Edgar Filing: GRIFFON CORP

Proforma
For the three months ended June 30, 2017
(unaudited)

Proforma
For the nine months ended June 30, 2017
(unaudited)

Income from continuing operations

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June 30, 2018



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

For the transition period from to

Commission File Number: 1-06620

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)



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

712 Fifth Ave, 18th Floor, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

(212) 957-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý	Accelerated filer	o
Non-accelerated filer o (Do not check if a smaller reporting company)
	Smaller reporting company	o
	Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of common stock outstanding at July 31, 2018 was 45,615,377.

Griffon Corporation and Subsidiaries

Contents



	Page
PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2018 (unaudited) and September 30, 2017	1

Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2018 (unaudited)	2

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2018 and 2017 (unaudited)	3

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2018 and 2017 (unaudited)	4

Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	53

Item 4 - Controls & Procedures	53

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	54

Item 1A – Risk Factors	54

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3 – Defaults Upon Senior Securities	54

Item 4 – Mine Safety Disclosures	54

Item 5 – Other Information	54

Item 6 – Exhibits	55

Signatures	56

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



	(Unaudited)
	June 30, 2018		September 30, 2017
CURRENT ASSETS
Cash and equivalents	$	63,766	$	47,681
Accounts receivable, net of allowances of $6,183 and $5,966	311,129		208,229
Contract costs and recognized income not yet billed, net of progress payments of $4,808 and $4,407	110,138		131,662
Inventories, net	395,813		299,437
Prepaid and other current assets	56,955		40,067
Assets of discontinued operations held for sale	—		370,724
Assets of discontinued operations not held for sale	326		329
Total Current Assets	938,127		1,098,129
PROPERTY, PLANT AND EQUIPMENT, net	325,078		232,135
GOODWILL	502,055		319,139
INTANGIBLE ASSETS, net	316,956		205,127
OTHER ASSETS	16,505		16,051
ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE	2,930		2,960
Total Assets	$	2,101,651	$	1,873,541

CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	10,739	$	11,078
Accounts payable	228,394		183,951
Accrued liabilities	150,602		83,258
Liabilities of discontinued operations held for sale	—		84,450
Liabilities of discontinued operations not held for sale	25,795		8,342
Total Current Liabilities	415,530		371,079
LONG-TERM DEBT, net	1,124,981		968,080
OTHER LIABILITIES	90,127		132,537
LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE	4,926		3,037
Total Liabilities	1,635,564		1,474,733
COMMITMENTS AND CONTINGENCIES - See Note 18
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	466,087		398,808
Total Liabilities and Shareholders’ Equity	$	2,101,651	$	1,873,541

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)



	COMMON STOCK			CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			TREASURY SHARES				ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION
(in thousands)	SHARES	PAR VALUE		CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			SHARES	COST			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION			TOTAL
Balance at September 30, 2017	80,663	$	20,166	$	487,077		$	480,347		33,557	$	(489,225	)	$	(60,481	)	$	(39,076	)	$	398,808
Net income	—	—		—			127,096			—	—			—			—			127,096
Dividend	—	—		—			(52,521		)	—	—			—			—			(52,521		)
Shares withheld on employee taxes on vested equity awards	—	—		—			—			199	(4,478		)	—			—			(4,478		)
Amortization of deferred compensation	—	—		—			—			—	—			—			6,088			6,088
Common stock acquired	—	—		—			—			2,089	(41,110		)	—			—			(41,110		)
Equity awards granted, net	797	199		(199		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		3,906			—			—	—			—			—			3,906
Stock-based compensation	—	—		7,372			—			—	—			—			—			7,372
Stock-based consideration	—	—		972			—			—	—			—			—			972
Other comprehensive income, net of tax	—	—		—			—			—	—			19,954			—			19,954
Balance at June 30, 2018	81,460	$	20,365	$	499,128		$	554,922		35,845	$	(534,813	)	$	(40,527	)	$	(32,988	)	$	466,087

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(Unaudited)



	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Revenue	$	516,550		$	358,114		$	1,432,413		$	1,094,198
Cost of goods and services	377,758			260,130			1,051,304			800,601
Gross profit	138,792			97,984			381,109			293,597

Selling, general and administrative expenses	114,294			80,555			323,776			241,372

Income from operations	24,498			17,429			57,333			52,225

Other income (expense)
Interest expense	(16,328		)	(12,679		)	(49,973		)	(38,694		)
Interest income	532			17			1,491			38
Other, net	300			(220		)	1,266			(422		)
Total other expense, net	(15,496		)	(12,882		)	(47,216		)	(39,078		)

Income before taxes from continuing operations	9,002			4,547			10,117			13,147
Provision (benefit) from income taxes	1,560			95			(22,107		)	(299		)
Income from continuing operations	$	7,442		$	4,452		$	32,224		$	13,446

Discontinued operations:
Income (loss) from operations of discontinued operations (including a gain on sale of $117,625 in 2018)	$	(200	)	$	7,024		124,642			21,639
Provision for income taxes (including tax on gain on sale of $31,268 in 2018)	1,415			1,922			29,770			8,222
Income (loss) from discontinued operations (including a gain on sale, net of tax of $86,357 in 2018)	$	(1,615	)	$	5,102		94,872			13,417
Net income	$	5,827		$	9,554		$	127,096		$	26,863

Income from continuing operations	$	0.18		$	0.11		$	0.78		$	0.33
Income (loss) from discontinued operations	(0.04		)	0.12			2.30			0.33
Basic earnings per common share	$	0.14		$	0.23		$	3.08		$	0.66

Weighted-average shares outstanding	40,295			41,683			41,232			40,765

Income from continuing operations	$	0.18		$	0.10		$	0.76		$	0.31
Income (loss) from discontinued operations	(0.04		)	0.12			2.23			0.31
Diluted earnings per common share	$	0.14		$	0.22		$	2.98		$	0.63

Weighted-average shares outstanding	41,742			43,255			42,620			42,934

Dividends paid per common share	$	1.07		$	0.06		$	1.21		$	0.18

Net income	$	5,827		$	9,554		$	127,096		$	26,863
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	(9,136		)	6,414			9,289			1,344
Pension and other post retirement plans	247			544			10,053			1,632
Change in cash flow hedges	84			198			612			801
Total other comprehensive income (loss), net of taxes	(8,805		)	7,156			19,954			3,777
Comprehensive income (loss), net	$	(2,978	)	$	16,710		$	147,050		$	30,640

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



	Nine Months Ended June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS:
Net income	$	127,096		$	26,863
Net (income) from discontinued operations	(94,872		)	(13,417		)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	40,318			36,356
Stock-based compensation	7,372			7,200
Provision (recovery) for losses on accounts receivable	49			(70		)
Amortization of debt discounts and issuance costs	3,981			3,705
Deferred income taxes	(24,612		)	1,675
(Gain) loss on sale of assets and investments	136			(98		)
Change in assets and liabilities, net of assets and liabilities acquired:
(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed	(16,290		)	7,555
Increase in inventories	(49,474		)	(29,400		)
Decrease in prepaid and other assets	5,777			543
Decrease in accounts payable, accrued liabilities and income taxes payable	(4,088		)	(18,215		)
Other changes, net	7,398			2,705
Net cash provided by operating activities - continuing operations	2,791			25,402
CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Acquisition of property, plant and equipment	(33,148		)	(22,575		)
Acquired businesses, net of cash acquired	(429,545		)	(6,051		)
Proceeds from sale of business	473,977			—
Proceeds from sale of assets	482			146
Net cash provided by (used in) investing activities - continuing operations	11,766			(28,480		)
CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Dividends paid	(46,816		)	(7,766		)
Purchase of shares for treasury	(45,588		)	(15,796		)
Proceeds from long-term debt	419,645			211,097
Payments of long-term debt	(262,031		)	(147,729		)
Share premium payment on settled debt	—			(24,997		)
Financing costs	(7,671		)	(363		)
Purchase of ESOP shares	—			(10,908		)
Other, net	139			(112		)
Net cash provided by financing activities - continuing operations	57,678			3,426
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities	(28,970		)	38,867
Net cash used in investing activities	(10,762		)	(36,559		)
Net cash used in financing activities	(22,541		)	(5,689		)

Net cash used in discontinued operations	(62,273		)	(3,381		)
Effect of exchange rate changes on cash and equivalents	6,123			(72		)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	16,085			(3,105		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	47,681			72,553
CASH AND EQUIVALENTS AT END OF PERIOD	$	63,766		$	69,448

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

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. In order to further diversify, Griffon 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.

On June 4, 2018, Clopay Building Products Company, Inc. ("CBP") acquired CornellCookson, Inc. ("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post-closing adjustments and excluding the present value of net tax benefits under current tax law resulting from the transaction. The accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of CornellCookson, are included in the Company’s consolidated financial statements from the date of acquisition of June 4, 2018. See Note 3, Acquisitions.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Clopay Plastic Products Company, Inc. ("PPC") and on February 6, 2018, completed the sale to Berry Global, Inc. (NYSE:BERY) ("Berry") for $475,000 in cash, subject to certain post-closing adjustments. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. See Note 14, Discontinued Operations.

On October 2, 2017, Griffon acquired ClosetMaid LLC ("ClosetMaid") for approximately $185,700, subject to certain post-closing adjustments and excluding the present value of net tax benefits under current tax law resulting from the transaction. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. The accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of ClosetMaid are included in the Company’s consolidated financial statements from the date of acquisition of October 2, 2017. See Note 3, Acquisitions.

Griffon currently conducts its operations through two reportable segments:


•	Home & Building Products (“HBP”) segment consists of three companies, The AMES Companies, Inc. (“AMES”), ClosetMaid and CBP:

- AMES, founded in 1774, is the leading U.S. manufacturer and a global provider of long-handled tools and landscaping products for homeowners and professionals.

- ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers.

- CBP, since 1964, is a leading manufacturer and marketer of residential and commercial garage doors and sells to professional dealers and some of the largest home center retail chains in North America and, under the CornellCookson brand, is a leading U.S. manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional, and retail use.


•	Defense Electronics segment consists of Telephonics Corporation ("Telephonics"), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2017, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s HBP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet information at September 30, 2017 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2017.

The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated on consolidation.

The preparation of financial statements in conformity with US GAAP 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 fixed and intangible 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 assets and liabilities of discontinued operations, acquisition assumptions used 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.

Certain amounts in the prior year have been reclassified to conform to current year presentation.

NOTE 2 – FAIR VALUE MEASUREMENTS

The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate 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 and variable rate debt is based upon current market rates.

Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows:


•	Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets.

•

Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.


•	Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair values of Griffon’s 2022 senior notes approximated $972,500 on June 30, 2018. Fair values were based upon quoted market prices (level 1 inputs).

On January 17, 2017, Griffon's 4% convertible subordinated notes settled for a total of $173,855. The total settlement value for the convertible notes was based on the sum of the daily Volume Weighted Average Price multiplied by the conversion rate over a 40-day observation period (level 1 inputs). The settlement value was split between $125,000 in cash and 1,954,993 shares, of common stock issued from treasury.

Insurance contracts with values of $2,948 at June 30, 2018 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets.

Items Measured at Fair Value on a Recurring Basis

At June 30, 2018, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $3,469 ($3,086 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of June 30, 2018, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in US dollars.

At June 30, 2018, Griffon had $8,500 of Australian dollar contracts at a weighted average rate of $1.36 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred gains of $864 ($612, net of tax) at June 30, 2018 and gains of $207 and $174 was recorded in COGS during the quarter and nine months ended June 30, 2018, respectively, for all settled contracts. All contracts expire in 30 to 88 days.

At June 30, 2018, Griffon had $1,651 of Canadian dollar contracts at a weighted average rate of $1.31. The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the quarter and nine months ended June 30, 2018, fair value losses and gains of $11 and $81, respectively, was recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses and gains of $31 and $11, respectively, were recorded in Other income during the quarter and nine months ended June 30, 2018, respectively, for all settled contracts. All contracts expire in 30 to 88 days.

NOTE 3 – ACQUISITIONS

Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation.

On June 4, 2018, CBP completed the acquisition of CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post-closing adjustments and excluding the present value of net tax benefits under current tax law resulting from the transaction. The acquisition of CornellCookson substantially expanded CBP’s non-residential product offerings, and added an established professional dealer network focused on rolling steel door and grille products for commercial, industrial, institutional and retail use. There is no other contingent consideration arrangement relative to the acquisition of CornellCookson.

CornellCookson’s accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations are included in the Company’s consolidated financial statements from the date of acquisition. The Company has recorded a preliminary allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible

for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of CornellCookson, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets.

The calculation of the preliminary purchase price allocation, which is pending finalization of tax-related items and completion of the related final valuation, is as follows:




Accounts receivable ⁽¹⁾	$	30,400
Inventories	12,586
Property, plant and equipment	35,226
Goodwill ⁽²⁾	81,634
Intangible assets ⁽²⁾	36,000
Other current and non-current assets	2,541
Total assets acquired	198,387

Accounts payable and accrued liabilities	12,000
Long-term liabilities	680
Total liabilities assumed	12,680
Total	$	185,707

⁽¹⁾ Includes $30,818 of gross accounts receivable of which $418 was not expected to be collected. The fair value of accounts receivable approximated book value acquired.

⁽²⁾As of June 30, 2018, the Company did not recognize an estimate of identifiable indefinite lived intangible assets apart from goodwill but preliminarily allocated $36,000 to identifiable definite lived intangible assets and recognized amortization expense consistent with an estimated ten year life from the date of acquisition through June 30, 2018. The company expects to finalize the valuation of the acquired identifiable indefinite and definite lived intangible assets during the fourth quarter.

On February 13, 2018, AMES acquired Kelkay Limited ("Kelkay"), a leading United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the UK and Ireland for $56,118 (GBP $40,452), subject to contingent consideration of up to GBP 7,000. This acquisition broadened AMES' product offerings in the market and increased its in-country operational footprint. The purchase price was primarily allocated to fixed assets and land of GBP 8,241, tradenames of GBP 6,739 and accounts receivable and inventory of GBP 8,894.

On November 6, 2017, AMES acquired Harper Brush Works ("Harper"), a division of Horizon Global, for $4,383, inclusive of post-closing adjustments. Harper is a leading U.S. manufacturer of cleaning products for professional, home, and industrial use. The acquisition expanded AMES’ long-handled tool offering in North America to include brooms, brushes, and other cleaning tools and accessories. The purchase price was primarily allocated to intangible assets of $2,300.

On October 2, 2017, Griffon Corporation completed the acquisition of ClosetMaid, a market leader of home storage and organization products, for approximately $185,700, subject to certain post-closing adjustments and excluding the present value of net tax benefits under current tax law resulting from the transaction. The acquisition of ClosetMaid expanded Griffon’s Home and Building Products segment into the highly complementary home storage and organization category with a leading brand and product portfolio.

ClosetMaid's accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations, are included in the Company’s consolidated financial statements from the date of acquisition. The Company has recorded a preliminary allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of ClosetMaid, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets.

The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired ClosetMaid on October 1, 2016:

Griffon did not include any material, nonrecurring proforma adjustments directly attributable to the business combination in the proforma revenue and earnings. These proforma amounts have been compiled by adding the historical results from continuing operations of Griffon, restated for classifying the results of operations of the PPC business as a discontinued operation, to the historical results of ClosetMaid after applying Griffon’s accounting policies and the following proforma adjustments:


•	Additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2016.


•	Elimination of intercompany interest income recorded on ClosetMaid’s financial statements earned on an intercompany receivable due from ClosetMaid’s former parent.


•	Additional interest and related expenses from the add-on offering of $275,000 for the aggregate principal amount of 5.25% senior notes due 2022 that Griffon used to acquire ClosetMaid.


•	Removal of $700 of restructuring costs from ClosetMaid's historical results for the nine months ended June 30, 2017.


•	The consequential tax effects of the above adjustments using a 57.5% and 47.0% tax rate for the quarter and nine months ended June 30, 2017, respectively.

The calculation of the preliminary purchase price allocation, which is pending finalization of tax-related items and completion of the related final valuation, is as follows:




Accounts receivable ⁽¹⁾	$	32,234
Inventories ⁽²⁾	28,411
Property, plant and equipment	48,072
Goodwill	69,551
Intangible assets	74,580
Other current and non-current assets	3,852
Total assets acquired	256,700

Accounts payable and accrued liabilities	68,251
Long-term liabilities	2,720
Total liabilities assumed	70,971
Total	$	185,729

⁽¹⁾ Includes $32,956 of gross accounts receivable of which $722 was not expected to be collected. The fair value of accounts receivable approximated book value acquired.

⁽²⁾ Includes $1,500 in inventory basis step-up, which was charged to cost of goods sold over the inventory turns of the acquired entity.

The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the ClosetMaid acquisition are as follows:



			Average Life (Years)
Goodwill	$	69,551	N/A
Indefinite-lived intangibles	47,740		N/A
Definite-lived intangibles	26,840		21
Total goodwill and intangible assets	$	144,131

On May 10, 2017, Griffon entered into an engagement letter with Goldman Sachs & Co. LLC (“Goldman Sachs”) pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the acquisition of ClosetMaid. Griffon subsequently paid a customary financial advisory fee to Goldman Sachs under the terms of this engagement letter following consummation of the acquisition.

On September 29, 2017, AMES Australia completed the acquisition of Tuscan Landscape Group Pty, Ltd. ("Tuscan Path") for approximately $18,000 (AUD 22,250). Tuscan Path is a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products, which broadened AMES' outdoor living and lawn and garden business, and strengthened AMES' industry leading position in Australia. The purchase price was primarily allocated to intangible assets of AUD 3,900 and inventory and accounts receivable of AUD 7,900.

On July 31, 2017, The AMES Companies, Inc. acquired La Hacienda Limited ("La Hacienda"), a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $10,610 (GBP 8,575), subject to contingent earn out payments of up to $790 (GBP 600). The acquisition of La Hacienda broadened AMES' global outdoor living and lawn and garden business and supported AMES' UK expansion strategy with an in-country presence. The purchase price allocation was primarily allocated to intangible assets of approximately GBP 3,100 and inventory and accounts receivable of GBP 4,200.

On December 30, 2016, AMES Australia acquired Hills Home Living ("Hills") for approximately $6,051 (AUD 8,400). The purchase price has been allocated to acquired assets and assumed liabilities and primarily consists of inventory, tooling and identifiable intangible assets, including trademarks, intellectual property and customer relationships. Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products. The Hills acquisition adds to AMES' existing broad category of products and enhances our lawn and garden product offerings in Australia. The purchase price was primarily allocated to intangible assets of approximately AUD 6,400 with the remainder primarily inventory.

On February 14, 2016, AMES Australia acquired substantially all of the Intellectual Property (IP) assets of Australia-based Nylex Plastics Pty Ltd. ("Nylex")for approximately $1,744 (AUD 2,452). Through this acquisition, AMES and Griffon secured the ownership of the trademark “Nylex” for certain categories of AMES products, principally in the country of Australia. Previously, the Nylex name was licensed. The acquisition of the Nylex IP was contemplated as a post-closing activity following the Cyclone acquisition and supports AMES' Australian watering products strategy. The purchase price was allocated to indefinite lived trademarks and is not deductible for income taxes.

During the three months ended June 30, 2018, SG&A included acquisition costs of $3,598. During the nine months ended June 30, 2018, SG&A and Cost of goods and services included acquisition costs of $6,097 and $1,500, respectively. Acquisition costs were not recorded in the prior year comparable periods.

NOTE 4 – INVENTORIES

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

The following table details the components of inventory:



	At June 30, 2018		At September 30, 2017
Raw materials and supplies	$	91,400	$	67,990
Work in process	88,261		78,846
Finished goods	216,152		152,601
Total	$	395,813	$	299,437

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

The following table details the components of property, plant and equipment, net:



	At June 30, 2018			At September 30, 2017
Land, building and building improvements	$	129,905		$	71,764
Machinery and equipment	550,714			462,173
Leasehold improvements	49,041			43,040
	729,660			576,977
Accumulated depreciation and amortization	(404,582		)	(344,842		)
Total	$	325,078		$	232,135

Depreciation and amortization expense for property, plant and equipment was $11,738 and $10,528 for the quarters ended June 30, 2018 and 2017, respectively, and $33,970 and $31,379 for the nine months ended June 30, 2018 and 2017, respectively. Depreciation included in SG&A expenses was $4,171 and $3,332 for the quarters ended June 30, 2018 and 2017, respectively, and $11,747 and $9,622 for the nine months ended June 30, 2018 and 2017, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

No event or indicator of impairment occurred during the three and nine months ended June 30, 2018 which would require additional impairment testing of property, plant and equipment.

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

The following table provides changes in the carrying value of goodwill by segment during the nine months ended June 30, 2018:



	At September 30, 2017		Goodwill from acquisitions		Other adjustments including currency translations			At June 30, 2018
Home & Building Products	$	300,594	$	185,405	$	(2,489	)	$	483,510
Telephonics	18,545		—		—			18,545
Total	$	319,139	$	185,405	$	(2,489	)	$	502,055

The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:



	At June 30, 2018					At September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	200,835	$	47,583	25	$	152,025	$	43,421
Technology and patents	17,210		5,866		12.5	6,193		4,719
Total amortizable intangible assets	218,045		53,449			158,218		48,140
Trademarks	152,360		—			95,049		—
Total intangible assets	$	370,405	$	53,449		$	253,267	$	48,140

Amortization expense for intangible assets was $2,309 and $1,694 for the quarters ended June 30, 2018 and 2017, respectively, and $6,348 and $4,977 for the nine months ended June 30, 2018 and 2017, respectively.

No event or indicator of impairment occurred during the three and nine months ended June 30, 2018 which would require impairment testing of long-lived intangible assets including goodwill.

NOTE 7 – INCOME TAXES

On December 22, 2017, the "Tax Cuts and Jobs Act" ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Though certain key aspects of the TCJA are effective January 1, 2018 and have an immediate accounting effect, other significant provisions are not effective or may not result in accounting effects for September 30 fiscal year companies until October 1, 2018.

Given the significance of the TCJA, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

Among the significant changes to the U.S. Internal Revenue Code, the TCJA lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5%. The 21% Federal Tax Rate will apply to fiscal years ending September 30, 2019 and each year thereafter.

The Company has recorded provisional amounts for the effects of the TCJA where accounting is not complete, but a reasonable estimate has been determined. The company recorded a $23,941 benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense, both of which have been reflected in the tax benefit for the nine months ended June 30, 2018.

A reasonable estimate cannot yet be made and therefore taxes are reflected based on the law in effect prior to the enactment of the Tax Cuts and Jobs Act for the impact of the one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries, bonus depreciation expensing for qualified property placed in service after September 27, 2017 and the impact on state income taxes.

The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the TCJA and may change as the Company receives additional clarification and implementation guidance.

In accordance with SAB 118 adjustments recorded to the provisional amounts will be reflected within the measurement period through the quarter ended December 31, 2018 and will be included in income from continuing operations and net income as an adjustment to tax expense.

During the quarter ended June 30, 2018, the Company recognized a tax provision of $1,560 on income before taxes from continuing operations of $9,002, compared to a tax provision of $95 on Income before taxes from continuing operations of $4,547, in the comparable prior year quarter. The current quarter results included acquisition costs of $3,598 ($2,320, net of tax), special dividend ESOP charges of $3,220 ($2,125, net of tax), secondary equity offering costs of $1,205 ($795, net of tax) and discrete and certain other tax benefits, net, of $1,430. The prior year quarter included discrete and certain other tax benefits, net, of $2,522. Excluding these items that affect comparability, the effective tax rates for the quarters ended June 30, 2018 and 2017 were 33.9% and 57.5%, respectively.

During the nine months ended June 30, 2018, the Company recognized a tax benefit of $22,107 on income before taxes from continuing operations of $10,117, compared to a tax benefit of $299 on Income before taxes from continuing operations of $13,147 in the comparable prior year period. The nine month period ended June 30, 2018 included net tax benefits of $24,080 primarily from the December 22, 2017 tax reform bill related to revaluation of deferred tax liabilities, $7,597 ($5,046 net of tax) of acquisition costs, $3,220 ($2,125 net of tax) special dividend ESOP charges, $1,205 ($795, net of tax) secondary equity offering costs and $2,614 ($248, net of tax) charges related to cost of life insurance benefits. The nine month period ended June 30, 2017 included discrete benefits of $6,478 primarily from the adoption of Financial Accounting Standards Board guidance which requires the Company to recognize excess tax benefits from the vesting of equity awards within income tax expense. Excluding these items that affect comparability, the effective tax rates for the nine months ended June 30, 2018 and 2017 were 33.9% and 47.0%, respectively.

NOTE 8 – LONG-TERM DEBT



		At June 30, 2018													At September 30, 2017
		Outstanding Balance			Original Issuer Premium		Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate (1)		Outstanding Balance			Original Issuer Discount			Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate (1)
Senior notes due 2022	(a)	$	1,000,000		$	1,308	$	(13,932	)	$	987,376		5.25	%	725,000			$	(1,177	)	$	(9,220	)	$	714,603		5.25	%
Revolver due 2021	(b)	69,912			—		(1,556		)	68,356			Variable		144,216			—			(1,951		)	142,265			Variable
Real estate mortgages	(d)	—			—		—			—			Variable		23,642			—			(320		)	23,322			Variable
ESOP Loans	(e)	35,263			—		(217		)	35,046			Variable		42,675			—			(310		)	42,365			Variable
Capital lease - real estate	(f)	8,248			—		(86		)	8,162			5.00	%	5,312			—			(105		)	5,207			5.00	%
Non US lines of credit	(g)	—			—		(19		)	(19		)	Variable		9,402			—			(31		)	9,371			Variable
Non US term loans	(g)	30,953			—		(69		)	30,884			Variable		35,943			—			(108		)	35,835			Variable
Other long term debt	(h)	5,935			—		(20		)	5,915			Variable		6,211			—			(21		)	6,190			Variable
Totals		1,150,311			1,308		(15,899		)	1,135,720					992,401			(1,177		)	(12,066		)	979,158
less: Current portion		(10,739		)	—		—			(10,739		)			(11,078		)	—			—			(11,078		)
Long-term debt		$	1,139,572		$	1,308	$	(15,899	)	$	1,124,981				$	981,323		$	(1,177	)	$	(12,066	)	$	968,080

(1) n/a = not applicable



		Three Months Ended June 30, 2018												Three Months Ended June 30, 2017
		Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense			Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2022	(a)	5.7	%	13,125			67		957		14,149			5.5	%	9,516			67		462		10,045
Revolver due 2021	(b)	Variable		1,239			—		141		1,380			Variable		1,629			—		140		1,769
Real estate mortgages	(d)	n/a		—			—		—		—			2.4	%	142			—		46		188
ESOP Loans	(e)	5.5	%	472			—		31		503			3.3	%	414			—		29		443
Capital lease - real estate	(f)	5.6	%	42			—		6		48			5.4	%	72			—		7		79
Non US lines of credit	(g)	Variable		22			—		4		26			Variable		45			—		75		120
Non US term loans	(g)	Variable		338			—		18		356			Variable		102			—		68		170
Other long term debt	(h)	Variable		33			—		1		34			Variable		64			—		1		65
Capitalized interest				(168		)	—		—		(168		)			(200		)	—		—		(200		)
Totals				$	15,103		$	67	$	1,158	$	16,328				$	11,784		$	67	$	828	$	12,679



		Nine Months Ended June 30, 2018												Nine Months Ended June 30, 2017
		Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense			Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2022	(a)	5.7	%	39,375			202		2,839		42,416			5.6	%	28,547			202		1,396		30,145
Revolver due 2021	(b)	Variable		3,517			—		422		3,939			Variable		3,280			—		422		3,702
Convert. debt due 2017	(c)	n/a		—			—		—		—			8.9	%	1,167			1,248		148		2,563
Real estate mortgages	(d)	n/a		351			—		320		671			2.4	%	420			—		56		476
ESOP Loans	(e)	4.7	%	1,327			—		93		1,420			4.1	%	1,147			—		94		1,241
Capital lease - real estate	(f)	5.5	%	533			—		19		552			5.4	%	227			—		19		246
Non US lines of credit	(g)	Variable		33			—		11		44			Variable		70			—		85		155
Non US term loans	(g)	Variable		1,002			—		69		1,071			Variable		560			—		97		657
Other long term debt	(h)	Variable		262			—		4		266			Variable		186			—		7		193
Capitalized interest				(406		)	—		—		(406		)			(684		)	—		—		(684		)
Totals				$	45,994		$	202	$	3,777	$	49,973				$	34,920		$	1,450	$	2,324	$	38,694

(1) n/a = not applicable

(a)

On October 2, 2017, in an unregistered offering through a private placement under Rule 144A, Griffon completed the add-on offering of $275,000 principal amount of its 5.25% senior notes due 2022, at 101.00% of par, to Griffon's previously issued $125,000 principal amount of its 5.25% senior notes due 2022, at 98.76% of par, completed on May 18, 2016 and $600,000 5.25% senior notes due 2022, at par, completed on February 27, 2014 (collectively the “Senior Notes”). As of June 30, 2018, outstanding Senior Notes due totaled $1,000,000; interest is payable semi-annually on March 1 and September 1. The net proceeds of the $275,000 add-on offering were used to acquire ClosetMaid with the remaining proceeds used to pay down outstanding loan borrowings under Griffon's revolving credit facility (the "Credit Agreement"). The net proceeds of the previously issued $125,000 add-on offering were used to pay down outstanding revolving loan borrowings under the Credit Agreement.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On February 5, 2018 and June 18, 2014, Griffon exchanged all of the $275,000, $125,000 and $600,000 Senior Notes, respectively, for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. The fair value of the Senior Notes approximated $972,500 on June 30, 2018 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the $275,000 senior notes, Griffon capitalized $8,472 of underwriting fees and other expenses; Griffon capitalized $3,016 of underwriting fees and other expenses in connection with the $125,000 senior notes; and Griffon capitalized $10,313 in connection with the previously issued $600,000 senior notes. All capitalized fees will amortize over the term of the notes.

(b)

On March 22, 2016, Griffon amended the Credit Agreement to increase the credit facility from $250,000 to $350,000, extend its maturity date from March 13, 2020 to March 22, 2021 and modify certain other provisions of the facility. On October 2, 2017 and on May 31, 2018, Griffon amended the Credit Agreement in association with the ClosetMaid acquisition and the CornellCookson acquisition, respectively, to modify the net leverage covenant. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $50,000. The Credit Agreement provides for same day borrowings of base rate loans. 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 an event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.75% for base rate loans and 2.75% for LIBOR loans. 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 negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65% of the equity interest in Griffon’s material, first-tier foreign subsidiaries (except that a lien on the assets of Griffon's material domestic subsidiaries securing a limited amount of the debt under the Credit Agreement relating to Griffon's Employee Stock Ownership Plan ("ESOP") ranks pari passu with the lien granted on such assets under the Credit Agreement; see footnote (e) below). At June 30, 2018, under the Credit Agreement, there were $69,912 in outstanding borrowings; standby letters of credit were $15,166; and $264,922 was available, subject to certain loan covenants, for borrowing at that date.

(c)

On December 21, 2009, Griffon issued $100,000 principal amount of 4% convertible subordinated notes due 2017 (the “2017 Notes”). On July 14, 2016, Griffon announced that it would settle, upon conversion, up to $125,000 of the conversion value of the 2017 Notes in cash, with amounts in excess of $125,000, if any, to be settled in shares of Griffon common stock. On January 17, 2017, Griffon settled the convertible debt for $173,855 with $125,000 in cash, utilizing borrowings under the Credit Agreement, and $48,858, or 1,954,993 shares, of common stock issued from treasury.

(d)

In September 2015 and March 2016, Griffon entered into mortgage loans in the amounts of $32,280 and $8,000, respectively. The mortgage loans were secured by four properties occupied by Griffon's subsidiaries. The loans were due to mature in September 2025 and April 2018, respectively, were collateralized by the specific properties financed and were guaranteed by Griffon. The loans had an interest rate of LIBOR plus 1.50%. The loans were paid off during the quarter ended March 31, 2018.

(e)

In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan into a new Term Loan in the amount of $35,092 (the "Agreement"). The Agreement also provided for a Line Note with $10,908 available to purchase shares of Griffon common stock in the open market. During 2017, Griffon's ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54 per share, under a borrowing line that has now been fully utilized. On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan bears interest at LIBOR plus 2.50%. The Term Loan requires a quarterly principal payment of $569 with a balloon payment due at maturity on March 22, 2020.

As a result of the special cash dividend of $1.00 per share, paid on April 16, 2018, the outstanding balance of Term Loan was reduced by $5,705. As of June 30, 2018, $35,046, net of issuance costs, was outstanding under the Term Loan. The Term Loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which lien ranks pari passu with the lien granted on such assets under the Credit Agreement) and is guaranteed by Griffon.

(f)

Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in 2021 and 2022, respectively, and bear interest at fixed rates of approximately 5.0% and 8.0%, respectively. The Troy, Ohio lease is secured by a mortgage on the real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year renewal options. At June 30, 2018, $8,162 was outstanding, net of issuance costs.

(g)

In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,282 as of June 30, 2018) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.63% LIBOR USD and 3.00% Bankers Acceptance Rate CDN as of June 30, 2018). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity. At June 30, 2018, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,282 as of June 30, 2018) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 30,000 term loan and an AUD 10,000 revolver. The term loan refinanced two existing term loans and the revolver replaced two existing lines. In December 2016, the amount available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in March 2017, the term loan commitment was increased by AUD 5,000. In September 2017, the term commitment was further increased by AUD 15,000. The term loan requires quarterly principal payments of AUD 1,250 plus interest, with a balloon payment of AUD 37,125 due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.00% per annum (4.16% at June 30, 2018). As of June 30, 2018, the term loan had an outstanding balance of AUD 42,125 ($30,953 as of June 30, 2018). The revolving facility matures in November 2018, but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus 2.0% per annum (3.93% at June 30, 2018). At June 30, 2018, there were no borrowings under the revolving credit facility with AUD 20,000($14,696 as of June 30, 2018) available for borrowing. The revolver and the term loan are both secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon guarantees the term loan. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

A UK subsidiary of Griffon maintains an invoice discounting arrangement secured by trade receivables. Interest is variable at 2.0% over the Sterling base rate (2.5% as of June 30, 2018). At June 30, 2018, there were no amounts outstanding under this facility.

In July 2018, the AMES Companies UK Ltd and its subsidiaries ("Ames UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 350 and GBP 83 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,000 and GBP 2,333, respectively. The Term Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8%, respectively (3.04% and 2.59%). The revolving facility matures in July 2019, but is renewable upon mutual agreement with the bank, and accrues interest at the Bank of England Base Rate plus 1.5% (2.0%). The revolver and the term loan are both secured by substantially all of the assets of Ames UK and its subsidiaries. Ames UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. The invoice discounting arrangement was canceled and replaced by the above loan facilities.


(h)	Other long-term debt consists primarily of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of capital leases.

At June 30, 2018, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

NOTE 9 — SHAREHOLDERS’ EQUITY

During 2018, the Company paid a quarterly cash dividend of $0.07 per share in each quarter and a special cash dividend of $1.00 paid in the third quarter, totaling $1.21 per share for the nine months ended June 30, 2018. During 2017, the Company paid quarterly cash dividends of $0.06 per share, totaling $0.24 per share for the year. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and recorded as a reduction of debt service payments and compensation expense. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares.

On August 1, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per share, payable on September 20, 2018 to shareholders of record as of the close of business on August 23, 2018.

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 and, for performance shares, the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years, is recognized using the straight-line attribution method and recorded within SG&A expenses.

On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Incentive Plan. 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 3,350,000 (600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of June 30, 2018, there were 1,200,755 shares available for grant.

All grants outstanding under former equity plans will continue under their terms; no additional awards will be granted under such plans.

During the first quarter of 2018, Griffon granted 1,008,756 shares of restricted stock and restricted stock units. This included 480,756 shares of restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of three years, with a total fair value of $9,980, or a weighted average fair value of $20.76 per share. This also included 528,000 shares of restricted stock granted to two senior executives with a vesting period of four years and a two year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon's common stock. So long as the minimum performance condition is attained, the amount of shares that can vest will range from 384,000 to 528,000. The total fair value of these restricted shares is approximately $7,008, or a weighted average fair value of $13.27. Also, during the second quarter, Griffon granted 250,170 shares with a vesting period of three years and a fair value of $4,739, or a weighted average fair value of $18.94 per share. During the third quarter of 2018, no grants were issued.

For the quarters ended June 30, 2018 and 2017, stock based compensation expense totaled $2,452 and $2,405, respectively. For the nine months ended June 30, 2018 and 2017, such expense totaled $7,372 and $7,200, respectively.

During the quarter and nine months ended June 30, 2018, 1,592 shares, with a market value of $33 or $20.85 per share, and 199,044 shares, with a market value of $4,478 or $22.50 per share, respectively, were withheld to settle employee taxes due to the vesting of restricted stock, and were added to treasury.

On December 21, 2009, Griffon issued $100,000 principal amount of 4% convertible subordinated notes due 2017 (the “2017 Notes”). On July 14, 2016, Griffon announced that it would settle, upon conversion, up to $125,000 of the conversion value of the 2017 Notes in cash, with amounts in excess of $125,000, if any, to be settled in shares of Griffon common stock. On January 17, 2017, Griffon settled the convertible debt for $173,855 with $125,000 in cash, utilizing borrowing under the Credit Agreement, and $48,858, or 1,954,993 shares of common stock issued from treasury.

On August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter and nine months ended June 30, 2018, Griffon purchased 650,500 and 2,088,739 shares, respectively, of common stock under the August 2016 program, for a total of $12,694 and $41,110, respectively, or $19.51 and $19.68, respectively. As of June 30, 2018, $8,327 remains under the August 3, 2016 Board authorization. On August 1, 2018, Griffon's Board of Directors authorized the repurchase of an additional $50,000 of Griffon's outstanding common stock.

From August 2011 through June 30, 2018, Griffon repurchased 22,518,037 shares of its common stock, for a total of $302,730 or $13.44 per share. This included the repurchase of 18,073,593 shares on the open market under Griffon's Board of Directors authorized repurchase pr

ograms for a total of $252,730 or $13.98 per shares, as well as the December 10, 2013 repurchase of 4,444,444 shares from GS Direct for $50,000, or $11.25 per share.

On June 19, 2018, GS Direct completed an underwritten secondary offering to sell 5,583,375 shares of Griffon’s common stock, inclusive of the underwriters’ 30-day option to purchase additional shares. Following the closing of the offering, GS Direct no longer owns any shares of Griffon. GS Direct's initial 10,000,000 share investment was in 2008.

NOTE 10 – EARNINGS PER SHARE (EPS)

Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that were issued in connection with stock based compensation and upon the settlement of the 2017 convertible notes.

The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:



	Three Months Ended June 30,		Nine Months Ended June 30,
	2018	2017	2018	2017
Weighted average shares outstanding - basic	40,295	41,683	41,232	40,765
Incremental shares from stock based compensation	1,447	1,572	1,388	1,683
Convertible debt matured 2017	—	—	—	486

Weighted average shares outstanding - diluted	41,742	43,255	42,620	42,934

On July 14, 2016, Griffon announced that it would settle, upon conversion, up to $125,000 of the conversion value of the 2017 Notes in cash, with amounts in excess of $125,000, if any, to be settled in shares of Griffon common stock. During the quarter ended March 31, 2017, Griffon settled the 2017 Notes for $173,855 with $125,000 in cash and 1,954,993 shares of common stock issued from treasury. Prior to settlement, Griffon had the intent and ability to settle the principal amount of the 2017 Notes in cash, and as such, the issuance of shares related to the principal amount of the 2017 Notes did not affect diluted shares.

NOTE 11 – BUSINESS SEGMENTS

Griffon’s reportable segments from continuing operations are as follows:

•

HBP is a global provider of long-handled tools and landscaping products for homeowners and professionals; a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products to home center retail chains, mass merchandisers, and direct-to builder professional installers; a leading manufacturer and marketer of residential and commercial garage doors to professional dealers and to some of the largest home center retail chains in North America as well as a leading U.S. manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional, and retail use.


•	Defense Electronics segment consists of Telephonics a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell PPC and on February 6, 2018, completed the sale to Berry for $475,000 in cash, subject to certain post-closing adjustments. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. See Note 14, Discontinued Operations to the Notes of the Financial Statements.

On October 2, 2017, Griffon acquired ClosetMaid. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail

chains, mass merchandisers, and direct-to-builder professional installers in North America. The accounts of ClosetMaid, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, are included in the Company’s consolidated financial statements from the date of acquisition.

On June 4, 2018, CBP acquired CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use. The accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of CornellCookson, are included in the Company’s consolidated financial statements from the date of acquisition.

Information on Griffon’s reportable segments from continuing operations is as follows:



	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
REVENUE	2018		2017		2018		2017
Home & Building Products:
AMES	$	180,834	$	136,132	$	503,744	$	419,763
ClosetMaid	81,564		—		233,592		—
CBP	177,723		140,349		470,071		406,437
Home & Building Products	440,121		276,481		1,207,407		826,200
Telephonics	76,429		81,633		225,006		267,998
Total consolidated net sales	$	516,550	$	358,114	$	1,432,413	$	1,094,198

The following table reconciles segment operating profit to income before taxes from continuing operations:



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
INCOME BEFORE TAXES FROM CONTINUING OPERATIONS	2018			2017			2018			2017
Segment operating profit:
Home & Building Products	$	38,753		$	23,708		$	94,982		$	64,661
Telephonics	6,084			4,114			8,866			18,521
Segment operating profit from continuing operations	44,837			27,822			103,848			83,182
Net interest expense	(15,796		)	(12,662		)	(48,482		)	(38,656		)
Unallocated amounts	(12,016		)	(10,613		)	(32,993		)	(31,379		)
Acquisition costs	(3,598		)	—			(5,217		)	—
Special dividend ESOP charges	(3,220		)	—			(3,220		)	—
Secondary equity offering costs	(1,205		)				(1,205		)
Cost of life insurance benefit	—			—			(2,614		)	—
Income before taxes from continuing operations	$	9,002		$	4,547		$	10,117		$	13,147

Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason.

The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations:



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2018			2017			2018			2017
Segment adjusted EBITDA:
Home & Building Products	$	50,004		$	33,134		$	129,250		$	92,506
Telephonics	8,760			6,784			16,956			26,678
Total Segment adjusted EBITDA	58,764			39,918			146,206			119,184
Net interest expense	(15,796		)	(12,662		)	(48,482		)	(38,656		)
Segment depreciation and amortization	(13,927		)	(12,096		)	(39,978		)	(36,002		)
Unallocated amounts	(12,016		)	(10,613		)	(32,993		)	(31,379		)
Acquisition costs	(3,598		)	—			(7,597		)	—
Special dividend ESOP charges	(3,220		)	—			(3,220		)	—
Secondary equity offering costs	(1,205		)	—			(1,205		)	—
Cost of life insurance benefit	—			—			(2,614		)	—
Income before taxes from continuing operations	$	9,002		$	4,547		$	10,117		$	13,147

Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.



	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
DEPRECIATION and AMORTIZATION	2018		2017		2018		2017
Segment:
Home & Building Products	$	11,251	$	9,426	$	31,888	$	27,845
Telephonics	2,676		2,670		8,090		8,157
Total segment depreciation and amortization	13,927		12,096		39,978		36,002
Corporate	120		125		340		354
Total consolidated depreciation and amortization	$	14,047	$	12,221	$	40,318	$	36,356

CAPITAL EXPENDITURES
Segment:
Home & Building Products	$	9,761	$	5,853	$	24,611	$	16,012
Telephonics	1,632		1,161		6,017		4,274
Total segment	11,393		7,014		30,628		20,286
Corporate	127		23		2,520		2,289
Total consolidated capital expenditures	$	11,520	$	7,037	$	33,148	$	22,575



ASSETS	At June 30, 2018		At September 30, 2017
Segment assets:
Home & Building Products	$	1,660,665	$	1,084,103
Telephonics	337,352		343,445
Total segment assets	1,998,017		1,427,548
Corporate	100,378		71,980
Total continuing assets	2,098,395		1,499,528
Assets of discontinued operations	3,256		374,013
Consolidated total	$	2,101,651	$	1,873,541

NOTE 12 – EMPLOYEE BENEFIT PLANS

Defined benefit pension expense (income) was as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Interest cost	$	1,407		$	1,402		$	4,221		$	4,206
Expected return on plan assets	(2,684		)	(2,735		)	(8,052		)	(8,207		)
Amortization:
Prior service cost	4			4			12			12
Recognized actuarial loss	525			832			1,575			2,496
Net periodic expense (income)	$	(748	)	$	(497	)	$	(2,244	)	$	(1,493	)

As a result of the recent passing of our Chairman of the Board, who participated in a Supplemental Executive Retirement Plan relating to his tenure as Chief Executive Officer (a position from which he retired in 2008), the pension benefit liability was reduced by $13,715 at December 31, 2017, with the offset, net of tax, recorded in Other Comprehensive Income.

NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS

In March 2018, the FASB issued ASU 2018-05, Income Taxes Amendments to SEC Paragraphs Pursuant to the SEC SAB 118. This ASU provides guidance on income tax accounting implications under the Tax Reform Act. SAB 118 addressed the application of GAAP to situations when a registrant does not have the necessary information available, prepared and analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act and allows companies to record provisional amounts during the re-measurement period not to exceed one year after the enactment date while the accounting impact remains under analysis. This guidance was effective immediately upon issuance. See Note 7 Income Taxes for further details.

Issued but not yet effective accounting pronouncements

In February 2018, the FASB issued guidance that allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (the Tax Act), from accumulated other comprehensive income to retained earnings. This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The new standard is effective for the Company beginning in 2020, with early adoption permitted. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of a stock compensation award previously granted to an employee. This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017. Early ad