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, 2017 

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 o	 	Accelerated filer	ý	
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, 2017 was 47,284,854.

Griffon Corporation and Subsidiaries
 
Contents

 	 	
 	Page	
PART I - FINANCIAL INFORMATION	 	
 	 	
Item 1 – Financial Statements	 	
 	 	
Condensed Consolidated Balance Sheets at March 31, 2017 (unaudited) and September 30, 2016	1	
 	 	
Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended March 31, 2017 (unaudited)	2	
 	 	
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2017 and 2016 (unaudited)	3	
 	 	
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2017 and 2016 (unaudited)	4	
 	 	
Notes to Condensed Consolidated Financial Statements (unaudited)	5	
 	 	
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	33	
 	 	
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	45	
 	 	
Item 4 - Controls & Procedures	46	
 	 	
PART II – OTHER INFORMATION	 	
 	 	
Item 1 – Legal Proceedings	47	
 	 	
Item 1A – Risk Factors	47	
 	 	
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	47	
 	 	
Item 3 – Defaults Upon Senior Securities	47	
 	 	
Item 4 – Mine Safety Disclosures	47	
 	 	
Item 5 – Other Information	47	
 	 	
Item 6 – Exhibits	48	
 	 	
Signatures	49	
 	 	
Exhibit Index	50	

Table of Contents

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

 	 	 	 	 	 	 	 	
 	(Unaudited)	 	 	
 	March 31,
2017	 	September 30,
2016	
CURRENT ASSETS	 	 	 	
Cash and equivalents	$	47,425	
 	 	$	72,553	
 	
Accounts receivable, net of allowances of $7,872 and $6,425	252,039	
 	 	233,751	
 	
Contract costs and recognized income not yet billed, net of progress payments of $4,380 and $8,001	119,573	
 	 	126,961	
 	
Inventories, net	316,830	
 	 	308,869	
 	
Prepaid and other current assets	39,706	
 	 	38,605	
 	
Assets of discontinued operations	215	
 	 	219	
 	
Total Current Assets	775,788	
 	 	780,958	
 	
PROPERTY, PLANT AND EQUIPMENT, net	408,271	
 	 	405,404	
 	
GOODWILL	360,085	
 	 	361,185	
 	
INTANGIBLE ASSETS, net	210,676	
 	 	210,599	
 	
OTHER ASSETS	18,131	
 	 	21,982	
 	
ASSETS OF DISCONTINUED OPERATIONS	1,934	
 	 	1,968	
 	
Total Assets	$	1,774,885	
 	 	$	1,782,096	

CURRENT LIABILITIES	 	

Notes payable and current portion of long-term debt	$	16,757	
 	 	$	22,644	
 	
Accounts payable	170,272	
 	 	190,341	
 	
Accrued liabilities	86,894	
 	 	103,594	
 	
Liabilities of discontinued operations	1,324	
 	 	1,684	
 	
Total Current Liabilities	275,247	
 	 	318,263	
 	
LONG-TERM DEBT, net	993,576	
 	 	913,914	
 	
OTHER LIABILITIES	126,196	
 	 	137,266	
 	
LIABILITIES OF DISCONTINUED OPERATIONS	1,941	
 	 	1,706	
 	
Total Liabilities	1,396,960	
 	 	1,371,149	
 	
COMMITMENTS AND CONTINGENCIES - See Note 19	

 	
 	
SHAREHOLDERS’ EQUITY	 	

Total Shareholders’ Equity	377,925	
 	 	410,947	
 	
Total Liabilities and Shareholders’ Equity	$	1,774,885	
 	 	$	1,782,096	

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, 2016	79,966	
 	 	$	19,992	
 	 	$	529,980	
 	 	$	475,760	
 	 	34,797	
 	 	$	(501,866	)	 	$	(81,241	)	 	$	(31,678	)	 	$	410,947	
 	 	 	 	 	 	 	
Net income	—	
 	 	—	
 	 	—	
 	 	17,309	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	17,309	
 	 	 	 	 	 	 	
Dividend	—	
 	 	—	
 	 	—	
 	 	(5,137	)	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	(5,137	)	 	 	 	 	 	 	
Shares withheld on employee taxes on vested equity awards	—	
 	 	—	
 	 	(97	)	 	—	
 	 	582	
 	 	(13,558	)	 	—	
 	 	—	
 	 	(13,655	)	 	 	 	 	 	 	
Amortization of deferred compensation	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	1,823	
 	 	1,823	
 	 	 	 	 	 	 	
Common stock issued	3	
 	 	—	
 	 	22	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	22	
 	 	 	 	 	 	 	
Common stock acquired	—	
 	 	—	
 	 	—	
 	 	—	
 	 	129	
 	 	(2,201	)	 	—	
 	 	—	
 	 	(2,201	)	 	 	 	 	 	 	
Equity awards granted, net	869	
 	 	217	
 	 	(217	)	 	—	
 	
 	—	
 	
 	—	
 	
 	—	
 	
 	—	
 	 	—	
 	 	 	 	 	 	 	
Premium on settlement of convertible debt	—	
 	 	—	
 	 	(73,855	)	 	—	
 	 	—	
 	 	—	
 	 	 	 	 	 	(73,855	)	 	 	 	 	 	 	
Issuance of treasury stock in settlement of convertible debt	—	
 	 	—	
 	 	20,375	
 	 	—	
 	 	(1,955	)	 	28,483	
 	 	—	
 	 	—	
 	 	48,858	
 	 	 	 	 	 	 	
ESOP purchase of common stock	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	(9,213	)	 	(9,213	)	 	 	 	 	 	 	
ESOP allocation of common stock	—	
 	 	—	
 	 	1,611	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	1,611	
 	 	 	 	 	 	 	
Stock-based compensation	—	
 	 	—	
 	 	4,795	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	4,795	
 	 	 	 	 	 	 	
Other comprehensive income, net of tax	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	—	
 	 	(3,379	)	 	—	
 	 	(3,379	)	 	 	 	 	 	 	
Balance at March 31, 2017	80,838	
 	 	$	20,209	
 	 	$	482,614	
 	 	$	487,932	
 	 	33,553	
 	 	$	(489,142	)	 	$	(84,620	)	 	$	(39,068	)	 	$	377,925	

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,	
 	2017	 	2016	 	2017	 	2016	
Revenue	$	495,764	
 	 	$	500,107	
 	 	$	962,864	
 	 	$	994,256	
 	
Cost of goods and services	380,215	
 	 	385,950	
 	 	731,187	
 	 	763,994	
 	
Gross profit	115,549	
 	 	114,157	
 	 	231,677	
 	 	230,262	
 	
Selling, general and administrative expenses	92,489	
 	 	91,586	
 	 	182,232	
 	 	182,885	
 	
Income from operations	23,060	
 	 	22,571	
 	 	49,445	
 	 	47,377	
 	
Other income (expense)	 	

 	 	 	
 	
Interest expense	(12,645	)	 	(12,392	)	 	(26,018	)	 	(24,415	)	
Interest income	23	
 	 	44	
 	 	29	
 	 	55	
 	
Other, net	(199	)	 	(385	)	 	(241	)	 	170	
 	
Total other expense, net	(12,821	)	 	(12,733	)	 	(26,230	)	 	(24,190	)	
Income before taxes	10,239	
 	 	9,838	
 	 	23,215	
 	 	23,187	
 	
Provision for income taxes	5,194	
 	 	3,743	
 	 	5,906	
 	 	6,304	
 	
Net income	$	5,045	
 	 	$	6,095	
 	 	$	17,309	
 	 	$	16,883	
 	
Basic income per common share	$	0.12	
 	 	$	0.15	
 	 	$	0.43	
 	 	$	0.40	
 	
Weighted-average shares outstanding	41,277	
 	 	41,426	
 	 	40,307	
 	 	41,697	
 	
Diluted income per common share	$	0.12	
 	 	$	0.14	
 	 	$	0.40	
 	 	$	0.38	
 	
Weighted-average shares outstanding	43,229	
 	 	43,891	
 	 	42,776	
 	 	44,727	
 	
Dividends paid per common share	$	0.06	
 	 	$	0.05	
 	 	$	0.12	
 	 	$	0.10	
 	
Net income	$	5,045	
 	 	$	6,095	
 	 	$	17,309	
 	 	$	16,883	
 	
Other comprehensive income (loss), net of taxes:	 	

 	 	 	
 	
Foreign currency translation adjustments	8,409	
 	 	13,683	
 	 	(5,070	)	 	10,334	
 	
Pension and other post retirement plans	544	
 	 	386	
 	 	1,088	
 	 	772	
 	
Change in cash flow hedges	(1,020	)	 	(1,649	)	 	603	
 	 	(2,664	)	
Total other comprehensive income (loss), net of taxes	7,933	
 	 	12,420	
 	 	(3,379	)	 	8,442	
 	
Comprehensive income (loss), net	$	12,978	
 	 	$	18,515	
 	 	$	13,930	
 	 	$	25,325	

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

3

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 	Six Months Ended March 31,	
 	2017	 	2016	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	

Net income	$	17,309	
 	 	$	16,883	
 	
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	 	

Depreciation and amortization	37,173	
 	 	34,202	
 	
Stock-based compensation	4,795	
 	 	5,555	
 	
Provision for losses on accounts receivable	(18	)	 	(13	)	
Amortization of debt discounts and issuance costs	2,919	
 	 	3,384	
 	
Deferred income taxes	(236	)	 	1,537	
 	
Gain on sale of assets and investments	(111	)	 	(255	)	
Change in assets and liabilities, net of assets and liabilities acquired:	 	

Increase in accounts receivable and contract costs and recognized income not yet billed	(11,567	)	 	(43,751	)	
(Increase) decrease in inventories	(7,535	)	 	17,617	
 	
Decrease in prepaid and other assets	2,283	
 	 	2,220	
 	
Decrease in accounts payable, accrued liabilities and income taxes payable	(37,084	)	 	(42,632	)	
Other changes, net	843	
 	 	2,037	
 	
Net cash provided by (used in) operating activities	8,771	
 	 	(3,216	)	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	

Acquisition of property, plant and equipment	(42,513	)	 	(45,952	)	
Acquired businesses, net of cash acquired	(6,051	)	 	(1,744	)	
Investment in unconsolidated joint venture	—	
 	 	(2,726	)	
Proceeds from sale of assets	140	
 	 	868	
 	
Investment sales	—	
 	 	715	
 	
Net cash used in investing activities	(48,424	)	 	(48,839	)	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	

Dividends paid	(5,137	)	 	(4,508	)	
Purchase of shares for treasury	(15,759	)	 	(33,640	)	
Proceeds from long-term debt	195,655	
 	 	139,604	
 	
Payments of long-term debt	(123,264	)	 	(46,323	)	
Change in short-term borrowings	(488	)	 	(191	)	
Share premium payment on settled debt	(24,997	)	 	—	
 	
Financing costs	(335	)	 	(1,120	)	
Purchase of ESOP shares	(9,213	)	 	—	
 	
Other, net	(186	)	 	307	
 	
Net cash provided by financing activities	16,276	
 	 	54,129	
 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	

Net cash used in operating activities	(738	)	 	(578	)	
Net cash used in discontinued operations	(738	)	 	(578	)	
Effect of exchange rate changes on cash and equivalents	(1,013	)	 	785	
 	
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(25,128	)	 	2,281	
 	
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	72,553	
 	 	52,001	
 	
CASH AND EQUIVALENTS AT END OF PERIOD	$	47,425	
 	 	$	54,282	
 	
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

4

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.

Griffon currently conducts its operations through three reportable segments:

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

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

-	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.	

•	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.	

•	Clopay Plastic Products Company, Inc. ("PPC"), incorporated in 1934, 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.	
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 (“U.S. GAAP”) for interim financial information and with 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 U.S. GAAP for complete financial statements. As such, they should be read with reference to Griffon’s Annual Report on Form 10-K for the year ended September 30, 2016, 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, 2016 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2016.
 
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 U.S. 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

5

statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of 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 $725,000 on March 31, 2017. Fair values were based upon quoted market prices (level 1 inputs).

On January 17, 2017, Griffon's 4% convertible subordinated notes settled for a total of $173,855. The total settlement value for the convertible notes was based on the sum of the daily Volume Weighted Average Price multiplied by the conversion rate over a 40-day observation period (level 1 inputs).  The settlement value was split between $125,000 in cash and $48,858, or 1,954,993 shares of common stock issued from treasury.
 
Insurance contracts with values of $3,200 at March 31, 2017 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, 2017, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $1,443 ($1,000 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. During the first quarter of 2016, the Company settled trading securities with proceeds totaling $715 and recognized a loss of $13 in Other income (expense). Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

6

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. During 2017, 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, 2017, Griffon had $17,500 of Australian dollar contracts at a weighted average rate of $1.30, which qualified for hedge accounting. 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 losses of $631 ($401, net of tax) at March 31, 2017 and losses of $172 and $821 were recorded in COGS during the quarter and six months ended March 31, 2017, respectively, for all settled contracts. All contracts expire in 28 to 179 days.

At March 31, 2017, Griffon had $3,300 of Canadian dollar contracts at a weighted average rate of $1.33. The contracts, which protect Canada operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. For the quarter and six months ended March 31, 2017, a fair value gain (loss) of $(110) and $1, 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 $94 and $53 were recorded in Other income during the quarter and six months ended March 31, 2017, respectively, for all settled contracts. All contracts expire in 28 to 179 days.

NOTE 3 – ACQUISITIONS AND INVESTMENTS

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

On February 14, 2016, AMES Australia acquired substantially all of the Intellectual Property (IP) assets of Australia-based Nylex Plastics Pty Ltd. for approximately $1,700. 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 of 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.

In December 2015, Telephonics invested an additional $2,726 increasing its equity stake from 26% to 49% in Mahindra Telephonics Integrated Systems ("MTIS"), a joint venture with Mahindra Defence Systems, a Mahindra Group Company. MTIS is an aerospace and defense manufacturing and development facility in Prithla, India. This investment is accounted for using the equity method.

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, 2017	 	At September 30, 2016	
Raw materials and supplies	$	77,783	
 	 	$	81,345	
 	
Work in process	92,668	
 	 	75,852	
 	
Finished goods	146,379	
 	 	151,672	
 	
Total	$	316,830	
 	 	$	308,869	

7

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

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

 	At March 31, 2017	 	At September 30, 2016	
Land, building and building improvements	$	142,358	
 	 	$	138,204	
 	
Machinery and equipment	811,410	
 	 	804,280	
 	
Leasehold improvements	61,044	
 	 	51,015	

 	1,014,812	
 	 	993,499	
 	
Accumulated depreciation and amortization	(606,541	)	 	(588,095	)	
Total	$	408,271	
 	 	$	405,404	
 	
Depreciation and amortization expense for property, plant and equipment was $16,917 and $15,248 for the quarters ended March 31, 2017 and 2016, respectively, and $33,450 and $30,457 for the six months ended March 31, 2017 and 2016, respectively. Depreciation included in SG&A expenses was $3,693 and $3,250 for the quarters ended March 31, 2017 and 2016, respectively, and $7,206 and $6,408 for the six months ended March 31, 2017 and 2016, 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 six months ended March 31, 2017, which would require additional impairment testing of property, plant and equipment.
 
NOTE 6 – GOODWILL AND OTHER INTANGIBLES
 
The following table provides changes in the carrying value of goodwill by segment during the six months ended March 31, 2017:

 	 	 	 	 	 	 	 	 	 	 	 	
 	At September 30, 2016	
 	Other
adjustments
including currency
translations	
 	At March 31, 2017	
Home & Building Products	$	287,617	
 	 	$	(30	)	 	$	287,587	
 	
Telephonics	18,545	
 	 	—	
 	 	18,545	
 	
PPC	55,023	
 	 	(1,070	)	 	53,953	
 	
Total	$	361,185	
 	 	$	(1,100	)	 	$	360,085	

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

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	At March 31, 2017	 	 	 	At September 30, 2016	
 	Gross Carrying Amount	 	Accumulated
Amortization	 	Average
Life
(Years)	 	Gross Carrying Amount	 	Accumulated
Amortization	
Customer relationships	$	169,926	
 	 	$	50,095	
 	 	25	 	$	170,652	
 	 	$	47,217	
 	
Unpatented technology	5,989	
 	 	4,280	
 	 	12.5	 	6,073	
 	 	4,060	
 	
Total amortizable intangible assets	175,915	
 	 	54,375	
 	 	 	 	176,725	
 	 	51,277	
 	
Trademarks	89,136	
 	 	—	
 	 	 	 	85,151	
 	 	—	
 	
Total intangible assets	$	265,051	
 	 	$	54,375	
 	 	 	 	$	261,876	
 	 	$	51,277	

Amortization expense for intangible assets was $1,862 and $1,870 for the quarters ended March 31, 2017 and 2016, respectively, and $3,723 and $3,745 for the six months ended March 31, 2017 and 2016, respectively.
 
No event or indicator of impairment occurred during the six months ended March 31, 2017 which would require impairment testing of long-lived intangible assets including goodwill.

8

NOTE 7 – INCOME TAXES

In both the quarter and six months ended March 31, 2017 and 2016, the Company reported pretax income, and recognized a tax provision of 50.7% and 25.4% for the quarter and six months ended March 31, 2017, respectively, compared to 38.0% and 27.2%, respectively, in the comparable prior year periods. 

The quarter and six months ended March 31, 2017 tax rates included net provisions of $1,334 and net benefits of $2,929, respectively, compared to a net provision of $43 and net benefits of $2,548, respectively, in the comparable prior year periods. The net provision for the quarter ended March 31, 2017 is primarily related to discrete tax provisions and the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire. The net benefits for the six-month periods ended March 31, 2017 and 2016, primarily related to discrete tax benefits for the adoption of recent Financial Accounting Standards Board ("FASB") guidance, which requires the company to recognize excess tax benefits from the vesting of equity awards within income tax expense, partially offset by a current year tax provision for the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire. Excluding these tax items, the effective tax rates for the quarter and six months ended March 31, 2017 were 37.7% and 38.1%, respectively, compared to 37.6% and 38.2%, respectively, in the comparable prior year periods.

9

NOTE 8 – LONG-TERM DEBT

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	At March 31, 2017	 	At September 30, 2016	
  	 	Outstanding Balance	
 	Original Issuer Discount	
 	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)	$	725,000	
 	 	$	(1,312	)	 	$	(9,047	)	 	$	714,641	
 	 	5.25	%	 	725,000	
 	 	$	(1,447	)	 	$	(9,799	)	 	$	713,754	
 	 	5.25	%	
Revolver due 2021	(b)	176,000	
 	 	—	
 	 	(2,179	)	 	173,821	
 	 	n/a	
 	 	—	
 	 	—	
 	 	(2,425	)	 	(2,425	)	 	n/a	
 	
Convert. debt due 2017	(c)	—	
 	 	—	
 	 	—	
 	 	—	
 	 	n/a	
 	 	100,000	
 	 	(1,248	)	 	(148	)	 	98,604	
 	 	4.00	%	
Real estate mortgages	(d)	36,519	
 	 	—	
 	 	(507	)	 	36,012	
 	 	n/a	
 	 	37,861	
 	 	—	
 	 	(595	)	 	37,266	
 	 	n/a	
 	
ESOP Loans	(e)	42,290	
 	 	—	
 	 	(345	)	 	41,945	
 	 	n/a	
 	 	34,387	
 	 	—	
 	 	(237	)	 	34,150	
 	 	n/a	
 	
Capital lease - real estate	(f)	5,885	
 	 	—	
 	 	(118	)	 	5,767	
 	 	5.00	%	 	6,447	
 	 	—	
 	 	(131	)	 	6,316	
 	 	5.00	%	
Non U.S. lines of credit	(g)	1,731	
 	 	—	
 	 	(72	)	 	1,659	
 	 	n/a	
 	 	11,462	
 	 	—	
 	 	(1	)	 	11,461	
 	 	n/a	
 	
Non U.S. term loans	(g)	33,056	
 	 	—	
 	 	(243	)	 	32,813	
 	 	n/a	
 	 	33,669	
 	 	—	
 	 	(247	)	 	33,422	
 	 	n/a	
 	
Other long term debt	(h)	3,697	
 	 	—	
 	 	(22	)	 	3,675	
 	 	n/a	
 	 	4,030	
 	 	—	
 	 	(20	)	 	4,010	
 	 	n/a	
 	
Totals	 	1,024,178	
 	 	(1,312	)	 	(12,533	)	 	1,010,333	
 	 	 	
 	 	952,856	
 	 	(2,695	)	 	(13,603	)	 	936,558	

less: Current portion	 	(16,757	)	 	—	
 	 	—	
 	 	(16,757	)	 	 	
 	 	(22,644	)	 	—	
 	 	—	
 	 	(22,644	)	 	 	
 	
Long-term debt	 	$	1,007,421	
 	 	$	(1,312	)	 	$	(12,533	)	 	$	993,576	
 	 	 	
 	 	$	930,212	
 	 	$	(2,695	)	 	$	(13,603	)	 	$	913,914	

 (1) n/a = not applicable

10

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2017	 	Three Months Ended March 31, 2016	
 	 	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)	5.6	%	 	9,515	
 	 	68	
 	 	461	
 	 	10,044	
 	 	5.5	%	 	7,875	
 	 	—	
 	 	323	
 	 	8,198	
 	
Revolver due 2021	(b)	n/a	
 	 	1,326	
 	 	—	
 	 	150	
 	 	1,476	
 	 	n/a	
 	 	954	
 	 	—	
 	 	122	
 	 	1,076	
 	
Convert. debt due 2017	(c)	8.9	%	 	167	
 	 	190	
 	 	37	
 	 	394	
 	 	9.2	%	 	1,000	
 	 	1,079	
 	 	111	
 	 	2,190	
 	
Real estate mortgages	(d)	2.6	%	 	229	
 	 	—	
 	 	18	
 	 	247	
 	 	2.2	%	 	154	
 	 	—	
 	 	17	
 	 	171	
 	
ESOP Loans	(e)	4.0	%	 	369	
 	 	—	
 	 	38	
 	 	407	
 	 	3.3	%	 	275	
 	 	—	
 	 	17	
 	 	292	
 	
Capital lease - real estate	(f)	5.4	%	 	75	
 	 	—	
 	 	6	
 	 	81	
 	 	5.4	%	 	90	
 	 	—	
 	 	7	
 	 	97	
 	
Non U.S. lines of credit	(g)	n/a	
 	 	61	
 	 	—	
 	 	7	
 	 	68	
 	 	n/a	
 	 	97	
 	 	—	
 	 	22	
 	 	119	
 	
Non U.S. term loans	(g)	n/a	
 	 	308	
 	 	—	
 	 	25	
 	 	333	
 	 	n/a	
 	 	272	
 	 	—	
 	 	13	
 	 	285	
 	
Other long term debt	(h)	n/a	
 	 	88	
 	 	—	
 	 	4	
 	 	92	
 	 	n/a	
 	 	79	
 	 	—	
 	 	—	
 	 	79	
 	
Capitalized interest	 	 	
 	 	(497	)	 	—	
 	 	—	
 	 	(497	)	 	 	
 	 	(118	)	 	—	
 	 	3	
 	 	(115	)	
Totals	 	 	
 	 	$	11,641	
 	 	$	258	
 	 	$	746	
 	 	$	12,645	
 	 	 	
 	 	$	10,678	
 	 	$	1,079	
 	 	$	635	
 	 	$	12,392	
 	
(1) n/a = not applicable

11

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six Months Ended March 31, 2017	 	Six Months Ended March 31, 2016	
 	 	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)	5.6	%	 	19,031	
 	 	135	
 	 	934	
 	 	20,100	
 	 	5.5	%	 	15,750	
 	 	—	
 	 	645	
 	 	16,395	
 	
Revolver due 2021	(b)	n/a	
 	 	1,651	
 	 	—	
 	 	282	
 	 	1,933	
 	 	n/a	
 	 	1,525	
 	 	—	
 	 	237	
 	 	1,762	
 	
Convert. debt due 2017	(c)	8.9	%	 	1,167	
 	 	1,248	
 	 	148	
 	 	2,563	
 	 	9.0	%	 	2,000	
 	 	2,127	
 	 	222	
 	 	4,349	
 	
Real estate mortgages	(d)	2.4	%	 	416	
 	 	—	
 	 	20	
 	 	436	
 	 	2.1	%	 	305	
 	 	—	
 	 	29	
 	 	334	
 	
ESOP Loans	(e)	4.1	%	 	733	
 	 	—	
 	 	65	
 	 	798	
 	 	3.1	%	 	531	
 	 	—	
 	 	35	
 	 	566	
 	
Capital lease - real estate	(f)	5.4	%	 	155	
 	 	—	
 	 	12	
 	 	167	
 	 	5.4	%	 	183	
 	 	—	
 	 	13	
 	 	196	
 	
Non U.S. lines of credit	(g)	n/a	
 	 	196	
 	 	—	
 	 	10	
 	 	206	
 	 	n/a	
 	 	356	
 	 	—	
 	 	46	
 	 	402	
 	
Non U.S. term loans	(g)	n/a	
 	 	612	
 	 	—	
 	 	59	
 	 	671	
 	 	n/a	
 	 	556	
 	 	—	
 	 	26	
 	 	582	
 	
Other long term debt	(h)	n/a	
 	 	162	
 	 	—	
 	 	6	
 	 	168	
 	 	n/a	
 	 	98	
 	 	—	
 	 	—	
 	 	98	
 	
Capitalized interest	 	 	
 	 	(1,024	)	 	—	
 	 	—	
 	 	(1,024	)	 	 	
 	 	(274	)	 	—	
 	 	5	
 	 	(269	)	
Totals	 	 	
 	 	$	23,099	
 	 	$	1,383	
 	 	$	1,536	
 	 	$	26,018	
 	 	 	
 	 	$	21,030	
 	 	$	2,127	
 	 	$	1,258	
 	 	$	24,415	
 	
(1) n/a = not applicable

12

 	 	
(a)	On May 18, 2016, in an unregistered offering through a private placement under Rule 144A, Griffon completed the add-on offering of $125,000 principal amount of its 5.25% senior notes due 2022, at 98.76% of par, to Griffon's previously issued $600,000 5.25% senior notes due 2022, at par, which was completed on February 27, 2014 (collectively the “Senior Notes”). As of March 31, 2017, outstanding Senior Notes due totaled $725,000; interest is payable semi-annually on March 1 and September 1. The net proceeds of the add-on offering were used to pay down outstanding borrowings under Griffon's Revolving Credit Facility (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 July 20, 2016 and June 18, 2014, Griffon exchanged all of the $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 $725,000 on March 31, 2017 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the $125,000 senior notes, Griffon capitalized $3,016 of underwriting fees and other expenses, which will amortize over the term of such notes; Griffon capitalized $10,313 in connection with the previously issued $600,000 senior 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. The facility includes a letter 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 1.25% for base rate loans and 2.25% 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, 2017, there were $176,000 in outstanding borrowings and standby letters of credit were $16,440 under the Credit Agreement; $157,560 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 Revolving Credit Facility, 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 are secured by four properties occupied by Griffon's subsidiaries. The loans mature in September 2025 and April 2018, respectively, are collateralized by the specific properties financed and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 1.50%. At March 31, 2017, $36,012 was outstanding, net of issuance costs.	

(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. The availability period for the Line Note runs through August 2017 at which point the outstanding balance under the Line Note will be combined with the Term Loan. The Term Loan and Line Note bear interest at LIBOR plus 2.50%. The Term Loan requires quarterly principal payments of $655 through September 30, 2017 and $569 thereafter, with a balloon payment due at maturity on March 22, 2020. There were no shares purchased in the quarter ended March 31, 2017. During the quarter ended December 31, 2016, Griffon purchased 548,912 shares of common stock, for a total of $9,213 or $16.78 per share, with proceeds from the Line Note. The remaining amount available under the Line Note is $1,695. As of March 31, 2017, $41,945, net of issuance costs, was outstanding under the Term Loan and Line Note. 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.	

13

 	 	
(f)	In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2022, bears interest at a fixed rate of 5.0%, is secured by a mortgage on the real estate and is guaranteed by Griffon. At March 31, 2017, $5,767 was outstanding, net of issuance costs.	

(g)	In September 2015, Clopay Europe GmbH (“Clopay Europe”) entered into a EUR 5,000 ($5,368 as of March 31, 2017) revolving credit facility and EUR 15,000 term loan. The term loan is payable in twelve quarterly installments of EUR 1,250, bears interest at a fixed rate of 2.5% and matures in September 2018. The revolving facility matures in September 2017, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 1.75% per annum (1.75% at March 31, 2017). The revolver and the term loan are both secured by substantially all of the assets of Clopay Europe and its subsidiaries. Griffon guarantees the revolving facility and term loan. The term loan had an outstanding balance of EUR 7,500 ($8,052 at March 31, 2017) and the revolver had no outstanding borrowings at March 31, 2017. Clopay Europe is required to maintain a certain minimum equity to assets ratio and is subject to a maximum debt leverage ratio (defined as the ratio of total debt to EBITDA).	
Clopay do Brazil maintains a line of credit of R$7,000 ($2,209 as of March 31, 2017). Interest on borrowings accrues at various fixed rates which averaged about 15.2% as of March 31, 2017. At March 31, 2017, there was approximately R$5,485 ($1,731 as of March 31, 2017) borrowed under the line. PPC guarantees the line of credit.
In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,258 as of March 31, 2017) revolving credit facility.  The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (2.45% LIBOR USD and 2.18% Bankers Acceptance Rate CDN as of March 31, 2017). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity.  At March 31, 2017, there were no borrowings under the revolving credit facility.

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 to AUD 33,500. The term loan requires quarterly principal payments of AUD 875 plus interest, with a balloon payment of AUD 24,750 due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.00% per annum (3.85% at March 31, 2017). The term loan had an outstanding balance of AUD 32,625 ($25,004 as of March 31, 2017). The revolving facility matures in November 2017, but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus 2.0% per annum (3.67% at March 31, 2017). At March 31, 2017, there were no borrowings under the revolver. 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.
 	 	
(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, 2017, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

NOTE 9 — SHAREHOLDERS’ EQUITY
 
During 2017, the Company paid a quarterly cash dividend of $0.06 per share in each quarter, totaling $0.12 per share for the six months ended March 31, 2017. During 2016, the Company paid quarterly cash dividends of $0.05 per share, totaling $0.20 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 May 4, 2017 the Board of Directors declared a quarterly cash dividend of $0.06 per share, payable on June 22, 2017 to shareholders of record as of the close of business on May 26, 2017.

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.

14

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. 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 2,350,000 (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, 2017, there were 1,068,362 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 2017, Griffon granted 300,494 shares of restricted stock, subject to certain performance conditions, with vesting periods of three years, with a total fair value of $6,055, or a weighted average fair value of $20.15 per share. During the second quarter of 2017, Griffon granted 528,000 shares of restricted stock 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 $8,500, or a weighted average fair value of $16.10. Also during the second quarter, Griffon granted 40,700 shares with a vesting period of three years and a fair value of $1,036, or a weighted average fair value of $25.45 per share.

For the quarters ended March 31, 2017 and 2016, stock based compensation expense totaled $2,343 and $2,489, respectively. For the six months ended March 31, 2017 and 2016, stock based compensation expense totaled $4,795 and $5,555, respectively.

During the quarter and six months ended March 31, 2017, 27,431 shares, with a market value of $685 or $24.97 per share, and 582,478 shares, with a market value of $13,558 or $23.28 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 Revolving Credit Facility, and $48,858, or 1,954,993 shares of common stock issued from treasury.

On each of July 29, 2015 and August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. There were no repurchases under these programs during the quarter ended March 31, 2017. During the six months ended March 31, 2017, Griffon purchased 129,000 shares of common stock under these programs, for a total of $2,201 or $17.06 per share. As of March 31, 2017, $49,437 remains under the August 2016 Board authorization.

From August 2011 to March 31, 2017, Griffon repurchased 15,984,854 shares of common stock, for a total of $211,621 or $13.24 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.

15

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,	
 	2017	 	2016	 	2017	 	2016	
Weighted average shares outstanding - basic	41,277	
 	 	41,426	
 	 	40,307	
 	 	41,697	
 	
Incremental shares from stock based compensation	1,557	
 	 	2,059	
 	 	1,740	
 	 	2,135	
 	
Convertible debt matured 2017	395	
 	 	406	
 	 	729	
 	 	895	

Weighted average shares outstanding - diluted	43,229	
 	 	43,891	
 	 	42,776	
 	 	44,727	

Anti-dilutive options excluded from diluted EPS computation	—	
 	 	416	
 	 	—	
 	 	418	

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 are as follows:
 	 	
•	HBP is the leading U.S. manufacturer and a global provider of long-handled tools and landscaping products for homeowners and professionals, as well as 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.	

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

•	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.	
Information on Griffon’s reportable segments is as follows:

 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
REVENUE	2017	 	2016	 	2017	 	2016	
Home & Building Products:	 	

 	 	 	
 	
AMES	$	162,907	
 	 	$	165,847	
 	 	$	283,631	
 	 	$	284,137	
 	
CBP	122,628	
 	 	113,387	
 	 	266,088	
 	 	256,295	
 	
Home & Building Products	285,535	
 	 	279,234	
 	 	549,719	
 	 	540,432	
 	
Telephonics	98,272	
 	 	105,874	
 	 	186,365	
 	 	214,911	
 	
PPC	111,957	
 	 	114,999	
 	 	226,780	
 	 	238,913	
 	
Total consolidated net sales	$	495,764	
 	 	$	500,107	
 	 	$	962,864	
 	 	$	994,256	

16

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

 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
INCOME BEFORE TAXES	2017	 	2016	 	2017	 	2016	
Segment operating profit:	 	

 	 	 	
 	
Home & Building Products	$	18,313	
 	 	$	17,810	
 	 	$	40,953	
 	 	$	38,969	
 	
Telephonics	9,016	
 	 	7,875	
 	 	14,407	
 	 	15,688	
 	
PPC	5,272	
 	 	5,880	
 	 	13,303	
 	 	11,897	
 	
Total segment operating profit	32,601	
 	 	31,565	
 	 	68,663	
 	 	66,554	
 	
Net interest expense	(12,622	)	 	(12,348	)	 	(25,989	)	 	(24,360	)	
Unallocated amounts	(9,740	)	 	(9,379	)	 	(19,459	)	 	(19,007	)	
Income before taxes	$	10,239	
 	 	$	9,838	
 	 	$	23,215	
 	 	$	23,187	

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:

 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Segment adjusted EBITDA:	 	

 	 	 	
 	
Home & Building Products	$	27,565	
 	 	$	26,338	
 	 	$	59,372	
 	 	$	56,167	
 	
Telephonics	11,787	
 	 	10,444	
 	 	19,895	
 	 	20,788	
 	
PPC	11,904	
 	 	11,781	
 	 	26,341	
 	 	23,566	
 	
Total Segment adjusted EBITDA	51,256	
 	 	48,563	
 	 	105,608	
 	 	100,521	
 	
Net interest expense	(12,622	)	 	(12,348	)	 	(25,989	)	 	(24,360	)	
Segment depreciation and amortization	(18,655	)	 	(16,998	)	 	(36,945	)	 	(33,967	)	
Unallocated amounts	(9,740	)	 	(9,379	)	 	(19,459	)	 	(19,007	)	
Income before taxes	$	10,239	
 	 	$	9,838	
 	 	$	23,215	
 	 	$	23,187	

17

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	2017	
 	2016	
 	2017	
 	2016	
Segment:	 	

 	 	
Home & Building Products	$	9,252	
 	 	$	8,528	
 	 	$	18,419	
 	 	$	17,198	
 	
Telephonics	2,771	
 	 	2,569	
 	 	5,488	
 	 	5,100	
 	
PPC	6,632	
 	 	5,901	
 	 	13,038	
 	 	11,669	
 	
Total segment depreciation and amortization	18,655	
 	 	16,998	
 	 	36,945	
 	 	33,967	
 	
Corporate	124	
 	 	120	
 	 	228	
 	 	235	
 	
Total consolidated depreciation and amortization	$	18,779	
 	 	$	17,118	
 	 	$	37,173	
 	 	$	34,202	

 	

 	

 	

 	

CAPITAL EXPENDITURES	 	

 	

 	 	
 	
Segment:	 	

 	

 	 	
 	
Home & Building Products	$	4,140	
 	 	$	10,835	
 	 	$	10,413	
 	 	$	28,115	
 	
Telephonics	1,817	
 	 	1,958	
 	 	3,113	
 	 	3,238	
 	
PPC	12,180	
 	 	6,956	
 	 	27,086	
 	 	13,360	
 	
Total segment	18,137	
 	 	19,749	
 	 	40,612	
 	 	44,713	
 	
Corporate	1,898	
 	 	1,185	
 	 	1,901	
 	 	1,239	
 	
Total consolidated capital expenditures	$	20,035	
 	 	$	20,934	
 	 	$	42,513	
 	 	$	45,952	

 	
 	 	 	 	 	 	 	 	
ASSETS	At March 31, 2017	
 	At September 30, 2016	
Segment assets:	 	
 	 	
Home & Building Products	$	1,044,739	
 	 	$	1,020,297	
 	
Telephonics	312,124	
 	 	334,631	
 	
PPC	351,268	
 	 	365,920	
 	
Total segment assets	1,708,131	
 	 	1,720,848	
 	
Corporate	64,605	
 	 	59,061	
 	
Total continuing assets	1,772,736	
 	 	1,779,909	
 	
Assets of discontinued operations	2,149	
 	 	2,187	
 	
Consolidated total	$	1,774,885	
 	 	$	1,782,096	

NOTE 12 – DEFINED BENEFIT PENSION EXPENSE

Defined benefit pension expense (income) was as follows:

 	Three Months Ended March 31,	 	Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Interest cost	$	1,402	
 	 	$	2,080	
 	 	$	2,804	
 	 	$	4,160	
 	
Expected return on plan assets	(2,736	)	 	(2,916	)	 	(5,472	)	 	(5,832	)	
Amortization:	 	

 	 	 	
 	
Prior service cost	4	
 	 	4	
 	 	8	
 	 	8	
 	
Recognized actuarial loss	832	
 	 	591	
 	 	1,664	
 	 	1,181	
 	
Net periodic expense (income)	$	(498	)	 	$	(241	)	 	$	(996	)	 	$	(483	)	

18

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)

In 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other post-retirement benefits from the single weighted-average discount rate to the spot rate method.  There was no impact on the total benefit obligation.

NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting pronouncements

In March 2016, the FASB issued guidance on Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2016 using either prospective, retrospective or modified retrospective transition method, depending on the area covered in this update. In the fourth quarter of fiscal 2016, the Company early adopted this guidance as of October 1, 2015, using the prospective transition method in order to simplify the accounting for employee share-based payments. As such, all excess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to employee stock compensation were recognized within income tax expense and included in operating cash flow for the year ended September 30, 2016. Under prior guidance, windfalls were recognized to Capital in excess of par value and shortfalls were only recognized to the extent they exceeded the pool of windfall tax benefits; benefits were recognized in financing activities in the cash flow.

The first through third 2016 quarters and related year-to-date periods were adjusted as a result of the adoption. A tax benefit of $2,193 was recognized within income tax expense reflecting the excess tax benefits in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the six-month period ended March 31, 2016. Additionally, income tax benefits at settlement of an award were previously reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. As such, there was a $2,193 increase to net cash provided by operating activities and a corresponding decrease to net cash used in financing activities in the accompanying Condensed Consolidated Statement of Cash Flows for six-month period ended March 31, 2016. The remaining provisions of this accounting standard did not have a material impact on the accompanying condensed consolidated financial statements.

Newly issued but not yet effective accounting pronouncements

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

19

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 August 2014, the FASB issued guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and related footnote disclosures. Management will be required to evaluate, at each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective prospectively for annual and interim reporting periods beginning in 2017; implementation of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations.

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. We have not yet selected a transition method and are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures. 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 is currently evaluating this guidance to determine the impact it will have on its consolidated financial statements.

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

NOTE 14 – DISCONTINUED OPERATIONS
 
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 in the Condensed Consolidated Balance Sheets:

 	At March 31, 2017	
 	At September 30, 2016	
Assets of discontinued operations:	 	

 	
Prepaid and other current assets	$	215	
 	 	$	219	
 	
Other long-term assets	1,934	
 	 	1,968	
 	
Total assets of discontinued operations	$	2,149	
 	 	$	2,187	

Liabilities of discontinued operations:	 	

Accrued liabilities, current	$	1,324	
 	 	$	1,684	
 	
Other long-term liabilities	1,941	
 	 	1,706	
 	
Total liabilities of discontinued operations	$	3,265	
 	 	$	3,390	

There was no Installation Services revenue or income for the quarter ended March 31, 2017 or 2016.

20

NOTE 15 – RESTRUCTURING AND OTHER RELATED CHARGES
 
During the third quarter of 2016, PPC incurred pre-tax restructuring and related exit costs approximating $5,900 primarily related to headcount reductions at PPC’s Dombuhl, Germany facility, other location headcount reductions and for costs related to the shut down of PPC's Turkey facility. These actions resulted in the elimination of approximately 83 positions. The Dombuhl charges are related to an optimization plan that will drive innovation and enhance PPC's industry leading position in printed breathable back sheet. The facility will be transformed into a state of the art hygiene products facility focused on breathable printed film and siliconized products. In conjunction with this effort, PPC's customer base will be streamlined, and PPC will dispose of old assets and reduce overhead costs, allowing for gains in efficiencies.
 
The activity in the restructuring accrual recorded in accrued liabilities consisted of the following:

 	 	 	 	 	 	 	 	 	 	 	 	
 	Workforce
Reduction	 	Other
Related	 	Total	
Accrued liability at September 30, 2016	$	2,487	
 	 	$	1,004	
 	 	$	3,491	
 	
Payments	(1,443	)	 	(543	)	 	(1,986	)	
Accrued liability at March 31, 2017	$	1,044	
 	 	$	461	
 	 	$	1,505	

NOTE 16 – OTHER INCOME (EXPENSE)
 
For the quarters ended March 31, 2017 and 2016, Other income (expense) included $(314) and ($322), 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 $68 and $10, respectively, of net investment income.

For the six months ended March 31, 2017 and 2016, Other income (expense) included $(268) and $109, 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 $155 and $202, respectively, of net investment income.

NOTE 17 – WARRANTY LIABILITY
 
Telephonics offers warranties against product defects for periods generally ranging from one to two years, depending on the specific product and terms of the customer purchase agreement. CBP also offers warranties against product defects for periods generally ranging from one to ten years, with limited lifetime warranties on certain door models. Typical warranties require CBP and Telephonics to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. AMES offers an express limited warranty for a period of ninety days on all products from the date of original purchase unless otherwise stated on the product or packaging.

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

 	Three Months Ended March 31,	 	Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Balance, beginning of period	$	6,015	
 	 	$	6,062	
 	 	$	6,322	
 	 	$	6,040	
 	
Warranties issued and changes in estimated pre-existing warranties	1,213	
 	 	1,506	
 	 	2,507	
 	 	3,008	
 	
Actual warranty costs incurred	(1,425	)	 	(1,099	)	 	(3,026	)	 	(2,579	)	
Balance, end of period	$	5,803	
 	 	$	6,469	
 	 	$	5,803	
 	 	$	6,469	

21

NOTE 18 – OTHER COMPREHENSIVE INCOME (LOSS)
 
The amounts recognized in other comprehensive income (loss) were as follows:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended March 31, 2017	 	Three Months Ended March 31, 2016	
 	Pre-tax	 	Tax	 	Net of tax	 	Pre-tax	 	Tax	 	Net of tax	
Foreign currency translation adjustments	$	8,409	
 	 	$	—	
 	 	$	8,409	
 	 	$	13,683	
 	 	$	—	
 	 	$	13,683	
 	
Pension and other defined benefit plans	836	
 	 	(292	)	 	544	
 	 	595	
 	 	(209	)	 	386	
 	
Cash flow hedges	(1,428	)	 	408	
 	 	(1,020	)	 	(2,355	)	 	706	
 	 	(1,649	)	
Total other comprehensive income (loss)	$	7,817	
 	 	$	116	
 	 	$	7,933	
 	 	$	11,923	
 	 	$	497	
 	 	$	12,420	

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Six Months Ended March 31, 2017	 	Six Months Ended March 31, 2016	
 	Pre-tax	 	Tax	 	Net of tax	 	Pre-tax	 	Tax	 	Net of tax	
Foreign currency translation adjustments	$	(5,070	)	 	$	—	
 	 	$	(5,070	)	 	$	10,334	
 	 	$	—	
 	 	$	10,334	
 	
Pension and other defined benefit plans	1,672	
 	 	(584	)	 	1,088	
 	 	1,189	
 	 	(417	)	 	772	
 	
Cash flow hedges	844	
 	 	(241	)	 	603	
 	 	(3,805	)	 	1,141	
 	 	(2,664	)	
Total other comprehensive income (loss)	$	(2,554	)	 	$	(825	)	 	$	(3,379	)	 	$	7,718	
 	 	$	724	
 	 	$	8,442	

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

 	March 31, 2017	 	September 30, 2016	
Foreign currency translation adjustments	$	(47,964	)	 	$	(42,894	)	
Pension and other defined benefit plans	(36,255	)	 	(37,343	)	
Change in Cash flow hedges	(401	)	 	(1,004	)	
 	$	(84,620	)	 	$	(81,241	)	

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)	2017	 	2016	 	2017	 	2016	
Pension amortization	$	(836	)	 	$	(595	)	 	$	(1,672	)	 	$	(1,189	)	
Cash flow hedges	(172	)	 	684	
 	 	(821	)	 	1,089	
 	
Total gain (loss)	(1,008	)	 	89	
 	 	(2,493	)	 	(100	)	
Tax benefit (expense)	303	
 	 	(3	)	 	748	
 	 	77	
 	
Total	$	(705	)	 	$	86	
 	 	$	(1,745	)	 	$	(23	)	

NOTE 19 — COMMITMENTS AND CONTINGENCIES
 
Legal and environmental

Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties, Inc. (“ISC”), a wholly-owned subsidiary of Griffon. ISC sold the Peekskill Site in November 1982.

Subsequently, Griffon was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study.

22

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 approximately $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.
 
It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State 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 report. AMES submitted a Feasibility Study, evaluating a number of remedial options, and recommending excavation and offsite disposal of lead contaminated soils, capping of other areas of the site impacted by other metals and performing limited groundwater monitoring. The DEC accepted the Feasibility Study and is expected to issue a Record of Decision approving the selection of a remedial alternative in 2017. Implementation of the selected remedial alternative is also expected to occur in 2017, or if there are further delays in regulatory approvals, early 2018. 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.

23

U.S. Government investigations and claims

Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency (“DCAA”), the Defense Criminal Investigative Service (“DCIS”), and the Department of Justice ("DOJ") which has responsibility for asserting claims on behalf of the U.S. government. In addition to ongoing audits, Griffon is currently in discussions with the civil division of the U.S. Department of Justice regarding certain amounts the civil division has indicated it believes it is owed from Griffon with respect to certain U.S. government contracts in which Griffon acted as a subcontractor. No claim has been asserted against Griffon in connection with this matter, and Griffon believes that it does not have a material financial exposure in connection with this matter.

In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on Telephonics because of its reliance on government contracts.

General legal

Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the
matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.

NOTE 20 — CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
 
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, The AMES Companies, Inc., ATT Southern, Inc. and Clopay Ames True Temper Holding Corp., 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, 2017 and September 30, 2016 and for the three and six months ended March 31, 2017 and 2016. 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.

24

CONDENSED CONSOLIDATING BALANCE SHEETS
At March 31, 2017 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
CURRENT ASSETS	 	

 	 	 	

Cash and equivalents	$	1,416	
 	 	$	7,405	
 	 	$	38,604	
 	 	$	—	
 	 	$	47,425	
 	
Accounts receivable, net of allowances	—	
 	 	212,815	
 	 	57,931	
 	 	(18,707	)	 	252,039	
 	
Contract costs and recognized income not yet billed, net of progress payments	—	
 	 	119,255	
 	 	318	
 	 	—	
 	 	119,573	
 	
Inventories, net	—	
 	 	261,089	
 	 	55,838	
 	 	(97	)	 	316,830	
 	
Prepaid and other current assets	8,910	
 	 	18,596	
 	 	12,074	
 	 	126	
 	 	39,706	
 	
Assets of discontinued operations	—	
 	 	—	
 	 	215	
 	 	—	
 	 	215	
 	
Total Current Assets	10,326	
 	 	619,160	
 	 	164,980	
 	 	(18,678	)	 	775,788	
 	
PROPERTY, PLANT AND EQUIPMENT, net	804	
 	 	300,765	
 	 	106,702	
 	 	—	
 	 	408,271	
 	
GOODWILL	—	
 	 	284,875	
 	 	75,210	
 	 	—	
 	 	360,085	
 	
INTANGIBLE ASSETS, net	—	
 	 	145,734	
 	 	64,942	
 	 	—	
 	 	210,676	
 	
INTERCOMPANY RECEIVABLE	580,832	
 	 	768,367	
 	 	338,187	
 	 	(1,687,386	)	 	—	
 	
EQUITY INVESTMENTS IN SUBSIDIARIES	827,369	
 	 	860,369	
 	 	1,926,769	
 	 	(3,614,507	)	 	—	
 	
OTHER ASSETS	6,502	
 	 	5,102	
 	 	6,506	
 	 	21	
 	 	18,131	
 	
ASSETS OF DISCONTINUED OPERATIONS	—	
 	 	—	
 	 	1,934	
 	 	—	
 	 	1,934	
 	
Total Assets	$	1,425,833	
 	 	$	2,984,372	
 	 	$	2,685,230	
 	 	$	(5,320,550	)	 	$	1,774,885	
 	
CURRENT LIABILITIES	 	

 	 	 	

Notes payable and current portion of long-term debt	$	2,981	
 	 	$	2,333	
 	 	$	11,443	
 	 	$	—	
 	 	$	16,757	
 	
Accounts payable and accrued liabilities	18,416	
 	 	183,823	
 	 	66,942	
 	 	(12,015	)	 	257,166	
 	
Liabilities of discontinued operations	—	
 	 	—	
 	 	1,324	
 	 	—	
 	 	1,324	
 	
Total Current Liabilities	21,397	
 	 	186,156	
 	 	79,709	
 	 	(12,015	)	 	275,247	

LONG-TERM DEBT, net	934,876	
 	 	17,755	
 	 	40,945	
 	 	—	
 	 	993,576	
 	
INTERCOMPANY PAYABLES	75,291	
 	 	811,960	
 	 	771,288	
 	 	(1,658,539	)	 	—	
 	
OTHER LIABILITIES	16,344	
 	 	102,050	
 	 	13,860	
 	 	(6,058	)	 	126,196	
 	
LIABILITIES OF DISCONTINUED OPERATIONS	—	
 	 	—	
 	 	1,941	
 	 	—	
 	 	1,941	
 	
Total Liabilities	1,047,908	
 	 	1,117,921	
 	 	907,743	
 	 	(1,676,612	)	 	1,396,960	
 	
SHAREHOLDERS’ EQUITY	377,925	
 	 	1,866,451	
 	 	1,777,487	
 	 	(3,643,938	)	 	377,925	
 	
Total Liabilities and Shareholders’ Equity	$	1,425,833	
 	 	$	2,984,372	
 	 	$	2,685,230	
 	 	$	(5,320,550	)	 	$	1,774,885	

25

CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2016 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent
Company	 	Guarantor
Companies	 	Non-Guarantor
Companies	 	Elimination	 	Consolidation	
CURRENT ASSETS	 	

 	 	 	

Cash and equivalents	$	6,517	
 	 	$	27,692	
 	 	$	38,344	
 	 	$	—	
 	 	$	72,553	
 	
Accounts receivable, net of allowances	—	
 	 	175,583	
 	 	63,810	
 	 	(5,642	)	 	233,751	
 	
Contract costs and recognized income not yet billed, net of progress payments	—	
 	 	126,961	
 	 	—	
 	 	—	
 	 	126,961	
 	
Inventories, net	—	
 	 	239,325	
 	 	69,544	
 	 	—	
 	 	308,869	
 	
Prepaid and other current assets	39,763	
 	 	31,191	
 	 	16,447	
 	 	(48,796	)	 	38,605	
 	
Assets of discontinued operations	—	
 	 	—	
 	 	219	
 	 	—	
 	 	219	
 	
Total Current Assets	46,280	
 	 	600,752	
 	 	188,364	
 	 	(54,438	)	 	780,958	

PROPERTY, PLANT AND EQUIPMENT, net	956	
 	 	303,735	
 	 	100,713	
 	 	—	
 	 	405,404	
 	
GOODWILL	—	
 	 	284,875	
 	 	76,310	
 	 	—	
 	 	361,185	
 	
INTANGIBLE ASSETS, net	—	
 	 	147,960	
 	 	62,639	
 	 	—	
 	 	210,599	
 	
INTERCOMPANY RECEIVABLE	539,938	
 	 	713,118	
 	 	307,081	
 	 	(1,560,137	)	 	—	
 	
EQUITY INVESTMENTS IN SUBSIDIARIES	824,887	
 	 	866,595	
 	 	1,916,622	
 	 	(3,608,104	)	 	—	
 	
OTHER ASSETS	6,529	
 	 	12,151	
 	 	12,675	
 	 	(9,373	)	 	21,982	
 	
ASSETS OF DISCONTINUED OPERATIONS	—	
 	 	—	
 	 	1,968	
 	 	—	
 	 	1,968	
 	
Total Assets	$	1,418,590	
 	 	$	2,929,186	
 	 	$	2,666,372	
 	 	$	(5,232,052	)	 	$	1,782,096	
 	
CURRENT LIABILITIES	 	

 	 	 	

Notes payable and current portion of long-term debt	$	3,153	
 	 	$	2,307	
 	 	$	17,184	
 	 	$	—	
 	 	$	22,644	
 	
Accounts payable and accrued liabilities	65,751	
 	 	202,657	
 	 	65,213	
 	 	(39,686	)	 	293,935	
 	
Liabilities of discontinued operations	—	
 	 	—	
 	 	1,684	
 	 	—	
 	 	1,684	
 	
Total Current Liabilities	68,904	
 	 	204,964	
 	 	84,081	
 	 	(39,686	)	 	318,263	
 	
LONG-TERM DEBT, net	848,589	
 	 	18,872	
 	 	46,453	
 	 	—	
 	 	913,914	
 	
INTERCOMPANY PAYABLES	57,648	
 	 	737,980	
 	 	735,053	
 	 	(1,530,681	)	 	—	
 	
OTHER LIABILITIES	32,502	
 	 	114,491	
 	 	26,574	
 	 	(36,301	)	 	137,266	
 	
LIABILITIES OF DISCONTINUED OPERATIONS	—	
 	 	—	
 	 	1,706	
 	 	—	
 	 	1,706	
 	
Total Liabilities	1,007,643	
 	 	1,076,307	
 	 	893,867	
 	 	(1,606,668	)	 	1,371,149	
 	
SHAREHOLDERS’ EQUITY	410,947	
 	 	1,852,879	
 	 	1,772,505	
 	 	(3,625,384	)	 	410,947	
 	
Total Liabilities and Shareholders’ Equity	$	1,418,590	
 	 	$	2,929,186	
 	 	$	2,666,372	
 	 	$	(5,232,052	)	 	$	1,782,096	

26

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	$	—	
 	 	$	396,637	
 	 	$	108,571	
 	 	$	(9,444	)	 	$	495,764	
 	
Cost of goods and services	—	
 	 	304,706	
 	 	85,224	
 	 	(9,715	)	 	380,215	
 	
Gross profit	—	
 	 	91,931	
 	 	23,347	
 	 	271	
 	 	115,549	
 	
Selling, general and administrative expenses	7,077	
 	 	66,234	
 	 	19,271	
 	 	(93	)	 	92,489	
 	
Income (loss) from operations	(7,077	)	 	25,697	
 	 	4,076	
 	 	364	
 	 	23,060	
 	
Other income (expense)	 	

 	 	 	

Interest income (expense), net	(3,322	)	 	(8,233	)	 	(1,067	)	 	—	
 	 	(12,622	)	
Other, net	68	
 	 	908	
 	 	(811	)	 	(364	)	 	(199	)	
Total other income (expense)	(3,254	)	 	(7,325	)	 	(1,878	)	 	(364	)	 	(12,821	)	
Income (loss) before taxes	(10,331	)	 	18,372	
 	 	2,198	
 	 	—	
 	 	10,239	
 	
Provision (benefit) for income taxes	(1,534	)	 	5,428	
 	 	1,300	
 	 	—	
 	 	5,194	
 	
Income (loss) before equity in net income of subsidiaries	(8,797	)	 	12,944	
 	 	898	
 	 	—	
 	 	5,045	
 	
Equity in net income (loss) of subsidiaries	13,842	
 	 	922	
 	 	12,944	
 	 	(27,708	)	 	—	
 	
Net income (loss)	$	5,045	
 	 	$	13,866	
 	 	$	13,842	
 	 	$	(27,708	)	 	$	5,045	

Net Income (loss)	$	5,045	
 	 	$	13,866	
 	 	$	13,842	
 	 	$	(27,708	)	 	$	5,045	
 	
Other comprehensive income (loss), net of taxes	7,933	
 	 	(3,590	)	 	(8,280	)	 	11,870	
 	 	7,933	
 	
Comprehensive income (loss)	$	12,978	
 	 	$	10,276	
 	 	$	5,562	
 	 	$	(15,838	)	 	$	12,978	

27

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2016

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
($ in thousands)	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
Revenue	$	—	
 	 	$	406,989	
 	 	$	100,614	
 	 	$	(7,496	)	 	$	500,107	
 	
Cost of goods and services	—	
 	 	313,203	
 	 	80,493	
 	 	(7,746	)	 	385,950	
 	
Gross profit	—	
 	 	93,786	
 	 	20,121	
 	 	250	
 	 	114,157	
 	
Selling, general and administrative expenses	6,530	
 	 	66,197	
 	 	18,952	
 	 	(93	)	 	91,586	
 	
Income (loss) from operations	(6,530	)	 	27,589	
 	 	1,169	
 	 	343	
 	 	22,571	
 	
Other income (expense)	 	

 	 	 	

Interest income (expense), net	(2,696	)	 	(7,752	)	 	(1,900	)	 	—	
 	 	(12,348	)	
Other, net	18	
 	 	904	
 	 	(964	)	 	(343	)	 	(385	)	
Total other income (expense)	(2,678	)	 	(6,848	)	 	(2,864	)	 	(343	)	 	(12,733	)	
Income (loss) before taxes	(9,208	)	 	20,741	
 	 	(1,695	)	 	—	
 	 	9,838	
 	
Provision (benefit) for income taxes	(3,650	)	 	8,012	
 	 	(619	)	 	—	
 	 	3,743	
 	
Income (loss) before equity in net income of subsidiaries	(5,558	)	 	12,729	
 	 	(1,076	)	 	—	
 	 	6,095	
 	
Equity in net income (loss) of subsidiaries	11,653	
 	 	(1,108	)	 	12,730	
 	 	(23,275	)	 	—	
 	
Net income (loss)	$	6,095	
 	 	$	11,621	
 	 	$	11,654	
 	 	$	(23,275	)	 	$	6,095	

Net Income (loss)	$	6,095	
 	 	$	11,621	
 	 	$	11,654	
 	 	$	(23,275	)	 	$	6,095	
 	
Other comprehensive income (loss), net of taxes	12,420	
 	 	2,062	
 	 	10,358	
 	 	(12,420	)	 	12,420	
 	
Comprehensive income (loss)	$	18,515	
 	 	$	13,683	
 	 	$	22,012	
 	 	$	(35,695	)	 	$	18,515	

28

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

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
Revenue	$	—	
 	 	$	756,498	
 	 	$	223,420	
 	 	$	(17,054	)	 	$	962,864	
 	
Cost of goods and services	—	
 	 	576,438	
 	 	172,324	
 	 	(17,575	)	 	731,187	
 	
Gross profit	—	
 	 	180,060	
 	 	51,096	
 	 	521	
 	 	231,677	
 	
Selling, general and administrative expenses	13,721	
 	 	129,231	
 	 	39,465	
 	 	(185	)	 	182,232	
 	
Income (loss) from operations	(13,721	)	 	50,829	
 	 	11,631	
 	 	706	
 	 	49,445	
 	
Other income (expense)	 	

 	 	 	

Interest income (expense), net	(7,349	)	 	(16,291	)	 	(2,349	)	 	—	
 	 	(25,989	)	
Other, net	161	
 	 	1,559	
 	 	(1,255	)	 	(706	)	 	(241	)	
Total other income (expense)	(7,188	)	 	(14,732	)	 	(3,604	)	 	(706	)	 	(26,230	)	
Income (loss) before taxes	(20,909	)	 	36,097	
 	 	8,027	
 	 	—	
 	 	23,215	
 	
Provision (benefit) for income taxes	(10,563	)	 	13,096	
 	 	3,373	
 	 	—	
 	 	5,906	
 	
Income (loss) before equity in net income of subsidiaries	(10,346	)	 	23,001	
 	 	4,654	
 	 	—	
 	 	17,309	
 	
Equity in net income (loss) of subsidiaries	27,655	
 	 	4,720	
 	 	23,001	
 	 	(55,376	)	 	—	
 	
Net income (loss)	$	17,309	
 	 	$	27,721	
 	 	$	27,655	
 	 	$	(55,376	)	 	$	17,309	

Net Income (loss)	$	17,309	
 	 	$	27,721	
 	 	$	27,655	
 	 	$	(55,376	)	 	$	17,309	
 	
Other comprehensive income (loss), net of taxes	(3,379	)	 	(7,907	)	 	5,354	
 	 	2,553	
 	 	(3,379	)	
Comprehensive income (loss)	$	13,930	
 	 	$	19,814	
 	 	$	33,009	
 	 	$	(52,823	)	 	$	13,930	

29

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2016

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
Revenue	$	—	
 	 	$	796,249	
 	 	$	213,346	
 	 	$	(15,339	)	 	$	994,256	
 	
Cost of goods and services	—	
 	 	611,587	
 	 	168,389	
 	 	(15,982	)	 	763,994	
 	
Gross profit	—	
 	 	184,662	
 	 	44,957	
 	 	643	
 	 	230,262	
 	
Selling, general and administrative expenses	12,928	
 	 	132,144	
 	 	37,998	
 	 	(185	)	 	182,885	
 	
Income (loss) from operations	(12,928	)	 	52,518	
 	 	6,959	
 	 	828	
 	 	47,377	
 	
Other income (expense)	 	

 	 	 	

Interest income (expense), net	(4,952	)	 	(15,541	)	 	(3,867	)	 	—	
 	 	(24,360	)	
Other, net	211	
 	 	1,920	
 	 	(1,133	)	 	(828	)	 	170	
 	
Total other income (expense)	(4,741	)	 	(13,621	)	 	(5,000	)	 	(828	)	 	(24,190	)	
Income (loss) before taxes	(17,669	)	 	38,897	
 	 	1,959	
 	 	—	
 	 	23,187	
 	
Provision (benefit) for income taxes	(11,639	)	 	16,829	
 	 	1,114	
 	 	—	
 	 	6,304	
 	
Income (loss) before equity in net income of subsidiaries	(6,030	)	 	22,068	
 	 	845	
 	 	—	
 	 	16,883	
 	
Equity in net income (loss) of subsidiaries	22,913	
 	 	821	
 	 	22,068	
 	 	(45,802	)	 	—	
 	
Net income (loss)	$	16,883	
 	 	$	22,889	
 	 	$	22,913	
 	 	$	(45,802	)	 	$	16,883	

Net Income (loss)	$	16,883	
 	 	$	22,889	
 	 	$	22,913	
 	 	$	(45,802	)	 	$	16,883	
 	
Other comprehensive income (loss), net of taxes	8,442	
 	 	2,201	
 	 	6,241	
 	 	(8,442	)	 	8,442	
 	
Comprehensive income (loss)	$	25,325	
 	 	$	25,090	
 	 	$	29,154	
 	 	$	(54,244	)	 	$	25,325	

30

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2017

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	

 	 	 	

Net income (loss)	$	17,309	
 	 	$	27,721	
 	 	$	27,655	
 	 	$	(55,376	)	 	$	17,309	
 	
Net cash provided by (used in) operating activities:	(54,311	)	 	24,399	
 	 	38,683	
 	 	—	
 	 	8,771	
 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	

 	 	 	

Acquisition of property, plant and equipment	(11	)	 	(30,030	)	 	(12,472	)	 	—	
 	 	(42,513	)	
Acquired businesses, net of cash acquired	—	
 	 	—	
 	 	(6,051	)	 	—	
 	 	(6,051	)	
Proceeds from sale of assets	—	
 	 	112	
 	 	28	
 	 	—	
 	 	140	
 	
Net cash provided by investing activities	(11	)	 	(29,918	)	 	(18,495	)	 	—	
 	 	(48,424	)	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	

 	 	 	

Purchase of shares for treasury	(15,759	)	 	—	
 	 	—	
 	 	—	
 	 	(15,759	)	
Proceeds from long-term debt	185,213	
 	 	—	
 	 	10,442	
 	 	—	
 	 	195,655	
 	
Payments of long-term debt	(101,577	)	 	(1,112	)	 	(20,575	)	 	—	
 	 	(123,264	)	
Change in short-term borrowings	—	
 	 	—	
 	 	(488	)	 	—	
 	 	(488	)	
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	21,026	
 	 	(13,656	)	 	(7,556	)	 	—	
 	 	(186	)	
Net cash provided by (used in) financing activities	49,221	
 	 	(14,768	)	 	(18,177	)	 	—	
 	 	16,276	
 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	

 	 	 	

Net cash used in discontinued operations	—	
 	 	—	
 	 	(738	)	 	—	
 	 	(738	)	
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	

31

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2016

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Parent Company	 	Guarantor Companies	 	Non-Guarantor Companies	 	Elimination	 	Consolidation	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	

 	 	 	

Net income (loss)	$	16,883	
 	 	$	22,889	
 	 	$	22,913	
 	 	$	(45,802	)	 	$	16,883	
 	
Net cash provided by (used in) operating activities:	(55,560	)	 	51,805	
 	 	539	
 	 	—	
 	 	(3,216	)	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	

 	 	 	

Acquisition of property, plant and equipment	(186	)	 	(37,970	)	 	(7,796	)	 	—	
 	 	(45,952	)	
Acquired businesses, net of cash acquired	—	
 	 	—	
 	 	(1,744	)	 	—	
 	 	(1,744	)	
Investment in unconsolidated joint venture	—	
 	 	(2,726	)	 	—	
 	 	—	
 	 	(2,726	)	
Investment sales	715	
 	 	—	
 	 	—	
 	 	—	
 	 	715	
 	
Proceeds from sale of assets	—	
 	 	764	
 	 	104	
 	 	—	
 	 	868	
 	
Net cash provided by (used in) investing activities	529	
 	 	(39,932	)	 	(9,436	)	 	—	
 	 	(48,839	)	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	

 	 	 	

Purchase of shares for treasury	(33,640	)	 	—	
 	 	—	
 	 	—	
 	 	(33,640	)	
Proceeds from long-term debt	115,000	
 	 	2,361	
 	 	22,243	
 	 	—	
 	 	139,604	
 	
Payments of long-term debt	(20,601	)	 	(1,064	)	 	(24,658	)	 	—	
 	 	(46,323	)	
Change in short-term borrowings	—	
 	 	—	
 	 	(191	)	 	—	
 	 	(191	)	
Financing costs	(1,012	)	 	—	
 	 	(108	)	 	—	
 	 	(1,120	)	
Dividends paid	(4,508	)	 	—	
 	 	—	
 	 	—	
 	 	(4,508	)	
Other, net	307	
 	 	(7,248	)	 	7,248	
 	 	—	
 	 	307	
 	
Net cash provided by (used in) financing activities	55,546	
 	 	(5,951	)	 	4,534	
 	 	—	
 	 	54,129	
 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	

 	 	 	

Net cash used in discontinued operations	—	
 	 	—	
 	 	(578	)	 	—	
 	 	(578	)	
Effect of exchange rate changes on cash and equivalents	—	
 	 	—	
 	 	785	
 	 	—	
 	 	785	
 	
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	515	
 	 	5,922	
 	 	(4,156	)	 	—	
 	 	2,281	
 	
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	2,440	
 	 	10,671	
 	 	38,890	
 	 	—	
 	 	52,001	
 	
CASH AND EQUIVALENTS AT END OF PERIOD	$	2,955	
 	 	$	16,593	
 	 	$	34,734	
 	 	$	—	
 	 	$	54,282	

32

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

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

-	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.	

•	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.	

•	Clopay Plastic Products Company, Inc. ("PPC"), incorporated in 1934, 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.	
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. During this period, Griffon has grown revenue and earnings through organic growth, cost containment and acquisitions, while returning capital to its shareholders through dividends and stock buybacks.

On September 30, 2010, Griffon purchased AMES for $542,000. Subsequently, Griffon acquired four 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") and the Hills Home Living business of Hills Limited, known in Australia for its clothesline, laundry and garden products ("Hills").

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

In January 2013, AMES announced its intention to close certain U.S. manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. These actions, which were completed at the end of the first quarter of 2015, improved manufacturing and distribution efficiencies, allowed for in-sourcing of certain production previously performed by third party suppliers, and improved material flow and absorption of fixed costs. Savings began in the second quarter of 2015

33

Table of Contents

and have exceeded $10,000 on an annual basis.

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 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. The Northcote and Cyclone acquisitions complement Southern Patio and added to AMES' existing lawn and garden operations in Australia.

On December 30, 2016, AMES Australia acquired Home Living ("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. Hills is expected to generate approximately AUD 10,000 of revenue in the first twelve months after acquisition.

From August 2011 through March 31, 2017, Griffon repurchased 20,429,298 shares of its common stock, for a total of $261,621 or $12.81 per share. This included the repurchase of 15,984,854 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 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, 2017, $49,437 in the aggregate remains under the August 3, 2016 Board authorization.

From October 2008 through November 11, 2016, 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 quarter ended December 31, 2016, Griffon's ESOP purchased 548,912 shares of common stock for a total of $9,213 or $16.78 per share. There were no share purchases during the quarter ended March 31, 2017. As of March 31, 2017, the remaining amount available under the existing ESOP borrowing line that can be used to purchase additional shares for the ESOP was $1,695. As of March 31, 2017, the ESOP holds 5,805,237 allocated and unallocated shares, or 12% of Griffon's outstanding shares, with a related loan balance of $41,945, net of issuance costs.

On November 17, 2011, the Company began declaring quarterly dividends. During the first half of 2017, and during 2016, 2015 and 2014, the Company declared and paid dividends per share of $0.12, $0.20, $0.16 and $0.12, respectively, for total dividends of $27,862 paid during this period.

On May 4, 2017 the Board of Directors declared a quarterly cash dividend of $0.06 per share, payable on June 22, 2017 to shareholders of record as of the close of business on May 26, 2017.

During 2014, Griffon issued $600,000 of 5.25% Senior Notes due 2022 the proceeds of which were used to redeem $550,000 of 7.125% senior notes due 2018. On May 18, 2016, the Company completed an add-on offering of $125,000 principal amount of 5.25% Senior Notes due 2022; as of that date, outstanding Senior Notes due 2022 totaled $725,000. The net proceeds of the add-on offering were used to pay down outstanding Revolving Credit Facility borrowings.
 
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 includes improvements to its existing one million square foot building, as well as adding 250,000 square feet and new manufacturing equipment. The project is substantially complete.

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

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

During April 2016, PPC announced a breathable film investment which will expand breathable film capacity in North America, Europe and Brazil, increase PPC's extrusion and print capacity, and enhance PPC's innovation and technology capabilities. Griffon expects the project to be completed in fiscal 2018. This investment will allow PPC to maintain and extend its technological advantage and allow it to differentiate itself from competitors, while meeting increasing customer demand for lighter, softer, more cost effective and more environmentally friendly products.

34

Table of Contents

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.

35

Table of Contents

OVERVIEW
 
Revenue for the quarter ended March 31, 2017 was $495,764 compared to $500,107 in the prior year quarter, a decrease of 1%, primarily from Telephonics and unfavorable mix at PPC, partially offset by continued growth at HBP. Net income was $5,045 or $0.12 per share, compared to $6,095 or $0.14 per share, in the prior year quarter. The current year results included net tax provisions of $1,334 or $0.03 per share primarily related to discrete tax provisions and the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire; tax items in the prior year quarter were immaterial.

Excluding these items from the respective quarterly results, Net income would have been $6,379 or $0.15 per share in the current quarter compared to $6,138 or $0.14 per share in the prior year quarter; the impact of foreign currency was not material to the quarter.

Revenue for the six months ended March 31, 2017 was $962,864 compared to $994,256 in the prior year period, a decrease of 3%, primarily from lower revenue at Telephonics and unfavorable mix at PPC, partially offset by continued growth at HBP. Net income was $17,309 or $0.40 per share, compared to a net income of $16,883 or $0.38 per share, in the prior year period. The current and prior year results included net tax benefits of $2,929 or $0.07 per share and $2,548, or $0.06 per share, respectively, primarily related to discrete tax benefits for the adoption of recent Financial Accounting Standards Board ("FASB") guidance which requires the company to recognize excess tax benefits from the vesting of equity awards within income tax expense, partially offset by discrete tax provisions and the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire.

Excluding these tax items from the respective periods, Net income would have been $14,380 or $0.34 per share in the six months ended March 31, 2017 compared to $14,335 or $0.32 per share in the six months ended March 31, 2016; the impact of foreign currency was not material to the period.

Griffon evaluates performance based on Earnings per share and Net income excluding discrete and certain other tax items, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Net income to Adjusted net income and Earnings per share to Adjusted earnings per share:
 
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME
TO ADJUSTED NET INCOME
(Unaudited) 

 	For the Three Months Ended March 31,	
 	For the Six Months Ended March 31,	
 	2017	
 	2016	
 	2017	
 	2016	
Net income	$	5,045	
 	 	$	6,095	
 	 	$	17,309	
 	 	$	16,883	
 	
Adjusting items, net of tax:	 	

 	 	 	
 	
Discrete and certain other tax provisions (benefits)	1,334	
 	 	43	
 	 	(2,929	)	 	(2,548	)	
Adjusted net income	$	6,379	
 	 	$	6,138	
 	 	$	14,380	
 	 	$	14,335	
 	
Diluted income per common share	$	0.12	
 	 	$	0.14	
 	 	$	0.40	
 	 	$	0.38	
 	
Adjusting items, net of tax:	 	

 	
Discrete and certain other tax provisions (benefits)	0.03	
 	 	—	
 	 	(0.07	)	 	(0.06	)	
Adjusted earnings per common share	$	0.15	
 	 	$	0.14	
 	 	$	0.34	
 	 	$	0.32	
 	
Weighted-average shares outstanding (in thousands)	43,229	
 	 	43,891	
 	 	42,776	
 	 	44,727	

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.

36

Table of Contents

RESULTS OF OPERATIONS
 
Three and six months ended March 31, 2017 and 2016 
 
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 to Income before taxes:

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Segment operating profit:	 	

 	 	
Home & Building Products	$	18,313	
 	 	$	17,810	
 	 	$	40,953	
 	 	$	38,969	
 	
Telephonics	9,016	
 	 	7,875	
 	 	14,407	
 	 	15,688	
 	
PPC	5,272	
 	 	5,880	
 	 	13,303	
 	 	11,897	
 	
Total segment operating profit	32,601	
 	 	31,565	
 	 	68,663	
 	 	66,554	
 	
Net interest expense	(12,622	)	 	(12,348	)	 	(25,989	)	 	(24,360	)	
Unallocated amounts	(9,740	)	 	(9,379	)	 	(19,459	)	 	(19,007	)	
Income before taxes	$	10,239	
 	 	$	9,838	
 	 	$	23,215	
 	 	$	23,187	

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

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Segment adjusted EBITDA:	 	

 	 	 	
 	
Home & Building Products	$	27,565	
 	 	$	26,338	
 	 	$	59,372	
 	 	$	56,167	
 	
Telephonics	11,787	
 	 	10,444	
 	 	19,895	
 	 	20,788	
 	
PPC	11,904	
 	 	11,781	
 	 	26,341	
 	 	23,566	
 	
Total Segment adjusted EBITDA	51,256	
 	 	48,563	
 	 	105,608	
 	 	100,521	
 	
Net interest expense	(12,622	)	 	(12,348	)	 	(25,989	)	 	(24,360	)	
Segment depreciation and amortization	(18,655	)	 	(16,998	)	 	(36,945	)	 	(33,967	)	
Unallocated amounts	(9,740	)	 	(9,379	)	 	(19,459	)	 	(19,007	)	
Income before taxes	$	10,239	
 	 	$	9,838	
 	 	$	23,215	
 	 	$	23,187	

37

Table of Contents

Home & Building Products

 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Revenue:	 	

 	 	 	

 	 	 	

AMES	$	162,907	
 	 	 	
 	 	$	165,847	
 	 	 	
 	 	$	283,631	
 	 	 	
 	 	$	284,137	

CBP	122,628	
 	 	 	
 	 	113,387	
 	 	 	
 	 	266,088	
 	 	 	
 	 	256,295	

Home & Building Products	$	285,535	
 	 	 	
 	 	$	279,234	
 	 	 	
 	 	$	549,719	
 	 	 	
 	 	$	540,432	

Segment operating profit	$	18,313	
 	 	6.4	%	 	$	17,810	
 	 	6.4	%	 	$	40,953	
 	 	7.4	%	 	$	38,969	
 	 	7.2	%	
Depreciation and amortization	9,252	
 	 	 	
 	 	8,528	
 	 	 	
 	 	18,419	
 	 	 	
 	 	17,198	

Segment adjusted EBITDA	$	27,565	
 	 	9.7	%	 	$	26,338	
 	 	9.4	%	 	$	59,372	
 	 	10.8	%	 	$	56,167	
 	 	10.4	%	

For the quarter ended March 31, 2017, revenue increased $6,301 or 2%, compared to the prior year quarter primarily driven by increased volume and pricing at CBP, increased revenue from the AMES market expansion in Australia, as well as from the Hills acquisition, partially offset by decreased pots and planters, snow tool and wheelbarrow sales.
For the quarter ended March 31, 2017, Segment operating profit increased 3% to $18,313 compared to $17,810 in the prior year quarter, driven by improved margins from market expansion at AMES Australia, contribution from the Hills acquisition and benefit of increased CBP revenue, partially offset by increased material costs at CBP. Segment depreciation and amortization increased $724 from the prior year quarter.

For the six months ended March 31, 2017, revenue increased $9,287 or 2%, compared to the prior year period, driven primarily by improved volume and pricing at CBP, the Australian market expansion, acquisition of Hills and increased lawn tool sales, partially offset by decreased pots and planter sales.

For the six months ended March 31, 2017, Segment operating profit increased 5% to $40,953 compared to $38,969 in the prior year period, driven by the Australian market expansion and operational efficiency improvements at AMES U.S., partially offset by increased material costs at CBP. Segment depreciation and amortization increased $1,221 from the prior year period.

For the quarter and six month period ended March 31, 2017, foreign currency did not have a material impact in comparison to revenue and EBITDA.

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. Hills is expected to generate approximately AUD 10,000 of revenue in the first twelve months after acquisition.
  
Telephonics 

 	For the Three Months Ended March 31,	 	For the Six Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
Revenue	$	98,272	
 	 	 	
 	 	$	105,874	
 	 	 	
 	 	$	186,365	
 	 	 	
 	 	$	214,911	
 	 	 	
Segment operating profit	$	9,016	
 	 	9.2	%	 	$	7,875	
 	 	7.4	%	 	$	14,407	
 	 	7.7	%	 	$	15,688	
 	 	7.3%	
Depreciation and amortization	2,771	
 	 	 	
 	 	2,569	
 	 	 	
 	 	5,488	
 	 	 	
 	 	5,100	
 	 	 	
Segment adjusted EBITDA	$	11,787	
 	 	12.0	%	 	$	10,444	
 	 	9.9	%	 	$	19,895	
 	 	10.7	%	 	$	20,788	
 	 	9.7%	
 
For the quarter ended March 31, 2017, revenue decreased $7,602 or 7% compared to the prior year quarter, due to decreased mobile ground surveillance radar systems sales.

For the quarter ended March 31, 2017, Segment operating profit increased $1,141 or 14%, and operating profit margin increased 180 basis points compared to the prior year quarter, driven by improved program mix and operational efficiencies.

38

Table of Contents

For the six months ended March 31, 2017, revenue decreased $28,546 or 13%, compared to the prior year period, due to decreased multi-mode radar and mobile ground surveillance radar systems revenue.

For the six months ended March 31, 2017, Segment operating profit decreased $1,281 or 8%, and operating profit margin increased 40 basis points compared to the prior year period. The timing of research and development initiatives and decreased revenue were partially offset by operational efficiencies Benefits from operational efficiencies supported the improved operating profit margin.

During the quarter ended March 31, 2017, Telephonics was awarded several new contracts and received incremental funding on existing contracts approximating $153,000. Contract backlog was $387,000 at March 31, 2017, with 73% expected to be fulfilled in the next 12 months. Backlog was $420,000 at September 30, 2016. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of the U.S. government agencies. The decrease in backlog was primarily due to the timing of various international contract awards associated with radar and surveillance opportunities.

PPC

 	For the Three Months Ended March 31,	
 	For the Six Months Ended March 31,	
 	2017	
 	2016	
 	2017	
 	2016	
Revenue	$	111,957	

 	
 	$	114,999	

 	
 	$	226,780	

 	
 	$	238,913	

 	
Segment operating profit	$	5,272	
 	
 	4.7	%	
 	$	5,880	
 	
 	5.1	%	
 	$	13,303	
 	
 	5.9	%	
 	$	11,897	
 	
 	5.0	%	
Depreciation and amortization	6,632	

 	
 	5,901	

 	
 	13,038	

 	
 	11,669	

 	
Segment adjusted EBITDA	$	11,904	
 	
 	10.6	%	
 	$	11,781	
 	
 	10.2	%	
 	$	26,341	
 	
 	11.6	%	
 	$	23,566	
 	
 	9.9	%	
 
For the quarter ended March 31, 2017, revenue decreased $3,042, or 3%, compared to the prior year quarter, primarily due to unfavorable product mix of 6%, partially offset by increased volume of 1% driven by North America and Brazil and reduced volume in Europe. Foreign currency had a 2% favorable impact on the current quarter revenue. Resin pricing did not have a material impact on revenue for the quarter; PPC adjusts selling prices based on underlying resin costs on a delayed basis.

For the quarter ended March 31, 2017, Segment operating profit decreased $608 or 10% compared to the prior year quarter primarily due to increased segment depreciation resulting from investment in worldwide breathable film capacity, unfavorable product mix, partially offset by operational performance improvements in Europe. Resign and foreign currency did not have a material impact on Segment operating profit for the quarter.

For the six months ended March 31, 2017, revenue decreased $12,133, or 5%, compared to the prior year period, due to unfavorable product mix of 5%, reduced volume of 2% driven by Europe, and partially offset by Brazil. The current period included a 2% favorable foreign currency impact. Resin pricing did not have a material impact on revenue in the period.

For the six months ended March 31, 2017, Segment operating profit increased $1,406 or 12% compared to the prior year period, primarily due to operational performance improvements in Europe, partially offset by reduced volume, unfavorable mix and a $2,400 change in the impact of resin pricing pass through. Foreign currency had no material impact on Segment operating profit for the year. Segment depreciation increased $1,369 from the prior year period.

Unallocated
 
For the quarter ended March 31, 2017, unallocated amounts totaled $9,740 compared to $9,379 in the prior year; for the six months ended March 31, 2017, unallocated amounts totaled $19,459 compared to $19,007 in the prior year. The increase in the current quarter and six months compared to the respective prior year periods primarily relates to compensation and incentive expenses.

Segment Depreciation and Amortization
 
Segment depreciation and amortization increased $1,657 and $2,978 for the quarter and six months ended March 31, 2017 compared to the comparable prior year periods, primarily due to depreciation for new assets placed in service.

39

Table of Contents

Other Income (Expense)

For the quarters ended March 31, 2017 and 2016, Other income (expense) included $(314) and ($322), 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 $68 and $10, respectively, of net investment income.

For the six months ended March 31, 2017 and 2016, Other income (expense) included $(268) and $109, 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 $155 and $202, respectively, of net investment income.

Provision for income taxes
 
In both the quarter and six months ended March 31, 2017 and 2016, the Company reported pretax income, and recognized a tax provision of 50.7% and 25.4% for the quarter and six months ended March 31, 2017, respectively, compared to 38.0% and 27.2%, respectively, in the comparable prior year periods. 

The quarter and six months ended March 31, 2017 tax rates included net provisions of $1,334 and net benefits of $2,929, respectively, compared to a net provision of $43 and net benefits of $2,548, respectively, in the comparable prior year periods. The net provision for the quarter ended March 31, 2017 is primarily related to discrete tax provisions and the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire. The net benefits for the six-month periods ended March 31, 2017 and 2016, primarily related to discrete tax benefits for the adoption of recent FASB guidance, which requires the company to recognize excess tax benefits from the vesting of equity awards within income tax expense, partially offset by a current year tax provision for the impact of a valuation allowance taken on German net operating loss carryforwards that do not expire. Excluding these tax items, the effective tax rates for the quarter and six months ended March 31, 2017 were 37.7% and 38.1%, respectively, compared to 37.6% and 38.2%, respectively, in the comparable prior year periods.

Stock based compensation
 
For the quarters ended March 31, 2017 and 2016, stock based compensation expense totaled $2,343 and $2,489, respectively. For the six months ended March 31, 2017 and 2016, such expense totaled $4,795 and $5,555, respectively.
 
Comprehensive income (loss)
 
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 quarter ended March 31, 2016, total other comprehensive income, net of taxes, of $12,420, included a $13,683 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 $386 benefit from pension amortization of actuarial losses, and a $1,649 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, and a $1,088 benefit from pension amortization of actuarial losses and $603 gain on cash flow hedges.

For the six months ended March 31, 2016, total other comprehensive income, net of taxes, of $8,442 included a $10,334 gain from foreign currency translation adjustments primarily due to the strengthening of the Australian, Brazilian and Canadian currencies, partially offset by the weakening of the Euro, all in comparison to the U.S. Dollar, and a $772 benefit from pension amortization of actuarial losses and $2,664 loss on cash flow hedges.

Discontinued operations – Installation Services

There was no revenue or income from the Installation Services’ business for the quarters and six months ended March 31, 2017 and 2016.

40

Table of Contents

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)	2017	 	2016	
Net Cash Flows Provided by (Used In):	 	

Operating activities	$	8,771	
 	 	$	(3,216	)	
Investing activities	(48,424	)	 	(48,839	)	
Financing activities	16,276	
 	 	54,129	

Cash provided by continuing operations for the six months ended March 31, 2017 was $8,771 compared to a use of $3,216 in the prior year period. Current assets net of current liabilities, excluding short-term debt and cash, increased to $469,873 at March 31, 2017 compared to $412,786 at September 30, 2016, primarily due to decreases in accounts payable and accrued expenses, and increases in inventory and accounts receivable, partially offset by a decrease in contract costs and recognized income not yet billed.

During the six months ended March 31, 2017, Griffon used cash for investing activities of $48,424 compared to $48,839 in the prior year. Capital expenditures for the six months ended March 31, 2017 totaled $42,513, a decrease of $3,439 from the prior year. 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. In December 2015, Telephonics invested an additional $2,726 increasing its equity stake from 26% to 49% in Mahindra Telephonics Integrated Systems, a joint venture with Mahindra Defence Systems, a Mahindra Group Company. This investment is accounted for using the equity method. On February 14, 2016, AMES Australia acquired substantially all of the Intellectual Property assets of Australia-based Nylex Plastics Pty Ltd. for approximately $1,700.

During the six months ended March 31, 2017, cash provided by financing activities totaled $16,276 compared to $54,129 in the prior year. At March 31, 2017, there were $176,000 in outstanding borrowings under the Credit Agreement compared to $122,500 outstanding borrowings at the same date in the prior year. On each of March 20, 2015, July 29, 2015 and August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may 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, 2017, Griffon purchased 129,000 shares of common stock under these programs, for a total of $2,201 or $17.06 per share. There were no repurchases under these programs during the quarter ended March 31, 2017. As of March 31, 2017, $49,437 remains under the August 2016 Board authorization. In addition, during the six months ended March 31, 2017, 582,478 shares, with a market value of $13,558, or $23.28 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. 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, utilizing the Revolving Credit Facility, and $48,858, or 1,954,993 shares of common stock issued from treasury.

During the six months ended March 31, 2017, the Board of Directors approved two quarterly cash dividends of $0.06 per share each. On May 4, 2017 the Board of Directors declared a quarterly cash dividend of $0.06 per share, payable on June 22, 2017 to shareholders of record as of the close of business on May 26, 2017.

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. PPC customers are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. PPC sales satisfy orders that are received in advance of production, in which payment terms are established in advance. With respect to HBP, there have been no material adverse impacts on payment for sales.
 
A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the six months ended March 31, 2017:

41

Table of Contents
 	 	
•	The United States Government and its agencies, through either prime or subcontractor relationships, represented 13% of Griffon’s consolidated revenue and 69% of Telephonics’ revenue.	
 	 	
•	Procter & Gamble Co. represented 12% of Griffon’s consolidated revenue and 49% of PPC revenue.	
 	 	
•	The Home Depot represented 12% of Griffon’s consolidated revenue and 21% 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)	2017	 	2016	
Cash and equivalents	$	47,425	
 	 	$	72,553	
 	
Notes payables and current portion of long-term debt	16,757	
 	 	22,644	
 	
Long-term debt, net of current maturities	993,576	
 	 	913,914	
 	
Debt discount and issuance costs	13,845	
 	 	16,298	
 	
Total debt	1,024,178	
 	 	952,856	
 	
Debt, net of cash and equivalents	$	976,753	
 	 	$	880,303	

On May 18, 2016, in an unregistered offering through a private placement under Rule 144A, Griffon completed the add-on offering of $125,000 principal amount of its 5.25% senior notes due 2022, at 98.76% of par, to Griffon's previously issued $600,000 5.25% senior notes due in 2022, at par, which was completed on February 27, 2014 (collectively the “Senior Notes”). As of March 31, 2017, outstanding Senior Notes due totaled $725,000; interest is payable semi-annually on March 1 and September 1. The net proceeds of the add-on offering were used to pay down outstanding borrowings under Griffon's Revolving Credit Facility (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 July 20, 2016 and June 18, 2014, Griffon exchanged all of the $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 $725,000 on March 31, 2017 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the $125,000 senior notes, Griffon capitalized $3,016 of underwriting fees and other expenses, which will amortize over the term of such notes; Griffon capitalized $10,313 in connection with the previously issued $600,000 senior notes.

On March 22, 2016, Griffon amended the Credit Agreement to increase the credit facility from $250,000 to $350,000,000, extend its maturity from March 13, 2020 to March 22, 2021, and modify certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $50,000,000 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 1.25% for base rate loans and 2.25% 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, 2017, there were $176,000 in outstanding borrowings and standby letters of credit were $16,440 under the Credit Agreement; $157,560 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 Revolving Credit Facility, and $48,858, or 1,954,993 shares of common stock issued from treasury.

42

Table of Contents

In September 2015 and March 2016, Griffon entered into mortgage loans in the amounts of $32,280 and $8,000, respectively. The mortgage loans are secured by four properties occupied by Griffon's subsidiaries. The loans mature in September 2025 and April 2018, respectively, are collateralized by the specific properties financed and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 1.50%. At March 31, 2017, $36,012 was outstanding under the mortgages, net of issuance costs.

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. The availability period for the Line Note runs through August 2017, at which point the outstanding balance under the Line Note will be combined with the Term Loan. The Term Loan and Line Note bear interest at LIBOR plus 2.50%. The Term Loan requires quarterly principal payments of $655 through September 30, 2017 and $569 thereafter, with a balloon payment due at maturity on March 22, 2020. There were no shares purchased in the quarter ended March 31, 2017. During the quarter ended December 31, 2016, Griffon's ESOP purchased 548,912 shares of common stock for a total of $9,213 or $16.78 per share, with proceeds from the Line Note. The remaining amount available under the Line Note is $1,695. As of March 31, 2017, $41,945, net of issuance costs, was outstanding under the Term Loan and Line Note. 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.

In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2022, bears interest at a fixed rate of 5.0%, is secured by a mortgage on the real estate and is guaranteed by Griffon. At March 31, 2017, $5,767 was outstanding, net of issuance costs.

In September 2015, Clopay Europe GmbH (“Clopay Europe”) entered into a EUR 5,000 ($5,368 as of March 31, 2017) revolving credit facility and a EUR 15,000 term loan. The term loan is payable in twelve quarterly installments of EUR 1,250, bears interest at a fixed rate of 2.5% and matures in September 2018. The revolving facility matures in September 2017, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 1.75% per annum (1.75% at March 31, 2017). The revolver and the term loan are both secured by substantially all of the assets of Clopay Europe and its subsidiaries. Griffon guarantees the revolving facility and term loan. The term loan had an outstanding balance of EUR 7,500 ($8,052 at March 31, 2017) and the revolver had no outstanding borrowings at March 31, 2017. Clopay Europe is required to maintain a certain minimum equity to assets ratio and is subject to a maximum debt leverage ratio (defined as the ratio of total debt to EBITDA).
Clopay do Brazil maintains a line of credit of R$7,000 ($2,209 as of March 31, 2017). Interest on borrowings accrues at various fixed rates which averaged about 15.2% at March 31, 2017. At March 31, 2017 there was approximately R$5,485 ($1,731 as of March 31, 2017) borrowed under the line. PPC guarantees the line of credit.
In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 ($11,258 as of March 31, 2017) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (2.45% LIBOR USD and 2.18% Bankers Acceptance Rate CDN as of March 31, 2017). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity.  At March 31, 2017, there were no borrowings under the revolving credit facility.

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 to AUD 33,500. The term loan requires quarterly principal payments of AUD 875 plus interest, with a balloon payment of AUD 24,750 due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.00% per annum (3.85% at March 31, 2017). The term loan had an outstanding balance of AUD 32,625 ($25,004 as of March 31, 2017). The revolving facility matures in November 2017 but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus 2.0% per annum (3.67% at March 31, 2017). At March 31, 2017, there were no borrowings under the revolver. 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.

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, 2017, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

On each of March 20, 2015, July 29, 2015 and August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time,

43

Table of Contents

purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the six months ended March 31, 2017, Griffon purchased 129,000 shares of common stock under these programs, for a total of $2,201 or $17.06 per share. There were no repurchases under these programs during the quarter ended March 31, 2017. From August 2011 through March 31, 2017, Griffon repurchased 20,429,298 shares of its common stock, for a total of $261,621 or $12.81 per share (which repurchases included exhausting the remaining availability under a Board authorized repurchase program in existence prior to 2011). This included the repurchase of 15,984,854 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, 2017, $49,437 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, 2017, it will first negotiate in good faith to sell such shares to the Company.

In addition, during the quarter ended March 31, 2017, 582,478 shares, with a market value of $13,558, or $23.28 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 2016, the Company declared and paid dividends totaling $0.20 per share. During the six months ended March 31, 2017, the Board of Directors approved two quarterly cash dividends of $0.06 per share. 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 May 4, 2017 the Board of Directors declared a quarterly cash dividend of $0.06 per share, payable on June 22, 2017 to shareholders of record as of the close of business on May 26, 2017.

During the six months ended March 31, 2017 and 2016, Griffon used cash for discontinued operations of $738 and $578, respectively, primarily related to settling remaining Installation Services liabilities and environmental costs.
 
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, 2016.

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, 2016. 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.

44

Table of Contents

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, 2016. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Item 3 - Quantitative and Qualitative Disclosure About Market Risk
 
Griffon’s business’ activities 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 revolving credit facility and certain other of Griffon’s credit facilities have a LIBOR-based variable interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point change in LIBOR would not have a material impact on Griffon’s results of operations or liquidity.

Foreign Exchange
 
Griffon conducts business in various non-U.S. countries, primarily in Canada, Germany, Brazil and Australia; therefore, changes in the value of the currencies of these countries affect Griffon's financial position and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-U.S. operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 10% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows.

45

Table of Contents

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.

46

Table of Contents

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, 2016, 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, 2017	20,412	
 	(2)	 	$	—	
 	 	—	

February 1 - 28, 2017	—	
 	 	 	—	
 	 	—	

March 1 - 31, 2017	7,019	
 	(2)	 	—	
 	 	—	

Total	27,431	
 	 	 	$	—	
 	 	—	
 	 	$	49,437	

 	 	
1.	On each of July 30, 2015 and 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, 2017, an aggregate of $49,437 remained available for the purchase of Griffon common stock under the August 3, 2016 Board authorization.	
 	 	
2.	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
None

47

Table of Contents

 	 	
Item 6	Exhibits	

 	 	
31.1	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	XBRL Instance Document*	
 	 	
101.SCH	XBRL Taxonomy Extension Schema Document*	
 	 	
101.CAL	XBRL Taxonomy Extension Calculation Document*	
 	 	
101.DEF	XBRL Taxonomy Extension Definitions Document*	
 	 	
101.LAB	XBRL Taxonomy Extension Labels Document*	
 	 	
101.PRE	XBRL Taxonomy Extension Presentations Document*	
 	 	
*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.	

48

Table of Contents

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, 2017

49

Table of Contents

EXHIBIT INDEX

 	 	

31.1	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	XBRL Instance Document*	
 	 	
101.SCH	XBRL Taxonomy Extension Schema Document*	
 	 	
101.CAL	XBRL Taxonomy Extension Calculation Document*	
 	 	
101.DEF	XBRL Taxonomy Extension Definitions Document*	
 	 	
101.LAB	XBRL Taxonomy Extension Labels Document*	
 	 	
101.PRE	XBRL Taxonomy Extension Presentations Document*	
 	 	
*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.	

50

Exhibit 31.1
 
CERTIFICATION
 
I, Ronald J. Kramer, certify that:
 	 	
1.	I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: May 4, 2017

 	/s/ Ronald J. Kramer	 	
 	Ronald J. Kramer	 	
 	Chief Executive Officer	 	
 	(Principal Executive Officer)	 	

Exhibit 31.2
 
CERTIFICATION
 
I, Brian G. Harris, certify that:
 	 	
1.	I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: May 4, 2017

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

Exhibit 32
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Ronald J. Kramer, Chief Executive Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.

 	 	 	
 	/s/ Ronald J. Kramer	 	
 	Name: Ronald J. Kramer	 	
 	Date: May 4, 2017	 	
 
I, Brian G. Harris, Senior Vice President and Chief Financial Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended March 31, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.

 	 	 	
 	/s/ Brian G. Harris	 	
 	Name: Brian G. Harris	 	
 	Date: May 4, 2017	 	
 
A signed original of this written statement required by Section 906 has been provided to Griffon Corporation and will be retained by Griffon Corporation and furnished to the Securities and Exchange Commission or its staff upon request.