Griffon Corporation - 10-Q quarterly report FY2019 Q3

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June 30, 2019



☐	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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.25 par value	GFF	New York Stock Exchange

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 ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ 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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
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. ☐

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

The number of shares of common stock outstanding at July 31, 2019 was 46,800,571.

Griffon Corporation and Subsidiaries

Contents



	Page
PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2019 (unaudited) and September 30, 2018	1

Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended June 30, 2019 and 2018 (unaudited)	2

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2019 and 2018 (unaudited)	4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2019 and 2018 (unaudited)	5

Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	55

Item 4 - Controls & Procedures	56

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	57

Item 1A – Risk Factors	57

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3 – Defaults Upon Senior Securities	57

Item 4 – Mine Safety Disclosures	57

Item 5 – Other Information	57

Item 6 – Exhibits	58

Signatures	59

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



	(Unaudited)
	June 30, 2019		September 30, 2018
CURRENT ASSETS
Cash and equivalents	$	58,112	$	69,758
Accounts receivable, net of allowances of $7,841 and $6,408	322,310		280,509
Contract costs and recognized income not yet billed, net of progress payments of $7,895 and $3,172	90,825		121,803
Inventories	436,885		398,359
Prepaid and other current assets	52,898		42,121
Assets of discontinued operations	323		324
Total Current Assets	961,353		912,874
PROPERTY, PLANT AND EQUIPMENT, net	331,345		342,492
GOODWILL	438,417		439,395
INTANGIBLE ASSETS, net	361,249		370,858
OTHER ASSETS	16,200		16,355
ASSETS OF DISCONTINUED OPERATIONS	2,895		2,916
Total Assets	$	2,111,459	$	2,084,890

CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	10,884	$	13,011
Accounts payable	205,570		233,658
Accrued liabilities	148,123		139,192
Liabilities of discontinued operations	2,653		7,210
Total Current Liabilities	367,230		393,071
LONG-TERM DEBT, net	1,159,621		1,108,071
OTHER LIABILITIES	94,148		106,710
LIABILITIES OF DISCONTINUED OPERATIONS	2,295		2,647
Total Liabilities	1,623,294		1,610,499
COMMITMENTS AND CONTINGENCIES - See Note 19
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	488,165		474,391
Total Liabilities and Shareholders’ Equity	$	2,111,459	$	2,084,890

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

For the Nine Months Ended June 30, 2019 and 2018

(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, 2018	81,520	$	20,380	$	503,396		$	550,523		35,846	$	(534,830	)	$	(34,112	)	$	(30,966	)	$	474,391
Net income	—	—		—			8,753			—	—			—			—			8,753
Cumulative catch-up adjustment related to adoption of ASC 606(1)	—	—		—			(5,673		)	—	—			—			—			(5,673		)
Dividend	—	—		—			(3,143		)	—	—			—			—			(3,143		)
Shares withheld on employee taxes on vested equity awards	—	—		—			—			83	(1,058		)	—			—			(1,058		)
Amortization of deferred compensation	—	—		—			—			—	—			—			856			856
Common stock acquired	—	—		—			—			29	(290		)	—			—			(290		)
Equity awards granted, net	1,201	300		(300		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		(8		)	—			—	—			—			—			(8		)
Stock-based compensation	—	—		2,933			—			—	—			—			—			2,933
Stock-based consideration	—	—		250			—			—	—			—			—			250
Other comprehensive income, net of tax	—	—		—			—			—	—			(5,450		)	—			(5,450		)
Balance at December 31, 2018	82,721	$	20,680	$	506,271		$	550,460		35,958	$	(536,178	)	$	(39,562	)	$	(30,110	)	$	471,561
Net income (loss)	—	—		—			(1,156		)	—	—			—			—			(1,156		)
Dividend	—	—		—			(3,704		)	—	—			—			—			(3,704		)
Shares withheld on employee taxes on vested equity awards	—	—		—			—			3	(48		)	—			—			(48		)
Amortization of deferred compensation	—	—		—			—			—	—			—			507			507
Common stock acquired	—	—		—			—			8	(82		)	—			—			(82		)
Equity awards granted, net	48	12		(12		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		601			—			—	—			—			—			601
Stock-based compensation	—	—		3,422			—			—	—			—			—			3,422
Stock-based consideration	—	—		303			—			—	—			—			—			303
Other comprehensive income, net of tax	—	—		—			—			—	—			2,880			—			2,880
Balance at March 31, 2019	82,769	$	20,692	$	510,585		$	545,600		35,969	$	(536,308	)	$	(36,682	)	$	(29,603	)	$	474,284
Net income	—	—		—			13,595			—	—			—			—			13,595
Dividend	—	—		—			(3,415		)	—	—			—			—			(3,415		)
Amortization of deferred compensation	—	—		—			—			—	—			—			682			682
ESOP allocation of common stock	—	—		435			—			—	—			—			—			435
Stock-based compensation	—	—		3,332			—			—	—			—			—			3,332
Stock-based consideration	—	—		287			—			—	—			—			—			287
Other comprehensive income, net of tax	—	—		—			—			—	—			(1,035		)	—			(1,035		)
Balance at June 30, 2019	82,769	$	20,692	$	514,639		$	555,780		35,969	$	(536,308	)	$	(37,717	)	$	(28,921	)	$	488,165

^{(1) See Note 14 - Recent Accounting Pronouncements and Note 3 - Revenue for additional information.}

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

Table of Contents



	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	—		—			—			30,989			—	—			—			—			30,989
Dividend	—		—			—			(2,990		)	—	—			—			—			(2,990		)
Shares withheld on employee taxes on vested equity awards	—		—			—			—			191	(4,332		)	—			—			(4,332		)
Amortization of deferred compensation	—		—			—			—			—	—			—			817			817
Equity awards granted, net	895		223			(223		)	—			—	—			—			—			—
ESOP allocation of common stock	—		—			608			—			—	—			—			—			608
Stock-based compensation	—		—			2,555			—			—	—			—			—			2,555
Other comprehensive income, net of tax	—		—			—			—			—	—			8,358			—			8,358
Balance at December 31, 2017	81,558		$	20,389		$	490,017		$	508,346		33,748	$	(493,557	)	$	(52,123	)	$	(38,259	)	$	434,813
Net income	—		—			—			90,280			—	—			—			—			90,280
Dividend	—		—			—			(46,660		)	—	—			—			—			(46,660		)
Shares withheld on employee taxes on vested equity awards	—		—			—			—			6	(114		)	—			—			(114		)
Amortization of deferred compensation	—		—			—			—			—	—			—			855			855
Common stock acquired	—		—			—			—			1,438	(28,415		)	—			—			(28,415		)
Equity awards granted, net	(84	)	(20		)	20			—			—	—			—			—			—
ESOP allocation of common stock	—		—			493			—			—	—			—			—			493
Stock-based compensation	—		—			2,365			—			—	—			—			—			2,365
Other comprehensive income, net of tax	—		—			—			—			—	—			20,401			—			20,401
Balance at March 31, 2018	81,474		$	20,369		$	492,895		$	551,966		35,192	$	(522,086	)	$	(31,722	)	$	(37,404	)	$	474,018
Net income	—		—			—			5,827			—	—			—			—			5,827
Dividend	—		—			—			(2,871		)	—	—			—			—			(2,871		)
Shares withheld on employee taxes on vested equity awards	—		—			—			—			2	(32		)	—			—			(32		)
Amortization of deferred compensation	—		—			—			—			—	—			—			4,416			4,416
Common stock acquired	—		—			—			—			651	(12,695		)	—			—			(12,695		)
Equity awards granted, net	(14	)	(4		)	4			—			—	—			—			—			—
ESOP allocation of common stock	—		—			2,805			—			—	—			—			—			2,805
Stock-based compensation	—		—			2,452			—			—	—			—			—			2,452
Stock-based consideration	—		—			972			—			—	—			—			—			972
Other comprehensive income, net of tax	—		—			—			—			—	—			(8,805		)	—			(8,805		)
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,
	2019			2018			2019			2018
Revenue	$	574,970		$	516,550		$	1,635,125		$	1,432,413
Cost of goods and services	420,487			377,868			1,200,092			1,051,573
Gross profit	154,483			138,682			435,033			380,840

Selling, general and administrative expenses	117,989			115,112			343,526			326,229

Income from operations	36,494			23,570			91,507			54,611

Other income (expense)
Interest expense	(17,288		)	(16,328		)	(51,334		)	(49,973		)
Interest income	201			532			611			1,491
Other, net	979			1,228			3,251			3,988
Total other expense, net	(16,108		)	(14,568		)	(47,472		)	(44,494		)

Income before taxes from continuing operations	20,386			9,002			44,035			10,117
Provision (benefit) from income taxes	6,258			1,560			14,664			(22,107		)
Income from continuing operations	$	14,128		$	7,442		$	29,371		$	32,224

Discontinued operations:
Income (loss) from operations of discontinued operations	—			(200		)	(11,000		)	124,642
Provision (benefit) for income taxes	533			1,415			(2,821		)	29,770
Income (loss) from discontinued operations	(533		)	(1,615		)	(8,179		)	94,872
Net income	$	13,595		$	5,827		$	21,192		$	127,096

Income from continuing operations	$	0.34		$	0.18		$	0.72		$	0.78
Income (loss) from discontinued operations	(0.01		)	(0.04		)	(0.20		)	2.30
Basic earnings per common share	$	0.33		$	0.14		$	0.52		$	3.08

Weighted-average shares outstanding	40,967			40,295			40,888			41,232

Income from continuing operations	$	0.33		$	0.18		$	0.69		$	0.76
Income (loss) from discontinued operations	(0.01		)	(0.04		)	(0.19		)	2.23
Diluted earnings per common share	$	0.31		$	0.14		$	0.50		$	2.98

Weighted-average shares outstanding	43,164			41,742			42,649			42,620

Dividends paid per common share	$	0.0725		$	1.0700		$	0.2175		$	1.2100

Net income	$	13,595		$	5,827		$	21,192		$	127,096
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	(1,092		)	(9,136		)	(3,943		)	9,289
Pension and other post retirement plans	184			247			552			10,053
Change in cash flow hedges	(127		)	84			(214		)	612
Total other comprehensive income (loss), net of taxes	(1,035		)	(8,805		)	(3,605		)	19,954
Comprehensive income (loss), net	$	12,560		$	(2,978	)	$	17,587		$	147,050

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,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS:
Net income	$	21,192		$	127,096
Net (income) loss from discontinued operations	8,179			(94,872		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	46,172			40,318
Stock-based compensation	9,687			7,372
Provision for losses on accounts receivable	306			49
Amortization of debt discounts and issuance costs	4,133			3,981
Deferred income taxes	(353		)	(24,612		)
(Gain) loss on sale of assets and investments	(111		)	136
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable and contract costs and recognized income not yet billed	(33,223		)	(16,290		)
Increase in inventories	(18,009		)	(49,474		)
Increase in prepaid and other assets	(3,921		)	(2,477		)
Decrease in accounts payable, accrued liabilities and income taxes payable	(22,688		)	(4,088		)
Other changes, net	3,618			7,398
Net cash provided by (used in) operating activities - continuing operations	14,982			(5,463		)
CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Acquisition of property, plant and equipment	(27,794		)	(33,148		)
Acquired businesses, net of cash acquired	(9,219		)	(429,545		)
Proceeds (payments) related to sale of business	(9,500		)	473,977
Insurance proceeds (payments)	(10,604		)	8,254
Proceeds from sale of assets	104			482
Investment purchase	(149		)	—
Net cash provided by (used in) investing activities - continuing operations	(57,162		)	20,020
CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Dividends paid	(10,262		)	(46,816		)
Purchase of shares for treasury	(1,478		)	(45,588		)
Proceeds from long-term debt	156,800			419,645
Payments of long-term debt	(108,260		)	(262,031		)
Financing costs	(1,012		)	(7,671		)
Contingent consideration for acquired businesses	(1,686		)	—
Other, net	(197		)	139
Net cash provided by financing activities - continuing operations	33,905			57,678
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities	(3,874		)	(28,970		)
Net cash used in investing activities	—			(10,762		)
Net cash used in financing activities	—			(22,541		)

Net cash used in discontinued operations	(3,874		)	(62,273		)
Effect of exchange rate changes on cash and equivalents	503			6,123
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(11,646		)	16,085
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	69,758			47,681
CASH AND EQUIVALENTS AT END OF PERIOD	$	58,112		$	63,766

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”, “Griffon”, "we" or "us") 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.

The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF).

Griffon currently conducts its operations through two reportable segments:


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

AMES, founded in 1774, is the leading North American manufacturer and a global provider of branded consumer and professional tools, landscaping products, and outdoor lifestyle solutions. In 2018, we acquired ClosetMaid LLC ("ClosetMaid"), a leader in wood and wire closet organization, general living storage and wire garage storage products for homeowners and professionals.

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. In 2018, we acquired CornellCookson, 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, 2018, 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, 2018 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2018.

The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in 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 $998,800 on June 30, 2019. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with values of $3,410 at June 30, 2019 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, 2019, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $2,811 ($2,233 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, 2019, 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, 2019, Griffon had $6,500 of Australian dollar contracts at a weighted average rate of $1.43 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 $257 ($180, net of tax) at June 30, 2019 and a gain of $663 and $1,597 was recorded in COGS during the three and nine months ended June 30, 2019, respectively, for all settled contracts. All contracts expire in 30 to 60 days.

At June 30, 2019, Griffon had $5,415 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 three and nine months ended June 30, 2019, fair value gains of $ $67 and $85 were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $49 and $108 were recorded in Other income during the three and nine months ended June 30, 2019, respectively, for all settled contracts. All contracts expire in 30 to 450 days.

NOTE 3 – REVENUE

On October 1, 2018, the Company adopted the requirements of Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective method applied to those contracts that were not completed as of October 1, 2018. The Company’s comparative consolidated results over the prior period have not been adjusted and continue to be reported under previously issued guidance, ASC 605 - Revenue Recognition, which required that revenue was accounted for when the earnings process was complete.

This accounting standard did not materially impact the Company’s revenue recognition practices in our Home and Building Products (“HBP”) Segment, however, it impacted revenue recognition practices in our Defense Electronics Segment. The impact of adopting this accounting standard was not material to the Company’s consolidated financial statements as of and for the three and nine months ended June 30, 2019. Under the modified retrospective method, the Company recognized the cumulative effect of initially applying this accounting standard as an adjustment to the opening balance in retained earnings of approximately $5,673 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and / or no right to payment. For these contracts, the Company now recognizes revenue at a point in time, rather than over time as this measure more accurately depicts the transfer of control to the customer relative to the goods or services promised under the contract.

The cumulative effect of the changes made to the Company's Consolidated October 1, 2018 Balance Sheet for the adoption of ASC 606 is as follows:



Balance Sheet	As Reported at September 30, 2018		Adjustments			Balance as of October 1, 2018
CURRENT ASSETS
Contract costs and recognized income not yet billed, net of progress payments	$	121,803	$	(20,982	)	$	100,821
Inventories	398,359		22,025			420,384
Total Current Assets	912,874		1,043			913,917
Total Assets	2,084,890		1,043			2,085,933

CURRENT LIABILITIES
Accounts payable	233,658		8,282			241,940
Billings in excess of costs ⁽¹⁾	17,559		8,282			25,841
Total Current Liabilities	393,071		8,282			401,353
OTHER LIABILITIES	106,710		(1,566		)	105,144
Total Liabilities	1,610,499		6,716			1,617,215

SHAREHOLDERS' EQUITY
Retained Earnings	550,523		(5,673		)	544,850
Total Shareholders' Equity	474,391		(5,673		)	468,718
Total Liabilities and Shareholders’ Equity	$	2,084,890	$	1,043		$	2,085,933

⁽¹⁾ Billings in excess of costs is reported in Accounts payable on the Company's Consolidated Balance Sheets.

The impact to the Company's Consolidated Statement of Operations for the three and nine months ended June 30, 2019 and to the Company's Balance Sheet as of June 30, 2019 was as follows:



	For the Three Months Ended June 30, 2019
Income Statement	As Reported		Balances Without Adoption of ASC 606		Effect of Adoption Higher/(Lower)
Net sales	$	574,970	$	578,276	$	(3,306	)
Cost of goods and services	420,487		423,529		(3,042		)
Income (loss) before taxes from continuing operations	20,386		20,649		(263		)
Provision (benefit) from income taxes	6,258		6,316		(58		)
Income from continuing operations	14,128		14,334		(206		)



	For the Nine Months Ended June 30, 2019
Income Statement	As Reported		Balances Without Adoption of ASC 606		Effect of Adoption Higher/(Lower)
Net sales	$	1,635,125	$	1,632,245	$	2,880
Cost of goods and services	1,200,092		1,198,638		1,454
Income before taxes from continuing operations	44,035		42,609		1,426
Provision (benefit) from income taxes	14,664		14,353		311
Income from continuing operations	29,371		28,256		1,115



	As of June 30, 2019
Balance Sheet	As Reported		Balances Without Adoption of ASC 606		Effect of Adoption Higher/(Lower)
CURRENT ASSETS
Contract costs and recognized income not yet billed, net of progress payments	$	90,825	$	108,926	$	(18,101	)
Inventories	436,885		416,315		20,570
Total Current Assets	961,353		958,884		2,469
Total Assets	2,111,459		2,108,990		2,469

CURRENT LIABILITIES
Accounts payable	205,570		197,288		8,282
Billings in excess of costs	24,470		16,188		8,282
Total Current Liabilities	367,230		358,948		8,282
OTHER LIABILITIES	94,148		95,403		(1,255		)
Total Liabilities	1,623,294		1,616,267		7,027

SHAREHOLDERS' EQUITY
Retained Earnings	555,780		560,338		(4,558		)
Total Shareholders' Equity	488,165		492,723		(4,558		)
Total Liabilities and Shareholders’ Equity	$	2,111,459	$	2,108,990	$	2,469

The Company’s accounting policy has been updated to align with the new standard to recognize revenue when the following criteria are met: 1) Contract with the customer has been identified; 2) Performance obligations in the contract have been identified; 3) Transaction price has been determined; 4) Transaction price has been allocated to the performance obligations; and 5) Revenue is recognized when (or as) performance obligations are satisfied.

See Note 12 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC Topic 606. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price).

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services. These contracts require judgment in determining the number of performance obligations.

Over 80% of the Company’s performance obligations are recognized at a point in time that relates to the manufacture and sale of a broad range of products and components within the HBP Segment, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer. Less than 20% of the Company’s performance obligations are recognized over time or under the percentage-of-completion method these relate to prime or subcontractors from contract awards with the U.S. Government, as well as foreign governments and other commercial customers within our Defense Electronics Segment. Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an appropriate measure of progress towards satisfaction of performance obligations, as it most accurately depicts the progress of our work and transfer of control to our customers.

Revenue from HBP Segment

A majority of the HBP Segment revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly. Payment terms generally range between 15 to 90 days and vary by the location of the business, the type of products manufactured to be sold and the volume of products sold, among other factors.

The Company’s HBP Segment recognizes revenue from product sales when all factors are met, including when control of a product transfers to the customer upon its shipment, completion of installation, testing, certification or other substantive acceptance required under the contract. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations on the Company. 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 and allowances based upon historical returns experience.

The majority of the Company’s contracts in the HBP Segment offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation.

Payment terms in the HBP Segment vary depending on the type and location of the customer and the products or services offered. Generally, the period between the time revenue is recognized and the time payment is due is not significant. Shipping and handling charges are not considered a separate performance obligation. If revenue is recognized for a good before it is shipped and handled, the related shipping and handling costs must be accrued. Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue. The Company's policies related to shipping, handling and taxes have not changed with the adoption of ASC 606.

Revenue from Defense Electronics Segment

The Company’s Defense Electronics segment earns a substantial portion of its revenue as either a prime contractor or subcontractor from contract awards with the U.S. Government, as well as foreign governments and other commercial customers. These contracts are typically long-term in nature, usually greater than one year and do not include a material long-term financing component,

either implicitly or explicitly. Revenue and profits from such contracts are recognized under the percentage-of-completion (over time) 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 performance and estimates to complete 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 are often required as experience is gained, more information is obtained (even though the scope of work required under the contract may or may not change) and contract modifications occur. The impact of such adjustments to estimates is made on a cumulative basis in the period when such information has become known. For the three and nine months ended June 30, 2019, income from operations included net favorable/(unfavorable) catch-up adjustments approximating $(700) and $(6,000), respectively. For the three and nine months ended June 30, 2018, income from operations included net favorable/(unfavorable) catch up adjustments approximating $400 and $(900), respectively. Gross profit is impacted 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 with multiple performance obligations, judgment is required to determine whether performance obligations specified in these contacts are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of contracts, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.

For contracts in which 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. The estimated remaining costs to complete loss contracts as of June 30, 2019 and September 30, 2018 were approximately $8,600 and $12,200, respectively, and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). This loss had an immaterial impact on Griffon's Consolidated Financial Statements.

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.

Substantially all of Telephonics’ U.S. Government end-user contracts contain a termination for convenience clause, regardless whether 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.

From time to time, Telephonics may combine contracts if they are negotiated together, have specific requirements to combine, or are otherwise closely related.

Transaction Price Allocated to the Remaining Performance Obligations

On June 30, 2019, we had $384,422 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 76% of our remaining performance obligations as revenue within one year, with the balance to be completed thereafter.

Backlog represents the dollar value of funded orders for which work has not been performed. Backlog generally increases with bookings, and converts into revenue as we incur costs related to contractual commitments or the shipment of product. Given the nature of our business and a larger dependency on international customers, our bookings, and therefore our backlog, is impacted by the longer maturation cycles resulting in delays in the timing and amounts of such awards, which are subject to numerous factors, including fiscal constraints placed on customer budgets; political uncertainty; the timing of customer negotiations; and

the timing of governmental approvals.

Contract Balances

Contract assets were $90,825 as of June 30, 2019 compared to $121,803 as of September 30, 2018. The $30,978 decrease in our contract assets balance was primarily due to the implementation of ASC 606. Excluding the impact of ASC 606, the decrease was primarily due to the timing of billings and work performed on various radar and surveillance programs. Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract costs and recognized income not yet billed, net of progress payments in the Consolidated Balance Sheets. Contract assets are transferred to receivables when the right to consideration becomes unconditional. 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. At June 30, 2019 and September 30, 2018, approximately $23,400 and $29,500, respectively, of contract costs and recognized income not yet billed were expected to be collected after one year. As of June 30, 2019 and September 30, 2018, Contract costs and recognized income not yet billed included $200 and $400, respectively, of reserves for contract risk.

Contract liabilities were $24,470 as of June 30, 2019 compared to $17,559 as of September 30, 2018. The $6,911 increase in the contract liabilities balance was primarily due to the implementation of ASC 606. Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized. The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as current on the Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. Current contract liabilities are recorded in Accounts payable on the Consolidated Balance Sheets. Contract liabilities are reduced when the associated revenue from the contract is recognized.

NOTE 4 – 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 unless otherwise noted.

On June 4, 2018, CBP completed the acquisition of 100% of the outstanding stock 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, excluding the estimated present value of tax benefits, and $12,426 of post-closing adjustments, primarily consisting of a working capital adjustment. 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 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 purchase price allocation is as follows:




Accounts receivable ⁽¹⁾	$	30,400
Inventories ⁽²⁾	12,336
Property, plant and equipment	49,426
Goodwill	43,183
Intangible assets	67,600
Other current and non-current assets	2,648
Total assets acquired	205,593

Accounts payable and accrued liabilities	12,507
Long-term liabilities	660
Total liabilities assumed	13,167
Total	$	192,426

⁽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⁾Includes $13,434 of gross inventory of which $1,098 was reserved for obsolete inventory.

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



			Average Life (Years)
Goodwill	$	43,183	N/A
Indefinite-lived intangibles	53,500		N/A
Definite-lived intangibles	14,100		12
Total goodwill and intangible assets	$	110,783

On February 13, 2018, AMES acquired 100% of the outstanding stock of 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 tradenames of GBP 19,000, customer related intangibles of GBP 6,640, accounts receivable and inventory of GBP 8,894 and fixed assets and land of GBP 8,241.

On November 6, 2017, AMES acquired substantially all of the assets of 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, inventory and accounts receivable of $3,900 and fixed assets of $900.

On October 2, 2017, Griffon Corporation completed the acquisition of ClosetMaid, a market leader in home storage and organization products, for approximately $185,700, inclusive of certain post-closing adjustments and excluding the present value of net tax benefits 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 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 an 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 calculation of the final purchase price allocation is as follows:




Accounts receivable ⁽¹⁾	$	32,234
Inventories ^{(2), (3)}	28,411
Property, plant and equipment	47,464
Goodwill	70,159
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 $29,079 of gross inventory of which $668 was reserved for obsolete inventory. The fair value of inventory approximated book value acquired.

⁽³⁾ 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	$	70,159	N/A
Indefinite-lived intangibles	47,740		N/A
Definite-lived intangibles	26,840		21
Total goodwill and intangible assets	$	144,739

The Company did not incur any acquisition costs during the three and nine months ended June 30, 2019. During the three months ended June 30, 2018, selling, general and administrative expenses ("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.

NOTE 5 – 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, 2019		At September 30, 2018
Raw materials and supplies	$	107,697	$	97,645
Work in process	101,633		83,578
Finished goods	227,555		217,136
Total	$	436,885	$	398,359

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

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



	At June 30, 2019			At September 30, 2018
Land, building and building improvements	$	132,408		$	130,296
Machinery and equipment	566,219			544,875
Leasehold improvements	51,675			50,111
	750,302			725,282
Accumulated depreciation and amortization	(418,957		)	(382,790		)
Total	$	331,345		$	342,492

Depreciation and amortization expense for property, plant and equipment was $13,089 and $11,738 for the quarters ended June 30, 2019 and 2018, respectively, and $38,736 and $33,970 for the nine months ended June 30, 2019 and 2018, respectively. Depreciation included in SG&A expenses was $4,821 and $4,171 for the quarters ended June 30, 2019 and 2018, respectively, and $14,263 and $11,747 for the nine months ended June 30, 2019 and 2018, 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 nine months ended June 30, 2019 which would require additional impairment testing of property, plant and equipment.

NOTE 7 – GOODWILL AND OTHER INTANGIBLES

The following table provides changes in the carrying value of goodwill by segment during the nine months ended June 30, 2019:



	At September 30, 2018		Goodwill from acquisitions		Other adjustments including currency translations			At June 30, 2019
Home & Building Products	$	420,850	$	300	$	(1,278	)	$	419,872
Telephonics	18,545		—		—			18,545
Total	$	439,395	$	300	$	(1,278	)	$	438,417

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



	At June 30, 2019					At September 30, 2018
	Gross Carrying Amount		Accumulated Amortization		Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Customer relationships & other	$	184,609	$	55,987	23	$	186,031	$	49,822
Technology and patents	19,303		7,121		13	19,004		6,238
Total amortizable intangible assets	203,912		63,108			205,035		56,060
Trademarks	220,445		—			221,883		—
Total intangible assets	$	424,357	$	63,108		$	426,918	$	56,060

Amortization expense for intangible assets was $2,506 and $2,309 for the quarters ended June 30, 2019 and 2018, respectively, and $7,436 and $6,348 for the nine months ended June 30, 2019 and 2018. Amortization expense for the remainder of 2019 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2019 - $2,200; 2020 - $8,825; 2021 - $8,825; 2022 - $8,825; 2023 - $8,746; 2024 - $8,700; thereafter $94,683.

No event or indicator of impairment occurred during the nine months ended June 30, 2019 which would require impairment testing of long-lived intangible assets including goodwill.

NOTE 8 – INCOME TAXES

During the quarter ended June 30, 2019, the Company recognized a tax provision of $6,258 on income before taxes from continuing operations of $20,386, compared to a tax provision of $1,560 on income before taxes from continuing operations of $9,002 in the comparable prior year quarter. The current year quarter included net discrete tax benefits of $669. The prior year 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, that affect comparability. Excluding these items, the effective tax rates for the quarters ended June 30, 2019 and 2018 were 34.0% and 33.9%, respectively.

During the nine months ended June 30, 2019, the Company recognized a tax provision of $14,664 on Income before taxes from continuing operations of $44,035, compared to a tax benefit of $22,107 on Income before taxes from continuing operations of $10,117 in the comparable prior year period. The nine month period ended June 30, 2019 included net discrete tax benefits of $299. The nine month period ended June 30, 2018 included net tax benefits of $24,080 primarily related to the December 22, 2017 Tax Cuts and Jobs Act ("TCJA") associated with the revaluation of deferred tax liabilities, $7,597 ($5,046 net of tax) of acquisition costs, special dividend ESOP charges of $3,220 ($2,125, net of tax), secondary equity offering costs of $1,205 ($795, net of tax) and $2,614 ($248 net of tax) of charges related to cost of life insurance benefits. Excluding these items, the effective tax rates for the nine months ended June 30, 2019 and 2018 were 34.0% and 33.9%, respectively.

On December 22, 2017, the TCJA was signed into law, and, among other changes, reduced the federal statutory tax rate from 35.0% to 21.0%. In accordance with U.S. GAAP for income taxes, as well as SEC Staff Accounting Bulletin No. 118 (“SAB 118”), the Company made a reasonable estimate of the impacts of the TCJA and recorded this estimate in its results for the year ended September 30, 2018. SAB 118 allows for a measurement period of up to one year, from the date of enactment, to complete the Company’s accounting for the impacts of the TCJA. Our analysis under SAB 118 was completed in December 2018 and resulted in no material adjustments to the provision amounts recorded as of September 30, 2018.

NOTE 9 – LONG-TERM DEBT



		At June 30, 2019													At September 30, 2018
		Outstanding Balance			Original Issuer Premium		Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate		Outstanding Balance			Original Issuer Premium		Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate
Senior notes due 2022	(a)	$	1,000,000		$	955	$	(10,116	)	$	990,839		5.25	%	$	1,000,000		$	1,220	$	(12,968	)	$	988,252		5.25	%
Revolver due 2021	(b)	122,806			—		(1,463		)	121,343			Variable		25,000			—		(1,413		)	23,587			Variable
ESOP Loans	(d)	—			—		—			—			Variable		34,694			—		(186		)	34,508			Variable
Capital lease - real estate	(e)	5,185			—		(61		)	5,124			5.00	%	7,503			—		(80		)	7,423			5.00	%
Non US lines of credit	(f)	8,443			—		(5		)	8,438			Variable		7,951			—		(16		)	7,935			Variable
Non US term loans	(f)	39,617			—		(213		)	39,404			Variable		53,533			—		(148		)	53,385			Variable
Other long term debt	(g)	5,375			—		(18		)	5,357			Variable		6,011			—		(19		)	5,992			Variable
Totals		1,181,426			955		(11,876		)	1,170,505					1,134,692			1,220		(14,830		)	1,121,082
less: Current portion		(10,884		)	—		—			(10,884		)			(13,011		)	—		—			(13,011		)
Long-term debt		$	1,170,542		$	955	$	(11,876	)	$	1,159,621				$	1,121,681		$	1,220	$	(14,830	)	$	1,108,071



		Three Months Ended June 30, 2019												Three Months Ended June 30, 2018
		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 Premium		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2022	(a)	5.7	%	$	13,125		$	68	$	950	$	14,143		5.7	%	$	13,125		$	67	$	957	$	14,149
Revolver due 2021	(b)	Variable		2,282			—		220		2,502			Variable		1,239			—		141		1,380
Real estate mortgages	(c)	n/a		—			—		—		—			n/a		—			—		—		—
ESOP Loans	(d)	n/a		—			—		—		—			5.5	%	472			—		31		503
Capital lease - real estate	(e)	5.6	%	78			—		7		85			5.6	%	42			—		6		48
Non US lines of credit	(f)	Variable		4			—		3		7			Variable		22			—		4		26
Non US term loans	(f)	Variable		376			—		44		420			Variable		338			—		18		356
Other long term debt	(g)	Variable		149			—		—		149			Variable		33			—		1		34
Capitalized interest				(18		)	—		—		(18		)			(168		)	—		—		(168		)
Totals				$	15,996		$	68	$	1,224	$	17,288				$	15,103		$	67	$	1,158	$	16,328

(1) n/a = not applicable



		Nine Months Ended June 30, 2019												Nine Months Ended June 30, 2018
		Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense			Effective Interest Rate		Cash Interest			Amort. Debt Premium		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2022	(a)	5.7	%	39,375			202		2,852		42,429			5.7	%	39,375			202		2,839		42,416
Revolver due 2021	(b)	Variable		4,846			—		761		5,607			Variable		3,517			—		422		3,939
Real estate mortgages	(c)	n/a		—			—		—		—			n/a		351			—		320		671
ESOP Loans	(d)	6.6	%	937			—		186		1,123			4.7	%	1,327			—		93		1,420
Capital lease - real estate	(e)	5.5	%	294			—		19		313			5.5	%	533			—		19		552
Non US lines of credit	(f)	Variable		15			—		11		26			Variable		33			—		11		44
Non US term loans	(f)	Variable		1,273			—		97		1,370			Variable		1,002			—		69		1,071
Other long term debt	(g)	Variable		478			—		6		484			Variable		262			—		4		266
Capitalized interest				(18		)	—		—		(18		)			(406		)	—		—		(406		)
Totals				$	47,200		$	202	$	3,932	$	51,334				$	45,994		$	202	$	3,777	$	49,973

(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, 2019, 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, July 20, 2016 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 via an exchange offer. The fair value of the Senior Notes approximated $998,800 on June 30, 2019 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; this is in addition to the $13,329 capitalized under previously issued $725,000 Senior Notes. All capitalized fees for the Senior Notes will amortize over the term of the notes and, at June 30, 2019, $10,116 remained to be amortized.

(b)

On March 22, 2016, Griffon amended the Credit Agreement to increase the commitments under 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 connection with the ClosetMaid and CornellCookson acquisitions, respectively to, among other things, modify the net leverage covenant. On February 22, 2019, Griffon further amended the Revolving Credit Facility to, among other things, reflect changes in the lending group and certain corresponding changes in various administrative roles under the Revolving Credit Facility, make conforming administrative and technical changes and reflect changes in law. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $100,000. 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. At June 30, 2019, under the Credit Agreement, there were $122,806 of outstanding borrowings; outstanding standby letters of credit were $20,628; and $206,566 was available, subject to certain loan covenants, for borrowing at that date.

(c)

In September 2015 and March 2016, Griffon entered into mortgage loans in the amounts of $32,280 and $8,000, respectively, and were due to mature in September 2025 and April 2018, respectively. The mortgage loans were secured and collateralized by four properties occupied by Griffon's subsidiaries and were guaranteed by Griffon. The loans had an interest rate of LIBOR plus 1.50%. The loans were paid off during the year ended September 30, 2018.

(d)

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 had then been fully utilized. On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan interest rate was LIBOR plus 2.91%. The Term Loan required quarterly principal payments of $569 and a balloon payment due at maturity. As a result of the special cash dividend of $1.00 per share, paid on April 16, 2018, the outstanding balance of the Term Loan was reduced by $5,705. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon which was funded with cash and a draw on its $350,000 credit facility. The internal loan interest rate is fixed at 2.91%, matures in June 2033

and requires quarterly payments of principal, currently $569, and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at June 30, 2019 was $32,987.

(e)

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, 2019, $5,124 was outstanding, net of issuance costs.

(f)

In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,435 as of June 30, 2019) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.7% LIBOR USD and 3.14% Bankers Acceptance Rate CDN as of June 30, 2019). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity. At June 30, 2019, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,435 as of June 30, 2019) 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 and September 2017, the term loan commitment was increased by AUD 5,000 and AUD 15,000, respectively. In March 2019, the term loan commitment was reduced by AUD 10,000 with proceeds from a receivable purchase agreement in the amount of AUD 10,000. The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 13,375 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.90% per annum (3.15% at June 30, 2019). As of June 30, 2019, the term loan had an outstanding balance of AUD 27,125 ($18,982 as of June 30, 2019). The revolving facility and receivable purchase facility mature in March 2020, but are renewable upon mutual agreement with the lender. The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.8% and 1.0%, respectively, per annum (3.07% and 2.27%, respectively, at June 30, 2019). At June 30, 2019, there were no borrowings under the revolver and the receivable purchase facilities had an outstanding balance of AUD 10,000 ($6,997 as of June 30, 2019). The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. 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.

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 (2.97% and 2.52% at June 30, 2019, respectively). The revolving facility matures in June 2020, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.5% (2.25% as of June 30, 2019). As of June 30, 2019, the revolver had an outstanding balance of GBP 1,140 ($1,446 as June 30, 2019) while the term and mortgage loan balances amounted to GBP 16,266 ($20,635 as of June 30, 2019). 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. An invoice discounting arrangement was canceled and replaced by the above loan facilities.


(g)	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, 2019, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

NOTE 10 — SHAREHOLDERS’ EQUITY

During 2019, the Company paid a quarterly cash dividend of $0.0725 per share in each quarter, totaling $0.2175 per share for the nine months ended June 30, 2019. During 2018, the Company paid a quarterly cash dividend of $0.07 per share, totaling $0.28 per share for the year. In addition, on March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share, totaling $38,073, paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018. 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. In March 2019, the ESOP Term Loan was refinanced with a loan from Griffon which was funded with cash and a draw on its $350,000 credit facility; dividends paid on allocated shares in the ESOP are allocated to participant accounts in the form of additional shares.

On August 1, 2019, the Board of Directors declared a quarterly cash dividend of $0.0725 per share, payable on September 19, 2019 to shareholders of record as of the close of business on August 22, 2019.

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, 2019, there were 276,442 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 2019, Griffon granted 1,194,538 shares of restricted stock and restricted stock units. This included 666,538 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 $8,105, or a weighted average fair value of $12.16 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 $3,576, or a weighted average fair value of $6.77. During the second quarter, Griffon granted 62,227 restricted shares to the non-employee directors of Griffon with a vesting period of three years and a fair value of $990, or a weighted average fair value of $15.91 per share. During the third quarter, no grants were issued.

For the quarters ended June 30, 2019 and 2018, stock based compensation expense totaled $3,332 and $2,452, respectively. For the nine months ended June 30, 2019 and 2018, stock based compensation expense totaled $9,687 and $7,372, respectively.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of $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 ended June 30, 2019, Griffon did not purchase any shares of common stock under these repurchase programs. During the nine months ended June 30, 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share. As of June 30, 2019, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs.

During the quarter ended June 30, 2019, there were no shares withheld to settle employee taxes due upon the vesting of restricted stock. During the nine months ended June 30, 2019, 85,847 shares, with a market value of $1,059, or $12.34 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the nine months ended June 30, 2019, an additional 3,861 shares, with a market value of $47, or $12.16 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting.

NOTE 11 – 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.

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,
	2019	2018	2019	2018
Weighted average shares outstanding - basic	40,967	40,295	40,888	41,232
Incremental shares from stock based compensation	2,197	1,447	1,761	1,388
Weighted average shares outstanding - diluted	43,164	41,742	42,649	42,620

NOTE 12 – 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 wood and wire closet organization, general living storage and wire 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 Clopay Plastics Products Company, Inc. ("PPC") and on February 6, 2018, completed the sale to Berry Global Group, Inc. ("Berry") . 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 15, Discontinued Operations to the Notes of the Financial Statements.

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	2019		2018		2019		2018
Home & Building Products:
AMES	$	273,710	$	262,398	$	777,916	$	737,336
CBP	221,521		177,723		631,615		470,071
Home & Building Products	495,231		440,121		1,409,531		1,207,407
Defense Electronics	79,739		76,429		225,594		225,006
Total consolidated net sales	$	574,970	$	516,550	$	1,635,125	$	1,432,413

Disaggregation of Revenue

Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue.

The following table presents revenue disaggregated by end market and segment:



	For the Three Months Ended June 30, 2019		For the Nine Months Ended June 30, 2019
Residential repair and remodel	$	148,148	$	417,384
Retail	148,596		424,537
Commercial construction	83,382		243,939
Residential new construction	40,754		114,470
Industrial	12,880		34,054
International excluding North America	61,471		175,147
Total Home and Building Products segment	495,231		1,409,531
U.S. Government	46,579		138,515
International	30,120		75,348
Commercial	3,040		11,731
Total Defense Electronics segment	79,739		225,594
Total Consolidated Revenue	$	574,970	$	1,635,125

The following table presents revenue disaggregated by geography based on the location of the Company's customer:



	For the Three Months Ended June 30, 2019
Revenue by Geographic Area - Destination	Home & Building Products		Defense Electronics		Total
United States	$	400,437	$	49,379	$	449,816
Europe	25,695		8,387		34,082
Canada	26,113		2,855		28,968
Australia	35,992		838		36,830
All other countries	6,994		18,280		25,274
Consolidated revenue	$	495,231	$	79,739	$	574,970



	For the Nine Months Ended June 30, 2019
Revenue by Geographic Area - Destination	Home & Building Products		Defense Electronics		Total
United States	$	1,133,570	$	148,853	$	1,282,423
Europe	53,949		27,188		81,137
Canada	82,288		8,542		90,830
Australia	122,230		2,426		124,656
All other countries	17,494		38,585		56,079
Consolidated revenue	$	1,409,531	$	225,594	$	1,635,125

The following table reconciles segment operating profit to Income (loss) 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	2019			2018			2019			2018
Segment operating profit:
Home & Building Products	$	45,037		$	38,753		$	120,603		$	94,982
Defense Electronics	4,611			6,084			9,075			8,866
Segment operating profit from continuing operations	49,648			44,837			129,678			103,848
Net interest expense	(17,087		)	(15,796		)	(50,723		)	(48,482		)
Unallocated amounts	(12,175		)	(12,016		)	(34,920		)	(32,993		)
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	$	20,386		$	9,002		$	44,035		$	10,117

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 (loss) before taxes from continuing operations:



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2019			2018			2019			2018
Segment adjusted EBITDA:
Home & Building Products	$	57,821		$	50,004		$	158,434		$	129,250
Defense Electronics	7,280			8,760			17,001			16,956
Total Segment adjusted EBITDA	65,101			58,764			175,435			146,206
Net interest expense	(17,087		)	(15,796		)	(50,723		)	(48,482		)
Segment depreciation and amortization	(15,453		)	(13,927		)	(45,757		)	(39,978		)
Unallocated amounts	(12,175		)	(12,016		)	(34,920		)	(32,993		)
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	$	20,386		$	9,002		$	44,035		$	10,117

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	2019		2018		2019		2018
Segment:
Home & Building Products	$	12,784	$	11,251	$	37,831	$	31,888
Defense Electronics	2,669		2,676		7,926		8,090
Total segment depreciation and amortization	15,453		13,927		45,757		39,978
Corporate	142		120		415		340
Total consolidated depreciation and amortization	$	15,595	$	14,047	$	46,172	$	40,318

CAPITAL EXPENDITURES
Segment:
Home & Building Products	$	8,275	$	9,761	$	21,750	$	24,611
Defense Electronics	2,064		1,632		5,797		6,017
Total segment	10,339		11,393		27,547		30,628
Corporate	37		127		247		2,520
Total consolidated capital expenditures	$	10,376	$	11,520	$	27,794	$	33,148



ASSETS	At June 30, 2019		At September 30, 2018
Segment assets:
Home & Building Products	$	1,691,211	$	1,631,631
Defense Electronics	328,241		346,907
Total segment assets	2,019,452		1,978,538
Corporate	88,789		103,112
Total continuing assets	2,108,241		2,081,650
Assets of discontinued operations	3,218		3,240
Consolidated total	$	2,111,459	$	2,084,890

NOTE 13 – EMPLOYEE BENEFIT PLANS

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changed certain presentation and disclosure requirements for employers that sponsor defined benefit and post-retirement pension plans. The new standard requires the service cost component of the net benefit cost to be in the same line item as other compensation in operating income and the other components of net benefit plan cost, including interest costs, amortization of prior service costs and recognized actuarial costs to be presented outside of operating income on a retrospective basis. The standard was effective for fiscal years beginning after December 15, 2017. The Company adopted the requirements of the standard in the first quarter of 2019 on a retrospective basis reclassifying the other components of the net periodic benefit plan costs from Selling, general and administrative expenses to a non-service expense within Other income (expense). The defined benefit and post-retirement pension plans did not have a service cost component. The Company utilized a practical expedient included in the accounting guidance which allowed the Company to use amounts previously disclosed in its pension and other post-retirement benefits note for the prior period as the estimation basis for applying the required retrospective presentation requirements.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $787 and $958 during the three months ended June 30, 2019 and 2018, respectively and $2,361 and $2,722 during the nine months ended June 30, 2019 and 2018, respectively. The impact of this adoption resulted in a reclassification to the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended June 30, 2018, in which previously reported Cost of goods and services and Selling, general and administrative expenses were increased by $958 and $2,722, respectively, with a corresponding offset to Other income (expense).

The remaining provisions of the standard did not have a material impact on our financial position, results of operations or liquidity.

Defined benefit pension expense (income) was as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Interest cost	$	1,570		$	1,408		$	4,711		$	4,222
Expected return on plan assets	(2,583		)	(2,714		)	(7,749		)	(7,992		)
Amortization:
Prior service cost	4			3			11			11
Recognized actuarial loss	222			345			666			1,037
Net periodic expense (income)	$	(787	)	$	(958	)	$	(2,361	)	$	(2,722	)

As a result of the 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.

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 14 – RECENT ACCOUNTING PRONOUNCEMENTS

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 adoption is permitted as of the beginning of an annual period. The new guidance is effective for the Company beginning in fiscal 2019. The Company adopted this guidance as of October 1, 2018 and it did not have a material impact on the Company's financial condition, results of operations and related disclosures.

In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires companies to retrospectively present the service cost component of net periodic benefit cost for pension and retiree medical plans along with other compensation costs in operating income and present the other components of net periodic benefit cost below operating income in the income statement. The guidance also allows only the service cost component of net periodic benefit cost to be eligible for capitalization within inventory or fixed assets on a prospective basis. This guidance was effective for fiscal years beginning after December 15, 2017. The Company adopted the requirements of the standard in the first quarter of 2019 on a retrospective basis reclassifying the other components of the net periodic benefit costs from Selling, general and administrative expenses to a non-service expense within Other (income) expense, net. This guidance did not have a material impact on the Company's results of operations. See Note 13 - Employee Benefit Plans for further information on the implementation of this guidance.

In January 2017, the FASB issued guidance that clarifies the definition of a business, which will impact many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods and will be effective for the Company beginning in fiscal 2019. The Company adopted the requirements of the standard in the first quarter of 2019 and it did not have a material impact on the Company's financial condition, results of operations and related disclosures.

In August 2016, the FASB issued guidance on the Statement of Cash Flows Classification of certain cash receipts and cash payments (a consensus of the FASB Emerging Issues Task Force). This guidance addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for the Company beginning in fiscal 2019. The Company adopted the requirements of the standard in the first quarter of 2019 and it did not have a material impact on the Company's financial condition, results of operations and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenue guidance is referred to as “ASC 606”. The core principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On October 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts. Results for reporting periods beginning October 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition. The Company recorded a net increase to beginning retained earnings of approximately $5,673 as of October 1, 2018 due to the cumulative impact of adopting ASC 606. The impact to beginning retained earnings primarily related to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and/or no right to payment.

The adoption of ASC 606 did not have a material impact on the Company’s Consolidated Condensed Financial Statements as of and for the three and nine month periods ended June 30, 2019. See Note 3 - Revenue for additional disclosures required by ASC 606.

Issued but not yet effective accounting pronouncements

In April 2019, the FASB issued guidance relating to accounting for credit losses on financial instruments, including trade receivables, and derivatives and hedging. This guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, and will be effective for the Company beginning in 2020. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

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, and will be effective for the Company beginning in 2020. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In August 2018, the FASB issued guidance which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. This guidance expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and will be effective for the Company beginning in 2021. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In August 2018, the FASB issued guidance to clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and will be effective for the Company beginning in 2022. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those periods and will be effective for the Company beginning October 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this guidance to have a material impact on the Company's financial condition, results of operations and related disclosures.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the Company beginning in 2020. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures, including the increase in the assets and liabilities on our balance sheet, the impact on our current lease portfolio and method of transition. To facilitate this, we are progressing on our comprehensive review of our lease portfolio and enhancing our controls. We identified our significant leases by geography and by asset type that will be impacted by the new guidance, and we are in the process of implementing a new software platform, and corresponding controls, for administering our leases and facilitating compliance with the new guidance. The Company expects that the significant portion of its lease liabilities and right of use assets will relate to real estate, with additional lease and corresponding right of use assets that relate to vehicles and machinery.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements, and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 15 – DISCONTINUED OPERATIONS

During the quarter ended March 31, 2019, Griffon recorded an $11,000 charge ($7,646, net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $475,000 PPC divestiture and included an additional reserve for a legacy environmental matter. During the quarter ended June 30, 2019, $9,500 of this charge was paid.

The following amounts summarize the total assets and liabilities of PPC and Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations not held for sale in the Condensed Consolidated Balance Sheets:



	At June 30, 2019		At September 30, 2018
Assets of discontinued operations:
Prepaid and other current assets	$	323	$	324
Other long-term assets	2,895		2,916
Total assets of discontinued operations	$	3,218	$	3,240

Liabilities of discontinued operations:
Accrued liabilities, current	$	2,653	$	7,210
Other long-term liabilities	2,295		2,647
Total liabilities of discontinued operations	$	4,948	$	9,857

At June 30, 2019, Griffon's assets and liabilities for PPC and Installations Services and other discontinued operations primarily related to the above matter, insurance claims, income tax and product liability, warranty and environmental reserves totaling liabilities of approximately of $4,948.

PPC

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 $465,000, net of 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. PPC is a global leader in the development and production of embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells to some of the world's largest consumer products companies. In connection with the sale of PPC, the Company recorded a gain of $117,625 ($86,357, net of tax) during the nine months ended June 30, 2018. The tax computed on the PPC gain is preliminary and is subject to finalization.

Summarized results of the Company’s discontinued operations are as follows:



	For the Three Months Ended June 30, 2018			For the Nine Months Ended June 30, 2018
Revenue	$	—		$	166,262
Cost of goods and services	—			132,100
Gross profit	—			34,162
Selling, general and administrative expenses	200			26,303
Income (loss) from discontinued operations	(200		)	7,859
Other income (expense)
Gain on sale of business	—			117,625
Interest expense, net	—			(155		)
Other, net	—			(687		)
Total other income (expense)	—			116,783
Income from operations of discontinued operations	$	(200	)	$	124,642

Installation Services and Other Discontinued Activities

and a range of related building products, primarily for the new residential housing market. Griffon substantially concluded its remaining disposal activities in 2009.

Installation Services operating results have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; Installation Services is excluded from segment reporting. There was no Installation Services revenue or income for the nine months ended June 30, 2019 and 2018.

In 2017, Griffon recorded $5,700 of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association claims (HOA) related to the Clopay Services Corporation discontinued operations in 2008.

NOTE 16 – OTHER INCOME (EXPENSE)

For the quarters ended June 30, 2019 and 2018, Other income (expense) includes $150 and ($17), respectively, of net 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 as well as $(14) and $104, respectively, of net investment (loss) income.

For the nine months ended June 30, 2019 and 2018, Other income (expense) includes $535 and $(236), respectively, of net 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 as well as $18 and $1,365, respectively, of net investment income.

Additionally, during the quarters ended June 30, 2019 and 2018, Other income (expense) included net periodic benefit plan income of $787 and $958, respectively. During the nine months ended June 30, 2019 and 2018, Other income (expense) included net periodic benefit plan income of $2,361 and $2,722, respectively. Effective October 1, 2018, these benefits amounts are required to be included in other income; in the past these were in Cost of goods and services and Selling, general and administrative expenses, as a result of implementation of the new accounting standard on pensions. All periods have been restated. See Note 13 - Employee Benefit Plans for further information on the implementation of this guidance.

NOTE 17 – WARRANTY LIABILITY

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. CBP also offers warranties against product defects for periods generally ranging from one to ten years, with limited lifetime warranties on certain door models. Typical warranties require AMES, CBP and 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. AMES offers an express limited warranty for a period of ninety days on all products from the date of original purchase unless otherwise stated on the product or packaging from the date of original purchase.

Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Balance, beginning of period	$	8,011		$	6,258		$	8,174		$	6,236
Warranties issued and changes in estimated pre-existing warranties	3,780			2,777			12,541			5,889
Actual warranty costs incurred	(4,063		)	(1,450		)	(12,987		)	(5,376		)
Other warranty liabilities assumed from acquisitions	—			—			—			836
Balance, end of period	$	7,728		$	7,585		$	7,728		$	7,585

NOTE 18 – OTHER COMPREHENSIVE INCOME (LOSS)

The amounts recognized in other comprehensive income (loss) were as follows:



	Three Months Ended June 30, 2019									Three Months Ended June 30, 2018
	Pre-tax			Tax			Net of tax			Pre-tax			Tax			Net of tax
Foreign currency translation adjustments	$	(1,092	)	$	—		$	(1,092	)	$	(9,136	)	$	—		$	(9,136	)
Pension and other defined benefit plans	236			(52		)	184			376			(129		)	247
Cash flow hedges	(199		)	72			(127		)	118			(34		)	84
Total other comprehensive income (loss)	$	(1,055	)	$	20		$	(1,035	)	$	(8,642	)	$	(163	)	$	(8,805	)



	Nine Months Ended June 30, 2019									Nine Months Ended June 30, 2018
	Pre-tax			Tax			Net of tax			Pre-tax		Tax			Net of tax
Foreign currency translation adjustments	$	(3,943	)	$	—		$	(3,943	)	$	9,289	$	—		$	9,289
Pension and other defined benefit plans	708			(156		)	552			14,996		(4,943		)	10,053
Cash flow hedges	(306		)	92			(214		)	864		(252		)	612
Total other comprehensive income (loss)	$	(3,541	)	$	(64	)	$	(3,605	)	$	25,149	$	(5,195	)	$	19,954

The components of Accumulated other comprehensive income (loss) are as follows:



	June 30, 2019			September 30, 2018
Foreign currency translation adjustments	$	(26,767	)	$	(22,824	)
Pension and other defined benefit plans	(11,207		)	(11,759		)
Change in Cash flow hedges	257			471
	$	(37,717	)	$	(34,112	)

Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows:



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
Gain (Loss)	2019			2018			2019			2018
Pension amortization	$	(226	)	$	(529	)	$	(677	)	$	(1,587	)
Cash flow hedges	663			177			1,597			185
Removal of PPC foreign currency translation	—			—			—			14,866
Total gain (loss)	437			(352		)	920			13,464
Tax benefit (expense)	(92		)	106			(193		)	(3,222		)
Total	$	345		$	(246	)	$	727		$	10,242

NOTE 19 — COMMITMENTS AND CONTINGENCIES

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. (“ISCP”), a wholly-owned subsidiary of Griffon. ISCP sold the Peekskill Site in November 1982.

Subsequently, ISCP 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. In 1996, ISCP entered into a consent order with the DEC (the “Consent Order”), pursuant to which ISCP was required to perform a remedial investigation and prepare a feasibility study (the “Feasibility Study”). After completing the initial remedial investigation, ISCP conducted over the next several years, supplemental remedial investigations, including soil vapor investigations, as required by the Consent Order.

In April 2009, the DEC advised ISCP 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. ISCP submitted to the DEC a draft Feasibility Study which was accepted and approved by the DEC in February 2011. ISCP satisfied its obligations under the Consent Order when DEC approved the Remedial Investigation and Feasibility Study for the Peekskill Site. In June, 2011 the DEC issued a Remedial Action Plan for the Peekskill Site that set forth the specific remedies selected and responded to public comments. The approximate cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $10,000.

Following issuance of the Remedial Action Plan, the DEC implemented a portion of its plan, and also performed additional investigation for the presence of metals in soils and sediments downstream from the Peekskill Site. During this investigation chromium was found to be present in sediments further downstream of the Peekskill site than previously detected.

In August 2018, the DEC sent a letter to the United States Environmental Protection Agency (the “EPA”), in which the DEC requested that the Peekskill Site be nominated by the EPA for inclusion on the National Priorities List (the “NPL”). Based on DEC’s request and on an analysis by a consultant retained by the EPA, on May 15, 2019 the EPA added the Peekskill Site to the NPL under CERCLA.

It is uncertain what subsequent action the EPA will take. The EPA may, on its own or through the use of consultants, perform further studies of the site and/or subsequently remediate the site, and in such event, would likely seek reimbursement for the costs incurred from potentially responsible parties (“PRPs”). Alternatively, the EPA could enter into negotiations with the PRPs to request that the PRPs perform further studies and/or remediate the site.

Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

Improper Advertisement Claim involving Union Tools® Products. Beginning in December 2004, a customer of AMES had been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters asserted causes of action against the customer of AMES for improper advertisement to end consumers. The allegations suggested that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States. The complaints asserted various causes of action against the customer of AMES under federal and state law, including common law fraud. At some point, the customer may seek indemnity (including recovery of its legal fees and costs) against AMES

for an unspecified amount. Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against AMES.

Union Fork and Hoe, Frankfort, NY site. The former Union Fork and Hoe property in Frankfort, NY was acquired by Ames in 2006 as part of a larger acquisition, and has historic site contamination involving chlorinated solvents, petroleum hydrocarbons and metals. AMES has entered into an Order on Consent with the New York State Department of Environmental Conservation. While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, AMES is required to perform a remedial investigation of certain portions of the property and to recommend a remediation option. At the conclusion of the remediation phase to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. AMES has performed significant investigative and remedial activities in the last few years under work plans approved by the DEC, and the DEC has approved the remedial approach proposed by Ames; implementation is expected to begin in summer 2019 and to be completed by early 2020. AMES has a number of defenses to liability in this matter, including its rights under a previous Consent Judgment entered into between the DEC and a predecessor of AMES relating to the site.

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, the Defense Criminal Investigative Service, and the Department of Justice which has responsibility for asserting claims on behalf of the U.S. Government.

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 a 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.

NOTE 20 — 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., Telephonics Corporation, The AMES Companies, Inc., ATT Southern LLC, Clopay Ames True Temper Holding Corp., ClosetMaid, LLC, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are condensed consolidating financial information as of June 30, 2019 and September 30, 2018 and for the three and nine months ended June 30, 2019 and 2018. The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they 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.

The indenture relating to the Senior Notes (the “Indenture”) contains terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indenture; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indenture (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indenture; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indenture, in compliance with the terms of the Indenture; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indenture, in each case in accordance with the terms of the Indenture; and (v) upon obtaining the requisite consent of the holders of the Senior Notes.

CONDENSED CONSOLIDATING BALANCE SHEETS

At June 30, 2019



($ in thousands)	Parent Company		Guarantor Companies		Non-Guarantor Companies			Elimination			Consolidation
CURRENT ASSETS
Cash and equivalents	$	15,350	$	20,477	$	22,285		$	—		$	58,112
Accounts receivable, net of allowances	—		267,210		55,100			—			322,310
Contract costs and recognized income not yet billed, net of progress payments	—		89,862		963			—			90,825
Inventories, net	—		371,592		65,560			(267		)	436,885
Prepaid and other current assets	19,961		23,583		6,970			2,384			52,898
Assets of discontinued operations	—		—		323			—			323
Total Current Assets	35,311		772,724		151,201			2,117			961,353
PROPERTY, PLANT AND EQUIPMENT, net	966		290,869		39,510			—			331,345
GOODWILL	—		394,131		44,286			—			438,417
INTANGIBLE ASSETS, net	93		276,252		84,904			—			361,249
INTERCOMPANY RECEIVABLE	110,797		914,366		65,131			(1,090,294		)	—
EQUITY INVESTMENTS IN SUBSIDIARIES	1,575,766		523,262		3,063,638			(5,162,666		)	—
OTHER ASSETS	7,389		17,495		(2,157		)	(6,527		)	16,200
ASSETS OF DISCONTINUED OPERATIONS	—		—		2,895			—			2,895
Total Assets	$	1,730,322	$	3,189,099	$	3,449,408		$	(6,257,370	)	$	2,111,459
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	—	$	3,547	$	7,337		$	—		$	10,884
Accounts payable and accrued liabilities	59,575		246,990		46,162			966			353,693
Liabilities of discontinued operations	—		—		2,653			—			2,653
Total Current Liabilities	59,575		250,537		56,152			966			367,230

LONG-TERM DEBT, net	1,112,182		3,491		43,948			—			1,159,621
INTERCOMPANY PAYABLES	58,361		615,658		422,227			(1,096,246		)	—
OTHER LIABILITIES	12,039		68,312		11,389			2,408			94,148
LIABILITIES OF DISCONTINUED OPERATIONS	—		—		2,295			—			2,295
Total Liabilities	1,242,157		937,998		536,011			(1,092,872		)	1,623,294
SHAREHOLDERS’ EQUITY	488,165		2,251,101		2,913,397			(5,164,498		)	488,165
Total Liabilities and Shareholders’ Equity	$	1,730,322	$	3,189,099	$	3,449,408		$	(6,257,370	)	$	2,111,459

CONDENSED CONSOLIDATING BALANCE SHEETS

At September 30, 2018



($ in thousands)	Parent Company		Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
CURRENT ASSETS
Cash and equivalents	$	15,976	$	16,353		$	37,429		$	—		$	69,758
Accounts receivable, net of allowances	—		234,885			69,729			(24,105		)	280,509
Contract costs and recognized income not yet billed, net of progress payments	—		121,393			410			—			121,803
Inventories, net	—		332,067			66,373			(81		)	398,359
Prepaid and other current assets	12,179		21,313			6,168			2,461			42,121
Assets of discontinued operations	—		—			324			—			324
Total Current Assets	28,155		726,011			180,433			(21,725		)	912,874

PROPERTY, PLANT AND EQUIPMENT, net	936		299,920			41,636			—			342,492
GOODWILL	6,646		361,507			71,242			—			439,395
INTANGIBLE ASSETS, net	93		293,093			77,672			—			370,858
INTERCOMPANY RECEIVABLE	56,396		314,394			(121,445		)	(249,345		)	—
EQUITY INVESTMENTS IN SUBSIDIARIES	1,528,932		968,330			3,347,894			(5,845,156		)	—
OTHER ASSETS	8,651		15,942			374			(8,612		)	16,355
ASSETS OF DISCONTINUED OPERATIONS	—		—			2,916			—			2,916
Total Assets	$	1,629,809	$	2,979,197		$	3,600,722		$	(6,124,838	)	$	2,084,890
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	2,276	$	3,398		$	7,337		$	—		$	13,011
Accounts payable and accrued liabilities	26,639		303,154			59,531			(16,474		)	372,850
Liabilities of discontinued operations	—		(22,327		)	29,537			—			7,210
Total Current Liabilities	28,915		284,225			96,405			(16,474		)	393,071
LONG-TERM DEBT, net	1,044,071		6,110			57,890			—			1,108,071
INTERCOMPANY PAYABLES	66,058		(77,760		)	263,227			(251,525		)	—
OTHER LIABILITIES	16,374		73,391			20,592			(3,647		)	106,710
LIABILITIES OF DISCONTINUED OPERATIONS	—		—			2,647			—			2,647
Total Liabilities	1,155,418		285,966			440,761			(271,646		)	1,610,499
SHAREHOLDERS’ EQUITY	474,391		2,693,231			3,159,961			(5,853,192		)	474,391
Total Liabilities and Shareholders’ Equity	$	1,629,809	$	2,979,197		$	3,600,722		$	(6,124,838	)	$	2,084,890

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2019



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
Revenue	$	—		$	470,228		$	118,694		$	(13,952	)	$	574,970
Cost of goods and services	—			350,197			84,568			(14,278		)	420,487
Gross profit	—			120,031			34,126			326			154,483
Selling, general and administrative expenses	5,342			85,885			27,252			(490		)	117,989
Income (loss) from operations	(5,342		)	34,146			6,874			816			36,494
Other income (expense)
Interest income (expense), net	(7,171		)	(9,048		)	(868		)	—			(17,087		)
Other, net	4,963			(15,918		)	12,762			(828		)	979
Total other income (expense)	(2,208		)	(24,966		)	11,894			(828		)	(16,108		)
Income (loss) before taxes	(7,550		)	9,180			18,768			(12		)	20,386
Provision (benefit) for income taxes	(4,815		)	9,124			1,961			(12		)	6,258
Income (loss) before equity in net income of subsidiaries	(2,735		)	56			16,807			—			14,128
Equity in net income (loss) of subsidiaries	16,330			15,641			56			(32,027		)	—
Income (loss) from continuing operations	$	13,595		$	15,697		$	16,863		$	(32,027	)	$	14,128
Income (loss) from operations of discontinued businesses	—			—			—			—			—
Provision (benefit) from income taxes	—			—			533			—			533
Income (loss) from discontinued operations	—			—			(533		)	—			(533		)

Net Income (loss)	$	13,595		$	15,697		$	16,330		$	(32,027	)	$	13,595
Comprehensive income (loss)	$	12,560		$	(597	)	$	32,624		$	(32,027	)	$	12,560

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended June 30, 2018



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
Revenue	$	—		$	431,997		$	90,285		$	(5,732	)	$	516,550
Cost of goods and services	—			323,091			60,719			(5,942		)	377,868
Gross profit	—			108,906			29,566			210			138,682
Selling, general and administrative expenses	14,383			78,865			21,956			(92		)	115,112
Income (loss) from operations	(14,383		)	30,041			7,610			302			23,570
Other income (expense)
Interest income (expense), net	(5,891		)	(2,282		)	(7,623		)	—			(15,796		)
Other, net	(528		)	(8,496		)	10,481			(229		)	1,228
Total other income (expense)	(6,419		)	(10,778		)	2,858			(229		)	(14,568		)
Income (loss) before taxes	(20,802		)	19,263			10,468			73			9,002
Provision (benefit) for income taxes	(4,741		)	21,046			12,939			(27,684		)	1,560
Income (loss) before equity in net income of subsidiaries	(16,061		)	(1,783		)	(2,471		)	27,757			7,442
Equity in net income (loss) of subsidiaries	21,888			(5,657		)	(2,016		)	(14,215		)	—
Income (loss) from continuing operations	5,827			(7,440		)	(4,487		)	13,542			7,442
Income (loss) from operation of discontinued businesses	—			(200		)	—			—			(200		)
Provision (benefit) from income taxes	—			1,415			—			—			1,415
Income (loss) from discontinued operations	—			(1,615		)	—			—			(1,615		)
Net Income (loss)	$	5,827		$	(9,055	)	$	(4,487	)	$	13,542		$	5,827

Comprehensive income (loss)	$	(2,978	)	$	433		$	(14,092	)	$	13,659		$	(2,978	)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended June 30, 2019



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
Revenue	$	—		$	1,352,211		$	311,219		$	(28,305	)	$	1,635,125
Cost of goods and services	—			1,013,676			215,786			(29,370		)	1,200,092
Gross profit	—			338,535			95,433			1,065			435,033

Selling, general and administrative expenses	15,651			255,674			72,478			(277		)	343,526
Income (loss) from operations	(15,651		)	82,861			22,955			1,342			91,507
Other income (expense)
Interest income (expense), net	(20,806		)	(27,306		)	(2,611		)	—			(50,723		)
Other, net	4,228			(14,102		)	14,479			(1,354		)	3,251
Total other income (expense)	(16,578		)	(41,408		)	11,868			(1,354		)	(47,472		)
Income (loss) before taxes	(32,229		)	41,453			34,823			(12		)	44,035
Provision (benefit) for income taxes	(12,592		)	20,390			6,878			(12		)	14,664
Income (loss) before equity in net income of subsidiaries	(19,637		)	21,063			27,945			—			29,371
Equity in net income (loss) of subsidiaries	40,829			33,337			21,063			(95,229		)	—
Income (loss) from continuing operations	$	21,192		$	54,400		$	49,008		$	(95,229	)	$	29,371

Income (loss) from operations of discontinued businesses	$	—		$	—		$	(11,000	)	$	—		$	(11,000	)
Provision (benefit) from income taxes	—			—			(2,821		)	—			(2,821		)
Income (loss) from discontinued operations	$	—		$	—		$	(8,179	)	$	—		$	(8,179	)
Net income (loss)	$	21,192		$	54,400		$	40,829		$	(95,229	)	$	21,192

Comprehensive income (loss)	$	17,587		$	58,450		$	36,779		$	(95,229	)	$	17,587

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended June 30, 2018



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
Revenue	$	—		$	1,181,068		$	272,714		$	(21,369	)	$	1,432,413
Cost of goods and services	—			891,650			182,125			(22,202		)	1,051,573
Gross profit	—			289,418			90,589			833			380,840

Selling, general and administrative expenses	31,158			220,066			75,282			(277		)	326,229
Income (loss) from operations	(31,158		)	69,352			15,307			1,110			54,611

Other income (expense)
Interest income (expense), net	(18,626		)	(16,497		)	(13,359		)	—			(48,482		)
Other, net	164			4,858			119			(1,153		)	3,988
Total other income (expense)	(18,462		)	(11,639		)	(13,240		)	(1,153		)	(44,494		)
Income (loss) before taxes	(49,620		)	57,713			2,067			(43		)	10,117
Provision (benefit) for income taxes	(44,601		)	13,744			8,793			(43		)	(22,107		)
Income (loss) before equity in net income of subsidiaries	(5,019		)	43,969			(6,726		)	—			32,224
Equity in net income (loss) of subsidiaries	132,115			(66,016		)	43,735			(109,834		)	—
Income (loss) from continuing operations	$	127,096		$	(22,047	)	$	37,009		$	(109,834	)	$	32,224
Income (loss) from operations of discontinued businesses	—			109,028			15,614			—			124,642
Provision (benefit) from income taxes	—			31,856			(2,086		)	—			29,770
Income (loss) from discontinued operations	—			77,172			17,700			—			94,872
Net income (loss)	$	127,096		$	55,125		$	54,709		$	(109,834	)	$	127,096

Comprehensive income (loss)	$	147,050		$	36,517		$	73,317		$	(109,834	)	$	147,050

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2019



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	21,192		$	54,400		$	40,829		$	(95,229	)	$	21,192
Net (income) loss from discontinued operations	—			—			8,179			—			8,179
Net cash provided by (used in) operating activities:	(20,805		)	24,179			11,608			—			14,982
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(247		)	(23,221		)	(4,326		)	—			(27,794		)
Acquired businesses, net of cash acquired	(9,219		)	—			—			—			(9,219		)
Investment purchases	(149		)	—			—			—			(149		)
Proceeds (payments) from sale of business	(9,500		)	—			—			—			(9,500		)
Insurance proceeds (payments)	(10,604		)	—			—			—			(10,604		)
Proceeds from sale of assets	—			79			25			—			104
Net cash provided by (used in) investing activities	(29,719		)	(23,142		)	(4,301		)	—			(57,162		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury	(1,478		)	—			—			—			(1,478		)
Proceeds from long-term debt	138,541			116			18,143			—			156,800
Payments of long-term debt	(75,694		)	(2,605		)	(29,961		)	—			(108,260		)
Financing costs	(1,012		)	—			—			—			(1,012		)
Contingent consideration for acquired businesses	—			—			(1,686		)	—			(1,686		)
Dividends paid	(10,262		)	—			—			—			(10,262		)
Other, net	(197		)	5,694			(5,694		)	—			(197		)
Net cash provided by (used in) financing activities	49,898			3,205			(19,198		)	—			33,905
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used) in discontinued operations	—			—			(3,874		)	—			(3,874		)
Effect of exchange rate changes on cash and equivalents	—			(118		)	621			—			503
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(626		)	4,124			(15,144		)	—			(11,646		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	15,976			16,353			37,429			—			69,758
CASH AND EQUIVALENTS AT END OF PERIOD	$	15,350		$	20,477		$	22,285		$	—		$	58,112

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2018



($ in thousands)	Parent Company			Guarantor Companies			Non-Guarantor Companies			Elimination			Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	127,096		$	55,125		$	54,709		$	(109,834	)	$	127,096
Net (income) loss from discontinued operations	—			(77,172		)	(17,700		)	—			(94,872		)
Net cash provided by (used in) operating activities:	300,739			(536,544		)	230,342			—			(5,463		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(455		)	(27,229		)	(5,464		)	—			(33,148		)
Acquired businesses, net of cash acquired	(368,937		)	(4,490		)	(56,118		)	—			(429,545		)
Proceeds from sale of business	—			473,977			—			—			473,977
Insurance proceeds (payments)	8,254			—			—			—			8,254
Proceeds from sale of assets	—			46			436			—			482
Net cash provided by (used in) investing activities	(361,138		)	442,304			(61,146		)	—			20,020
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury	(45,588		)	—			—			—			(45,588		)
Proceeds from long-term debt	411,718			2,232			5,695			—			419,645
Payments of long-term debt	(223,998		)	(4,564		)	(33,469		)	—			(262,031		)
Financing costs	(7,671		)	—			—			—			(7,671		)
Dividends paid	(46,816		)	—			—			—			(46,816		)
Other, net	(21,897		)	(20,205		)	42,241			—			139
Net cash provided by (used in) financing activities	65,748			(22,537		)	14,467			—			57,678
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) discontinued operations	—			127,312			(189,585		)	—			(62,273		)
Effect of exchange rate changes on cash and equivalents	—			(131		)	6,254			—			6,123
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	5,349			10,404			332			—			16,085
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	3,240			8,066			36,375			—			47,681
CASH AND EQUIVALENTS AT END OF PERIOD	$	8,589		$	18,470		$	36,707		$	—		$	63,766

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(Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)

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

BUSINESS

Overview

Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF).

Business Strategy

We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products.

Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels, and conducting business across multiple countries which we consider our home markets.

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. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions.

Recent Highlights

On September 5, 2017, Griffon announced the acquisition of ClosetMaid LLC ("ClosetMaid") and the commencement of the strategic alternatives process for Clopay Plastic Products, beginning the transformation of Griffon.

In October 2017, we acquired ClosetMaid from Emerson Electric Co. (NYSE:EMR) for an effective purchase price of approximately $165,000. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of wood and wire closet organization, general living storage and wire 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.

In February 2018, we closed on the sale of our Clopay Plastics Products ("PPC") business to Berry Global, Inc. ("Berry") for $465,000, net of certain post-closing adjustments, thus exiting the specialty plastics industry that the Company had entered when it acquired Clopay Corporation in 1986. This transaction provided immediate liquidity and positions the Company to improve its cash flow conversion given the historically higher capital needs of the PPC operations as compared to Griffon’s remaining businesses.

In March 2018, we announced the combination of the ClosetMaid operations with those of The AMES Companies, Inc. ("AMES"). ClosetMaid generated over $300,000 in revenue in the first twelve months after the acquisition, and we anticipate the integration with AMES will unlock additional value given the complementary products, customers, warehousing and distribution, manufacturing, and sourcing capabilities of the two businesses.

In June 2018, Clopay Building Products Company, Inc. ("CBP") acquired CornellCookson, Inc. ("CornellCookson"), a leading provider of rolling steel service doors, fire doors, and grilles, for an effective purchase price of approximately $170,000. This

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transaction strengthened CBP's strategic portfolio with a line of commercial rolling steel door products to complement the existing CBP sectional door offerings in the commercial industry, and expands the CBP network of professional dealers focused on the commercial market. CornellCookson is expected to contribute approximately $200,000 in annual sales to Griffon’s Home and Building Products Segment.

During the past two fiscal years Griffon also completed a number of other acquisitions to expand and enhance AMES' global footprint. In the United Kingdom, Griffon acquired La Hacienda, an outdoor living brand of unique heating and garden décor products, in July 2017, and Kelkay, a manufacturer and distributor of decorative outdoor landscaping, in February 2018. These two businesses provided AMES with a platform for growth in the UK market and give access to leading garden centers, retailers, and grocers in the UK and Ireland.

In Australia, Griffon acquired Hills Home Living, the iconic brand of clotheslines and home products, from Hills Limited (ASX:HIL) in December 2016. In September 2017, Griffon acquired Tuscan Path, an Australian provider of pots, planters, pavers, decorative stone, and garden décor products. These acquisitions broadened AMES' outdoor living and lawn and garden business, strengthening AMES’ market position in Australia and New Zealand.

In November 2017, Griffon acquired Harper Brush Works, a leading U.S. manufacturer of cleaning products for professional, home, and industrial use, from Horizon Global (NYSE:HZN). This acquisition expanded the AMES line of long-handle tools in North America to include brooms, brushes, and other cleaning products.

We believe these actions have established a solid foundation for continuing organic growth in sales, profit, and cash generation and bolsters Griffon’s platforms for opportunistic strategic acquisitions.

Further Information

Griffon posts and makes available, free of charge through its website at www.griffon.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 well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on Griffon's website is not part of this or any other report it files with or furnishes to the SEC.

For information regarding revenue, profit and total assets of each segment, see the Reportable Segments footnote in the Notes to Consolidated Financial Statements.

Reportable Segments:

Griffon currently conducts its operations through two reportable segments:


•	Home & Building Products (“HBP”) segment consists of two companies, AMES and CBP:

AMES, founded in 1774, is the leading North American manufacturer and a global provider of branded consumer and professional tools, landscaping products, and outdoor lifestyle solutions. In 2018, we acquired ClosetMaid, a leader in wood and wire closet organization, general living storage and wire garage storage products for homeowners and professionals.


•	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.

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OVERVIEW

Revenue for the quarter ended June 30, 2019 was $574,970 compared to $516,550 in the prior year quarter, an increase of approximately 11%, primarily driven by increased revenue at Home & Building Products from both recent acquisitions and organic growth, and increased revenue at Telephonics. Organic growth was 5%. Income from continuing operations was $14,128 or $0.33 per share, compared to $7,442, or $0.18 per share, in the prior year quarter. The current quarter results from continuing operations included discrete and certain other tax benefits, net, of $669 or $0.02 per share. The prior year quarter results from continuing operations included the following:

– Acquisition costs of $3,598 ($2,320, net of tax, or $0.06 per share);

– Special dividend ESOP charges of $3,220 ($2,125, net of tax, or $0.05 per share);

– Secondary equity offering costs of $1,205 ($795, net of tax, or $0.02 per share); and

– Discrete and certain other tax benefits, net, of $1,430 or $0.03 per share.

Excluding these items from the respective quarterly results, Income from continuing operations would have been $13,459, or $0.31 per share, in the current quarter compared to $11,252, or $0.27 per share in the prior year quarter.

Revenue for the nine months ended June 30, 2019 was $1,635,125 compared to $1,432,413 in the prior year period, an increase of 14%, primarily driven by increased revenue at Home & Building Products from both recent acquisitions and organic growth. Telephonics revenue was consistent with the prior year. Organic growth was 5%. Income from continuing operations was $29,371 or $0.69 per share, compared to $32,224, or $0.76 per share, in the prior year period. The current year-to-date results from continuing operations included discrete and certain other tax benefits, net, of $299 or $0.01 per share. The prior year-to-date results from continuing operations included the following:

– Acquisition costs of $7,597 ($5,046, net of tax, or $0.12 per share);

– Special dividend ESOP charges of $3,220 ($2,125, net of tax, or $0.05 per share);

– Secondary equity offering costs of $1,205 ($795, net of tax, or $0.02 per share);

– Cost of life insurance benefit of $2,614 ($248, net of tax, or $0.01 per share); and

– Discrete and certain other tax benefits, net, of $24,080 or $0.56 per share, primarily from the revaluation of deferred tax liabilities related to the December 22, 2017 Tax Cuts and Jobs Act ("TCJA")

Excluding these items from the respective periods, Income from continuing operations would have been $29,072, or $0.68 per share in the current year period ended June 30, 2019 compared to $16,358, or $0.38 per share, in the comparable prior year period.

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Griffon evaluates performance based on Income from Continuing operations and the related Earnings per share excluding restructuring charges, loss on debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per share from continuing operations to Adjusted earnings per share from continuing operations:

GRIFFON CORPORATION AND SUBSIDIARIES

RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS

TO ADJUSTED INCOME FROM CONTINUING OPERATIONS

(Unaudited)



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2019			2018			2019			2018
Income from continuing operations	$	14,128		$	7,442		$	29,371		$	32,224

Adjusting items:
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
Tax impact of above items	—			(2,783		)	—			(6,422		)
Discrete and certain other tax benefits	(669		)	(1,430		)	(299		)	(24,080		)

Adjusted income from continuing operations	$	13,459		$	11,252		$	29,072		$	16,358

Diluted earnings per common share from continuing operations	$	0.33		$	0.18		$	0.69		$	0.76

Adjusting items, net of tax:
Acquisition costs	—			0.06			—			0.12
Special dividend ESOP charges	—			0.05			—			0.05
Secondary equity offering costs	—			0.02			—			0.02
Cost of life insurance benefit	—			—			—			0.01
Discrete and certain other tax benefits	(0.02		)	(0.03		)	(0.01		)	(0.56		)

Adjusted earnings per common share from continuing operations	$	0.31		$	0.27		$	0.68		$	0.38

Weighted-average shares outstanding (in thousands)	43,164			41,742			42,649			42,620

Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.

The tax impact for the above reconciling adjustments from GAAP to non-GAAP income from continuing operations and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments.

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RESULTS OF CONTINUING OPERATIONS

Three and Nine months ended June 30, 2019 and 2018

Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, and 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 operating profit from continuing operations to Income before taxes from continuing operations:



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2019			2018			2019			2018
Segment operating profit:
Home & Building Products	$	45,037		$	38,753		$	120,603		$	94,982
Telephonics	4,611			6,084			9,075			8,866
Segment operating profit from continuing operations	49,648			44,837			129,678			103,848
Net interest expense	(17,087		)	(15,796		)	(50,723		)	(48,482		)
Unallocated amounts	(12,175		)	(12,016		)	(34,920		)	(32,993		)
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	$	20,386		$	9,002		$	44,035		$	10,117

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



	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2019			2018			2019			2018
Segment adjusted EBITDA:
Home & Building Products	$	57,821		$	50,004		$	158,434		$	129,250
Defense Electronics	7,280			8,760			17,001			16,956
Total Segment adjusted EBITDA	65,101			58,764			175,435			146,206
Net interest expense	(17,087		)	(15,796		)	(50,723		)	(48,482		)
Segment depreciation and amortization	(15,453		)	(13,927		)	(45,757		)	(39,978		)
Unallocated amounts	(12,175		)	(12,016		)	(34,920		)	(32,993		)
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	$	20,386		$	9,002		$	44,035		$	10,117

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Home & Building Products



	For the Three Months Ended June 30,								For the Nine Months Ended June 30,
	2019				2018				2019				2018
Revenue:
AMES	$	273,710			$	262,398			$	777,916			$	737,336
CBP	221,521				177,723				631,615				470,071
Home & Building Products	$	495,231			$	440,121			$	1,409,531			$	1,207,407
Segment operating profit	$	45,037	9.1	%	$	38,753	8.8	%	$	120,603	8.6	%	$	94,982	7.9	%
Depreciation and amortization	12,784				11,251				37,831				31,888
Acquisition costs	—				—				—				2,380
Segment adjusted EBITDA	$	57,821	11.7	%	$	50,004	11.4	%	$	158,434	11.2	%	$	129,250	10.7	%

For the quarter ended June 30, 2019, revenue increased $55,110 or 13%, compared to the prior year period, with 8% due to the CBP acquisition of CornellCookson, acquired on June 4, 2018, and with respect to both CBP and AMES, 5% due to favorable mix and pricing with an additional 2% due to increased volume, partially offset by a 2% unfavorable impact due to foreign exchange. Organic growth was 5%. CornellCookson revenue was $51,174.

For the quarter ended June 30, 2019, Segment operating profit increased 16% to $45,037 compared to $38,753 in the prior year period. The favorable variance resulted from the increased revenue noted above, partially offset by increased material and tariff costs at both AMES and CBP. Segment depreciation and amortization increased $1,533 from the prior year period primarily from the CornellCookson acquisition.

For the nine months ended June 30, 2019, revenue increased $202,124 or 17%, compared to the prior year period, with 11% due to the CBP acquisition of CornellCookson, 4% due from favorable mix and pricing at both CBP and AMES, and 3% from increased AMES volume, partially offset by a 1% unfavorable impact due to foreign exchange. Organic growth was 6%. Cornell Cookson revenue was $148,719.

For the nine months ended June 30, 2019, Segment operating profit increased 27% to $120,603 compared to $94,982 in the prior year period. Excluding the impact of acquisition related costs from the prior year period, Segment operating profit would have increased 24%. The favorable variance resulted from the increased revenue noted above, partially offset by increased material and tariff costs at both AMES and CBP. Segment depreciation and amortization increased $5,943 from the prior year period primarily from acquisitions.

On January 31, 2019, CBP announced a $14,000 investment in facilities infrastructure and equipment at its CornellCookson location in Mountain Top, Pennsylvania. This project includes a 90,000 square foot expansion to the already existing 184,000 square foot facility, along with the addition of state of the art manufacturing equipment. Through this expansion, the CornellCookson Mountain Top location will improve its manufacturing efficiency and shipping operations, as well as increase manufacturing capacity to support full-rate production of new and core products. The project is expected to be completed by the end of calendar 2019.

Prior year's acquisitions

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, excluding certain post-closing adjustments primarily related to working capital. After taking into account the net of the estimated present value of tax benefits resulting from the transaction, the effective purchase price is approximately $170,000. 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. CornellCookson is expected to generate approximately $200,000 in revenue in the first full year of operations.

On February 13, 2018, AMES acquired 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 approximately $56,118 (GBP 40,452),

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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. Kelkay contributed approximately $35,000 in revenue in the first twelve months after the acquisition.

On November 6, 2017, AMES acquired Harper, a division of Horizon Global, for approximately $5,000. Harper is a leading U.S. manufacturer of cleaning products for professional, home, and industrial use. The acquisition will broaden AMES’ long-handle tool offering in North America to include brooms, brushes, and other cleaning tools and accessories. Harper, as expected, generated approximately $10,000 in revenue in the first twelve months after the acquisition.

On October 2, 2017, Griffon completed the acquisition of ClosetMaid, a market leader in home storage and organization products, for approximately $185,700, inclusive of post-closing adjustments, or $165,000 net of the estimated present value of tax benefits resulting from the transaction. ClosetMaid adds to Griffon's Home and Building Products segment, complementing and diversifying Griffon's portfolio of leading consumer brands and products. ClosetMaid, as expected, generated over $300,000 in revenue in the first twelve months after the acquisition.

Defense Electronics



	For the Three Months Ended June 30,								For the Nine Months Ended June 30,
	2019				2018				2019				2018
Revenue	$	79,739			$	76,429			$	225,594			$	225,006
Segment operating profit	$	4,611	5.8	%	$	6,084	8.0	%	$	9,075	4.0	%	$	8,866	3.9%
Depreciation and amortization	2,669				2,676				7,926				8,090
Segment adjusted EBITDA	$	7,280	9.1	%	$	8,760	11.5	%	$	17,001	7.5	%	$	16,956	7.5%

For the quarter ended June 30, 2019, revenue increased $3,310 or 4% compared to the prior year period. The favorable variance was due to increased volume, partially offset by a $3,300 reduction in revenue related to the adoption of revenue recognition guidance effective October 1, 2018.

For the quarter ended June 30, 2019, Segment operating profit decreased $1,473 compared to the prior year period, driven by unfavorable product mix and a $300 impact related to the adoption of revenue recognition guidance, partially offset by increased volume.

For the nine months ended June 30, 2019, revenue remained consistent with the prior year as increased volume of airborne intercommunications systems was offset by decreased volume on maritime surveillance radars. Revenue also included a $2,900 benefit related to the adoption of revenue recognition guidance.

For the nine months ended June 30, 2019, Segment operating profit increased $209 compared to the prior year period due to reduced operating expenses and a $1,400 benefit from the adoption of revenue recognition guidance.

The impact from the adoption of the revenue recognition guidance is expected to be immaterial to full year revenue and Segment operating profit.

During the nine months ended June 30, 2019, Telephonics was awarded several new contracts and received incremental funding on existing contracts approximating $235,800. Contract backlog was $384,422 at June 30, 2019, with 76% expected to be fulfilled in the next 12 months. Backlog, restated for the adoption of revenue recognition guidance on October 1, 2018, was $374,200 at September 30, 2018. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer, or by Congress, in the case of US government agencies.

Unallocated

For the quarter ended June 30, 2019, unallocated amounts totaled $12,175 compared to $12,016 in the prior year quarter; for the nine months ended June 30, 2019, unallocated amounts totaled $34,920 compared to $32,993 in the prior year period. The increase

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in the current quarter and nine months compared to the respective prior year periods primarily relates to compensation and incentive costs.

Segment Depreciation and Amortization

Segment depreciation and amortization increased $1,526 and $5,779 for the quarter and nine months ended June 30, 2019, respectively, compared to the comparable prior year period, primarily due to depreciation and amortization on assets acquired in acquisitions.

Other Income (Expense)

Provision for income taxes

During the quarter ended June 30, 2019, the Company recognized a tax provision of $6,258 on income before taxes from continuing operations of $20,386, compared to a tax provision of $1,560 on income before taxes from continuing operations of $9,002 in the comparable prior year quarter. The current quarter included net discrete tax benefits of $669. The prior year 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, that affect comparability. Excluding these items, the effective tax rates for the quarters ended June 30, 2019 and 2018 were 34.0% and 33.9%, respectively.

On December 22, 2017, the TCJA was signed into law and, among other changes, reduced the federal statutory tax rate from 35.0% to 21.0%. In accordance with U.S. GAAP for income taxes, as well as SEC Staff Accounting Bulletin No. 118 (“SAB 118”), the Company made a reasonable estimate of the impacts of the TCJA and recorded this estimate in its results for the year ended September 30, 2018. SAB 118 allows for a measurement period of up to one year from the date of enactment to complete the Company’s accounting for the impacts of the TCJA. Our analysis under SAB 118 was completed in December 2018 and resulted in no material adjustments to the provision amounts recorded as of September 30, 2018.

Stock based compensation

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Comprehensive income (loss)

For the quarter ended June 30, 2019, total other comprehensive loss, net of taxes, of $1,035 included a loss of $1,092 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound and Australian Dollar, partially offset by the strengthening of the Canadian Dollar, all in comparison to the US Dollar; a $184 benefit from pension amortization of actuarial losses; and a $127 loss on cash flow hedges.

For the quarter ended June 30, 2018, total other comprehensive loss, net of taxes, of $8,805 included a loss of $9,136 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound, and Canadian and Australian Dollars, all in comparison to the US Dollar; a $247 benefit from pension amortization of actuarial losses; and a $84 gain on cash flow hedges.

For the nine months ended June 30, 2019, total other comprehensive loss, net of taxes, of $3,605 included a loss of $3,943 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound, and Canadian and Australian Dollars, all in comparison to the US Dollar; a $552 benefit from pension amortization of actuarial losses; and a $214 loss on cash flow hedges.

For the nine months ended June 30, 2018, total other comprehensive income, net of taxes, of $19,954 included a gain of $14,866 related to the removal of PPC’s foreign currency translation loss, which was considered in the gain on disposal of discontinued operations; a loss of $5,577 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound, and Canadian and Australian Dollars, all in comparison to the US Dollar; a $10,053 SERP benefit related to the passing of our Chairman of the Board, net of pension amortization of actuarial losses; and a $612 gain on cash flow hedges.

Discontinued operations

At June 30, 2019, Griffon's assets and liabilities for PPC and Installations Services and other discontinued operations primarily related to the above matter, insurance claims, income tax and product liability, warranty reserves and environmental reserves, resulting in total liabilities of approximately of $4,948.

Plastic Products Company

Installation Services and Other Discontinued Activities

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 this entire segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; Installation Services is excluded from segment reporting.

Griffon substantially concluded remaining disposal activities in 2009. There was no revenue or income from the Installation Services’ business for the nine months ended June 30, 2019 and 2018.

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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 under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in its existing businesses and execute strategic acquisitions, while managing its capital structure on both a short-term and long-term basis.

The following table is derived from the Condensed Consolidated Statements of Cash Flows:



Cash Flows from Continuing Operations	For the Nine months ended June 30,
(in thousands)	2019			2018
Net Cash Flows Provided by (Used In):
Operating activities	$	14,982		$	(5,463	)
Investing activities	(57,162		)	20,020
Financing activities	33,905			57,678

Cash provided by operating activities from continuing operations for the nine months ended June 30, 2019 was $14,982 compared to $5,463 used in the prior year period. Cash provided by income of continuing operations, adjusted for non-cash expenditures, was offset by a net increase in working capital consisting of a net increase in accounts receivable and contract costs and recognized income not yet billed, increased inventory and a decrease in accounts payable.

During the nine months ended June 30, 2019, Griffon used $57,162 of cash in investing activities from continuing operations compared to $20,020 provided by investing activities in the prior year comparable period. Payments for acquired businesses totaled $9,219 compared to $429,545 in the prior year comparable period. Payments for acquired businesses in the current year consisted solely of a final working capital adjustment for CornellCookson. Payments for acquired businesses in the prior year were made to consummate the October 2, 2017 acquisition of ClosetMaid for approximately $185,700, inclusive of post-closing adjustments, or $165,000 net of the estimated present value of tax benefits under the current tax law. Additionally, on November 6, 2017, AMES acquired Harper for approximately $5,000, excluding certain post-closing adjustments, and on February 13, 2018, AMES acquired Kelkay for approximately $56,118 (GBP 40,452) subject to contingent consideration of up to GBP 7,000. Lastly, on June 4, 2018, CBP acquired CornellCookson for an effective purchase price of approximately $170,000, subject to certain post-closing adjustments. The current year Payment related to sale of business of $9,500 primarily resulted from a purchase price adjustment to resolve a claim related to the $475,000 PPC divestiture. The prior year Proceeds from sale of business resulted from the sale of PPC. Insurance payments and proceeds of $10,604 and $8,254, respectively, in the current and prior year periods, respectively, pertain to the settlement of a certain life insurance benefit. The prior year period insurance proceeds were reclassified from operating activities to investing activities to comply with accounting guidance on the Statement of Cash Flows classification of certain cash receipts and cash payments. Capital expenditures for the nine months ended June 30, 2019 totaled $27,794, a decrease of $5,354 from the prior year period.

During the nine months ended June 30, 2019, cash provided by financing activities from continuing operations totaled $33,905 as compared to $57,678 provided in the comparable prior year period. Cash provided by financing activities from continuing operations in the current year period consisted primarily of net borrowings of long term debt, partially offset by payments of dividends. Cash provided by financing activities from continuing operations in the comparable prior year period included an add-on offering of $275,000 aggregate principal amount of 5.25% senior notes due 2022, which was completed on October 2, 2017, the proceeds of which were used to purchase ClosetMaid, as well as for general corporate purposes (including reducing the outstanding balance of Griffon's Revolving Credit Facility (the "Credit Agreement")). At June 30, 2019, there were $122,806 in outstanding borrowings under the Credit Agreement, compared to $69,912 in outstanding borrowings at the same date in the prior year. In March 2019, Griffon borrowed approximately $34,000 under the Credit Agreement and replaced the third party lender under the ESOP loan.

During the nine months ended June 30, 2019, the Board of Directors approved three quarterly cash dividends of $0.0725 per share each. On August 1, 2019, the Board of Directors declared a quarterly cash dividend of $0.0725 per share, payable on September 19, 2019 to shareholders of record as of the close of business on August 22, 2019.

On August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter

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ended June 30, 2019, Griffon did not purchase any shares of common stock under these repurchase programs. During the nine months ended June 30, 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share. As of June 30, 2019, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs.

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. 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 from continuing operations. For the nine months ended June 30, 2019:


•	The United States Government and its agencies, through either prime or subcontractor relationships, represented 8% of Griffon’s consolidated revenue and 61% of Telephonics’ revenue.


•	The Home Depot represented 17% of Griffon’s consolidated revenue and 19% of HBP’s revenue.

No other customer exceeded 10% of consolidated revenue. Future operating results will continue to depend substantially on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of the volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and results of operations.



Cash and Equivalents and Debt	June 30,		September 30,
(in thousands)	2019		2018
Cash and equivalents	$	58,112	$	69,758
Notes payables and current portion of long-term debt	10,884		13,011
Long-term debt, net of current maturities	1,159,621		1,108,071
Debt discount/premium and issuance costs	10,921		13,610
Total debt	1,181,426		1,134,692
Debt, net of cash and equivalents	$	1,123,314	$	1,064,934

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, 2019, 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 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.

On March 22, 2016, Griffon amended and restated the Credit Agreement to increase the commitments under the credit facility from $250,000 to $350,000, extend its maturity 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 connection with the ClosetMaid and the CornellCookson acquisitions, respectively to, among other things, modify the net leverage covenant. On February 22, 2019, Griffon further amended the Revolving Credit Facility to, among other things, reflect changes in the lending group and certain corresponding changes in various administrative roles under the Revolving Credit Facility, make conforming administrative and technical changes and reflect changes in law. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $100,000. 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

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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. At June 30, 2019, under the Credit Agreement, there were $122,806 of outstanding borrowings; outstanding standby letters of credit were $20,628; and $206,566 was available, subject to certain loan covenants, for borrowing at that date.

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 had then been fully utilized. On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan interest rate was LIBOR plus 2.91%. The Term Loan required quarterly principal payments of $569 and a balloon payment due at maturity. As a result of the special cash dividend of $1.00 per share, paid on April 16, 2018, the outstanding balance of the Term Loan was reduced by $5,705. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon, which was funded with cash and a draw on its $350,000 credit facility. The internal loan interest rate is fixed at 2.91%, matures in June 2033 and requires quarterly payments of principal, currently $569, and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at June 30, 2019 was $32,987.

Two of Griffon's 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 underlying real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year renewal options. At June 30, 2019, $5,124 was outstanding, net of issuance costs.

In November 2012, Garant G.P. (“Garant”) entered into a CAD 15,000 ($11,435 as of June 30, 2019) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.7% LIBOR USD and 3.14% Bankers Acceptance Rate CDN as of June 30, 2019). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At June 30, 2019, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,435 as of June 30, 2019) available for borrowing.

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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 (2.97% and 2.52% at June 30, 2019, respectively). The revolving facility matures in July 2020, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.5% (2.25% as of June 30, 2019). As of June 30, 2019, the revolver had an outstanding balance of GBP 1,140 ($1,446 as June 30, 2019) while the term and mortgage loan balances amounted to GBP $16,266 ($20,635 as of June 30, 2019). 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. An invoice discounting arrangement was canceled and replaced by the above loan facilities.

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, 2019, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Net Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 5.4x at June 30, 2019.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter ended June 30, 2019, Griffon did not purchase any shares of common stock under these repurchase programs. During the nine months ended June 30, 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share. As of June 30, 2019, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs.

Additionally, during the quarter ended June 30, 2019, there were no shares withheld to settle employee taxes due upon the vesting of restricted stock. During the nine months ended June 30, 2019, 85,847 shares, with a market value of $1,059, or $12.34 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the nine months ended June 30, 2019, an additional 3,861 shares, with a market value of $47, or $12.16 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting.

On November 17, 2011, the Company began declaring quarterly dividends. During 2018, the Company declared and paid regular cash dividends totaling $0.28 per share. In addition, on March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share paid in April 2018. During the nine months ended June 30, 2019, the Board of Directors approved three quarterly cash dividends of $0.0725 per share each. The Company currently intends to pay dividends each quarter; however, 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 the payment of future dividends.

During the nine months ended June 30, 2019, Griffon used cash for discontinued operations from operating activities of $3,874 primarily related to retention bonus payments for previous PPC employees and certain legal and consulting payments related to the sale of PPC. During the nine months ended June 30, 2018, Griffon used cash for discontinued operations from operating, investing and financing activities of $62,273 primarily related to PPC operations and capital expenditures, as well as the repayment of outstanding debt upon the sale of PPC.

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. There have been no changes in Griffon’s critical accounting policies from September 30, 2018.

Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2018. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon.

RECENT ACCOUNTING PRONOUNCEMENTS

The FASB issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act, 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 (loss), 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-Q 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, restructuring, 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, including as a result of defense budget cuts or other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost or lack of availability of raw materials such as resin, wood and steel, components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; 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, regulatory and environmental matters; unfavorable results of government agency contract audits of 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; possible terrorist threats and actions and their impact on the global economy; Griffon's ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, the TCJA. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2018. 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.

Item 3 - Quantitative and Qualitative Disclosure About Market Risk

Griffon’s business’ activities necessitate the management of various financial and market risks, including those related to changes in interest rates, foreign currency rates and commodity prices.

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 equivalents.

The Credit Agreement 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-US countries, primarily in Canada, Australia, United Kingdom, Mexico and China; therefore, changes in the value of the currencies of these countries affect Griffon's financial position and cash flows when translated into US Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-US 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 4 - Controls and Procedures

Under the supervision and with the participation of Griffon’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), were evaluated as of the end of the period covered by this report. Based on that evaluation, Griffon’s CEO and CFO concluded that Griffon’s disclosure controls and procedures were effective at the reasonable assurance level.

Griffon is continuing to integrate CornellCookson into its existing control procedures. Such integration may lead Griffon to modify certain controls for future periods, but Griffon does not expect changes, if any, to significantly affect its internal control over financial reporting.

During the period covered by this report, there were no changes in Griffon’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, Griffon’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Griffon believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance of achieving their objectives.

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PART II - OTHER INFORMATION

Item 1 Legal Proceedings

None

Item 1A Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2018, which could materially affect Griffon’s business, financial condition or future results. The risks described in Griffon’s Annual Report on Form 10-K are not the only risks facing Griffon. Additional risks and uncertainties not currently known to Griffon or that Griffon currently deems to be immaterial also may materially adversely affect Griffon’s business, financial condition and/or operating results.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds



Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs(1)
April 1 - 30, 2019	—	$	—	—
May 1 - 31, 2019	—	—		—
June 1 - 30, 2019	—	—		—
Total	—	$	—	—	$	57,955

On each of August 3, 2016 and August 1, 2018, the Company’s Board of Directors authorized the repurchase of up to $50,000 of Griffon common stock; as of June 30, 2019, an aggregate of $57,955 remained available for the purchase of Griffon common stock under these repurchase programs. Amount consists of shares purchased by the Company in open market purchases pursuant to such Board authorized stock repurchase program.

Item 3 Defaults Upon Senior Securities

None

Item 4 Mine Safety Disclosures

None

Item 5 Other Information

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Election of New Director

On July 31, 2019, James W. Sight was elected to serve on Griffon’s Board of Directors as a Class I Director, and was appointed to serve on the Finance Committee. Mr. Sight also entered into a customary indemnification agreement with Griffon which provides that Griffon will indemnify Mr. Sight to the fullest extent permitted by applicable law, and which includes provisions relating to the advancement of expenses incurred by or on behalf of Mr. Sight. This indemnification agreement is in the same form as the indemnification agreement entered into between Griffon and each of its other directors and each of its executive officers; the form of the indemnification agreement is filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

Mr. Sight will receive compensation for his services pursuant to our director compensation program. This program is filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2017. Pursuant to our director

compensation program, Mr. Sight received a grant of 5,505 restricted shares of Griffon common stock at the time of his election to the Board, which grant vests at the rate of one-third a year for three years.



Item 6	Exhibits

31.1	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Document

101.DEF	XBRL Taxonomy Extension Definitions Document

101.LAB	XBRL Taxonomy Extension Labels Document

101.PRE	XBRL Taxonomy Extension Presentations Document

*	Indicates a management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	GRIFFON CORPORATION

	/s/ Brian G. Harris
	Brian G. Harris
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

	/s/ W. Christopher Durborow
	W. Christopher Durborow
	Vice President, Controller and Chief Accounting Officer
	(Principal Accounting Officer)

Date: August 1, 2019

Griffon Corporation - 10-Q quarterly report FY2019 Q3

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