Document
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2018

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to
 
Commission File Number: 1-06620
 
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter) 
DELAWARE
 
11-1893410
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
712 Fifth Ave, 18th Floor, New York, New York
 
10019
(Address of principal executive offices)
 
(Zip Code)
 
(212) 957-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý

 
Accelerated filer
 o
Non-accelerated filer  o (Do not check if a smaller reporting company)
 
 
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No




The number of shares of common stock outstanding at April 30, 2018 was 45,756,488.




Griffon Corporation and Subsidiaries
 
Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

Part I – Financial Information
Item 1 – Financial Statements
 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


(Unaudited)


 
March 31,
2018

September 30,
2017
CURRENT ASSETS
 

 
Cash and equivalents
$
236,456


$
47,681

Accounts receivable, net of allowances of $6,192 and $5,966
271,966


208,229

Contract costs and recognized income not yet billed, net of progress payments of $4,139 and $4,407
122,156


131,662

Inventories, net
384,467


299,437

Prepaid and other current assets
47,160


40,067

Assets of discontinued operations held for sale


370,724

Assets of discontinued operations not held for sale
328


329

Total Current Assets
1,062,533


1,098,129

PROPERTY, PLANT AND EQUIPMENT, net
291,516


232,135

GOODWILL
422,473


319,139

INTANGIBLE ASSETS, net
286,156


205,127

OTHER ASSETS
15,670


16,051

ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
2,952


2,960

Total Assets
$
2,081,300


$
1,873,541







CURRENT LIABILITIES
 


 

Notes payable and current portion of long-term debt
$
12,917


$
11,078

Accounts payable
256,014


183,951

Accrued liabilities
113,479


83,258

Liabilities of discontinued operations held for sale


84,450

Liabilities of discontinued operations not held for sale
50,927


8,342

Total Current Liabilities
433,337


371,079

LONG-TERM DEBT, net
1,078,462


968,080

OTHER LIABILITIES
90,458


132,537

LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
5,025


3,037

Total Liabilities
1,607,282


1,474,733

COMMITMENTS AND CONTINGENCIES - See Note 18





SHAREHOLDERS’ EQUITY
 


 

Total Shareholders’ Equity
474,018


398,808

Total Liabilities and Shareholders’ Equity
$
2,081,300


$
1,873,541


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


1

Table of Contents

GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 
COMMON STOCK
 
CAPITAL IN
EXCESS OF
PAR VALUE
 
RETAINED
EARNINGS
 
TREASURY SHARES
 
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
 
DEFERRED
COMPENSATION
 
 
(in thousands)
SHARES
 
PAR VALUE
 
 
 
SHARES
 
COST
 
 
 
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

 

 

 
121,269

 

 

 

 

 
121,269

Dividend

 

 

 
(49,650
)
 

 

 

 

 
(49,650
)
Shares withheld on employee taxes on vested equity awards

 

 

 

 
197

 
(4,446
)
 

 

 
(4,446
)
Amortization of deferred compensation

 

 

 

 

 

 

 
1,672

 
1,672

Common stock acquired

 

 

 

 
1,438

 
(28,415
)
 

 

 
(28,415
)
Equity awards granted, net
811

 
203

 
(203
)
 









 

ESOP allocation of common stock

 

 
1,101

 

 

 

 

 

 
1,101

Stock-based compensation

 

 
4,920

 

 

 

 

 

 
4,920

Other comprehensive income, net of tax

 

 

 

 

 

 
28,759

 

 
28,759

Balance at March 31, 2018
81,474

 
$
20,369

 
$
492,895

 
$
551,966

 
35,192

 
$
(522,086
)
 
$
(31,722
)
 
$
(37,404
)
 
$
474,018

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


2

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 March 31,

Six Months Ended March 31,
 
2018

2017

2018

2017
Revenue
$
478,560


$
383,807


$
915,863


$
736,084

Cost of goods and services
357,087


284,938


673,546


540,471

Gross profit
121,473


98,869


242,317


195,613













Selling, general and administrative expenses
103,675


81,933


209,482


160,817













Income from operations
17,798


16,936


32,835


34,796













Other income (expense)
 


 


 


 

Interest expense
(16,806
)

(12,720
)

(33,645
)

(26,015
)
Interest income
762


15


959


21

Other, net
1,434


(62
)

966


(202
)
Total other expense, net
(14,610
)

(12,767
)

(31,720
)

(26,196
)












Income before taxes from continuing operations
3,188


4,169


1,115


8,600

Provision (benefit) from income taxes
1,237


2,219


(23,667
)

(394
)
Income from continuing operations
$
1,951


$
1,950


$
24,782


$
8,994













Discontinued operations:











Income from operations of discontinued operations (including a gain on sale of $117,625 in 2018)
$
113,376

 
$
6,070


124,842


14,615

Provision for income taxes (including tax on gain on sale of $31,268 in 2018)
25,047

 
2,975


28,355


6,300

Income from discontinued operations (including a gain on sale, net of tax of $86,357 in 2018)
$
88,329

 
$
3,095


96,487


8,315


 
 
 






Net income
$
90,280

 
$
5,045


$
121,269


$
17,309


 
 
 






Income from continuing operations
$
0.05

 
$
0.05


$
0.59


$
0.22

Income from discontinued operations
2.13

 
0.07


2.31


0.21

Basic earnings per common share
$
2.18

 
$
0.12


$
2.91


$
0.43


 
 
 






Weighted-average shares outstanding
41,477

 
41,277


41,700


40,307


 
 
 






Income from continuing operations
$
0.05

 
$
0.05


$
0.58


$
0.21

Income from discontinued operations
2.07

 
0.07


2.24


0.19

Diluted earnings per common share
$
2.11

 
$
0.12


$
2.82


$
0.40


 
 
 






Weighted-average shares outstanding
42,765

 
43,229


43,062


42,776


 
 
 






Dividends paid per common share
$
0.07

 
$
0.06


$
0.14


$
0.12


 
 
 






Net income
$
90,280

 
$
5,045


$
121,269


$
17,309


 
 
 






Other comprehensive income (loss), net of taxes:
 

 
 


 


 

Foreign currency translation adjustments
19,714

 
8,409


18,425


(5,070
)
Pension and other post retirement plans
247

 
544


9,806


1,088

Change in cash flow hedges
440

 
(1,020
)

528


603

Total other comprehensive income (loss), net of taxes
20,401

 
7,933


28,759


(3,379
)
Comprehensive income (loss), net
$
110,681

 
$
12,978


$
150,028


$
13,930

 

3

Table of Contents

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

4

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Six Months Ended March 31,
 
2018

2017
CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS:
 


 

Net income
$
121,269


$
17,309

Net (income) from discontinued operations
(96,487
)

(8,315
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 


 

Depreciation and amortization
26,271


24,135

Stock-based compensation
4,920


4,795

Provision (recovery) for losses on accounts receivable
(201
)

4

Amortization of debt discounts and issuance costs
2,754


2,879

Deferred income taxes
(23,136
)

(3,859
)
Gain on sale of assets and investments


(79
)
Change in assets and liabilities, net of assets and liabilities acquired:
 


 

Increase in accounts receivable and contract costs and recognized income not yet billed
(16,631
)

(16,444
)
Increase in inventories
(48,295
)

(9,549
)
(Increase) decrease in prepaid and other assets
10,867


(715
)
Decrease in accounts payable, accrued liabilities and income taxes payable
(21,021
)

(25,222
)
Other changes, net
844


834

Net cash provided by (used in) operating activities - continuing operations
(38,846
)

(14,227
)
CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS:
 


 

Acquisition of property, plant and equipment
(21,628
)

(15,538
)
Acquired businesses, net of cash acquired
(246,230
)

(6,051
)
Proceeds from sale of business
473,977

 

Proceeds from sale of assets
454


102

Net cash provided by (used in) investing activities - continuing operations
206,573


(21,487
)
CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:
 


 

Dividends paid
(5,872
)

(5,137
)
Purchase of shares for treasury
(32,861
)

(15,758
)
Proceeds from long-term debt
347,898


195,655

Payments of long-term debt
(229,941
)

(120,166
)
Share premium payment on settled debt


(24,997
)
Financing costs
(7,451
)

(335
)
Purchase of ESOP shares


(9,213
)
Other, net
126


(187
)
Net cash provided by (used in) financing activities - continuing operations
71,899


19,862

CASH FLOWS FROM DISCONTINUED OPERATIONS:
 


 

Net cash provided by (used in) operating activities
(15,080
)

22,260

Net cash used in investing activities
(10,762
)

(26,937
)
Net cash used in financing activities
(22,541
)

(3,586
)






Net cash provided by (used in) discontinued operations
(48,383
)

(8,263
)
Effect of exchange rate changes on cash and equivalents
(2,468
)

(1,013
)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
188,775


(25,128
)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
47,681


72,553

CASH AND EQUIVALENTS AT END OF PERIOD
$
236,456


$
47,425

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

5

Table of Contents
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)



NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
About Griffon Corporation
 
Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.

On May 3, 2018, Clopay Building Products Company, Inc. ("CBP") entered into a definitive agreement to acquire CornellCookson, Inc. ("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post closing adjustments. After taking into account tax benefits resulting from the transaction, the effective purchase price is approximately $170,000. The transaction is subject to regulatory approval and customary closing conditions and is expected to close in June 2018.

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

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

Griffon currently conducts its operations through two reportable segments:
 
Home & Building Products (“HBP”) consists of three companies, The AMES Companies, Inc. (“AMES”), CBP and ClosetMaid:

-
AMES, founded in 1774, is the leading US manufacturer and a global provider of long-handled tools and landscaping 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.

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

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

6



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

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of fixed and intangible assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of assets and liabilities of discontinued operations, acquisition assumptions used and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.
 
Certain amounts in the prior year have been reclassified to conform to current year presentation.

NOTE 2 – FAIR VALUE MEASUREMENTS
 
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates.

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

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

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

Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
The fair values of Griffon’s 2022 senior notes approximated $1,006,300 on March 31, 2018. Fair values were based upon quoted market prices (level 1 inputs).


7



On January 17, 2017, Griffon's 4% convertible subordinated notes settled for a total of $173,855. The total settlement value for the convertible notes was based on the sum of the daily Volume Weighted Average Price multiplied by the conversion rate over a 40-day observation period (level 1 inputs).  The settlement value was split between $125,000 in cash and 1,954,993 shares, of common stock issued from treasury.
 
Insurance contracts with values of $2,957 at March 31, 2018 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets.
 
Items Measured at Fair Value on a Recurring Basis

At March 31, 2018, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $4,972 ($3,086 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of March 31, 2018, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in US dollars.

At March 31, 2018, Griffon had $14,500 and $911 of Australian dollar and British Pound Sterling contracts, respectively, at a weighted average rate of $1.30 and $0.71, respectively, 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 $746 ($528, net of tax) at March 31, 2018 and losses of $27 and $34 was recorded in COGS during the quarter and six months ended March 31, 2018, respectively, for all settled contracts. All contracts expire in 3 to 179 days.

At March 31, 2018, Griffon had $3,358 of Canadian dollar contracts at a weighted average rate of $1.29. The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the quarter and six months ended March 31, 2018, fair value loss (gain) of $145 and $(92), respectively, was recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $71 and $42 were recorded in Other income during the quarter and six months ended March 31, 2018, respectively, for all settled contracts. All contracts expire in 30 to 178 days.

NOTE 3 – ACQUISITIONS

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

On May 3, 2018, CBP entered into a definitive agreement to acquire CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post closing adjustments. The transaction is subject to regulatory approval and customary closing conditions and is expected to close in June 2018.

On February 13, 2018, AMES acquired Kelkay, a United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to leading 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. The purchase price was primarily allocated to fixed assets and land of GBP 8,241, tradenames of GBP 6,739 and accounts receivable and inventory of GBP 8,894.

On November 6, 2017, AMES acquired Harper Brush Works (“Harper”), a division of Horizon Global, for approximately $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 broadens 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.


8


On October 2, 2017, Griffon Corporation completed the acquisition of ClosetMaid, a market leader of home storage and organization products, for approximately $185,700, inclusive of post-closing adjustments. ClosetMaid adds to Griffon's Home and Building Products segment, complementing and diversifying Griffon's portfolio of leading consumer brands and products.

ClosetMaid's accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations are included in the Company’s consolidated financial statements from the date of acquisition of October 2, 2017. The Company has recorded a preliminary allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of ClosetMaid, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets.

The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired ClosetMaid on October 1, 2016:
 
Proforma
 For the three months ended March 31, 2017
(unaudited)
Proforma
For the six months ended March 31, 2017
(unaudited)
Revenue
$
459,307

$
888,485

Income from continuing operations
3,082

11,062


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

Additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2016.
Elimination of intercompany interest income recorded on ClosetMaid’s financial statements earned on an intercompany receivable due from ClosetMaid’s former parent.
Additional interest and related expenses from the add-on offering of $275,000 for the aggregate principal amount of 5.25% senior notes due 2022 that Griffon used to acquire ClosetMaid.
Removal of $100 and $700 of restructuring costs from ClosetMaid's historical results for the quarter and six months ended March 31, 2017, respectively.
The consequential tax effects of the above adjustments using a 53% and 56% tax rate for the quarter and six months ended March 31, 2017, respectively.

9



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

 

Accounts receivable (1)
$
32,234

Inventories (2)
28,422

Property, plant and equipment
48,171

Goodwill
69,408

Intangible assets
74,580

Other current and non-current assets
3,852

Total assets acquired
256,667

 
 
Accounts payable and accrued liabilities
68,218

Long-term liabilities
2,720

Total liabilities assumed
70,938

Total
$
185,729

(1) Includes $32,956 of gross accounts receivable of which $722 was not expected to be collected. The fair value of accounts receivable approximated book value acquired.
(2) Includes $1,500 in inventory basis step-up, which was charged to cost of goods sold over the inventory turns of the acquired entity.

The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the ClosetMaid acquisition are as follows:
 
 
 
 
Average
Life
(Years)
Goodwill
 
$
69,408

 
N/A
Indefinite-lived intangibles
 
47,740

 
N/A
Definite-lived intangibles
 
26,840

 
21
Total goodwill and intangible assets
 
$
143,988

 
 

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

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

On July 31, 2017, The AMES Companies, Inc. acquired La Hacienda Limited, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $10,610 (GBP 8,575), subject to contingent earn out payments of up to $790 (GBP 600). The acquisition of La Hacienda broadens AMES' global outdoor living and lawn and garden business and supports AMES' UK expansion strategy. The purchase price allocation was primarily allocated to intangible assets of approximately GBP 3,100 and inventory and accounts receivable of GBP 4,200.
On December 30, 2016, AMES Australia acquired Hills Home Living ("Hills") for approximately $6,051 (AUD 8,400). The purchase price has been allocated to acquired assets and assumed liabilities and primarily consists of inventory, tooling and

10


identifiable intangible assets, including trademarks, intellectual property and customer relationships. Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products. The Hills acquisition adds to AMES' existing broad category of products and enhances our lawn and garden product offerings in Australia. The purchase price was primarily allocated to intangible assets of approximately AUD 6,400 with the remainder primarily inventory.
On February 14, 2016, AMES Australia acquired substantially all of the Intellectual Property (IP) assets of Australia-based Nylex Plastics Pty Ltd. for approximately $1,744 (AUD 2,452). Through this acquisition, AMES and Griffon secured the ownership of the trademark “Nylex” for certain categories of AMES products, principally in the country of Australia.  Previously, the Nylex name was licensed.  The acquisition of the Nylex IP was contemplated as a post-closing activity following the Cyclone acquisition and supports AMES' Australian watering products strategy.  The purchase price was allocated to indefinite lived trademarks and is not deductible for income taxes.

During the three months ended March 31, 2018, SG&A included acquisition costs of $814. During the six months ended March 31, 2018, SG&A and Cost of goods and services included acquisition costs of $2,499 and $1,500, respectively. Acquisition costs were not recorded in the prior year comparable periods.

NOTE 4 – INVENTORIES
 
Inventories are stated at the lower of cost (first-in, first-out or average) or market.
 
The following table details the components of inventory:
 
At March 31, 2018
 
At September 30, 2017
Raw materials and supplies
$
88,201

 
$
67,990

Work in process
81,937

 
78,846

Finished goods
214,329

 
152,601

Total
$
384,467

 
$
299,437

 
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

The following table details the components of property, plant and equipment, net:
 
At March 31, 2018
 
At September 30, 2017
Land, building and building improvements
$
102,426

 
$
71,764

Machinery and equipment
504,650

 
462,173

Leasehold improvements
48,483

 
43,040


655,559

 
576,977

Accumulated depreciation and amortization
(364,043
)
 
(344,842
)
Total
$
291,516

 
$
232,135

Depreciation and amortization expense for property, plant and equipment was $11,530 and $10,503 for the quarters ended March 31, 2018 and 2017, respectively, and $22,232 and $20,852 for the six months ended March 31, 2018 and 2017, respectively. Depreciation included in SG&A expenses was $3,834 and $3,230 for the quarters ended March 31, 2018 and 2017, respectively, and $7,576 and $6,290 for the six months ended March 31, 2018 and 2017, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

No event or indicator of impairment occurred during the three and six months ended March 31, 2018 which would require additional impairment testing of property, plant and equipment.
 
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 

11


The following table provides changes in the carrying value of goodwill by segment during the three and six months ended March 31, 2018:

 
At September 30, 2017

Goodwill from acquisitions

Other
adjustments
including currency
translations

At March 31, 2018
Home & Building Products
$
300,594

 
$
103,628

 
$
(294
)
 
$
403,928

Telephonics
18,545

 

 

 
18,545

Total
$
319,139

 
$
103,628

 
$
(294
)
 
$
422,473



The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:
 
 
At March 31, 2018
 
 
 
At September 30, 2017
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Average
Life
(Years)
 
Gross Carrying Amount
 
Accumulated
Amortization
Customer relationships
$
166,345

 
$
46,084

 
25
 
$
152,025

 
$
43,421

Technology and patents
17,429

 
5,679

 
12.5
 
6,193

 
4,719

Total amortizable intangible assets
183,774

 
51,763

 
 
 
158,218

 
48,140

Trademarks
154,145

 

 
 
 
95,049

 

Total intangible assets
$
337,919

 
$
51,763

 
 
 
$
253,267

 
$
48,140

 
Amortization expense for intangible assets was $1,783 and $1,644 for the quarters ended March 31, 2018 and 2017, respectively, and $4,039 and $3,283 for the six months ended March 31, 2018 and 2017, respectively.
 
No event or indicator of impairment occurred during the three and six months ended March 31, 2018 which would require impairment testing of long-lived intangible assets including goodwill.
 
NOTE 7 – INCOME TAXES

On December 22, 2017, the "Tax Cuts and Jobs Act" ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Though certain key aspects of the TCJA are effective January 1, 2018 and have an immediate accounting effect, other significant provisions are not effective or may not result in accounting effects for September 30 fiscal year companies until October 1, 2018.
Given the significance of the TCJA, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.
Among the significant changes to the U.S. Internal Revenue Code, the TCJA lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5%. The 21% Federal Tax Rate will apply to fiscal years ending September 30, 2019 and each year thereafter.

The Company has recorded provisional amounts for the effects of the TCJA where accounting is not complete but a reasonable estimate has been determined. The company recorded a $23,136 benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense, both of which have been reflected in the tax benefit for the six months ended March 31, 2018.


12



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

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

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

During the quarter ended March 31, 2018, the Company recognized a tax provision of $1,237 on income before taxes from continuing operations of $3,188, compared to $2,219 on income before taxes from continuing operations of $4,169, in the comparable prior year quarter. The current quarter results included acquisition costs of $814 ($378, net of tax) and discrete and certain other tax provisions, net, of $368. The prior year quarter included discrete and certain other tax provisions, net, of $466. Excluding these tax items, the effective tax rates for the quarters ended March 31, 2018 and 2017 were 32.6% and 42.1%, respectively.
During the six months ended March 31, 2018, the Company recognized a tax benefit of $23,667 on income before taxes from continuing operations of $1,115, compared to a tax benefit of $394 on Income before taxes from continuing operations of $8,600 in the comparable prior year period. The six month period ended March 31, 2018 included net tax benefits of $22,650 primarily from the December 22, 2017 tax reform bill related to revaluation of deferred tax liabilities, $3,999 ($2,726 net of tax) of acquisition costs and $2,614 ($248 net of tax) related to cost of life insurance benefits.  The six month period ended March 31, 2017 included discrete benefits of $3,956 primarily from the adoption of Financial Accounting Standards Board guidance which requires the Company to recognize excess tax benefits from the vesting of equity awards within income tax expense. Excluding these tax items, the effective tax rates for the six months ended March 31, 2018 and 2017 were 33.9% and 41.4%, respectively.




13


NOTE 8 – LONG-TERM DEBT
 
 
 
At March 31, 2018
 
At September 30, 2017
  
 
Outstanding Balance

Original Issuer Premium

Capitalized Fees & Expenses
 
Balance Sheet

Coupon Interest Rate (1)

Outstanding Balance

Original Issuer Discount
 
Capitalized Fees & Expenses
 
Balance Sheet

Coupon Interest Rate (1)
Senior notes due 2022
(a)
$
1,000,000

 
$
1,396

 
$
(14,715
)
 
$
986,681

 
5.25
%
 
725,000

 
$
(1,177
)
 
$
(9,220
)
 
$
714,603

 
5.25
%
Revolver due 2021
(b)
14,896

 

 
(1,689
)
 
13,207

 
Variable

 
144,216

 

 
(1,951
)
 
142,265

 
Variable

Real estate mortgages
(d)

 

 

 

 
Variable

 
23,642

 

 
(320
)
 
23,322

 
Variable

ESOP Loans
(e)
41,537

 

 
(248
)
 
41,289

 
Variable

 
42,675

 

 
(310
)
 
42,365

 
Variable

Capital lease - real estate
(f)
8,983

 

 
(93
)
 
8,890

 
5.00
%
 
5,312

 

 
(105
)
 
5,207

 
5.00
%
Non US lines of credit
(g)
2,125

 

 
(24
)
 
2,101

 
Variable

 
9,402

 

 
(31
)
 
9,371

 
Variable

Non US term loans
(g)
33,277

 

 
(90
)
 
33,187

 
Variable

 
35,943

 

 
(108
)
 
35,835

 
Variable

Other long term debt
(h)
6,045

 

 
(21
)
 
6,024

 
Variable

 
6,211

 

 
(21
)
 
6,190

 
Variable

Totals
 
1,106,863

 
1,396

 
(16,880
)
 
1,091,379

 
 

 
992,401

 
(1,177
)
 
(12,066
)
 
979,158

 
 

less: Current portion
 
(12,917
)
 

 

 
(12,917
)
 
 

 
(11,078
)
 

 

 
(11,078
)
 
 

Long-term debt
 
$
1,093,946

 
$
1,396

 
$
(16,880
)
 
$
1,078,462

 
 

 
$
981,323

 
$
(1,177
)
 
$
(12,066
)
 
$
968,080

 
 

 (1) n/a = not applicable


14


 
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
 
Effective Interest Rate (1)

Cash Interest

Amort. Debt
Discount

Amort. Debt Issuance Costs
& Other Fees

Total Interest Expense

Effective Interest Rate (1)

Cash Interest

Amort. Debt
Discount

Amort.
Debt Issuance Costs
& Other Fees

Total Interest Expense
Senior notes due 2022
(a)
5.7
%
 
13,125

 
68

 
943

 
14,136

 
5.5
%
 
9,515

 
68

 
461

 
10,044

Revolver due 2021
(b)
Variable

 
922

 

 
140

 
1,062

 
Variable

 
1,326

 

 
150

 
1,476

Convert. debt due 2017
(c)
n/a

 

 

 

 

 
9.1
%
 
167

 
190

 
37

 
394

Real estate mortgages
(d)
n/a

 
166

 

 
303

 
469

 
2.4
%
 
158

 

 
8

 
166

ESOP Loans
(e)
4.6
%
 
442

 

 
31

 
473

 
3.3
%
 
369

 

 
38

 
407

Capital lease - real estate
(f)
5.5
%
 
327

 

 
7

 
334

 
5.4
%
 
75

 

 
6

 
81

Non US lines of credit
(g)
Variable

 
4

 

 

 
4

 
Variable

 
21

 

 
7

 
28

Non US term loans
(g)
Variable

 
330

 

 
18

 
348

 
Variable

 
236

 

 
18

 
254

Other long term debt
(h)
Variable

 
114

 

 
1

 
115

 
Variable

 
48

 

 
4

 
52

Capitalized interest
 
 

 
(135
)
 

 

 
(135
)
 
 

 
(182
)
 

 

 
(182
)
Totals
 
 

 
$
15,295

 
$
68

 
$
1,443

 
$
16,806

 
 

 
$
11,733

 
$
258

 
$
729

 
$
12,720

 
 
Six Months Ended March 31, 2018
 
Six Months Ended March 31, 2017
 
 
Effective Interest Rate (1)
 
Cash Interest
 
Amort. Debt
Discount
 
Amort. Debt Issuance Costs
& Other Fees
 
Total Interest Expense
 
Effective Interest Rate (1)
 
Cash Interest
 
Amort. Debt
Discount
 
Amort.
Debt Issuance Costs
& Other Fees
 
Total Interest Expense
Senior notes due 2022
(a)
5.7
%
 
26,250


135


1,882

 
28,267

 
5.5
%
 
19,031

 
135

 
934

 
20,100

Revolver due 2021
(b)
Variable

 
2,278



 
281

 
2,559

 
Variable

 
1,651

 

 
282

 
1,933

Convert. debt due 2017
(c)
n/a

 





 

 
8.9
%
 
1,167

 
1,248

 
148

 
2,563

Real estate mortgages
(d)
n/a

 
351




320

 
671

 
2.4
%
 
278

 

 
10

 
288

ESOP Loans
(e)
4.3
%
 
855




62

 
917

 
4.1
%
 
733

 

 
65

 
798

Capital lease - real estate
(f)
10.7
%
 
491




13

 
504

 
5.4
%
 
155

 

 
12

 
167

Non US lines of credit
(g)
Variable

 
11




7

 
18

 
Variable

 
25

 

 
10

 
35

Non US term loans
(g)
Variable

 
664




51

 
715

 
Variable

 
458

 

 
29

 
487

Other long term debt
(h)
Variable

 
229




3

 
232

 
Variable

 
122

 

 
6

 
128

Capitalized interest
 
 

 
(238
)




 
(238
)
 
 

 
(484
)
 

 

 
(484
)
Totals
 
 

 
$
30,891

 
$
135

 
$
2,619

 
$
33,645

 
 

 
$
23,136

 
$
1,383

 
$
1,496

 
$
26,015

(1) n/a = not applicable


15



(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 March 31, 2018, outstanding Senior Notes due totaled $1,000,000; interest is payable semi-annually on March 1 and September 1. The net proceeds of the $275,000 add-on offering were used to acquire ClosetMaid with the remaining proceeds used to pay down outstanding loan borrowings under Griffon's revolving credit facility (the "Credit Agreement"). The net proceeds of the previously issued $125,000 add-on offering were used to pay down outstanding revolving loan borrowings under the Credit Agreement.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On February 5, 2018 and June 18, 2014, Griffon exchanged all of the $275,000, $125,000 and $600,000 Senior Notes, respectively, for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. The fair value of the Senior Notes approximated $1,006,300 on March 31, 2018 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the $275,000 senior notes, Griffon capitalized $8,472 of underwriting fees and other expenses; Griffon capitalized $3,016 of underwriting fees and other expenses in connection with the $125,000 senior notes; and Griffon capitalized $10,313 in connection with the previously issued $600,000 senior notes. All capitalized fees will amortize over the term of the notes.

(b)
On March 22, 2016, Griffon amended the Credit Agreement to increase the credit facility from $250,000 to $350,000, extend its maturity date from March 13, 2020 to March 22, 2021 and modify certain other provisions of the facility. On October 2, 2017, Griffon further amended the Credit Agreement in association with the ClosetMaid acquisition to modify the net leverage covenant through the quarter ended March 31, 2019. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $50,000. The Credit Agreement provides for same day borrowings of base rate loans. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of an event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.50% for base rate loans and 2.50% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65% of the equity interest in Griffon’s material, first-tier foreign subsidiaries (except that a lien on the assets of Griffon's material domestic subsidiaries securing a limited amount of the debt under the Credit Agreement relating to Griffon's Employee Stock Ownership Plan ("ESOP") ranks pari passu with the lien granted on such assets under the Credit Agreement; see footnote (e) below). At March 31, 2018, under the Credit Agreement, there were $14,896 in outstanding borrowings; standby letters of credit were $14,896; and $320,208 was available, subject to certain loan covenants, for borrowing at that date.

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

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

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

16


As of March 31, 2018, $41,289, net of issuance costs, was outstanding under the Term Loan. The Term Loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which lien ranks pari passu with the lien granted on such assets under the Credit Agreement) and is guaranteed by Griffon.

(f)
Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in 2021 and 2022, respectively, and bear interest at fixed rates of approximately 5.0% and 8.0%, respectively. The Troy Ohio lease is secured by a mortgage on the real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year renewal options. At March 31, 2018, $8,890 was outstanding, net of issuance costs.
 
(g)
In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,624 as of March 31, 2018) revolving credit facility.  The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.18% LIBOR USD and 2.87% Bankers Acceptance Rate CDN as of March 31, 2018). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity.  At March 31, 2018, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,624 as of March 31, 2018) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 30,000 term loan and an AUD 10,000 revolver. The term loan refinanced two existing term loans and the revolver replaced two existing lines. In December 2016, the amount available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in March 2017, the term loan commitment was increased by AUD 5,000. In September 2017, the term commitment was further increased by AUD 15,000. The term loan requires quarterly principal payments of AUD 1,250 plus interest, with a balloon payment of AUD 37,125 due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.00% per annum (4.08% at March 31, 2018). As of March 31, 2018, the term loan had an outstanding balance of AUD 43,375 ($33,277 as of March 31, 2018). The revolving facility matures in November 2018, but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus 2.0% per annum (3.94% at March 31, 2018). At March 31, 2018, there were no borrowings under the revolving credit facility with AUD 20,000($15,344 as of March 31, 2018) available for borrowing. The revolver and the term loan are both secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon guarantees the term loan. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

A UK subsidiary of Griffon maintains an invoice discounting arrangement secured by trade receivables. Interest is variable at 2.0% over the Sterling base rate (2.5% as of March 31, 2018). At March 31, 2018 the amount outstanding under this facility was $2,125 (GBP $1,512).

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

At March 31, 2018, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

NOTE 9 — SHAREHOLDERS’ EQUITY
 
During 2018, the Company paid a quarterly cash dividend of $0.07 per share in each quarter, totaling $0.14 per share for the six months ended March 31, 2018. During 2017, the Company paid quarterly cash dividends of $0.06 per share, totaling $0.24 per share for the year. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and recorded as a reduction of debt service payments and compensation expense. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares.

On March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share, payable on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018. On May 3, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per share, payable on June 21, 2018 to shareholders of record as of the close of business on May 25, 2018.

Compensation expense for restricted stock is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares granted multiplied by the stock price on the date of grant and, for performance shares, the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years, is recognized using the straight-line attribution method and recorded within SG&A expenses.
 

17


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 March 31, 2018, there were 1,192,193 shares available for grant.

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

For the quarters ended March 31, 2018 and 2017, stock based compensation expense totaled $2,365 and $2,343, respectively. For the six months ended March 31, 2018 and 2017, such expense totaled $4,920 and $4,795, respectively.

During the quarter and six months ended March 31, 2018, 6,120 shares, with a market value of $114 or $18.61 per share, and 197,452 shares, with a market value of $4,446 or $22.51 per share, respectively, were withheld to settle employee taxes due to the vesting of restricted stock, and were added to treasury.

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

On August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During both the quarter and six months ended March 31, 2018, Griffon purchased 1,438,239 shares of common stock under the August 2016 program, for a total of $28,415 or $19.76. As of March 31, 2018, $21,022 remains under the August 3, 2016 Board authorization.

From August 2011 to March 31, 2018, Griffon repurchased 17,423,093 shares of common stock, for a total of $240,036 or $13.78 per share, under Board authorized repurchase programs.

In addition to repurchases under Board authorized programs, on December 10, 2013, Griffon repurchased 4,444,444 shares of its common stock for $50,000 from GS Direct, L.L.C. (“GS Direct”), an affiliate of The Goldman Sachs Group, Inc. Subject to certain exceptions, if GS Direct intends to sell its remaining 5,555,556 shares of Griffon common stock at any time prior to December 31, 2017, it will first negotiate in good faith to sell such shares to the Company.


18



NOTE 10 – EARNINGS PER SHARE (EPS)
 
Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that were issued in connection with stock based compensation and upon the settlement of the 2017 convertible notes.
 
The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Weighted average shares outstanding - basic
41,477

 
41,277

 
41,700

 
40,307

Incremental shares from stock based compensation
1,288

 
1,557

 
1,362

 
1,740

Convertible debt matured 2017

 
395

 

 
729

 
 
 
 
 
 
 
 
Weighted average shares outstanding - diluted
42,765

 
43,229

 
43,062

 
42,776

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

NOTE 11 – BUSINESS SEGMENTS

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

HBP is a 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; a global provider of long-handled tools and landscaping products for homeowners and professionals; and a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products to home center retail chains, mass merchandisers, and direct-to builder professional installers.

Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

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

On October 2, 2017, Griffon acquired ClosetMaid. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. The accounts of ClosetMaid, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, are included in the Company’s consolidated financial statements from the date of acquisition of October 2, 2017.

19


Information on Griffon’s reportable segments from continuing operations is as follows:
 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
REVENUE
2018
 
2017
 
2018
 
2017
Home & Building Products:
 

 
 

 
 

 
 

AMES
$
182,928

 
$
162,907

 
$
322,910

 
$
283,631

CBP
138,112

 
122,628

 
292,348

 
266,088

ClosetMaid
75,268

 

 
152,028

 

Home & Building Products
396,308

 
285,535

 
767,286

 
549,719

Telephonics
82,252

 
98,272

 
148,577

 
186,365

Total consolidated net sales
$
478,560

 
$
383,807

 
$
915,863

 
$
736,084


The following table reconciles segment operating profit to income before taxes from continuing operations:
 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
INCOME BEFORE TAXES FROM CONTINUING OPERATIONS
2018
 
2017
 
2018
 
2017
Segment operating profit:
 

 
 

 
 

 
 

Home & Building Products
$
28,478

 
$
18,314

 
$
56,229

 
$
40,954

Telephonics
1,302

 
9,015

 
2,782

 
14,406

Segment operating profit from continuing operations
29,780

 
27,329

 
59,011

 
55,360

Net interest expense
(16,044
)
 
(12,705
)
 
(32,686
)
 
(25,994
)
Unallocated amounts
(10,541
)
 
(10,455
)
 
(20,977
)
 
(20,766
)
Acquisition costs
(7
)
 

 
(1,619
)
 

Cost of life insurance benefit

 

 
(2,614
)
 

Income before taxes from continuing operations
$
3,188

 
$
4,169

 
$
1,115

 
$
8,600

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

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

20


 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Segment adjusted EBITDA:
 

 
 

 
 

 
 

Home & Building Products
$
39,789

 
$
27,565

 
$
79,246

 
$
59,372

Telephonics
3,997

 
11,786

 
8,196

 
19,894

Total Segment adjusted EBITDA
43,786

 
39,351

 
87,442

 
79,266

Net interest expense
(16,044
)
 
(12,705
)
 
(32,686
)
 
(25,994
)
Segment depreciation and amortization
(13,199
)
 
(12,022
)
 
(26,051
)
 
(23,906
)
Unallocated amounts
(10,541
)
 
(10,455
)
 
(20,977
)
 
(20,766
)
Acquisition costs
(814
)
 

 
(3,999
)
 

Cost of life insurance benefit

 

 
(2,614
)
 

Income before taxes from continuing operations
$
3,188

 
$
4,169

 
$
1,115

 
$
8,600


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

For the Three Months Ended March 31,

For the Six Months Ended March 31,
DEPRECIATION and AMORTIZATION
2018

2017

2018

2017
Segment:
 

 

 

 
Home & Building Products
$
10,504

 
$
9,251

 
$
20,637

 
$
18,418

Telephonics
2,695

 
2,771

 
5,414

 
5,488

Total segment depreciation and amortization
13,199

 
12,022

 
26,051

 
23,906

Corporate
114

 
125

 
220

 
229

Total consolidated depreciation and amortization
$
13,313

 
$
12,147

 
$
26,271

 
$
24,135













CAPITAL EXPENDITURES
 


 


 


 

Segment:
 


 


 


 

Home & Building Products
$
8,192

 
$
3,768

 
$
14,850

 
$
10,159

Telephonics
2,442

 
1,817

 
4,385

 
3,113

Total segment
10,634

 
5,585

 
19,235

 
13,272

Corporate
209

 
2,263

 
2,393

 
2,266

Total consolidated capital expenditures
$
10,843

 
$
7,848

 
$
21,628

 
$
15,538


21


ASSETS
At March 31, 2018

At September 30, 2017
Segment assets:
 

 
Home & Building Products
$
1,478,951

 
$
1,084,103

Telephonics
332,551

 
343,445

Total segment assets
1,811,502

 
1,427,548

Corporate
266,518

 
71,980

Total continuing assets
2,078,020

 
1,499,528

Assets of discontinued operations
3,280

 
374,013

Consolidated total
$
2,081,300

 
$
1,873,541


NOTE 12 – EMPLOYEE BENEFIT PLANS

Defined benefit pension expense (income) was as follows:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Interest cost
$
1,407

 
$
1,402

 
$
2,814

 
$
2,804

Expected return on plan assets
(2,684
)
 
(2,736
)
 
(5,368
)
 
(5,472
)
Amortization:
 

 
 

 
 

 
 

Prior service cost
4

 
4

 
8

 
8

Recognized actuarial loss
525

 
832

 
1,050

 
1,664

Net periodic expense (income)
$
(748
)
 
$
(498
)
 
$
(1,496
)
 
$
(996
)

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

NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS
Issued but not yet effective accounting pronouncements

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

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of a stock compensation award previously granted to an employee. This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. The new guidance is effective for the Company beginning in 2019. We are currently evaluating the impact of the guidance 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 is effective, and should be applied

22


retroactively, 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 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and 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 in 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.

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 2019. We are currently evaluating the impact of the guidance 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 2019. We are currently evaluating the impact of the guidance 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.

In May 2014, the FASB issued guidance on revenue from contracts with customers. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in 2019; early adoption is permitted beginning in 2018. The Company has commenced its initial assessment to assess the impact, if any, the new revenue standard will have on the Company’s consolidated financial statements. During this initial assessment, the Company has identified certain differences that will likely have the most impact; however, how significant of an impact cannot be determined during this phase of the Company’s implementation process. These differences relate to the new concepts of variable consideration, consideration payable and the focus on control to determine when and how revenue should be recognized (i.e. point in time versus over time). The FASB has also issued the following additional guidance clarifying certain issues on revenue from contracts with customers; Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients and Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. The Company expects to complete its initial assessments by the end of the third quarter of 2018 and expects to finalize its implementation process prior to the adoption of the new revenue standard on October 1, 2018.

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.


23



NOTE 14 – DISCONTINUED OPERATIONS
 
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 $475,000 in cash, subject to certain post-closing adjustments. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. 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 quarter ended March 31, 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 March 31,
 
For the Six Months Ended March 31,
 
 
2018
2017
 
2018
 
2017
 
Revenue
 
$
45,832

$
111,958

 
$
166,262

 
$
226,780

 
Cost of goods and services
 
36,157

95,277

 
132,100

 
190,715

 
Gross profit
 
9,675

16,681

 
34,162

 
36,065

 
Selling, general and administrative expenses
 
13,995

10,556

 
26,103

 
21,416

 
Income (loss) from discontinued operations
 
(4,320
)
6,125

 
8,059

 
14,649

 
Other income (expense)
 
 
 
 
 

 
 

 
Gain on sale of business
 
117,625


 
117,625

 
 
 
Interest expense, net
 
(95
)
82

 
(155
)
 
4

 
Other, net
 
166

(137
)
 
(687
)
 
(38
)
 
Total other income (expense)
 
117,696

(55
)
 
116,783

 
(34
)
 
Income from operations of discontinued operations
 
$
113,376

$
6,070

 
$
124,842

 
$
14,615

 

24


The Company has no assets or liabilities classified as held for sale as of March 31, 2018. The following amounts related to the PPC segment have been segregated from Griffon's continuing operations and are reported as assets and liabilities of discontinued operations held for sale in the consolidated balance sheet at September 30, 2017:
 
 
At September 30, 2017
 
ASSETS
 
 

 
Accounts receivable, net
 
$
51,768

 
Inventories, net
 
45,742

 
Prepaid and other current assets
 
11,000

 
PROPERTY, PLANT AND EQUIPMENT, net
 
185,940

 
GOODWILL
 
57,087

 
INTANGIBLE ASSETS, net
 
12,298

 
OTHER ASSETS
 
6,889

 
Total Assets Held for Sale
 
370,724

 
LIABILITIES
 
 

 
Notes payable and current portion of long-term debt
 
$
11,163

 
Accounts payable
 
36,619

 
Accrued liabilities
 
14,553

 
LONG-TERM DEBT, net
 
10,549

 
OTHER LIABILITIES
 
11,566

 
Total Liabilities Held for Sale
 
$
84,450

 
 
In connection with the sale transaction, the Company recorded liabilities of $46,968 as of March 31, 2018 primarily for income taxes payable, stay and transaction bonuses, and other remaining accrued liabilities.

On September 5, 2017, Griffon entered into an engagement letter with Goldman Sachs pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the exploration of strategic alternatives for Clopay Plastics. On November 15, 2017, Griffon signed an agreement to sell Clopay Plastics for $475,000 to Berry Global Group, Inc. Griffon subsequently paid a customary financial advisory fee to Goldman Sachs under the terms of this engagement letter upon closing of the transaction.

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. In 2008, Griffon sold eleven units, closed one unit and merged two units into CBP. 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 reported revenue in the quarters and six months ended March 31, 2018 and 2017.
 
During the year ended September 30, 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.

25


The following amounts related to the Installation Services segment, discontinued in 2008, and other businesses discontinued several years ago, 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 March 31, 2018

At September 30, 2017
Assets of discontinued operations not held for sale:
 


 

Prepaid and other current assets
$
328

 
$
329

Other long-term assets
2,952

 
2,960

Total assets of discontinued operations not held for sale
$
3,280

 
$
3,289

 
 
 
 
Liabilities of discontinued operations not held for sale:
 

 
 

Accrued liabilities, current
$
3,807

 
$
8,342

Other long-term liabilities
5,177

 
3,037

Total liabilities of discontinued operations not held for sale
$
8,984

 
$
11,379


There was no Installation Services revenue or income for the quarter ended March 31, 2018 or 2017.

NOTE 15 – OTHER INCOME (EXPENSE)
 
For the quarters ended March 31, 2018 and 2017, Other income (expense) primarily consisted of $217 and ($291), 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 $1,266 and $68, respectively, of net investment income (loss).

For the six months ended March 31, 2018 and 2017, Other income (expense) primarily consisted of $(219) and $(423), respectively, of net currency exchange 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 $1,261 and $155, respectively, of net investment income.


NOTE 16 – 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 CBP, ClosetMaid 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 and subject to certain disclaimers and limitations.

Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Balance, beginning of period
$
6,055

 
$
6,015

 
$
6,236

 
$
6,322

Warranties issued and changes in estimated pre-existing warranties
1,637

 
1,213

 
3,112

 
2,507

Actual warranty costs incurred
(1,434
)
 
(1,425
)
 
(3,926
)
 
(3,026
)
Other warranty liabilities assumed from acquisitions

 

 
836

 
$

Balance, end of period
$
6,258

 
$
5,803

 
$
6,258

 
$
5,803



26


NOTE 17 – OTHER COMPREHENSIVE INCOME (LOSS)
 
The amounts recognized in other comprehensive income (loss) were as follows:
 
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
19,714

 
$

 
$
19,714

 
$
8,409

 
$

 
$
8,409

Pension and other defined benefit plans
376

 
(129
)
 
247

 
836

 
(292
)
 
544

Cash flow hedges
616

 
(176
)
 
440

 
(1,428
)
 
408

 
(1,020
)
Total other comprehensive income (loss)
$
20,706

 
$
(305
)
 
$
20,401

 
$
7,817

 
$
116

 
$
7,933

 
Six Months Ended March 31, 2018
 
Six Months Ended March 31, 2017
 
Pre-tax
 
Tax
 
Net of tax
 
Pre-tax
 
Tax
 
Net of tax
Foreign currency translation adjustments
$
18,425

 
$

 
$
18,425

 
$
(5,070
)
 
$

 
$
(5,070
)
Pension and other defined benefit plans
14,620

 
(4,814
)
 
9,806

 
1,672

 
(584
)
 
1,088

Cash flow hedges
746

 
(218
)
 
528

 
844

 
(241
)
 
603

Total other comprehensive income (loss)
$
33,791

 
$
(5,032
)
 
$
28,759

 
$
(2,554
)
 
$
(825
)
 
$
(3,379
)

The components of Accumulated other comprehensive income (loss) are as follows:
 
March 31, 2018
 
September 30, 2017
Foreign currency translation adjustments
$
(13,802
)
 
$
(32,227
)
Pension and other defined benefit plans
(18,334
)
 
(28,140
)
Change in Cash flow hedges
414

 
(114
)
 
$
(31,722
)
 
$
(60,481
)

Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows:
 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
Gain (Loss)
2018
 
2017
 
2018
 
2017
Pension amortization
$
(529
)
 
$
(836
)
 
$
(1,058
)
 
$
(1,672
)
Cash flow hedges
(34
)
 
(172
)
 
(40
)
 
(821
)
Removal of PPC translation adjustment
14,866

 

 
14,866

 

Total gain (loss)
14,303

 
(1,008
)
 
13,768

 
(2,493
)
Tax benefit (expense)
(3,315
)
 
303

 
(3,313
)
 
748

Total
$
10,988

 
$
(705
)
 
$
10,455

 
$
(1,745
)

NOTE 18 — 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. (“ISC”), a wholly-owned subsidiary of Griffon. ISC sold the Peekskill Site in November 1982.


27


Subsequently, ISC was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did accordingly conduct over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.

In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment media, remediation alternatives having a current net capital cost value, in the aggregate, of approximately $5,000.  In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no further obligations under the consent order.
 
Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater media, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.
 
It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State of New York may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

Improper Advertisement Claim involving Union Tools® Products. 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 final remedial investigation and feasibility study reports. AMES’ recommended remedial option of excavation and offsite disposal of lead contaminated soils, capping of other areas of the site impacted by other metals and performing limited groundwater monitoring was accepted by the DEC in a Record of Decision issued March 1, 2018. Implementation of the selected remedial alternative is expected to be completed in 2019. 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.

28



US Government investigations and claims

In general, departments and agencies of the US 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. US Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future US 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 19 — 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, Inc., Clopay Ames True Temper Holding Corp., and ClosetMaid, 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 of 1933, presented below are condensed consolidating financial information as of March 31, 2018 and September 30, 2017 and for the three months ended March 31, 2018 and 2017. 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.


29


CONDENSED CONSOLIDATING BALANCE SHEETS
At March 31, 2018
 
($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Cash and equivalents
$
177,429

 
$
22,937

 
$
36,090

 
$

 
$
236,456

Accounts receivable, net of allowances

 
224,997

 
70,719

 
(23,750
)
 
271,966

Contract costs and recognized income not yet billed, net of progress payments

 
121,883

 
273

 

 
122,156

Inventories, net

 
318,101

 
66,409

 
(43
)
 
384,467

Prepaid and other current assets
15,481

 
16,069

 
9,611

 
5,999

 
47,160

Assets of discontinued operations not held for sale

 

 
328

 

 
328

Total Current Assets
192,910

 
703,987

 
183,430

 
(17,794
)
 
1,062,533

PROPERTY, PLANT AND EQUIPMENT, net
863

 
247,766

 
42,887

 

 
291,516

GOODWILL

 
350,157

 
72,316

 

 
422,473

INTANGIBLE ASSETS, net
93

 
213,888

 
72,175

 

 
286,156

INTERCOMPANY RECEIVABLE
148,879

 
370,725

 
(170,970
)
 
(348,634
)
 

EQUITY INVESTMENTS IN SUBSIDIARIES
1,253,347

 
970,149

 
3,143,462

 
(5,366,958
)
 

OTHER ASSETS
6,519

 
12,611

 
(1,986
)
 
(1,474
)
 
15,670

ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE

 

 
2,952

 

 
2,952

Total Assets
$
1,602,611

 
$
2,869,283

 
$
3,344,266

 
$
(5,734,860
)
 
$
2,081,300

CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Notes payable and current portion of long-term debt
$
2,276

 
$
5,425

 
$
5,216

 
$

 
$
12,917

Accounts payable and accrued liabilities
82,647

 
236,825

 
30,556

 
19,465

 
369,493

Liabilities of discontinued operations not held for sale

 

 
50,927

 

 
50,927

Total Current Liabilities
84,923

 
242,250

 
86,699

 
19,465

 
433,337

 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT, net
1,038,901

 
7,787

 
31,774

 

 
1,078,462

INTERCOMPANY PAYABLES
45,285

 
47,811

 
244,621

 
(337,717
)
 

OTHER LIABILITIES
(19,016
)
 
80,712

 
11,853

 
16,909

 
90,458

LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE

 

 
5,025

 

 
5,025

Total Liabilities
1,150,093

 
378,560

 
379,972

 
(301,343
)
 
1,607,282

SHAREHOLDERS’ EQUITY
452,518

 
2,490,723

 
2,964,294

 
(5,433,517
)
 
474,018

Total Liabilities and Shareholders’ Equity
$
1,602,611

 
$
2,869,283

 
$
3,344,266

 
$
(5,734,860
)
 
$
2,081,300



30


CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2017

($ in thousands)
Parent
Company
 
Guarantor
Companies
 
Non-Guarantor
Companies
 
Elimination
 
Consolidation
CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Cash and equivalents
$
3,240

 
$
8,066

 
$
36,375

 
$

 
$
47,681

Accounts receivable, net of allowances

 
168,731

 
59,929

 
(20,431
)
 
208,229

Contract costs and recognized income not yet billed, net of progress payments

 
131,383

 
279

 

 
131,662

Inventories, net

 
246,605

 
52,759

 
73

 
299,437

Prepaid and other current assets
21,131

 
15,854

 
3,002

 
80

 
40,067

Assets of discontinued operations held for sale

 
168,306

 
202,418

 

 
370,724

Assets of discontinued operations not held for sale

 

 
329

 

 
329

Total Current Assets
24,371

 
738,945

 
355,091

 
(20,278
)
 
1,098,129

 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT, net
645

 
200,362

 
31,128

 

 
232,135

GOODWILL

 
280,797

 
38,342

 

 
319,139

INTANGIBLE ASSETS, net
93

 
143,415

 
61,619

 

 
205,127

INTERCOMPANY RECEIVABLE
552,017

 
757,608

 
915,551

 
(2,225,176
)
 

EQUITY INVESTMENTS IN SUBSIDIARIES
863,149

 
877,641

 
1,613,891

 
(3,354,681
)
 

OTHER ASSETS
12,171

 
12,054

 
(1,002
)
 
(7,172
)
 
16,051

ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE

 

 
2,960

 

 
2,960

Total Assets
$
1,452,446

 
$
3,010,822

 
$
3,017,580

 
$
(5,607,307
)
 
$
1,873,541

CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Notes payable and current portion of long-term debt
$
2,854

 
$
1,471

 
$
6,753

 
$

 
$
11,078

Accounts payable and accrued liabilities
14,683

 
199,784

 
46,111

 
6,631

 
267,209

Liabilities of discontinued operations held for sale

 
47,426

 
37,024

 

 
84,450

Liabilities of discontinued operations not held for sale

 

 
8,342

 

 
8,342

Total Current Liabilities
17,537

 
248,681

 
98,230

 
6,631

 
371,079

LONG-TERM DEBT, net
903,609

 
6,044

 
58,427

 

 
968,080

INTERCOMPANY PAYABLES
84,068

 
1,259,413

 
854,518

 
(2,197,999
)
 

OTHER LIABILITIES
48,424

 
76,036

 
14,135

 
(6,058
)
 
132,537

LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE

 

 
3,037

 

 
3,037

Total Liabilities
1,053,638

 
1,590,174

 
1,028,347

 
(2,197,426
)
 
1,474,733

SHAREHOLDERS’ EQUITY
398,808

 
1,420,648

 
1,989,233

 
(3,409,881
)
 
398,808

Total Liabilities and Shareholders’ Equity
$
1,452,446

 
$
3,010,822

 
$
3,017,580

 
$
(5,607,307
)
 
$
1,873,541



31


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2018
 
($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
Revenue
$

 
$
397,759

 
$
89,910

 
$
(9,109
)
 
$
478,560

Cost of goods and services

 
305,825

 
60,627

 
(9,365
)
 
357,087

Gross profit

 
91,934

 
29,283

 
256

 
121,473

Selling, general and administrative expenses
6,014

 
64,417

 
33,337

 
(93
)
 
103,675

Income (loss) from operations
(6,014
)
 
27,517

 
(4,054
)
 
349

 
17,798

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest income (expense), net
(5,961
)
 
(8,012
)
 
(2,071
)
 

 
(16,044
)
Other, net
1,273

 
10,601

 
(9,978
)
 
(462
)
 
1,434

Total other income (expense)
(4,688
)
 
2,589

 
(12,049
)
 
(462
)
 
(14,610
)
Income (loss) before taxes
(10,702
)
 
30,106

 
(16,103
)
 
(113
)
 
3,188

Provision (benefit) for income taxes
(10,168
)
 
(10,037
)
 
(6,202
)
 
27,644

 
1,237

Income (loss) before equity in net income of subsidiaries
(534
)
 
40,143

 
(9,901
)
 
(27,757
)
 
1,951

Equity in net income (loss) of subsidiaries
90,814

 
(59,708
)
 
40,141

 
(71,247
)
 

Income from continuing operations
$
90,280

 
$
(19,565
)
 
$
30,240

 
$
(99,004
)
 
$
1,951

Income from operations of discontinued businesses

 
(8,423
)
 
121,799

 

 
113,376

Provision from income taxes

 
859

 
24,188

 

 
25,047

Income from discontinued operations

 
(9,282
)
 
97,611

 

 
88,329

 
 
 
 
 
 
 
 
 
 
Net Income (loss)
$
90,280

 
$
(28,847
)
 
$
127,851

 
$
(99,004
)
 
$
90,280

Comprehensive income (loss)
$
110,681

 
$
1,444

 
$
123,670

 
$
(125,114
)
 
$
110,681



32


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2017

($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
Revenue
$

 
$
328,493

 
$
64,758

 
$
(9,444
)
 
$
383,807

Cost of goods and services

 
250,265

 
44,388

 
(9,715
)
 
284,938

Gross profit

 
78,228

 
20,370

 
271

 
98,869

Selling, general and administrative expenses
7,077

 
58,615

 
16,334

 
(93
)
 
81,933

Income (loss) from operations
(7,077
)
 
19,613

 
4,036

 
364

 
16,936

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest income (expense), net
(3,323
)
 
(6,068
)
 
(3,314
)
 

 
(12,705
)
Other, net
(29
)
 
599

 
(268
)
 
(364
)
 
(62
)
Total other income (expense)
(3,352
)
 
(5,469
)
 
(3,582
)
 
(364
)
 
(12,767
)
Income (loss) before taxes
(10,429
)
 
14,144

 
454

 

 
4,169

Provision (benefit) for income taxes
(1,534
)
 
4,592

 
(839
)
 

 
2,219

Income (loss) before equity in net income of subsidiaries
(8,895
)
 
9,552

 
1,293

 

 
1,950

Equity in net income (loss) of subsidiaries
13,940

 
(4,633
)
 
9,551

 
(18,858
)
 

Income (loss) from continuing operations
5,045

 
4,919

 
10,844

 
(18,858
)
 
1,950

Income from operation of discontinued businesses

 
5,302

 
768

 

 
6,070

Provision (benefit) from income taxes

 
836

 
2,139

 

 
2,975

Income (loss) from discontinued operations

 
4,466

 
(1,371
)
 

 
3,095

Net Income (loss)
$
5,045

 
$
9,385

 
$
9,473

 
$
(18,858
)
 
$
5,045

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
12,978

 
$
10,601

 
$
8,257

 
$
(18,858
)
 
$
12,978



33


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2018

($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
Revenue
$

 
$
749,071

 
$
182,429

 
$
(15,637
)
 
$
915,863

Cost of goods and services

 
568,400

 
121,406

 
(16,260
)
 
673,546

Gross profit

 
180,671

 
61,023

 
623

 
242,317

Selling, general and administrative expenses
17,351

 
138,930

 
53,386

 
(185
)
 
209,482

Income (loss) from operations
(17,351
)
 
41,741

 
7,637

 
808

 
32,835

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest income (expense), net
(12,735
)
 
(14,215
)
 
(5,736
)
 

 
(32,686
)
Other, net
1,268

 
10,923

 
(10,301
)
 
(924
)
 
966

Total other income (expense)
(11,467
)
 
(3,292
)
 
(16,037
)
 
(924
)
 
(31,720
)
Income (loss) before taxes
(28,818
)
 
38,449

 
(8,400
)
 
(116
)
 
1,115

Provision (benefit) for income taxes
(39,860
)
 
(7,302
)
 
(4,146
)
 
27,641

 
(23,667
)
Income (loss) before equity in net income of subsidiaries
11,042

 
45,751

 
(4,254
)
 
(27,757
)
 
24,782

Equity in net income (loss) of subsidiaries
110,227

 
(60,359
)
 
45,751

 
(95,619
)
 

Income from continuing operations
$
121,269

 
$
(14,608
)
 
$
41,497

 
$
(123,376
)
 
$
24,782

 
 
 
 
 
 
 
 
 
 
Income from operations of discontinued businesses
$

 
$
(2,003
)
 
$
126,845

 
$

 
$
124,842

Provision (benefit) from income taxes
 
 
2,918

 
25,437

 

 
28,355

Income (loss) from discontinued operations
$

 
$
(4,921
)
 
$
101,408

 
$

 
$
96,487

Net income (loss)
$
121,269

 
$
(14,608
)
 
$
41,497

 
$
(123,376
)
 
$
24,782

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
150,028

 
$
24,212

 
$
171,118

 
$
(195,330
)
 
$
150,028



34


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2017

($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
Revenue
$

 
$
619,829

 
$
133,309

 
$
(17,054
)
 
$
736,084

Cost of goods and services

 
469,104

 
88,942

 
(17,575
)
 
540,471

Gross profit

 
150,725

 
44,367

 
521

 
195,613

Selling, general and administrative expenses
13,721

 
113,605

 
33,676

 
(185
)
 
160,817

Restructuring and other related charges

 

 

 

 

Total operating expenses
13,721

 
113,605

 
33,676

 
(185
)
 
160,817

Income (loss) from operations
(13,721
)
 
37,120

 
10,691

 
706

 
34,796

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest income (expense), net
(7,350
)
 
(12,023
)
 
(6,621
)
 

 
(25,994
)
Other, net
(57
)
 
1,001

 
(440
)
 
(706
)
 
(202
)
Total other income (expense)
(7,407
)
 
(11,022
)
 
(7,061
)
 
(706
)
 
(26,196
)
Income (loss) before taxes
(21,128
)
 
26,098

 
3,630

 

 
8,600

Provision (benefit) for income taxes
(10,563
)
 
10,457

 
(288
)
 

 
(394
)
Income (loss) before equity in net income of subsidiaries
(10,565
)
 
15,641

 
3,918

 

 
8,994

Equity in net income (loss) of subsidiaries
27,874

 
(8,616
)
 
15,641

 
(34,899
)
 

Income from continuing operations
$
17,309

 
$
7,025

 
$
19,559

 
$
(34,899
)
 
$
8,994

Income from operations of discontinued businesses

 
8,793

 
5,822

 

 
14,615

Provision from income taxes

 
2,639

 
3,661

 

 
6,300

Income from discontinued operations

 
6,154

 
2,161

 

 
8,315

Net income (loss)
$
17,309

 
$
13,179

 
$
21,720

 
$
(34,899
)
 
$
17,309

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
13,930

 
$
7,752

 
$
27,147

 
$
(34,899
)
 
$
13,930



35


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2018

($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Net income (loss)
$
121,269

 
$
(19,529
)
 
$
142,905

 
$
(123,376
)
 
$
121,269

Net (income) loss from discontinued operations

 
4,921

 
(101,408
)
 

 
(96,487
)
Net cash provided by (used in) operating activities:
283,873

 
(360,855
)
 
38,136

 

 
(38,846
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Acquisition of property, plant and equipment
(331
)
 
(16,208
)
 
(5,089
)
 

 
(21,628
)
Acquired businesses, net of cash acquired
(185,729
)
 
(5,076
)
 
(55,425
)
 

 
(246,230
)
Intercompany distributions

 

 

 

 

Proceeds from sale of investments

 

 

 

 

Proceeds from sale of business

 
473,977

 

 

 
473,977

Proceeds from sale of assets

 
21

 
433

 

 
454

Net cash provided by investing activities
(186,060
)
 
452,714

 
(60,081
)
 

 
206,573

CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Purchase of shares for treasury
(32,861
)
 

 

 

 
(32,861
)
Proceeds from long-term debt
342,161

 
2,195

 
3,542

 

 
347,898

Payments of long-term debt
(197,322
)
 
(1,613
)
 
(31,006
)
 

 
(229,941
)
Change in short-term borrowings

 

 

 

 

Share premium payment on settled debt

 

 

 

 

Financing costs
(7,451
)
 

 

 

 
(7,451
)
Purchase of ESOP shares

 

 

 

 

Dividends paid
(5,872
)
 

 

 

 
(5,872
)
Other, net
(22,279
)
 
(40,668
)
 
63,073

 

 
126

Net cash provided by (used in) financing activities
76,376

 
(40,086
)
 
35,609

 

 
71,899

CASH FLOWS FROM DISCONTINUED OPERATIONS:
 

 
 

 
 

 
 

 
 

Net cash used in discontinued operations

 
(36,875
)
 
(11,508
)
 

 
(48,383
)
Effect of exchange rate changes on cash and equivalents

 
(27
)
 
(2,441
)
 

 
(2,468
)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
174,189

 
14,871

 
(285
)
 

 
188,775

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
3,240

 
8,066

 
36,375

 

 
47,681

CASH AND EQUIVALENTS AT END OF PERIOD
$
177,429

 
$
22,937

 
$
36,090

 
$

 
$
236,456



36


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2017
 
($ in thousands)
Parent Company
 
Guarantor Companies
 
Non-Guarantor Companies
 
Elimination
 
Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Net income (loss)
$
17,309

 
$
13,179

 
$
21,720

 
$
(34,899
)
 
$
17,309

Net (income) loss from discontinued operations

 
(6,154
)
 
(2,161
)
 

 
(8,315
)
Net cash provided by (used in) operating activities:
(50,095
)
 
22,759

 
17,611

 
(4,502
)
 
(14,227
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Acquisition of property, plant and equipment
(11
)
 
(11,878
)
 
(3,649
)
 

 
(15,538
)
Acquired businesses, net of cash acquired

 

 
(6,051
)
 

 
(6,051
)
Proceeds from sale of assets

 
102

 

 

 
102

Net cash provided by (used in) investing activities
(11
)
 
(11,776
)
 
(9,700
)
 

 
(21,487
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Purchase of shares for treasury
(15,758
)
 

 

 

 
(15,758
)
Proceeds from long-term debt
185,213

 

 
10,442

 

 
195,655

Payments of long-term debt
(101,577
)
 
(664
)
 
(17,925
)
 

 
(120,166
)
Share premium payment on settled debt
(24,997
)
 

 
 
 

 
(24,997
)
Financing costs
(335
)
 

 

 

 
(335
)
Purchase of ESOP shares
(9,213
)
 

 

 

 
(9,213
)
Dividends paid
(5,137
)
 

 

 

 
(5,137
)
Other, net
16,809

 
(12,434
)
 
(9,064
)
 
4,502

 
(187
)
Net cash provided by (used in) financing activities
45,005

 
(13,098
)
 
(16,547
)
 
4,502

 
19,862

CASH FLOWS FROM DISCONTINUED OPERATIONS:
 

 
 

 
 

 
 

 
 

Net cash used in discontinued operations

 
(18,172
)
 
9,909

 

 
(8,263
)
Effect of exchange rate changes on cash and equivalents

 

 
(1,013
)
 

 
(1,013
)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(5,101
)
 
(20,287
)
 
260

 

 
(25,128
)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
6,517

 
27,692

 
38,344

 

 
72,553

CASH AND EQUIVALENTS AT END OF PERIOD
$
1,416

 
$
7,405

 
$
38,604

 
$

 
$
47,425



37

Table of Contents

(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” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.

On May 3, 2018, Clopay Building Products Company, Inc. ("CBP") entered into a definitive agreement to acquire CornellCookson, Inc. ("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post closing adjustments. After taking into account tax benefits resulting from the transaction, the effective purchase price is approximately $170,000. CornellCookson is expected to generate approximately $200,000 in revenue. The transaction is subject to regulatory approval and customary closing conditions and is expected to close in June 2018.

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

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

Griffon currently conducts its operations through two reportable segments:
 
Home & Building Products (“HBP”) consists of three companies, The AMES Companies, Inc. (“AMES”), CBP and ClosetMaid:

-
AMES, founded in 1774, is the leading US manufacturer and a global provider of long-handled tools and landscaping 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.

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

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


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Table of Contents

We are focused on acquiring, owning and operating businesses in a variety of industries. We are long-term investors that have substantial experience in a variety of industries. Our intent is to continue the growth of our existing segments and diversify further through investments and acquisitions.

As a result of the decline in the U.S. housing market, in May 2008, we announced the divestiture of our Installation Services business, which was consummated by September 2008. In September 2008, Griffon strengthened its balance sheet by raising $248,600 in equity through a common stock rights offering and a related investment by GS Direct L.L.C., an affiliate of The Goldman Sachs Group, Inc. Since that time, Griffon has continued to refine and enhance the strategic direction and operating performance of its companies, while strengthening its balance sheet. Since, Griffon has grown revenue and earnings through organic growth, cost containment and acquisitions, while returning capital to its shareholders through dividends and stock buybacks.

From October 2008 through May 10, 2017, Griffon's Employee Stock Ownership Plan ("ESOP") purchased 4,562,371 shares of Griffon's common stock, for a total of $54,186 or $11.88 per share. During the year ended September 30, 2017, Griffon's ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54 per share. As of March 31, 2018, the ESOP holds 5,704,783 allocated and unallocated shares, or 12% of Griffon's outstanding shares, with a related loan balance of $41,289, net of issuance costs.

On September 30, 2010, Griffon purchased AMES for $542,000. Subsequently, Griffon acquired eight businesses complementary to AMES: the pots and planters business of Southern Sales & Marketing ("Southern Patio"), Northcote Pottery ("Northcote"), the Australian Garden and Tools division of Illinois Tool Works, Inc. ("Cyclone"), Hills Home Living ("Hills"), La Hacienda Limited ("La Hacienda"), Tuscan Landscape Group Ltd ("Tuscan Path"), Harper Brush Works (“Harper”) and Kelkay Limited ("Kelkay").

On October 17, 2011, AMES acquired Southern Patio for approximately $23,000. Southern Patio, is a leading designer, manufacturer and marketer of landscape accessories.

On December 31, 2013, AMES acquired Northcote, founded in 1897 and a leading brand in the Australian outdoor planter and decor market, for approximately $22,000.
 
On May 21, 2014, AMES Australia acquired Cyclone for approximately $40,000. Cyclone offers a full range of quality garden and hand tool products sold under various leading brand names including Cyclone®, Nylex® and Trojan®, designed to meet the requirements of both the Do-it-Yourself and professional trade segments.

On December 30, 2016, AMES Australia acquired Hills for approximately $6,051 (AUD 8,400). Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products. The Hills acquisition adds to AMES' existing broad category of products and enhances its lawn and garden product offerings in Australia.

On July 31, 2017 AMES acquired La Hacienda, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $10,610 (GBP 8,575). The acquisition of La Hacienda broadens AMES' global outdoor living and lawn and garden business and supports AMES' UK expansion strategy. La Hacienda is expected to generate approximately GBP 14,000 of revenue in the first twelve months after the acquisition.
On September 29, 2017, AMES Australia acquired Tuscan Path for approximately $18,000 (AUD 22,250). Tuscan Path is a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products. The acquisition of Tuscan Path broadens AMES' outdoor living and lawn and garden business, and will strengthen AMES' industry leading position in Australia. Tuscan Path is expected to generate approximately AUD 25,000 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 broadens AMES’ long-handled tool offering in North America to include brooms, brushes, and other cleaning tools and accessories. The acquisition is expected to contribute approximately $10,000 in revenue in the first twelve months after the acquisition.

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). Kelkay is expected to contribute approximately $40,000 in revenue in the first twelve months after the acquisition.

From August 2011 through March 31, 2018, Griffon repurchased 21,867,537 shares of its common stock, for a total of $290,036 or $13.26 per share. This included the repurchase of 17,423,093 shares on the open market, as well as the December 10, 2013 repurchase of 4,444,444 shares from GS Direct for $50,000, or $11.25 per share. In each of August 2011, May 2014, March 2015, July 2015 and August 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding

39

Table of Contents

common stock. Under these programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. At March 31, 2018, $21,022 remains under the August 3, 2016 Board authorization.

On November 17, 2011, the Company began declaring quarterly dividends. During the first half of 2018, and during 2017, 2016 and 2015, the Company declared and paid dividends per share of $0.14, $0.24, $0.20 and $0.16, respectively, for total dividends of $35,639 paid during this period. On March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share, paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018.

On May 3, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per share, payable on June 21, 2018 to shareholders of record as of the close of business on May 25, 2018.

As of March 31, 2018, Griffon had outstanding $1,000,000 of 5.25% Senior Notes due 2022 ("Senior Notes"), which were issued in three tranches and under the same indenture.  During 2014, Griffon issued $600,000 of Senior Notes, the proceeds of which were primarily used to redeem $550,000 of 7.125% senior notes due 2018.  In May 2016, the Company completed an add-on offering of $125,000 principal amount of Senior Notes, the proceeds of which were used to pay down outstanding revolving loan borrowings under the Credit Agreement.  On October 2, 2017, Griffon completed an add-on offering of $275,000 aggregate principal amount of Senior Notes, the proceeds of which were used to purchase ClosetMaid and to pay down outstanding revolving loan borrowings under the Credit Agreement.

On October 15, 2015, CBP announced plans to expand its manufacturing facility in Troy, Ohio. The expansion reflects increased customer demand for its core products, and its success in bringing new technologies to market. The project included improvements to its existing one million square foot building, as well as adding 250,000 square feet and new manufacturing equipment. The project is complete.

In January 2016, Griffon launched its new website, www.griffon.com.

On March 22, 2016, Griffon amended its Credit Agreement to increase the credit facility from $250,000 to $350,000, extend its maturity date from March 13, 2020 to March 22, 2021 and modify certain other provisions of the facility.

On January 17, 2017, Griffon settled its $100,000 principal amount of 4% convertible subordinated notes due 2017 for $173,855, with $125,000 in cash and $48,858, or 1,954,993 shares of common stock issued from treasury.

On October 2, 2017, Griffon completed the acquisition of ClosetMaid, a market leader of 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 under the current tax law.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell PPC, and on February 6, 2018, completed the sale to Berry for $475,000 in cash, subject to certain post-closing adjustments.



40

Table of Contents

OVERVIEW
 
Revenue for the quarter ended March 31, 2018 was $478,560 compared to $383,807 in the prior year quarter, an increase of approximately 25%, primarily driven by increased revenue at Home & Building Products from both recent acquisitions and organic growth, partially offset by decreased revenue at Telephonics. Income from continuing operations was $1,951 or $0.05 per share, compared to $1,950 or $0.05 per share, in the prior year quarter. The current quarter results from continuing operations included acquisition costs of $814 ($378, net of tax, or $0.01 per share) and discrete and certain other tax provisions, net, of $368 or $0.01 per share.

The prior year quarter included discrete and certain other tax provisions, net, of $466 or $0.01 per share.

Excluding these items from the respective quarterly results, Income from continuing operations would have been $2,697 or $0.06 per share in the current quarter compared to $2,416 or $0.06 per share in the prior year quarter.

Revenue for the six months ended March 31, 2018 was $915,863 compared to $736,084 in the prior year period, an increase of 24%, primarily driven by increased revenue at Home & Building Products from both recent acquisitions and organic growth, partially offset by decreased revenue at Telephonics. Income from continuing operations was $24,782 or $0.58 per share, compared to $8,994 or $0.21 per share, in the prior year period. The year results from continuing operations included the following:

–    Acquisition costs of $3,999 ($2,726, net of tax, or $0.06 per share);
–    Cost of life insurance benefit of $2,614 ($248, net tax, or $0.01); and
–    Discrete and certain other tax benefits, net, of $22,650 or $0.53 per share, primarily from the revaluation of deferred tax liabilities related to the December 22, 2017 tax reform bill.

The prior year included net tax benefits of $3,955 or $0.09 per share, primarily related to discrete benefits for the adoption of recent Financial Accounting Standards Board guidance, which requires the Company to recognize excess tax benefits from the vesting of equity awards within income tax expense.

Excluding these items from the respective periods, Income from continuing operations would have been $5,106 or $0.12 per share in the current year period ended March 31, 2018 compared to $5,039 or $0.12 per share in the comparable prior year period.


41

Table of Contents

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 March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Income from continuing operations
$
1,951

 
$
1,950

 
$
24,782

 
$
8,994

 
 
 
 
 
 
 
 
Adjusting items, net of tax:
 

 
 

 
 

 
 

Acquisition costs
378

 

 
2,726

 

Cost of life insurance benefit

 

 
248

 

Discrete and certain other tax provision (benefit)
368

 
466

 
(22,650
)
 
(3,955
)
 
 
 
 
 
 
 
 
Adjusted income from continuing operations
$
2,697

 
$
2,416

 
$
5,106

 
$
5,039

 
 
 
 
 
 
 
 
Diluted earnings per common share from continuing operations
$
0.05

 
$
0.05

 
$
0.58

 
$
0.21

 
 
 
 
 
 
 
 
Adjusting items, net of tax:
 

 
 

 
 

 
 

Acquisition costs
0.01

 

 
0.06

 

Cost of life insurance benefit

 

 
0.01

 

Discrete and certain other tax provision (benefit)
0.01

 
0.01

 
(0.53
)
 
(0.09
)
 
 
 
 
 
 
 
 
Adjusted earnings per common share from continuing operations
$
0.06

 
$
0.06

 
$
0.12

 
$
0.12

 
 
 
 
 
 
 
 
Weighted-average shares outstanding (in thousands)
42,765

 
43,229

 
43,062

 
42,776

 
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.

42

Table of Contents

RESULTS OF CONTINUING OPERATIONS
 
Three and Six months ended March 31, 2018 and 2017
 
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, and 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 March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Segment operating profit:
 

 

 

 
Home & Building Products
$
28,478

 
$
18,314

 
$
56,229

 
$
40,954

Telephonics
1,302

 
9,015

 
2,782

 
14,406

Segment operating profit from continuing operations
29,780

 
27,329

 
59,011

 
55,360

Net interest expense
(16,044
)
 
(12,705
)
 
(32,686
)
 
(25,994
)
Unallocated amounts
(10,541
)
 
(10,455
)
 
(20,977
)
 
(20,766
)
Acquisition costs
(7
)
 

 
(1,619
)
 

Cost of life insurance benefit

 

 
(2,614
)
 

Income before taxes from continuing operations
$
3,188

 
$
4,169

 
$
1,115

 
$
8,600

 
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 March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Segment adjusted EBITDA:
 

 
 

 
 

 
 

Home & Building Products
$
39,789

 
$
27,565

 
$
79,246

 
$
59,372

Telephonics
3,997

 
11,786

 
8,196

 
19,894

Total Segment adjusted EBITDA
43,786

 
39,351

 
87,442

 
79,266

Net interest expense
(16,044
)
 
(12,705
)
 
(32,686
)
 
(25,994
)
Segment depreciation and amortization
(13,199
)
 
(12,022
)
 
(26,051
)
 
(23,906
)
Unallocated amounts
(10,541
)
 
(10,455
)
 
(20,977
)
 
(20,766
)
Acquisition costs
(814
)
 

 
(3,999
)
 

Cost of life insurance benefit

 

 
(2,614
)
 

Income before taxes from continuing operations
$
3,188

 
$
4,169

 
$
1,115

 
$
8,600




43

Table of Contents

Home & Building Products
 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Revenue:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

AMES
$
182,928

 
 

 
$
162,907

 
 

 
$
322,910

 
 

 
$
283,631

 
 

CBP
138,112

 
 

 
122,628

 
 

 
292,348

 
 

 
266,088

 
 

ClosetMaid
75,268

 
 
 

 
 
 
152,028

 
 
 

 
 
Home & Building Products
$
396,308

 
 

 
$
285,535

 
 

 
$
767,286

 
 

 
$
549,719

 
 

Segment operating profit
$
28,478

 
7.2
%
 
$
18,314

 
6.4
%
 
$
56,229

 
7.3
%
 
$
40,954

 
7.4
%
Depreciation and amortization
10,504

 
 

 
9,251

 
 

 
20,637

 
 

 
18,418

 
 

Acquisition costs
806

 
 

 

 
 

 
2,380

 
 

 

 
 

Segment adjusted EBITDA
$
39,789

 
10.0
%
 
$
27,565

 
9.7
%
 
$
79,246

 
10.3
%
 
$
59,372

 
10.8
%

For the quarter ended March 31, 2018, revenue increased $110,773 or 39%, compared to the prior year quarter due to the acquisition of ClosetMaid ("CM"), AMES' acquisitions of Tuscan Path, La Hacienda, Harper and Kelkay, as well as improved volume, favorable mix and price increases at CBP, partially offset by reduced sales at AMES US from unfavorable weather patterns.
For the quarter ended March 31, 2018, Segment operating profit of $28,478 increased 55% from $18,314 in the prior year quarter. Excluding the impact of acquisition related costs, Segment operating profit would have been $29,284, increasing 60% from the prior year quarter, primarily driven by the increased revenue as noted above. Segment depreciation and amortization increased $1,253 from the prior year quarter primarily from acquisitions.

For the six months ended March 31, 2018, revenue increased $217,567 or 40%, compared to the prior year period, primarily driven by the acquisition of CM, AMES' acquisitions of La Hacienda, Tuscan Path, Hills, Harper and Kelkay, as well as favorable mix and price increases at CBP, partially offset by reduced sales at AMES' US from unfavorable weather patterns.

For the six months ended March 31, 2018, Segment operating profit increased 37% to $56,229 compared to $40,954 in the prior year period. Excluding the impact of acquisition related costs, Segment operating profit would have been $58,608, increasing 43% from the prior year quarter, primarily driven by the increased revenue as noted above. Segment depreciation and amortization increased $2,219 from the prior year period primarily from acquisitions.

On May 3, 2018, CBP entered into a definitive agreement to acquire CornellCookson, Inc. ("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, subject to certain post closing adjustments. After taking into account tax benefits resulting from the transaction, the effective purchase price is approximately $170,000. CornellCookson is expected to generate approximately $200,000 in revenue in the first twelve months after the acquisition. The transaction is subject to regulatory approval and customary closing conditions and is expected to close in June 2018.

On February 13, 2018, AMES acquired Kelkay Limited (“Kelkay”) a leading United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the UK and Ireland for approximately $56,118 (GBP 40,452). Kelkay is expected to contribute approximately $40,000 in revenue in the first twelve months after the acquisition.

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

On November 6, 2017, AMES acquired Harper Brush Works (“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 broadens AMES’ long-handled tool offering in North America to include brooms, brushes, and other cleaning tools and accessories. The acquisition is expected to contribute approximately $10,000 in revenue in the first twelve months after the acquisition.


Prior year acquisitions

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On September 29, 2017, AMES Australia acquired Tuscan Path for approximately $18,000 (AUD 22,250). Tuscan Path is a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products. The acquisition of Tuscan Path broadens AMES' outdoor living and lawn and garden business, and will strengthen AMES' industry leading position in Australia. Tuscan Path is expected to generate approximately AUD 25,000 in revenue in the first twelve months after the acquisition.

On July 31, 2017 AMES acquired La Hacienda, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $10,610 (GBP 8,575). The acquisition of La Hacienda broadens AMES' global outdoor living and lawn and garden business and supports AMES' UK expansion strategy. La Hacienda is expected to generate approximately GBP 14,000 of revenue in the first twelve months after the acquisition.
On December 30, 2016, AMES Australia acquired Hills for approximately $6,051 (AUD 8,400). Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products. The Hills acquisition adds to AMES' existing broad category of products and enhances its lawn and garden product offerings in Australia.
Telephonics 
 
For the Three Months Ended March 31,
 
For the Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
82,252

 
 

 
$
98,272

 
 

 
$
148,577

 
 

 
$
186,365

 
 
Segment operating profit
$
1,302

 
1.6
%
 
$
9,015

 
9.2
%
 
$
2,782

 
1.9
%
 
$
14,406

 
7.7%
Depreciation and amortization
2,695

 
 

 
2,771

 
 

 
5,414

 
 

 
5,488

 
 
Segment adjusted EBITDA
$
3,997

 
4.9
%
 
$
11,786

 
12.0
%
 
$
8,196

 
5.5
%
 
$
19,894

 
10.7%
 
For the quarter ended March 31, 2018, revenue decreased $16,020 or 16% compared to the prior year quarter, primarily due to decreased maritime surveillance radar systems revenue and work performed on various international radar programs.

For the quarter ended March 31, 2018, Segment operating profit decreased $7,713 compared to the prior year quarter, primarily driven by reduced margin on decreased revenue noted above and the impact of revised estimates to complete remaining performance obligations on certain airborne intercommunications systems and various international radar programs.

For the six months ended March 31, 2018, revenue decreased $37,788, or 20%, compared to the prior year period, primarily due to decreased maritime surveillance radar revenue and work performed on various international radar and airborne intercommunications systems.

For the six months ended March 31, 2018, Segment operating profit decreased $11,624 primarily due to the decreased revenue noted above and the impact of revised estimates to complete remaining performance obligations on certain airborne intercommunications systems and various international radar programs.

During the six months ended March 31, 2018, Telephonics was awarded several new contracts and received incremental funding on existing contracts approximating $155,800. Contract backlog was $358,000 at March 31, 2018, with 67% expected to be fulfilled in the next 12 months. Backlog was $350,900 at September 30, 2017. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of US government agencies.

Unallocated
 
For the quarter ended March 31, 2018, unallocated amounts totaled $10,541 compared to $10,455 in the prior year; for the six months ended March 31, 2018, unallocated amounts totaled $20,977 compared to $20,766 in the prior year. The increase in the current quarter and six months compared to the respective prior year period primarily relates to compensation and incentive expenses, including severance for a segment executive, partially offset by investment income.


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Segment Depreciation and Amortization
 
Segment depreciation and amortization increased $1,177 and $2,145 for the quarter and six months ended March 31, 2018, respectively, compared to the comparable prior year period, primarily due to depreciation and amortization on assets acquired in acquisitions.

Other Income (Expense)

For the quarters ended March 31, 2018 and 2017, Other income (expense) primarily consisted of $217 and ($291), 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 $1,266 and $68, respectively, of net investment income.

For the six months ended March 31, 2018 and 2017, Other income (expense) primarily consisted of $(219) and $(423), respectively, of net currency exchange 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 $1,261 and $155, respectively, of net investment income.

Provision for income taxes
 
On December 22, 2017, the “Tax Cuts and Jobs Act” ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Though certain key aspects of the TCJA are effective January 1, 2018 and have an immediate accounting effect, other significant provisions are not effective or may not result in accounting effects for September 30 fiscal year companies until October 1, 2018.
Given the significance of the TCJA, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.
Among the significant changes to the U.S. Internal Revenue Code, the TCJA lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5%. The 21% Federal Tax Rate will apply to fiscal years ending September 30, 2019 and each year thereafter.

The Company has recorded provisional amounts for the effects of the TCJA where accounting is not complete but a reasonable estimate has been determined. The company recorded a $23,941 benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense, both of which have been reflected in the tax benefit for the quarter ended December 31, 2017.

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

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

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

During the quarter ended March 31, 2018, the Company recognized a tax provision of $1,237 on income before taxes from continuing operations of $3,188, compared to $2,219 on income before taxes from continuing operations of $4,169, in the comparable prior year quarter. The current quarter results included acquisition costs of $814 ($378, net of tax) and discrete and certain other tax provisions, net, of $368. The prior year quarter included discrete and certain other tax provisions, net, of $466. Excluding these tax items, the effective tax rates for the quarters ended March 31, 2018 and 2017 were 32.6% and 42.1%, respectively.

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During the six months ended March 31, 2018, the Company recognized a tax benefit of $23,667 on income before taxes from continuing operations of $1,115, compared to a tax benefit of $394 on Income before taxes from continuing operations of $8,600 in the comparable prior year period. The six month period ended March 31, 2018 included net tax benefits of $22,650 primarily from the December 22, 2017 tax reform bill related to revaluation of deferred tax liabilities, $3,999 ($2,726 net of tax) of acquisition costs and $2,614 ($248 net of tax) related to cost of life insurance benefits.  The six month period ended March 31, 2017 included discrete benefits of $3,956 primarily from the adoption of Financial Accounting Standards Board guidance which requires the Company to recognize excess tax benefits from the vesting of equity awards within income tax expense. Excluding these tax items, the effective tax rates for the six months ended March 31, 2018 and 2017 were 33.9% and 41.4%, respectively.
Stock based compensation
 
For the quarters ended March 31, 2018 and 2017, stock based compensation expense totaled $2,365 and $2,343, respectively. For the six months ended March 31, 2018 and 2017, such expense totaled $4,920 and $4,795, respectively.
 
Comprehensive income (loss)
 
For the quarter ended March 31, 2018, total other comprehensive income, net of taxes, of $20,401, included a gain of $14,866 related to removal of PPC’s foreign currency translation loss, which was considered in the gain on disposal of discontinued operations, a gain of $4,848 from foreign currency translation adjustments primarily due to the strengthening of the Euro and British pound currencies, offset by the weakening of the Canadian and Australian currencies, all in comparison to the US Dollar, a $247 benefit from pension amortization of actuarial losses and a $440 gain on cash flow hedges.

For the six months ended March 31, 2018, total other comprehensive income, net of taxes, of $28,759 included a gain of $14,866 related to removal of PPC’s foreign currency translation loss, which was considered in the gain on disposal of discontinued operations, a gain of $3,559 from foreign currency translation adjustments primarily, strengthening of the Euro and British pound currencies, offset by the weakening of the Canadian and Australian currencies, all in comparison to the US Dollar, a $9,806 benefit from pension amortization of actuarial losses and a $528 gain on cash flow hedges.

For the quarter ended March 31, 2017, total other comprehensive income, net of taxes, of $7,933, included a $8,409 gain from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian, Australian and Brazilian currencies, all in comparison to the U.S. Dollar, a $544 benefit from pension amortization of actuarial losses and a $1,020 loss on cash flow hedges.

For the six months ended March 31, 2017, total other comprehensive loss, net of taxes, of $3,379 included a $5,070 loss from foreign currency translation adjustments primarily due to the weakening of the Euro and Canadian currencies, partially offset by the strengthening of the Brazilian currency, all in comparison to the U.S. Dollar, a $1,088 benefit from pension amortization of actuarial losses and $603 a gain on cash flow hedges.

Discontinued operations

Plastic Products Company

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

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. Griffon sold eleven units, closed one unit and merged two units into CBP. 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.


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Griffon substantially concluded remaining disposal activities in 2009. There was no revenue or income from the Installation Services’ business for the quarters and six months ended March 31, 2018 and 2017.

During the year ended September 30, 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 installation services.

At March 31, 2018, Griffon’s assets and liabilities for discontinued operations primarily related to income taxes, product liability, warranty and environmental reserves, and accruals related to PPC transaction expenses. Future net cash outflows to satisfy liabilities related to disposal activities accrued as of March 31, 2018 are estimated to be $55,952.

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 Six Months Ended March 31,
(in thousands)
2018
 
2017
Net Cash Flows Provided by (Used In):
 

 
 

Operating activities
$
(38,846
)
 
$
(14,227
)
Investing activities
206,573

 
(21,487
)
Financing activities
71,899

 
19,862


Cash used in continuing operations for the six months ended March 31, 2018 was $38,846 compared to $14,227 in the prior year period. Cash used in continuing operations primarily resulted from increases in inventory, accounts receivable and prepaid and other current assets, partially offset by increases in accounts payable and accrued expenses. During the six months ended March 31, 2018, the Company paid $11,452 of acquisition costs.

During the six months ended March 31, 2018, Griffon generated $206,573 of cash in investing activities from continuing operations compared to $21,487 used in the prior year, with the increase primarily driven by the proceeds from the sale of PPC, offset by acquisitions and capital expenditures. On February 5, 2018, the Company completed the sale of PPC to Berry for $475,000 in cash, subject to certain post-closing adjustments. On October 2, 2017, Griffon completed the acquisition of ClosetMaid, a market leader of 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 under the current tax law. Additionally, 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. Furthermore, on February 13, 2018, AMES acquired Kelkay, a United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to leading garden centers, retailers and grocers in the UK and Ireland for approximately $56,118 (GBP 40,452). In the six month period ended March 31, 2017, AMES Australia acquired Hills for approximately $6,051 (AUD 8,400). Capital expenditures for the six months ended March 31, 2018 totaled $21,628, an increase of $6,090 from the prior year.

During the six months ended March 31, 2018, cash provided by financing activities from continuing operations totaled $71,899 compared to the $19,862 provided in the prior year. On October 2, 2017, Griffon completed an add-on offering of $275,000 aggregate principal amount of 5.25% senior notes due 2022 in an unregistered offering through a private placement. The $275,000 senior notes were issued under the same indenture pursuant to which Griffon previously issued $725,000 in aggregate principal amount of its 5.25% Senior Notes due 2022. The proceeds were used, among other things, to purchase ClosetMaid and for general corporate purposes (including to reduce the outstanding balance of Griffon's revolving credit facility (the "Credit Agreement")). At March 31, 2018, there were $14,896 in outstanding borrowings under the Credit Agreement, compared to $176,000 in outstanding borrowings at the same date in the prior year, primarily related to financing UK acquisitions. On January 17, 2017, Griffon settled the convertible debt for $173,855 with $125,000 in cash, utilizing borrowings under the Credit Agreement, and $48,858, or 1,954,993 shares of common stock issued from treasury.


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Table of Contents

On August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under the 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 six months ended March 31, 2018, Griffon purchased 1,438,239 shares of common stock under the August 2016 Board authorized program, for a total of $28,415 or $19.76 per share. As of March 31, 2018, $21,022 remains under the August 2016 Board authorization. In addition, during the six month period ended March 31, 2018, 197,452 shares, with a market value of $4,446, or $22.51 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock.

During the six months ended March 31, 2018, the Board of Directors approved two quarterly cash dividends of $0.07 per share each.

On March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share, paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018. Additionally, on May 3, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per share, payable on June 21, 2018 to shareholders of record as of the close of business on May 25, 2018.
 
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 six months ended March 31, 2018:
 
The United States Government and its agencies, through either prime or subcontractor relationships, represented 10% of Griffon’s consolidated revenue and 59% of Telephonics’ revenue.
The Home Depot represented 20% of Griffon’s consolidated revenue and 23% of HBP’s revenue.

No other customer exceeded 10% of consolidated revenue. Future operating results will continue to substantially depend 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 volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and operations.
Cash and Equivalents and Debt
March 31,
 
September 30,
(in thousands)
2018
 
2017
Cash and equivalents
$
236,456

 
$
47,681

Notes payables and current portion of long-term debt
12,917

 
11,078

Long-term debt, net of current maturities
1,078,462

 
968,080

Debt discount/premium and issuance costs
15,484

 
13,243

Total debt
1,106,863

 
992,401

Debt, net of cash and equivalents
$
870,407

 
$
944,720

 
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 March 31, 2018, outstanding Senior Notes due totaled $1,000,000; interest is payable semi-annually on March 1 and September 1. The net proceeds of the $275,000 add-on offering were used, among other things, to acquire ClosetMaid with the remaining proceeds used to pay down outstanding loan borrowings under Griffon's Credit Agreement. The net proceeds of the previously issued $125,000 add-on offering were used to pay down outstanding revolving loan borrowings under Griffon's 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 of 1933 via an exchange offer. The fair value of the Senior Notes approximated $1,006,300 on March 31, 2018 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the $275,000 senior notes, Griffon capitalized $8,472 of underwriting fees and other expenses; Griffon capitalized $3,016 of underwriting fees and other expenses in connection with the $125,000 senior notes; and Griffon capitalized $10,313 in connection with the previously issued $600,000 senior notes. All capitalized fees will amortize over the term of the notes.

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On March 22, 2016, Griffon amended the Credit Agreement to increase 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, Griffon further amended the Credit Agreement in association with the ClosetMaid Acquisition to modify the net leverage covenant through the quarter ended March 31, 2019. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $50,000. The Credit Agreement provides for same day borrowings of base rate loans. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of an event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.50% for base rate loans and 2.50% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65% of the equity interest in Griffon’s material, first-tier foreign subsidiaries (except that a lien on the assets of Griffon's material domestic subsidiaries securing a limited amount of the debt under the Credit Agreement relating to Griffon's Employee Stock Ownership Plan ("ESOP") ranks pari passu with the lien granted on such assets under the Credit Agreement). At March 31, 2018, there were $14,896 in outstanding borrowings and standby letters of credit were $14,896 under the Credit Agreement; $320,208 was available, subject to certain loan covenants, for borrowing at that date.

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

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

In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan into a new Term Loan in the amount of $35,092 (the "Agreement"). The Agreement also provided for a Line Note with $10,908 available to purchase shares of Griffon common stock in the open market. During 2017, Griffon's ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54 per share, under a borrowing line that has now been fully utilized. On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan bears interest at LIBOR plus 2.50%. The Term Loan requires a quarterly principal payment of $569 with a balloon payment due at maturity on March 22, 2020. As of March 31, 2018, $41,289, net of issuance costs, was outstanding under the Term Loan. The Term Loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which lien ranks pari passu with the lien granted on such assets under the Credit Agreement) and is guaranteed by Griffon.

Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases both mature in 2022, and bear interest at a 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 March 31, 2018, $8,890 was outstanding, net of issuance costs.

In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,624 as of March 31, 2018) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.18% LIBOR USD and 2.87% Bankers Acceptance Rate CDN as of March 31, 2018). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity.  At March 31, 2018, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,624 as of March 31, 2018) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 30,000 term loan and an AUD 10,000 revolver. The term loan refinanced two existing term loans and the revolver replaced two existing lines. In December 2016, the amount available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in March 2017, the term loan commitment was increased by AUD 5,000. In September 2017, the term commitment was further increased by AUD 15,000. The term loan requires quarterly principal payments of AUD 1,250 plus interest, with a balloon payment of AUD

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37,125 due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.00% per annum (4.08% at March 31, 2018). As of March 31, 2018, the term loan had an outstanding balance of AUD 43,375 ($33,277 as of March 31, 2018). The revolving facility matures in November 2018, but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus 2.0% per annum (3.94% at March 31, 2018). At March 31, 2018, there were no borrowings under the revolving credit facility with AUD 20,000 ($15,344 as of March 31, 2018) available for borrowing. The revolver and the term loan are both secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon guarantees the term loan. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

A UK subsidiary of Griffon maintains an invoice discounting arrangement secured by trade receivables. Interest is variable at 2.0% over the Sterling base rate (2.5% as of March 31, 2018). At March 31, 2018 the amount outstanding under this facility was $2,125 (GBP $1,512).

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

At March 31, 2018, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

On August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may, 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 both the quarter and six months ended March 31, 2018, Griffon purchased 1,438,239 shares of common stock under the August 2016 program, for a total of $28,415 or $19.76. From August 2011 through March 31, 2018, Griffon repurchased 21,867,537 shares of its common stock, for a total of $290,036 or $13.26 per share. This included the repurchase of 17,423,093 shares on the open market, as well as the December 10, 2013 repurchase of 4,444,444 shares from GS Direct for $50,000, or $11.25 per share. As of March 31, 2018, $21,022 remains under the August 2016 Board authorization.

The December 10, 2013 repurchase of 4,444,444 shares of common stock from GS Direct was effected in a private transaction at a per share price of $11.25, an approximate 9.2% discount to the stock’s closing price on November 12, 2013, the day before announcement of the transaction. GS Direct continues to hold approximately 5.6 million shares of Griffon’s common stock. Subject to certain exceptions, if GS Direct intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2018, it will first negotiate in good faith to sell such shares to the Company.

In addition, during the six month period ended March 31, 2018, 197,452 shares, with a market value of $4,446, or $22.51 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock.

On November 17, 2011, the Company began declaring quarterly dividends. During 2017, the Company declared and paid dividends totaling $0.24 per share. During the six months ended March 31, 2018, the Board of Directors approved two quarterly cash dividends of $.07 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.

On March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share, paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018. On May 3, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per share, payable on June 21, 2018 to shareholders of record as of the close of business on May 25, 2018.

During the six months ended March 31, 2018 and 2017, Griffon used cash for discontinued operations from operating, investing and financing activities of $48,383 and $8,263, respectively, primarily related to PPC operations and capital expenditures, as well as the repayment of outstanding debt upon the sale of PPC, and expenditures related to remaining Installation Services liabilities and environmental costs.
 

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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, 2017.

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, 2017. 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 of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (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 of raw materials such as resin, wood and steel; 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; and possible terrorist threats and actions and their impact on the global economy. 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, 2017. 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.


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Item 3 - Quantitative and Qualitative Disclosure About Market Risk
 
Griffon’s business’ activities necessitates 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.
 
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, 2017, 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

(c)    ISSUER PURCHASES OF EQUITY SECURITIES
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)
January 1 - 31, 2018
395,439

 
 
$
20.59

 
395,439

 
 

February 1 - 28, 2018
500,800

 
 
19.41

 
500,800

 
 

March 1 - 31, 2018
548,120

(2)
 
19.46

 
542,000

 
 

Total
1,444,359

 
 
$
19.75

 
1,438,239

 
$
21,022


1.
On August 3, 2016, the Company’s Board of Directors authorized the repurchase of up to $50,000 of Griffon common stock; as of March 31, 2018, an aggregate of $21,022 remained available for the purchase of Griffon common stock under the August 3, 2016 Board authorization.
2.
Includes (a) 542,000 shares purchased by the Company in open market purchases pursuant to stock repurchased authorized by the Company's Board of Directors and (b) 6,120 shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock, to satisfy tax-withholding obligations of the holders.

 
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.

On May 2, 2018, Cheryl L. Turnbull was elected to serve on Griffon’s Board of Directors as a Class III Director, and entered into a customary indemnification agreement with Griffon which provides that Griffon will indemnify Ms. Turnbull to the

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fullest extent permitted by applicable law, and which includes provisions relating to the advancement of expenses incurred by or on behalf of Ms. Turnbull. 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.

Ms. Turnbull will receive compensation for her 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, Ms. Turnbull received a grant of 4,523 restricted shares of Griffon common stock at the time of her election to the Board, which grant vests at the rate of one-third a year for three years.

On May 2, 2018, Robert F. Mehmel, Griffon’s President and Chief Operating Officer since December 2011, was elected to serve on Griffon’s Board of Directors as a Class III Director. Mr. Mehmel has been party to a customary indemnification agreement with Griffon, as described above, since December 2011. Mr. Mehmel will receive no additional compensation from Griffon with respect to his services as a director.

Clopay Plastics Transaction Bonuses

On May 2, 2018, Griffon’s Compensation Committee (the “Committee”) approved the payment of cash transaction bonuses of $4,972,500 to seventeen Griffon officers and other key employees in recognition of the extraordinary result obtained, and efforts expended, in connection with the sale of Griffon’s Clopay Plastics business to Berry Global, Inc. for $475,000,000 in cash on February 6, 2018. The following bonuses were approved for Griffon’s named executive officers: Ronald J. Kramer, Chairman of the Board and Chief Executive Officer - $2,250,000; Robert F. Mehmel, President and Chief Operating Officer - $1,125,000; Brian G. Harris, Senior Vice President and Chief Financial Officer - $350,000; and Seth L. Kaplan, Senior Vice President, General Counsel and Secretary - $300,000.


Item 6
Exhibits
 
 
10.1
 
 
31.1
 
 
31.2
 
 
32
 
 
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: May 4, 2018


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