid:3)(cid:888)(cid:891)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
$1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related
costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had
$10,365 of capital expenditures. The restructuring costs were $3,611 in 2011, $4,180 in 2010 and $1,240
in 2009. At September 30, 2011, $900 was included in Property, Plant and Equipment, net, for a building
held for sale.
In 2011, ATT recognized $886 in restructuring costs primarily related to termination benefits, reducing
administrative headcount by 25.
Telephonics recognized $3,046 of restructuring charges in 2011 related to (cid:131)(cid:3)(cid:152)(cid:145)(cid:142)(cid:151)(cid:144)(cid:150)(cid:131)(cid:148)(cid:155)(cid:3)(cid:135)(cid:131)(cid:148)(cid:142)(cid:155)(cid:3)(cid:148)(cid:135)(cid:150)(cid:139)(cid:148)(cid:135)(cid:143)(cid:135)(cid:144)(cid:150)(cid:3)
(cid:146)(cid:142)(cid:131)(cid:144)(cid:3)(cid:131)(cid:144)(cid:134)(cid:3)(cid:145)(cid:150)(cid:138)(cid:135)(cid:148)(cid:3)(cid:148)(cid:135)(cid:149)(cid:150)(cid:148)(cid:151)(cid:133)(cid:150)(cid:151)(cid:148)(cid:139)(cid:144)(cid:137)(cid:3)(cid:133)(cid:145)(cid:149)(cid:150)(cid:149)(cid:481)(cid:3)(cid:148)(cid:135)(cid:134)(cid:151)(cid:133)(cid:139)(cid:144)(cid:137)(cid:3)(cid:138)(cid:135)(cid:131)(cid:134)(cid:133)(cid:145)(cid:151)(cid:144)(cid:150)(cid:3)(cid:132)(cid:155)(cid:3)(cid:889)(cid:887).
A summary of the restructuring and other related charges included in the line item “Restructuring and
other related charges” in the Consolidated Statements of Operations recognized for 2009, 2010 and 2011
were as follows:
Amounts incurred in:
Year ended September 30, 2009
Year ended September 30, 2010
Year ended September 30, 2011
Workforce
Reduction
Facilities &
Exit Costs
Other
Related
Costs
Total
$
$
$
207
602
3,789
$
$
$
672
2,549
1,809
$
$
$
361
1,029
1,945
$
$
$
1,240
4,180
7,543
The activity in the restructuring accrual recorded in accrued liabilities consisted of the following:
Workforce
Reduction
Facilities &
Exit Costs
Other
Related
Costs
Total
Accrued liability at September 30, 2010
Charges
Payments
Accrued liability at September 30, 2011
NOTE 9 – WARRANTY LIABILITY
$
$
1,541
3,789
(2,673)
2,657
-
$
1,809
(1,809)
$
-
-
$
1,945
(1,945)
$
-
$
$
1,541
7,543
(6,427)
2,657
Telephonics offers warranties against product defects for periods generally ranging from one to two years,
depending on the specific product and terms of the customer purchase agreement. Typical warranties
require Telephonics to repair or replace the defective products during the warranty period at no cost to the
customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated
based on historical experience and periodically assesses its warranty obligations and adjusts the liability
as necessary. ATT offers an express limited warranty for a period of ninety days on all products unless
otherwise stated on the product or packaging from the date of original purchase.
(cid:3)(cid:889)(cid:882)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:
Balance, beginning of period
Assumed in business combination
Warranties issued and charges in
estimated pre-existing warranties
Actual warranty costs incurred
Balance, end of period
Years Ended September 30,
2011
$
6,719
-
2010
$
5,707
823
5,415
(4,171)
7,963
$
4,194
(4,005)
$
6,719
NOTE 10 — NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT
The present value of the net minimum payments on capitalized leases as of September 30, 2011 is as
follows:
Total minimum lease payments
Less amount representing interest
Present value of net minimum lease payments
Current Portion
Capitalized lease obligation, less current portion
At Se ptember 30,
2011
$
15,126
(3,230)
11,896
(1,046)
10,850
$
Minimum payments under current capital leases for the next five years are as follows: $1,598 in 2012,
$1,610 in 2013, $1,560 in 2014, $1,532 in 2015 and $1,497 in 2016.
Included in the consolidated balance sheet at September 30, 2011 under property, plant and equipment are
cost and accumulated depreciation subject to capitalized leases of $10,501 and $1,197, respectively, and
included in other assets are deferred interest charges of $257. At September 30, 2010, the amounts
subject to capitalized leases were $10,046 and $647, respectively, and included in other assets were
deferred interest charges of $283 and restricted cash, for investment in the Troy, Ohio facility, of $4,629.
The capitalized leases carry interest rates from 5% to 10% and mature from 2012 through 2022.
In October 2006, a subsidiary of Griffon entered into a capital lease totaling $14,290 for real estate it
occupies in Troy, Ohio. Approximately $10,000 was used to acquire the building and the remaining
amount is restricted for improvements. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is
secured by a mortgage on the real estate and is guaranteed by Griffon.
(cid:3)(cid:889)(cid:883)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Debt at September 30, 2011 and 2010 consisted of the following:
(a)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(g)
(g)
(j)
Senior notes due 2018
Revolver due 2016
Convert. debt due 2017
Real estate mortgages
ESOP Loans
Capital lease - real estate
Convert. debt due 2023
Term loan due 2013
Revolver due 2011
Foreign line of credit
Other long term debt
Totals
less: Current portion
Long-term debt
(b)
(c)
(d)
(e)
(f)
(h)
(h)
(i)
(j)
Convert. debt due 2017
Real estate mortgages
ESOP Loans
Capital lease - real estate
Convert. debt due 2023
Term loan due 2016
Asset based loan
Revolver due 2013
Other long term debt
Totals
less: Current portion
Long-term debt
At September 30, 2011
Outstanding
Balance
$
550,000
Original
Issuer
Discount
$
-
Balance
Sheet
Capitalized
Fees &
Expenses
$
550,000
$
11,337
Coupon
Interest Rate
7.125%
-
-
100,000
(19,693)
-
80,307
18,233
24,348
11,341
532
24,096
-
3,780
774
2,937
2,474
379
17
257
-
201
33
-
-
n/a
4.000%
n/a
n/a
5.000%
4.000%
n/a
n/a
n/a
-
-
-
-
-
-
-
-
18,233
24,348
11,341
532
24,096
-
3,780
774
733,104
(25,164)
(19,693)
713,411
$
17,635
-
(25,164)
$
707,940
$
(19,693)
$
688,247
At September 30, 2010
Outstanding
Balance
Original
Issuer
Discount
Balance
Sheet
Capitalized
Fees &
Expenses
Coupon
Interest
Rate
$
100,000
$
(22,525)
$
77,475
$
2,807
4.000%
7,287
5,000
12,182
532
375,000
25,000
30,000
485
555,486
(20,901)
-
-
-
-
(7,500)
(625)
-
-
7,287
5,000
12,182
532
367,500
24,375
30,000
485
159
-
282
-
9,782
3,361
476
-
n/a
n/a
5.000%
4.000%
7.800%
4.500%
1.800%
(30,650)
524,836
$
16,867
-
(20,901)
$
534,585
$
(30,650)
$
503,935
(cid:3)(cid:889)(cid:884)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Year Ended September 30, 2011
Senior notes due 2018
Revolver due 2016
Convert. debt due 2017
Real estate mortgages
ESOP Loans
Capital lease - real estate
Convert. debt due 2023
Term loan due 2013
Revolver due 2011
Foreign line of credit
Term loan due 2016
Asset based loan
Revolver due 2013
Other long term debt
Capitalized interest
Totals
(a)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(g)
(g)
(h)
(h)
(i)
(j)
Convert. debt due 2017
Real estate mortgages
ESOP Loans
Capital lease - real estate
Convert. debt due 2023
Term loan due 2016
Asset based loan
Revolver due 2013
Other long term debt
Capitalized interest
Totals
(b)
(c)
(d)
(e)
(f)
(h)
(h)
(i)
(j)
Effective
Interest
Rate
7.4%
n/a
9.0%
5.6%
2.7%
5.3%
4.0%
n/a
n/a
3.0%
9.5%
6.2%
1.2%
Effective
Interest
Rate
9.1%
6.4%
1.6%
5.2%
9.4%
7.8%
4.3%
2.7%
Cash Interest
$
21,118
-
3,944
761
345
602
20
338
90
91
13,405
1,076
160
104
(941)
Amort. Debt
Discount
$
-
-
2,832
-
-
-
-
-
-
-
572
58
-
-
-
Amort.
Deferred Cost
& Other Fees
$
881
Total Interest
Expense
$
21,999
332
443
86
67
26
-
71
107
-
838
341
79
-
-
332
7,219
847
412
628
20
409
197
91
14,815
1,475
239
104
(941)
$
41,113
$
3,462
$
3,271
$
47,846
Year Ended September 30, 2010
Amort. Debt
Discount
$
1,847
Amort.
Deferred Cost
& Other Fees
$
382
Total
Interest
Expense
$
5,469
Cash Interest
$
3,240
487
87
634
2,021
86
1,181
575
39
(1,087)
-
-
-
2,037
-
-
-
-
-
18
-
25
155
-
404
191
-
-
505
87
659
4,213
86
1,585
766
39
(1,087)
$
7,263
$
3,884
$
1,175
$
12,322
(cid:3)(cid:889)(cid:885)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Effective
Interest
Rate
6.4%
2.7%
5.6%
9.0%
17.1%
5.4%
4.2%
Year Ended September 30, 2009
Cash Interest
$
516
Amort. Debt
Discount
$
-
Amort.
Deferred Cost
& Other Fees
$
18
Total
Interest
Expense
$
534
148
672
3,010
216
1,563
1,459
580
(282)
-
-
4,038
-
-
-
-
-
-
25
530
-
407
191
-
-
148
697
7,578
216
1,970
1,650
580
(282)
$
7,882
$
4,038
$
1,171
$
13,091
Real estate mortgages
ESOP Loans
Capital lease - real estate
Convert. debt due 2023
Foreign line of credit
Asset based loan
Revolver due 2013
Other long term debt
Capitalized interest
Totals
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Minimum payments under debt agreements for the next five years are as follows: $25,164 in 2012,
$14,176 in 2013, $5,643 in 2014, $3,017 in 2015 and $13,684 in 2016.
(a) On March 17, 2011, in an unregistered offering through a private placement under Rule 144A,
Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest
on the Senior Notes is payable semi-annually. The Senior Notes can be redeemed prior to April
1, 2014 at a price of 100% of principal plus a make-whole premium and accrued interest; on or
after April 1, 2014, the Senior Notes can be redeemed at a certain price (declining from
105.344% of principal on or after April 1, 2014 to 100% of principal on or after April 1, 2017),
plus accrued interest. Proceeds from the Senior Notes were used to pay down the outstanding
borrowings under a senior secured term loan facility and two senior secured revolving credit
facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured
obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain
covenants, limitations and restrictions.
On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior
Notes registered under the Securities Act of 1933, via an exchange offer.
On March 18, 2011, Griffon entered into a five-year $200,000 Revolving Credit Facility (“Credit
Agreement”), which includes a letter of credit sub-facility with a limit of $50,000, a multi-
currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings
under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity
of the facility or the occurrence of a default or event of default under the Credit Agreement.
Interest is payable on borrowings at either a LIBOR or base rate benchmark rate plus an
applicable margin, which will decrease based on financial performance. The margins are 1.50%
for base rate loans and 2.50% for LIBOR loans, in each case without a floor. The Credit
Agreement has certain financial maintenance tests including a maximum total leverage ratio, a
maximum senior secured leverage ratio and a minimum interest coverage ratio as well as
customary affirmative and negative covenants and events of default. The Credit Agreement also
includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and
the making of restricted payments and investments. Borrowings under the Credit Agreement are
(cid:3)(cid:889)(cid:886)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
guaranteed by certain domestic subsidiaries and are secured, on a first priority basis, by
substantially all assets of the Company and the guarantors.
At September 30, 2011, there were $20,250 of standby letters of credit outstanding under the
Credit Agreement; $179,750 was available for borrowing at that date.
(b) On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes
due 2017 (the “2017 Notes”). The initial conversion rate of the 2017 Notes was 67.0799 shares
of Griffon’s common stock per $1,000 principal amount of notes, corresponding to an initial
conversion price of $14.91 per share, a 23% conversion premium over the $12.12 closing price on
December 15, 2009. Griffon used 8.75% as the nonconvertible debt-borrowing rate to discount
the 2017 Notes and will amortize the debt discount through January 2017. At issuance, the debt
component of the 2017 Notes was $75,437 and debt discount was $24,563. At September 30,
2011 and September 30, 2011, the 2017 Notes had a capital in excess of par component, net of
tax, of $15,720. (cid:3)
(c) On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new
loans totaling $11,834. The loans mature in February 2016, are collateralized by the related
properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3%
with the option to swap to a fixed rate.
Griffon has other real estate mortgages, collateralized by real property, that bear interest at rates
from 6.3% to 6.6% with maturities extending through 2016. Subsequent to year end, the
mortgage at Russia, Ohio was fully paid.
(d) Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August
2010 to borrow $20,000 over a one-year period, to be used to purchase Griffon common stock in
the open market. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at
Griffon’s option. In November 2011, Griffon converted the outstanding loan to a five-year term;
principal is payable in quarterly installments of $250, beginning December 2011, with the
remainder due at maturity (November 2016). The loan is secured by shares purchased with the
proceeds of the loan, and repayment is guaranteed by Griffon. At September 30, 2011, 1,874,737
shares have been purchased and the outstanding balance was $19,973.
In addition, the ESOP has a loan agreement, guaranteed by Griffon, which requires quarterly
principal payments of $156 and interest through the expiration date of September 2012 at which
time the $3,900 balance of the loan, and any outstanding interest, will be payable. The primary
purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008.
The loan is secured by shares purchased with the proceeds of the loan, and repayment is
guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At
September 30, 2011, $4,375 was outstanding.
(e) In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio.
Approximately $10,000 was used to acquire the building and the remaining amount was restricted
for improvements. The lease matures in 2021, bears interest at a fixed rate of 5.1%, is secured by
a mortgage on the real estate and is guaranteed by Griffon.
(f) At September 30, 2011 and September 30, 2010, Griffon had $532 of 4% convertible subordinated
notes due 2023 (the “2023 Notes”) outstanding. Holders of the 2023 Notes may require Griffon to
repurchase all or a portion of their 2023 Notes on July 18, 2013 and 2018, if Griffon’s common
stock price is below the conversion price of the 2023 Notes, as well as upon a change in control. At
(cid:3)(cid:889)(cid:887)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
September 30, 2011 and September 30, 2010, the 2023 Notes had no capital in excess of par value
component as substantially all of these notes were put to Griffon at par and settled in July 2010.
In January 2010, Griffon purchased $10,100 face value of the 2023 Notes for $10,200 which, after
proportionate reduction in related deferred financing costs, resulted in a net pre-tax gain from debt
extinguishment of $12. Capital in excess of par was reduced by $300 for the equity portion of the
extinguished 2023 Notes, and debt discount was reduced by $200.
In December 2009, Griffon purchased $19,200 face value of the 2023 Notes for $19,400. Including
a proportionate reduction in the related deferred financing costs, Griffon recorded an immaterial net
pre-tax loss on the extinguishment. Capital in excess of par value was reduced by $700 related to
the equity portion of the extinguished 2023 Notes and the debt discount was reduced by $500.
(g) In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving
credit facility and a €20,000 term loan. The facility accrues interest at Euribor plus 2.35% per
annum, and the term loan accrues interest at Euribor plus 2.45% per annum. The revolving facility
matures in November 2011, but is renewable upon mutual agreement with the bank. In July 2011,
the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay
borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly
installments which began in September 2011, with maturity in December 2013. Under the term
loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep
leverage below a certain level, defined as the ratio of total debt to EBITDA. There were no
borrowings outstanding under the revolving facility at September 30, 2011 and €10,000 was
available for borrowing.
Clopay do Brazil, a subsidiary of Plastics, maintains lines of credit of approximately $4,500.
Interest on borrowings accrue at a rate of LIBOR plus 3.8% or CDI plus 5.6%. $3,780 was
borrowed under the lines and $720 was available as of as of September 30, 2011.
(h) In connection with the ATT acquisition, Clopay Ames True Temper Holding Corp. (“Clopay
Ames”), a subsidiary of Griffon, entered into the $375,000 secured term Loan (“Term Loan”) and a
$125,000 asset based lending agreement (“ABL”). The acquisition, including all related transaction
costs, was funded by proceeds of the Term Loan, $25,000 drawn under the New ABL, and
$168,000 of Griffon cash. ATT’s previous outstanding debt was repaid in connection with the
acquisition. The ABL replaced an existing ABL from 2008 by CBP and Plastics.
On November 30, 2010, Clopay Ames, as required under the Term Loan agreement, entered into an
interest rate swap on a notional amount of $200,000 of the Term Loan. The agreement fixed the
LIBOR component of the Term Loan interest rate at 2.085% for the notional amount of the swap.
On March 17, 2011, the Term Loan and swap were terminated, and on March 18, 2011 the ABL
was terminated, in connection with the issuance of the Senior Notes and Credit Agreement.
(i) In March 2008, Telephonics entered into a credit agreement with JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide
a five-year, revolving credit facility of $100,000 (the “TCA”). The TCA terminated in connection
with the Credit Agreement.
(j) Primarily capital leases.
(cid:3)(cid:889)(cid:888)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
At September 30, 2011, Griffon and its subsidiaries were in compliance with the terms and covenants of
its credit and loan agreements.
During the second quarter, in connection with the termination of the Term Loan, ABL and Telephonics
credit agreement, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of
deferred financing charges and original issuer discounts, a call premium of $3,703 on the Term Loan, and
$844 of swap and other breakage costs.
As part of the acquisition of ATT, Griffon acquired interest rate swaps that had fair values totaling $3,845
at September 30, 2010. These swaps were terminated in October 2010 for $4,303, including accrued
interest of $458.
NOTE 11 – EMPLOYEE BENEFIT PLANS
Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee
contributions to the plans, Griffon makes contributions based upon various percentages of compensation
and/or employee contributions, which were $7,500 in 2011, $5,200 in 2010 and $5,800 in 2009.
The Company also provides healthcare and life insurance benefits for certain groups of retirees through
several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially
contributory by the retiree. The post-retirement benefit obligation was $2,177 and $2,005 as of
September 30, 2011 and 2010. The accumulated other comprehensive loss for these plans was $78 and
zero as of September 30, for 2011 and 2010, respectively and the 2011 and 2010 benefit expense was
$175 and $87, respectively. It is the Company’s practice to fund these benefits as incurred.
Griffon also has qualified and a non-qualified defined benefit plans covering certain employees with
benefits based on years of service and employee compensation. Over time, these amounts will be
recognized as part of net periodic pension costs in the Consolidated Statements of Operations.
Griffon is responsible for overseeing the management of the investments of the qualified defined benefit
plan and uses the service of an investment manager to manage these assets based on agreed upon risk
profiles set by Griffon management. The primary objective of the qualified defined benefit plan is to
secure participant retirement benefits. As such, the key objective in this plan’s financial management is
to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are
established in conjunction with a review of current and projected plan financial requirements. The fair
value of a majority of the plan assets were determined by the plans’ trustee using quoted market prices
identical instruments (level 1 inputs) as of September 30, 2011. The fair value of various other
investments were determined by the plan’s trustee using direct observable market corroborated inputs,
including quoted market prices for similar assets (level 2 inputs).
The U.S. components of the defined benefit plans, which excludes the supplemental and post retirement
healthcare and insurance benefit plans, are frozen and have stopped accruing benefits.
The Clopay qualified defined benefit plan has been frozen to new entrants since December 2000. Certain
employees who were part of the plan prior to December 2000 continued to accrue a service benefit
through December 2010, at which time all plan participants stopped accruing service benefits. A 10%
change in the discount rate, average wage increase or return on assets would not have a material effect on
the financial statements of Griffon.
The ATT qualified defined benefit plan has been frozen to all new entrants since November 2009 and
stopped accruing benefit in December 2009.
(cid:3)(cid:889)(cid:889)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
The ATT supplemental executive retirement plan was frozen to new entrants and participants in the plan
stopped accruing benefits in 2008.
Griffon uses judgment to estimate the assumptions used in determining the future liability of the plan, as
well as the investment returns on the assets invested for the plan. The expected return on assets
assumption used for pension expense was developed through analysis of historical market returns, current
market conditions and the past experience of plan asset investments. The discount rate assumption is
determined by developing a yield curve based on high quality bonds with maturities matching the plans’
expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting
year-by-year spot rates.
Net periodic costs were as follows:
Defined Benefits for the Years
Ended September 30,
2010
2009
2011
Supplemental Benefits for the
Years Ended September 30,
2009
2010
2011
Net periodic (benefit) costs
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Prior service costs
Actuarial loss
Transition obligation
$
377
9,552
(11,501)
$
529
1,645
(1,371)
$
425
1,638
(1,723)
$
34
1,759
-
$
29
1,984
-
$
22
2,586
-
8
1,144
-
9
1,064
-
9
325
(1)
1,141
328
-
328
986
-
328
596
-
Total net periodic (benefit) costs
$
(420)
$
1,876
$
673
$
3,262
$
3,327
$
3,532
The tax benefits in 2011, 2010 and 2009 for the amortization of pension costs in other comprehensive
income were $798, $835 and $440, respectively.
The estimated net actuarial loss and prior service cost that will be amortized from Accumulated other
comprehensive income into net periodic pension cost during 2011 are $2,551 and $177, respectively.
The weighted-average assumptions used in determining the net periodic benefit costs were as follows:
Defined Benefits for the Years
Ended September 30,
2010
2011
2009
Discount rate
Average wage increase
Expected return on assets
4.89%
0.72%
7.72%
5.60%
3.50%
7.00%
7.50%
3.50%
8.50%
(cid:3)(cid:889)(cid:890)
Supplemental Benefits for the
Years Ended September 30,
2009
2010
2011
4.26%
4.89%
-
5.00%
5.00%
-
7.50%
5.00%
-
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Plan assets and benefit obligation of the defined benefit plans were as follows:
Change in benefit obligation
Benefit obligation at beginning of fiscal year
Assumed in business combination
Benefits earned during the year
Interest cost
Plan participant contributions
Benefits paid
Effect of foreign currency
Actuarial loss
Benefit obligation at end of fiscal year
Change in Plan Assets
Fair value of plan assets at beginning of fiscal year
Assumed in business combination
Actual return on plan assets
Plan participant contributions
Company contributions
Effect of foreign currency
Benefits paid
Fair value of plan assets at end of fiscal year
Defined Benefits at
September 30,
2011
2010
Supplemental Benefits at
September 30,
2011
2010
$
200,208
-
378
9,552
25
(10,607)
13
13,091
212,660
$
29,803
166,689
529
1,644
-
(1,372)
-
2,915
200,208
133,733
-
636
25
13,889
2
(10,607)
137,678
19,877
109,490
2,176
-
3,562
-
(1,372)
133,733
$
43,220
-
34
1,758
-
(3,915)
-
188
41,285
-
-
-
-
3,915
-
(3,915)
-
$
41,632
876
29
1,984
-
(3,898)
-
2,597
43,220
-
-
-
-
3,898
-
(3,898)
-
Projected benefit obligation in excess of plan assets
$
(74,982)
$
(66,475)
$
(41,285)
$
(43,220)
Amounts recognized in the statement of
financial position consist of:
Accrued liabilities
Other liabilities (long-term)
Total Liabilites
Net actuarial losses
Prior service cost
Deferred taxes
Total Accumulated other comprehensive
loss, net of tax
Net amount recognized at September 30,
$
-
(74,982)
(74,982)
$
-
(66,475)
(66,475)
$
(3,918)
(37,367)
(41,285)
$
(3,932)
(39,288)
(43,220)
38,057
16
(13,326)
15,236
24
(5,341)
19,491
284
(6,921)
20,445
611
(7,370)
24,747
(50,235)
$
9,919
(56,556)
$
12,854
(28,431)
$
13,686
(29,534)
$
Accumulated benefit obligations
$
212,430
$
199,604
$
40,878
$
42,827
Information for plans with accumulated benefit
obligations in excess of plan assets:
ABO
PBO
Fair value of plan assets
$
212,430
212,660
137,678
$
199,604
200,208
133,733
$
40,878
41,285
-
$
42,827
43,220
-
(cid:3)(cid:889)(cid:891)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
The weighted-average assumptions used in determining the benefit obligations were as follows:
Weighted average discount rate
Weighted average wage increase
Defined Benefits at
September 30,
2011
2010
Supplemental Benefits at
September 30,
2011
2010
4.44%
0.11%
4.89%
0.73%
4.30%
4.89%
4.26%
4.90%
The actual and weighted-average assets allocation for qualified benefit plans were as follows:
Equity se curities
Fixe d income
Othe r
Total
At Se ptembe r 30,
2010
2011
55.0%
41.0%
4.0%
100.0%
64.0%
35.0%
1.0%
100.0%
Target
63.0%
37.0%
0.0%
100.0%
Estimated future benefit payments to retirees, which reflect expected future service, are as follows:
For the fiscal years ending September
2012
2013
2014
2015
2016
2017 through 2021
Define d
Benefits
Supplemental
Benefits
$
10,361
10,667
10,891
11,131
11,397
61,080
$
3,918
3,941
3,940
3,871
3,740
15,814
Griffon expects to contribute $8,601 to the Defined Benefit plans in 2012, in addition to the $3,918 in
payments related to the Supplemental Benefits that will primarily be funded from the general assets of
Griffon.
The majority of Griffon’s qualified pension plans are covered by the Pension Protection Act of 2006. The
weighted average Adjusted Funding Target Attainment Percent (“AFTAP”) for these plans as of January
1, 2011 was 80%, with all of the plans at or in excess of the 80% threshold; as such there were no plan
restrictions. The expected level of 2012 catch up contributions is $6,052.
The following is a description of the valuation methodologies used for plan assets measured at fair value:
Short-term investment funds – The fair value is determined using the Net Asset Value (“NAV”) provided
by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the
fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted
price in a market that is not active and is primarily classified as Level 2. These investments can be
liquidated on demand.
Government and agency securities – When quoted market prices are available in an active market, the
investments are classified as Level 1. When quoted market prices are not available in an active market,
the investments are classified as Level 2.
(cid:3)(cid:890)(cid:882)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Equity Securities – The fair values reflect the closing price reported on a major market where the
individual securities are traded. These investments are classified within Level 1 of the valuation
hierarchy.
Debt securities – The fair values are based on a compilation of primarily observable market information
or a broker quote in a non-active market. These investments are primarily classified within Level 2 of the
valuation hierarchy.
Commingled funds – The fair values are determined using NAV provided by the administrator of the
fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its
liabilities, and then divided by the number of shares outstanding. These investments are generally
classified within Level 2 of the valuation hierarchy and can be liquidated on demand.
The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset
category:
At September 30, 2011
Short-term investment funds
Government agency securities
Debt instruments
Equity securities
Commingled funds
Total
At September 30, 2010
Short-term investment funds
Government agency securities
Debt instruments
Equity securities
Commingled funds
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
-
$
382
-
68,313
-
68,695
$
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
-
$
2,030
-
60,807
-
62,837
$
Significant Other
Observable Inputs
(Level 2)
$
$
Significant Other
Observable Inputs
(Level 2)
$
667
2,741
14,876
3,841
46,858
68,983
190
2,780
15,255
4,023
48,648
70,896
$
Significant
Unobservable
Inputs
(Level 3)
-
$
-
-
-
-
$
-
Significant
Unobservable
Inputs
(Level 3)
-
$
-
-
-
-
$
-
Total
$
667
3,123
14,876
72,154
46,858
137,678
$
Total
$
190
4,810
15,255
64,830
48,648
133,733
$
Griffon has an ESOP that covers substantially all domestic employees. All employees of Griffon, who
are not members of a collective bargaining unit, automatically become eligible to participate in the plan
on the October 1st following completion of one year of service. Griffon’s securities are allocated to
participants’ individual accounts based on the proportion of each participant’s aggregate compensation
(not to exceed $245 for the plan year ended September 30, 2011), bears to the total of all participants’
compensation. Shares of the ESOP which have been allocated to employee accounts are charged to
expense based on the fair value of the shares transferred and are treated as outstanding in earnings per
share. Compensation expense under the ESOP was $841 in 2011, $1,011 in 2010 and $796 in 2009. The
cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of
Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2011 and 2010
(cid:3)(cid:890)(cid:883)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
based on the closing stock price of Griffon’s stock was $19,761 and $7,640, respectively. The ESOP
shares were as follows:
At Se ptember 30,
2010
2011
2,213,122
2,158,009
626,725
2,415,754
2,839,847
4,573,763
Allocated shares
Unallocated shares
NOTE 12 – INCOME TAXES
Income taxes have been based on the following components of Income before taxes and discontinued
operations:
For the Years Ended September 30,
2010
2009
2011
Domestic
Non-U.S.
$
$
(17,869)
3,520
(14,349)
$
$
7,360
6,452
13,812
$
$
10,260
9,345
19,605
Provision (benefit) for income taxes on income from continuing operations was comprised of the
following:
For the Years Ended September 30,
2010
2009
2011
Current
Deferred
Total
U.S. Federal
State and local
Non-U.S.
Total provision
$
$
(4,169)
(2,749)
(6,918)
$
$
7,974
(3,666)
4,308
$
$
4,831
(3,144)
1,687
$
$
$
(8,988)
91
1,979
(6,918)
5,426
(1,795)
677
4,308
$
$
$
984
1,543
(840)
1,687
Griffon’s income tax provision (benefit) included benefits of ($733) in 2011, ($2,740) in 2010 and
($1,387) in 2009 reflecting the reversal of previously recorded tax liabilities primarily due to the
resolution of various tax audits and due to the closing of certain statutes for prior years’ tax returns.
(cid:3)(cid:890)(cid:884)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Differences between the effective income tax rate applied to income from continuing operations and U.S.
Federal income statutory rate were as follows:
For the Years Ended September 30,
2010
2009
2011
U.S. Federal income tax rate
State and local taxes, net of Federal benefit
Non-U.S. taxes
Acquisition costs
Reduction of tax contingency reserves
Executive Compensation
Non-U.S. dividends
Valuation allowance
Meals and entertainment
Research credits
Other
Effective tax rate from continuing operations
35.0
1.9
(5.3)
-
(2.2)
(13.1)
-
27.2
(2.0)
5.4
1.3
48.2
%
%
35.0
2.6
(11.3)
9.5
(5.5)
-
-
-
1.4
-
(0.5)
31.2
%
%
35.0
4.8
(21.0)
-
(1.0)
-
4.3
(14.9)
1.0
-
0.4
8.6
%
%
(cid:3)(cid:890)(cid:885)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as
follows:
De fe rred tax assets:
Bad debt re serves
Inve ntory reserve s
Deferred compe nsation
Compe nsation bene fits
Insurance re serve
Restructuring rese rve
Warranty re serve
Intere st carryforward
Net operating loss
Tax credits
Other rese rve s and accruals
Valuation allowance
Total de fe rred tax assets
De fe rred tax liabilities:
Deferred income
Compe nsation bene fits
Goodwill and intangibles
Property, plant and e quipme nt
Intere st
Unremitted earnings
Other
Total de fe rred tax liabilitie s
Ne t deferred tax assets
At Septe mber 30,
2011
2010
$
2,436
10,042
44,083
-
4,697
342
3,617
3,942
33,451
15,451
5,572
123,633
(9,481)
114,152
$
1,834
4,716
48,826
2,237
3,894
619
3,185
-
18,888
14,755
4,899
103,853
(13,977)
89,876
(14,728)
(1,042)
(77,798)
(43,073)
(7,371)
(13,258)
(2,469)
(159,739)
(45,587)
$
(16,619)
-
(77,099)
(29,120)
(8,687)
(13,258)
(2,825)
(147,608)
(57,732)
$
The change in the valuation allowance relates to the benefit of foreign tax credits to offset the tax
provision on future remittance of foreign earnings, partially offset by an increase in the valuation
allowance for certain foreign tax attributes.
(cid:3)(cid:890)(cid:886)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
The components of the net deferred tax asset (liability), by balance sheet account, were as follows:
At Septe mber 30,
2011
2010
Prepaid and other curre nt assets
Other asse ts
Current liabilitie s
Other liabilities
Assets of discontinued operations
Net deferred tax assets
$
$
17,412
1,704
(402)
(65,042)
741
(45,587)
10,897
1
(4,719)
(65,155)
1,244
(57,732)
$
$
Other than for the ATT pre-acquisition unremitted foreign earnings, Griffon has not recorded deferred
income taxes on the undistributed earnings of its non-U.S. subsidiaries because of management’s ability
and intent to indefinitely reinvest such earnings outside the U.S. At September 30, 2011, Griffon’s share
of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $68,011. It is not
practicable to estimate the amount of deferred tax liability related to investments in these foreign
subsidiaries.
Deferred income taxes on the undistributed earnings of non-U.S. subsidiaries have been recorded in the
opening balance sheet for the ATT group of entities as these earnings were historically not indefinitely
reinvested outside of the U.S.
At September 30, 2011 and 2010, Griffon had net operating loss carryforwards for federal tax purposes of
$51,000 and $11,028, respectively, resulting from the acquisition of ATT and current year U.S. losses,
and had loss carryforwards for non-U.S. tax purposes of $54,500 and $36,438, respectively. The U.S. loss
carryforwards expire in 2027 and 2031, the non-U.S. loss carryforwards are available for carryforward
indefinitely.
Griffon had State and local loss carryforwards at September 30, 2011 and 2010 of $5,900 and $5,400,
respectively, which expire in varying amounts through 2031.
Griffon had foreign tax credit carryforwards of $13,291 and $11,188 at September 30, 2011 and 2010,
respectively, which are available for use through 2020.
Griffon files U.S. Federal, state and local tax returns, as well as Germany, Canada, Brazil, Ireland,
Australia, Mexico and Sweden non-U.S. jurisdiction tax returns. Griffon’s U.S. Federal income tax
returns are no longer subject to income tax examination for years before 2006, the German income tax
returns are no longer subject to income tax examination for years through 2007 and major U.S. state and
other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2000.
Various U.S. state and non-U.S. statutory tax audits are currently underway. Griffon believes that the
unrecognized tax benefits will be reduced by $1,741 for the release of reserves on the settlement of audits
for years 2006 and 2008 within the next twelve months.
(cid:3)
(cid:3)(cid:890)(cid:887)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
The following is a roll forward of the unrecognized tax benefits:
Balance at Octobe r 1, 2009
Additions base d on tax positions related to the current year
Assumed in business combination
Re ductions base d on tax positions related to prior years
Balance at Septe mbe r 30, 2010
Additions base d on tax positions related to the current year
Re ductions base d on tax positions related to prior years
Lapse of Statutes
Settlements
Balance at Septe mbe r 30, 2011
$
8,138
1,975
4,391
(2,740)
11,764
1,858
(614)
(60)
(38)
12,910
$
If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is
$9,639. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in
income tax expense. At September 30, 2011 and 2010, the combined amount of accrued interest and
penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the
reserves for uncertain tax positions was $2,586 and $2,134, respectively.
NOTE 13 – STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION
Griffon expenses the fair value of equity compensation grants over the related vesting period.
Compensation cost related to stock-based awards with graded vesting are amortized using the straight-line
attribution method.
In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan (“Incentive
Plan”) under which awards of performance shares, performance units, stock options, stock appreciation
rights, restricted shares, deferred shares and other stock-based awards may be granted. Options granted
under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally
expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the
fair market value at the date of grant. The maximum number of shares of common stock available for
award under the Incentive Plan is 3,000,000 (600,000 of which may issued as incentive stock options)
plus any shares underlying awards outstanding on the effective date of the Incentive Plan under the 2006
Incentive Plan that are subsequently cancelled or forfeited. As of September 30, 2011, 2,162,009 shares
were available for grant.
All grants outstanding under the Griffon Corporation 2001 Stock Option Plan, 2006 Equity Incentive Plan
and Outside Director Stock Award Plan will continue under their terms; no additional awards will be
granted under such plans.
(cid:3)(cid:890)(cid:888)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
A summary of stock option activity for the years ended September 30, 2011, 2010 and 2009 is as follows:
Outstanding at Octobe r 1, 2008
Granted
Exercised
Forfeited/expired
Outstanding at Se ptember 30, 2009
Exe rcisable at September 30, 2009
Outstanding at Octobe r 1, 2009
Granted
Exercised
Forfeited/expired
Outstanding at Se ptember 30, 2010
Exe rcisable at September 30, 2010
Outstanding at Octobe r 1, 2010
Granted
Exercised
Forfeited/expired
Outstanding at Se ptember 30, 2011
Shares
1,400,891
350,000
(33,000)
(27,552)
1,690,339
1,420,381
1,690,339
-
(54,075)
(92,043)
1,544,221
1,421,930
1,544,221
-
(333,125)
(41,435)
1,169,661
Exe rcisable at September 30, 2011 through:
September 30, 2012
September 30, 2013
September 30, 2014
September 30, 2015
September 30, 2016
September 30, 2017
September 30, 2018
September 30, 2019
Total Exe rcisable
200,500
172,526
123,000
214,035
91,600
18,000
-
350,000
1,169,661
Options
Weighted
Average
Exercise
Price
Aggregated
Intrinsic
Value
We ighted
Average
Contractual
Term
(Years)
$
13.87
20.00
6.12
20.55
15.18
14.21
15.18
6.33
16.46
15.42
15.04
15.42
7.74
18.34
17.50
$
109
980
980
337
1,667
1,667
1,848
-
4.6
3.9
3.9
3.5
3.7
$
17.50
$
-
3.7
(cid:3)(cid:890)(cid:889)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Options Outstanding
Options Exercisable
Range of
Exercises
Prices
$7.75 to $11.14
$12.39 to $17.23
$19.49 to $26.06
Totals
Shares
175,000
393,978
600,683
1,169,661
Weighted
Average
Exercise
Price
$
11.14
14.88
21.07
Aggregated
Intrinsic
Value
$
$
-
-
-
-
Weighted
Average
Contractual
Term
(Years)
0.1
2.6
5.5
Weighted
Average
Exercise
Price
$
11.14
14.88
21.07
Aggregated
Intrinsic
Value
-
$
-
-
$
-
Shares
175,000
393,978
600,683
1,169,661
Weighted
Average
Contractual
Term
(Years)
0.1
2.6
5.5
All stock options have been fully vested at September 30, 2011. The fair value of options vested during
the years ended September 30, 2011, 2010 and 2009 were $270, $585 and $631, respectively.
A summary of restricted stock activity for the years ended September 30, 2011, 2010 and 2009 is as
follows:
Outstanding at October 1, 2008
Granted
Fully Vested
Forfeited
Outstanding at September 30, 2009
Granted
Fully Vested
Forfeited
Outstanding at September 30, 2010
Granted
Fully Vested
Forfeited
Outstanding at September 30, 2011
Shares
475,540
1,215,232
(61,387)
(6,000)
1,623,385
713,637
(52,998)
(52,500)
2,231,524
1,415,700
(407,268)
(130,009)
3,109,947
Restricted Stock
Weighted
Average
Grant
Price
Aggregated
Intrinsic
Value*
Weighted
Average
Contractual
Term
(Years)
$
14.26
8.39
23.07
9.30
9.55
11.36
21.90
14.79
9.71
12.68
10.67
11.75
10.85
$
11
10,195
594
56
2,422
8,108
707
776
6,281
17,946
5,209
1,527
493
$
2.8
3.0
2.5
2.8
*Aggregated intrinsic value at the date the shares were outstanding, granted, vested or forfeited, as
applicable.
Unrecognized compensation expense related to non-vested shares of restricted stock was $22,000 at
September 30, 2011 and will be recognized over a weighted average vesting period of 3.5 years.
In connection with the ATT acquisition, Griffon entered into certain retention arrangements with the ATT
senior management team. Under these arrangements, on September 30, 2010, Griffon issued 239,145
shares of common stock to the ATT senior management team, and for each share of common stock
(cid:3)(cid:890)(cid:890)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
purchased, the ATT senior management team received one share of restricted stock that vests in full after
four years, subject to the attainment of a specified performance measure.
At September 30, 2011, a total of approximately 6,441,617 shares of Griffon’s authorized Common Stock
were reserved for issuance in connection with stock compensation plans.
Using historical data as of the grant dates, the fair value of the 2009 option grant was estimated as of the
grant dates using the Black-Scholes option pricing model with the following weighted average
assumptions:
Risk-free interest rate
Divide nd yield
Expected life (years)
Volatility
Option e xercise price
Fair value of options granted
2009
Grant
3.04%
0.00%
7.0
38.98%
20.00
2.06
$
$
For the years ended September 30, 2011, 2010 and 2009, stock based compensation expense totaled
$8,956, $5,778 and $4,145, respectively.
In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s
outstanding common stock; this is in addition to the 1,366,000 shares of common stock authorized for
repurchase under an existing buyback program. Under the repurchase programs, the Company may, from
time to time, purchase shares of its common stock, depending upon market conditions, in open market or
privately negotiated transactions, including pursuant to a 10b5-1 plan. During 2011, Griffon purchased
1,531,379 shares of common stock, for a total of $12,367, or $8.08 per share, exhausting the shares under
the original program; $48,690 remains under the $50,000 authorization.
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of Accumulated other comprehensive income were:
At September 30,
2010
2011
2009
Foreign currency translation adjustment
Minimum pension liability
Accumulative other comprehensive income (loss)
$
29,956
(37,680)
(7,724)
$
$
$
41,187
(23,605)
17,582
$
$
50,266
(22,096)
28,170
NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES
Operating leases
Griffon rents 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. Rent expense for all
operating leases totaled approximately $34,600, $25,100 and $24,700 in 2011, 2010 and 2009,
respectively. Aggregate future minimum lease payments for operating leases at September 30, 2011 are
$29,000 in 2012, $22,000 in 2013, $17,000 in 2014, $15,000 in 2015, $14,000 in 2016 and $14,000
thereafter.
(cid:3)(cid:890)(cid:891)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Legal and environmental
Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc.
Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a
location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties,
Inc. (“ISC”), a wholly-owned subsidiary of Griffon. ISC sold the Peekskill Site in November 1982.
Subsequently, Griffon was advised by the 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 then entered into a consent order with the DEC in 1996 (the “Consent
Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial
remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did conduct
accordingly over the next several years, supplemental remedial investigations, including soil vapor
investigations, under the Consent Order.
In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State
Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an
Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these
reports, ISC completed the remedial investigation required under the Consent Order and was authorized,
accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the
requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any
responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft
feasibility study which recommended for the soil, groundwater and sediment medias, remediation
alternatives having a current net capital cost value, in the aggregate, of approximately $5,000. In February
2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no
further obligations under the consent order.
Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that
sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the
feasibility study for remediation of the soil and groundwater medias, but selected a different remediation
alternative for the sediment medium. The approximate cost and the current net capital cost value of the
remedy proposed by DEC in the PRAP is approximately $10,000. After receiving public comments on
the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and
responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as
those set forth in the PRAP.
It is now expected that DEC will enter into negotiations with potentially responsible parties to request
they undertake performance of the remedies selected in the ROD, and if such parties do not agree to
implement such remedies, then the State may use State Superfund money to remediate the Peekskill site
and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform
any remediation at the Peekskill Site.
Improper Advertisement Claim involving Union Tools Products. During December 2004, a customer of
ATT was named in litigation that involved Union Tools products. The complaint asserted causes of action
against the defendant for improper advertisement to the end consumer. The allegation suggests that
advertisements led the consumer to believe that the hand tools sold were manufactured within boundaries
of the United States. The allegation asserts cause of action against the customer for common law fraud. In
the event that an adverse judgment is rendered against the customer, there is a possibility that the
customer would seek legal recourse against ATT for an unspecified amount in contributory damages.
Presently, ATT cannot estimate the amount of loss, if any, if the customer were to seek legal recourse
against ATT.
(cid:3)(cid:891)(cid:882)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Department of Environmental Conservation of New York State, regarding Frankfort, NY site. During
fiscal 2009, an underground fuel tank with surrounding soil contamination was discovered at the
Frankfort, N.Y. site which is the result of historical facility operations prior to ATT’s ownership. While
ATT was actively working with the DEC and the New York State Department of Health to define
remediation requirements relative to the underground fuel tank, the DEC took the position that ATT was
responsible to remediate other types of contamination on the site. After negotiations with the DEC, on
August 15, 2011, ATT executed an Order on Consent with the DEC. The Order is without admission or
finding of liability or acknowledgement that there has been a release of hazardous substances at the site.
Importantly, the Order does not waive any rights that ATT has under a 1991 Consent Judgment entered
into between the DEC and a predecessor of ATT relating to the site. The Order requires that ATT
identify Areas of Concern at the site, and formulate a strategy to investigate and remedy both on and off
site conditions in compliance with applicable environmental law. At the conclusion of the remedy phase
of the remediation to the satisfaction of the DEC, the DEC will issue a Certificate of Completion.
U.S. Government investigations and claims
Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit
and review by various agencies and instrumentalities of the United States government, including among
others, the Defense Contract Audit Agency (“DCAA”), the Defense Contract Investigative Service
(“DCIS”), and the Department of Justice which has responsibility for asserting claims on behalf of the
U.S. government. In addition to ongoing audits, pursuant to an administrative subpoena Griffon is
currently providing information to the U.S. Department of Defense Office of the Inspector General. No
claim has been asserted against Griffon, and Griffon is unaware of any material financial exposure in
connection with the Inspector General’s inquiry.
In general, departments and agencies of the U.S. Government have the authority to investigate various
transactions and operations of Griffon, and the results of such investigations may lead to administrative,
civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or
compensatory or treble damages. U.S. Government regulations provide that certain findings against a
contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of
export privileges for a company or an operating division or subdivision. Suspension or debarment could
have material adverse effect on Telephonics because of its reliance on government contracts.
General legal
Griffon is subject to various laws and regulations relating to the protection of the environment and is a
party to legal proceedings arising in the ordinary course of business. Management believes, based on facts
presently known to it, that the resolution of the matters above and such other matters will not have a
material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.(cid:3)
(cid:3)(cid:891)(cid:883)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
NOTE 16 – EARNINGS PER SHARE
Basic and diluted EPS from continuing operations for the years ended September 30, 2011, 2010 and
2009 were determined using the following information:
Years Ended September 30,
2010
2009
2011
Weighted average shares outstanding - basic
Incremental shares from stock based compensation
Weighted average shares outstanding - diluted
Anti-dilutive options excluded
from diluted EPS computation
Anti-dilutive restricted stock excluded
from diluted EPS computation
58,919
-
58,919
1,170
590
58,974
1,019
59,993
1,036
208
58,699
303
59,002
1,305
106
Griffon has the intent and ability to settle the principal amount of the 2017 Notes in cash, as such, the
potential issuance of shares related to the principal amount of the 2017 Notes does not affect diluted
shares.
NOTE 17 – RELATED PARTIES
An affiliate of GS Direct acted as placement agent for the sale of the 2017 notes in December 2009;
provided financial advice to Griffon in connection with the ATT acquisition; acted as co-lead arranger,
co-bookrunner and co-syndication agent in connection with the Term Loan; acted as dealer manager for
the tender of two prior issuances of ATT bonds; and acted as a co-manager with respect to the sale of the
7.125% senior notes due 2018 in March 2011. Fees and expenses paid in 2011 and 2010 were $825 and
approximately $14,149, respectively.
(cid:3)(cid:891)(cid:884)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
NOTE 18 — QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for the years ended September 30, 2011 and 2010 were as follows:
Quarter ended
Revenue Gross Profit Income (loss)
Per Share
- Basic
Per Share
- Diluted
Income (loss)
Per Share
- Basic
Per Share
- Diluted
Continuing Operations
Net Income (loss)
2011
December 31, 2010
March 31, 2011
June 30, 2011
September 30, 2011
2010
December 31, 2009
March 31, 2010
June 30, 2010
September 30, 2010
$
414,402
476,129
455,282
484,989
$
87,859
101,143
99,169
105,290
$
(1,680)
(14,001)
4,872
3,378
$
(0.03)
(0.24)
0.08
0.06
$
(0.03)
(0.24)
0.08
0.06
$
(1,680)
(14,001)
4,872
3,378
$
(0.03)
(0.24)
0.08
0.06
$
(0.03)
(0.24)
0.08
0.06
$
1,830,802
$
393,461
$
(7,431)
$
(0.13)
$
(0.13)
$
(7,431)
$
(0.13)
$
(0.13)
$
305,157
313,977
327,026
347,836
$
70,281
69,070
74,355
74,598
$
4,180
2,034
4,989
(1,699)
$
0.07
0.03
0.08
(0.03)
$
0.07
0.03
0.08
(0.03)
$
4,291
2,033
4,968
(1,700)
$
0.07
0.03
0.08
(0.03)
$
0.07
0.03
0.08
(0.03)
$
1,293,996
$
288,304
$
9,504
$
0.16
$
0.16
$
9,592
$
0.16
$
0.16
Notes to Quarterly Financial Information (unaudited):
(cid:120) Earnings (loss) per share are computed independently for each quarter and year presented; as such
the sum of the quarters may not be equal to the full year amounts.
(cid:120) 2011 Income (loss) from continuing operations and Net income (loss), and the related per share
earnings, included restructuring and other related charges of $905, $788, $1,377 and $1,833 for each
quarter, respectively, and $4,903 for the year; fair value of acquired inventory sold of $7,387 and
$2,462 for the first and second quarters, respectively, and $9,849 for the year; and loss from debt
extinguishment of $16,813 for the second quarter and for the year.
(cid:120) 2010 Income (loss) from continuing operations and Net income (loss), and the related per share
earnings, included restructuring and other related charges of $657, $793, $968 and $299 for each
quarter, respectively, and $2,717 for the year; (gain) loss from debt extinguishment of $12, $(8) and
$722 for the first, second and fourth quarters, respectively, and $1,117 for the year; and acquisition
costs of $7,704 for the fourth quarter and for the year.
(cid:3)(cid:891)(cid:885)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
NOTE 19 — BUSINESS SEGMENTS
Griffon’s reportable business segments are as follows:
(cid:120) Telephonics develops, designs and manufactures high-technology integrated information,
communication and sensor system solutions to military and commercial markets worldwide.
(cid:120) HBP is a leading manufacturer and marketer of residential, commercial and industrial garage
doors to professional installing dealers and major home center retail chains, as well as a
global provider of non-powered landscaping products that make work easier for homeowners
and professionals.
(cid:120) Plastics is an international leader in the development and production of embossed, laminated and
printed specialty plastic films used in a variety of hygienic, health-care and industrial
applications.
Griffon evaluates performance and allocates resources based on operating results before interest income
or expense, income taxes and certain nonrecurring items of income or expense.
(cid:3)(cid:891)(cid:886)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Information on Griffon’s business segments is as follows:
REVENUE
Home & Building Products:
ATT
CBP
Home & Building Products
Telephonics
Plastics
Total consolidated net sales
INCOME (LOSS) BEFORE TAXES AND
DISCONTINUED OPERATIONS
Segment operating profit (loss):
Home & Building Products
Telephonics
Plastics
Total segment operating profit
Unallocated amounts
Unallocted acquisition costs
Loss from debt extinguishment, net
Net interest expense
Income (loss) before taxes and discontinued operations
Segment profit before depreciation, amortization, restructuring,
fair value write-up of acquired inventory sold and acquisition
costs:
For the Years Ended September 30,
2010
2009
2011
$
434,789
404,947
839,736
455,353
535,713
1,830,802
$
-
$
389,366
389,366
434,516
470,114
1,293,996
$
$
-
393,414
393,414
387,881
412,755
1,194,050
$
2011
For the Years Ended September 30,
2010
$
$
2009
$
28,228
40,595
13,308
82,131
(22,868)
-
(26,164)
(47,448)
(14,349)
4,986
38,586
20,469
64,041
(27,394)
(9,805)
(1,117)
(11,913)
13,812
(11,326)
34,883
24,072
47,629
(20,960)
-
4,488
(11,552)
19,605
$
$
$
Home & Building Products
Telephonics
Plastics
$
77,119
50,875
37,639
$
19,351
46,120
42,853
$
3,137
41,540
46,002
Total Segment profit before depreciation, amortization,
restructuring, fair value write-up of acquired inventory sold and
acquisition costs
Unallocated amounts, less acquisition costs
Loss from debt extinguishment, net
Net interest expense
Segment depreciation and amortization
Restructuring charges
Fair value write-up of acquired inventory sold
Acquisition costs
Income (loss) before taxes and discontinued operations
165,633
(22,868)
(26,164)
(47,448)
(60,361)
(7,543)
(15,152)
(446)
(14,349)
$
108,324
(27,394)
(1,117)
(11,913)
(40,103)
(4,180)
-
(9,805)
13,812
$
90,679
(20,960)
4,488
(11,552)
(41,810)
(1,240)
-
-
19,605
$
Unallocated amounts typically include general corporate expenses not attributable to reportable segment.
(cid:3)(cid:891)(cid:887)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
For the Years Ended September 30,
2010
2009
2011
$
$
$
$
$
$
$
$
$
28,796
7,234
24,331
60,361
351
60,712
28,083
8,291
50,824
87,198
419
87,617
10,185
7,534
22,384
40,103
339
40,442
10,527
12,410
16,819
39,756
721
40,477
13,223
6,657
21,930
41,810
536
42,346
7,560
7,564
16,801
31,925
772
32,697
$
$
$
At September
30, 2011
At September
30, 2010
At September
30, 2009
$
$
$
972,714
288,968
450,452
1,712,134
148,064
1,860,198
5,056
1,865,254
923,331
268,373
397,470
1,589,174
157,645
1,746,819
6,882
1,753,701
169,251
271,809
364,626
805,686
330,752
1,136,438
7,453
1,143,891
$
$
$
DEPRECIATION and AMORTIZATION
Segment:
Home & Building Products:
Telephonics
Plastics
Total segment depreciation and amortization
Corporate
Total consolidated depreciation and amortization
CAPITAL EXPENDITURES
Segment:
Home & Building Products:
Telephonics
Plastics
Total segment
Corporate
Total consolidated capital expenditures
ASSETS
Segment assets:
Home & Building Products:
Telephonics
Plastics
Total segment assets
Corporate
Total continuing assets
Assets of discontinued operations
Consolidated total
(cid:3)(cid:891)(cid:888)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
Segment information by geographic region was as follows:
REVENUE BY GEOGRAPHIC AREA
United States
Europe
Canada
Brazil
All other countries
Consolidated revenue
$
$
$
For the Years Ended September 30,
2010
2009
$
$
$
2011
1,265,975
127,690
125,330
71,106
240,701
1,830,802
234,876
74,225
40,949
350,050
882,444
117,376
68,934
55,570
169,672
1,293,996
216,659
61,860
36,241
314,760
827,009
108,040
69,198
41,566
148,237
1,194,050
150,132
64,503
21,384
236,019
$
$
$
PROPERTY, PLANT & EQUIPMENT BY
GEOGRAPHIC AREA
At September
30, 2011
At September
30, 2010
At September
30, 2009
$
$
$
United States
Germany
All other countries
Consolidated property, plant and equipment
As a percentage of consolidated revenue, HBP sales to Home Depot were approximately 12% in 2011;
Plastics sales to P&G were approximately 14% in 2011, 18% in 2010 and 19% in 2009; and Telephonics’
sales to the United States Government and its agencies, either as a prime contractor or subcontractor,
aggregated approximately 19% in 2011, 24% in 2010 and 23% in 2009.
NOTE 20 – OTHER INCOME (EXPENSE)
Other income (expense) included $626, $249 and $(392) for the years ended September 30, 2011, 2010
and 2009, respectively, of currency exchange gains (losses) in connection with the translation of
receivables and payables denominated in currencies other than the functional currencies of Griffon and its
subsidiaries.
NOTE 21 – CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured
basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products
Company, Inc., Telephonics Corporation and Ames True Temper Inc. In accordance with Rule 3-10 of
Regulation S-X promulgated under the Securities Act of 1933, presented below is condensed
consolidating financial information as of September 30, 2011 and 2010, and for the years ending
September 30, 2011, 2010 and 2009. The financial information may not necessarily be indicative of
results of operations or financial position had the guarantor companies or non-guarantor companies
operated as independent entities. The guarantor companies and the non-guarantor companies include the
consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.
(cid:3)(cid:891)(cid:889)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2011
($ in thousands)
CURRENT ASSETS
Cash and equivalents
Accounts receivable, net of allowances
Contract costs and recognized income not yet billed,
net of progress payments
Inventories, net
Prepaid and other current assets
Assets of discontinued operations
Total Current Assets
PROPERTY, PLANT AND EQUIPMENT, net
GOODWILL
INTANGIBLE ASSETS, net
INTERCOMPANY RECEIVABLE
EQUITY INVESTMENTS IN SUBSIDIARIES
OTHER ASSETS
ASSETS OF DISCONTINUED OPERATIONS
Total Assets
CURRENT LIABILITIES
Notes payable and current portion of long-term debt
Accounts payable and accrued liabilities
Liabilities of discontinued operations
Total Current Liabilities
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies
Elimination Consolidation
$
178,448
-
$
15,164
191,541
$
49,417
76,485
-
$
-
$
243,029
268,026
-
-
1,839
-
180,287
73,755
194,355
40,436
-
515,251
982
69,454
1,913
1,381
199,632
-
-
4,640
-
4,640
74,737
263,809
48,828
1,381
899,810
1,402
-
-
449,112
2,844,527
54,354
-
3,529,682
$
224,193
282,936
155,242
278,344
746,686
49,771
-
2,252,423
$
124,455
74,397
67,947
98,953
2,397,258
14,270
3,675
2,980,587
$
-
-
-
(826,409)
(5,988,471)
(87,198)
-
(6,897,438)
$
350,050
357,333
223,189
-
-
31,197
3,675
1,865,254
$
$
5,375
36,765
-
42,140
$
4,350
199,742
-
204,092
$
15,439
44,774
3,794
64,007
-
$
4,640
-
4,640
$
25,164
285,921
3,794
314,879
LONG-TERM DEBT, net of debt discounts
INTERCOMPANY Payables
OTHER LIABILITIES
LIABILITIES OF DISCONTINUED OPERATIONS
Total Liabilities
649,812
-
79,655
-
771,607
10,794
89,198
172,203
-
476,287
27,641
737,211
39,774
5,786
874,419
-
(826,409)
(87,198)
-
(908,967)
688,247
-
204,434
5,786
1,213,346
SHAREHOLDERS' EQUITY
Total Liabilities and Shareholders' Equity
2,758,075
3,529,682
$
1,776,136
2,252,423
$
2,106,168
2,980,587
$
(5,988,471)
(6,897,438)
$
651,908
1,865,254
$
(cid:3)(cid:891)(cid:890)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2010
($ in thousands)
CURRENT ASSETS
Cash and equivalents
Accounts receivable, net of allowances
Contract costs and recognized income not yet billed,
net of progress payments
Inventories, net
Prepaid and other current assets
Assets of discontinued operations
Total Current Assets
PROPERTY, PLANT AND EQUIPMENT, net
GOODWILL
INTANGIBLE ASSETS, net
INTERCOMPANY RECEIVABLE
EQUITY INVESTMENTS IN SUBSIDIARIES
OTHER ASSETS
ASSETS OF DISCONTINUED OPERATIONS
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies Elimination Consolidation
$
74,600
-
$
57,113
182,372
$
38,089
70,480
-
$
-
$
169,802
252,852
-
-
5,963
-
80,563
1,267
-
-
-
3,269,975
40,586
-
62,681
211,920
39,843
-
553,929
204,919
282,937
91,507
271,143
1,091,359
44,188
-
474
56,881
10,291
1,079
177,294
-
-
(315)
-
(315)
63,155
268,801
55,782
1,079
811,471
108,574
77,812
141,504
218,488
2,546,639
11,784
5,803
3,287,898
$
-
-
-
(489,631)
(6,907,973)
(68,651)
-
$
(7,466,570)
314,760
360,749
233,011
-
-
27,907
5,803
1,753,701
$
Total Assets
$
3,392,391
$
2,539,982
CURRENT LIABILITIES
Notes payable and current portion of long-term debt
Accounts payable and accrued liabilities
Liabilities of discontinued operations
Total Current Liabilities
$
625
24,247
-
24,872
$
1,135
229,388
-
230,523
$
19,141
61,851
4,289
85,281
-
$
(315)
-
(315)
$
20,901
315,171
4,289
340,361
LONG-TERM DEBT, net of debt discounts
INTERCOMPANY PAYABLES
OTHER LIABILITIES
LIABILITIES OF DISCONTINUED OPERATIONS
Total Liabilities
82,382
-
76,821
-
184,075
44,902
238,392
113,394
-
627,211
376,651
251,239
68,680
8,446
790,297
-
(489,631)
(68,651)
-
(558,597)
503,935
-
190,244
8,446
1,042,986
SHAREHOLDERS' EQUITY
Total Liabilities and Shareholders' Equity
3,208,316
3,392,391
$
1,912,771
2,539,982
$
2,497,601
3,287,898
$
(6,907,973)
(7,466,570)
$
710,715
1,753,701
$
(cid:3)(cid:891)(cid:891)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Ye ar Ended Se ptembe r 30, 2011
($ in thousands)
Revenue
Cost of goods and services
Gross profit
Selling, general and administrative expenses
Restructuring and other related charges
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income (expense), net
Loss from debt extinguishment, net
Other, net
Total other income (expense)
Pare nt
Company
Guarantor
Companie s
Non-
Guarantor
Companie s
Elimination Consolidation
-
$
-
-
$
1,379,535
1,055,520
324,015
$
489,342
421,261
68,081
$
(38,075)
(39,440)
1,365
$
1,830,802
1,437,341
393,461
16,292
364
16,656
256,880
7,018
263,898
(16,656)
60,117
(12,607)
-
(648)
(13,255)
(26,414)
(397)
6,882
(19,929)
57,538
161
57,699
10,382
(8,427)
(25,767)
(1,338)
(35,532)
(341)
-
(341)
330,369
7,543
337,912
1,706
55,549
-
-
(1,182)
(1,182)
(47,448)
(26,164)
3,714
(69,898)
Income (loss) before taxes and discontinued operations
Provision (benefit) for income taxes
Income (loss) before equity in net income of subsidiaries
Equity in net income (loss) of subsidiaries
Income (loss) from operations
Income from discontinued operations
Net income (loss)
(29,911)
(14,943)
(14,968)
7,013
(7,955)
-
(7,955)
$
40,188
17,977
22,211
1,139
23,350
-
23,350
$
(25,150)
(9,952)
(15,198)
22,211
7,013
-
7,013
$
524
-
524
(30,363)
(29,839)
-
(29,839)
$
(14,349)
(6,918)
(7,431)
-
(7,431)
-
(7,431)
$
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2010
($ in thousands)
Revenue
Cost of goods and services
Gross profit
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies Elimination Consolidation
-
$
-
-
$
983,665
740,622
243,043
$
323,867
279,632
44,235
$
(13,536)
(14,562)
1,026
$
1,293,996
1,005,692
288,304
Selling, general and administrative expenses
Restructuring and other related charges
Total operating expenses
26,491
-
26,491
190,308
4,180
194,488
44,860
-
44,860
(256)
-
(256)
261,403
4,180
265,583
Income (loss) from operations
(26,491)
48,555
(625)
1,282
22,721
Other income (expense)
Interest income (expense), net
Loss from debt extinguishment, net
Other intercompany
Other, net
Total other income (expense)
(8,607)
(6)
-
999
(7,614)
6,010
(1,111)
(5,217)
6,917
6,599
(9,316)
-
5,217
(2,513)
(6,612)
-
-
-
(1,282)
(1,282)
(11,913)
(1,117)
-
4,121
(8,909)
Income (loss) before taxes and discontinued operations
Provision (benefit) for income taxes
Income (loss) before equity in net income of subsidiaries
Equity in net income (loss) of subsidiaries
Income (loss) from operations
Income from discontinued operations
Net income (loss)
(34,105)
(14,853)
(19,252)
28,844
9,592
-
9,592
$
55,154
18,017
37,137
1,115
38,252
-
38,252
$
(7,237)
1,144
(8,381)
37,137
28,756
88
28,844
$
-
-
-
(67,096)
(67,096)
-
(67,096)
$
13,812
4,308
9,504
-
9,504
88
9,592
$
(cid:3)(cid:883)(cid:882)(cid:882)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2009
($ in thousands)
Revenue
Cost of goods and services
Gross profit
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies
Elimination Consolidation
-
$
-
-
$
919,072
706,051
213,021
$
283,945
240,869
43,076
$
(8,967)
(9,993)
1,026
$
1,194,050
936,927
257,123
Selling, general and administrative expenses
Restructuring and other related charges
Total operating expenses
20,643
-
20,643
179,759
1,240
180,999
30,590
-
30,590
(256)
-
(256)
230,736
1,240
231,976
Income (loss) from operations
(20,643)
32,022
12,486
1,282
25,147
Other income (expense)
Interest income (expense), net
Gain from debt extinguishment, net
Other intercompany
Other, net
Total other income (expense)
(5,996)
4,488
-
68
(1,440)
(1,356)
-
5,570
6,079
10,293
(4,200)
-
(5,570)
(3,343)
(13,113)
-
-
-
(1,282)
(1,282)
(11,552)
4,488
-
1,522
(5,542)
Income (loss) before taxes and discontinued operations
Provision (benefit) for income taxes
Income (loss) before equity in net income of subsidiaries
Equity in net income (loss) of subsidiaries
Income (loss) from operations
Income from discontinued operations
Net income (loss)
(22,083)
(8,974)
(13,109)
31,817
18,708
-
18,708
$
42,315
11,135
31,180
(412)
30,768
-
30,768
$
(627)
(474)
(153)
31,180
31,027
790
31,817
$
-
-
-
(62,585)
(62,585)
-
(62,585)
$
19,605
1,687
17,918
-
17,918
790
18,708
$
(cid:3)(cid:883)(cid:882)(cid:883)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2011
($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Parent
Company
Guarantor
Companies
Non-
Guarantor
Companies
Elimination Consolidation
$
(7,955)
$
23,350
$
7,013
$
(29,839)
$
(7,431)
Net cash provided by (used in) operating activities
43,407
38,657
(46,679)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
Acquired business, net of cash acquired
Intercompany distributions
Funds restricted for capital projects
Proceeds from sale of investment
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury
Proceeds from issuance of long-term debt
Payments of long-term debt
Change in short-term borrowings
Intercompany debt
Financing costs
Purchase of ESOP shares
Exercise of stock options
Tax benefit from vesting of restricted stock
Other, net
Net cash provided by (used in) financing activities
Net cash used in discontinued operations
Effect of exchange rate changes on cash and equivalents
(418)
-
10,000
-
-
9,582
(18,139)
569,973
(625)
-
(468,372)
(14,663)
(19,973)
2,306
7
345
50,859
-
-
(55,455)
(1,066)
(10,000)
4,629
68
(61,824)
-
-
(31,138)
-
-
-
-
-
-
12,356
(18,782)
-
-
(31,744)
211
-
-
1,442
(30,091)
-
104,278
(466,809)
3,538
468,372
(6,990)
-
-
-
(12,356)
90,033
(962)
(973)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,385
(87,617)
(855)
-
4,629
1,510
(82,333)
(18,139)
674,251
(498,572)
3,538
-
(21,653)
(19,973)
2,306
7
345
122,110
(962)
(973)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND EQUIVALENTS AT END OF PERIOD
103,848
74,600
178,448
$
(41,949)
57,113
15,164
$
11,328
38,089
49,417
$
-
-
$
-
73,227
169,802
243,029
$
(cid:3)(cid:883)(cid:882)(cid:884)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Ye ar Ende d Septe mber 30, 2010
($ in thousands)
Pare nt
Company
Guarantor
Companie s
Non-
Guarantor
Companie s Elimination Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
9,592
$
38,252
$
28,844
$
(67,096)
$
9,592
Net cash provided by (used in) operating activities
(10,163)
87,620
5,668
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
Acquired business, net of cash acquired
Intercompany distributions
Change in decrease in equipment lease deposits
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
Proceeds from issuance of long-term debt
Payments of long-term debt
Financing costs
Exercise of stock options
Tax benefit from vesting of restricted stock
Other, net
Net cash provided by (used in) financing activities
Net cash used in discontinued operations
Effect of exchange rate changes on cash and equivalents
(720)
(167,950)
10,000
-
(158,670)
2,823
100,000
(79,473)
(4,278)
343
325
182
19,922
-
-
(28,713)
-
(10,000)
(1,666)
(40,379)
-
40,000
(85,086)
-
-
-
17,093
(27,993)
-
-
(11,044)
(374,050)
-
-
(385,094)
-
403,875
(12,243)
(13,177)
-
-
(17,091)
361,364
(638)
(2,668)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
83,125
(40,477)
(542,000)
-
(1,666)
(584,143)
2,823
543,875
(176,802)
(17,455)
343
325
184
353,293
(638)
(2,668)
NET INCREASE (DECREASE) IN CASH AND EQUIVAL
CASH AND EQUIVALENTS AT BEGINNING OF YEAR
CASH AND EQUIVALENTS AT END OF YEAR
(148,911)
223,511
74,600
$
19,248
37,865
57,113
$
(21,368)
59,457
38,089
$
-
-
$
-
(151,031)
320,833
169,802
$
(cid:3)(cid:883)(cid:882)(cid:885)
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands, except per share data)
(cid:3)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended Septembe r 30, 2009
($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
Parent
Company
Guarantor
Companie s
Non-
Guarantor
Companies
Elimination Consolidation
$
18,708
$
30,768
$
31,817
$
(62,585)
$
18,708
Net cash provided by operating activities
3,556
69,939
10,605
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
Intercompany distributions
Proceeds from sale of assets
Change in equipment lease deposits
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
Proceeds from issuance of long-term debt
Payments of long-term debt
Change in short-term borrowings
Financing costs
Purchase of ESOP shares
Tax benefit from vesting of restricted stock
Other, net
Net cash provided by (used in) financing activities
Net cash used in discontinued operations
Effect of exchange rate changes on cash and equivalents
(372)
10,000
-
-
9,628
7,257
4,370
(43,885)
-
(541)
(4,370)
217
(275)
(37,227)
-
-
(23,888)
(10,000)
-
(336)
(34,224)
-
6,523
(11,563)
-
-
-
-
(34,339)
(39,379)
-
-
(8,437)
-
200
-
(8,237)
-
538
(1,228)
(866)
(56)
-
-
35,016
33,404
(1,305)
2,152
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
84,100
(32,697)
-
200
(336)
(32,833)
7,257
11,431
(56,676)
(866)
(597)
(4,370)
217
402
(43,202)
(1,305)
2,152
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS AT BEGINNING OF YEAR
CASH AND EQUIVALENTS AT END OF YEAR
(24,043)
247,554
223,511
$
(3,664)
41,529
37,865
$
36,619
22,838
59,457
$
-
-
$
-
8,912
311,921
320,833
$
NOTE 22 – SUBSEQUENT EVENT
On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing
Group, Inc. for approximately $23,000. The acquired business, which markets its products under the
Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of
landscape accessories. Southern Patio, which will be integrated with ATT, had revenue exceeding
$40,000 in 2011.
Griffon is in the process of collecting the information to complete the initial purchase accounting for the
Southern Patio acquisition.
On November 17, 2011, Griffon declared a $0.02 per share dividend payable on December 27, 2011 to
shareholders of record as of November 29, 2011. Griffon currently intends to pay dividends each quarter;
however, the payment of dividends is determined by the Board of Directors at its discretion based on
various factors, and no assurance can be provided as to future dividends.
*****
(cid:3)(cid:883)(cid:882)(cid:886)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Controls and Procedures
Evaluation and Disclosure Controls and Procedures
Griffon’s management, with the participation of its Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of Griffon’s disclosure controls
and procedures, as defined by Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by
this report, Griffon’s disclosure controls and procedures were effective to ensure that information required
to be disclosed by Griffon in the reports that it files or submits under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified by the SEC’s rules and forms and
such information is accumulated and communicated to management as appropriate to allow timely
decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Griffon’s management is responsible for establishing and maintaining adequate internal control over
financial reporting. Griffon’s internal control over financial reporting is a process designed under the
supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Griffon’s financial statements for
external reporting in accordance with accounting principles generally accepted in the United States of
America. Management evaluates the effectiveness of Griffon’s internal control over financial reporting
using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control—Integrated Framework. Management, under the supervision and with the
participation of Griffon’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness
of Griffon’s internal control over financial reporting as of September 30, 2011 and concluded that it is
effective.
Griffon’s independent registered public accounting firm, Grant Thornton LLP, has audited the
effectiveness of Griffon’s internal control over financial reporting as of September 30, 2011, and has
expressed an unqualified opinion in their report which appears in this Annual Report on Form 10-K.
Changes in Internal Controls
There were no changes in Griffon’s internal control over financial reporting identified in connection with
the evaluation referred to above that occurred during the fourth quarter of the year ended September 30,
2011 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal
control over financial reporting.
105
Inherent Limitations on the Effectiveness Controls
Griffon’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Griffon’s internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of Griffon’s assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that Griffon’s receipts and expenditures are being made only in
accordance with authorizations of Griffon’s management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Griffon’s assets that could have a material effect on
the financial statements.
Management, including Griffon’s Chief Executive Officer and Chief Financial Officer, does not expect
that Griffon’s internal controls will prevent or detect all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of internal controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of
the effectiveness of controls in future periods is subject to the risk that those internal controls may
become inadequate because of changes in business conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Item 9B. Other Information
None
PART III
The information required by Part III: Item 10, Directors, and Executive Officers and Corporate
Governance; Item 11, Executive Compensation; Item 13, Certain Relationships and Related
Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is
included in and incorporated by reference to Griffon’s definitive proxy statement in connection with its
Annual Meeting of Stockholders scheduled to be held in February, 2012, to be filed with the Securities
and Exchange Commission within 120 days following the end of Griffon’s year ended September 30,
2011. Information relating to the executive officers of the Registrant appears under Item 1 of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information regarding security ownership of certain beneficial owners and management that is
required to be included pursuant to this Item 12 is included in and incorporated by reference to Griffon’s
definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in
January, 2012.
106
The following sets forth information relating to Griffon’s equity compensation plans as of September 30,
2011:
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(b)
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Plan Category
Equity compensation plans approved by security holders (1)
942,035
$
17.63
2,162,009
Equity compensation plans not approved by security holders (2)
227,626
16.96
-
(cid:3)
(1) Excludes restricted shares issued in connection with Griffon’s equity compensation plans. The total
reflected in Column (c) includes shares available for grant as any equity award under the Incentive
Plan.
(2) Griffon’s 1998 Employee and Director Stock Option Plan is the only option plan which was not
approved by Griffon’s stockholders. The Employee and Director Stock Option Plan expired in
February 2008.
Item 15. Exhibits and Financial Statement Schedules
(cid:3)
PART IV
(a) (1) Financial Statements – Covered by Report of Independent Registered Public Accounting Firm
(A) Consolidated Balance Sheets at September 30, 2011 and 2010
(B) Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2011, 2010 and
2009
(C) Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2011, 2010 and
2009
(D) Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Fiscal Years
Ended September 30, 2011, 2010 and 2009
(E) Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules – Covered by Report of Independent Registered Public
Accounting Firm
Schedule II – Valuation and Qualifying Accounts
All other schedules are not required and have been omitted.
(3) Exhibits – see (b) below
107
(b) Exhibits:
Exhibit
No.
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Stock Purchase Agreement, dated July 19, 2010, among CHATT Holdings LLC, CHATT
Holdings Inc., Clopay Acquisition Corp. and, solely for the purposes of Section 7.09, Griffon
Corporation (Exhibit 2.1 to Current Report on Form 8-K filed July 23, 2010 (Commission File
No. 1-06620)).
Restated Certificate of Incorporation (Exhibit 3.1 of Annual Report on Form 10-K for the year
ended September 30, 1995 (Commission File No. 1-06620)) and Exhibit 3.1 of Quarterly Report
on Form 10-Q for the quarter ended March 31, 2008
Amended By-laws (Exhibit 3 of Current Report on Form 8-K filed May 14, 2008 (Commission
File No. 1-06620))
Specimen Certificate for Shares of Common Stock of Registrant (Exhibit 4.3 of Registration
Statement on Form S-3 filed September 26, 2003 (Commission File No. 333-109171)
Indenture, dated as of June 22, 2004, between the Registrant and American Stock Transfer and
Trust Company, including the form of note. (Exhibit 4.3 to Annual Report on Form 10-K for the
year ended September 30, 2004 (Commission File No. 1-06620))
Irrevocable Election Letter related to Indenture dated as of June 22, 2004 between the Registrant
and American Stock Transfer and Trust Company (Exhibit 4.4 to Annual Report on Form 10-K
for the year ended September 30, 2004 (Commission File No. 1-06620))
Indenture, dated December 21, 2009, between Griffon Corporation and American Stock Transfer
& Trust Company, LLC (Exhibit 4.1 to Current Report on Form 8-K filed December 21, 2009
(Commission File No. 1-06620)).
Indenture, dated as of March 17, 2011, by and among Griffon Corporation, the guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee (Exhibit 4.1 to the Current
Report on Form 8-K filed March 18, 2011 (Commission File No. 1-06620)).
Registration Rights Agreement, dated March 17, 2011, by and among, Griffon Corporation, the
guarantors party thereto and Deutsche Bank Securities Inc., as the representative of the several
initial purchasers (Exhibit 4.2 to the Current Report on Form 8-K filed March 18, 2011
(Commission File No. 1-06620)).
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 filed May 18, 2001 (Commission File
No. 1-06620))
Employment Agreement dated as of July 1, 2001 between the Registrant and Robert Balemian
(Exhibit 10.2 of Current Report on Form 8-K file May 18, 2001 (Commission File No.
1-06620))
Form of Trust Agreement between the Registrant and Wachovia Bank, National Association, as
Trustee, dated October 2, 2006, relating to Griffon’s Employee Stock Ownership Plan (Exhibit
10.3 to Annual Report on Form 10-K for the year ended September 30, 2006 (Commission File
No. 1-06620))
1992 Non-Qualified Stock Option Plan (Exhibit 10.10 of Annual Report on Form 10-K for the
year ended September 30, 1993 (Commission File No. 1-06620))
Non-Qualified Stock Option Plan (Exhibit 10.12 of Annual Report on Form 10-K for the year
ended September 30, 1998 (Commission File No. 1-06620))
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 (Commission File No. 1-06620))
Outside Director Stock Award Plan (Exhibit 4 of Form S-8 Registration Statement No.
33-52319)
108
Exhibit
No.
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
1997 Stock Option Plan (Exhibit 4.2 of Form S-8 Registration Statement No. 333-21503)
2001 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-67760)
Senior Management Incentive Compensation Plan (Exhibit 4.2 of Form S-8 Registration
Statement No. 333-62319)
1998 Employee and Director Stock Option Plan, as amended (Exhibit 4.1 of Form S-8
Registration Statement No. 333-102742)
1998 Stock Option Plan (Exhibit 4.1 of Form S-8 Registration Statement No. 333-62319)
Amendment to Employment Agreement between the Registrant and Harvey R. Blau dated
August 8, 2003 (Exhibit 10.1 of Quarterly Report on Form 10-Q for the quarter ended June 30,
2003 (Commission File No. 1-06620))
Non-Qualified Stock Option Agreement (Exhibit 4.1 of Form S-8 Registration Statement No.
333-131737)
Griffon Corporation 2006 Equity Incentive Plan, as amended (Exhibit 10.1 of Quarterly Report
on Form 10-Q for the period ended December 31, 2008 (Commission File No. 1-06620))
Amendment No. 2 to Employment Agreement, dated July 18, 2006 between the Registrant and
Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K filed July 21, 2006 (Commission
File No. 1-06620))
Severance agreement, dated July 18, 2006 between the Registrant and Patrick Alesia (Exhibit
10.2 to Current Report on Form 8-K filed July 21, 2006 (Commission File No. 1-06620))
Supplemental Executive Retirement Plan as amended through July 18, 2006 (Exhibit 10.3 to
Current Report on Form 8-K filed July 21, 2006 (Commission File No. 1-06620))(cid:3)
Griffon Corporation 2006 Performance Bonus Plan (Exhibit 10.2 to Current Report on Form
8-K filed February 17, 2006 (Commission File No. 1-06620))
Form of Restricted Stock Award Agreement under the Griffon Corporation 2006 Equity
Incentive Plan (Exhibit 10.3 to Current Report on Form 8-K/A filed July 31, 2006 (Commission
File No. 1-06620))
Amendment No. 3 to Employment Agreement, dated August 3, 2007, between the Registrant
and Harvey R. Blau (Exhibit 10.1 to Current Report on Form 8-K filed August 6, 2007
(Commission File No. 1-06620))
Amendment No. 1 to the Severance Agreement, dated August 3, 2007, between the Registrant
and Patrick L. Alesia (Exhibit 10.2 to Current Report on Form 8-K filed August 6, 2007
(Commission File No. 1-06620))
Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan dated
August 3, 2007 (Exhibit 10.3 to the Current Report on Form 8-K filed August 6, 2007
(Commission File No. 1-06620))
Investment Agreement, dated August 7, 2008, between Griffon Corporation and GS Direct,
L.L.C. (Exhibit 10.1 to the Current Report on Form 8-K filed August 13, 2008 (Commission
File No. 1-06620))
Credit Agreement, dated as of March 31, 2008, among Telephonics Corporation, Gritel Holding
Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent
(Exhibit 10.1 to the Current Report on Form 8-K filed April 4, 2008 (Commission File No.
1-06620))
109
Exhibit
No.
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Guarantee and Collateral Agreement, dated as of March 31, 2008, made by Gritel Holding Co.,
Inc. and Telephonics Corporation in favor of JPMorgan Chase Bank, N.A. (Exhibit 10.2 to the
Current Report on Form 8-K filed April 4, 2008 (Commission File No. 1-06620)).
Employment Agreement, dated March 16, 2008, between the Registrant and Ronald J. Kramer.
(Exhibit 10.1 to the Current Report on Form 8-K filed March 20, 2008 (Commission File No.
1-06620))
Employment Agreement dated August 6, 2009, between the Registrant and Douglas J. Wetmore
(Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009
(Commission File No. 1-06620))
Purchase Agreement, dated December 16, 2009, between Griffon Corporation and Goldman,
Sachs & Co., as representative for the purchasers named therein (Exhibit 10.1 to Current Report
on Form 8-K filed December 21, 2009 (Commission File No. 1-06620)).
Offer Letter Agreement, dated April 27, 2010 between the Company and Seth L. Kaplan
(Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2010
(Commission File No. 1-06620)).
Severance Agreement, dated April 27, 2010 between the Company and Seth L. Kaplan (Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (Commission File
No. 1-06620)).
Credit and Guarantee Agreement, dated as of September 30, 2010, by and among Clopay Ames
True Temper Holding Corp., Clopay Ames True Temper LLC, certain subsidiaries of Clopay
Ames True Temper Holding Corp. party thereto, the Lenders party thereto, Goldman Sachs
Lending Partners LLC, as Administrative Agent, Collateral Agent, Lead Arranger, Lead
Bookrunner and Syndication Agent and Deutsche Bank Securities Inc., as Lead Arranger, Lead
Bookrunner and Syndication Agent (Exhibit 10.1 to Current Report on Form 8-K filed October
1, 2010 (Commission File No. 1-06620)).
Amended and Restated Credit Agreement, dated as of September 30, 2010, by and among
Clopay Ames True Temper Holding Corp., Clopay Ames True Temper LLC, certain subsidiaries
of Clopay Ames True Temper Holding Corp. party thereto, the Lenders party thereto, JPMorgan
Chase Bank, N.A., as Administrative Agent, J.P. Morgan Securities LLC, as Joint Lead
Arranger, Joint Bookrunner and Co-Syndication Agent and Deutsche Bank Securities Inc., as
Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent (Exhibit 10.2 to Current
Report on Form 8-K filed October 1, 2010 (Commission File No. 1-06620)).
Amended and Restated Pledge and Security Agreement, dated as of September 30, 2010, by and
among Clopay Ames True Temper LLC, Clopay Ames True Temper Holding Corp., certain
subsidiaries of Clopay Ames True Temper Holding Corp. party thereto and JPMorgan Chase
Bank, N.A., in its capacity as administrative agent for the Secured Parties referred to therein
(Exhibit 10.3 to Current Report on Form 8-K filed October 1, 2010 (Commission File No. 1-
06620)).
110
Exhibit
No.
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
Pledge and Security Agreement, dated as of September 30, 2010, by and among Clopay Ames
True Temper LLC, Clopay Ames True Temper Holding Corp., certain subsidiaries of Clopay
Ames True Temper Holding Corp. party thereto, and Goldman Sachs Lending Partners LLC, in
its capacity as Collateral Agent for the Secured Parties referred to therein (Exhibit 10.4 to
Current Report on Form 8-K filed October 1, 2010 (Commission File No. 1-06620)).
Intercreditor Agreement, dated as of September 30, 2010, among JPMorgan Chase Bank, N.A.,
as Administrative Agent for the ABL Secured Parties referred to therein, Goldman Sachs
Lending Partners LLC, as Administrative Agent and Collateral Agent for the Term Loan
Secured (Exhibit 10.5 to Current Report on Form 8-K filed October 1, 2010 (Commission File
No. 1-06620)).
Letter Agreement, dated February 3, 2011, between Griffon Corporation and Harvey R. Blau
(Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2011
(Commission File No. 1-06620)).
Griffon Corporation Director Compensation Program, dated February 3, 2011 (Exhibit 10.2 to
Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 1-
06620)).
Griffon Corporation 2011 Equity Incentive Plan (Exhibit 99.1 to the Current Report on Form 8-
K filed February 9, 2011 (Commission File No. 1-06620)).
Form of Award Agreement for Restricted Share Award under Griffon Corporation 2011 Equity
Incentive Plan (Exhibit 99.2 to the Current Report on Form 8-K filed February 9, 2011
(Commission File No. 1-06620)).
Griffon Corporation 2011 Performance Bonus Plan (Exhibit 99.3 to the Current Report on Form
8-K filed February 9, 2011 (Commission File No. 1-06620)).
Amendment No.1 to Employment Agreement made as of February 3, 2011 by and between
Griffon Corporation and Ronald J. Kramer (Exhibit 99.4 to the Current Report on Form 8-K
filed February 9, 2011 (Commission File No. 1-06620)).
Purchase Agreement, dated as of March 14, 2011, by and among Griffon Corporation, the
Guarantors named therein and Deutsche Bank Securities Inc., as Representative of the several
Initial Purchasers named therein (Exhibit 99.1 to the Current Report on Form 8-K filed March
18, 2011 (Commission File No. 1-06620)).
Letter agreement, dated March 4, 2011, among Griffon Corporation, J.P. Morgan Securities LLC
and JPMorgan Chase Bank, N.A. (Exhibit 10.8 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2011 (Commission File No. 1-06620)).
Amendment, dated March 14, 2011, to letter agreement dated March 4, 2011 among Griffon
Corporation, J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. (Exhibit 10.9 to
Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (Commission File No. 1-
06620)).
First Amendment, dated as of March 7, 2011, to the Amended and Restated Credit Agreement,
dated as of September 30, 2010 among Clopay Ames True Temper LLC, Clopay Ames True
Temper Holding Corp., the other Loan Parties party thereto, the several banks and other
financial institutions or entities from time to time parties thereto and JPMorgan Chase Bank,
N.A., as administrative agent (Exhibit 10.10 to Quarterly Report on Form 10-Q for the quarter
ended March 31, 2011 (Commission File No. 1-06620)).
111
Exhibit
No.
10.47
10.48
10.49
10.50
10.51
14.1
14.2
21*
23*
31.1*
31.2*
32*
Amended First Amendment, dated as of March 7, 2011, to the Amended and Restated Credit
Agreement, dated as of September 30, 2010 among Clopay Ames True Temper LLC, Clopay
Ames True Temper Holding Corp., the other Loan Parties party thereto, the several banks and
other financial institutions or entities from time to time parties thereto and JPMorgan Chase
Bank, N.A., as administrative agent (Exhibit 10.11 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2011 (Commission File No. 1-06620)).
First Amendment, dated as of March 7, 2011, to the Credit Agreement, dated as of March 31,
2008 among Gritel Holding Co., Inc., a Delaware corporation, Telephonics Corporation, the
other Loan Parties party thereto, the several banks and other financial institutions or entities
from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent
(Exhibit 10.12 to Quarterly Report on Form 10-Q for the quarter ended March 31, 2011
(Commission File No. 1-06620)).
Amendment First Amendment, dated as of March 7, 2011, to the Credit Agreement, dated as of
March 31, 2008 among Gritel Holding Co., Inc., a Delaware corporation, Telephonics
Corporation, the other Loan Parties party thereto, the several banks and other financial
institutions or entities from time to time parties thereto and JPMorgan Chase Bank, N.A., as
administrative agent (Exhibit 10.13 to Quarterly Report on Form 10-Q for the quarter ended
March 31, 2011 (Commission File No. 1-06620)).
Credit Agreement, dated as of March 18, 2011, by and among Griffon Corporation, JPMorgan
Chase Bank, N.A., as administrative agent, JPMorgan Securities LLC, as sole lead arranger and
sole bookrunner, and the other lenders party thereto (Exhibit 99.2 to the Current Report on Form
8-K filed March 18, 2011 (Commission File No. 1-06620)).
Guarantee and Collateral Agreement, dated as of March 18, 2011, by Griffon Corporation and
certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A., as administrative agent
(Exhibit 99.3 to the Current Report on Form 8-K filed March 18, 2011 (Commission File No. 1-
06620)).
Code of Ethics for the Chairman and Chief Executive Officer and Senior Financial Officers
(Exhibit 14.1 to Current Report on Form 8-K dated February 9, 2011).
Code of Business Conduct and Ethics (Exhibit 14.2 to Current Report on Form 8-K dated
February 9, 2011).
Subsidiaries of the Registrant
Consent of Grant Thornton LLP
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 USC
Section 1350.
(cid:3)
* Filed herewith. All other exhibits are incorporated herein by reference to the exhibit indicated in the
parenthetical references.
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Griffon has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18th
day of November 2011.
GRIFFON CORPORATION
By: /s/ RONALD J. KRAMER
Ronald J. Kramer,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
November 18, 2011 by the following persons on behalf of the Registrant in the capacities indicated:
/s/ HARVEY R. BLAU
Harvey R. Blau
/s/ RONALD J. KRAMER
Ronald J. Kramer
/s/ DOUGLAS J. WETMORE
Douglas J. Wetmore
/s/ BRIAN G. HARRIS
Brian G. Harris
/s/ HENRY A. ALPERT
Henry A. Alpert
/s/ BERTRAND M. BELL
Bertrand M. Bell
/s/ GERALD J. CARDINALE
Gerald J. Cardinale
/s/ BLAINE V. FOGG
Blaine V. Fogg
/s/ BRADLEY J. GROSS
Bradley J. Gross
/s/ ROBERT G. HARRISON
Robert G. Harrison
/s/ DONALD J. KUTYNA
Donald J. Kutyna
/s/ JAMES A. MITAROTONDA
James A. Mitarotonda
/s/ MARTIN S. SUSSMAN
Martin S. Sussman
/s/ WILLIAM H. WALDORF
William H. Waldorf
/s/ JOSEPH J. WHALEN
Joseph J. Whalen
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
113
[THIS PAGE INTENTIONALLY LEFT BLANK]
Certification
Exhibit 31.1
I, Ronald J. Kramer, certify that:
1. I have reviewed this annual report on Form 10-K of Griffon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 18, 2011
/s/ RONALD J. KRAMER
Ronald J. Kramer
Chief Executive Officer
(Principal Executive Officer)
(cid:3)
Certification
Exhibit 31.2
I, Douglas J. Wetmore, certify that:
1. I have reviewed this annual report on Form 10-K of Griffon Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 18, 2011
/s/ DOUGLAS J. WETMORE
Douglas J. Wetmore
Chief Financial Officer
(Principal Financial Officer)
(cid:3)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the annual report on Form 10-K of Griffon Corporation (the “Company”) for the
period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), Ronald J. Kramer, as Chief Executive Officer of Griffon, and Douglas J. Wetmore,
as Chief Financial Officer of Griffon, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of Griffon.
/s/ RONALD J. KRAMER
Name: Ronald J. Kramer
Title: Chief Executive Officer
(Principal Executive Officer)
Date: November 18, 2011
/s/ DOUGLAS J. WETMORE
Name: Douglas J. Wetmore
Title: Chief Financial Officer
(Principal Financial Officer)
Date: November 18, 2011
A signed original of this written statement required by Section 906 has been provided to Griffon
Corporation and will be retained by Griffon Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
(cid:3)
C O M P A N Y P R O F I L E
HOME & BUILDING PRODUCTS
Ames True Temper is a global provider of non-powered landscaping products that make work
easier for homeowners and professionals.
Website: www.amestruetemper.com
Clopay Building Products is a leading manufacturer and marketer of residential, commercial and
industrial garage doors to professional installing dealers and major home center retail chains.
Website: www.clopaydoor.com
TELEPHONICS
Telephonics designs, develops and manufactures high-technology, integrated information‚
communication and sensor system solutions for use in military and commercial markets worldwide.
Website: www.telephonics.com
CLOPAY PLASTIC PRODUCTS
Clopay Plastic Products is an international leader in the development and production of embossed‚
laminated and printed specialty plastic films used in a variety of hygienic, healthcare and industrial applications.
Website: www.clopayplastics.com
DIRECTORS
Henry A. Alpert
President, Spartan Petroleum Corp.
(petroleum distributor/real estate)
Bertrand M. Bell, M.D.
Albert Einstein Medical Center
Harvey R. Blau
Chairman of the Board
Gerald J. Cardinale
Managing Director, Goldman Sachs
Blaine V. Fogg, Esq.
Of Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Bradley J. Gross
Managing Director, Goldman Sachs
Rear Admiral Robert G. Harrison
USN (Ret.)
Ronald J. Kramer
President and Chief Executive Officer
General Donald J. Kutyna
USAF (Ret.)
James A. Mitarotonda
Chairman of the Board and
Chief Executive Officer,
Barington Capital Group, L.P.
(investments)
Martin S. Sussman, Esq.
Partner
Seltzer Sussman Habermann & Heitner LLP
Independent Registered Public
Accountants
Grant Thornton LLP
William H. Waldorf
President, Landmark Capital, LLC
(investments)
Joseph J. Whalen
Retired Partner
Arthur Andersen LLP
OFFICERS
Ronald J. Kramer
President and Chief Executive Officer
Douglas J. Wetmore
Executive Vice President and
Chief Financial Officer
Patrick L. Alesia
Senior Vice President and
Chief Administrative Officer
Seth L. Kaplan
Senior Vice President,
General Counsel and Secretary
Leonard M. Fuld
Vice President, Taxation
Thomas D. Gibbons
Treasurer
Brian G. Harris
Chief Accounting Officer
Stock Listing
The company’s Common Stock is listed
on the New York Stock Exchange
(NYSE) under the symbol GFF.
Registrar and Transfer Agent
American Stock Transfer &
Trust Company
Additional copies of this report will be
furnished to shareholders upon written
request to the company at:
Griffon Corporation
Attn. Secretary
712 Fifth Avenue, 18th Floor
New York, New York 10019
Website:
www.griffoncorp.com
Griffon Corporation has included as
exhibits to its Annual Report on Form
10- K for fiscal year 2011 filed with the
SEC certifications of Griffon’s Chief
Executive Officer and Chief Financial
Officer certifying the quality of the
company’s public disclosures. Griffon’s
Chief Executive Officer has also submitted
to the NYSE a certification that he is not
aware of any violations by Griffon of the
listing
NYSE corporate governance
standards.
712 Fifth Avenue
New York, New York 10019
www.griffoncorp.com