Griffon
Annual Report 2013

Plain-text annual report

www.griffoncorp.com 75735Cover_2013Griffon.indd 2-3 12/18/13 2:51 PM 2013 Annual Report 81398 C O M PA N Y P RO F I L E TELEPHONICS Telephonics designs, develops and manufactures high-technology, integrated information, communication and sensor system solutions for use in military and commercial markets worldwide. Website: www.telephonics.com Clopay Plastic Products is an international leader in the development and production of embossed laminated and printed specialty plastic films used in a variety of hygienic, healthcare and industrial applications. Website: www.clopayplastics.com CLOPAY PLASTIC PRODUCTS HOME & BUILDING PRODUCTS Ames True Temper, established in 1774, is a global provider of non-powered landscaping products that make work easier for homeowners and professionals. Website: www.amestruetemper.com Clopay Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains. Website: www.clopaydoor.com DIRECTORS Henry A. Alpert President, Spartan Petroleum Corp. (petroleum distributor/real estate) Bertrand M. Bell, M.D. Albert Einstein Medical Center Harvey R. Blau Chairman of the Board Blaine V. Fogg, Esq. Of Counsel Skadden, Arps, Slate, Meagher & Flom LLP Bradley J. Gross Managing Director, Goldman Sachs Rear Admiral Robert G. Harrison USN (Ret.) Ronald J. Kramer Chief Executive Officer General Donald J. Kutyna USAF (Ret.) Kevin F. Sullivan MidOcean Credit Partners Martin S. Sussman, Esq. Partner Seltzer Sussman Habermann & Heitner LLP William H. Waldorf President, Landmark Capital, LLC (investments) Independent Registered Public Accountants Grant Thornton LLP Joseph J. Whalen Retired Partner Arthur Andersen LLP OFFICERS Ronald J. Kramer Chief Executive Officer Robert F. Mehmel President and Chief Operating Officer Douglas J. Wetmore Executive Vice President and Chief Financial Officer Seth L. Kaplan Senior Vice President, General Counsel and Secretary Brian G. Harris Vice President, Controller and Chief Accounting Officer Denise A. Lueders Vice President, Taxation Thomas D. Gibbons Treasurer Stock Listing The company’s Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol GFF. Registrar and Transfer Agent American Stock Transfer & Trust Company Additional copies of this report will be furnished to shareholders upon written request to the company at: Griffon Corporation Attn. Secretary 712 Fifth Avenue, 18th Floor New York, New York 10019 Website www.griffoncorp.com Griffon Corporation has included as to its Annual Report on exhibits Form 10-K for fiscal year 2013 filed with the SEC certifications of Griffon’s and Chief Chief Executive Officer Financial Officer certifying the quality of the company’s public disclosures. Griffon’s Chief Executive Officer has also submitted to the NYSE a certification that he is not aware of any violations by Griffon corporate the NYSE governance listing standards. of 75735Cover_2013Griffon.indd 4-6 12/18/13 2:51 PM 00833 LETTER TO SHAREHOLDERS Our 2013 results benefited from initiatives undertaken to improve our operating performance in a sluggish global economy. Revenue for the year increased by 1% to $1.9 billion while our Segment adjusted EBITDA increased 6% to $181 million. While I am pleased with our performance this year, I believe the intrinsic earnings power of our businesses will be realized as the pace of the recovery accelerates. Telephonics, our aerospace and defense business, had another exceptional year in which it again achieved record profitability. This segment has also demonstrated a notable resilience to the effects of Sequestration and budgetary cuts in the U.S. Department of Defense, ending the year with a strong funded orders backlog. Through its research and development activities, Telephonics continues to maintain a technological advantage over its competition in the mission critical products and services it provides. Leveraging its successful Advanced Radar Periscope Detection and Discrimination development for the U.S. Navy’s maritime surveillance radar, the AN/APS-153, Telephonics is working on the introduction of Active Electronically Scanned Array technology that will contribute towards maintaining its industry leadership position. In the Identification Friend or Foe (“IFF”) area, Telephonics remains the sole provider of an All-Mode IFF Interrogator that is fully certified by the U.S. Government. This system will soon be a Federal Aviation Administration requirement for both civil and military aircraft to fly in any air space worldwide. Finally, as the supplier of the maritime surveillance radar for the U.S. Navy’s MQ-8B Fire Scout Vertical Unmanned Aerial Vehicle (“VUAV”), Telephonics is uniquely positioned to supply a similar version of that radar for the next generation VUAV, the MQ-8C – which is a larger, more capable weapon system. Telephonics celebrated its 80th anniversary in 2013, and we look forward to many more decades of success. Clopay Plastics delivered steady and meaningful progress throughout the year despite significant resin cost headwinds. EBITDA increased 20% versus the prior year on essentially flat revenue as we restructured our European operations and rationalized marginal business. We further lowered our cost structure through supply chain initiatives, working capital reductions and improved operating efficiencies across the globe. At the same time, we improved our product mix by capturing additional opportunities in the value-added elastic laminates and printed films segments. We strengthened our leadership with key personnel appointments in Europe, Brazil and in Technology & Innovation. We also solidified and enhanced relationships with key customers as we successfully developed new products and concluded new multi-year supply arrangements. I am confident we will continue on the path of improved profitability while enhancing our industry leadership position. The housing industry continued to exhibit signs of recovery, which helped improve our Home and Building Products (“HBP”) segment results. Clopay Building Products (“CBP”), our garage door business, focused on profitable sales growth, manufacturing excellence and supply chain efficiencies, all of which contributed to a strong year in 2013. Over the past year, CBP launched three new premium garage door lines, which it introduced through a comprehensive multi-media marketing campaign designed to drive consumer interest and new business leads to our customers throughout North America. These initiatives, in conjunction with operational improvements and an unwavering commitment to service, quality and innovation, helped CBP solidify partnerships 53376 with its top-tier customers, acquire new customers and increase overall volume and revenue from sales of higher end products. As CBP embarks on its 50th year in business, we are determined to extend our lead in the industry. HBP’s other business, Ames True Temper (“ATT”), is North America’s largest manufacturer of non-powered lawn and garden tools and the world’s largest manufacturer of snow shovels. ATT was negatively impacted by weather this year in both the winter and spring seasons. In January 2013, we announced a plant consolidation initiative, which will contribute to greater efficiency and improved profitability when completed at the end of 2014. ATT expanded its product placements for 2014 through successful partnering with key customers and innovative marketing programs. Southern Patio, acquired in FY 2012, has continued to perform well post integration, solidifying our leadership position in the planter category. ATT’s performance will improve with normal weather conditions, cost reductions and profitable sales growth. Recent data continues to support that we are in the early stages of a multi-year housing recovery, with new residential construction levels and repair and remodel activity in the United States steadily improving. This bodes well for future demand for both our doors and garden tool businesses. As housing recovers, significantly improve overall profitability for the HBP segment. revenue will incremental One of Griffon’s continued objectives is maintaining the strength of our balance sheet while expanding and improving our operations and returning capital to our shareholders. We delivered strong operating cash flow and ended the year with $178 million of cash. During the year, we repurchased 2.4 million shares of our common stock for approximately $26 million while paying $0.10 per share in dividends. In November, we announced the repurchase of 4.44 million shares of our common stock for $50 million from Goldman Sachs. The purchase was made at a discount to market and will be immediately accretive to our earnings per share and value enhancing to our shareholders. This transaction is in addition to our continuing share repurchase program. We also increased our quarterly dividend 20% to $0.03 per share in the first quarter of FY 2014. The stock buyback and increased dividend reflect our strong belief in the future prospects for our company, as well as our ongoing intent to deliver value to our shareholders. We continue to have ample liquidity, providing a foundation for continued growth through acquisitions. While our appetite for value enhancing acquisitions remains strong, the intensely competitive acquisition marketplace creates challenges in executing transactions at attractive values. Griffon has emerged from the difficult economic environment over the past few years poised for enhanced revenue and improved profitability in the years ahead. We are excited about building upon our success this year through the perseverance of our dedicated global workforce. Yours sincerely, Ronald J. Kramer Chief Executive Officer 40271 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended September 30, 2013 or (cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-06620 GRIFFON CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 11-1893410 (I.R.S. Employer Identification No.) 712 Fifth Avenue, 18th Floor, New York, New York (Address of Principal Executive Offices) Registrant’s telephone number, including area code: (212) 957-5000 10019 (Zip Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.25 par value Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No (cid:2) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:2) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3) Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer (cid:3) Accelerated filer (cid:2) Non-accelerated filer (cid:3) (Do not check if a smaller reporting company) Smaller reporting company (cid:3) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:2) The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the close of business March 31, 2013, the registrant’s most recently completed second quarter, was approximately $527,000,000. The registrant’s closing price as reported by the New York Stock Exchange-Composite Transactions for March 31, 2013 was $11.92. The number of the registrant’s outstanding shares was 59,023,635 as of October 31, 2013. DOCUMENTS INCORPORATED BY REFERENCE: Part III—(Items 10, 11, 12, 13 and 14). Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934. 31850 17947 Special Notes Regarding Forward-Looking Statements This Annual Report on Form 10-K, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, revenue, changes in industries in which Griffon Corporation (the “Company” or operations, operating improvements, “Griffon”) operates and the United States and global economies. Statements in this Form 10-K that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings from cost control, integration and disposal initiatives; the ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which Griffon’s Telephonics Corporation supplies products, including as a result of sequestration which took effect in March 2013; the ability of the federal government to fund and conduct its operations; increases in the cost of raw materials such as resin 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; 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 to place undue reliance on these forward-looking global economy. Readers are cautioned not 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. 1 45614 (Unless otherwise indicated, any reference to years or year-end refers to the fiscal year ending September 30 and US dollars and non US currencies are in thousands, except per share data) PART I Item 1. Business The Company Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon, to further diversify, also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF. Griffon currently conducts its operations through three reportable segments: Home & Building Products (“HBP”), Telephonics Corporation (“Telephonics”), and Clopay Plastic Products Company (“Plastics”). • HBP consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay Building Products (“CBP”). HBP accounted for 46% of Griffon’s consolidated revenue in 2013, 2012 and 2011. – ATT, acquired on September 30, 2010, is a global provider of non-powered landscaping products that make work easier for homeowners and professionals. Due to the timing of the acquisition, none of ATT’s 2010 and prior results of operations were included in Griffon’s results. ATT’s revenue was 23% of Griffon’s consolidated revenue in both 2013 and 2012, and 24% in 2011. – CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains. CBP’s revenue was 23% of Griffon’s consolidated revenue in both 2013 and 2012, and 22% in 2011. • Telephonics designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide. Telephonics’ revenue was 24% of Griffon’s consolidated revenue in both 2013 and 2012, and 25% in 2011. • Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications. Plastics’ revenue was 30% of Griffon’s consolidated revenue in both 2013 and 2012, and 29% in 2011. On March 28, 2013, Griffon amended and increased the amount available under its Revolving Credit Facility (“Credit Agreement”) from $200,000 to $225,000 and extended its maturity from March 18, 2016 to March 28, 2018 (except that if the Company’s 7-1/8 Senior Notes due 2018 are still outstanding on October 1, 2017, the Facility will mature on October 1, 2017). The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. The current margins are 1.00% for base rate loans and 2.00% for LIBOR loans. Borrowings under the 2 25714 Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors and a pledge of not greater than two-thirds of the equity interest in each of Griffon’s material, first-tier foreign subsidiaries. At September 30, 2013, there were $25,457 of standby letters of credit outstanding under the Credit Agreement; $199,543 was available for borrowing at that date. On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. (“Southern Patio”) for approximately $23,000. The acquired business, which markets its products under the Southern PatioTM brand name, is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which, upon acquisition, has been integrated with ATT, had revenue exceeding $40,000 in 2011. On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest on the Senior Notes is payable semi-annually. Proceeds were used to pay down the outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain Company subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain covenants, limitations and restrictions. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933, via an exchange offer. On September 30, 2010, Griffon purchased all of the outstanding stock of CHATT Holdings, Inc. (“ATT Holdings”), the parent of ATT, on a cash and debt-free basis, for $542,000 in cash, subject to certain adjustments. In December 2009, Griffon issued $100,000 principal amount of 4% Convertible Subordinated Notes due 2017 (the “2017 Notes”) at an initial conversion ratio of 67.0799 shares of Griffon common stock per $1,000 principal amount of the 2017 Notes, corresponding to an initial conversion price of approximately $14.91 per share. The current conversion rate of the 2017 Notes is 67.8495 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.74 per share. In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market. Griffon sold eleven units, closed one unit and merged two units into CBP. Operating results for substantially all of this segment has been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; the Installation Services segment is excluded from segment reporting. At September 30, 2013, Griffon’s assets and liabilities for discontinued operations primarily related to income taxes and product liability, warranty and environmental reserves. Griffon makes available, free of charge through its website at www.griffoncorp.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such materials are filed with or furnished to the Securities and Exchange Commission (the “SEC”). For information regarding revenue, profit and total assets of each segment, see the Reportable Segments footnote in the Notes to Consolidated Financial Statements. 3 53446 Reportable Segments: Home & Building Products Home & Building Products consists of two companies, Ames True Temper, Inc and Clopay Building Products, which are described below. Ames True Temper ATT, founded in 1774, is the leading U.S. and a global provider of non-powered landscaping products that make work easier for homeowners and professionals. ATT employs approximately 1,500 employees. Brands ATT brands are among the most recognized across primary product categories in the North American, non-powered landscaping product markets. ATT’s brand portfolio includes Ames®, True Temper®, Garant®, UnionTools®, Hound Dog®, Westmix™, Dynamic Design® and Southern Patio™, as well as contractor-oriented brands including Razor-Back® Professional Tools and Jackson® Professional Tools. This strong portfolio of brands enables ATT to build and maintain long-standing relationships with leading retailers and distributors. In addition, given the breadth of ATT’s brand portfolio and product category depth, ATT is able to offer specific, differentiated branding strategies for key retail customers. In addition to the brands listed, ATT also sells private label branded products further enabling channel management and customer differentiation. Products ATT manufactures and markets one of the broadest product portfolios in the non-powered landscaping product industry. This portfolio is anchored by three core product categories: long handle tools, wheelbarrows, and snow tools. As a result of ATT’s brand portfolio recognition, high product quality, industry leading service and strong customer relationships, ATT has earned market-leading positions in the long handle tool, wheelbarrow, and snow tool product categories. The following is a brief description of ATT’s primary product lines: • Long Handle Tools: An extensive line of engineered tools including shovels, spades, scoops, rakes, hoes, cultivators, weeders, post hole diggers, scrapers, edgers and forks, marketed under leading brand names including Ames®, True Temper®, UnionTools®, Garant®, Razor-Back® Professional Tools, and Jackson® Professional Tools. • Wheelbarrows: ATT designs, develops and manufactures a full line of wheelbarrows and lawn carts, primarily under the Ames®, True Temper®, Jackson® Professional Tools, Razor-Back® Professional Tools, UnionTools®, Garant® and Westmix™ brand names. The products range in size (2 cubic feet to 10 cubic feet), material (poly and steel), tray form, tire type, handle length and color based on the needs of homeowners, landscapers and contractors. • Snow Tools: A complete line of snow tools is marketed under the True Temper® and Garant® brand names. The snow tool line includes shovels, pushers, roof rakes, sled sleigh shovels, scoops and ice scrapers. • Planters and Lawn Accessories: ATT is a designer, manufacturer and distributor of indoor and outdoor planters and accessories, sold under the Dynamic Design® and Southern Patio™ brand names, as well as various private label brands. The range of planter sizes (from 6 to 32 inches) are available in various designs, colors and materials. On October 17, 2011, Griffon acquired the pots and planters business which markets its products under the Southern Patio™ brand name. Southern Patio is a leading designer and marketer of decorative landscape products. Southern 4 69855 Patio™ and Dynamic Design® have been integrated to leverage Southern Patio’s capabilities, enhance ATT’s product offering in the pots and planters category and enable ATT to improve its innovation and speed to market in the category. • Striking Tools: Axes, picks, mattocks, mauls, wood splitters, sledgehammers and repair handles make up the striking tools product line. These products are marketed under the True Temper®, UnionTools®, Garant®, Jackson® Professional Tools, and Razor-Back® Professional Tools brand names. • Pruning: The pruning line is made up of pruners, loppers, shears and other tools sold primarily under the True Temper® brand name. • Garden Hose and Storage: ATT offers a wide range of both manufactured and sourced garden hoses and hose reels under the Ames®, NeverLeak® and Jackson® Professional Tools brand names. Customers ATT sells products throughout North America, Australia, and Europe through (1) retail centers, including home centers and mass merchandisers, such as The Home Depot (“Home Depot”), Lowe’s Companies (“Lowe’s”), Walmart, Canadian Tire, Costco, Rona, Bunnings, and Woodies (2) wholesale chains, including hardware stores and garden centers, such as Ace, Do-It-Best and True Value and (3) industrial distributors, such as Grainger and ORS Nasco. Home Depot and Lowe’s are significant customers of ATT. The loss of either of these customers would have a material effect on ATT’s and Griffon’s business. Product Development ATT product development efforts focus on both new products and product line extensions. Products are developed through in-house industrial design and engineering staffs to introduce new products timely and cost effectively. Sales and Marketing sales organization is in the U.S. and by country structured by distribution channel ATT’s internationally. In the U.S., a dedicated team of sales professionals is provided for each of the large retail customers. Offices are maintained adjacent to each of the three largest customers’ headquarters, as well as dedicated in-house sales analysts at the corporate office. In addition, sales professionals are assigned to domestic, wholesale and industrial distribution channels. Sales teams located in Canada, Australia, and Ireland handle sales in each of their respective locations. Raw Materials and Suppliers ATT’s primary raw material include resin (primarily polypropylene and high density polyethylene), wood (mainly ash, hickory and poplar logs) and steel (hot rolled and cold rolled). In addition, some key materials and components are purchased, such as heavy forged components and wheelbarrow tires; most final assembly is completed internally in order to ensure consistent quality. All raw materials used by ATT are generally available from a number of sources. inputs Competition The non-powered landscaping product industry is highly competitive and fragmented. Most competitors consist of small, privately-held companies focusing on a single product category. Some competitors, such as Fiskars Corporation and Truper Herramientas S.A. de C.U., compete in various tool categories. 5 99023 Suncast Corporation competes in the hose reel and accessory market, and Colorite Waterworks and Swan, both Techniplex companies, compete in the garden hose market. In addition, there is competition from imported or sourced products from China, India and other low-cost producing countries, particularly in long handled tools, wheelbarrows, planters, striking tools and pruning tools. The principal factors by which ATT differentiates itself and provides the best value to customers are innovation, service, quality, and product performance. ATT’s size, depth and breadth of product offering, category knowledge, research and development (“R&D”) investment and service are competitive advantages. Offshore manufacturers lack sufficient product innovation, capacity, proximity to market and distribution capabilities to service large retailers to compete in highly seasonal, weather related product categories. Manufacturing & Distribution ATT has nine operational distribution centers. In the U.S., the largest of these are a 1.2 million square foot facility in Carlisle, Pennsylvania and a 400,000 square foot facility in Reno, Nevada. Finished goods from manufacturing sites are transported to these facilities by an internal fleet, over the road trucking and rail. Additionally, light assembly is performed at the Carlisle and Reno locations. Distribution centers are maintained in Canada and Ireland, and ATT utilizes a third party distribution center in Mexico City, Mexico. ATT has five distribution centers in Australia. ATT has a combination of internal and external, domestic and foreign manufacturing sources from which it produces products for sale in North American, Australian and European markets. In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $6,553 and $11,937 in restructuring costs and capital expenditures, respectively. Clopay Building Products CBP, in business since 1964, is the largest manufacturer and marketer of residential garage doors, and among the largest manufacturers of commercial sectional doors, in the United States, and manufactures a complete line of entry door systems uniquely designed to complement its popular residential garage door styles. The majority of CBP’s sales are for home remodeling and renovation, with the balance for the new residential housing and commercial building markets. Sales into the home remodeling market are being driven by the continued aging of the housing stock, existing home sales activity and the trend of improving home appearance, as well as improved energy efficiency. CBP employs approximately 1,300 employees. According to the US census, calendar year 2013 new construction single-family homes starts will increase by 17%. The repair and remodel market was flat for the trailing twelve months ending June 2013, with modest growth expectations for the second half of the calendar year tempered by rising interest rates and falling consumer confidence. The commercial segment saw spending drop 3% for the year (according to estimates from McGraw Hill Construction Dodge). According to industry sources, the residential and commercial sectional garage door market for calendar year 2012 was estimated to be $1,650,000, which increased $50,000 over the prior year. 6 79191 Brands CBP brings nearly 50 years of experience and innovation to the garage door industry. Our strong family of brands includes Clopay®, America’s Favorite Garage Doors®; Holmes Garage Door Company® and IDEAL Door®. Clopay is the only residential garage door brand to hold the Good Housekeeping Seal of Approval. Products and Service CBP manufactures a broad line of residential sectional garage doors with a variety of options, at varying prices. CBP offers garage doors made primarily from steel, plastic composite and wood, and also sells related products, such as garage door openers, manufactured by third parties. CBP also markets commercial sectional doors, which are similar to residential garage doors, but are designed to meet the more demanding performance specifications of a commercial application. CBP has a complete line of entry door systems uniquely designed to complement its popular residential garage door styles. Customers CBP is the principal supplier of residential garage doors throughout North America to Home Depot and Menards. The loss of either of these customers would have a material adverse effect on CBP’s and Griffon’s business. CBP distributes its garage doors directly to customers from its manufacturing facilities and through its distribution centers located throughout the United States and Canada. These distribution centers allow CBP to maintain an inventory of garage doors near installing dealers and provide quick-ship service to retail and professional dealer customers. Product Development CBP product development efforts focus on both new products and improvements to existing products. Products are developed through in-house design and engineering staffs. CBP operates a technical development center where its research engineers design, develop and implement new products and technologies and perform durability and performance testing of new and existing products, materials and finishes. CBP continually improves their garage door offerings through these development efforts, focusing on characteristics such as strength, design and energy efficiency. Also at this facility, the process engineering team works to develop new manufacturing processes and production techniques aimed at improving manufacturing efficiencies and ensuring quality-made products. Sales and Marketing The CBP sales and marketing organization supports our customers, consults on new product development and aggressively markets garage door solutions, with a primary focus on the North American market. Raw Materials and Suppliers The principal raw material used in CBP’s manufacturing is galvanized steel. CBP also utilizes certain hardware components, as well as wood and insulated foam. All of these raw materials are generally available from a number of sources. 7 77342 Competition The garage door industry is characterized by several large national manufacturers and many smaller regional and local manufacturers. CBP competes on the basis of service, quality, price, brand awareness and product design. CBP’s brand names are widely recognized in the building products industry. CBP believes that it has earned a reputation among installing dealers, retailers and wholesalers for producing a broad range of innovative, high-quality doors. CBP’s market position and brand recognition are key marketing tools for expanding its customer base, leveraging its distribution network and increasing its market share. Distribution CBP distributes its products through a wide range of distribution channels, including installing dealers, retailers and wholesalers. CBP owns and operates a national network of 49 distribution centers. Additionally, products are sold to approximately 2,000 independent professional installing dealers and to major home center retail chains. CBP maintains strong relationships with its installing dealers and believes it is the largest supplier of residential garage doors to the retail and professional installing channels in North America. Manufacturing CBP currently has manufacturing facilities, in Troy, Ohio and Russia, Ohio. During the second quarter of 2013, CBP completed the closing of the Auburn, Washington facility and the consolidation of that facility into its Russia, Ohio facility. In June 2009, CBP undertook to consolidate its manufacturing facilities. These actions were completed in 2011. CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of which were cash charges and which included $1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection with production realignment. Capital expenditures were $10,365. The facility consolidation was part of CBP’s continuing efforts to improve and streamline its manufacturing processes. CBP’s engineering and technological expertise, combined with its capital investment programs, has enabled it to efficiently manufacture products in large volume and meet changing customer needs in a timely manner. CBP uses proprietary manufacturing processes to produce the majority of its products. Certain machinery and equipment are internally modified to achieve manufacturing objectives. These manufacturing facilities produce a broad line of high quality garage doors for distribution to professional installer, retail and wholesale channels. Telephonics Corporation Telephonics, founded in 1933, specializes in advanced electronic information and communication systems for defense, aerospace, civil, industrial, and commercial applications for the United States (“U.S.”) and international markets. Telephonics designs, develops, manufactures, sells, and provides logistical support for aircraft intercommunication systems, radar, air traffic management, identification friend or foe equipment (“IFF”), Integrated Homeland Security Systems and custom, mixed-signal, application-specific, integrated circuits. Telephonics is also a provider of advanced systems engineering services supporting air and missile defense programs, as well as other threat and situational analysis requirements. Telephonics is a leading supplier of airborne maritime surveillance radar and aircraft intercommunication management systems, the segment’s two largest product lines. In addition to its traditional defense products used predominantly by the U.S. Government and its agencies, Telephonics has adapted its core technologies to products used in international markets in an effort to further increase its presence in both non-defense government and commercial markets. In 2013, approximately 77% of the segment’s sales were to the U.S. Government and agencies thereof, as a prime or 8 17813 subcontractor, 17% to international customers and 6% to U.S. commercial customers. Telephonics employs approximately 1,200 people. Griffon believes that Telephonics’ advanced systems and sub-systems are well-positioned to address the needs of an integrated battlefield with emphasis on providing situational awareness to the warfighters through the retrieval and dissemination of timely data for use by highly mobile ground, air and sea- going forces. Telephonics anticipates that the need for such systems will increase in connection with the increasingly active role that the military is playing in the war on terrorism, both at home and abroad. In recent years, Telephonics has increasingly focused its technologies and core competencies in the growing Homeland Security, Intelligence, Surveillance and Reconnaissance (“ISR”) and Unmanned Aerial Vehicle (“UAV”) markets. On April 22, 2013, the Telephonics’ Joint Venture (“JV”) with Mahindra & Mahindra Ltd, was incorporated. The JV will provide the Indian Ministry of Defense and the Indian Civil sector with radar and surveillance systems, IFF devices and communication systems. In addition, the JV intends to provide systems for Air Traffic Management Services, Homeland Security and other emerging surveillance requirements. Programs and Products Based on long-established relationships supported by existing contractual arrangements, Telephonics is a first-tier supplier to prime contractors in the defense industry such as Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, MacDonald Dettwiler, Eurocopter, Sierra Nevada Corpora- tion and Sikorsky Aircraft, and is at times a prime contractor to the U.S. Department of Defense and the U.S. Department of Homeland Security (“Homeland Security”). The significance of each of these customers to Telephonics’ revenue fluctuates on an annual basis, based on the timing and funding of the Original Equipment Manufacturers (“OEM”) contract award, and the technological scope of the work required to be performed. The significant contraction and consolidation in the U.S. and international defense industry provides opportunities for established first-tier suppliers to capitalize on existing relationships with major prime contractors and play a larger role in defense systems development and procurement for the foreseeable future. Telephonics continues to direct resources towards border surveillance and critical infrastructure security initiatives. These opportunities represent strategic advances for Telephonics by enabling it to expand its core technical expertise into the nascent and growing Homeland Security markets, both in the U.S. and abroad. As with many of the system specifications, and operational and test requirements are challenging, exacerbated by demanding delivery schedules. Telephonics believes that the technological capabilities that these systems encompass will also be able to serve and protect the most complex borders. these programs, In its fiscal year 2013, Telephonics was awarded a contract by Northrop Grumman as the radar supplier for the U.S. Navy’s Firescout MQ-8B program, which is a vertical take-off and landing UAV platform. This positions Telephonics, with both its radar and communications products, as a strong competitor in this growing UAV / ISR market segment. As a result of its performance on a prior manufacturing contract with Syracuse Research Corporation, Telephonics received a subcontract award from Sierra Nevada Corporation for both production and support of counter-IED devices, which resulted in $33,000, $24,000 and $44,000 in 2013, 2012 and 2011, respectively. Backlog The funded backlog for Telephonics approximated $444,000 at September 30, 2013, compared to $451,000 at September 30, 2012. The decrease in backlog is primarily attributable to the timing of work performed on various domestic and international radar contracts awarded in the previous year. Additionally, the backlog was adversely impacted by the de-obligation of funds associated with the 9 47070 Mobile Surveillance Capability contract with U.S. Customs and Border Patrol, as this contract was unexpectedly terminated. This decrease was partially offset by stronger demand and awards for IFF products. Approximately 72% of the current backlog is expected to be filled during 2014. Customers The U.S. Government, through its prime contractors like Lockheed Martin Corporation and the Boeing Company, is a significant customer of Telephonics. The loss of the U.S. government or any one of its prime contractors would have a material adverse effect on Telephonics’ business. Notwithstanding the significance of Lockheed Martin Corporation, Sikorsky, Northrop Grumman and the Boeing Company, Telephonics sells to a diverse group of other domestic and international defense industry contractors, as well as others who use Telephonics products for commercial use. Telephonics participates in a range of long-term defense and non-military government programs, both in the U.S. and internationally. Telephonics has developed a base of installed products that generate significant recurring revenue from product enhancements and retrofits, as well as providing spare parts and customer support. Due to the inherent complexity of these electronic systems, Telephonics believes that its incumbent status on major platforms provides a competitive advantage in the selection process for platform upgrades and enhancements. Furthermore, Telephonics believes that its ability to leverage and apply its advanced technology to new platforms provides a competitive advantage when bidding for new business. Research and Development In an effort to maintain customer satisfaction and loyalty, Telephonics works closely with prime customers to ensure that there is a future market for its products by investing R&D funds in desired enhancements. Telephonics continually updates its core technologies through internally funded R&D while coordinating with its customers at the earliest stages of new program development in an effort to provide solutions well in advance of its competitors. Telephonics is a technological leader in its core markets and pursues new growth opportunities by leveraging its systems design and engineering capabilities and incumbent position on key platforms. In addition to products for defense programs, Telephonics technology is also used in commercial applications such as airborne weather, search and rescue radar, and air traffic management systems. Telephonics’ reputation for innovative product design and engineering capabilities, especially in the areas of voice and data communications, radio frequency design, digital signal processing, networking systems, inverse synthetic aperture radar and analog, digital and mixed-signal integrated circuits, will continue to enhance its ability to secure, retain and expand its participation in defense programs and commercial opportunities. Telephonics often designs its products to exceed customers’ minimum specifications, providing its customers with greater performance, flexibility, and value. Telephonics believes that early participation and communication with its customers in the requirements definition stages of new program development increases the likelihood that its products will be selected and integrated as part of a total system solution. Sales and Marketing Telephonics has technical business development personnel who act as the focal point for its marketing activities and sales representatives who introduce its products and systems to customers worldwide. Competition Telephonics competes with major manufacturers of electronic information and communication systems, as well as several smaller manufacturers of similar products. Telephonics endeavors to design products 10 64706 with greater performance and flexibility than its competitors while competing on the basis of technology, design, quality and price. Manufacturing Facilities Telephonics’ facilities are principally located in the United States, primarily in New York, with one facility in Sweden. Telephonics also maintains a Technical Support Services Center in Elizabeth City, North Carolina which supports aircraft integration and upgrade activities, in addition to providing support services to customers. Clopay Plastic Products Plastics produces and develops specialty plastic films and laminates for a variety of hygienic, health care and industrial uses in the United States and certain international markets. Products include thin gauge embossed and printed films, elastomeric films, laminates of film and non-woven fabrics, and perforated films and non-wovens. These products are used as moisture barriers in disposable infant diapers, adult incontinence products and feminine hygiene products, protective barriers in single-use surgical and industrial gowns, drapes and equipment covers, fluid transfer/distribution layers in absorbent products, components to enhance comfort and fit in infant diaper and adult incontinence products, packaging for hygienic products, house wrap and other products. Plastics’ products are sold through a direct sales force, primarily to multinational consumer and medical products companies. Plastics employs approximately 1,500 employees. The markets in which Plastics participates have been affected by several key trends over the past five years. These trends include the increased use of disposable products in developing countries and favorable demographics, including increasing immigration in major global economies. Other trends representing significant opportunities include the continued demand for innovative products such as cloth-like, breathable, laminated and printed products, and large consumer products companies’ need for global supply partners. Notwithstanding the positive trends affecting the industry, product design changes by the customer can change the products manufactured by Plastics and the associated demand. Plastics believes that its business development activities targeting major multinational and regional producers of hygiene, healthcare and related products and its investments in its technology development capability and capacity increases will lead to additional sales of new and related products. Products Plastics’ specialty plastic film is a thin-gauge film engineered to provide certain performance characteristics and manufactured from polymer resins. A laminate is the combination of a plastic film and a woven or non-woven fabric. These products are produced using both cast and blown extrusion and various laminating processes. High speed, multi-color custom printing of films, customized embossing patterns, and proprietary perforation technology further differentiate the products. Specialty plastic film products typically provide a unique combination of performance characteristics, such as breathability, barrier properties, fluid flow management, elastic properties, processability and aesthetic appeal that meet specific, proprietary customer needs. Customers Plastics’ largest customer is Procter & Gamble, Co. (“P&G”), which has accounted for approximately half of its revenue over the last five years. The loss of this customer would have a material adverse effect on the Plastics business and Griffon. Notwithstanding the significance of P&G, Plastics sells to a diverse group of other leading consumer, health care and industrial companies. 11 78081 Product Development Plastics is an industry leader in the research, design and development of specialty plastic film and laminate products. Plastics operates a technical center where polymer chemists, scientists and engineers work independently and in partnerships with customers to develop new technologies, products, processes and product applications. Plastics’ R&D efforts have resulted in many inventions covering embossing patterns, improved processing methods, product formulations, product applications and other proprietary technology. Products developed include microporous breathable films and cost-effective printed films and laminates. Microporous breathability provides for moisture vapor transmission and airflow while maintaining barrier properties resulting in improved comfort and skin care. Elastic laminates provide the user with improved comfort and fit. Printed films and laminates provide consumers preferred aesthetics, such as softness and visual appeal. Perforated films and non-wovens provide engineered fluid transfer with unique softness and aesthetics. Plastics holds a number of patents for its specialty film and laminate products and related manufacturing processes. While patents play a significant role, Plastics believes that its proprietary know-how and the knowledge, ability and experience of its employees are more significant to its long-term success. Sales and Marketing Plastics sells its products primarily in North America, Europe, and South and Central America with additional sales in Asia Pacific and Africa. Plastics primarily utilizes an internal direct sales force, with senior management actively participating in developing and maintaining close contacts with customers. Plastics seeks to expand its market presence by providing innovative products and services to major international consumer products companies. Specifically, Plastics believes that it can continue to increase its North American sales and expand internationally through ongoing product development and enhancement, and by marketing its technologically-advanced films, laminates and printed films for use in all of its markets. Operations in Germany, Brazil and most recently China and Turkey, provide a strong platform for additional sales growth in international markets. Raw Materials and Suppliers Plastic resins, such as polyethylene and polypropylene, and non-woven fabrics are the basic raw materials used in the manufacture of substantially all Plastics’ products. The price of resin has fluctuated dramatically over the past five years primarily due to volatility in oil prices and producer capacity. Resins are purchased in pellet form from several suppliers. Sources for raw materials are believed to be adequate for current and anticipated needs. Competition Plastics has a number of competitors, some of which are larger, in the specialty plastic films and laminates market. Plastics competes on quality, service and price using its technical expertise, product development capabilities and broad international footprint to enhance its market position, build and maintain long-term customer relationships and meet changing customer needs. Manufacturing Specialty plastic film and laminate products are manufactured using high-speed equipment designed to meet stringent tolerances. The manufacturing process consists of melting a mixture of polymer resins and additives, and forcing this mixture through a die and rollers to produce thin films. Laminates of films and non-wovens are manufactured by a variety of techniques to meet customer needs. In addition, films and laminates can be printed. 12 29662 Plastics’ U.S. manufacturing facilities are in Augusta, Kentucky and Nashville, Tennessee from which it sells plastic films throughout the United States and various parts of the world. Plastics has two manufacturing facilities in Germany from which it sells plastic films throughout Europe, the Middle East and Africa. Plastics also has operations in Brazil, China and Turkey, which manufacture plastic hygienic and specialty films. Plastics’ international operations provide a platform to broaden participation in Europe, the Middle East, South America and Asia and strengthen Plastics’ position as a global supplier. Griffon Corporation Employees Griffon and its subsidiaries employ approximately 5,400 people located primarily throughout the U.S., Canada, Europe, Brazil, Australia, China and Mexico. Approximately 200 of these employees are covered by collective bargaining agreements in the U.S., primarily with an affiliate of the American Federation of Labor and Congress of Industrial Organizations, United Brotherhood of Carpenters and Joiners of America, International Brotherhood of Teamsters and the United Steel, Paper and Forestry, International Union. Rubber, Manufacturing, Energy Allied Industrial and Service Workers Additionally, approximately 200 employees in Canada are represented by the Trade Union Advisory Committee. Griffon believes its relationships with its employees are satisfactory. Regulation Griffon’s operations are subject to various environmental, health, and employee safety laws and regulations. Griffon believes that is in material compliance with these laws and regulations. Historically, compliance with environmental laws has not materially affected, and is not expected to materially affect, Griffon’s capital expenditures, earnings or competitive position in the future. Nevertheless, Griffon cannot guarantee that, it will not incur additional costs for compliance or that such costs will not be material. in the future, it Telephonics, which sells directly and indirectly to the U.S. government, is subject to certain regulations, laws and standards set by the U.S. government. Additionally, Telephonics is subject to routine audits and investigations by U.S. Government Agencies such as the Defense Contract Audit Agency and other Inspectors General. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. These agencies also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s management, purchasing, property, estimating, compensation, and accounting and information systems. Customers A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. In 2013: a. The U.S. Government and its agencies, through prime and subcontractor relationships, represented 19% of Griffon’s consolidated revenue and 77% of Telephonics revenue. b. P&G represented 14% of Griffon’s consolidated revenue and 47% of Plastics revenue. c. The Home Depot represented 11% of Griffon’s consolidated revenue and 25% of HBP revenue. No other customer exceeded 9% of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and our relationships with them. 13 13745 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. Seasonality Generally, Griffon’s revenue and income are lowest in our first and fourth quarters ending December 31 and September 30, respectively, and highest in our second and third quarters ending March 31 and June 30, respectively, primarily due to the seasonality of ATT’s business. ATT’s lawn and garden products are used primarily in the spring and summer; in 2013, 63% of ATT’s sales occurred during the second and third quarters. CBP’s business is driven by residential renovation and construction during warm weather, which is generally at reduced levels during the winter months. Demand for lawn and garden products is influenced by weather, particularly weekend weather during the peak gardening season. ATT’s sales volumes could be adversely affected by certain weather patterns such as unseasonably cool or warm temperatures, hurricanes, water shortages or floods. In addition, lack of snow or lower than average snowfall during the winter season may also result in reduced sales of certain ATT products, such as snow shovels and other snow tools. As a result, ATT’s results of operations, financial results and cash flows could be adversely impacted. Financial Information About Geographic Areas Segment and operating results are included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. For geographic financial Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data. see the Reportable Segment footnote in the Notes information, to Griffon’s non-U.S. businesses are primarily in Germany, Canada, Brazil, Australia, Turkey, China, Sweden, United Kingdom and Mexico. Research and Development Griffon’s companies are encouraged to improve existing products as well as develop new products to satisfy customer needs; expand revenue opportunities; maintain or extend competitive advantages; increase market share and reduce production costs. R&D costs, not recoverable under contractual arrangements, are charged to expense as incurred. R&D costs for Griffon were $22,400 in 2013, $23,600 in 2012 and $23,900 in 2011. Intellectual Property Griffon follows a practice of actively protecting and enforcing its proprietary rights in the U.S. and throughout the world where Griffon’s products are sold. Trademarks are of significant importance to Griffon’s HBP business. Principal global and regional trademarks include Clopay®, Ideal Door®, Holmes®, Ames®, True Temper®, Ames True Temper®, Garant®, Hound Dog®, Westmix and Dynamic Design™, UnionTools®, Razor-Back® Professional Tools and Jackson® Professional Tools. Plastics uses the Clopay® trademark in addition to its 6 other trademarks. The HBP business has 524 trademarks and approximately 25 pending trademark applications. Griffon’s rights in these trademarks endure for as long as they are used and registered. Patents are significant to Plastics. Technology evolves rapidly in the plastics business, and Plastics’ customers are constantly striving to offer products with innovative features at a competitive price to the end consumer. As a result, Plastics is constantly seeking to offer new and innovative products to its customers. Plastics has 27 patents in the U.S., and 154 corresponding foreign patents, primarily covering 14 10230 breathable and elastic polymer films and laminates and various methods and machinery for producing these materials. Patents are also important to our HBP segment. ATT protects its designs and product innovation through the use of patents, and currently has 223 issued patents and 27 pending patent applications in the United States, as well as 154 and 28 corresponding foreign patents and patent applications, respectively. CBP has 25 patents in the United States, and 16 corresponding foreign patents, primarily related to garage door system components. Design patents are generally valid for fourteen years, and utility patents are generally valid for twenty years. Our various patents are in different stages of their useful life. In the government and defense business, formal intellectual property rights are of limited value. Therefore, our Telephonics business tends to hold most of its important intellectual property as trade secrets, which it protects through the use of contract terms and carefully restricting access to its technology. 15 87079 Executive Officers of the Registrant The following is a current list of Griffon’s executive officers: Name Ronald J. Kramer . . . . . . . . . Age 55 Positions Held and Prior Business Experience Chief Executive Officer since April 2008, Director since 1993, Vice Chairman of the Board since November 2003, and President from February 2009 to December 2012. From 2002 through March 2008, President and a Director of Wynn Resorts, Ltd., a developer, owner and operator of destination casino resorts. From 1999 to 2001, Managing Director at Dresdner Kleinwort Wasserstein, an investment banking firm, and its predecessor Wasserstein Perella & Co. Member of the Board of Directors of Leap Wireless International, Inc. (NASDAQ: LEAP), a wireless communications company. Formerly on the boards of directors of Monster Worldwide, and Sapphire Industrials Corporation (AMEX: FYR). Mr. Kramer is the son- in-law of Harvey R. Blau, Griffon’s Chairman of the Board. (NYSE: MWW) Inc. Robert F. Mehmel . . . . . . . . 51 Douglas J. Wetmore . . . . . . 56 Seth L. Kaplan . . . . . . . . . . . . 44 President and Chief Operating Officer since December, 2012. From August 2008 to October 2012, President and Chief Operating Officer of DRS Technologies (“DRS”), a supplier of integrated products, services and support to military forces, intelligence agencies and prime contractors worldwide. From May 2006 to August 2008, Executive Vice President and Chief Operating Officer of DRS and from January 2001 to May 2006, Executive Vice President, Business Operations and Strategy, of DRS. Executive Vice President and Chief Financial Officer since September 2009. From April 1998 to July 2008, Senior Vice President and Chief Financial Officer of International Flavors & Fragrances Inc. (“IFF”), a creator of flavors and fragrances used in a variety of consumer products (NYSE: IFF). From October 2007 to July 2008, Treasurer of IFF. From 1991 to 1998, Corporate Controller of IFF. Prior to IFF, Price Waterhouse for 12 years. Senior Vice President, General Counsel and Secretary since May 2010. From July 2008 to May 2010, Assistant General Counsel and Assistant Secretary at Hexcel Corporation, a manufacturer of advanced composite materials for space and defense, commercial aerospace and wind energy applications. From 2000 to July 2008, Senior Corporate Counsel and Assistant Secretary at Hexcel. From 1994 to 2000, associate at the law firm Winthrop, Stimson, Putnam & Roberts (now Pillsbury Winthrop Shaw Pittman LLP). 16 08059 Item 1A. Risk Factors Griffon’s business, financial condition, operating results and cash flows can be impacted by a number of factors which could cause Griffon’s actual results to vary materially from recent or anticipated future results. The risk factors discussed in this section should be carefully considered with all of the information in this Annual Report on Form 10-K. These risk factors should not be considered the only risk factors facing Griffon. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also materially impact Griffon’s business, financial condition, operating results and cash flows in the future. In general, Griffon is subject to the same general risks and uncertainties that impact other diverse manufacturing companies including, but not limited to, general economic, industry and/or market conditions and growth rates; impact of natural disasters and their effect on global markets; continued events in the Middle East and possible future terrorist threats and their effect on the worldwide economy; and changes in laws or accounting rules. Griffon has identified the following specific risks and uncertainties that it believes have the potential to materially affect its business and financial condition. Current worldwide economic uncertainty and market volatility could adversely affect Griffon’s businesses. The current worldwide economic uncertainty, market volatility will continue to have an adverse effect on Griffon during 2014, particularly in HBP, which is substantially linked to the U.S. housing market and the U.S. economy, in general. Also, purchases of ATT products are discretionary for consumers and consumers are generally more willing to purchase products during periods in which favorable macroeconomic conditions prevail. Additionally, the current condition of the credit markets could impact Griffon’s ability to refinance expiring debt, obtain additional credit for investments in current businesses or for acquisitions, with favorable terms, or there may be no financing available. Griffon is also exposed to basic economic risks including a decrease in the demand for the products and services offered or a higher risk of default on its receivables. Adverse trends in the housing sector and in general economic conditions will directly impact Griffon’s business. HBP’s business is influenced by market conditions for new home construction and renovation of existing homes. For the year ended September 30, 2013, approximately 46% of Griffon’s consolidated revenue was derived from the HBP segment, which is heavily dependent on new home construction and renovation of existing homes. The strength of the U.S. economy, the age of existing home stock, job growth, interest rates, consumer confidence and the availability of consumer credit, as well as demographic factors such as the migration into the United States and migration of the population within the United States also have an effect on HBP. In that respect, the significant downturn in the housing market has had an adverse effect on the operating results of HBP and this effect is likely to continue in 2014, particularly to its CBP business. Griffon operates in highly competitive industries and may be unable to compete effectively. Griffon’s operating companies face intense competition in each of the markets served. There are a number of competitors, some of which are larger and have greater resources than Griffon’s operating companies. Griffon competes primarily on the basis of competitive prices, technical expertise, product differentiation, and quality of products and services. There can be no assurance that Griffon will not encounter increased competition in the future, which could have a material adverse effect on Griffon’s financial results. 17 45256 The loss of large customers can harm financial results. A small number of customers account for, and are expected to continue to account for, a substantial portion of consolidated revenue. Approximately 14% of consolidated revenue and 47% of the Plastics segment revenue for the year ended September 30, 2013 was generated from P&G, the largest customer in the Plastics segment. Home Depot, Lowe’s and Menards are significant customers of HBP with Home Depot accounting for approximately 11% of consolidated revenue and 25% of the HBP segment revenue for the year ended September 30, 2013. The U.S. Government and its agencies, Lockheed Martin Corporation and the Boeing Company, are significant customers of Telephonics. Future operating results will continue to substantially depend on the success of Griffon’s largest customers, as well as Griffon’s relationship with them. Orders from these customers are subject to fluctuation and may be reduced materially due to changes in these customers’ needs. Any reduction or delay in sales of products to one or more of these customers could significantly reduce Griffon’s revenue. Griffon’s operating results will also depend on successfully developing relationships with additional key customers. Griffon cannot assure that Griffon’s largest customers will be retained or that additional key customers will be recruited. Also, HBP and Plastics extends credit to their customers, which exposes them to credit risk. HBP’s largest customer accounted for approximately 24% and 10% of HBP’s and Griffon’s net accounts receivable as of September 30, 2013, respectively. Plastics’ largest customer accounted for approximately 35% and 12% of Plastic’s and Griffon’s net accounts receivable as of September 30, 2013, respectively. If either of these customers were to become insolvent or otherwise unable to pay its debts, the financial condition, results of operations and cash flows of the respective segments and Griffon could be adversely affected. Reliance on third party suppliers and manufacturers may impair ability to meet ATT’s customer demands. ATT relies on a limited number of domestic and foreign companies to supply components and manufacture certain of its products. The percentage of ATT’s products sourced, based on revenue, approximated 35% in 2013. Reliance on third party suppliers and manufacturers may reduce control over the timing of deliveries and quality of ATT’s products. Reduced product quality or failure to deliver products quickly may jeopardize relationships with certain of ATT’s key customers. In addition, reliance on third party suppliers or manufacturers may result in failure to meet ATT’s customer demands. Continued turbulence in the worldwide economy may affect the liquidity and financial condition of ATT’s suppliers. Should any of these parties fail to manufacture sufficient supply, go out of business or discontinue a particular component, alternative suppliers may not be found in a timely manner, if at all. Such events could impact ATT’s ability to fill orders, which could have a material adverse effect on customer relationships. If Griffon is unable to obtain raw materials for products at favorable prices it could adversely impact operating performance. HBP’s and Plastics’ suppliers primarily provide resin, wood and steel. Assurance cannot be provided that these segments may not experience shortages of raw materials or components for products or be forced to seek alternative sources of supply. If temporary shortages due to disruptions in supply caused by weather, transportation, production delays or other factors require raw materials to be secured from sources other than current suppliers, the terms may not be as favorable as current terms or material may not be available at all. In recent years, HBP and Plastics have experienced price increases in steel and plastic resins. While most key raw materials used in Griffon’s businesses are generally available from numerous sources, raw materials are subject to price fluctuations. Because raw materials in the aggregate constitute a significant component of the cost of goods sold, price fluctuations could have a material adverse effect on Griffon’s results of operations. Griffon’s ability to pass raw material price increases to customers is limited due to supply arrangements and competitive pricing pressure, and there is generally a time lag between increased raw material costs and implementation of corresponding price increases 18 43648 for Griffon’s products. In particular, sharp increases in raw material prices are more difficult to pass through to customers and may negatively affect short-term financial performance. ATT is subject to risks associated with sourcing from Asia. A substantial amount of ATT’s finished goods sourcing is done through supply agreements with China based vendors. China does not have a well-developed, consolidated body of laws governing agreements with international customers. Enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Products entering from China may be subject to import quotas, import duties and other restrictions. Any inability to import these products into the U.S. and any tariffs that may be levied with respect to these products may have a material adverse result on ATT’s business and results of operations, financial position and cash flows. Griffon’s businesses are subject to seasonal variations and the impact of uncertain weather patterns. Generally, Griffon’s revenue and income are lowest in our first and fourth quarters ending December 31 and September 30, respectively, and highest in our second and third quarters ending March 31 and June 30, respectively, primarily due to the seasonality of ATT’s business. ATT’s lawn and garden products are used primarily in the spring and summer; in 2013 63% of ATT’s sales occurred during the second and third quarters. CBP’s business is driven by residential renovation and construction during warm weather, which is generally at reduced levels during the winter months. Demand for lawn and garden products is influenced by weather, particularly weekend weather during the peak gardening season. ATT’s sales volumes could be adversely affected by certain weather patterns such as unseasonably cool or warm temperatures, hurricanes, water shortages or floods. In addition, lack of snow or lower than average snowfall during the winter season may result in reduced sales of certain ATT products, such as snow shovels and other snow tools. As a result, ATT’s results of operations, financial results and cash flows could be adversely impacted. Further consolidation in the retail industry may adversely affect profitability. Home centers and mass merchandisers have consolidated and increased in scale. If this trend continues, customers will likely seek more favorable terms for their purchases of products, which will limit Griffon’s ability to pass through raw material or other cost increases, or to raise prices for any reason. Sales on terms less favorable than current terms could have a material adverse effect on profitability. Unionized employees could strike or participate in a work stoppage. Griffon employs approximately 5,400 people on a full-time basis, approximately 8% of whom are covered by collective bargaining or similar labor agreements (all in the Telephonics and ATT businesses). If unionized employees engage in a strike or other work stoppage, or if Griffon is unable to negotiate acceptable extensions of agreements with labor unions, a significant disruption of operations labor and increased operating costs could occur. In addition, any renegotiation or renewal of agreements could result in higher wages or benefits paid to unionized employees, which could increase operating costs and could have a material adverse effect on profitability. Griffon may be required to record impairment charges for goodwill and indefinite-lived intangible assets. Griffon is required to assess goodwill and indefinite-lived intangible assets annually for impairment or on an interim basis if changes in circumstances or the occurrence of events suggest impairment exists. If 19 38869 impairment testing indicates that the carrying value of reporting units or indefinite-lived intangible assets exceeds the respective fair value, an impairment charge would be recognized. If goodwill or indefinite-lived intangible assets were to become impaired, the results of operations could be materially and adversely affected. Trends in the baby diaper market will directly impact Griffon’s business. Recent trends have been for baby diaper manufacturers to specify thinner plastic films for use in their products which reduces the amount of product sold and Plastics’ revenue; this trend has generally resulted in Plastics incurring costs to redesign and reengineer products to accommodate required specification changes. Such decreases, or the inability to meet changing customer specifications, could result in a material decline in Plastics revenue and profits. Telephonics’ business depends heavily upon government contracts and, therefore, the defense budget. Telephonics sells products to the U.S. government and its agencies both directly and indirectly as a first- tier supplier to prime contractors in the defense industry such as Boeing, Lockheed Martin, Sikorsky and Northrop Grumman. In the year ended September 30, 2013, U.S. government contracts and subcontracts accounted for approximately 19% of Griffon’s consolidated revenue. Contracts involving the U.S. government may include various risks, including: • Termination for default or for convenience by the government; • Reduction or modification in the event of changes in the government’s requirements or budgetary constraints; • Increased or unexpected costs, causing losses or reduced profits under contracts where Telephonics’ prices are fixed, or determinations that certain costs are not allowable under particular government contracts; • The failure or inability of the prime contractor to perform its contract in circumstances where Telephonics is a subcontractor; • Failure to observe and comply with government business practice and procurement regulations such that Telephonics could be suspended or barred from bidding on or receiving awards of new government contracts; • The failure of the government to exercise options for additional work provided for in contracts; and • The government’s right, in certain circumstances, to freely use technology developed under these contracts. All of Telephonics’ U.S. Government end-user contracts contain a termination for convenience clause, regardless if Telephonics is the prime contractor or the subcontractor. This clause generally entitles Telephonics, upon a termination for convenience, to receive the purchase price for delivered items, reimbursement of allowable work-in-process costs, and an allowance for profit. Allowable costs would include the costs to terminate existing agreements with suppliers. The programs in which Telephonics participates may extend for several years, but are normally funded on an incremental basis. Decreases in the U.S. defense budget, in particular with respect to programs, to which Telephonics supplies materials, could have a material adverse impact on Telephonics financial conditions, results of operations and cash flows. The U.S. government may not continue to fund programs to which Telephonics’ development projects apply. Even if funding is continued, Telephonics may fail to compete successfully to obtain funding pursuant to such programs. Reductions to funding on existing programs or delays in the funding of new opportunities could affect the timing of revenue recognition, and impact the results of operation. 20 42158 In 2013, the Budget Control Act called for additional substantial, mandatory defense spending reductions, known as “sequestration.” There continues to be much uncertainty regarding how sequestration will be implemented. There are many variables in how the law could be applied that make it difficult to determine the specific impacts; however, we expect that sequestration will result in lower revenues, profits and cash flows for Telephonics. Ability of government to fund and conduct its operations The impact of a government shutdown for any duration could have a material adverse effect on Telephonics’ revenues, profits and cash flows. Telephonics relies on government personnel to conduct routine business processes related to the inspection and delivery of products for various programs, to approve and pay certain billings and invoices, and for other administrative services that, if disrupted, could have an immediate impact on Telephonics’ business related to government programs. Telephonics’ business could be adversely affected by a negative audit by the U.S. Government As a government contractor, and a subcontractor to government contractors, Telephonics is subject to audits and investigations by U.S. Government Agencies such as the Defense Contract Audit Agency, other Inspectors General and the Department of Justice. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. These agencies also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s management, purchasing, property, estimating, compensation, and accounting and information systems. Any costs found to be misclassified or improperly allocated to a specific contract will not be reimbursed or must be refunded if already billed and collected. Griffon could incur significant expenses in complying with audits and subpoenas issued by the government in aid of inquiries and investigations. If an audit or an investigation uncovers improper or illegal activities, Telephonics may be subject to civil and criminal penalties and/or administrative sanctions, which could include contract termination, forfeiture of profit, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. In addition, impropriety are made, Telephonics and Griffon could suffer serious reputational harm. if allegations of Many of our contracts contain performance obligations that require innovative design capabilities, are technologically complex, or are dependent upon factors not wholly within our control. Failure to meet these obligations could adversely affect customer relations, future business opportunities, and our overall profitability. Telephonics designs, develops and manufactures advanced and innovative surveillance and commu- nication products for a broad range of applications for use in varying environments. As with many of our programs, system specifications, operational requirements and test requirements are challenging, exacerbated by the need for quick delivery schedules. Technical problems encountered and delays in the development or delivery of such products, as well as the inherent discretion involved in government approval related to compliance of products supplied under government contracts, could prevent us from meeting contractual obligations, which could subject us to termination for default. Under a termination for default, the company is entitled to negotiate payment for undelivered work if the Government requests the transfer of title and delivery of partially completed supplies and materials. Conversely, if the Government does not make this request, there is no obligation to reimburse the company for its costs incurred. We may also be subject to the repayment of advance and progress payments, if any. Additionally, the company may be liable to the Government for any of its excess costs incurred in acquiring supplies and services similar to those terminated for default, and for other damages. Should any of the foregoing events occur, it could result in a material adverse effect on our financial position. 21 11016 Griffon’s companies must continually improve existing products, design and sell new products and invest in research and development in order to compete effectively. The markets for Plastics and Telephonics are characterized by rapid technological change, evolving industry standards and continuous improvements in products. Due to constant changes in these markets, future success depends on their ability to develop new technologies, products, processes and product applications. Product and technological developments are accomplished both through internally-funded R&D projects, as well as through strategic partnerships with customers. Because it is not generally possible to predict the amount of time required and costs involved in achieving certain R&D objectives, actual development costs may exceed budgeted amounts and estimated product development schedules may be extended. Griffon’s financial condition and results of operations may be materially and adversely affected if: • Product improvements are not completed on a timely basis; • New products are not introduced on a timely basis or do not achieve sufficient market penetration; • There are budget overruns or delays in research and development efforts; or • New products experience reliability or quality problems. Griffon may be unable to implement its acquisition growth strategy, which may result in added expenses without a commensurate increase in revenue and income and divert management’s attention. Making strategic acquisitions is a significant part of Griffon’s growth plans. The ability to successfully complete acquisitions depends on identifying and acquiring, on acceptable terms, companies that either complement or enhance currently held businesses or expand Griffon into new profitable businesses, and, for certain acquisitions, obtaining financing on acceptable terms. Additionally, Griffon must properly integrate acquired businesses in order to maximize profitability. The competition for acquisition candidates is intense and Griffon cannot assure that it will successfully identify acquisition candidates and complete acquisitions at reasonable purchase prices, in a timely manner, or at all. Further, there is a risk that acquisitions will not be properly integrated into Griffon’s existing structure. In implementing an acquisition growth strategy, the following may be encountered: • Costs associated with incomplete or poorly implemented acquisitions; • Expenses, delays and difficulties of integrating acquired companies into Griffon’s existing organization; • Dilution of the interest of existing stockholders; • Diversion of management’s attention; or • Difficulty in obtaining financing on acceptable terms, or at all. An unsuccessful implementation of Griffon’s acquisition growth strategy could have an adverse impact on Griffon’s results of operations, cash flows and financial condition. The loss of certain key officers or employees could adversely affect Griffon’s business. The success of Griffon is materially dependent upon the continued services of certain key officers and employees. The loss of such key personnel could have a material adverse effect on Griffon’s operating results or financial condition. 22 34841 Griffon is exposed to a variety of risks relating to non-U.S. sales and operations, including non-U.S. economic and political conditions and fluctuations in exchange rates. Griffon and its companies own properties and conduct operations in Germany, Canada, Brazil, Australia, Turkey, China, Sweden, United Kingdom and Mexico, and sell its products in many countries around the world. Sales of products through non-U.S. subsidiaries accounted for approximately 23% of consolidated revenue for the year ended September 30, 2013. These sales could be adversely affected by changes in political and economic conditions, trade protection measures, the ability of the Company to enter into industrial cooperation agreements (off-set agreements), differing intellectual property rights laws and changes in regulatory requirements that restrict the sales of products or increase costs. Enforcement of existing laws in foreign jurisdictions can be uncertain, and the lack of a sophisticated body of laws can create various uncertainties, including with respect to customer and supplier contracts. Currency fluctuations between the U.S. dollar and the currencies in the non-U.S. regions in which Griffon does business may also have an impact on future reported financial results. Griffon may not be able to protect its proprietary rights. Griffon relies on a combination of patent, copyright and trademark laws, trade secrets, confidentiality and non-disclosure agreements and other contractual provisions to protect proprietary rights. Such measures do not provide absolute protection and Griffon cannot give assurance that measures for protecting these proprietary rights are and will be adequate, or that competitors will not independently develop similar technologies. Griffon may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by another party. Griffon is regularly improving its technology and employing existing technologies in new ways. Though Griffon takes reasonable precautions to ensure it does not infringe on the rights of others, it is possible that Griffon may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by others. If Griffon is found to have infringed on the propriety rights held by others, any related litigation or settlement relating to such infringement may have a material effect on Griffon’s financial statements and financial condition. Griffon is exposed to product liability and warranty claims. Griffon is subject to product liability and warranty claims in the ordinary course of business, including with respect to former businesses now included within discontinued operations. These claims relate to the conformity of its products with required specifications, and to alleged or actual defects in Griffon’s products (or in end-products in which Griffon’s products were a component part) that cause damage to property or persons. There can be no assurance that future product liability claims will not be brought against Griffon, either by an injured customer of an end product manufacturer who used one of the products as a component or by a direct purchaser. There is also no assurance that the number and value of warranty claims will not increase as compared to historical claim rates, or that our warranty reserve at any particular time is sufficient. No assurance can be given that indemnification from customers or coverage under insurance policies will be adequate to cover future product liability claims against Griffon; for example, product liability insurance typically does not cover claims for punitive damages. Warranty claims are typically not covered by insurance at all. Product liability insurance can be expensive, difficult to maintain and may be unobtainable in the future on acceptable terms. The amount and scope of any insurance coverage may be inadequate if a product liability claim is successfully asserted. Furthermore, if any significant claims are made, the business and the related financial condition of Griffon may be adversely affected by negative publicity. 23 27615 Griffon has been, and may in the future be, subject to claims and liabilities under environmental laws and regulations. Griffon’s operations and assets are subject to environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposal of wastes, including solid and hazardous wastes, or otherwise relating to health, safety and protection of the environment, in various jurisdictions in which it operates. Griffon does not expect to make any expenditure with respect to ongoing compliance with or remediation under these environmental laws and regulations that would have a material adverse effect on its business, operating results or financial condition. However, the applicable requirements under environmental laws and regulations may change at any time. Griffon can incur environmental costs related to sites that are no longer owned or operated, as well as third-party sites to which hazardous materials are sent. It cannot be assured that material expenditures or liabilities will not be incurred in connection with such claims. See the Commitment and Contingencies footnote in the Notes to Consolidated Financial Statements for further information on environmental contingencies. Based on facts presently known, the outcome of current environmental matters are not expected to have a material adverse effect on Griffon’s results of operations and financial condition. However, presently unknown environmental conditions, changes in environmental laws and regulations or other unanticipated events may give rise to claims that may involve material expenditures or liabilities. Changes in income tax laws and regulations or exposure to additional adversely affect profitability. income tax liabilities could Griffon is subject to Federal, state and local income taxes in the U.S. and in various taxing jurisdictions outside the U.S. Tax provisions and liabilities are subject to the allocation of income among various U.S. and international tax jurisdictions. Griffon’s effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in any valuation allowance for deferred tax assets or the amendment or enactment of tax laws. The amount of income taxes paid is subject to audits by U.S. Federal, state and local tax authorities, as well as tax authorities in the taxing jurisdictions outside the U.S. If such audits result in assessments different from recorded income tax liabilities, Griffon’s future financial results may include unfavorable adjustments to its income tax provision. Compliance with restrictions and covenants in Griffon’s debt agreements may limit its ability to take corporate actions and harm its business. The senior secured credit agreement entered into by, and the terms of the senior notes issued by, Griffon each contain covenants that restrict the ability of Griffon and its subsidiaries to, among other things, incur additional debt, pay dividends, incur liens and make investments, acquisitions, dispositions, restricted payments and capital expenditures. Under the credit agreement, Griffon is also required to comply with specific financial ratios and tests. Griffon may not be able to comply in the future with these covenants or restrictions as a result of events beyond its control, such as prevailing economic, financial and industry conditions or a change in control of Griffon. If Griffon defaults in maintaining compliance with the covenants and restrictions in its credit agreement or the senior notes, its lenders could declare all of the principal and interest amounts outstanding due and payable and, in the case of the credit agreement, terminate their commitments to extend credit to Griffon in the future. If Griffon or its subsidiaries are unable to secure credit in the future, its business could be harmed. Reported earnings per share may be more volatile because of the conversion contingency provision of the notes. The outstanding convertible notes are convertible when a “market price” condition is satisfied and also upon the occurrence of other circumstances as more fully described in the Notes Payable, Capitalized Leases and Long-Term Debt footnote in the Notes to Consolidated Financial Statements. Upon 24 79943 conversion, at Griffon’s discretion, note holders will receive $1,000 in cash for each $1,000 principal amount of notes presented for conversion or an equivalent value in Griffon’s common stock, and Griffon common stock for the value above the principal amount of the notes. The potential shares of Griffon common stock issuable for value above the principal value of the notes are considered in the calculation of diluted earnings per share and volatility in Griffon’s stock price could cause these notes to be dilutive in one quarter and not in a subsequent quarter, increasing the volatility of fully diluted earnings per share. Griffon may be unable to raise additional financing if needed Griffon may need to raise additional financing in the future in order to implement its business plan, refinance debt, or to acquire new or complimentary businesses or assets. Any required additional financing may be unavailable, or only available at unfavorable terms, due to uncertainties in the credit markets. If Griffon raises additional funds by issuing equity securities, current holders of its common stock may experience significant ownership interest dilution and the new securities may have rights senior to the rights associated with current outstanding common stock. Griffon’s indebtedness and interest expense could limit cash flow and adversely affect operations and Griffon’s ability to make full payment on outstanding debt. Griffon’s indebtedness poses potential risks such as: • A substantial portion of cash flows from operations could be used to pay principal and interest thereby reducing the funds available for working capital, capital expenditures, on debt, acquisitions, product development and other general corporate purposes; • Insufficient cash flows from operations may force Griffon to sell assets, or seek additional capital, which Griffon may not be able to accomplish on favorable terms, if at all; and • The level of downturns. indebtedness may make Griffon more vulnerable to economic or industry Griffon has the ability to issue additional equity securities, which would lead to dilution of issued and outstanding common stock. The issuance of additional equity securities or securities convertible into equity securities would result in dilution to existing stockholders’ equity interests. Griffon is authorized to issue, without stockholder vote or approval, 3,000,000 shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of Griffon’s common stock. There is no present intention of issuing any such preferred stock, but Griffon reserves the right to do so in the future. In addition, Griffon is authorized to issue, without stockholder approval, up to 85,000,000 shares of common stock, of which 59,089,335 shares, net of treasury shares, were outstanding as of September 30, 2013. Additionally, Griffon is authorized to issue, without stockholder approval, securities convertible into either shares of common stock or preferred stock. Item 1B. Unresolved Staff Comments None. 25 40033 Item 2. Properties Griffon occupies approximately 7,600,000 square feet of general office, factory and warehouse space throughout the U.S., Germany, Canada, Brazil, Australia, Turkey, China, Sweden and the United Kingdom. For a description of the encumbrances on certain of these properties, see the Notes Payable, Capitalized Leases and Long-Term Debt footnote in the Notes to Consolidated Financial Statements. The following table sets forth certain information related to Griffon’s major facilities: Location Business Segment Primary Use New York, NY . . . . . . . . . . . . . . Corporate Jericho, NY . . . . . . . . . . . . . . . . . Corporate Farmingdale, NY . . . . . . . . . . . . Telephonics Huntington, NY . . . . . . . . . . . . . Telephonics Huntington, NY . . . . . . . . . . . . . Telephonics Columbia, MD . . . . . . . . . . . . . . Telephonics Stockholm, Sweden. . . . . . . . . . Telephonics Elizabeth City, NC . . . . . . . . . . Telephonics Mason, OH. . . . . . . . . . . . . . . . . . Home & Building Products/ Headquarters Office Manufacturing/R&D Manufacturing Manufacturing Manufacturing/Engineering Manufacturing/Engineering Repair and Service Office/R&D Approx. Square Footage Owned/ Leased Lease End Year 10,000 Leased 2016 6,900 Leased 2015 180,000 Owned 90,000 Owned 100,000 Leased 2016 25,000 Leased 2015 22,000 Leased 2015 22,000 Leased 2039 131,000 Owned Clopay Plastic Products Manufacturing Aschersleben, Germany . . . . . Clopay Plastic Products Manufacturing Dombuhl, Germany . . . . . . . . . Clopay Plastic Products Manufacturing Augusta, KY . . . . . . . . . . . . . . . . Clopay Plastic Products Manufacturing Nashville, TN . . . . . . . . . . . . . . . Clopay Plastic Products Manufacturing Nashville, TN . . . . . . . . . . . . . . . Clopay Plastic Products Manufacturing Jundiai, Brazil . . . . . . . . . . . . . . . Clopay Plastic Products Manufacturing Hangzhou, China . . . . . . . . . . . . Clopay Plastic Products Manufacturing Istanbul, Turkey . . . . . . . . . . . . . Clopay Plastic Products Troy, OH . . . . . . . . . . . . . . . . . . . Home & Building Products Manufacturing Russia, OH. . . . . . . . . . . . . . . . . . Home & Building Products Manufacturing Carlisle, PA . . . . . . . . . . . . . . . . . Home & Building Products Manufacturing, Distribution 1,227,000 Leased 2015 400,000 Leased 2017 Reno, NV . . . . . . . . . . . . . . . . . . . Home & Building Products Manufacturing, Distribution 380,000 Leased 2020 Camp Hill, PA . . . . . . . . . . . . . . Home & Building Products Office, Manufacturing 264,000 Owned Harrisburg, PA . . . . . . . . . . . . . . Home & Building Products Manufacturing 353,000 Owned St. Francois, Quebec . . . . . . . . Home & Building Products Manufacturing, Distribution 124,000 Leased 2015 Lewistown, PA . . . . . . . . . . . . . . Home & Building Products Manufacturing 74,000 Owned Cork, Ireland . . . . . . . . . . . . . . . . Home & Building Products Manufacturing, Distribution 32,000 Leased 2016 Victoria, Australia. . . . . . . . . . . Home & Building Products Manufacturing, Distribution 24,000 Leased 2014 New South Wales, Australia. Home & Building Products Distribution 17,000 Leased 2014 Queensland, Australia . . . . . . . Home & Building Products Distribution 22,000 Leased 2015 Western, Australia . . . . . . . . . . Home & Building Products Distribution 289,000 Owned 124,000 Owned 354,000 Owned 210,000 Owned 190,000 Leased 2014 88,000 Owned 44,000 Leased 2016 30,000 Leased 2014 867,000 Leased 2021 339,000 Owned Griffon also leases approximately 1,030,000 square feet of space for the CBP distribution centers in numerous facilities throughout the U.S. and in Canada. In addition, Griffon owns approximately 200,000 square feet of space for the ATT wood mills in the U.S. All facilities are generally well maintained and suitable for the operations conducted. Item 3. Legal Proceedings Griffon is involved in litigation, investigations and claims arising out of the normal conduct of business, including those relating to commercial transactions, product liability and warranty claims, environ- mental, employment, and health and safety matters. Griffon estimates and accrues liabilities resulting from such matters based on a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates 26 97432 are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. While it is impossible to ascertain the ultimate legal and financial liability with respect to certain contingent liabilities and claims, Griffon believes, based upon examination of currently available information, experience to date, and advice from legal counsel, that the individual and aggregate these contingent matters, after taking into liabilities resulting from the ultimate resolution of consideration our existing insurance coverage and amounts already provided for, will not have a material adverse impact on consolidated results of operations, financial position or cash flows. Item 4. Reserved PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Griffon’s Common Stock is listed for trading on the New York Stock Exchange under the symbol “GFF”. The following table shows for the periods indicated the quarterly range in the high and low sales prices for Griffon’s Common Stock and the amount of dividends paid during the last two years: Fiscal 2013 Market Prices High Low Dividends Per Share Quarter ended December 31, . . . . . . . . . . . Quarter ended March 31, . . . . . . . . . . . . . . . Quarter ended June 30, . . . . . . . . . . . . . . . . . Quarter ended September 30,. . . . . . . . . . . $11.50 12.24 12.08 12.68 $ 8.03 10.85 9.73 10.85 $0.025 0.025 0.025 0.025 $0.100 Fiscal 2012 Market Prices High Low $10.55 11.40 10.75 11.08 $7.34 9.08 7.54 8.29 Dividends Per Share $0.02 0.02 0.02 0.02 $0.08 Dividends On November 17, 2011, the Company began declaring quarterly cash dividends. During 2012, the Company declared and paid quarterly dividends of $0.02 per share, totaling $0.08 per share for the year. During 2013, the Company declared and paid quarterly dividends of $0.025 per share, totaling $0.10 per share for the year. No cash dividends on Common Stock were declared or paid during the three years ended September 30, 2011. The Company currently intends to pay dividends each quarter; however, the payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to future dividends. On November 13, 2013, the Company declared a $0.03 per share dividend payable on December 24, 2013 to shareholders of record as of December 5, 2013. Holders As of October 31, 2013, there were approximately 12,000 record holders of Griffon’s Common Stock. Securities Authorized for Issuance Under Equity Compensation Plans Information regarding securities authorized for issuance under Griffon’s equity compensation plans is contained in Part III, Item 12 of this Form 10-K. 27 87014 Issuer Purchase of Equity Securities The table below presents shares of Griffon Stock which were acquired by Griffon during the fourth quarter of 2013: ISSUER PURCHASES OF EQUITY SECURITIES (a) Total Number of Shares (or Units) Purchased 13,020 134,353(2) 448,154(3) 595,527 (b) Average Price Paid Per Share (or Unit) $11.02 11.70 11.42 $11.47 (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) 13,020 120,900 357,540 491,460 (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs $12,027(4) Period July 1–31, 2013. . . . . . . . . . . . . . . . . . . August 1–31, 2013 . . . . . . . . . . . . . . . September 1–30, 2013 . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Shares were purchased by the Company in open market purchases pursuant to share repurchase plans authorized by the Company’s Board of Directors. (2) Includes (a) 120,900 shares purchased by the Company in open market purchases pursuant to a stock buyback plan authorized by the Company’s Board of Directors and (b) 13,453 shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock to satisfy tax withholding obligations of the holders. (3) Includes (a) 357,540 shares purchased by the Company in open market purchases pursuant to a stock buyback plan authorized by the Company’s Board of Directors and (b) 90,614 shares acquired by the Company from a holder of restricted stock upon vesting of the restricted stock to satisfy tax withholding obligations of the holders. (4) On August 2, 2011, the Company’s Board of Directors authorized the repurchase of up to $50,000 of Griffon common stock; as of September 30, 2013, $12,027 remained available for the purchase of Griffon common stock under this program. 28 88437 Performance Graph The performance graph does not constitute soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any of Griffon’s filings under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date of this Annual Report on Form 10-K and irrespective of any general incorporation language in any such filings, except to the extent Griffon specifically incorporates this performance graph by reference therein. The following graph sets forth the cumulative total return to Griffon’s stockholders during the five years ended September 30, 2013, as well as an overall stock market (S&P Small Cap 600 Index) and Griffon’s peer group index (Dow Jones U.S. Diversified Industrials Index). Assumes $100 was invested on September 30, 2007, including the reinvestment of dividends, in each category. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Griffon Corporation, the S&P Smallcap 600 Index and the Dow Jones US Diversified Industrials Index $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 9/08 9/09 9/10 9/11 9/12 9/13 Griffon Corporation S&P Smallcap 600 Dow Jones US Diversified Industrials * $100 invested on 9/30/08 in stock or index, including reinvestment of dividends. 29 10115 Item 6. Selected Financial Data Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes and discontinued operations . . . . . . . . . . . . . . Provision (benefit) for income taxes . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income (loss). . . . . . . . . . . . . . . . . . . . . . Basic earnings (loss) per share: Continuing operations . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . Weighted average shares outstanding . . Diluted earnings (loss) per share: Continuing operations . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . Weighted average shares outstanding . . Capital expenditures . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of debt, net of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long term portion of debt, net of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt, net of debt discount . . . . . . . Notes: 2013 $1,871,327 For the Years Ended September 30, 2010 2011 2012 (in thousands, except per share amounts) $1,293,996 $1,830,802 $1,861,145 2009 $1,194,050 14,333 7,543 21,941 4,930 (14,349) (6,918) 13,812 4,308 $ $ $ 6,790 17,011 (7,431) $ $ $ (3,023) 3,767 0.12 (0.06) 0.07 54,428 0.12 (0.05) 0.07 56,563 — 17,011 0.30 — 0.30 55,914 0.30 — 0.30 57,329 $ $ $ — (7,431) $ (0.13) $ — (0.13) 58,919 (0.13) $ — (0.13) 58,919 9,504 88 9,592 0.16 0.00 0.16 58,974 0.16 0.00 0.16 59,993 $ $ $ 19,605 1,687 17,918 790 18,708 0.31 0.01 0.32 58,699 0.30 0.01 0.32 59,002 $ 64,441 70,748 1,788,779 $ 68,851 66,264 1,806,192 $ 87,617 60,712 1,865,254 $ 40,477 40,442 1,753,701 $ 32,697 42,346 1,143,891 10,768 17,703 25,164 20,901 78,590 678,487 689,255 681,907 699,610 688,247 713,411 503,935 524,836 98,394 176,984 Due to the acquisition of ATT occurring on September 30, 2010, none of ATT’s 2010 and prior results of operations were included in Griffon’s results. The Griffon consolidated balance sheets from September 30, 2010 forward, and related notes thereto, include ATT’s balances. 2013 includes $13,262 of restructuring charges ($8,266, net of tax, or $0.15 per share) and a loss on pension settlement of $2,142 ($1,392, net of tax, or $0.02 per share). 2012 includes $4,689 of restructuring charges ($3,048, net of tax, or $0.05 per share) and $477 of acquisition related costs ($310, net of tax, or $0.01 per share). 2011 includes $26,164 ($16,813, net of tax, or $0.29 per share) of loss on debt extinguishment; $15,152 ($9,849, net of tax, or $0.17 per share) of increased cost of goods sold related to the sale of inventory recorded at fair value in connection with acquisition accounting for ATT; and $7,543 ($4,903, net of tax, or $0.08 per share) of restructuring charges. 2010 includes $9,805 ($7,704, net of tax, or $0.13 per share) of ATT related acquisition costs; $4,180 ($2,717, net of tax, or $0.05 per share) of restructuring charges; and $1,117 ($726, net of tax, or $0.01 per share) of loss on debt extinguishment. 2009 includes a $4,488 ($2,917, net of tax, or $0.05 per share) of gain on debt extinguishment and $1,240 ($806, net of tax, or $0.01 per share) of restructuring charges. Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations may not equal earnings per share or Net income. 30 50504 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unless otherwise indicated, all references to years or year-end refers to the fiscal year ending September 30 and dollars are in thousands, except per share data) OVERVIEW The Company Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon, to further diversify, also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF. Griffon currently conducts its operations through three reportable segments: Telephonics Corporation (“Telephonics”), Home & Building Products (“HBP”) and Clopay Plastic Products Company (“Plastics”). • HBP consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay Building Products (“CBP”). HBP accounted for 46% of Griffon’s consolidated revenue in 2013, 2012 and 2011: – ATT, acquired on September 30, 2010, is a global provider of non-powered landscaping products that make work easier for homeowners and professionals. ATT’s revenue was 23% of Griffon’s consolidated revenue in both 2013 and 2012, and 24% in 2011. – CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains. CBP’s revenue was 23% of Griffon’s consolidated revenue in 2013 and 2012, and 22% in 2011. • Telephonics designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide. Telephonics’ revenue was 24% of Griffon’s consolidated revenue in both 2013 and 2012, and 25% in 2011. • Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications. Plastics’ revenue was 30% of Griffon’s consolidated revenue in both 2013 and 2012, and 29% in 2011. CONSOLIDATED RESULTS OF OPERATIONS 2013 Compared to 2012 Revenue for the year ended September 30, 2013 was $1,871,327, compared to $1,861,145 in the prior year, with the increase driven by Telephonics. Gross profit for 2013 was $417,585 compared to $418,805 in 2012, with gross margin as a percent of sales (“gross margin”) of 22.3% and 22.5%, respectively. Selling, general and administrative (“SG&A”) expenses decreased $1,227 to $340,469 in 2013 from $341,696 in 2012. SG&A expenses as a percent of revenue for 2013 decreased to 18.2% from 18.4% in 2012. In 2013, SG&A included a $2,142, non-cash, pension settlement loss resulting from the lump-sum 31 66053 buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472. Interest expense in 2013 totaled $52,520 and was in-line with the prior year of $52,007. Other income of $2,646 in 2013 and $1,236 in 2012 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non functional currencies, and net gains on investments. Griffon’s effective tax rate for continuing operations for 2013 was 52.6% compared to 22.5% in 2012. The 2013 rate reflected net discrete benefits of $325 primarily resulting from release of previously established reserves for uncertain tax positions on conclusion of tax audits, benefits from various tax planning initiatives in the prior year and benefits/provisions arising on the filing of tax returns in various jurisdictions. The 2012 rate reflected net discrete benefits of $5,110 primarily from the release of previously established reserves for uncertain tax positions on conclusion of various tax audits, and benefits related to various tax planning initiatives. Excluding discrete tax items, the 2013 rate would have been 54.9%, and the 2012 rate would have been 45.8%. In both years, the effective rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and of changes in earnings mix between domestic and non- domestic operations, all of which are material relative to the level of pretax result. Net income from continuing operations was $6,790, or $0.12 per share, for 2013 compared to $17,011, or $0.30 cents per share in the prior year. The current year results included: – Restructuring charges of $13,262 ($8,266, net of tax, or $0.15 per share); – Loss on pension settlement of $2,142 ($1,392, net of tax or $0.02 per share); and – Discrete tax benefits, net, of $325 or $0.01 per share. The prior year results included: – Restructuring charges of $4,689 ($3,048, net of tax, or $0.05 per share); – Acquisition and integration costs of $477 ($310, net of tax, or $0.01 per share); and – Discrete tax benefits, net, of $5,110, or $0.09 per share. Excluding these items from both reporting periods, 2013 Net income from continuing operations would have been $16,123, or $0.29 per share compared to $15,259, or $0.27 per share, in 2012. 2012 Compared to 2011 Revenue for the year ended September 30, 2012 was $1,861,145, compared to $1,830,802 in the prior year, with the increase driven by HBP and Plastics. Gross profit for 2012 was $418,805 compared to $393,461 in 2011, with gross margin as a percent of sales of 22.5% and 21.5%, respectively. Gross profit for 2011 reflected $15,152 of costs of goods related to the sale of inventory recorded at fair value in connection with the ATT acquisition accounting; excluding this amount, 2011 gross profit was $408,613 with a gross margin of 22.3%. SG&A expenses increased $11,327 to $341,696 in 2012 from $330,369 in 2011 in support of the increased level of sales and due to the inclusion of Southern Patio’s expenses; Southern Patio was acquired in October 2011. SG&A expenses as a percent of revenue for 2012 increased to 18.4% from 18.0% in 2011. Interest expense in 2012 totaled $52,007, an increase of $4,161 compared to the prior year, primarily as a result of the increased debt resulting from the 2011 refinancing of domestic subsidiary debt incurred in connection with the ATT acquisition. 32 15523 During 2011, in connection with the termination of a previously existing term loan, asset-backed credit facility and cash flow credit facility, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the previous term loan, and $844 of swap and other breakage costs. Other income of $1,236 in 2012 and $3,714 in 2011 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non functional currencies, and net gains on investments. Griffon’s effective tax rate for 2012 was 22.5% compared to a benefit of 48.2% in 2011. The 2012 rate reflected net discrete benefits of $5,110 primarily from the release of previously established reserves for uncertain tax positions on conclusion of various tax audits, and benefits related to various tax planning initiatives. The 2011 rate reflected net discrete benefits of $4,570 primarily from tax planning related to unremitted foreign earnings. Excluding discrete tax items, the 2012 rate would have been 45.8%, and the 2011 benefit would have been 16.4%. In both years, the effective rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, as well as the impact of tax reserves and changes in earnings mix between domestic and non-domestic operations, all of which are material relative to the level of pretax result. Net income from continuing operations was $17,011, or $0.30 per share, for 2012 compared to a loss of $7,431 or $0.13 cents per share in the prior year. The current year results included: – Restructuring charges of $4,689 ($3,048, net of tax, or $0.05 per share); – Acquisition and integration costs of $477 ($310, net of tax, or $0.01 per share); and – Discrete tax benefits, net, of $5,110, or $0.09 per share. The prior year results included: – Charges of $26,164 ($16,813, net of tax, or $0.29 per share) resulting from the refinancing of ATT acquisition related debt; – $15,152 ($9,849, net of tax, or $0.17 per share) of increased cost of goods related to the sale of inventory recorded at fair value in connection with acquisition accounting for ATT; – Restructuring charges of $7,543 ($4,903, net of tax, or $0.08 per share); – Acquisition costs of $446 ($290, net of tax, or $0.00 per share); and – Discrete tax benefits, net, of $4,570, or $0.08 per share. Excluding these items from both reporting periods, 2012 Net income from continuing operations would have been $15,259, or $0.27 per share compared to $19,854, or $0.34 per share, in 2011. Griffon evaluates performance based on Earnings (loss) per share from continuing operations and Net income (loss) from continuing operations excluding, as applicable, restructuring charges, gains (losses) from pension settlement and debt extinguishment, acquisition-related expenses including the impact of the fair value of inventory acquired as part of a business combination and discrete tax items (a non- GAAP measure). Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Earnings per share from continuing operations and Net income from continuing operations to Adjusted earnings (loss) per share from continuing operations and Adjusted net income (loss) from continuing operations: 33 51859 GRIFFON CORPORATION AND SUBSIDIARIES RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED INCOME FROM CONTINUING OPERATIONS (Unaudited) For the Years Ended September 30, 2012 2013 2011 Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . $ 6,790 $17,011 $ (7,431) Adjusting items, net of tax: Loss from debt extinguishment, net . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold . . . . . . . . . . Restructuring and related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on pension settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discrete tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted income from continuing operations . . . . . . . . . . . . . . . . — — 8,266 — 1,392 (325) $16,123 — — 3,048 310 — (5,110) $15,259 16,813 9,849 4,903 290 — (4,570) $19,854 Earnings (loss) per common share from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.12 $ 0.30 $ (0.13) Adjusting items, net of tax: Loss from debt extinguishment, net . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold . . . . . . . . . . Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on pension settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discrete tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted earnings per share from continuing operations. . . . . — — 0.15 — 0.02 (0.01) 0.29 — — 0.05 0.01 — (0.09) $ 0.27 0.29 0.17 0.08 0.00 — (0.08) 0.34 $ Weighted-average shares outstanding (in thousands). . . . . . . . . 56,563 57,329 58,919 REPORTABLE SEGMENTS The following table provides a reconciliation of Segment operating profit to Income (loss) before taxes and discontinued operations: For the Years Ended September 30, 2012 2013 2011 Income (Loss) Before Taxes Segment operating profit: Home & Building Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephonics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total segment operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net . . . . . . . . . . . . . . . . . . . . . . . . . Loss on pension settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes from continuing operations . . . . . . $ 26,130 55,076 16,589 97,795 (52,167) (29,153) — (2,142) $ 14,333 $ 37,082 49,232 13,688 100,002 (51,715) (26,346) $ 28,228 40,595 13,308 82,131 (47,448) (22,868) — (26,164) — — $(14,349) $ 21,941 Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses including the impact of the fair value of inventory acquired as part of a business combination, and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors for the same reason. 34 The following table provides a reconciliation of Segment adjusted EBITDA to Income (loss) before taxes and discontinued operations: 10936 For the Years Ended September 30, 2012 2013 2011 Segment adjusted EBITDA: Home & Building Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Telephonics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Segment adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Segment depreciation and amortization . . . . . . . . . . . . . . . . . . . . . Unallocated amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net. . . . . . . . . . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold . . . . . . . . . . . . . . Acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on pension settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes from continuing operations . . . . . $ 70,064 63,199 48,100 181,363 (52,167) (70,306) (29,153) — (13,262) — — (2,142) $ 14,333 $ 70,467 60,565 40,000 $ 77,119 50,875 37,639 171,032 (51,715) (65,864) (26,346) (4,689) 165,633 (47,448) (60,361) (22,868) — (26,164) (7,543) — (15,152) (446) — $ (14,349) (477) — $ 21,941 Home & Building Products Revenue: 2013 Years Ended September 30, 2012 2011 ATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Home & Building Products . . . . . . . . . . . . . . . . . . . . . . . . . $419,549 435,416 $854,965 $433,866 422,674 $856,540 $434,789 404,947 $839,736 Segment operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold. . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,130 3.1% $ 37,082 4.3% $ 28,228 3.4% 36,195 — 7,739 — 32,034 — 874 477 28,796 15,152 4,497 446 Segment adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . $ 70,064 8.2% $ 70,467 8.2% $ 77,119 9.2% 2013 Compared to 2012 Segment revenue decreased $1,575, or less than 1%, compared to the prior year. CBP revenue increased 3% from the prior year, primarily due to somewhat higher volume (2%) and favorable mix (1%). ATT revenue decreased 3% compared to the prior year. ATT snow tool sales were impacted by lack of snowfall during the snow season and resultant reduced demand for snow tools; in addition, retailers held high levels of snow tool inventory carried over from the prior year, further affecting 2013 snow tool sales. ATT sales in North America were also impacted by unfavorable weather conditions throughout the spring season planting season, impacting lawn and garden tool sales. Segment operating profit in 2013 was $26,130 compared to $37,082 in 2012. The current year period included $7,739 of restructuring charges primarily related to the previously announced manufacturing and operations consolidation initiative at ATT. Excluding restructuring charges, current year Segment operating profit was $33,869. The decrease from the prior year resulted from the impact of lower ATT revenue, which affected absorption of manufacturing expenses, and manufacturing inefficiencies arising in connection with the plant consolidation initiative, partially offset by reduced warehouse and distribution costs, other cost control initiatives and $873 in Byrd Amendment receipts (anti-dumping 35 72888 compensation from the U.S. government). CBP higher volume, favorable mix and improved distribution and manufacturing efficiencies contributed to the reported profit. Segment depreciation and amortization increased $4,161 from the prior year. 2012 Compared to 2011 Segment revenue increased $16,804, or 2%, compared to the prior year. ATT revenue was flat with the prior year, mainly because of weak snow tool sales, driven by the absence of snow throughout much of the country during the 2011-2012 winter, and lower lawn tool volume due to the severe drought conditions experienced throughout much of the U.S. during the year. These declines were substantially offset by the inclusion of Southern Patio, acquired in October 2011. CBP revenue increased 4% due to a combination of favorable mix (2%) and higher volume (2%). Segment operating profit in 2012 was $37,082 compared to $28,228 in 2011. Segment operating results in 2011 reflected $15,152 of costs of goods related to the sale of inventory recorded at fair value in connection with the ATT acquisition accounting; excluding the $15,152 of costs, segment operating profit would have been $43,380 for 2011. The decline in operating profit in 2012 from the adjusted $43,380 in 2011 resulted from the weak snow tool sales and lower lawn tool volume. The impact of these declines was partially offset by the inclusion of Southern Patio, as well as improved CBP profitability driven by improved volume, favorable mix, lower warehouse and distribution costs, and lower restructuring costs. Restructuring In 2013, 2012 and 2011, HBP recognized $7,739, $874 and $4,497, respectively, of restructuring and other related exit costs primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges. In 2012 and 2011, HBP had $477 and $446, respectively, of acquisition and integration costs related to the Southern Patio acquisition. Over the three-year period, HBP headcount was reduced by 144. In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $6,553 and $11,937 in restructuring costs and capital expenditures, respectively. During 2013, BPC completed the consolidation of its Auburn, Washington facility into its Russia, Ohio facility. HBP 2012 restructuring costs related primarily to an ATT facility closure and related termination benefits for administrative and production staff. HBP 2011 restructuring costs related primarily to one- time termination benefits and other personnel costs, excess facilities and related costs, and other exit costs for the completion of the CBP manufacturing facilities consolidation, started in 2009, and administrative related headcount reductions at ATT. In June 2009, CBP undertook to consolidate its manufacturing facilities. These actions were completed in 2011. CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of which were cash charges; charges include $1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. 36 Telephonics Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $453,351 $441,503 2013 Years Ended September 30, 2012 2011 $455,353 Segment operating profit . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . $ 55,076 12.1% $ 49,232 11.2% $ 40,595 7,234 3,046 7,373 750 7,518 3,815 29934 8.9% Segment adjusted EBITDA . . . . . . . . . . . . $ 63,199 13.9% $ 60,565 13.7% $ 50,875 11.2% 2013 Compared to 2012 Segment revenue increased $11,848, or 3%, compared to 2012. The current and prior year included $33,257 and $24,101, respectively, of revenue related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs, current year revenue increased 1% from the prior year, primarily due to the timing of work performed on Multi Mode Surveillance Radars for international pursuits as well as the Firescout contract. Segment operating profit increased $5,844, or 12%. Excluding the current and prior year restructuring charges, segment operating profit increased 5% and operating margin increased 30 basis points compared to the prior year. The increase was primarily due to increased revenue and lower than anticipated expenditures associated with the timing of R&D initiatives and proposal efforts. The prior year benefitted from higher gross profit from favorable manufacturing efficiencies, which were primarily due to the Light Airborne Multi-purpose Systems Multi Mode Radar (“LAMPS MMR”). During 2013, Telephonics was awarded several new contracts and incremental funding on existing contracts approximating $446,500. Contract backlog was $444,000 at September 30, 2013 with 72% expected to be realized in the next 12 months; backlog was $451,000 at September 30, 2012. 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. 2012 Compared to 2011 Segment revenue decreased $13,850, or 3%, compared to 2011. Revenue in 2012 and 2011 included $24,101 and $44,305, respectively, related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs from both years, revenue increased 2% over the prior year due to radar growth driven by LAMPS MMR, partially offset by the impact from the timing of awards on Ground Surveillance Radars (“GSR”) related to the Cerberus program. Segment operating profit increased $8,637, or 21%, mainly driven by higher gross profit from a combination of favorable program mix, and manufacturing efficiencies, partially offset by higher SG&A expenses primarily due to the timing of proposal activities. Operating results also benefited from cost reductions resulting from the voluntary early retirement plan undertaken in the prior year and other restructuring activities implemented in early 2012. Restructuring During 2013, Telephonics recognized $750 in restructuring costs in connection with the termination of a facility lease. The facility was vacated as a result of the headcount reductions and changes in organizational structure Telephonics undertook in the past two years. In 2012 and 2011, Telephonics recognized $3,815 and $3,046 of restructuring charges in connection with two discrete voluntary early retirement plans and other costs related to changes in organizational structure and facilities; such charges were primarily personnel-related, reducing headcount by 185 employees over the two-year period. 37 10170 Plastics 2013 Years Ended September 30, 2012 2011 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $563,011 $563,102 $535,713 Segment operating profit . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . Restructuring charges. . . . . . . . . . . . . . . . . . . . . . $ 16,589 2.9% $ 13,688 2.4% $ 13,308 2.5% 26,738 4,773 26,312 — 24,331 — Segment adjusted EBITDA. . . . . . . . . . . . . . . . $ 48,100 8.5% $ 40,000 7.1% $ 37,639 7.0% 2013 Compared to 2012 Revenue in 2013 was essentially flat in comparison to 2012. Excluding a 1% unfavorable impact of foreign exchange translation, revenue increased 1% mainly due to favorable mix (1%) and the pass through of higher resin costs in customer selling prices (1%), partially offset by lower volume (1%), a portion of which was attributable to Plastics exiting certain low margin products. Segment operating profit increased $2,901 compared to the prior year. Excluding the restructuring charges, current year Segment operating profit increased $7,674 due to product mix, continued efficiency improvements and the positive impact of restructuring initiatives undertaken during the year, partially offset by approximately $7,000 unfavorable impact of higher resin costs, which had not yet been reflected in increased selling prices. Plastics adjusts customer selling prices based on underlying resin costs, on a delayed basis. 2012 Compared to 2011 Revenue in 2012 increased $27,389, or 5%, compared to 2011, driven by a 10% increase in volume. The benefit of the volume growth was partially offset by the unfavorable impact of translation of European and Brazilian revenue into a stronger U.S. dollar (5%). Resin did not significantly impact reported revenue for the full year 2012. Segment operating profit increased $380 compared to the prior year primarily driven by the higher volume, a $3,700 favorable resin benefit and efficiency improvement on past capital initiatives, partially offset by the unfavorable impact of foreign exchange (2%) and a shift in product mix, as well as somewhat higher Selling, general and administrative expenses. Restructuring In February 2013, Plastics announced a restructuring project, primarily in Europe, to exit low margin products and eliminate approximately 80 positions, resulting in restructuring charges of $4,773, primarily related to one-time termination benefits and other personnel costs. This project is substantially complete. Unallocated Amounts For 2013, unallocated amounts, which consist primarily of corporate overhead costs, totaled $29,153 compared to $26,346 in 2012, with the increase primarily due to stock and incentive compensation. For 2012, unallocated amounts totaled $26,346 compared to $22,868 in 2011, with the increase primarily due to stock and incentive compensation. 38 12524 Loss on Pension Settlement In 2013, SG&A includes a $2,142, non-cash, pension settlement loss resulting from the lump-sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyout, funded by the pension plan, reduced the Company’s net pension liability by $3,472. Segment Depreciation and Amortization Segment depreciation and amortization of $70,306 increased $4,442 in 2013 compared to 2012, primarily due to capital spending. Segment depreciation and amortization of $65,864 increased $5,503 in 2012 compared to 2011, primarily due to the increased depreciation and amortization related to the Southern Patio acquisition and capital expansion at Plastics and CBP. DISCONTINUED OPERATIONS In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market. Griffon sold eleven units, closed one unit and merged two units into CBP. Operating results of substantially all of this segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; the Installation Services segment is excluded from segment reporting. Griffon substantially concluded remaining disposal activities in 2009. There was no reported revenue in 2013, 2012 and 2011. Future net cash outflows to satisfy liabilities related to disposal activities accrued as of September 30, 2013 are estimated to be $8,032 In 2013, the Company recorded a $4,651 charge to discontinued operations increasing environmental and casualty insurance reserves. A portion of this charge relates to ongoing and potential future homeowner association claims related to the former Installation Services business; claims experience has been greater than anticipated when reserves were initially established in 2008. The adjustment to environmental reserves relates to changes in status of and approach to cleanup requirements for businesses that were discontinued several years ago. At September 30, 2013, Griffon’s assets and liabilities for discontinued operations primarily related to income taxes and product liability, warranty and environmental reserves. 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 remains in a strong financial position with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis. 39 15329 The following table is derived from the Consolidated Statements of Cash Flows: Cash Flows from Continuing Operations Net Cash Flows Provided By (Used In): Years Ended September 30, 2013 2012 (in thousands) Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,683 (62,868) (52,249) $ 90,130 (90,974) (30,693) Cash flows generated by operating activities for 2013 decreased $4,447, to $85,683 compared to $90,130 in 2012. Current assets net of current liabilities, excluding short-term debt and cash, increased $11,758 to $372,639 at September 30, 2013 compared to $360,881 at the prior year end, primarily due to increases in accounts receivable and contract costs and recognized income not yet billed, and a decrease in accrued liabilities, partially offset by a decrease in inventory. During 2013, Griffon used cash in investing activities of $62,868 compared to $90,974 in 2012; the 2012 uses reflected the acquisition on Southern Patio ($22,432). In 2013, capital expenditures, net, totaled $62,868 compared to $68,542 in 2012, with the decrease being driven primarily by decreased capital expenditures at Plastics. Cash used by financing activities in 2013 totaled $52,249 compared to usage of $30,693 in the prior year. The current year included scheduled repayment of long-term borrowings ($16,867), repurchase of common stock ($32,521) and payment of dividends ($5,825). In 2012, financing activity usage primarily consisted of scheduled repayment of long-term borrowings ($18,456), repurchase of common stock ($10,382) and payment of dividends ($4,743). At September 30, 2013, $12,027 remains under Griffon’s Board authorized repurchase program. Payments related to Telephonics revenue are received in accordance with the terms of development and production subcontracts; certain of such receipts are progress or performance based payments. Plastics customers are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. Plastics sales satisfy orders that are received in advance of production, and where payment terms are established in advance. With respect to HBP, there have been no material adverse impacts on payment for sales. A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. In 2013: a. The U.S. Government and its agencies, through prime and subcontractor relationships, represented 19% of Griffon’s consolidated revenue and 77% of Telephonics revenue. b. P&G represented 14% of Griffon’s consolidated revenue and 47% of Plastics revenue. c. The Home Depot represented 11% of Griffon’s consolidated revenue and 25% of HBP revenue. No other customer exceeded 9% of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and our 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. 40 81938 At September 30, 2013, Griffon had debt, net of cash and equivalents, as follows: At September 30, 2013 At September 30, 2012 (in thousands) Cash and Equivalents and Debt Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payables and current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt, net of current maturities . . . . . . . . . Debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178,130 $209,654 10,768 678,487 13,246 702,501 17,703 681,907 16,607 716,217 Debt, net of cash and equivalents . . . . . . . . . . . . . . . . . $524,371 $506,563 On March 28, 2013, Griffon amended and increased the amount available under its Revolving Credit Facility (“Credit Agreement”) from $200,000 to $225,000 and extended its maturity from March 18, 2016 to March 28, 2018 (except that if the Company’s 7-1/8 Senior Notes due 2018 are still outstanding on October 1, 2017, the Facility will mature on October 1, 2017). The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. The current margins are 1.00% for base rate loans and 2.00% 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 Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors and a pledge of not greater than two-thirds of the equity interest in each of Griffon’s material, first-tier foreign subsidiaries. At September 30, 2013, there were $25,457 of standby letters of credit outstanding under the Credit Agreement; $199,543 was available, subject to certain covenants, for borrowing at that date. On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest is payable semi- annually. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. Proceeds from the Senior Notes were used to pay down outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and are subject to certain covenants, limitations and restrictions. The fair value of the Senior Notes approximated $583,000 on September 30, 2013 based upon quoted market prices (level 1 inputs). On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The current conversion rate of the 2017 Notes is 67.8495 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.74 per share. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion; (ii) the 42nd trading day prior to maturity of the notes; and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of September 30, 2013, aggregate dividends since the last conversion price adjustment of $0.075 per share would have resulted in an adjustment to the conversion ratio of approximately 0.66%. At both September 30, 2013 and 2012, the 2017 Notes had a capital in 41 42995 excess of par component, net of tax, of $15,720. The fair value of the 2017 Notes approximated $112,600 on September 30, 2013, based upon quoted market prices (level 1 inputs). On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans totaling $11,834. The loans mature in February 2016, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3% with the option to swap to a fixed rate. On October 21, 2013, Griffon refinanced these real estate mortgages with total principal of $17,175, maturing in October 2018 and bearing interest at LIBOR plus 2.75%. Griffon has other real estate mortgages, collateralized by real property, which bear interest at 6.3% and mature in 2016. Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to borrow $20,000 over a one-year period. The proceeds were used to purchase 1,874,737 shares of Griffon common stock in the open market for $19,973. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at Griffon’s option. In November 2011, Griffon exercised an option to convert the outstanding loan to a five-year term loan; principal is payable in quarterly installments of $250, beginning December 2011, with a balloon payment of $15,223 due at maturity (November 2016). The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. At September 30, 2013, $17,973 was outstanding. In addition, the ESOP is party to a loan agreement which requires quarterly principal payments of $156 and interest through the extended expiration date of December 2013, at which time the $3,125 balance of the loan, and any outstanding interest, will be payable. Griffon has the intent and ability to refinance the December 2013 balance and has classified the balance in Long-Term Debt. The primary purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares purchased with the proceeds of the loan and repayment is guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At September 30, 2013, $3,125 was outstanding and classified as long-term debt as the Company has the intent and ability to refinance in 2014. 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. In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at EURIBOR plus 2.45% per annum and the term loan accrues interest at EURIBOR plus 2.20% per annum. The revolving facility matures in November 2013, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the Term Loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. In February 2012, Clopay do Brazil, a subsidiary of Plastics, borrowed $4,000 at a rate of 104.5% of is Brazilian CDI (9.10% at September 30, 2013). The loan was used to refinance existing loans, collateralized by accounts receivable and a 50% guaranty by Plastics and is to be repaid in four equal, semi-annual installments of principal plus accrued interest beginning in August 2012. Clopay do Brazil also maintains lines of credit of approximately $4,950. Interest on borrowings accrue at a rate of Brazilian CDI plus 6.0% (15.23% at September 30, 2013). At September 30, 2013 there was approximately $4,600 borrowed under the lines. In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (1.48% LIBOR USD and 2.46% Bankers Acceptance Rate CDN as of September 30, 2013). The revolving facility matures in November 2015. Garant is required to maintain a certain minimum 42 00361 equity. At September 30, 2013, there were no borrowings under the revolving credit facility with CAD $15,000 available for borrowing At September 30, 2012, Griffon had $532 of 4% convertible subordinated notes due 2023 (“2023 Notes”) outstanding. On April 15, 2013, the 2023 Notes were redeemed at par plus accrued interest. At September 30, 2013, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock; this was in addition to the 1,366,000 shares of common stock authorized for repurchase under an existing buyback program. Under the repurchase programs, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. During 2011, Griffon purchased 1,531,379 shares of common stock, for a total of $12,367, or $8.08 per share, exhausting the shares under the original program. During 2012, Griffon purchased 1,187,066 shares of common stock, for a total of $10,379, or $8.74 per share pursuant to the repurchase program. During 2013, Griffon purchased 2,369,786 shares of common stock under the plan for a total of $26,285, or $11.09 per share. To date, Griffon has purchased 3,722,231 shares of common stock under the Board authorized $50,000 repurchase program, for a total of $37,973, or $10.20 per share; $12,027 remains under the $50,000 authorization. On November 13, 2013, Griffon announced that it will repurchase 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. The repurchase will be 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 transaction is exclusive of the Company’s current $50,000 authorized share repurchase program, of which $12,027 remained as of September 30, 2013. After closing of the transaction, GS Direct will continue to hold approximately 5.56 million shares (approximately 10%) of Griffon’s common stock. GS Direct has also agreed that, subject to certain exceptions, if it intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2014, it will first negotiate with the Company in good faith to sell the shares to the Company. Griffon will fund the purchase with cash on hand and the transaction will be completed in December. No cash dividends on Common Stock were declared or paid during the three years ended September 30, 2011. On November 17, 2011, the Company began declaring quarterly cash dividends. During 2012, the Company declared and paid quarterly dividends of $0.02 per share, totaling $0.08 per share for the year. During 2013, the Company declared and paid quarterly dividends of $0.025 per share, totaling $0.10 per share for the year. The Company currently intends to pay dividends each quarter; however, the payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to future dividends. On November 13, 2013, the Company declared a $0.03 per share dividend payable on December 24, 2013 to shareholders of record as of December 5, 2013. During the year ended September 30, 2013, Griffon used cash for discontinued operations of $2,090, primarily related to settling certain Installation Services liabilities. 43 47714 Contractual Obligations At September 30, 2013, payments to be made pursuant to significant contractual obligations are as follows: Long-term debt(a) . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . Rental commitments. . . . . . . . . . . . . . . . Purchase obligations(b) . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . Supplemental & post-retirement benefits(c) . . . . . . . . . . . . . . . . . . . . . . . . . Uncertain tax positions(d) . . . . . . . . . . . Total obligations . . . . . . . . . . . . . . . Payments Due by Period Total Less Than 1 Year $ 702,501 195,463 89,320 179,757 9,389 $ 10,768 44,748 21,762 171,919 9,389 1-3 Years 3-5 Years (in thousands) $ 24,351 88,718 32,634 7,762 — $663,255 61,654 19,918 76 — More than 5 Years Other $ 4,127 343 15,006 — — $ — — — — — 40,971 7,558 $1,224,959 11,027 — $269,613 7,964 — $161,429 7,348 — $752,251 14,632 — — 7,558 $7,558 $34,108 (a) Included in long-term debt is capital leases of: $1,106 (less than 1 year), $2,289 (1-3 years), $2,322 (3- 5 years) and $4,127 (more than 5 years). (b) Purchase obligations are generally for the purchase of goods and services in the ordinary course of business. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Purchase obligations that extend beyond 2013 are principally related to long-term contracts received from customers of Telephonics. (c) Griffon funds required payouts under its non-qualified supplemental defined benefit plan from its general assets and the expected payments are included in each period, as applicable. (d) Due to the uncertainty of the potential settlement of future uncertain tax positions, management is unable to estimate the timing of related payments, if any, that will be made subsequent to 2013. These amounts do not include any potential indirect benefits resulting from deductions or credits for payments made to other jurisdictions. Off-Balance Sheet Arrangements Except for operating leases and purchase obligations as disclosed herein, Griffon is not a party to any off-balance sheet arrangements. Off-Set Agreements Telephonics may enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for its products and services from customers in foreign countries. These agreements promote investment in the country, and may be satisfied through activities that do not require Griffon to use its cash, including transferring technology, providing manufacturing and other consulting support. These agreements may also be satisfied through the use of cash for such activities as purchasing supplies from in-country vendors, setting up support centers, research and development investments, acquisitions, and building or leasing facilities for in-country operations, if applicable. The amount of the offset requirement is determined by contract value awarded and negotiated percentages with customers. At September 30, 2013, Telephonics had outstanding offset agreements totaling approximately $65,000, primarily related to its Radar Systems division, some of which extend through 2024. Offset programs usually extend over several years and in some cases provide for penalties in the event Griffon fails to perform in accordance with contract requirements. 44 83420 Historically, Telephonics has not been required to pay any such penalties and as of September 30, 2013, no such penalties are estimable or probable. ACCOUNTING POLICIES AND PRONOUNCEMENTS Critical Accounting Policies liabilities, revenue and expenses. These estimates can also affect supplemental 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, information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. An estimate is considered to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on Griffon’s financial position or results of operations. The following have been identified as the most critical accounting policies and estimates: Revenue Recognition Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an arrangement exists, b) delivery has occurred, title has transferred or services are rendered, c) price is fixed and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title and risk of loss at a specified location. Revenue recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment or upon receipt by customers at the location specified in the terms of sale. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations. From time to time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances based upon historical returns experience. Telephonics earns a substantial portion of its revenue as either a prime or subcontractor from contract awards with the U.S. Government, as well as non-U.S. governments and other commercial customers. These formal contracts are typically long-term in nature, usually greater than one year. Revenue and profits from these long-term fixed price contracts are recognized under the percentage-of-completion method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs at completion. The cost performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract’s estimated costs at completion and estimated profit or loss often are required as experience is gained, and as more information is 45 15196 obtained, even though the scope of work required under the contract may or may not change, or if contract modifications occur. The impact of such adjustments or changes to estimates is made on a cumulative basis in the period when such information has become known. Gross profit is affected by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions. Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs and are incurred on the contract at an amount equal to the allowable costs plus the estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated. For contracts whose anticipated total costs exceed total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a cumulative basis. Amounts representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. From time to time, Telephonics may combine contracts if they are negotiated together, have specific requirements to combine, or are otherwise closely related. Contracts are segmented based on customer requirements. Inventories Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs. Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, Telephonics sells products in connection with programs authorized and approved under contracts awarded by the U.S. Government or agencies thereof and in accordance with customer specifications. Plastics primarily produces fabricated materials used by customers in the production of their products and these materials are produced against orders from those customers. HBP produces doors and non-powered lawn and garden tools in response to orders from customers of retailers and dealers or based on expected orders, as applicable. Warranty Accruals Direct customer and end-user warranties are provided on certain products. These warranties cover manufacturing defects that would prevent the product from performing in line with its intended and marketed use. The terms of these warranties vary by product line and generally provide for the repair or replacement of the defective product. Warranty claims data is collected and analyzed with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and the products’ respective sales and the amount of current sales. Based on these analyses, warranty accruals are recorded as an increase to cost of sales and regularly reviewed for adequacy. Stock-based Compensation Griffon has issued stock-based compensation to certain employees, officers and directors in the form of stock options and restricted stock. For stock option grants made on or after October 1, 2005, expense is recognized over the awards’ expected vesting period based on their fair value as calculated using the Black-Scholes pricing model. The Black-Scholes pricing model uses estimated assumptions for a forfeiture rate, the expected life of the options and a volatility rate using historical data. 46 68727 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. Allowances for Discount, Doubtful Account and Returns Trade receivables are recorded at their stated amount, less allowances for discounts, doubtful accounts and returns. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in SG&A expenses. Acquisitions Acquired businesses are accounted for using the acquisition method of accounting which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the fair value of acquired in-process research and development be recorded on the balance sheet. Related transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. Goodwill, Long-Lived Intangible and Tangible Assets, and Impairment Griffon has significant intangible and tangible long-lived assets on its balance sheet which includes goodwill and other intangible assets related to acquisitions. Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. As required under GAAP, goodwill and indefinite-lived intangibles are reviewed for impairment annually, for Griffon as of September 30, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using discounted future cash flows for each reporting unit. The testing of goodwill and indefinite-lived intangibles for impairment involves significant use of judgment and assumptions in the determination of a reporting unit’s fair market value. Based upon the results of the annual impairment review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, and no impairment existed as of September 30, 2013. Long-lived amortizable intangible assets, such as customer relationships and software, and tangible assets, primarily Property, plant and equipment, are amortized over their expected useful lives, which involves significant assumptions and estimates. Long-lived intangible and tangible assets are tested for impairment by comparing estimated future undiscounted cash flows to the carrying value of the asset when an impairment indicator, such as change in business, customer loss or obsolete technology, exists. Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside of Griffon’s control, or significant under- performance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of Griffon’s reporting units, which could result in an impairment charge in the future. 47 19855 Restructuring Reserves From time to time, Griffon will establish restructuring reserves at an operation. These reserves, for both termination and other exit costs, require the use of estimates. Though Griffon believes the estimates made are reasonable, they could differ materially from the actual costs. Income Taxes Griffon’s effective tax rate is based on income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which Griffon operates. For interim financial reporting, the annual tax rate is estimated based on projected taxable income for the full year, and a quarterly income tax provision is recorded in accordance with the anticipated annual rate. As the year progresses, the annual tax rate is refined as new information becomes available, including year-to-date financial results. This process often results in changes to the effective tax rate throughout the year. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which a tax benefit has been recorded in the income statement. The likelihood that the deferred tax asset balance will be recovered from future taxable income is assessed at least quarterly, and the valuation allowance, if any, is adjusted accordingly. Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. A number of years may elapse before a particular matter for which Griffon has recorded a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, Griffon believes its liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in Griffon’s tax provision and effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution. The liability for unrecognized tax benefits is generally presented as noncurrent. However, if it is anticipated that a cash settlement will occur within one year, that portion of the liability is presented as current. Interest and penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense. Pension Benefits Griffon sponsors defined and supplemental benefit pension plans for certain active and retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. The actuarial assumptions used to determine pension liabilities and assets, as well as pension expense, are reviewed on an annual basis when modifications to assumptions are made based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plans’ investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments with the appropriate spot rate applicable to the timing 48 81563 of the projected future benefit payments. The assumptions utilized in recording Griffon’s obligations under the defined benefit pension plans are believed to be reasonable based on experience and advice from independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect Griffon’s financial position or results of operations. The U.S. components of the defined benefit plans, which excludes the supplemental and post retirement healthcare and insurance benefit plans, are frozen and have ceased accruing benefits. Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc. Pension Plan. The merged qualified defined benefit plans was named the Clopay Ames True Temper Pension Plan (“CATT Plan”). The ATT supplemental executive retirement plan was frozen to new entrants and participants in the plan ceased accruing benefits in 2008. Newly issued but not yet effective accounting pronouncements In February 2013, the FASB issued new accounting guidance requiring enhanced disclosures for items reclassified out of accumulated other comprehensive income. The guidance does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2012, with early adoption permitted. As this new guidance is related to presentation only, the implementation of this guidance in the first quarter of fiscal year 2014 will not have a material effect on the Company’s financial condition or results of operations. In July 2013, the FASB issued new accounting guidance requiring an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss or tax credit carryforward, except for instances when the carryforward is not available to settle any additional income taxes and an entity does not intend to use the deferred tax benefit for these purposes. In these circumstances, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for the Company beginning in 2015 and is not expected to have a material impact on the Company’s financial condition or results of operations. Recently issued effective accounting pronouncements In June 2011, the FASB issued new accounting guidance requiring the presentation of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The new accounting rules were effective for the Company beginning in 2013 and did not have a material effect on the Company’s financial condition or results of operations and the Company presented comparable financial results. In September 2011, the FASB issued new accounting guidance that allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment testing of goodwill and indefinite life intangibles. This guidance is effective for the Company beginning in 2013 and did not have an impact on the Company’s financial condition or results of operations. The Company has implemented all new accounting pronouncements that are in effect and that may impact 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. its financial statements and does not believe that 49 02983 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rates Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate debt and investments in cash and 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 Germany, Canada, Brazil, Australia, Turkey, China, Sweden, United Kingdom and Mexico; therefore, changes in the value of the currencies of these countries affect the financial position and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non- U.S. operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 10% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows. Item 8. Financial Statements and Supplementary Data The financial statements of Griffon and its subsidiaries and the report thereon of Grant Thornton LLP are included herein: (cid:3) Report of Independent Registered Public Accounting Firm. (cid:3) Consolidated Balance Sheets at September 30, 2013 and 2012. (cid:3) Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended September 30, 2013, 2012 and 2011. (cid:3) Consolidated Statements of Cash Flows for the years ended September 30, 2013, 2012 and 2011. (cid:3) Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2013, 2012 and 2011. (cid:3) Notes to Consolidated Financial Statements. (cid:3) Schedule II—Valuation and Qualifying Account. 50 84752 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Griffon Corporation We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2013 and 2012, and the related consolidated statements of operations, and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2013. We also have audited the Company’s internal control over financial reporting as of September 30, 2013, based on criteria established in 1992 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). The Company’s management is responsible for these financial statements, financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements, financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. its inherent Because of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. limitations, In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Griffon Corporation and subsidiaries as of September 30, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. In addition, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2013, based on criteria established in 1992 Internal Control—Integrated Framework issued by COSO. /s/ GRANT THORNTON LLP New York, New York November 15, 2013 51 13949 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) CURRENT ASSETS Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net of allowances of $6,136 and $5,433 . . . . Contract costs and recognized income not yet billed, net of progress payments of $6,941 and $3,748 . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTANGIBLE ASSETS, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ASSETS OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . At September 30, 2013 At September 30, 2012 $ 178,130 256,215 $ 209,654 239,857 109,828 230,120 48,903 1,214 824,410 353,593 357,730 221,391 28,580 3,075 70,777 257,868 47,472 587 826,215 356,879 358,372 230,473 31,317 2,936 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,788,779 $1,806,192 CURRENT LIABILITIES Notes payable and current portion of long-term debt . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LONG-TERM DEBT, net of debt discount of $13,246 and $16,607 . OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LIABILITIES OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . 10,768 163,610 106,743 3,288 284,409 678,487 170,675 4,744 $ 17,703 141,704 110,337 3,639 273,383 681,907 193,107 3,643 Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,138,315 1,152,040 COMMITMENTS AND CONTINGENCIES – See Note 14 SHAREHOLDERS’ EQUITY Preferred stock, par value $0.25 per share, authorized 3,000 shares, no shares issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock, par value $0.25 per share, authorized 85,000 shares, issued 77,616 shares and 76,509 shares . . . . . . . . . . . . . . . . Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury shares, at cost, 18,527 common shares and 15,621 common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 19,404 494,412 434,363 (274,602) (3,339) (19,774) 650,464 — 19,127 482,009 436,421 (242,081) (19,559) (21,765) 654,152 Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . $1,788,779 $1,806,192 The accompanying notes to consolidated financial statements are an integral part of these statements. 52 63314 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) Years Ended September 30, 2012 2013 2011 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,871,327 1,453,742 $1,861,145 1,442,340 $1,830,802 1,437,341 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . Restructuring and other related charges . . . . . . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417,585 340,469 13,262 353,731 63,854 (52,520) 353 — 2,646 (49,521) 14,333 7,543 418,805 341,696 4,689 346,385 72,420 (52,007) 292 — 1,236 (50,479) 21,941 4,930 393,461 330,369 7,543 337,912 55,549 (47,846) 398 (26,164) 3,714 (69,898) (14,349) (6,918) Income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . . . . $ 6,790 $ 17,011 $ (7,431) Discontinued operations: Loss from operations of discontinued businesses . . . . . . . . . . . Benefit from income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . Pension amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss), net of taxes . . . . . . . . . . $ $ $ $ $ $ (4,651) 1,628 (3,023) 3,767 0.12 (0.06) 0.07 54,428 0.12 (0.05) 0.07 $ $ $ $ $ — — — 17,011 0.30 0.00 0.30 55,914 0.30 0.00 0.30 $ $ $ $ $ — — — (7,431) (0.13) 0.00 (0.13) 58,919 (0.13) 0.00 (0.13) 56,563 57,329 58,919 3,767 $ 17,011 $ (7,431) (3,090) 19,310 16,220 (6,754) (5,081) (11,835) (11,232) (14,074) (25,306) Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,987 $ 5,176 $ (32,737) The accompanying notes to consolidated financial statements are an integral part of these statements. 53 22392 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset impairment charges – restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred financing costs and debt discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Gain) loss on sale/disposal of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable and contract costs and recognized income not yet billed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in accounts payable, accrued liabilities and income taxes payable . . . . . . . . . . . . Other changes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended September 30, 2013 2011 2012 $ 3,767 $ 17,011 $ (7,431) 3,023 70,748 — 12,495 4,316 1,801 6,232 — 5,075 (498) — 66,264 — 10,439 — 1,212 6,023 — (2,627) 56 — 60,712 15,152 8,956 — 1,225 6,733 26,164 (2,749) (251) (58,026) 26,887 6,678 652 2,533 27,269 9,011 (3,281) (46,368) 5,121 (30,593) (12,803) 9,065 (42,604) 3,809 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,683 90,130 35,385 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in funds restricted for capital projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,441) — — 1,573 (68,851) (22,432) — 309 (87,617) (855) 4,629 1,510 Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,868) (90,974) (82,333) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect from exercise/vesting of equity awards, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,825) (32,521) 303 (16,867) 2,950 (833) — — 150 394 (4,743) (10,382) 4,000 (18,546) (1,859) (97) — — 834 100 — (18,139) 674,251 (498,572) 3,538 (21,653) (19,973) 2,306 7 345 Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,249) (30,693) 122,110 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,090) (2,090) — (2,801) (2,801) 963 (962) (962) (973) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,524) 209,654 (33,375) 243,029 73,227 169,802 CASH AND EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178,130 $209,654 $ 243,029 Supplemental Disclosure of Cash Flow Information: Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,243 15,665 $ 49,533 8,713 $ 21,396 10,219 The accompanying notes to consolidated financial statements are an integral part of these statements. 54 86673 GRIFFON CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) Common Stock Shares Par Value Capital in Excess of Par Value Retained Earnings Treasury Shares Shares Cost (in thousands) Balance at 9/30/2010 . . . . . . . . . . . . 74,580 $18,645 $460,955 $431,584 12,466 $(213,560) Net loss. . . . . . . . . . . . . . . . . . . . . . . . . — Common stock issued for — (7,431) — — — options exercised . . . . . . . . . . . . . Tax effect from exercise/vesting of equity awards, net . . . . . . . . . Amortization of deferred compensation. . . . . . . . . . . . . . . . . Common stock acquired . . . . . . . . Equity awards granted, net . . . . . ESOP purchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . ESOP allocation of common stock . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . Other comprehensive income 339 — — — 1,265 — — — 85 — — — 316 — — — 2,425 7 — — (588) — 173 8,956 — — — — — — — — — 1,968 — — — (18,139) — — — — — — — — — — — (loss), net of tax. . . . . . . . . . . . . . — Balance at 9/30/2011 . . . . . . . . . . . . 76,184 $19,046 $471,928 $424,153 14,434 $(231,699) — Net income . . . . . . . . . . . . . . . . . . . . . Dividend . . . . . . . . . . . . . . . . . . . . . . . — Tax effect from exercise/vesting of equity awards, net . . . . . . . . . — 17,011 — (4,743) — — — — — — 834 — — — — — — — — — Amortization of deferred compensation. . . . . . . . . . . . . . . . . Common stock acquired . . . . . . . . Equity awards granted, net . . . . . ESOP allocation of common stock . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . Other comprehensive income — — 325 — — — — 81 — — (1,064) (128) — — 10,439 — — — 1,187 — — — — — — — (10,382) — — — — (loss), net of tax. . . . . . . . . . . . . . — Balance at 9/30/2012 . . . . . . . . . . . . 76,509 $19,127 $482,009 $436,421 15,621 $(242,081) — Net income . . . . . . . . . . . . . . . . . . . . . Dividend . . . . . . . . . . . . . . . . . . . . . . . — Tax effect from exercise/vesting of equity awards, net . . . . . . . . . 3,767 — — (5,825) — — — — — — 150 — — — — — — — — — Amortization of deferred compensation. . . . . . . . . . . . . . . . . Common stock acquired . . . . . . . . Equity awards granted, net . . . . . ESOP allocation of common stock . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . Other comprehensive income — — 1,107 — — — — 277 — — (472) — 230 — 12,495 — — — 2,906 — — — — — — — (32,521) — — — (loss), net of tax. . . . . . . . . . . . . . — Balance at 9/30/2013 . . . . . . . . . . . . 77,616 $19,404 $494,412 $434,363 18,527 $(274,602) — — — — — Accumulated Other Comprehensive Income (Loss) Deferred Compensation Total $ 17,582 — $ (4,491) — $710,715 (7,431) — — — — — — — — (25,306) $ (7,724) — — — — — — — — (11,835) $(19,559) — — — — — — — — 16,220 — — 668 — — 2,510 7 668 (18,139) (272) (19,973) (19,973) — — — $(23,796) — — — 2,031 — — — — — $(21,765) — — — 1,991 — — — — — 173 8,956 (25,306) $651,908 17,011 (4,743) 834 2,031 (10,382) (983) (128) 10,439 (11,835) $654,152 3,767 (5,825) 150 1,991 (32,521) (195) 230 12,495 16,220 $ (3,339) $(19,774) $650,464 The accompanying notes to consolidated financial statements are an integral part of these statements. 55 61013 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1—DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon, to further diversify, also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF. Griffon currently conducts its operations through three segments: • Home & Building Products (“HBP”) consists of two companies, Ames True Temper, Inc (“ATT”) and Clopay Building Products (“CBP”): – ATT, acquired by Griffon on September 30, 2010, is a global provider of non-powered landscaping products that make work easier for homeowners and professionals. – CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains. • Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide. • Clopay Plastic Products Company (“Plastics”) is an international leader in the development and laminated and printed specialty plastic films used in a variety of production of embossed, hygienic, health-care and industrial applications. Consolidation The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Earnings (Loss) per share Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations may not equal earnings per share of Net income. Discontinued operations—Installation Services In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors 56 18348 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market. Operating results of substantially all of this segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; the Installation Services segment is excluded from segment reporting. At September 30, 2013, Griffon’s assets and liabilities for discontinued operations primarily related to income taxes and product liability, warranty and environmental reserves. Reclassifications and adoption of new accounting guidance Certain amounts in prior years have been reclassified to conform to the current year presentation. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of discontinued assets and liabilities, and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates. Cash and equivalents Griffon considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank deposits. Griffon had cash in non-U.S. bank accounts of approximately $21,400 and $15,900 at September 30, 2013 and 2012, respectively. Substantially all U.S. cash and equivalents are covered by government insurance or backed by government securities. Griffon regularly evaluates the financial stability of all institutions and funds that hold its cash and equivalents. Fair value of financial instruments The carrying values of cash and equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates. The fair values of Griffon’s 2018 senior notes and 2017 4% convertible notes approximated $583,000 and $112,600, respectively, on September 30, 2013. Fair values were based upon quoted market prices (level 1 inputs). 57 90541 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Insurance contracts with a value of $3,789 and $4,183 and trading securities with a value of $1,194 and $697 at September 30, 2013 and 2012, respectively, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 2 inputs) and are included in Other current assets on the consolidated balance sheet. Items Measured at Fair Value on a Recurring Basis In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates. In order to manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. During 2013, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of inter-company liabilities payable in USD. At inception, these hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current assets until settlement. Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) as Other income. A gain of $81 was recorded in Other Income in 2013 for the settled contacts and there were no unsettled contracts that qualify for hedge accounting as of September 30, 2013. At September 30, 2013, Griffon had $750 of Australian dollar contracts at a weighted average rate of $1.07. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and a fair value loss of $46 was recorded in Accrued liabilities and to Other income, net for the outstanding contracts, based on similar contract values (level 2 inputs), for the year ended September 30, 2013, respectively. All contracts expire in 15 to 90 days. Pension plan assets with a fair value of $153,731 at September 30, 2013, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs), quoted market prices for similar assets (level 2 inputs) and derived from audited financial statements (level 3 inputs). Non-U.S. currency translation Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates. Adjustments resulting from currency translation have been recorded in the equity section of the balance sheet in Accumulated other comprehensive loss as cumulative translation adjustments. Cumulative translation adjustments were $20,113 and $23,202 at September 30, 2013 and 2012, respectively. Assets and liabilities of an entity that are denominated in currencies other than that entity’s functional currency are remeasured into the functional currency using period end exchange rates, or historical rates where applicable to certain balances. Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income (Loss) as a component of Other income (expense). Revenue recognition Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an arrangement exists, b) delivery has occurred, title has transferred or services are rendered, c) price is fixed and determinable and d) collectability is reasonably assured. Goods are sold on terms which transfer title and risk of loss at a specified location. Revenue recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment 58 44998 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) or upon receipt by customers at the location specified in the terms of sale. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations. From time to time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances based upon historical returns experience. Telephonics earns a substantial portion of its revenue as either a prime or subcontractor from contract awards with the U.S. Government, as well as non-U.S. governments and other commercial customers. These formal contracts are typically long-term in nature, usually greater than one year. Revenue and profits from these long-term fixed price contracts are recognized under the percentage-of-completion method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs at completion. The cost performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract’s estimated costs at completion and estimated profit or loss often are required as experience is gained, and as more information is obtained, even though the scope of work required under the contract may or may not change, or if contract modifications occur. The impact of such adjustments or changes to estimates is made on a cumulative basis in the period when such information has become known. Gross profit is affected by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions. Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs, and are incurred on the contract at an amount equal to the allowable costs plus the estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated. For contracts whose anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a cumulative basis. Amounts representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. From time to time, Telephonics may combine contracts if they are negotiated together, have specific requirements to combine, or are otherwise closely related. Contracts are segmented based on customer requirements. 59 49843 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Accounts receivable, allowance for doubtful accounts and concentrations of credit risk Accounts receivable is composed principally of trade accounts receivable that arise primarily from the sale of goods or services on account and is stated at historical cost. A substantial portion of Griffon’s trade receivables are from customers of HBP, of which the largest customer is Home Depot, whose financial condition is dependent on the construction and related retail sectors of the economy. In addition, a significant portion of Griffon’s trade receivables are from one Plastics customer, P&G, whose financial condition is dependent on the consumer products and related sectors of the economy. As a percentage of consolidated accounts receivable, U.S. Government related programs were 19%, P&G was 12% and Home Depot was 10%. Griffon performs continuing evaluations of the financial condition of its customers, and although Griffon generally does not require collateral, letters of credit may be required from customers in certain circumstances. Trade receivables are recorded at the stated amount, less allowance for doubtful accounts and, when appropriate, for customer program reserves and cash discounts. The allowance represents estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency). The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically identified, as well as an amount for customer defaults based on a formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. The provision related to the allowance for doubtful accounts is recorded in SG&A expenses. The Company writes-off accounts receivable when they are deemed to be uncollectible. Customer program reserves and cash discounts are netted against accounts receivable when it is customer practice to reduce invoices for these amounts. The amount netted against accounts receivable in 2013 and 2012 was $6,556 and $8,653, respectively. Contract costs and recognized income not yet billed Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met. Inventories Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs. Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, Telephonics sells products in connection with programs authorized and approved under contracts awarded by the U.S. Government or agencies thereof and in accordance with customer specifications. Plastics primarily produces fabricated materials used by customers in the production of their products and these materials are produced against orders from those customers. HBP produces doors and non-powered lawn and garden tools in response to orders from customers of retailers and dealers or based on expected orders, as applicable. Property, plant and equipment Property, plant and equipment includes the historical cost of land, buildings, equipment and significant improvements to existing plant and equipment. Expenditures for maintenance, repairs and minor 60 40373 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is recognized. Depreciation expense, which includes amortization of assets under capital leases, was $62,911, $58,216 and $52,844 for the years ended September 30, 2013, 2012 and 2011, respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives for property, plant and equipment are as follows: buildings and building improvements, 25 to 40 years; machinery and equipment, 2 to 15 years and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter. Capitalized interest costs included in Property, plant and equipment were $4,030, $2,975 and $2,250 for the years ended September 30, 2013, 2012 and 2011, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2013 was approximately $216,000. Goodwill and indefinite-lived intangibles Goodwill is the excess of the acquisition cost of a business over the fair value of the identifiable net assets acquired. Goodwill is not amortized, but is subject to an annual impairment test unless during an interim period, impairment indicators, such as a significant change in the business climate, exist. impairment Griffon performed its annual testing of goodwill as of September 30, 2013. The performance of the test involves a two-step process. The first step involves comparing the fair value of Griffon’s reporting units with the reporting unit’s carrying amount, including goodwill. Griffon generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the present value of expected future cash flows. This method uses market assumptions specific to Griffon’s reporting units. If the carrying amount of a reporting unit exceeds the impairment test to reporting unit’s fair value, Griffon performs the second step of the goodwill determine the amount of impairment loss. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. Griffon defines its reporting units as its three segments. Griffon used five year projections and a 3.0% terminal value to which discount rates between 9% and 11.25% were applied to calculate each unit’s fair value. To substantiate fair values derived from the income approach methodology of valuation, the implied fair value was reconciled to Griffon’s market capitalization, the results of which supported the implied fair values. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside Griffon’s control, or significant underperformance relative to historical or project future operating results, could result in a significantly different estimate of the fair value of the reporting units, which could result in a future impairment charge. Based upon the results of the annual impairment review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and no impairment existed. Similar to goodwill, Griffon tests indefinite-lived intangible assets at least annually and when indicators of impairment exist. Griffon uses a discounted cash flow method to calculate and compare the fair value of the intangible to its book value. This method uses market assumptions specific to Griffon’s reporting units, which are reasonable and supportable. If the fair value is less than the book value of the indefinite-lived intangibles, an impairment charge would be recognized. 61 80224 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) There was no impairment related to any goodwill or indefinite-lived intangible assets in 2013, 2012 or 2011. Definite-lived long-lived assets Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting purposes, definite-lived intangible assets are amortized on a straight-line basis over their useful lives, generally eight to twenty-five years. Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. There were no indicators of impairment during the three years ending September 30, 2013. Income taxes Income taxes are accounted for under the liability method. Deferred taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. The carrying value of Griffon’s deferred tax assets is dependent upon Griffon’s ability to generate sufficient future taxable income in certain tax jurisdictions. Should Griffon determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made. Griffon provides for uncertain tax positions and any related interest and penalties based upon Management’s assessment of whether a tax benefit is more likely than not of being sustained upon examination by tax authorities. At September 30, 2013 Griffon believes that it has appropriately accounted for all unrecognized tax benefits. As of September 30, 2013, 2012 and 2011, Griffon has recorded unrecognized tax benefits in the amount of $10,520, $11,876 and $12,910, respectively. Accrued interest and penalties related to income tax matters are recorded in the provision for income taxes. Research and development costs, shipping and handling costs and advertising costs Research and development costs not recoverable under contractual arrangements are charged to SG&A expense as incurred and amounted to $22,400, $23,600 and $23,900 in 2013, 2012 and 2011, respectively. Selling, general and administrative (“SG&A”) expenses include shipping and handling costs of $39,600 in 2013, $40,200 in 2012 and $41,600 in 2011 and advertising costs, which are expensed as incurred, of $23,000 in 2013, $22,000 in 2012 and $23,000 in 2011. Risk, retention and insurance Griffon’s property and casualty insurance programs contain various deductibles that, based on Griffon’s experience, are reasonable and customary for a company of its size and risk profile. Griffon generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, general, product and automobile liability as well as property damage and business interruption losses resulting from certain events. Griffon does not consider any of the deductibles to represent a material risk to Griffin. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably 62 28521 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) estimated. Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis. In the U.S., Griffon currently self-assumes its general and product liability claims up to $350 per occurrence and its workers’ compensation and automobile liability claims up to $250 per occurrence. Third-party insurance provides primary level coverage in excess of these deductible amounts up to certain specified limits. In addition, Griffon has excess liability insurance from third-party insurers on both an aggregate and an individual occurrence basis substantially in excess of the limits of the primary coverage. Griffon has local insurance coverage in Germany, Canada, Brazil, Australia, Turkey, China, Sweden, and Mexico. Griffon has worldwide excess coverage above these local programs. Griffon Corporation and its U.S. subsidiaries also self insures health related claims to a maximum of $300 per participant, per year. Pension benefits Griffon sponsors defined and supplemental benefit pension plans for certain active and retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. The actuarial assumptions used to determine pension liabilities and assets, as well as pension expense, are reviewed on an annual basis when modifications to assumptions are made based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plans’ investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments with the appropriate spot rate applicable to the timing of the projected future benefit payments. The assumptions utilized in recording Griffon’s obligations under the defined benefit pension plans are believed to be reasonable based on experience and advice from independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect Griffon’s financial position or results of operations. The U.S. components of the defined benefit plans, which excludes the supplemental and post retirement healthcare and insurance benefit plans, are frozen and have ceased accruing benefits. Newly issued but not yet effective accounting pronouncements In February 2013, the FASB issued new accounting guidance requiring enhanced disclosures for items reclassified out of accumulated other comprehensive income. The guidance does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2012, with early adoption permitted. As this new guidance is related to presentation only, the implementation of this guidance in the first quarter of fiscal year 2014 will not have a material effect on the Company’s financial condition or results of operations. In July 2013, the FASB issued new accounting guidance requiring an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss or tax credit carryforward, except for instances when the carryforward is not available to settle any additional income taxes and an entity does not intend to use the deferred tax benefit for these purposes. In these circumstances, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for the 63 74916 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Company beginning in 2015 and is not expected to have a material impact on the Company’s financial condition or results of operations. Recently issued effective accounting pronouncements In June 2011, the FASB issued new accounting guidance requiring the presentation of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of changes in shareholders’ equity. The new accounting rules were effective for the Company beginning in 2013 and did not have a material effect on the Company’s financial condition or results of operations and the Company presented comparable financial results. In September 2011, the FASB issued new accounting guidance that allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative impairment testing of goodwill and indefinite life intangibles. This guidance is effective for the Company beginning in 2013 and did not have an impact on the Company’s financial condition or results of operations. The Company has implemented all new accounting pronouncements that are in effect and that may there are any other new accounting impact pronouncements that have been issued that might have a material impact on its financial position or results of operations. its financial statements and does not believe that NOTE 2—ACQUISITIONS On October 17, 2011, Griffon acquired the pots and planters business of Southern Sales & Marketing Group, Inc. (“SSMG”) for $22,432. The acquired business, which markets its products under the Southern Patio brand name (“Southern Patio”), is a leading designer, manufacturer and marketer of landscape accessories. Southern Patio, which, upon acquisition, was integrated with ATT, had revenue exceeding $40,000 in 2011. The accounts of the acquired company, after adjustments to reflect fair market values assigned to assets purchased from SSMG, have been included in the consolidated financial statements from date of acquisition; acquired inventory was not significant. The following table summarizes the fair values of the assets acquired as of the date of the acquisition and the amounts assigned to goodwill and intangible asset classifications: Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortizable intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indefinite life intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,673 416 4,655 11,077 2,611 $22,432 64 41113 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the Southern Patio acquisition are as follows: Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization Period (Years) N/A Indefinite 25 $ 4,655 2,611 11,077 $18,343 NOTE 3—INVENTORIES The following table details the components of inventory: Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,560 63,930 100,630 $230,120 $ 63,596 67,077 127,195 $257,868 At September 30, 2013 At September 30, 2012 NOTE 4—PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: Land, building and building improvements . . . . . . . . Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation and amortization. . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At September 30, 2013 At September 30, 2012 $ 130,905 661,094 35,884 827,883 (474,290) $ 353,593 $ 125,330 622,983 34,890 783,203 (426,324) $ 356,879 NOTE 5—GOODWILL AND OTHER INTANGIBLES The following table provides changes in carrying value of goodwill by segment through the year ended September 30, 2013: At September 30, 2011 Goodwill from 2012 acquisitions Other adjustments including currency translations Other adjustments including currency translations At September 30, 2013 At September 30, 2012 Home & Building Products. . . . . . . . . . . . . . . . Telephonics. . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . $265,147 18,545 74,196 Total . . . . . . . . . . . . . . . . . $357,888 $4,655 — — $4,655 $ — — (4,171) $(4,171) $269,802 18,545 70,025 $358,372 $ — — (642) $(642) $269,802 18,545 69,383 $357,730 65 73945 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset: Customer relationships. . . . . . . . . . . . . . . . . . . . . . Unpatented technology . . . . . . . . . . . . . . . . . . . . . Total amortizable intangible assets . . . . . Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total intangible assets. . . . . . . . . . . . . . . . . . At September 30, 2013 Gross Carrying Amount Accumulated Amortization $166,985 6,804 173,789 79,567 $29,049 2,916 31,965 — Average Life (Years) 25 12.5 At September 30, 2012 Gross Carrying Amount Accumulated Amortization $167,603 6,751 174,354 80,252 $21,799 2,334 24,133 — $253,356 $31,965 $254,606 $24,133 Amortization expense for intangible assets subject to amortization was $7,837, $8,048 and $7,867 for the years ended September 30, 2013, 2012 and 2011, respectively. Amortization expense for each of the next five years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2014 - $7,513; 2015 - $7,357; 2016 - $7,244; 2017 - $7,164 and 2018 - $7,092; thereafter - $105,454. NOTE 6—DISCONTINUED OPERATIONS In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market. Operating results of substantially all of this segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; the Installation Services segment is excluded from segment reporting. In 2008, Griffon’s Board of Directors approved a plan to exit substantially all operating activities of the Installation Services segment. In 2008, Griffon sold eleven units, closed one unit and merged two units into CBP. Griffon substantially concluded its remaining disposal activities in 2009. There was no reported revenue in 2013, 2012 and 2011. In 2013, the Company recorded a $4,651 charge to discontinued operations increasing environmental and casualty insurance reserves. A portion of this charge relates to ongoing and potential future homeowner association claims related to the former Installation Services business; claims experience has been greater than anticipated when reserves were initially established in 2008. The adjustment to environmental reserves relates to changes in status of and approach to cleanup requirements for businesses that were discontinued several years ago. At September 30, 2013, Griffon’s assets and liabilities for discontinued operations primarily related to income taxes and product liability, warranty and environmental reserves. 66 88678 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The following amounts related primarily to the Installation Services segment have been segregated from Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the consolidated balance sheets: At September 30, 2013 At September 30, 2012 Assets of discontinued operations: Prepaid and other current assets. . . . . . . . . . . . . . Other long-term assets. . . . . . . . . . . . . . . . . . . . . . . . Total assets of discontinued operations . . . . . . . Liabilities of discontinued operations: Accrued liabilities, current . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . Total liabilities of discontinued operations . . . . $1,214 3,075 $4,289 $3,288 4,744 $8,032 $ 587 2,936 $3,523 $3,639 3,643 $7,282 NOTE 7—ACCRUED LIABILITIES The following table details the components of accrued liabilities: At September 30, 2013 At September 30, 2012 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties and rebates. . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent, utilities and freight. . . . . . . . . . . . . . . . . . . . . . . . . . Income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing and advertising. . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,771 20,616 10,245 7,511 2,224 5,045 343 1,985 — 3,857 10,146 $106,743 $ 42,637 20,588 10,589 8,373 3,649 4,072 2,071 1,513 129 3,640 13,076 $110,337 NOTE 8—RESTRUCTURING AND OTHER RELATED CHARGES In January 2013, ATT announced its intention to close certain of its manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $3,000 for one-time termination benefits and other personnel-related costs and $1,000 for facility exit costs. ATT expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $6,553 and $11,937 in restructuring costs and capital expenditures, respectively. In 2013, 2012 and 2011, HBP recognized $7,739, $874 and $4,497, respectively, in restructuring and other related exit costs. In 2013, restructuring and other related charges primarily related to one-time 67 87802 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) termination benefits, facility costs, other personnel costs and asset impairment charges related to the ATT and BPC plant consolidation initiatives. In 2012 and 2011, ATT restructuring and other related exit costs primarily related to termination benefits for operating personnel due to the closing of the Bernie, MO facility and other administrative personnel. Over the three years, headcount was reduced by 144. During 2013, BPC completed the consolidation of its Auburn, Washington facility into its Russia, Ohio facility. In June 2009, BPC undertook to consolidate its manufacturing facilities. These actions were completed in 2011. CBP incurred total pre-tax exit and restructuring costs approximating $9,031, substantially all of which were cash charges; charges include $1,160 for one-time termination benefits and other personnel costs, $210 for excess facilities and related costs, and $7,661 for other exit costs, primarily in connection with production realignment, and had $10,365 of capital expenditures. The restructuring costs were $3,611 in 2011 and $4,180 in 2010. During 2013, Plastics Europe undertook to exit low margin businesses and eliminate approximately 80 positions, resulting in a restructuring cash charge of $4,773. These actions were essentially complete at September 30, 2013. During 2013, Telephonics recognized $750 in restructuring costs in connection with the termination of a facility lease. The facility was vacated as a result of the headcount reductions and changes in organizational structure undertaken by Telephonics in the past two years. In 2012 and 2011, Telephonics recognized $3,815 and $3,046 of restructuring charges primarily related to two separate voluntary early retirement plan and other restructuring costs, reducing headcount by 185 over the two year period. A summary of the restructuring and other related charges included in the line item “Restructuring and other related charges” in the Consolidated Statements of Operations recognized for 2011, 2012 and 2013 were as follows: Workforce Reduction Facilities & Exit Costs Other Related Costs Non-cash Facility and Other Total Amounts incurred in the year ended: September 30, 2011. . . . . . . . . . . . . . . . . September 30, 2012. . . . . . . . . . . . . . . . . September 30, 2013. . . . . . . . . . . . . . . . . $3,789 4,204 5,649 $1,809 379 1,668 $1,945 106 1,629 $ — $ 7,543 4,689 13,262 — 4,316 The activity in the restructuring accrual recorded in Accrued liabilities consisted of the following: Workforce Reduction Facilities & Exit Costs Other Related Costs Total Accrued liability at September 30, 2011 . . . . . . . . . . . Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liability at September 30, 2012 . . . . . . . . . . . Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liability at September 30, 2013 . . . . . . . . . . . $ 2,657 4,204 (3,361) $ 3,500 5,649 (6,092) $ 3,057 68 $ — $ — $ 2,657 4,689 (3,706) 379 (239) 106 (106) $ 140 1,668 (1,415) 393 $ $ — $ 3,640 8,946 (8,729) $ 3,857 1,629 (1,222) 407 $ 59250 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 9—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. Typical warranties require Telephonics to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. ATT offers an express limited warranty for a period of ninety days on all products unless otherwise stated on the product or packaging from the date of original purchase. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranties issued and changes in estimated pre-existing warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual warranty costs incurred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended September 30, 2013 2012 $ 8,856 $ 7,963 2,331 (4,538) 6,088 (5,195) Balance, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,649 $ 8,856 NOTE 10—NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT The present value of the net minimum payments on capitalized leases as of September 30, 2013 was follows: Total minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less amount representing interest payments. . . . . . . . . . . . . . . . . . . . . . . . Present value of net minimum lease payments . . . . . . . . . . . . . . . . . . . . . Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized lease obligation, less current portion . . . . . . . . . . . . . . . . . . . $11,972 (2,128) 9,844 (1,106) $ 8,738 At September 30, 2013 Minimum payments under capital leases for the next five years are as follows: $1,579 in 2014, $1,550 in 2015, $1,511 in 2016, $1,437 in 2017, $1,425 in 2018 and $4,470 thereafter. Included in the consolidated balance sheet at September 30, 2013 under Property, plant and equipment are costs and accumulated depreciation subject to capitalized leases of $15,304 and $5,460, respectively, and included in Other assets are deferred interest charges of $207. Included in the consolidated balance sheet at September 30, 2012 under property, plant and equipment are costs and accumulated depreciation subject to capitalized leases of $15,342 and $4,414, respectively, and included in other assets are deferred interest charges of $232. The capitalized leases carry interest rates from 5% to 10% and mature from 2014 through 2022. Amortization expense was $1,605, $1,598, and $1,663 in 2013, 2012 and 2011, respectively. In October 2006, a subsidiary of Griffon entered into a capital lease totaling $14,290 for real estate it occupies in Troy, Ohio. Approximately $10,000 was used to acquire the building and the remaining amount was used for improvements. 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. 69 17028 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Debt at September 30, 2013 and 2012 consisted of the following: Senior notes due 2018 . . . . . . . . . . . . . . . . . . . Revolver due 2018 . . . . . . . . . . . . . . . . . . . . . . Convert. debt due 2017 . . . . . . . . . . . . . . . . . Real estate mortgages . . . . . . . . . . . . . . . . . . . ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease—real estate. . . . . . . . . . . . . . . . Term loan due 2013 . . . . . . . . . . . . . . . . . . . . . Revolver due 2013 . . . . . . . . . . . . . . . . . . . . . . Foreign lines of credit. . . . . . . . . . . . . . . . . . . Foreign term loan . . . . . . . . . . . . . . . . . . . . . . . Other long term debt . . . . . . . . . . . . . . . . . . . (a) (a) (b) (c) (d) (e) (f) (f) (g) (g) (h) At September 30, 2013 Outstanding Balance Original Issuer Discount Balance Sheet Capitalized Fees & Expenses Coupon Interest Rate $550,000 — 100,000 13,212 21,098 9,529 2,704 — 4,606 411 941 $ — $550,000 — — 86,754 (13,246) 13,212 — 21,098 — 9,529 — 2,704 — — — 4,606 — 411 — 941 — $ 7,328 2,425 1,478 185 24 207 23 — — 4 — 7.100% n/a 4.000% n/a n/a 5.000% n/a n/a n/a n/a n/a Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702,501 (13,246) 689,255 $11,674 less: Current portion . . . . . . . . . . . . . . . . . . . . (10,768) — (10,768) Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $691,733 $(13,246) $678,487 At September 30, 2012 Outstanding Balance Original Issuer Discount Balance Sheet Capitalized Fees & Expenses Coupon Interest Rate Senior notes due 2018 . . . . . . . . . . . . . . . . . . . Revolver due 2016 . . . . . . . . . . . . . . . . . . . . . . Convert. debt due 2017 . . . . . . . . . . . . . . . . . Real estate mortgages . . . . . . . . . . . . . . . . . . . ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease—real estate. . . . . . . . . . . . . . . . Term loan due 2013 . . . . . . . . . . . . . . . . . . . . . Revolver due 2013 . . . . . . . . . . . . . . . . . . . . . . Foreign lines of credit. . . . . . . . . . . . . . . . . . . Foreign term loan . . . . . . . . . . . . . . . . . . . . . . . Other long term debt . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) (a) (b) (c) (d) (e) (f) (f) (g) (g) (h) $550,000 — 100,000 14,063 22,723 10,455 12,873 — 2,064 2,693 1,346 716,217 $ — $550,000 — — 83,393 (16,607) 14,063 — 22,723 — 10,455 — 12,873 — — — 2,064 — 2,693 — 1,346 — 699,610 (16,607) $ 8,862 2,175 1,921 271 32 232 107 — — 19 — $13,619 7.125% n/a 4.000% n/a n/a 5.000% n/a n/a n/a n/a less: Current portion . . . . . . . . . . . . . . . . . . . . (17,703) — (17,703) Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $698,514 $(16,607) $681,907 70 17561 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Interest expense consists of the following for the years ended September 30, 2013, 2012 and 2011. Total Interest Expense $40,814 1,367 7,804 624 636 529 358 68 520 230 553 (983) $52,520 Total Interest Expense $40,811 1,503 7,529 661 713 576 918 228 249 714 (1,895) $52,007 Year Ended September 30, 2013 Amort. Deferred Cost & Other Fees Amort. Debt Discount Cash Interest Effective Interest Rate Senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . Revolver due 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convert. debt due 2017 . . . . . . . . . . . . . . . . . . . . . . . . Real estate mortgages . . . . . . . . . . . . . . . . . . . . . . . . . ESOP Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease—real estate . . . . . . . . . . . . . . . . . . . . . . Term loan due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . Revolver due 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . Foreign term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) (a) (b) (c) (d) (e) (f) (f) (g) (g) (h) 7.4% $39,188 n/a 785 9.1% 4,000 538 4.9% 628 2.9% 504 5.3% 271 3.9% 68 0.5% 520 12.9% 216 9.8% 553 (983) $ — — 3,361 — — — — — — — — — Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,288 $3,361 $1,626 582 443 86 8 25 87 — — 14 — — $2,871 Year Ended September 30, 2012 Amort. Deferred Cost & Other Fees Amort. Debt Discount Cash Interest Effective Interest Rate Senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . Revolver due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convert. debt due 2017 . . . . . . . . . . . . . . . . . . . . . . . . Real estate mortgages . . . . . . . . . . . . . . . . . . . . . . . . . ESOP Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease—real estate . . . . . . . . . . . . . . . . . . . . . . Term loan due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . Foreign term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) (a) (b) (c) (d) (e) (f) (g) (g) (h) 7.4% $39,188 n/a 881 9.2% 4,000 575 4.0% 707 3.0% 551 5.3% 831 5.0% 228 14.3% 238 10.5% 680 (1,895) $ — — 3,086 — — — — — — — — Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,984 $3,086 $1,623 622 443 86 6 25 87 — 11 34 — $2,937 71 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Year Ended September 30, 2011 Amort. Deferred Cost & Other Fees Amort. Debt Discount Cash Interest Effective Interest Rate Senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . Revolver due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convert. debt due 2017 . . . . . . . . . . . . . . . . . . . . . . . . Real estate mortgages . . . . . . . . . . . . . . . . . . . . . . . . . ESOP Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease—real estate . . . . . . . . . . . . . . . . . . . . . . Term loan due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . Revolver due 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . Foreign term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Term loan due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset based loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) (a) (b) (c) (d) (e) (f) (f) (g) (g) (i) (i) (h) 7.4% $21,118 — n/a 3,944 9.0% 761 5.6% 345 2.7% 602 5.3% 338 n/a 160 1.2% 91 3.0% n/a — 9.5% 13,405 1,076 6.2% 214 (941) $41,113 $ — — 2,832 — — — — — — — 572 58 — — $3,462 $ 881 332 443 86 67 26 71 79 — — 838 341 107 — $3,271 35726 Total Interest Expense $21,999 332 7,219 847 412 628 409 239 91 — 14,815 1,475 321 (941) $47,846 Minimum payments under debt agreements for the next five years are as follows: $10,768 in 2014, $6,488 in 2015, $17,863 in 2016, $112,048 in 2017, $551,207 in 2018 and $4,127 thereafter. (a) On March 17, 2011, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $550,000 of 7.125% Senior Notes due in 2018 (“Senior Notes”); interest is payable semi-annually. On August 9, 2011, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. Proceeds from the Senior Notes were used to pay down outstanding borrowings under a senior secured term loan facility and two senior secured revolving credit facilities of certain of the Company’s subsidiaries. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On March 28, 2013, Griffon amended and increased the amount available under its Revolving Credit Facility (“Credit Agreement”) from $200,000 to $225,000 and extended its maturity from March 18, 2016 to March 28, 2018 (except that if the Company’s 7-1/8 Senior Notes due 2018 are still outstanding on October 1, 2017, the Facility will mature on October 1, 2017). The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swingline sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. The current margins are 1.00% for base rate loans and 2.00% 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 Credit Agreement also includes certain restrictions, such as limitations on the incurrence of indebtedness and liens and the making of restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all assets of the Company and the guarantors and a pledge of not 72 41918 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) greater than two-thirds of the equity interest in each of Griffon’s material, first-tier foreign subsidiaries. At September 30, 2013, there were $25,457 of standby letters of credit outstanding under the Credit Agreement; $199,543 was available, subject to certain covenants, for borrowing at that date. (b) On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The current conversion rate of the 2017 Notes is 67.8495 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.74 per share. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion; (ii) the 42nd trading day prior to maturity of the notes; and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of September 30, 2013, aggregate dividends since the last conversion price adjustment of $0.075 per share would have resulted in an adjustment to the conversion ratio of approximately 0.66%. At both September 30, 2013 and 2012, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720. (c) On December 20, 2010, Griffon entered into two second lien real estate mortgages to secure new loans totaling $11,834. The loans mature in February 2016, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 3% with the option to swap to a fixed rate. On October 21, 2013, Griffon refinanced these real estate mortgages with total principal of $17,175, maturing in October 2018 and bearing interest at LIBOR plus 2.75%. Griffon has other real estate mortgages, collateralized by real property, which bear interest at 6.3% and mature in 2016. (d) Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into a loan agreement in August 2010 to borrow $20,000 over a one-year period. The proceeds were used to purchase 1,874,737 shares of Griffon common stock in the open market for $19,973. The loan bears interest at a) LIBOR plus 2.5% or b) the lender’s prime rate, at Griffon’s option. In November 2011, Griffon exercised an option to convert the outstanding loan to a five-year term loan; principal is payable in quarterly installments of $250, beginning December 2011, with a balloon payment of $15,223 due at maturity (November 2016). The loan is secured by shares purchased with the proceeds of the loan, and repayment is guaranteed by Griffon. At September 30, 2013, $17,973 was outstanding. In addition, the ESOP is party to a loan agreement which requires quarterly principal payments of $156 and interest through the extended expiration date of December 2013, at which time the $3,125 balance of the loan, and any outstanding interest, will be payable. Griffon has the intent and ability to refinance the December 2013 balance and has classified the balance in Long-Term Debt. The primary purpose of this loan was to purchase 547,605 shares of Griffon’s common stock in October 2008. The loan is secured by shares purchased with the proceeds of the loan and repayment is guaranteed by Griffon. The loan bears interest at rates based upon the prime rate or LIBOR. At September 30, 2013, $3,125 was outstanding and classified as long-term debt as the Company has the intent and ability to refinance in 2014. (e) 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. (f) In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The facility accrues interest at EURIBOR plus 2.45% per annum and the term loan accrues interest at EURIBOR plus 2.20% per annum. The revolving 73 34869 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) facility matures in November 2013, but is renewable upon mutual agreement with the bank. In July 2011, the full €20,000 was drawn on the term loan, with a portion of the proceeds used to repay borrowings under the revolving credit facility. The term loan is payable in ten equal quarterly installments which began in September 2011, with maturity in December 2013. Under the term loan, Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA. (g) In February 2012, Clopay do Brazil, a subsidiary of Plastics, borrowed $4,000 at a rate of 104.5% of Brazilian CDI (9.10% at September 30, 2013). The loan was used to refinance existing loans, is collateralized by accounts receivable and a 50% guaranty by Plastics and is to be repaid in four equal, semi-annual installments of principal plus accrued interest beginning in August 2012. Clopay do Brazil also maintains lines of credit of approximately $4,950. Interest on borrowings accrue at a rate of Brazilian CDI plus 6.0% (15.23% at September 30, 2013). At September 30, 2013 there was approximately $4,600 borrowed under the lines. In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (1.48% LIBOR USD and 2.46% Bankers Acceptance Rate CDN as of September 30, 2013). The revolving facility matures in November 2015. Garant is required to maintain a certain minimum equity. At September 30, 2013, there were no borrowings under the revolving credit facility with CAD $15,000 available for borrowing (h) At September 30, 2012, Griffon had $532 of 4% convertible subordinated notes due 2023 (“2023 Notes”) outstanding. On April 15, 2013, the 2023 Notes were redeemed at par plus accrued interest. Other long term debt also includes capital leases. (i) In connection with the ATT acquisition, Clopay Ames True Temper Holding Corp. (“Clopay Ames”), a subsidiary of Griffon, entered into a $375,000 secured term Loan (“Term Loan”) and a $125,000 asset based lending agreement (“ABL”). On November 30, 2010, Clopay Ames, as required under the Term Loan agreement, entered into an interest rate swap on a notional amount of $200,000 of the Term Loan. The agreement fixed the LIBOR component of the Term Loan interest rate at 2.085% for the notional amount of the swap. On March 17, 2011, the Term Loan and swap were terminated, and on March 18, 2011, the ABL was terminated, in connection with the issuance of the Senior Notes and Credit Agreement. At September 30, 2013, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. In 2011, in connection with the termination of a previously existing term loan, asset-backed credit facility and cash flow facility, Griffon recorded a $26,164 loss on extinguishment of debt consisting of $21,617 of deferred financing charges and original issuer discounts, a call premium of $3,703 on the term loan, and $844 of swap and other breakage costs. NOTE 11—EMPLOYEE BENEFIT PLANS Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $6,950 in 2013, $7,300 in 2012 and $7,500 in 2011. 74 74421 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $1,972 and $2,262 as of September 30, 2013 and 2012. The accumulated other comprehensive income (loss) for these plans was $161 and ($79) as of September 30, for 2013 and 2012, respectively and the 2013 and 2012 benefit expense was $65 and $76, respectively. It is the Company’s practice to fund these benefits as incurred. Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss). Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the service of an investment manager to manage these assets based on agreed upon risk profiles set by Griffon management. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair value of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2013 and 2012. The fair value of various other investments were determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). The fair value of investments with significant unobservable inputs was supported by audited financial statements (level 3 inputs). Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc. Pension Plan. The merged qualified defined benefit plan was named the Clopay Ames True Temper Pension Plan (the “CATT Plan”). The Clopay portion of the CATT Plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continued to accrue a service benefit through December 2010, at which time all plan participants stopped accruing service benefits. The ATT portion of the CATT Plan has been frozen to all new entrants since November 2009 and stopped accruing benefits in December 2009. The ATT supplemental executive retirement plan was frozen to new entrants and participants in the plan stopped accruing benefits in 2008. In 2013, SG&A expenses included a $2,142, non-cash, pension settlement loss resulting from the lump- sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472 and increased Accumulated Other Comprehensive Income (Loss) by $3,649. Griffon uses judgment to estimate the assumptions used in determining the future liability of the plan, as well as the investment returns on the assets invested for the plan. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and the past experience of plan asset investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment 75 19359 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10% change in the discount rate, average wage increase or return on assets would not have a material effect on the financial statements of Griffon. Net periodic costs (benefits) were as follows: Defined Benefits for the Years Ended September 30, 2012 2011 2013 Supplemental Benefits for the Years Ended September 30, 2013 2011 2012 Net periodic (benefits) costs: Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . . . . . . Recognition of settlement . . . . . . . . . . . . . . . . . Amortization of: $ 165 7,977 (11,870) 2,143 $ 238 9,191 (11,896) — $ 377 9,552 (11,501) — $ 35 1,344 — — $ 36 1,692 — — $ 34 1,759 — — Prior service costs . . . . . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . 6 1,795 6 1,735 8 1,144 14 1,288 171 1,137 328 1,141 Total net periodic (benefits) costs . . . . . . . . . $ 216 $ (726) $ (420) $2,681 $3,036 $3,262 The tax benefits in 2013, 2012 and 2011 for the amortization of pension costs in Other comprehensive income (loss) were $1,086, $1,067 and $917, respectively. The estimated net actuarial loss and prior service cost that will be amortized from Accumulated other comprehensive income into Net periodic pension cost during 2014 are $1,954 and $15, respectively. The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows: Defined Benefits for the Years Ended September 30, 2012 2013 2011 Supplemental Benefits for the Years Ended September 30, 2013 2011 2012 Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average wage increase . . . . . . . . . . . . . . . . . . . . . . Expected return on assets . . . . . . . . . . . . . . . . . . . 3.67% 4.44% 4.89% 3.40% 4.30% 4.26% 0.11% 0.11% 0.72% 4.87% 4.89% 4.89% 7.80% 7.71% 7.72% — — — 76 93541 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows: Change in benefit obligation: Benefit obligation at beginning of fiscal year . . . . . . . . . . . . Benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid—settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial gain—settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined Benefits at September 30, Supplemental Benefits at September 30, 2013 2012 2013 2012 $232,939 165 7,977 15 (10,632) (11,548) 462 (19,945) (3,472) $212,660 238 9,191 16 (10,369) — (413) 21,616 — $ 41,473 35 1,344 — (4,051) — — (127) — $ 41,285 36 1,692 — (3,936) — — 2,396 — Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . . . 195,961 232,939 38,674 41,473 Change in plan assets: Fair value of plan assets at beginning of fiscal year. . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid—settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets at end of fiscal year. . . . . . . . . . . . Projected benefit obligation in excess of plan assets . . . . . Amounts recognized in the statement of financial position consist of: Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities (long-term) . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net actuarial losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,823 12,537 15 2,203 333 (10,632) (11,548) 153,731 137,678 25,190 16 8,638 (330) (10,369) — 160,823 — — — 4,051 — (4,051) — — — — — 3,936 — (3,936) — — $ (42,230) $ (72,116) $(38,674) $(41,473) $ — $ (42,230) (42,230) 16,679 4 (5,839) — $ (4,031) (34,643) (72,116) $ (3,897) (37,576) (72,116) 44,656 10 (15,633) (38,674) 19,335 99 (6,802) (41,473) 20,750 113 (7,302) Total Accumulated other comprehensive loss, net of tax Net amount recognized at September 30, . . . . . . . . . . . . . . . . 10,844 12,632 29,033 $ (31,386) $ (43,083) $(26,042) 13,561 $(27,912) Accumulated benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . $195,590 $232,574 $ 38,674 $ 41,473 Information for plans with accumulated benefit obligations in excess of plan assets: ABO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195,590 195,961 153,731 $232,574 232,939 160,823 $ 38,674 38,674 — $ 41,473 41,473 — 77 23836 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The weighted-average assumptions used in determining the benefit obligations were as follows: Weighted average discount rate . . . . . . Weighted average wage increase . . . . . Defined Benefits at September 30, Supplemental Benefits at September 30, 2013 4.49% 0.15% 2012 3.67% 0.11% 2013 4.09% 0.00% 2012 3.40% 4.87% The actual and weighted-average asset allocation for qualified benefit plans were as follows: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At September 30, 2013 2012 Target 55.8% 66.0% 63.0% 41.3% 29.0% 37.0% 2.9% 5.0% 0.0% 100.0% 100.0% 100.0% Estimated future benefit payments to retirees, which reflect expected future service, are as follows: For the fiscal years ending September 30, Defined Benefits Supplemental Benefits 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 through 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,794 10,866 11,049 11,192 11,322 59,464 $ 4,085 4,010 3,954 3,895 3,453 14,632 Griffon expects to contribute $6,942 to the Defined Benefit plans in 2014, in addition to the $4,085 in payments related to the Supplemental Benefits that will primarily be funded from the general assets of Griffon. The CATT Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2013 was 89.8%. Since the plan was in excess of the 80% funding threshold there were no plan restrictions. The expected level of 2014 catch up contributions is $4,028. The following is a description of the valuation methodologies used for plan assets measured at fair value: Short-term investment funds—The fair value is determined using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and is primarily classified as Level 2. These investments can be liquidated on demand. Government and agency securities—When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2. Equity securities—The fair values reflect the closing price reported on a major market where the individual securities are traded. These investments are classified within Level 1 of the valuation hierarchy. 78 34265 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Debt securities—The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market. These investments are primarily classified within Level 2 of the valuation hierarchy. Commingled funds—The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 of the valuation hierarchy and can be liquidated on demand. Interest in limited partnerships and hedge funds—One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the estimated value of the various holdings of the fund portfolio. One of the commingled mutual funds is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding; these asset values are estimated by underlying managers of the assets in which the fund invests. These investments are classified within Level 2 of the valuation hierarchy. The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) At September 30, 2013 Cash and equivalents . . . . . . . . . . . . . . . . . . . . . Short-term investment funds . . . . . . . . . . . . . . Government agency securities . . . . . . . . . . . . Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . Commingled funds . . . . . . . . . . . . . . . . . . . . . . . . Limited partnerships and hedge fund investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — — 3,006 30,856 47,690 — — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $81,552 The activity for the level 3 assets was as follows: $ — 2,949 — — — 66,130 3,101 $72,180 $— — — — — — — $— $ Total — 2,949 3,006 30,856 47,690 66,130 3,101 $153,732 Beginning Balance At September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending Balance At September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,016 (3,016) $ — Transfers were due to the availability of observable inputs in the current year. 79 14632 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) At September 30, 2012 Cash and equivalents . . . . . . . . . . . . . . . . . . . . . Short-term investment funds . . . . . . . . . . . . . . Government agency securities . . . . . . . . . . . . Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . Commingled funds . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . Limited partnerships and hedge fund investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ 29 — — — 62,713 — — — $62,742 $ — 5,231 2,899 30,616 — 56,329 — — $95,075 $ — — — — — — — 3,016 $3,016 $ Total 29 5,231 2,899 30,616 62,713 56,329 — 3,016 $160,833 Griffon has an ESOP that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1st following completion of one year of service. Griffon’s securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $255 for the plan year ended September 30, 2013), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $2,015 in 2013, $1,796 in 2012 and $841 in 2011. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2013 and 2012 based on the closing stock price of Griffon’s stock was $24,257 and $21,993, respectively. The ESOP shares were as follows: Allocated shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At September 30, 2013 2012 2,309,812 1,934,338 4,244,150 2,335,040 2,135,287 4,470,327 NOTE 12—INCOME TAXES Income taxes have been based on the following components of Income before taxes and discontinued operations: For the Years Ended September 30, 2012 2013 2011 Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,083 (1,750) $27,910 (5,969) $(17,869) 3,520 $14,333 $21,941 $(14,349) 80 04569 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Provision (benefit) for income taxes on income from continuing operations was comprised of the following: For the Years Ended September 30, 2012 2013 2011 Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,468 5,075 $ 7,543 $ 5,807 2,915 (1,179) $ 7,543 $ 7,557 (2,627) $ 4,930 $ 3,400 (1,301) 2,831 $ 4,930 $(4,169) (2,749) $(6,918) $(8,988) 91 1,979 $(6,918) Griffon’s Income tax provision (benefit) included benefits of ($3,209) in 2013, ($3,356) in 2012 and ($733) in 2011 reflecting the reversal of previously recorded tax liabilities primarily due to the resolution of various tax audits and due to the closing of certain statutes for prior years’ tax returns. Differences between the effective income tax rate applied to Income from continuing operations and U.S. Federal income statutory rate were as follows: For the Years Ended September 30, 2012 2013 2011 U.S. Federal income tax provision (benefit) rate . . . . . . . . . State and local taxes, net of Federal benefit . . . . . . . . . . . . . . Non-U.S. taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in tax contingency reserves. . . . . . . . . . . . . . . . . . . . . . . Executive compensation limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance on foreign tax credits . . . . . . . . . . . . . . . Non-deductible meals and entertainment . . . . . . . . . . . . . . . . . Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax impact of state rate change . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% (35.0)% 3.6 7.0 (6.7) 7.1 (12.3) (2.4) 1.2 (0.7) (11.0) 1.6 (1.9) 5.3 2.2 13.1 — (27.2) 2.0 (5.4) — (1.3) 2.8 5.3 (10.9) 10.0 (8.3) 10.1 1.6 (7.4) 15.0 (0.6) Effective tax provision (benefit) rate . . . . . . . . . . . . . . . . . 52.6% 22.5% (48.2)% 81 09381 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows: Deferred tax assets: Bad debt reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred compensation (equity compensation and defined benefit plans). . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At September 30, 2013 2012 $ 2,202 9,295 $ 2,071 12,589 32,645 3,059 3,360 699 3,320 26,644 7,311 2,924 42,773 2,706 3,924 489 3,587 25,708 5,622 651 91,459 (13,421) 78,038 100,120 (10,541) 89,579 (13,124) (70,216) (36,469) (5,154) (5,164) (130,127) (14,051) (70,463) (33,673) (6,542) (1,323) (126,052) Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (52,089) $ (36,473) The change in the valuation allowance relates to the U.S., foreign tax credits and the valuation allowance for certain state, local and foreign tax attributes. The components of the net deferred tax liability, by balance sheet account, were as follows: At September 30, 2013 2012 Prepaid and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,118 3,205 — (66,422) 2,010 $ 16,059 2,956 (129) (55,882) 523 Net deferred liability assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(52,089) $(36,473) At September 30, 2013 and at September 30, 2012, Griffon has not recorded deferred income taxes on the undistributed earnings of its non-U.S. subsidiaries because of management’s ability and intent to indefinitely reinvest such earnings outside the U.S. At September 30, 2013, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $74,923. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. 82 30408 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) At September 30, 2011 deferred income taxes were recorded on pre-acquisition undistributed earnings of non-U.S. subsidiaries for the ATT group of entities. The deferred income taxes were recorded as these earnings were historically not indefinitely reinvested outside of the U.S. At September 30, 2012 the pre-acquisition unremitted foreign earnings of ATT group were distributed as a dividend to the U.S. Parent Corp. recognizing the previously recorded deferred tax liability. At September 30, 2013 and 2012, Griffon had loss carryforwards for non-U.S. tax purposes of $83,564 and $75,400, respectively. The non-U.S. loss carryforwards are available for carryforward indefinitely. Griffon had State and local loss carryforwards at September 30, 2013 and 2012 of $6,057 and $6,303, respectively, which expire in varying amounts through 2033. Griffon had foreign tax credit carryforwards of $5,151 and $3,361 at September 30, 2013 and 2012, respectively, which are available for use through 2017. Griffon files U.S. Federal, state and local tax returns, as well as Germany, Canada, Brazil, Australia, Sweden, Mexico, Ireland and other non-U.S. jurisdiction tax returns. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2008, the German income tax returns are no longer subject to income tax examination for years through 2010 and major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2003. Various U.S. state and non-U.S. statutory tax audits are currently underway. The following is a roll forward of the unrecognized tax benefits: Balance at September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions based on tax positions related to the current year . . . . . . . . . . . . . . Reductions based on tax positions related to prior years . . . . . . . . . . . . . . . . . . Lapse of Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions based on tax positions related to the current year . . . . . . . . . . . . . . Reductions based on tax positions related to prior years . . . . . . . . . . . . . . . . . . Lapse of Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,910 1,840 (822) (617) (1,435) 11,876 1,343 111 (974) (1,836) $10,520 If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $7,248. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2013 and 2012, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was $1,672 and $2,141, respectively. Griffon cannot reasonably estimate the extent to which existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction. NOTE 13—STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION No cash dividends on Common Stock were declared or paid during the three years ended September 30, 2011. On November 17, 2011, the Company began declaring quarterly dividends. During 2013 and 2012, the Company declared and paid dividends totaling $0.10 per share and $0.08 per share, respectively. The Company currently intends to pay dividends each quarter; however, the payment of dividends is 83 49907 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to future dividends. 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 date of grant, and for performance shares, the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting is recognized using the straight- line attribution method. In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan (“Incentive Plan”) under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 3,000,000 (600,000 of which may be issued as incentive stock options) plus any shares underlying awards outstanding on the effective date of the Incentive Plan under the 2006 Incentive Plan that are subsequently cancelled or forfeited. As of September 30, 2013, 672,332 shares were available for grant. Incentive Plan that are subsequently cancelled or forfeited. As of September 30, 2013, 672,332 shares were available for grant. All grants outstanding under the Griffon Corporation 2001 Stock Option Plan, 2006 Equity Incentive Plan and Outside Director Stock Award Plan will continue under their terms; no additional awards will be granted under such plans. 84 64343 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) A summary of stock option activity for the years ended September 30, 2013, 2012 and 2011 is as follows: Options Aggregated Intrinsic Value Weighted Average Contractual Term (Years) Weighted Average Exercise Price $15.42 Outstanding at September 30, 2010. . . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited/expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2011. . . . . . . . . . . . . . . . . . . . . . Shares 1,544,221 — (333,125) (41,435) 1,169,661 Exercisable at September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . 1,169,661 Outstanding at September 30, 2011. . . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited/expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2012. . . . . . . . . . . . . . . . . . . . . . 1,169,661 — — (239,900) 929,761 Exercisable at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . 929,761 Outstanding at September 30, 2012. . . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited/Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2013. . . . . . . . . . . . . . . . . . . . . . 929,761 — — (215,526) 714,235 Exercisable at September 30, 2013 through: September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Exercisable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,750 149,035 71,450 13,000 — 350,000 1,848 1,667 1,667 — 1,667 — 7.74 18.34 17.50 17.50 17.50 12.74 18.73 18.73 18.73 14.01 20.15 19.84 18.60 25.65 14.78 20.00 714,235 $20.15 3.7 3.7 3.4 3.4 3.2 0.6 1.6 2.6 3.8 5.0 3.2 Range of Exercises Prices $14.78. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17.23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19.49 to $22.41. . . . . . . . . . . . . . . . . . . . . . . . . $26.06. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options Outstanding & Exercisable Weighted Average Exercise Price $14.78 17.23 20.24 26.06 Shares 14,000 133,535 496,000 70,700 714,235 Aggregated Intrinsic Value Weighted Average Contractual Term (Years) $— — — — $— 3.6 1.5 3.8 2.4 All stock options were fully vested at September 30, 2011. The fair value of options vested during the year ended September 30, 2011 was $270. 85 44563 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) A summary of restricted stock activity, inclusive of restricted stock units, for the years ended September 30, 2013, 2012 and 2011 is as follows: Outstanding at September 30, 2010. . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fully Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2011. . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fully Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2012. . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fully Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at September 30, 2013. . . . . . . . . . . . . . . . . . . . . Weighted Average Grant Price Aggregated Intrinsic Value* $ 9.71 12.68 10.67 11.75 10.85 9.33 11.35 11.13 10.38 11.03 8.42 10.35 11.27 $ 6,281 17,946 5,209 1,527 493 4,101 428 728 2,828 13,517 13,270 978 4,827 Shares 2,231,524 1,415,700 (407,268) (130,009) 3,109,947 439,500 (41,045) (65,400) 3,443,002 1,225,285 (1,146,493) (93,126) 3,428,668 Weighted Average Contractual Term (Years) 2.5 2.8 1.5 1.6 * Aggregated intrinsic value at the date the shares were outstanding, granted, vested or forfeited, as applicable. During 2013, Griffon granted 1,225,285 restricted stock awards with vesting periods up to four years, 1,146,892 of which are also subject to certain performance conditions. During 2012, Griffon granted 439,500 restricted stock awards with vesting periods of three years, 268,000 of which are also subject to certain performance conditions. Unrecognized compensation expense related to non-vested shares of restricted stock was $15,275 at September 30, 2013 and will be recognized over a weighted average vesting period of 1.4 years. At September 30, 2013, a total of approximately 4,815,235 shares of Griffon’s authorized Common Stock were reserved for issuance in connection with stock compensation plans. For the years ended September 30, 2013, 2012 and 2011, stock based compensation expense totaled $12,495, $10,439 and $8,956, respectively. Tax benefits related to stock based compensation expense were $3,068, $2,547 and $2,598 for the years ended September 30, 2013, 2012 and 2011, respectively. In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock; this was in addition to the 1,366,000 shares of common stock authorized for repurchase under an existing buyback program. Under the repurchase programs, the Company may, from time to time, purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. During 2011, Griffon purchased 1,531,379 shares of common stock, for a total of $12,367, or $8.08 per share, exhausting the shares under the original program; $48,690 remained under the $50,000 authorization. During 2012, Griffon purchased 1,187,066 shares of common stock under the plan for a total of $10,379, or $8.74 per share; $38,312 remained under the $50,000 authorization. During 2013, Griffon purchased 2,369,786 shares of common stock under the plan for a total of $26,285, or $11.09 per share; as of September 30, 2013, $12,027 remained under the $50,000 authorization. Share repurchases are recorded at cost. 86 79240 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) In addition to the repurchases under the $50,000 program, during 2013, 536,183 shares, with a market value of $6,236, or $11.63 per share, were withheld to settle employee taxes due upon the vesting of restricted stock. NOTE 14—COMMITMENTS AND CONTINGENT LIABILITIES Operating leases Griffon rents real property and equipment under operating leases expiring at various dates. Most of the real property leases have escalation clauses related to increases in real property taxes. Rent expense for all operating leases totaled approximately $22,265, $30,598 and $34,600 in 2013, 2012 and 2011, respectively. Aggregate future minimum lease payments for operating leases at September 30, 2013 are $21,762 in 2014, $18,173 in 2015, $14,461 in 2016, $10,474 in 2017, $9,444 in 2018 and $15,006 thereafter. Legal and environmental Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties, Inc. (“ISC”), a wholly-owned subsidiary of Griffon. ISC sold the Peekskill Site in November 1982. Subsequently, Griffon was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did conduct accordingly over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order. In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment in the aggregate, of medias, remediation alternatives having a current net capital cost value, approximately $5,000. In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no further obligations under the consent order. Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater medias, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is approximately $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP. 87 45743 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site. Improper Advertisement Claim involving Union Tools Products. Since December 2004, a customer of ATT has been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters have asserted causes of action against the customer of ATT for improper advertisement that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States. The complaints assert various causes of action against the customer of ATT under federal and state law, including common law fraud. At some point, likely once the litigation against the customer of ATT ends, the customer may seek indemnity (including recovery of its legal fees and costs) against ATT for an unspecified amount. Presently, ATT cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against ATT. to end consumers. The allegations suggest Department of Environmental Conservation of New York State, regarding Frankfort, NY site. During fiscal 2009, an underground fuel tank with surrounding soil contamination was discovered at the Frankfort, N.Y. site, which is the result of historical facility operations prior to ATT’s ownership. While ATT was actively working with the DEC and the New York State Department of Health to define remediation requirements relative to the underground fuel tank, the DEC took the position that ATT was responsible to remediate other types of contamination on the site. After negotiations with the DEC, on August 15, 2011, ATT executed an Order on Consent with the DEC. The Order is without admission or finding of liability or acknowledgement that there has been a release of hazardous substances at the site. Importantly, the Order does not waive any rights that ATT has under a 1991 Consent Judgment entered into between the DEC and a predecessor of ATT relating to the site. The Order requires that ATT identify Areas of Concern at the site, and formulate a strategy to investigate and remedy both on and off site conditions in compliance with applicable environmental law. At the conclusion of the remedy phase of the remediation to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. On August 1, 2012, a fire occurred during the course of demolition of certain structures at the Frankfort, NY site, requiring cleanup and additional remediation under the oversight of the DEC. Demolition of the structures on the property has been substantially completed. The DEC has inspected the progress of the work and is satisfied with the results thus far. On February 12, 2013, the DEC issued comments to the Remedial Investigation Work Plan previously submitted by ATT in October 2011, and in response, ATT issued a Revised Remedial Investigation Work Plan. Completion of the remedial investigation is dependent on timing of the DEC approval; no additional comments have been provided by the DEC to date. On October 21, 2013 ATT filed its revised Remedial Investigation Report with the DEC. 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 which has responsibility for asserting claims on behalf of the U.S. government. In addition to ongoing audits, pursuant to an administrative subpoena Griffon is currently providing information to the U.S. Department of Defense Office of the Inspector General. No claim has been asserted against Griffon, and Griffon is unaware of any material financial exposure in connection with the Inspector General’s inquiry. 88 43742 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have material adverse effect on Telephonics because of its reliance on government contracts. General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. NOTE 15—EARNINGS (LOSS) PER SHARE Basic and diluted EPS for the years ended September 30, 2013, 2012 and 2011 were determined using the following information (in thousands): 2013 2012 2011 Weighted average shares outstanding—basic. . . . . . . . . . . . . . Incremental shares from stock based compensation. . . . . . . Weighted average shares outstanding—diluted. . . . . . . . . . . . 54,428 2,135 56,563 55,914 1,415 57,329 58,919 — 58,919 Anti-dilutive options excluded from diluted EPS computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-dilutive restricted stock excluded from diluted EPS computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 — 930 1,170 — 1,235 Griffon has the intent and ability to settle the principal amount of the 2017 Notes in cash, as such, the potential issuance of shares related to the principal amount of the 2017 Notes does not affect diluted shares. Shares of the ESOP which have been allocated to employee accounts are treated as outstanding in determining earnings per share. NOTE 16—RELATED PARTIES An affiliate of GS Direct acted as placement agent for the sale of the 2017 notes in December 2009; provided financial advice to Griffon in connection with the ATT acquisition in 2010; acted as co-lead arranger, co-bookrunner and co-syndication agent in connection with a former term Loan in 2010; acted as dealer manager for the tender of two prior issuances of ATT bonds in 2010; and acted as a co- manager with respect to the sale of the 7.125% senior notes due 2018 in March 2011. Fees and expenses paid in 2011 were approximately $825. 89 56535 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 17—QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly results of operations for the years ended September 30, 2013 and 2012 were as follows: Quarter ended 2013 December 31, 2012. . . . . . . . . . . . . . . . . . . . . . . . . March 31, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . 2012 December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . March 31, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . Revenue Gross Profit Net Income (loss) Per Share —Basic Per Share —Diluted $ 423,749 488,743 509,826 449,009 $ 97,670 105,497 108,311 106,107 $ 558 (819) 3,603 425 $1,871,327 $417,585 $ 3,767 $ 451,032 482,431 480,246 447,436 $102,708 102,801 115,645 97,651 $1,861,145 $418,805 $ 2,488 2,027 9,048 3,448 $17,011 $ 0.01 (0.02) 0.07 0.01 $ 0.07 $ 0.04 0.04 0.16 0.06 $ 0.30 $ 0.01 (0.02) 0.06 0.01 $ 0.07 $ 0.04 0.04 0.16 0.06 $ 0.30 Notes to Quarterly Financial Information (unaudited): • Earnings (loss) per share are computed independently for each quarter and year presented; as such the sum of the quarters may not be equal to the full year amounts. • 2013 Net income, and the related per share earnings, included, net of tax, restructuring and other related charges of $721, $5,788, $994 and $763 for the first, second, third and fourth quarters, respectively, and $8,266 for the year; and loss on pension settlement of $1,392 for the first quarter and for the year. • 2012 Net income, and the related per share earnings, included, net of tax, restructuring and other related charges of $1,167 and $1,881 for the first and fourth quarters, respectively, and $3,048 for the year; and acquisition related costs of $116 and $194 for the first and fourth quarters, respectively, and $310 for the year. NOTE 18—REPORTABLE SEGMENTS Griffon’s reportable segments are as follows: • HBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains, as well as a global provider of non-powered landscaping products that make work easier for homeowners and professionals. • Telephonics develops, designs and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide. • Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications. 90 14764 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) Griffon evaluates performance and allocates resources based on operating results before interest income or expense, income taxes and certain nonrecurring items of income or expense. Information on Griffon’s reportable segments is as follows: For the Years Ended September 30, 2013 2011 2012 Revenue Home & Building Products: ATT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CBP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 419,549 435,416 $ 433,866 422,674 $ 434,789 404,947 Home & Building Products . . . . . . . . . . . . . . Telephonics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854,965 453,351 563,011 856,540 441,503 563,102 839,736 455,353 535,713 Total consolidated net sales . . . . . . . . . . . . . . . . . . $1,871,327 $1,861,145 $1,830,802 Income (Loss) Before Taxes Segment operating profit:. . . . . . . . . . . . . . . . . . . . . . . Home & Building Products . . . . . . . . . . . . . . . . Telephonics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total segment operating profit . . . . . . . . . . . . . . . . . Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unallocated amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net . . . . . . . . . . . . Loss on pension settlement . . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes from continuing For the Years Ended September 30, 2013 2011 2012 $ 26,130 55,076 16,589 97,795 (52,167) (29,153) — (2,142) $ 37,082 49,232 13,688 100,002 (51,715) (26,346) — — $ 28,228 40,595 13,308 82,131 (47,448) (22,868) (26,164) — operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,333 $ 21,941 $(14,349) Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses including the impact of the fair value of inventory acquired as part of a business combination, and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors for the same reason. 91 03771 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) The following table provides a reconciliation of Segment adjusted EBITDA to Income (loss) before taxes and discontinued operations: Segment adjusted EBITDA: Home & Building Products. . . . . . . . . . . . . . . . Telephonics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Segment adjusted EBITDA . . . . . . . . . . . . . . Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Segment depreciation and amortization . . . . . . . . Unallocated amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from debt extinguishment, net . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value write-up of acquired inventory sold . Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on pension settlement . . . . . . . . . . . . . . . . . . . . Income (loss) before taxes from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the Years Ended September 30, 2013 2011 2012 $ 70,064 63,199 48,100 181,363 (52,167) (70,306) (29,153) — (13,262) — — (2,142) $ 70,467 60,565 40,000 171,032 (51,715) (65,864) (26,346) — (4,689) — (477) — $ 77,119 50,875 37,639 165,633 (47,448) (60,361) (22,868) (26,164) (7,543) (15,152) (446) — $ 14,333 $ 21,941 $ (14,349) For the Years Ended September 30, 2012 2013 2011 Depreciation and Amortization Segment: Home & Building Products. . . . . . . . . . . . . . . . . . . Telephonics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total segment depreciation and amortization . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,195 7,373 26,738 70,306 442 $32,034 7,518 26,312 65,864 400 $28,796 7,234 24,331 60,361 351 Total consolidated depreciation and amortization . $70,748 $66,264 $60,712 Capital Expenditures Segment: Home & Building Products. . . . . . . . . . . . . . . . . . . Telephonics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated capital expenditures . . . . . . . . . . . $30,695 11,112 22,509 64,316 125 $64,441 $24,648 11,979 32,069 68,696 155 $68,851 $28,083 8,291 50,824 87,198 419 $87,617 92 07018 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) At September 30, 2013 At September 30, 2012 At September 30, 2011 Assets Segment assets: . . . . . . . . . . . . . . . . . . Home & Building Products. . Telephonics. . . . . . . . . . . . . . . . . . Plastics . . . . . . . . . . . . . . . . . . . . . . Total segment assets . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . Total continuing assets . . . . . . . . . . . Assets of discontinued operations $ 908,386 296,919 422,730 1,628,035 156,455 1,784,490 4,289 $ 943,766 255,420 430,395 1,629,581 173,088 1,802,669 3,523 $ 972,714 288,968 450,452 1,712,134 148,064 1,860,198 5,056 Consolidated total. . . . . . . . . . . . . . . . $1,788,779 $1,806,192 $1,865,254 Segment information by geographic region was as follows: For the Years Ended September 30, 2013 2011 2012 Revenue by Geographic Area United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South America . . . . . . . . . . . . . . . . . . . . . . . . . . . All other countries . . . . . . . . . . . . . . . . . . . . . . . Consolidated revenue. . . . . . . . . . . . . . . . . . . . . . . . . $1,319,740 255,733 114,984 103,840 77,030 $1,871,327 $1,317,911 255,323 120,457 93,243 74,211 $1,861,145 $1,265,977 262,518 125,330 96,340 80,637 $1,830,802 At September 30, 2013 At September 30, 2012 At September 30, 2011 Long-lived Assets by Geographic Area United States . . . . . . . . . . . . . . . . Germany . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . All other countries . . . . . . . . . . Consolidated property, plant and equipment, net. . . . . . . . . . . . . . . . . $421,604 82,314 46,792 24,274 $422,647 84,480 50,894 29,331 $394,313 94,800 50,093 34,033 $574,984 $587,352 $573,239 As a percentage of consolidated revenue, HBP sales to the Home Depot were approximately 11% in 2013, and 12% in both 2012 and 2011; Plastics sales to P&G were approximately 14% in 2013, 13% in 2012 and 14% in 2011; and Telephonics’ sales to the United States Government and its agencies aggregated approximately 19% in 2013, 2012 and 2011. NOTE 19—OTHER INCOME (EXPENSE) Other income (expense) included ($166), ($1,414) and $626 for the years ended September 30, 2013, 2012 and 2011, respectively, of currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, as well as $565, $12 and $392, respectively, of investment income (loss). 93 31870 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) 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, Ames True Temper Inc., and ATT Southern, Inc. 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 September 30, 2013 and 2012, and for the years ended September 30, 2013, 2012 and 2011. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. 94 69114 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING BALANCE SHEETS At September 30, 2013 CURRENT ASSETS Cash and equivalents . . . . . . . . . . . Accounts receivable, net of allowances. . . . . . . . . . . . . . . . . . . . Contract costs and recognized income not yet billed, net of progress payments. . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . Prepaid and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . Total Current Assets. . . . . . . PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . . GOODWILL . . . . . . . . . . . . . . . . . . . . . . . INTANGIBLE ASSETS, net . . . . . . . INTERCOMPANY RECEIVABLE EQUITY INVESTMENTS IN SUBSIDIARIES . . . . . . . . . . . . . . . . . . OTHER ASSETS. . . . . . . . . . . . . . . . . . . ASSETS OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . Parent Company Guarantor Companies Non- Guarantor Companies Elimination Consolidation $ 68,994 $ 25,343 $ 83,793 $ — $ 178,130 — — — 213,506 76,241 (33,532) 256,215 109,683 173,406 145 56,723 — (9) 109,828 230,120 (712) 21,854 17,330 10,431 48,903 — 68,282 972 — — 547,903 — 543,792 248,973 288,146 160,349 911,632 1,214 235,446 103,648 69,584 61,042 573,269 — (23,110) — — — (2,032,804) 2,217,864 45,968 533,742 50,423 2,718,956 7,423 (5,470,562) (75,234) 1,214 824,410 353,593 357,730 221,391 — — 28,580 — — 3,075 — 3,075 Total Assets . . . . . . . . . . . . . . . . . . . . $2,880,989 $2,737,057 $3,772,443 $(7,601,710) $1,788,779 CURRENT LIABILITIES Notes payable and current portion of long-term debt . . . . Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . Liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . Total Current Liabilities . . . LONG-TERM DEBT, net of debt discounts. . . . . . . . . . . . . . . . . . . . . . . . . . INTERCOMPANY PAYABLES . . . OTHER LIABILITIES . . . . . . . . . . . . . LIABILITIES OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . Total Liabilities. . . . . . . . . . . . . . . . . SHAREHOLDERS’ EQUITY. . . . . . Total Liabilities and $ 1,000 $ 1,079 $ 8,689 $ — $ 10,768 41,121 182,765 70,427 (23,960) 270,353 — 42,121 656,852 20,607 65,455 — 183,844 9,006 796,741 153,970 3,288 82,404 — (23,960) 12,629 1,188,017 25,578 — (2,005,365) (74,328) 3,288 284,409 678,487 — 170,675 — 785,035 2,095,954 — 1,143,561 1,593,496 4,744 1,313,372 2,459,071 — (2,103,653) (5,498,057) 4,744 1,138,315 650,464 Shareholders’ Equity . . . . . . . . . $2,880,989 $2,737,057 $3,772,443 $(7,601,710) $1,788,779 95 82867 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING BALANCE SHEETS At September 30, 2012 CURRENT ASSETS Cash and equivalents . . . . . . . . . . . Accounts receivable, net of allowances. . . . . . . . . . . . . . . . . . . . Contract costs and recognized income not yet billed, net of progress payments. . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . Prepaid and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . Assets of discontinued operations . . . . . . . . . . . . . . . . . . . . Total Current Assets. . . . . . . PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . . GOODWILL . . . . . . . . . . . . . . . . . . . . . . . INTANGIBLE ASSETS, net . . . . . . . INTERCOMPANY RECEIVABLE EQUITY INVESTMENTS IN SUBSIDIARIES . . . . . . . . . . . . . . . . . . OTHER ASSETS. . . . . . . . . . . . . . . . . . . ASSETS OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . Parent Company Guarantor Companies Non- Guarantor Companies Elimination Consolidation $ 125,093 $ 34,782 $ 49,779 $ — $ 209,654 — — — 187,487 81,274 (28,904) 239,857 69,216 194,618 1,561 63,203 — 47 70,777 257,868 (851) 23,929 21,968 2,426 47,472 — 124,242 1,224 — — 508,984 — 510,032 244,261 288,147 164,633 648,347 587 218,372 111,394 70,225 65,840 542,025 — (26,431) — — — (1,699,356) 2,143,427 49,718 528,411 60,609 2,650,078 8,188 (5,321,916) (87,198) 587 826,215 356,879 358,372 230,473 — — 31,317 — — 2,936 — 2,936 Total Assets . . . . . . . . . . . . . . . . . . . . $2,827,595 $2,444,440 $3,669,058 $(7,134,901) $1,806,192 CURRENT LIABILITIES Notes payable and current portion of long-term debt . . . . Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . Liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . Total Current Liabilities . . . LONG-TERM DEBT, net of debt discounts. . . . . . . . . . . . . . . . . . . . . . . . . . INTERCOMPANY PAYABLES . . . OTHER LIABILITIES . . . . . . . . . . . . . LIABILITIES OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . Total Liabilities. . . . . . . . . . . . . . . . . SHAREHOLDERS’ EQUITY. . . . . . Total Liabilities and $ 1,625 $ 1,032 $ 15,046 $ — $ 17,703 44,649 167,230 66,640 (26,478) 252,041 — 46,274 655,023 — 68,827 — 168,262 9,782 558,905 183,989 3,639 85,325 — (26,478) 17,102 1,149,748 27,489 — (1,708,653) (87,198) 3,639 273,383 681,907 — 193,107 — 770,124 2,057,471 — 920,938 1,523,502 3,643 1,283,307 2,385,751 — (1,822,329) (5,312,572) 3,643 1,152,040 654,152 Shareholders’ Equity . . . . . . . . . $2,827,595 $2,444,440 $3,669,058 $(7,134,901) $1,806,192 96 08165 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Year Ended September 30, 2013 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods and services . . . . . . . . . . . . . . . $ — $1,459,705 — 1,107,440 Parent Company Guarantor Companies Non- Guarantor Companies $463,767 392,588 Elimination Consolidation $(52,145) (46,286) $1,871,327 1,453,742 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . — 352,265 71,179 (5,859) 417,585 340,469 13,262 353,731 63,854 (52,167) 2,646 (49,521) 14,333 7,543 6,790 — 6,790 (4,651) 1,628 (3,023) 3,767 3,767 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and other related charges. . Total operating expenses . . . . . . . . . . . . Income (loss) from operations . . . . . . . Other income (expense) Interest income (expense), net. . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other income (expense) . . . Income (loss) before taxes . . . . . . . . . . . . . . . Provision (benefit) for income taxes . . . . . Income (loss) before equity in net income of subsidiaries . . . . . . . . . . . . . . . . . Equity in net income (loss) of 24,248 — 24,248 (24,248) (14,381) 569 (13,812) (38,060) (14,888) 269,654 9,236 278,890 73,375 (27,660) 9,656 (18,004) 55,371 20,603 52,819 4,026 56,845 14,334 (10,126) (5,731) (15,857) (1,523) 1,781 (6,252) — (6,252) 393 — (1,848) (1,848) (1,455) 47 (23,172) 34,768 (3,304) (1,502) subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations 28,441 $ 5,269 Loss from operations of discontinued businesses. . . . . . . . . . . . Benefit from income taxes. . . . . . . . . . . Loss from discontinued operations . . . . . . . — — — Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 5,269 Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,269 35 34,803 34,768 $ 31,464 (63,244) $(64,746) — — — (4,651) 1,628 (3,023) — — — 34,803 $ 28,441 $(64,746) 34,803 $ 28,441 $(64,746) $ $ $ $ $ $ 886 (22,398) 37,732 — 16,220 Comprehensive income (loss) . . . . . . . . . . . . $ 6,155 $ 12,405 $ 66,173 $(64,746) $ 19,987 97 50782 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Year Ended September 30, 2012 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods and services . . . . . . . . . . . . . . . $ — $1,414,910 — 1,060,183 Parent Company Guarantor Companies Non- Guarantor Companies $499,860 428,760 Elimination Consolidation $(53,625) (46,603) $1,861,145 1,442,340 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . — 354,727 71,100 (7,022) 418,805 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and other related charges. . Total operating expenses . . . . . . . . . . . . Income (loss) from operations . . . . . . . Other income (expense) Interest income (expense), net. . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other income (expense) . . . Income (loss) before taxes . . . . . . . . . . . . . . . Provision (benefit) for income taxes . . . . . Income (loss) before equity in net income of subsidiaries . . . . . . . . . . . . . . . . . Equity in net income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,982 — 18,982 (18,982) (14,541) 13 (14,528) (33,510) (20,363) 267,677 4,674 272,351 82,376 (25,183) 10,826 (14,357) 68,019 25,366 62,564 15 62,579 8,521 (11,991) (7,756) (19,747) (11,226) (73) (7,527) — (7,527) 505 — (1,847) (1,847) (1,342) — 341,696 4,689 346,385 72,420 (51,715) 1,236 (50,479) 21,941 4,930 (13,147) 42,653 (11,153) (1,342) 17,011 31,500 $ 18,353 $ 18,353 $ $ (11,007) 31,646 42,653 $ 31,500 (63,146) $(64,488) 31,646 $ 31,500 $(64,488) — 17,011 17,011 $ $ (619) 19,777 (30,993) — (11,835) Comprehensive income (loss) . . . . . . . . . . . . $ 17,734 $ 51,423 $ 507 $(64,488) $ 5,176 98 25054 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Year Ended September 30, 2011 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods and services . . . . . . . . . . . . . . . $ — $1,379,535 — 1,055,520 Parent Company Guarantor Companies Non- Guarantor Companies $489,342 421,261 Elimination Consolidation $(38,075) (39,440) $1,830,802 1,437,341 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . — 324,015 68,081 1,365 393,461 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and other related charges. . Total operating expenses . . . . . . . . . . . . Income (loss) from operations . . . . . . . Other income (expense) Interest income (expense), net. . . . . . . Loss from debt extinguishment, net . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,292 364 16,656 (16,656) (12,607) — (648) 256,880 7,018 263,898 60,117 57,538 161 57,699 10,382 (26,414) (397) 6,882 (8,427) (25,767) (1,338) Total other income (expense) . . . (13,255) (19,929) (35,532) Income (loss) before taxes . . . . . . . . . . . . . . . Provision (benefit) for income taxes . . . . . (29,911) (14,943) 40,188 17,977 (25,150) (9,952) Income (loss) before equity in net income of subsidiaries . . . . . . . . . . . . . . . . . (14,968) 22,211 (15,198) (341) — (341) 1,706 — — (1,182) (1,182) 524 — 524 Equity in net income (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,013 1,139 22,211 (30,363) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (7,955) $ 23,350 $ 7,013 $(29,839) 330,369 7,543 337,912 55,549 (47,448) (26,164) 3,714 (69,898) (14,349) (6,918) (7,431) — (7,431) (7,431) $ $ Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,955) $ 23,350 $ 7,013 $(29,839) 866 (36,069) (27,615) 37,512 (25,306) Comprehensive income (loss) . . . . . . . . . . . . $ (7,089) $ (12,719) $ (20,602) $ 7,673 $ (32,737) 99 69545 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2013 Parent Company Guarantor Companies Non- Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,269 $ 34,803 $ 28,441 $(64,746) $ 3,767 Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . (25,184) 83,177 27,690 — 85,683 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany distributions. . . . . . . . . . . . Proceeds from sale of assets . . . . . . . . . . Net cash provided by (used in) (123) 10,000 — (56,617) (10,000) 1,404 (7,701) — 169 investing activities. . . . . . . . . . . . . . . . 9,877 (65,213) (7,532) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of long-term debt . . . . . . . . . . Change in short-term borrowings . . . . . Financing costs . . . . . . . . . . . . . . . . . . . . . . . Tax effect from exercise/vesting of equity awards, net . . . . . . . . . . . . . . . . . . Dividend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,521) — — — (2,157) — (833) 150 (5,825) 394 303 (1,032) — — — — (26,674) — (13,678) 2,950 — — — 26,674 Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . NET DECREASE IN CASH AND (40,792) (27,403) 15,946 — — — — (2,090) — EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . (56,099) (9,439) 34,014 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . 125,093 34,782 49,779 CASH AND EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,994 $ 25,343 $ 83,793 $ — — — — — — — — — — — — — — — — — — (64,441) — 1,573 (62,868) (32,521) 303 (16,867) 2,950 (833) 150 (5,825) 394 (52,249) (2,090) — (31,524) 209,654 $178,130 100 89113 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2012 Parent Company Guarantor Companies Non- Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 18,353 $ 31,646 $ 31,500 $ (64,488) $ 17,011 Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . (24,315) 93,349 21,096 — 90,130 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Acquired business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany distributions. . . . . . . . . . . Proceeds from sale of assets . . . . . . . . . Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of long-term debt . . . . . . . . . Change in short-term borrowings . . . . Financing costs . . . . . . . . . . . . . . . . . . . . . . Tax effect from exercise/vesting of equity awards, net . . . . . . . . . . . . . . . . . Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) (155) (63,388) (5,308) — 10,000 — (22,432) (10,000) 200 — — 109 9,845 (95,620) (5,199) — — — — — (68,851) (22,432) — 309 (90,974) (10,382) — — — (10,382) (23,000) (1,625) — (65) 491,372 (4,351) — — 27,000 (12,570) (1,859) (32) (491,372) — — — 834 (4,743) 96 — (219,516) (245,616) — 219,516 (245,752) — — 491,372 4,000 (18,546) (1,859) (97) 834 (4,743) 100 financing activities . . . . . . . . . . . . . . (38,885) 21,889 (13,697) — (30,693) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in discontinued operations. . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . NET INCREASE (DECREASE) IN — — — — CASH AND EQUIVALENTS . . . . . . . . (53,355) 19,618 (2,801) 963 362 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . CASH AND EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (2,801) 963 (33,375) 243,029 178,448 15,164 49,417 $125,093 $ 34,782 $ 49,779 $ — $209,654 101 27286 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2011 Parent Company Guarantor Companies Non- Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (7,955) $ 23,350 $ 7,013 $(29,839) $ (7,431) Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . 43,407 38,657 (46,679) — 35,385 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . Acquired business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany distributions . . . . . . . . . . Funds restricted for capital projects . Proceeds from sale of assets. . . . . . . . . Net cash provided by (used in) investing activities . . . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury. . . . . . Proceeds from issuance of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments of long-term debt . . . . . . . . . Change in short-term borrowings. . . . Intercompany debt . . . . . . . . . . . . . . . . . . Financing costs . . . . . . . . . . . . . . . . . . . . . . Purchase of ESOP shares . . . . . . . . . . . Exercise of stock options. . . . . . . . . . . . Tax effect from exercise/vesting of equity awards, net . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . . . . . . . . . . . . CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in discontinued operations . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . NET INCREASE (DECREASE) IN (418) (55,455) (31,744) — 10,000 — — (1,066) (10,000) 4,629 68 211 — — 1,442 9,582 (61,824) (30,091) (18,139) — — 569,973 (625) — (468,372) (14,663) (19,973) 2,306 — (31,138) — — — — — 104,278 (466,809) 3,538 468,372 (6,990) — — 7 345 — 12,356 — (12,356) 50,859 (18,782) 90,033 — — — — (962) (973) CASH AND EQUIVALENTS . . . . . . . . 103,848 (41,949) 11,328 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . CASH AND EQUIVALENTS AT 74,600 57,113 38,089 — — — — — — — — — — — — — — — — — — — — — (87,617) (855) — 4,629 1,510 (82,333) (18,139) 674,251 (498,572) 3,538 — (21,653) (19,973) 2,306 7 345 122,110 (962) (973) 73,227 169,802 END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 178,448 $ 15,164 $ 49,417 $ — $ 243,029 102 71650 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 21—SUBSEQUENT EVENTS On November 13, 2013, Griffon announced that it will repurchase 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. The repurchase will be 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 transaction is exclusive of the Company’s current $50,000 authorized share repurchase program, of which $12,027 remained as of September 30, 2013. After closing of the transaction, GS Direct will continue to hold approximately 5.56 million shares (approximately 10%) of Griffon’s common stock. GS Direct has also agreed that, subject to certain exceptions, if it intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2014, it will first negotiate with the Company in good faith to sell the shares to the Company. Griffon will fund the purchase with cash on hand and the transaction will be completed in December. On November 13, 2013, Griffon declared a $0.03 per share dividend payable on December 24, 2013 to shareholders of record as of December 5, 2013. Griffon currently intends to pay dividends each quarter; however, the payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to future dividends. ***** 103 55770 SCHEDULE II GRIFFON CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 2013, 2012 and 2011 (in thousands) Description Balance at Beginning of Year Recorded to Cost and Expense Accounts Written Off, net Other Balance at End of Year FOR THE YEAR ENDED SEPTEMBER 30, 2013 Allowance for Doubtful Accounts Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns and allowances . . . . . . . . . . . . . . . $ 4,146 1,287 $ 5,433 Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . $18,787 Deferred tax valuation allowance . . . . . . . . . . $10,541 FOR THE YEAR ENDED SEPTEMBER 30, 2012 Allowance for Doubtful Accounts Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns and allowances . . . . . . . . . . . . . . . $ 4,610 1,462 $ 6,072 Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . $19,557 Deferred tax valuation allowance . . . . . . . . . . $ 9,481 FOR THE YEAR ENDED SEPTEMBER 30, 2011 Allowance for Doubtful Accounts Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales returns and allowances . . . . . . . . . . . . . . . $ 5,091 1,490 $ 6,581 Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . $16,720 $ 2,939 1,859 $ 4,798 $ 5,788 $ 2,880 $ 2,009 2,018 $ 4,027 $ 3,487 $ 1,060 $ 1,121 2,741 $ 3,862 $ 8,651 $(3,948) (146) $ 9 (10) $ 3,146 2,990 $(4,094) $ (1) $ 6,136 $(8,490) $(357) $15,728 $ — $ — $13,421 $(2,284) (2,160) $(4,444) $(189) (33) $(222) $ 4,146 1,287 $ 5,433 $(3,995) $(262) $18,787 $ — $ — $10,541 $(1,405) (2,748) $(4,153) $(197) (21) $(218) $ 4,610 1,462 $ 6,072 $(5,631) $(183) $19,557 Deferred tax valuation allowance . . . . . . . . . . $13,977 $(4,496) $ — $ — $ 9,481 Note: This Schedule II is for continuing operations only. 104 17635 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Evaluation and Disclosure Controls and Procedures Griffon’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, Griffon’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Griffon in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Management’s Report on Internal Control over Financial Reporting Griffon’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Griffon’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Griffon’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management evaluates the effectiveness of Griffon’s internal control over financial reporting using the criteria set forth by the 1992 Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Management, under the supervision and with the participation of Griffon’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of Griffon’s internal control over financial reporting as of September 30, 2013 and concluded that it is effective. Griffon’s independent registered public accounting firm, Grant Thornton LLP, has audited the effectiveness of Griffon’s internal control over financial reporting as of September 30, 2013, and has expressed an unqualified opinion in their report which appears in this Annual Report on Form 10-K. Changes in Internal Controls There were no changes in Griffon’s internal control over financial reporting identified in connection with the evaluation referred to above that occurred during the fourth quarter of the year ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. Inherent Limitations on the Effectiveness Controls Griffon’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Griffon’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Griffon’s assets; 105 60488 (ii) provide reasonable assurance that statements transactions are recorded as necessary to permit in accordance with generally accepted accounting preparation of principles, and that Griffon’s receipts and expenditures are being made only in accordance with authorizations of Griffon’s management and directors; and financial (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Griffon’s assets that could have a material effect on the financial statements. Management, including Griffon’s Chief Executive Officer and Chief Financial Officer, does not expect that Griffon’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate. Item 9B. Other Information On November 13, 2013, Griffon announced that it will repurchase approximately 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. The repurchase will be 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 transaction is exclusive of the Company’s current $50,000 authorized share repurchase program, of which $12,027 remained as of September 30, 2013. After closing of the transaction, GS Direct will continue to hold approximately 5.56 million shares (approximately 10%) of Griffon’s common stock. Goldman Sachs has also agreed that, subject to certain exceptions, if it intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2014, it will first negotiate with the Company in good faith to sell the shares to the Company. Griffon will fund the purchase with cash on hand and the transaction will be completed in December. GS Direct is party to an investment agreement with Griffon pursuant to which it has certain rights and is subject to certain restrictions, including the right to nominate one individual to serve on Griffon’s Board of Directors (based on GS Direct’s ownership level of Griffon’s outstanding common stock after giving effect to the repurchase described above). PART III Item 11, Executive Compensation; The information required by Part III: Item 10, Directors, and Executive Officers and Corporate Governance; Item 13, Certain Relationships and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by reference to Griffon’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in January, 2014, to be filed with the Securities and Exchange Commission within 120 days following the end of Griffon’s year ended September 30, 2013. Information relating to the executive officers of the Registrant appears under Item 1 of this report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to this Item 12 is included in and incorporated by reference to 106 10579 Griffon’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in January, 2014. The following sets forth information relating to Griffon’s equity compensation plans as of September 30, 2013: Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted- average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity compensation plans not approved by security holders(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,035 106,200 $20.11 $20.38 672,332 (1) Excludes restricted shares issued in connection with Griffon’s equity compensation plans. The total reflected in Column (c) includes shares available for grant as any equity award under the Incentive Plan. (2) Griffon’s 1998 Employee and Director Stock Option Plan is the only equity plan which was not approved by Griffon’s stockholders. No new grants have been made under The Employee and Director Stock Option Plan since February 2008. 107 54182 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Griffon has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 15th day of November 2013. GRIFFON CORPORATION By: /s/ RONALD J. KRAMER Ronald J. Kramer, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on November 15, 2013 by the following persons on behalf of the Registrant in the capacities indicated: /s/ HARVEY R. BLAU Harvey R. Blau /s/ RONALD J. KRAMER Ronald J. Kramer Chairman of the Board Chief Executive Officer (Principal Executive Officer) /s/ DOUGLAS J. WETMORE Douglas J. Wetmore Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ BRIAN G. HARRIS Brian G. Harris /s/ HENRY A. ALPERT Henry A. Alpert /s/ BERTRAND M. BELL Bertrand M. Bell /s/ BLAINE V. FOGG Blaine V. Fogg /s/ BRADLEY J. GROSS Bradley J. Gross /s/ ROBERT G. HARRISON Robert G. Harrison /s/ DONALD J. KUTYNA Donald J. Kutyna /s/ KEVIN F. SULLIVAN Kevin F. Sullivan /s/ MARTIN S. SUSSMAN Martin S. Sussman /s/ WILLIAM H. WALDORF William H. Waldorf /s/ JOSEPH J. WHALEN Joseph J. Whalen Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director 108 11029 Exhibit 31.1 I, Ronald J. Kramer, certify that: Certification 1. I have reviewed this annual report on Form 10-K of Griffon Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: November 15, 2013 /s/ RONALD J. KRAMER Ronald J. Kramer Chief Executive Officer (Principal Executive Officer) 96851 Exhibit 31.2 I, Douglas J. Wetmore, certify that: Certification 1. I have reviewed this annual report on Form 10-K of Griffon Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: November 15, 2013 /s/ DOUGLAS J. WETMORE Douglas J. Wetmore Chief Financial Officer (Principal Financial Officer) 03014 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 10-K of Griffon Corporation (the “Company”) for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Ronald J. Kramer, as Chief Executive Officer of Griffon, and Douglas J. Wetmore, as Chief Financial Officer of Griffon, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Griffon. /s/ RONALD J. KRAMER Name: Ronald J. Kramer Title: Chief Executive Officer (Principal Executive Officer) Date: November 15, 2013 /s/ DOUGLAS J. WETMORE Name: Douglas J. Wetmore Title: Chief Financial Officer (Principal Financial Officer) Date: November 15, 2013 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. 31850 81398 C O M PA N Y P RO F I L E TELEPHONICS Telephonics designs, develops and manufactures high-technology, integrated information, communication and sensor system solutions for use in military and commercial markets worldwide. Website: www.telephonics.com Clopay Plastic Products is an international leader in the development and production of embossed laminated and printed specialty plastic films used in a variety of hygienic, healthcare and industrial applications. Website: www.clopayplastics.com CLOPAY PLASTIC PRODUCTS HOME & BUILDING PRODUCTS Ames True Temper, established in 1774, is a global provider of non-powered landscaping products that make work easier for homeowners and professionals. Website: www.amestruetemper.com Clopay Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains. Website: www.clopaydoor.com DIRECTORS Henry A. Alpert President, Spartan Petroleum Corp. (petroleum distributor/real estate) Bertrand M. Bell, M.D. Albert Einstein Medical Center Harvey R. Blau Chairman of the Board Blaine V. Fogg, Esq. Of Counsel Skadden, Arps, Slate, Meagher & Flom LLP Bradley J. Gross Managing Director, Goldman Sachs Rear Admiral Robert G. Harrison USN (Ret.) Ronald J. Kramer Chief Executive Officer General Donald J. Kutyna USAF (Ret.) Kevin F. Sullivan MidOcean Credit Partners Martin S. Sussman, Esq. Partner Seltzer Sussman Habermann & Heitner LLP William H. Waldorf President, Landmark Capital, LLC (investments) Independent Registered Public Accountants Grant Thornton LLP Joseph J. Whalen Retired Partner Arthur Andersen LLP OFFICERS Ronald J. Kramer Chief Executive Officer Robert F. Mehmel President and Chief Operating Officer Douglas J. Wetmore Executive Vice President and Chief Financial Officer Seth L. Kaplan Senior Vice President, General Counsel and Secretary Brian G. Harris Vice President, Controller and Chief Accounting Officer Denise A. Lueders Vice President, Taxation Thomas D. Gibbons Treasurer Stock Listing The company’s Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol GFF. Registrar and Transfer Agent American Stock Transfer & Trust Company Additional copies of this report will be furnished to shareholders upon written request to the company at: Griffon Corporation Attn. Secretary 712 Fifth Avenue, 18th Floor New York, New York 10019 Website www.griffoncorp.com Griffon Corporation has included as to its Annual Report on exhibits Form 10-K for fiscal year 2013 filed with the SEC certifications of Griffon’s and Chief Chief Executive Officer Financial Officer certifying the quality of the company’s public disclosures. Griffon’s Chief Executive Officer has also submitted to the NYSE a certification that he is not aware of any violations by Griffon corporate the NYSE governance listing standards. of 75735Cover_2013Griffon.indd 4-6 12/18/13 2:51 PM www.griffoncorp.com 75735Cover_2013Griffon.indd 2-3 12/18/13 2:51 PM 2013 Annual Report 

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