Griffon

Annual Report 2019

47671

Letter to Shareholders

Our strong results for fiscal 2019 reflect the positive transformation of our portfolio of businesses over the

past six years. During this time, Griffon has strategically repositioned itself through the completion of 11

acquisitions and the divestiture of its plastics business. We continue to optimize our performance and make

excellent progress with our acquisition integration activities, which is driving our strong organic growth, higher

margin, and enhanced cash flow generation.

In fiscal 2019, our consolidated revenue from continuing operations increased to $2.2 billion with organic

growth of 5%, and Adjusted EBITDA increased 19%.* These results highlight the earnings power of our

leading global brands and mission critical defense electronics technology.

As our company has evolved, we are now reporting our financial results in three segments to reflect the

significant opportunities for each of our businesses. This will provide shareholders with additional insight into

the positive impacts of the operational

improvements and strategic investments we have put into motion,

including the three-year strategic initiative we announced at AMES and the substantial expansion of capacity

and capability we recently completed at CornellCookson.

Last year, I wrote that there was ‘‘a significant disconnect between the intrinsic value of our company and

the market price of our common stock.’’ During the 2019 fiscal year, Griffon shares appreciated 30% while

the Russell 2000 index declined 10%. Despite this recent outperformance as compared to the market, we still

have substantial opportunities to accelerate profitability and drive increased shareholder value. Our

entrepreneurial spirit and culture of continuous improvement drives our financial results. We are excited

about our prospects for the future.

CONSUMER AND PROFESSIONAL PRODUCTS

The Consumer and Professional Products segment

is composed of our AMES business and includes

ClosetMaid. AMES is the leading North American manufacturer and a global provider of branded consumer

and professional tools and products for home storage and organization, landscaping, and enhancing outdoor

lifestyles. AMES’ products bear well known, highly identifiable brands, bringing value to our customers and
living up to AMES’ mission of ‘‘Bringing Brands Together’’™.

In 2019, AMES’ results continued to improve as we drove revenue growth and margin expansion across our

global markets. Fiscal 2019 revenue of $1.0 billion was up 5%, and adjusted EBITDA of $91 million* was up

18% over the prior year. AMES grew market share through continued customer diversification and expansion

of product offerings, despite the challenges we faced due to trade policy and other macroeconomic factors

both in the U.S. and in AMES’ international markets.

While we are pleased to see momentum in our sales volume and improvement in our efficiency, we are

executing on meaningful opportunities to bolster

these results even further.

In November 2019 we

announced a broad strategic initiative to establish a next-generation business platform at AMES to enhance

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the growth, efficiency and competitiveness of our U.S. operations. We expect this initiative to drive improved

operating margin and free cash flow generation for the combined AMES and ClosetMaid businesses.

In

addition, we established a new headquarters for AMES in Orlando, Florida to accommodate our expected

future growth and concentrate our leadership team in a vibrant location with improved access to AMES’ North

American facilities.

AMES is continuing to make investments in its international markets as well. At the end of November, we

acquired Apta, a leading United Kingdom supplier of innovative garden pottery and associated products sold to

leading garden centers in the UK and Ireland. Notwithstanding recent uncertainty in the UK due to Brexit, we

view the UK lawn and garden market as a significant opportunity for AMES and an important part of our long-

term goal to expand our UK presence. Apta is expected to generate approximately $15 million of revenue and

be accretive to Griffon’s earnings in the first 12 months.

In 1774, AMES began as a blacksmith shop in Massachusetts. Today, AMES has grown into a global

company comprised of a portfolio market-leading brands and products that are widely recognized and

respected by consumers and professionals worldwide. We expect to see continued sales growth and margin

improvement across this business as our strategic activities generate results.

HOME AND BUILDING PRODUCTS

The Home and Building Products segment is composed of our Clopay and CornellCookson businesses.

Clopay is now the largest manufacturer and marketer of garage doors and rolling steel doors in North America

providing premium,

reliable and recognized market

leading brands, supported by extensive design,

manufacturing and logistics capabilities. Clopay operates 51 North American distribution centers and serves

a diverse customer portfolio including major home center

retail chains and a network of over 2,500

professional dealers.

Fiscal 2019 was a profitable and transformative year for Clopay as the company focused on a number of

integration initiatives following the CornellCookson acquisition. Clopay acquired the commercial rolling steel

door manufacturer in 2018 to maximize growth opportunities for both brands through a broader customer

base and complementary product offerings. Fiscal 2019 revenue was $874 million, up 25% over the prior

year period including 6% organic growth and contributions from CornellCookson. Adjusted EBITDA was $120

million,* up 20% over the prior year period.

Clopay and CornellCookson are now operating under one integrated management team for key business

functions including operations, sales, finance, and IT. This has resulted in company-wide knowledge sharing

and efficiencies in purchasing and logistics, enhanced digital quoting tools for customers, and the

implementation of best-in-class processes to improve safety, quality and productivity among all of Clopay’s

manufacturing plants.

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In January 2019, we announced a $14 million investment

in infrastructure and equipment at

the

CornellCookson manufacturing facility in Mountain Top, Pennsylvania. This recently completed project will

support volume growth and new product development, as well as improve operational efficiencies. Clopay

continues to see the benefits of the CornellCookson acquisition through increased cross-selling opportunities

and leverage from increased scale in the supply chain.

This year, we changed the company’s name to Clopay Corporation from Clopay Building Products to

present Clopay as the most comprehensive residential and commercial door solutions company in North

America. The brands within Clopay have a long legacy, with the Clopay garage door business founded in 1964

and Cornell and Cookson founded in 1828 and 1938, respectively. These brands will continue to figure

prominently in the marketplace as leaders in their respective categories.

We remain encouraged about the industry and our ability to continue to expand and improve. Our strategic

actions to drive new product

introductions will

increase organic growth, and cross-selling driven by our

professional dealer network, complemented through the acquisition of CornellCookson, will further expand our

market share. The ongoing integration activities we have underway as well as the efficiencies realized from our

recent facilities investments will help drive profitability.

DEFENSE ELECTRONICS

2019 marked the expected turning point for our Defense Electronics business, Telephonics. We see a U.S.

defense budget refocused on defense readiness, along with higher spending in international markets, which is

expected to drive demand for Telephonics products in surveillance and communication solutions for our

defense, aerospace and commercial customers.

Fiscal 2019 segment-level sales were $335 million, up compared to the prior year period of $326 million.

Adjusted EBITDA was $35 million,* which was slightly behind the $36 million* reported in fiscal 2018, driven

by mix, partially offset by reduced operating expenses. We are pleased with these results and expect awards

for MH-60R systems from India and Greece originally projected for 2019 to contribute to 2020 volume.

Contract backlog totaled $389 million at September 30, 2019, which was up 4% compared to the prior year

period, with approximately 72% expected to be fulfilled within the next twelve months. Additionally, bookings

were $350 million, resulting in a fiscal 2019 book-to-bill ratio of 1.05x.

Telephonics continues to develop its next generation MOSAIC(cid:2) Active Electronically Scan Array (AESA)
radars and conducted successful flight tests generating important industry interest. In addition, the U.S. Navy

recognized Telephonics’ cutting-edge technical

innovation, awarding Telephonics first place in the United

States Navy’s Marine Air/Ground Task Force, Unmanned Aerial System, Expeditionary (MUX) Airborne Early
Warning (AEW) Payload prize challenge based on its submission of a MOSAIC(cid:2) AESA based radar. The AESA
opportunity pipeline for these products continues to grow significantly.

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We have seen increases in demand for MH-60 Romeo helicopters under foreign military sales (FMS) that

are delivered with Telephonics radars and intercommunication systems in our opportunity pipeline.

Additionally, identification, friend or foe (IFF) business products are seeing strong demand both domestically

and internationally to supply updated capability with Mode 5 and there is continued demand from the

adjacent market of airport sensor upgrades that builds on our Common Terminal Digitizer (CTD) program.

We expect accelerating order rates, supported by a robust domestic budget and a global defense outlook

that calls for 3% annual growth over the next 5 years.

In addition, the United States remains the largest

exporter of defense equipment globally, bolstering our international opportunities in regions like the Middle

East, Asia and Australia. Our industry leading products are well positioned to gain budget share, as intelligence,

surveillance and reconnaissance (ISR) and communications products are becoming an increasingly important

area of strategic investment in the global defense market.

We are confident in the outlook for Telephonics and our strong position to drive growth as the pace of

orders increases in 2020 and beyond.

CAPITAL ALLOCATION

Our strengthening cash generation profile allows us to invest in our businesses while reducing debt and

returning cash to shareholders via our dividend program. We generated $69 million of free cash flow in 2019

and closed the year at 4.8x net debt to EBITDA, compared to 5.5x in the prior year. Our performance positions

us well

to deliver on our goal

to reduce leverage to 3.5x. Additionally,

fiscal 2019 marked our eighth

consecutive year of paying quarterly dividends to our shareholders, with dividend growth at an 18%

annualized compound rate since fiscal 2012.

Looking forward to fiscal 2020, we remain focused on optimizing our businesses through integration

activities to further enhance margins and drive incremental

free cash flow. We have prioritized further

deleveraging, but have ample resources to execute value enhancing, accretive M&A opportunities across our

segments and fund our dividend program.

BUILDING ON OUR MOMENTUM

As we look ahead to fiscal 2020, we are poised to build on our momentum. Our end markets are healthy and

supportive to growth, and we have identified strategic improvements across our businesses to drive top and

bottom-line expansion. This positions us to deliver on our commitments to profitably grow the business, drive

incremental improvement to our balance sheet and maximize shareholder value through strategic investments

and the return of cash to shareholders.

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Our success is the result of the hard work and dedication of our 7,300 employees and I thank them for all

of their efforts. I am proud of all that we have accomplished in 2019 and excited about our prospects to

continue delivering exceptional returns to our shareholders in the future.

Thank you for your interest and support.

Yours sincerely,

Ronald J. Kramer

Chairman and CEO

* For a reconciliation of adjusted EBITDA to Income before taxes from continuing operations, see page 118 of
this Annual Report.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended September 30, 2019
OR

(cid:4) 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 Ave, 18th Floor New York New York
(Address of Principal Executive Offices)

10019
(Zip Code)

(Registrant’s telephone number, including area code)

(212) 957-5000

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

Title of each class

Common Stock, $0.25 par value

Trading Symbol(s)

GFF

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:4)

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:4) No (cid:3)

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:3) No (cid:4)

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes (cid:3) No (cid:4)

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:

Large accelerated filer (cid:3)

Accelerated filer (cid:4)

Non-accelerated filer (cid:4)

Smaller reporting company (cid:4)
Emerging growth company (cid:4)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
to

transition period for complying with any new or revised financial accounting standards provided pursuant
Section 13(a) of the Exchange Act. (cid:4)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No (cid:3)

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, 2019, the registrant’s most recently completed second quarter, was approximately
$764,000,000. The registrant’s closing price as reported by the New York Stock Exchange-Composite Transactions for
March 31, 2019 was $18.48. The number of the registrant’s outstanding shares was 46,806,076 as of October 31, 2019.

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.

67348

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 (loss), 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,
restructuring, integration and disposal initiatives; the ability to identify and successfully consummate,
and integrate, value-adding acquisition opportunities; increasing competition and pricing pressures in
the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to
expand into new geographic and product markets, and to anticipate and meet customer demands for
new products and product enhancements and innovations; reduced military spending by the government
on projects for which Griffon’s Telephonics Corporation supplies products, including as a result of
defense budget cuts or other government actions; the ability of the federal government to fund and
conduct its operations; increases in the cost or lack of availability of raw materials such as resin, wood
and steel, components or purchased finished goods,
impact on costs or
availability resulting from tariffs; changes in customer demand or loss of a material customer at one of
Griffon’s operating companies; the potential
impact of seasonal variations and uncertain weather
patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a
downgrade in Griffon’s credit ratings; changes in international economic conditions including interest
rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular
third party suppliers and manufacturers to meet customer demands; the relative mix of products and
services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term
capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as
litigation, regulatory and environmental matters; unfavorable results of government agency contract
audits of Telephonics Corporation; Griffon’s ability to adequately protect and maintain the validity of
patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s
operating companies; possible terrorist threats and actions and their impact on the global economy;
Griffon’s ability to service and refinance its debt; and the impact of recent and future legislative and
regulatory changes, including, without limitation, the “Tax Cuts and Jobs Act of 2017” (“TCJA”) of
December 22, 2017. Readers are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements speak only as of the date made. Griffon undertakes no
obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.

including any potential

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(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

Overview

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

Business Strategy

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

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

Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their
capital structures. Griffon provides direction and assistance to its subsidiaries in connection with
acquisition and growth opportunities as well as in connection with divestitures. As long-term investors,
having substantial experience in a variety of industries, our intent is to continue the growth and
strengthening of our existing businesses, and to diversify further through investments in our businesses
and through acquisitions.

As described in greater detail below, over the past three years, we have undertaken a series of
transformative transactions. This year we integrated our most significant acquisitions into our wholly
owned subsidiaries, The AMES Companies, Inc. (“AMES”) and Clopay Corporation (“Clopay”),
expanding the scope of both AMES and Clopay. In particular, CornellCookson has been integrated into
Clopay, so that our leading company in residential garage doors and sectional commercial doors now
includes a leading manufacturer of rolling steel doors and grille products. ClosetMaid was combined
with AMES, and we established an integrated headquarters for AMES in Orlando, Florida. AMES is
now positioned to fulfill its mission of Bringing Brands Together™ with the leading brands in home and
garage organization, outdoor de´ cor, and lawn, garden and cleaning tools. As a result of the expanded
scope of the AMES and Clopay businesses, we now report each as a separate segment. Clopay remains
in the Home and Building Products segment and AMES now constitutes our new Consumer and
Professional Products segment.

Business Highlights

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

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

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storage products, and sells to some of the largest home center retail chains, mass merchandisers, and
direct-to-builder professional installers in North America. We believe that ClosetMaid is the leading
brand in its category, with excellent consumer recognition.

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

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

In June 2018, Clopay acquired CornellCookson, Inc. (“CornellCookson”), a leading provider of rolling
steel service doors, fire doors, and grilles, for an effective purchase price of approximately $170,000.
This transaction strengthened Clopay’s strategic portfolio with a line of commercial rolling steel door
products to complement Clopay’s sectional door offerings in the commercial industry, and expands the
Clopay network of professional dealers focused on the commercial market. CornellCookson generated
over $200,000 in revenue in its first full year of operations.

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

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

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

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

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. Griffon now reports its operations through
three reportable segments: the newly formed Consumer and Professional Products segment, which
consists of AMES; Home and Building Products, which consists of Clopay; and Defense Electronics,
which consists of Telephonics Corporation.

Further Information

Griffon posts and makes available, free of charge through its website at www.griffon.com, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as

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well as press releases, as soon as reasonably practicable after such materials are published or filed with
or furnished to the Securities and Exchange Commission (the “SEC”). The information found on
Griffon’s website is not part of this or any other report it files with or furnishes to the SEC.

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

Reportable Segments:

Griffon currently conducts its operations through three reportable segments:

• Consumer and Professional Products (“CPP”) conducts its operations through AMES. Founded
in 1774, AMES is the leading North American manufacturer and a global provider of branded
consumer and professional tools and products for home storage and organization, landscaping,
and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading
brands including True Temper, AMES, and ClosetMaid.

• Home and Building Products (“HBP”) conducts its operations through Clopay. Founded in 1964,
Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North
America. Residential and commercial sectional garage doors are sold through professional
dealers and leading home center retail chains throughout North America under the brands
Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial,
industrial, institutional, and retail use are sold under the CornellCookson brand.

• Defense Electronics conducts its operations through Telephonics Corporation (“Telephonics”),
founded in 1933, a globally recognized leading provider of highly sophisticated intelligence,
surveillance and communications solutions for defense, aerospace and commercial customers.

Reportable Segments:

CONSUMER AND PROFESSIONAL PRODUCTS

The CPP segment consists of AMES. Founded in Massachusetts in 1774, AMES has the distinction of
being one of the oldest companies in continuous operation in the United States. Over its long life,
AMES has grown organically and through the acquisition of other leading and historic tool businesses
such as True Temper, Union Tools, and Garant. Today, AMES is the leading manufacturer of long-
handled tools and landscaping products for homeowners and professionals in North America, and also
provides these products in key global markets including Canada, Australia, New Zealand,
the
United Kingdom, and Ireland. With the addition of ClosetMaid, AMES is also the leading provider of
wood and wire closet organization, general living storage, and wire garage storage products in the
United States.

Since being acquired by Griffon in 2010, AMES has benefited from strategic acquisitions that have
expanded its product portfolio and geographic presence. The ClosetMaid, Southern Patio, and Harper
Brush Works acquisitions added to AMES’ product categories in North America to include storage and
organization, decorative landscaping, and cleaning products. The acquisitions of Northcote, Cyclone,
Hills, and Tuscan Path in Australia established AMES as a leading supplier of tools and landscaping
categories in the Australian market. As a result of the acquisitions of Kelkay and La Hacienda, the
United Kingdom and Ireland has become a new key market for AMES products.

AMES has approximately 3,700 employees worldwide.

Brands

AMES’ brands are among the most recognized across its primary product categories in North America,
Australia and the United Kingdom. Its brand portfolio for long-handled tools, outdoor de´ cor, and

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landscaping product includes AMES®, True Temper®, Garant®, Harper®, UnionTools®, Westmix™,
Cyclone®, Southern Patio®, Northcote Pottery™, Nylex®, Hills®, Kelkay®, Tuscan Path®, La
Hacienda®, Kelso™, and Dynamic Design®™. Contractor-oriented tool brands include Razor-Back®
Professional Tools and Jackson® Professional Tools. AMES’ home organization, general living storage,
and garage storage products are sold primarily under the ClosetMaid® brand.

This strong portfolio of brands enables AMES to build and maintain long-standing relationships with
leading retailers and distributors. In addition, given the breadth of its brand portfolio and product
category depth, AMES is able to offer specific, differentiated branding strategies for key retail
customers. These strategies have focused on enhancement of brand value, with the goal of de-
commoditizing AMES products through the introduction of identity and functionality elements that will
make each top brand unique, attractive and visually recognizable by the consumer. The visual brand
transformation of the AMES® and Razor-Back® brands was completed in 2015, and the True
Temper® line roll-out was completed in 2016. In addition to the brands listed, AMES also sells private
label branded products, further differentiating AMES in its customer offerings.

Products

AMES manufactures and markets a broad portfolio of long-handled tools, landscaping products, and
home organization products. This portfolio contains many iconic brands and is anchored by five core
tools, outdoor de´ cor and watering, home
product categories:
organization, and cleaning products. As a result of brand portfolio recognition, high product quality,
industry leading service and strong customer relationships, AMES has earned market-leading positions
in its five core product categories. The following is a brief description of AMES’ primary product lines:

seasonal outdoor

tools, project

• Seasonal Outdoor Tools

• Long Handled 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®, Cyclone®
and Kelso™, as well as contractor-oriented brands including Razor-Back® Jackson® and
Darby™.

• Wheelbarrows: AMES designs, develops and manufactures a full line of wheelbarrows and
lawn carts, primarily under the AMES®, True Temper®, Jackson® Professional Tools,
UnionTools®, Garant® and Westmix™ brand names. The products range in size, 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®, Garant®
and Union Tools® brand names. The snow tool line includes shovels, pushers, roof rakes, sled
sleigh shovels, scoops and ice scrapers.

• Pruning: The pruning line is made up of pruners, loppers, shears, and other tools sold primarily

under the True Temper®, Cyclone® and Garant® brand names.

• Project Tools

• Striking Tools: Axes, picks, mattocks, mauls, wood splitters, sledgehammers, pry bars and
repair handles make up the striking tools product line. These products are marketed under the
True Temper®, Cyclone®, Garant®, Jackson® Professional Tools and Razor-Back®
Professional Tools brand names.

• Hand Tools: Hammers, screwdrivers, pliers, adjustable wrenches, handsaws, tape measures,
levels, clamps, and other traditional hand tools make up this product line. These products are
marketed under the Trojan®, Cyclone® and Supercraft® brand names. In addition, gardening
hand tools, such as trowels, cultivators, weeders and other specialty garden hand tools, are
marketed under the AMES® brand name.

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• Outdoor De´cor and Watering

• Planters and Lawn Accessories: AMES is a designer, manufacturer and distributor of indoor
and outdoor planters and accessories, sold under the Southern Patio®, Northcote Pottery™,
Tuscan Path, La Hacienda®, Hills®, Kelkay® and Dynamic Design®™ brand names, as well
as various private label brands. The range of planter sizes (from 6 to 32 inches) is available in
various designs, colors and materials.

• Garden Hose and Storage: AMES offers a wide range of manufactured and sourced garden
hoses and hose reels under the AMES®, NeverLeak®, Nylex®, and Hills® brand names.

• Home Organization: AMES designs, manufactures and sells a comprehensive portfolio of wire
and wood shelving, containers, storage cabinets and other closet and home organization
accessories primarily under the highly-recognized ClosetMaid® brand name and other private
label brands. Wire products include wire shelving and hardware, wire accessories and kitchen
storage products. Wire product brands include Maximum Load®, SuperSlide® and ShelfTrack®.
Wood solutions include closet systems, cube storage, storage furniture and cabinets. Selected
wood product brands include MasterSuite®, Suite Symphony®™, ExpressShelf®, Style+®, and
SpaceCreations®.

• Cleaning Products: AMES offers a full line of cleaning products for professional, home, and
industrial use, including brooms, brushes, squeegees and other cleaning products, primarily under
the Harper® brand.

Customers

AMES sells products throughout North America, Australia, New Zealand and Europe through (1)
home centers, such as The Home Depot, Inc. (“Home Depot”), Lowe’s Companies Inc. (“Lowe’s”),
Rona Inc., Bunnings Warehouse (“Bunnings”) and Woodies (with the average length of the relationship
with these customers being approximately 30 years); (2) mass market, specialty, and hardware retailers
including Wal-Mart Stores
(“Walmart”), Target Corporation (“Target”), Canadian Tire
Corporation, Limited (“Canadian Tire”), Costco Wholesale Corporation (“Costco”), Ace, Do-It-Best
and True Value Company; (3) industrial distributors, such as W.W. Grainger, Inc. and ORS Nasco, and
(4) homebuilders, such as D.R. Horton, KB Home, Lennar and NVR, Inc.

Inc.

Home Depot, Lowe’s and Bunnings are significant customers of AMES. The loss of any of these
customers would have a material adverse effect on the AMES business and on Griffon.

Product Development

AMES product development efforts focus on both new products and product line extensions. AMES
continually improves existing products as well as develops new products to satisfy consumer needs,
expand revenue opportunities, maintain or extend competitive advantages, increase market share and
reduce production costs. Products are developed through in-house industrial design and engineering
staffs to introduce new products and product line extensions that are timely and cost effective.

Sales and Marketing

in the U.S., and by country
AMES’ sales organization is structured by distribution channel
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 two largest customers’ headquarters,
supported by a shared in-house sales analyst. In addition, sales professionals are assigned to domestic,
the
wholesale and industrial distribution channels. Sales
United Kingdom and Ireland handle sales in each of their respective regions. In Australia, a dedicated
team of sales professionals is provided for the largest retail customer.

located in Canada, Australia,

teams

6

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Raw Materials and Suppliers

inputs include resin (primarily polypropylene and high density
AMES’ primary raw material
polyethylene), wood (particleboard and hardwoods including ash, hickory and poplar logs) and steel
(hot rolled, cold rolled, and wire rod). All raw materials are generally available from a number of
sources. Certain components are purchased, such as heavy forged components and wheelbarrow tires.
Most final assembly is completed internally in order to ensure consistent quality. AMES also sources
some finished goods.

Competition

The long-handled tools and 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 in the hand tool and pruning tool market and Truper
in the long-handled and garden tool space, compete in various tool
Herramientas S.A. de C.V.
categories. Suncast Corporation competes in the hose reel and accessory market, and more recently in
the long-handled plastic snow shovel category and Swan Hose competes 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 home storage and organizational solutions industry is also highly fragmented. AMES, primarily
under the ClosetMaid brands, sells through retail, direct to consumer (e-commerce category) and direct
to installer (building) channels and competes with a significant number of companies across each of
these unique channels. Principal competition for retail wire products is from Newell Brands, Inc.
through their Rubbermaid® product line. FirstService Brands, Inc. sells competing wood solutions
under the brand California Closets®, but does not sell through the retail or direct to consumer
channels. We believe that AMES’ market share in the U.S. is approximately double that of its largest
competitors in the home storage and organizational solutions product category.

AMES differentiates itself and provides the best value to customers through its successful history of
innovation, dependable supply chain and high on-time delivery rates, quality, product performance, and
highly recognized product brands. AMES’ size, depth and breadth of product offering, category
knowledge, research and development (“R&D”) investment, service and its ability to react to sudden
changes in demand from seasonal weather patterns, especially during harsh winter months, are
competitive advantages. Offshore manufacturers lack sufficient product innovation, capacity, proximity
to market and distribution capabilities to service large retailers or to compete in highly seasonal,
weather related product categories.

Manufacturing & Distribution

AMES has a combination of internal and external, and domestic and foreign, manufacturing sources
from which it sources products for sale in the markets it serves. Principal manufacturing facilities
include 644,000 square feet of manufacturing operations in Harrisburg and Camp Hill, Pennsylvania, a
676,000 square foot facility in Ocala, Florida, and a 353,000 square foot manufacturing center in
St. Francois, Quebec, Canada. AMES operates smaller manufacturing facilities at several other
locations in the United States, and internationally in Reynosa, Mexico; Jiangmen, China; and Grafton,
New South Wales and Wonthaggi, Victoria, both in Australia.

AMES has two principal distribution facilities in the United States, a 1.2 million square foot facility in
Carlisle, Pennsylvania and a 400,000 square foot facility in Reno, Nevada. Finished goods are
transported to these facilities from AMES’ manufacturing sites by both an internal fleet, as well as over
the road trucking and rail. Additionally, light assembly is performed at the Carlisle and Reno locations.
Smaller distribution centers are also strategically located in the U.S.
in Ocala, Florida, Chino,
California, Belle Vernon, Pennsylvania and Pharr, Texas, and internationally in Canada, Australia, the
United Kingdom and Ireland.

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HOME AND BUILDING PRODUCTS

The HBP segment consists of Clopay. Founded in 1964 and acquired by Griffon in 1986, Clopay has
grown organically and through acquisitions to become the largest manufacturer and marketer of garage
doors and rolling steel doors in North America. Clopay also manufactures a complete line of entry door
systems uniquely designed to complement its popular residential garage door styles. The majority of
Clopay’s sales come from home remodeling and renovation projects, with the balance from commercial
construction and new residential housing construction. Sales into the home remodeling market are
driven by the aging of the housing stock, existing home sales activity, and the trends of improving both
home appearance and energy efficiency.

On June 4, 2018, Clopay acquired CornellCookson, a leading U.S. manufacturer and marketer of rolling
steel door and grille products designed for commercial, industrial, institutional and retail use, for
$180,000, excluding certain post-closing adjustments. After taking into account estimated tax benefits
resulting from the transaction, the effective purchase price was $170,000, subject to certain adjustments.
CornellCookson was founded in 1828 as Cornell Iron Works and, in 2008, purchased the Cookson
Company, which was founded in 1938, to form CornellCookson. The acquisition of CornellCookson
expands Clopay’s existing footprint in the commercial door market and strengthens relationships with
professional dealers and installers. Clopay had previously partnered with CornellCookson on customer
solutions for over eight years. Consolidating the companies allows Clopay to broaden its existing
portfolio of brands, products and customers to serve the commercial market more efficiently with
multiple types of doors, and creates additional opportunity to expand our position in adjacent markets.
Similar distribution and product composition between the businesses also allows for potential cost
savings opportunities across distribution networks and through commodity purchasing.

Clopay has approximately 2,700 employees.

Brands

Clopay brings over 50 years of experience and innovation to the residential and sectional garage door
industry, and has over 100 years of experience in the rolling steel industry. Residential and commercial
sectional products are sold under market-leading brands including Clopay®, America’s Favorite Garage
Doors®, Holmes Garage Door Company® and IDEAL Door®. Clopay commercial rolling steel door
brands include Cornell®, Cookson®, CornellCookson® and Clopay®.

Products and Service

Clopay manufactures a broad line of residential sectional garage doors with a variety of options, at
varying prices. Clopay 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. Clopay also
offers a complete line of entry door systems uniquely designed to complement its popular residential
garage door styles.

Commercial door products manufactured and marketed by Clopay include rolling steel service doors,
fire doors, and shutters, steel security grilles, and room dividers. Clopay also manufactures and 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.

Customers

Clopay is currently the exclusive 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 Clopay and Griffon. Clopay distributes its garage doors directly to customers from its manufacturing
the U.S. and Canada. These
facilities and through its distribution centers located throughout

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distribution centers allow Clopay to maintain an inventory of garage doors near installing dealers and
provide quick-ship service to retail and professional dealer customers.

Product Development

Clopay product development efforts focus on both new products and improvements to existing
products. Products are developed through in-house design and engineering staffs.

Clopay operates technical development centers where its research engineers design and develop new
products and technologies and perform durability and performance testing of new and existing products,
materials and finishes. Clopay continually improves its door offerings through these development
efforts, focusing on characteristics such as strength, design, operating performance and durability, and
energy efficiency. The process engineering teams also work to develop new manufacturing processes
and production techniques aimed at improving manufacturing efficiencies and ensuring quality-made
products.

Sales and Marketing

The Clopay sales and marketing organization supports our customers, consults on new product
development and aggressively markets door solutions, with a primary focus on the North American
market. Clopay maintains a strong promotional presence, in both traditional and digital media.

Clopay customers utilize a proprietary residential door web application, the MyDoor® mobile enabled
app, that guides consumers through an easy to use visualization and pricing program, allowing them to
select the optimal door for their home. For Clopay’s commercial products, Clopay’s Commercial Door
Quoter (CDQ®™) and CornellCookson’s WebGen™ systems are available to assist our professional
dealers streamline their quoting and submittal process for greater productivity and backroom efficiency
improvement.

Raw Materials and Suppliers

The principal raw material used in Clopay’s manufacturing is galvanized steel. Clopay also utilizes
certain hardware components, as well as wood and insulated foam. All raw materials are generally
available from a number of sources.

Competition

The sectional garage door and commercial rolling steel door industry includes several large national
manufacturers and many smaller, regional and local manufacturers. Clopay competes on the basis of
service, quality, price, brand awareness and product design.

Clopay brand names are widely recognized in the building products industry. Clopay believes that it has
earned a reputation among installing dealers and retailers for producing a broad range of innovative,
high-quality doors with industry leading lead times. Clopay’s market position and brand recognition are
key marketing tools for expanding its customer base, leveraging its distribution network and increasing
its market share.

Manufacturing

On January 31, 2019, Clopay announced a $14,000 investment in facilities infrastructure and equipment
at its rolling steel manufacturing location in Mountain Top, Pennsylvania. This project includes a 90,000
square foot expansion to the already existing 184,000 square foot facility, along with the addition of
state of the art manufacturing equipment. Through this expansion, the Mountain Top location will
improve its manufacturing efficiency and shipping operations, as well as increase manufacturing

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capacity to support full-rate production of new and core products. The project is expected to be
completed by the end of calendar 2019.

Distribution

Clopay distributes its products through a wide range of distribution channels, including a national
network of 51 distribution centers. Additionally, products are sold to over 2,500 independent
professional installing dealers and to major home center retail chains including Home Depot and
Menards (with the average length of the relationship with these customers being greater than 25 years).
Clopay maintains strong relationships with its installing dealers and believes it is the largest supplier of
sectional garage doors to the retail and professional installing channels in North America and the
largest supplier of rolling steel door products in North America. Clopay is currently the exclusive
supplier of residential garage doors throughout North America to Home Depot and Menards.

DEFENSE ELECTRONICS

Defense Electronics
consists of Telephonics Corporation (“Telephonics”). Founded in 1933,
Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance
and communications solutions that are deployed across a wide range of land, sea and air applications.
Telephonics designs, develops, manufactures and provides logistical support and lifecycle sustainment
services to defense, aerospace and commercial customers worldwide. In 2019, approximately 63% of the
segment’s sales were to the U.S. Government and agencies thereof, as a prime or subcontractor, 32% to
international customers and 5% to U.S. commercial customers. Telephonics is headquartered in
Farmingdale, New York and currently has approximately 900 employees.

The U.S. defense budget for government fiscal year (GFY) 2020 is set at $718 billion with the
President’s defense budget request including major growth to most mission areas. This represents a $33
billion, or 5% increase over the GFY 2019 defense budget of $685 billion. Budgets through GFY 2024
increase with a compound annual growth rate (“CAGR”) of approximately 1% over the GFY 2020
baseline budget level.

Internationally, demand is growing due to major system capability upgrades in existing systems and re-
capitalization of aging assets. Industry reports indicate global defense spending to grow with a CAGR
of about 3.5% over the 2016-2026 periods. The U.S. is the largest exporter of defense equipment in the
world, and is expected to remain so for the foreseeable future, with significant increases in defense
budgets expected in countries that have historically imported defense products from the U.S. such as
Saudi Arabia, UAE, Taiwan, Australia, India, South Korea and Japan, among others.

Domestic and international defense market trends bode well for business opportunities for Telephonics
products supporting Imaging and Surveillance Radar Systems, Communications, Surveillance and
Border Surveillance.

Telephonics is organized into six primary business lines: Radar, Naval & Cyber Systems, Surveillance,
Communications, Systems Engineering and Analysis (SEG), and Telephonics Large Scale Integration
(TLSI).

• Radar: Telephonics provides a wide range of high-performing, lightweight and cost-effective
maritime surveillance and weather avoidance radar systems for fixed- and rotary-wing aircraft,
Unmanned Aerial Vehicles (UAVs) and shipboard platforms to the U.S. Government and
numerous
international defense agencies. Telephonics maritime surveillance radars offer
advanced features such as Ground Moving Target Indicator (GMTI), Synthetic Aperture Radar
(SAR), Inverse Synthetic Aperture Radar (ISAR), Automatic Identification System (AIS) and
weather avoidance.

• Naval & Cyber Systems: As today’s global leader for maritime surveillance radars, Telephonics is
the sole provider of the US Navy’s AN/APS-153 multi-mode radar and the communications suite

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within the MH-60R/S multi-mission helicopters. With a laser focus on tomorrow, Telephonics is
developing the next generation multi-mode maritime and over-land surveillance AESA radar
known as Telephonics MOSAIC®. Cyber Systems focuses on ISR aircraft integration design and
services with a facility that includes a 7,000 square foot hanger and a Sensitive Compartmented
Information Facility (SCIF) capable of supporting various customer and Government agencies
“black” programs.

• Surveillance: Telephonics is a global leader in Identification Friend or Foe (IFF), Monopulse
Secondary Surveillance Radars (MSSR) and Air Traffic Control (ATC) systems enabling military
and civilian air traffic controllers to effectively identify aircraft and vehicles as friendly.
Telephonics provides both equipment and supporting services required to safely and reliably
control flight operations. These systems are used by the U.S. Army, U.S. Navy, U.S. Air Force,
U.S. Marines, Federal Aviation Administration (“FAA”), NATO and numerous international
defense agencies including those of Japan and South Korea. They have been fielded globally in a
wide range of ground, air and sea-based applications.

• Communications: Telephonics’ advanced wired and wireless communication systems provide the
digital backbone for defense and civil platforms worldwide,
including fixed- and rotary-wing
aircraft, lighter-than-air aircraft and ground control shelters. These systems are designed to meet
stringent customer requirements to support adaptability to special missions and communications
protocol requirements. Telephonics’ vehicle-based intercommunications systems deliver traditional
intercom system capabilities while incorporating software-defined features,
including an open
architecture for integration into vehicle C4 (command, control, communications and computing)
systems, networked communications gateways and combat vehicles. Commercial audio products
and headsets are utilized worldwide in a wide range of military and civilian applications, including
audiometric testing and onboard flight entertainment. Advanced transit communications systems
deliver high-quality audio communications and critical travel information, enhancing passenger
safety, as well as train crew intelligibility and operational efficiency. Telephonics communications
systems are fielded within the U.S. Army, U.S. Navy, U.S. Air Force, U.S. Marines and numerous
international defense agencies. These systems are also sold to aerospace manufacturers,
commercial airlines and audiometric original equipment manufacturers.

• Systems Engineering and Analysis

(SEG): SEG provides

sophisticated, highly technical
engineering and analytic support to customers including the Missile Defense Agency, AEGIS
Ballistic Missile Defense Program, Program Executive Offices for Integrated Warfare Systems
and Ships, U.S. Naval Surface Warfare Centers, Marine Corps System Command and the U.S.
Army Aviation and Missile Command, among others. As a leading provider of combat, radar
and missile systems engineering and analysis, SEG is a key source of systems engineering
expertise for the U.S. integrated air and missile defense initiatives. In addition to government
program offices, SEG works extensively with national laboratories, the Intelligence Community
and prime contractors.

• Telephonics Large Scale Integration (TLSI): TLSI has designed nearly 400 mixed-signal custom
Application Specific Integrated Circuits (ASICs) for customers in the automotive, industrial,
defense/avionics and smart energy markets. TLSI works with its customers’ technical teams,
from the initial ASIC
taking complete responsibility for the ASIC development process,
specification definition through qualification and volume production, to meet the most stringent
customer program requirements. Over 10 million ASICs are shipped every year.

To meet the unique challenges of operating in an increasingly complex industry that is faced with
continued economic and budgetary pressure on U.S. defense procurement, Telephonics has adapted its
core surveillance and communications products, typically used by the U.S. government and its agencies,
to meet the needs of international customers in both defense and commercial markets. Telephonics’ two
largest product lines include maritime surveillance radar and aircraft intercommunication management
systems and as Telephonics continues to concentrate on adjacent markets to grow these product lines
both domestically and internationally, the company remains focused on delivering high-quality products
and services that protect military personnel and civilian interests world-wide.

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Telephonics’ leading-edge products and services are well-positioned to address the needs of a fully
integrated and modernized battlefield with an emphasis on providing complete situational awareness to
the warfighter whether on the ground, in the air or at sea, providing timely, secure and accurate
intelligence. Telephonics anticipates that the need for secure, integrated surveillance and communica-
tions capabilities will continue to increase as the U.S. and foreign militaries expand their role in fighting
terrorism both at home and abroad. Telephonics has also invested in design and development of
technologies focused on advanced intelligence and surveillance sensors with applications in both
manned and unmanned systems, as well as border and perimeter security markets.

Telephonics is a partner in Mahindra Telephonics Integrated Systems, a Joint Venture (JV) with
Mahindra Defense Systems in India. The business is focused on providing the Indian defense and civil
sectors with surveillance, communications and IFF systems. The JV also intends to provide air traffic
management (ATM), border and perimeter security and other surveillance technologies to meet
emerging demands.

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 Corporation
(“Lockheed Martin”, which includes Sikorsky Aircraft), The Boeing Company (“Boeing”), Northrop
Grumman Corporation (“Northrop Grumman”), Oshkosh Corporation (“Oshkosh”), Airbus Military,
Airbus Helicopters, Leonardo (AgustaWestland) Helicopters, and SAAB (with the average length of
the relationship with these customers being greater than 20 years), and is a prime contractor to the U.S.
Department of Defense and FAA. 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. Key
products include maritime radars,
identification friend or foe systems, mobile surveillance and
communication systems. 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 to play a larger role in defense systems development and
procurement for the foreseeable future.

Telephonics successfully leveraged its core Surveillance technologies to develop a solution, now fielded
by the FAA as a part of the Common Terminal Digitizer (CTD) program, at numerous air surveillance
radar sites across the United States. Telephonics expects to continue to leverage its technology to
improve the value proposition offered to future FAA radar infrastructure upgrade programs.

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 border and perimeter security markets, both in
the U.S. and abroad. With many of these programs, system specifications and operational and test
requirements are challenging, exacerbated by demanding delivery schedules. Telephonics believes that
the technological capabilities these systems encompass will also be able to serve and protect the most
complex borders.

Backlog

The funded backlog for Telephonics approximated $389,300 at September 30, 2019, compared to
$374,200 at September 30, 2018 (restated for the adoption of revenue recognition guidance on
October 1, 2018). Approximately 72% of the current backlog is expected to be filled during 2020.

Backlog represents the dollar value of funded orders for which work has not been performed. Backlog
generally increases with bookings and converts into revenue as we incur costs related to contractual
commitments or the shipment of product. The decrease in backlog was primarily attributed to the
timing of various international contract awards associated with radar and surveillance opportunities that
were not received by the end of the reporting period. Given the nature of our business and a larger

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dependency on international customers, our bookings, and therefore our backlog, is impacted by the
longer maturation cycles resulting in delays in the timing and amounts of such awards, which are subject
to numerous factors, including fiscal constraints placed on customer budgets; political uncertainty; the
timing of customer negotiations; and the timing of governmental approvals.

Customers

The U.S. Government, through prime contractors like Lockheed Martin, Northrop Grumman, Boeing
and Oshkosh, is a significant customer of Telephonics. The loss of the U.S. Government or any of its
prime contractors as a customer could have a material adverse effect on Telephonics’ business.
Notwithstanding the significance of Lockheed Martin, Northrop Grumman and Boeing, 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 (R&D)

In order to continue to offer affordable and technologically advanced solutions that provide relevant
and required features, 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 customers at the
earliest stages of new program development in an effort to provide solutions well in advance of its
competitors. Internally funded R&D costs include basic and applied research initiatives, development
activities, and other conceptual formulation studies. 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, and 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.

Telephonics is currently investing in an Active Electronically Scanned Array (AESA) based radar
solution to address emerging requirements in the maritime and overland radar markets. Continued
investments in the Surveillance product portfolio are expected to result
in market penetration
opportunities in the ground tactical markets with small form factor passive and active IFF solutions. In
addition, development of SkySearch-2020, a next generation Mode S Beacon system, is expected to
enable Telephonics to continue pursuing FAA opportunities that align with its core competencies and
technologies. Investments in the Communications Systems business line are focused on supporting pilot

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effectiveness initiatives by addressing cognitive overload conditions through innovative adaptive aural
processing algorithms.

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 high
quality and reliable products with greater performance and flexibility than its competitors while
competing on the basis of technology, innovative solutions, and price.

Manufacturing Facilities

Telephonics’ facilities are located in the U.S., primarily in New York. 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—Discontinued Operations

On February 6, 2018, we completed the sale of our Plastics business to Berry Global Group, Inc. for
approximately $465,000, net of certain post-closing adjustments. As a result, Griffon classified the
results of operations of the Plastics business as discontinued operations in the Consolidated Statements
of Operations for all periods presented and classified the related assets and liabilities associated with
the discontinued operations in the consolidated balance sheets. All results and information presented
exclude Plastics unless otherwise noted. Plastics is a global leader in the development and production of
embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products
and sells to some of the world’s largest consumer products companies. See Note 7, Discontinued
Operations.

Griffon Corporation

Employees

the U.S., Canada,

As of September 30, 2019, Griffon and its subsidiaries employ approximately 7,300 people located
primarily throughout
the United Kingdom, Australia, Mexico and China.
Approximately 200 of these employees are covered by collective bargaining agreements in the U.S.,
with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and
Service Workers International Union (an affiliate of the American Federation of Labor and Congress
of Industrial Organizations), and the United Food & Commercial Workers International Union.
Additionally, approximately 200 employees in Canada are represented by the Trade Union Advisory
Committee. Griffon believes its relationships with its employees are satisfactory.

Generally, the total number of employees of Griffon and its subsidiaries does not significantly fluctuate
throughout the year. However, acquisition activity or the opening of new branches or lines of business
may increase the number of employees or fluctuations in the level of Griffon’s business activity, which
could in turn require staffing level adjustments in response to actual or anticipated customer demand.

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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. Nevertheless, Griffon
cannot guarantee that, in the future, it will not incur additional costs for compliance or that such costs
will not be material.

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, the
Defense Security Service, with respect to its classified contracts, and other Inspectors General. These
agencies review a contractor’s performance under its contracts, cost structure and compliance with
applicable laws, regulations and standards, including those relating to facility and personnel security
clearances. 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 from continuing operations. In 2019:

a. The U.S. Government and its agencies,

through prime and subcontractor relationships,
represented 10% of Griffon’s consolidated revenue and 63% of Defense Electronics’ revenue.

b. Home Depot represented 18% of Griffon’s consolidated revenue, 28% of CPP’s revenue and

13% of HBP’s revenue.

No other customer accounted for 10% or more of consolidated revenue. Future operating results will
continue to substantially depend on the success of Griffon’s largest customers and Griffon’s
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 financial results, liquidity and operations.

Seasonality

Griffon’s revenue and income are generally 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 within the AMES and Clopay businesses. In 2019,
56% of AMES’ sales occurred during the second and third quarters compared to 55% in 2018 and 2017.
Clopay’s business is driven by renovation and construction during warm weather, which is generally at
reduced levels during the winter months, generally in our second quarter. Defense Electronics revenue
is generally driven by the delivery requirements of its customers, accordingly, Defense Electronics will
often have increased revenue in the latter half of the year due to the U.S. government’s annual budget
cycle.

Demand for lawn and garden products is influenced by weather, particularly weekend weather during
peak gardening season. AMES’ sales volume can 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
AMES’ products, such as snow shovels and other snow tools. As a result, AMES’ results of operations,
financial results and cash flows could be adversely impacted.

15

89193

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 Canada, Australia, the United Kingdom, Mexico and
China.

Research and Development

Griffon’s businesses 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.

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. All intellectual property information presented
in this section is as of September 30, 2019.

Trademarks are of significant importance to Griffon’s AMES and Clopay businesses. With 50 years of
experience and innovation in the garage door industry, and over 100 years of experience in the rolling
steel door industry, Clopay has a significant level of goodwill in its strong family of brands, including:
Clopay®, America’s Favorite Doors®; Holmes Garage Door Company®; IDEAL Door®; and the
Cornell®, Cookson®, and CornellCookson® commercial door brands. Principal global and regional
trademarks used by AMES for its tool and landscape products include AMES®, True Temper®,
Garant®, Harper®, UnionTools®, Westmix™, Cyclone®, Southern Patio®, Northcote Pottery™,
Nylex®, Hills®, Kelkay®, Tuscan Path®, La Hacienda®, Kelso™, and Dynamic Design®, as well as
contractor-oriented brands including Razor-Back® Professional Tools and Jackson® Professional
Tools. Storage and home organization brands within AMES include ClosetMaid®, MasterSuite®, Suite
Symphony®, Cubeicals®, ExpressShelf®, SpaceCreations®, Maximum Load®, SuperSlide® and
ShelfTrack®. The AMES and Clopay businesses have approximately 1,000 registered trademarks and
approximately 250 pending trademark applications around the world. Griffon’s rights in these
trademarks endure for as long as they are used and registered.

Patents are also important to the AMES and Clopay businesses. Clopay holds approximately 35 issued
patents and 25 pending patent applications in the U.S., as well as approximately 10 and 20
corresponding foreign patents and patent applications, primarily related to garage door system
components and operation. AMES protects its designs and product innovation through the use of
patents, and currently has approximately 325 issued patents and approximately 50 pending patent
applications in the U.S., as well as approximately 300 and 25 corresponding foreign patents and patent
applications, respectively. Design patents are generally valid for fourteen years, and utility patents are
generally valid for twenty years, from the date of filing. Griffon’s patents are in various stages of their
terms of validity.

intellectual property rights are of limited value.
In the government and defense business, formal
Therefore, the 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.

16

12074

Environmental, Social and Governance

We take into account environmental considerations in the management of our businesses. For example,
our newly constructed headquarters for AMES is largely constructed from recycled materials, much of
which was scrap material from the manufacture of our products. ClosetMaid’s wire shelving is
manufactured from recycled steel. Clopay’s garage doors feature energy saving insulation. Across our
facilities, we have installed energy efficient lighting systems that reduce our carbon footprint. We
divested our plastic film business that had the most environmentally controversial issues in connection
with the disposal of the diapers and products that incorporated those films.

We are committed to the communities in which our facilities are located. To that end, we have invested
in, expanded and continue to expand many of our facilities rather than outsource production. As a
result we have created economically productive opportunities for employment for the residents of many
of these communities. We also have a broad based employee stock ownership plan (“ESOP”) in which
the vast majority (over 90%) of our U.S. full-time employees participate (at no cost to them), which
aligns the economic interests of these employees with our shareholders and provides these employees
with a meaningful ownership stake in our Company. As of September 30, 2019, the shares held in the
ESOP represented approximately 12% of our outstanding common stock.

17

66615

Executive Officers of the Registrant

The following is a current list of Griffon’s executive officers:

Name

Ronald J. Kramer . . . . . . . . .

Age

61

Robert F. Mehmel . . . . . . . .

57

Brian G. Harris . . . . . . . . . . .

50

Seth L. Kaplan . . . . . . . . . . . .

50

Positions Held and Prior Business Experience

Chief Executive Officer since April 2008, Chairman of the Board
since January 2018, Director since 1993, Vice Chairman of the
Board from November 2003 to January 2018. From 2002 through
March 2008, President and a Director of Wynn Resorts, Ltd.
(Nasdaq:WYNN), 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 Business Development Corporation of
America.

Director since May 2018, President and Chief Operating Officer
since December 2012. From August 2008 to October 2012,
President and Chief Operating Officer of DRS Technologies
integrated
(“DRS”), a supplier of
(Formerly NYSE:DRS)
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.

Senior Vice President and Chief Financial Officer since August
2015. From November 2012 to July 2015, Vice President and
Controller of Griffon. From July 2009 to July 2015, Griffon’s
Chief Accounting Officer. From May 2005 to June 2009,
Assistant Controller of Dover Corporation, a diversified global
manufacturer (NYSE:DOV). Prior to this time, held various
finance and accounting roles with Hearst Argyle Television
(Formerly NYSE:HTV),
Inc.
John Wiley
(NYSE:JW.A) and Arthur Andersen, LLP.

Sons,

and

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 (NYSE:HXL), 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).

18

49906

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; 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 and market volatility could continue to have an adverse
effect on Griffon during 2020, particularly within the CPP and HBP segments, which is linked to the
U.S. housing and the commercial property markets, and the U.S. economy in general. Purchases of
many CPP and HBP products are discretionary for consumers who 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 or
obtain additional credit on favorable terms for investments in current businesses or for acquisitions, or
may render financing unavailable. Griffon is also exposed to certain fundamental economic risks
including a decrease in the demand for the products and services it offers or a higher likelihood of
default on its receivables.

Adverse trends and general economic conditions, especially those that relate to construction and
renovation, will impact Griffon’s business.

The CPP and HBP businesses serve residential and commercial construction and renovation, and are
influenced by market conditions that affect these industries. For the year ended September 30, 2019,
approximately 45% and 40% of Griffon’s consolidated revenue was derived from the CPP and HBP
segments, respectively, which was dependent on renovation of existing homes, new home construction,
and commercial non-residential construction, repair and replacement. 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 migration into the U.S. and
migration of the population within the U.S., have an effect on CPP and HBP. To the extent market
conditions for residential or commercial construction and renovation are weaker than expected, this will
likely have an adverse impact on the performance and financial results of the CPP and HBP businesses.

Griffon operates in highly competitive industries and may be unable to compete effectively.

Griffon’s operating companies face intense competition in the markets they serve. Griffon competes
primarily on the basis of technical expertise, product differentiation, quality of products and services,
and price. There are a number of competitors to Griffon, some of which are larger and have greater
resources than Griffon’s operating companies. Griffon’s operating companies may face additional
competition from companies that operate in countries with significantly lower operating costs.

Many CPP and HBP customers are large mass merchandisers, such as home centers, warehouse clubs,
discount stores, commercial distributors and e-commerce companies. The growing share of the market
represented by these large mass merchandisers, together with changes in consumer shopping patterns,

19

35209

have contributed to the increase of multi-category retailers and e-commerce companies that have strong
negotiating power with suppliers. Many of these retailers import products directly from foreign
suppliers to source and sell products under their own private label brands to compete with CPP and
HBP products and brands, which puts increasing price pressure on the products of these businesses. In
addition, the intense competition in the retail and e-commerce sectors, combined with the overall
increasingly competitive economic environment, may result in a number of customers experiencing
financial difficulty, or failing in the future. The loss of, or a failure by, one of CPP or HBP customers
could adversely impact our sales and operating cash flows.

To address all of these challenges, CPP and HBP must be able to respond to these competitive
pressures, and the failure to respond effectively could result in a loss of sales, reduced profitability and a
limited ability to recover cost increases through price increases. In addition, 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.

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 Griffon’s consolidated revenue. Home Depot, Lowe’s and Bunnings are significant customers
of CPP, and Home Depot and Menards are significant customers of HBP. Home Depot accounted for
approximately 18% of consolidated revenue, 28% of CPP’s revenue and 13% HBP’s revenue for the
year ended September 30, 2019. The U.S. Government and its agencies and subcontractors, including
Lockheed Martin and Boeing, is a significant customer of Telephonics, and together accounts for
approximately 10% of consolidated revenue and 63% of Defense Electronics segment revenue
(Lockheed Martin and Boeing each individually represent less than 10% of consolidated revenue
inclusive of such sales to the U.S. Government). Future operating results will continue to substantially
depend on the success of Griffon’s largest customers, as well as Griffon’s relationships with them.
Orders from these customers are subject to fluctuation and may be reduced materially due to changes in
customer needs or other factors. 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 its
largest customers will be retained or that additional key customers will be recruited. Also, both CPP
and HBP extend credit to its customers, which exposes it to credit risk. The largest customer accounted
for approximately 20%, 8% and 12% of the net accounts receivable of CPP, HBP and Griffon’s net
accounts receivable as of September 30, 2019, respectively. If this customer were to become insolvent or
otherwise unable to pay its debts, the financial condition, results of operations and cash flows of CPP,
HBP and Griffon could be adversely affected.

Reliance on third party suppliers and manufacturers may impair CPP and HBP ability to meet its
customer demands.

CPP and HBP rely on a limited number of domestic and foreign companies to supply components and
manufacture certain of its products. The percentage of CPP and HBP worldwide sourced finished goods
as a percent of revenue approximated 32% and 8%, respectively, in 2019. The percentage of CPP and
HBP’s worldwide sourced components as a percent of cost of goods sold approximated 12% and 16%,
respectively, in 2019. Reliance on third party suppliers and manufacturers may reduce control over the
timing of deliveries and quality of both CPP and HBP products. Reduced product quality or failure to
deliver products timely may jeopardize relationships with certain of CPP and HBP key customers. In
addition, reliance on third party suppliers or manufacturers may result in the failure to meet CPP and
HBP customer demands. Continued turbulence in the worldwide economy may affect the liquidity and
financial condition of CPP and HBP 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 the ability of CPP and HBP to fill orders, which
could have a material adverse effect on customer relationships.

20

If Griffon is unable to obtain raw materials for products at favorable prices it could adversely impact
operating performance.

23408

supply.

CPP and HBP suppliers primarily provide resin, wood, steel and wire rod. Both of these businesses
could experience shortages of raw materials or components for products or be forced to seek alternative
sources of
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 certain materials
may not be available at all. In recent years, both CPP and HBP have experienced price increases in
steel and plastic resins.

temporary shortages due to disruptions

If

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
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.

CPP is subject to risks from sourcing from international locations, especially China

CPP’ business is global, with products and raw materials sourced from, manufactured in and sold in
multiple countries around the world. There are risks associated with conducting a business that may be
impacted by political and other developments associated with international trade. In this regard, certain
products sold by CPP in the United States and elsewhere are sourced from China; and raw materials
used by CPP may be sourced from China and therefore may have their prices impacted by tariffs
imposed on trade between the United States and China.

The sourcing of CPP finished goods, components and raw materials from China are generally subject to
supply agreements with Chinese companies. 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 on matters of international trade in many cases creates
additional uncertainty as to the outcome of any litigation. In addition, interpretation of statutes and
regulations in China may be subject to government policies reflecting domestic political changes.

Because of the volume of sourcing by CPP from China, the ongoing trade dispute between the U.S. and
China, including the imposition of tariffs on various Chinese imports into the U.S. at various times since
March 2018, represents a continuing risk to CPP revenue and operating performance. Following the
initial announcement in March 2018 of a 25% tariff on steel imports and a 10% tariff on aluminum
imports, the Trump Administration imposed additional and/or increased tariffs on a wide variety of
consumer and industrial items imported from China throughout the remainder of 2018 and 2019 to date.
Some of these tariffs were subsequently reduced and/or delayed as the Trump Administration continues
to pursue trade negotiations with China. The materials subject to these tariffs include various steel and
aluminum finished goods, as well as a variety of resins, fabrics and wood products. As a result of these
tariffs and the fluid nature of ongoing trade negotiations, we intend to continue to manage our China
supply base, which may include raising prices on certain goods. This may in turn result in reduced sales
or the loss of customers and could impact our operating performance.

CPP and HBP operations are also subject to the effects of international trade agreements and
regulations such as the North American Free Trade Agreement, and the activities and regulations of
the World Trade Organization. Although these trade agreements generally have positive effects on
trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or
quotas assessed on products manufactured in a particular country, trade agreements can also adversely

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15609

affect CPP and HBP businesses. For example, trade agreements can result in setting quotas on products
that may be imported from a particular country into key markets including the U.S., Canada, Australia
and the United Kingdom, or may make it easier for other companies to compete by eliminating
restrictions on products from countries where CPP and HBP competitors source products.

The ability of CPP and HBP to import products in a timely and cost-effective manner may also be
affected by conditions at ports or issues that otherwise affect transportation and warehousing providers,
such as port and shipping capacity, labor disputes, severe weather or increased homeland security
requirements in the U.S. and other countries. These issues could delay importation of products or
require CPP and HBP to locate alternative ports or warehousing providers to avoid disruption to
customers. These alternatives may not be available on short notice or could result in higher transit costs,
which could have an adverse impact on CPP and HBP business and financial condition.

Griffon’s businesses are subject to seasonal variations and the impact of uncertain weather patterns.

Historically, overall Griffon revenue and earnings are lower in the first and second quarters ending
December 31 and March 31, respectively and higher in the third and fourth quarters ending June 30 and
September 30, respectively. Griffon’s revenue and earnings are generally lowest in our first and fourth
quarters ending December 31, and September 30, respectively, and highest in the second and third
quarters ending March 31, and June 30, respectively, primarily due to the seasonality of the AMES
business. In 2019, 56% of AMES’ sales occurred during the second and third quarters. Clopay’s business
is driven by residential renovation and construction, which occurs more during warm weather, than
during the winter months, and so revenues and earnings of Clopay are generally lower in the second
quarter. Telephonics historically has had higher revenue and earnings in the second half of Griffon’s
fiscal year ending September 30 (although this has not always been the case).

Demand for lawn and garden products is influenced by weather, particularly weekend weather during
the peak gardening season. AMES’ 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 AMES’ products such as snow shovels and other snow tools. As a result, AMES’ results
of operations, financial results and cash flows could be adversely impacted.

Each of Griffon’s businesses faces risks related to the disruption of its primary manufacturing facilities.

The manufacturing facilities for each of Griffon’s businesses are concentrated in just a few locations,
and in the case of CPP, some of these locations are abroad in low-cost locations. Any of Griffon’s
manufacturing facilities are subject to disruption for a variety of reasons, such as natural or man-made
disasters, terrorist activities, disruptions of information technology resources, and utility interruptions.
Such disruptions may cause delays in shipping products, which could result in the loss of business or
customer trust, adversely affecting Griffon’s businesses and operating results.

Manufacturing capacity constraints or increased manufacturing costs may have a material adverse effect
on Griffon’s business, results of operations, financial condition and cash flows.

Griffon’s current manufacturing resources may be inadequate to meet significantly increased demand
for some of its products. Griffon’s ability to increase its manufacturing capacity depends on many
factors, including the availability of capital, steadily increasing consumer demand, equipment delivery,
construction lead-times, installation, qualification, and permitting and other regulatory requirements.
Increasing capacity through the use of third-party manufacturers may depend on Griffon’s ability to
develop and maintain such relationships and the ability of such third parties to devote additional
capacity to fill its orders.

A lack of sufficient manufacturing capacity to meet demand could cause customer service levels to
decrease, which may negatively affect customer demand for Griffon’s products and customer relations

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82426

generally, which in turn could have a material adverse effect on Griffon’s business, results of operations,
financial condition and cash flows. In addition, operating facilities at or near capacity may also increase
production and distribution costs and negatively impact relations with employees or contractors, which
could result in disruptions to operations.

In addition, manufacturing costs may increase significantly and Griffon may not be able to successfully
recover these cost increases with increased pricing to its customers.

If CPP and HBP do not continue to develop and maintain leading brands or realize the anticipated
benefits of advertising and promotion spend, its operating results may suffer.

The ability of CPP and HBP to compete successfully depends in part on the company’s ability to
develop and maintain leading brands so that retail and other customers will need its products to meet
consumer demand. Leading brands allow both CPP and HBP to realize economies of scale in its
operations. The development and maintenance of such brands require significant investment in brand-
building and marketing initiatives. While CPP and HBP plan to continue to increase its expenditures for
advertising and promotion and other brand-building and marketing initiatives over the long term, the
initiatives may not deliver the anticipated results and the results of such initiatives may not cover the
costs of the increased investment.

Unionized employees could strike or participate in a work stoppage.

At September 30, 2019, Griffon employed approximately 7,300 people on a full-time basis,
approximately 6% of whom are covered by collective bargaining or similar labor agreements (all
within Telephonics and CPP). 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 and increased operating costs could occur. In addition, any renegotiation or
renewal of labor agreements could result in higher wages or benefits paid to unionized employees,
which could increase operating costs and as a result 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
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.

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 Lockheed Martin, Boeing and
Northrop Grumman. In the year ended September 30, 2019, U.S. government contracts and
subcontracts accounted for approximately 10% 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;

23

24007

• The failure or inability of the prime contractor to perform its contract under circumstances in

which 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;

• The inherent discretion of government agencies in determining whether Telephonics has

complied with all specifications set forth in a government contract; 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, and may be 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 Telephonics’ and Griffon’s results of operations.

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, to process export licenses and for other administrative
services that, if disrupted, could have an immediate impact on Telephonics’ business.

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,
the Defense Security Service, with respect to its classified contracts, other Inspectors General and the
Department of Justice. These agencies review a contractor’s performance under its contracts, its cost
structure and compliance with applicable laws and standards as well as compliance with applicable
regulations, including those relating to facility and personnel security clearances. 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 a failure to comply with applicable
laws or regulations, or 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, including treble damages, and suspension or prohibition from doing

24

57231

business with the U.S. Government. In addition, if allegations of impropriety are made, Telephonics and
Griffon could suffer serious harm to their reputation.

Many Telephonics contracts contain performance obligations that require innovative design capabilities,
are technologically complex, or are dependent upon factors not wholly within Telephonics’ control.
Failure to meet these obligations could adversely affect customer relations, future business opportunities,
and 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
Telephonics’ 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 with applicable specifications of products supplied under
government contracts, could prevent Telephonics from meeting contractual obligations, which could
subject Telephonics 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. Telephonics may also be
subject to the repayment of advance and progress payments, if any. Additionally, Telephonics 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 Griffon’s financial position.

Griffon’s business could be negatively affected by cyber or other security threats or other disruptions.

Overall, Griffon and its operating companies are subjected to cyber and other security threats common
to U.S. businesses. As a U.S. defense contractor, Telephonics, in particular, may be the target of cyber
security threats to its information technology infrastructure and unauthorized attempts to gain access to
sensitive or highly confidential information that could compromise U.S. security. The types of threats
could vary from attacks common to most industries to more advanced and persistent, highly organized
adversaries who target Telephonics because of national security information in its possession. If
Telephonics is unable to protect sensitive information, its customers or governmental authorities could
question the adequacy of its security processes and procedures and its compliance with evolving
government cyber security requirements for government contractors. Due to the evolving nature of
these security threats, the impact of any future incident cannot be predicted.

The costs related to cyber or other security threats or disruptions could be significant. Security events
such as these could adversely affect Griffon’s internal operations, future financial results and reputation,
as well as result in the loss of competitive advantages derived from research and development efforts
and other intellectual property.

If Griffon’s subcontractors or suppliers fail to perform their obligations, Griffon’s performance and
ability to win future business could be harmed.

Griffon relies on other companies to provide materials, major components and products to fulfill
contractual obligations. Such arrangements may involve subcontracts, teaming arrangements, or supply
agreements with other companies. There is a risk that Griffon may have disputes regarding the quality
and timeliness of work performed. In addition, changes in the economic environment, including defense
budgets and constraints on available financing, may adversely affect the financial stability of Griffon’s
supply chain and their ability to meet their performance requirements or to provide needed supplies on
a timely basis. A disruption or failure of any supplier could have an adverse effect on Griffon’s business
resulting in an impact to profitability, possible termination of a contract,
imposition of fines or
penalties, and harm to Griffon’s reputation impacting its ability to secure future business.

25

77575

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 Griffon’s products are characterized by rapid technological change, evolving industry
standards and continuous improvements in products. Due to constant changes in Griffon’s markets,
future success depends on Griffon’s ability to develop new technologies, products, processes and
product applications. Griffon’s long-term success in the competitive retail environment and the
industrial and commercial markets depends on its ability to develop and commercialize a continuing
stream of innovative new products that are appealing to ultimate end users and create demand. New
product development and commercialization efforts, including efforts to enter markets or product
categories in which Griffon has limited or no prior experience, have inherent risks. These risks include
the costs involved, such as development and commercialization, product development or launch delays,
and the failure of new products and line extensions to achieve anticipated levels of market acceptance
or growth in sales or operating income.

Griffon also faces the risk that its competitors will introduce innovative new products that compete with
Griffon’s products. In addition, sales generated by new products could cause a decline in sales of
Griffon’s other existing products. If new product development and commercialization efforts are not
successful, Griffon’s financial results could be adversely affected.

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 R&D efforts; or

• New products experience reliability or quality problems, or otherwise do not meet customer

preferences or requirements.

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.
Griffon closed the acquisitions of La Hacienda, Tuscan Path, ClosetMaid and Harper Brush in the
months of July through November 2017, Kelkay in February 2018, and CornellCookson in June 2018.
This integration risk may be exacerbated when numerous acquisitions are consummated in a short time
period.

In implementing an acquisition growth strategy, the following may be encountered:

• Costs associated with incomplete or poorly implemented acquisitions;

26

82663

• 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
including the failure to
properly integrate acquisitions, could have an adverse impact on Griffon’s results of operations, cash
flows and financial condition.

implementation of Griffon’s acquisition growth strategy,

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.

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 conduct operations in Canada, Australasia, the United Kingdom, Mexico and
China, and sell their products in many countries around the world. Sales of products through non-U.S.
subsidiaries accounted for approximately 16% of consolidated revenue for the year ended September
30, 2019. These sales could be adversely affected by changes in political and economic conditions, trade
protection measures, such as tariffs, the ability of the Company to enter into industrial cooperation
agreements (offset agreements), differing intellectual property rights and laws and changes in regulatory
requirements that restrict the sales of products or increase costs in such locations. Enforcement of
existing laws in such 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’s international sales and operations are subject to applicable laws relating to trade, export
controls and foreign corrupt practices, the violation of which could adversely affect operations. Griffon
is subject to various anti-corruption laws that prohibit improper payments or offers of payments to
foreign governments and their officials for the purpose of obtaining or retaining business. In addition,
Griffon is subject to export controls, laws and regulations such as the Arms Export Control Act, the
International Traffic in Arms Regulation and the Export Administration Regulations, as well as to
economic sanctions, laws and embargoes imposed by various governments or organizations, including
the U.S. and the European Union or member countries. Violations of anti-corruption, export controls,
or sanctions laws may result in severe criminal or civil sanctions and penalties, including debarment,
loss of export privileges and loss of authorizations needed to conduct Griffon’s international business,
and could harm the ability to enter into contracts with the U.S. Government. Such violations could also
result in Griffon being subject to other liabilities, which could have a material adverse effect on
Griffon’s business, results of operations and financial condition.

Griffon may not be able to protect its proprietary rights.

Griffon relies on a combination of patent, copyright and trademark laws, common law, 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.

27

11211

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 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 business, results of
operations 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 the frequency and severity of product liability
claims brought against Griffon will not increase, which claims can be brought either by an injured
customer of an end product manufacturer who used one of Griffon’s 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 Griffon’s 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.

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, and otherwise relating to health, safety and protection of the environment, in the
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. Material expenditures or liabilities may 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
laws and regulations or other
unknown environmental conditions, changes
unanticipated events may give rise to claims that may involve material expenditures or liabilities.

in environmental

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

28

68647

U.S. and international tax jurisdictions. Griffon’s effective tax rate could be adversely affected by the
2017 “Tax Cuts and Jobs Act” (“TCJA”) which includes a new U.S. tax on certain off-shore earnings,
referred to as Global Intangible Low Tax Income, 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.

There are risks associated with Griffon’s indebtedness.

While Griffon’s senior notes, which have limited covenants, are not due until 2022, and while its $350
million revolving line of credit, which is largely undrawn, has greater covenant requirements, there are
potential impacts from Griffon’s use of debt to finance certain of its activities, especially acquisitions
and expansions, as set forth below.

Compliance with restrictions and covenants in Griffon’s debt agreements may limit its ability to take
corporate actions.

The credit agreement entered into by, and, to a lesser extent, 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, which is
largely undrawn, 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 the
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.

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 holders of 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
on debt, thereby reducing the funds available for working capital, capital expenditures,
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

• Its level of
downturns.

indebtedness may make Griffon more vulnerable to economic or industry

29

13705

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.
While there is no present intention of issuing any such preferred stock, Griffon reserves the right to do
so at any time. In addition, Griffon is authorized to issue, without stockholder approval, up to
85,000,000 shares of common stock, of which 46,806,076 shares, net of treasury shares, were outstanding
as of September 30, 2019. 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.

30

20445

Item 2. Properties

Griffon occupies approximately 9,300,000 square feet of general office, factory and warehouse space
primarily throughout
the U.S., Canada, Mexico, Australia, United Kingdom and China. 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
Farmingdale, NY . . . . . . . Defense Electronics
Huntington, NY . . . . . . . . Defense Electronics
Huntington, NY . . . . . . . . Defense Electronics
Columbia, MD. . . . . . . . . . Defense Electronics
Elizabeth City, NC. . . . . . Defense Electronics

Troy, OH . . . . . . . . . . . . . . . Home and Building Products
Russia, OH . . . . . . . . . . . . . Home and Building Products
Mountain Top, PA. . . . . . Home and Building Products

Headquarters
Manufacturing/R&D
Manufacturing
Manufacturing
Engineering
Manufacturing (Owned),
Repair and Service (Leased)
Manufacturing
Manufacturing
Manufacturing

Manufacturing

Goodyear, AZ . . . . . . . . . . Home and Building Products
Carlisle, PA. . . . . . . . . . . . . Consumer and Professional Products Manufacturing, Distribution
Reno, NV . . . . . . . . . . . . . . Consumer and Professional Products Manufacturing, Distribution
Camp Hill, PA. . . . . . . . . . Consumer and Professional Products Manufacturing
Harrisburg, PA . . . . . . . . . Consumer and Professional Products Manufacturing
St. Francois, Quebec . . . . Consumer and Professional Products Manufacturing, Distribution
Falls City, NE . . . . . . . . . . Consumer and Professional Products Manufacturing
Champion, PA . . . . . . . . . . Consumer and Professional Products Wood Mill
Cork, Ireland . . . . . . . . . . . Consumer and Professional Products Manufacturing, Distribution
Pollington Site, UK . . . . . Consumer and Professional Products Manufacturing, Distribution
Gloucestershire, UK . . . . Consumer and Professional Products Distribution
South Yorkshire, UK . . . Consumer and Professional Products Manufacturing
Australia (various) . . . . . . Consumer and Professional Products 7 Distribution

Ocala, FL. . . . . . . . . . . . . . . Consumer and Professional Products Manufacturing
Grantsville, MD . . . . . . . . Consumer and Professional Products Manufacturing
Reynosa, MX . . . . . . . . . . . Consumer and Professional Products Manufacturing (owned),

Distribution (leased)

Chino, CA . . . . . . . . . . . . . . Consumer and Professional Products Distribution
Pharr, TX. . . . . . . . . . . . . . . Consumer and Professional Products Distribution
Belle Vernon, PA. . . . . . . Consumer and Professional Products Distribution
Fairfield, IA . . . . . . . . . . . . Consumer and Professional Products Manufacturing
Guangdong, China . . . . . . Consumer and Professional Products Manufacturing

Approx.
Square
Footage

Owned/
Leased

Lease
End
Year

2020

2021

2025

2021
2025
2039

13,000 Leased
180,000 Owned
90,000 Owned
100,000 Leased
46,000 Leased
46,500 Owned/
Leased
1,230,000 Leased
250,000 Owned
229,000 Owned/
Leased
163,000 Owned
1,227,000 Leased
400,000 Leased
380,000 Owned
264,000 Owned
353,000 Owned
82,000 Owned
225,000 Owned
74,000 Owned
115,000 Owned
2022
46,000 Leased
59,000 Leased
2025
562,000 Leased 2020–
2027
2020

2035
2022

676,000 Leased
155,000 Owned
133,000 Owned/
Leased
202,000 Leased
80,000 Leased
300,000 Leased
54,000 Leased
88,000 Leased

2020

2021
2022
2022
2021
2021

Griffon also leases approximately 1,100,000 square feet of space for the HBP distribution centers in
numerous facilities throughout the U.S. and in Canada. In addition, Griffon leases approximately
100,000 square feet of office space throughout the U.S. CPP also owns approximately 200,000 square
feet of additional space for operational 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,
liability and warranty claims,
including those relating to commercial

transactions, product

31

78829

environmental, employment, and health and safety matters. Griffon estimates and accrues liabilities
including the stage of the proceeding;
resulting from such matters based on a variety of factors,
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 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 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. Mine Safety Disclosures.

Not applicable.

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”.

Dividends

During 2019, 2018 and 2017, the Company declared and paid dividends totaling $0.29 per share, $0.28
per share and $0.24 per share, respectively. In addition, on March 7, 2018, the Board of Directors
declared a special cash dividend of $1.00 per share, paid on April 16, 2018 to shareholders of record as
of the close of business on March 29, 2018. The Company currently intends to pay dividends each
quarter; however, payment of dividends is determined by the Board of Directors at its discretion based
on various factors, and no assurance can be provided as to the payment of future dividends.

On November 13, 2019, the Board of Directors declared a cash dividend of $0.075 per share, payable on
December 19, 2019 to shareholders of record as of the close of business on November 27, 2019.

Holders

As of October 31, 2019, there were approximately 8,700 holders of Griffon’s Common Stock.

32

55159

Securities Authorized for Issuance Under Equity Compensation Plans

The following sets forth information relating to Griffon’s equity compensation plans as of September 30,
2019:

Plan Category

Equity compensation plans approved by security
holders(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity compensation plans not approved by

security holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (2)

(b)
Weighted-
average
exercise
price of
outstanding
options, warrants
and rights (2)

(c)
Number of
securities remaining
available for future
issuance under equity
plans (excluding
securities reflected
in column (a))

—

—

$

$

—

—

270,937

—

(1) Excludes restricted shares and restricted stock units issued in connection with Griffon’s equity
compensation plans. The total reflected in column (c) includes shares available for grant as any type
of equity award under the Incentive Plan.

(2) A stock option to purchase 350,000 shares at an exercise price of $20.00 expired on October 1, 2018.

Issuer Purchase of Equity Securities

The table below presents shares of Griffon Stock which were acquired by Griffon during the fourth
quarter of 2019:

ISSUER PURCHASES OF EQUITY SECURITIES

(a) Total
Number of
Shares
(or Units)
Purchased

(b) Average
Price Paid
Per Share
(or Unit)

— $
—
—

— $

—
—
—

—

(c) Total Number
of Shares
(or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs (1)

(d) Maximum
Number (or
Approximate Dollar
Value) of Shares
(or Units) That
May Yet Be
Purchased Under
the Plans
or Programs

—
—
—

—

$57,955(1)

Period

July 1–31, 2019 . . . . . . . . . . . . . . . . . .
August 1–31, 2019 . . . . . . . . . . . . . . .
September 1–30, 2019. . . . . . . . . . . .

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1) Shares,

if any, purchased by the Company in open market purchases are pursuant to share
repurchases authorized by the Company’s Board of Directors. On each of August 3, 2016 and
August 1, 2018, the Company’s Board of Directors authorized the repurchase of up to $50,000 of
Griffon common stock; as of September 30, 2019, $57,955 remained available for purchase under
these Board authorized repurchase programs.

33

07975

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, 2019, 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, 2014, 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

$250

$200

$150

$100

$50

$0

9/14

9/15

9/16

9/17

9/18

9/19

Griffon Corporation

S&P Smallcap 600

Dow Jones US Diversified Industrials

34

85982

Item 6. Selected Financial Data

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,209,289

2019

For the Years Ended September 30,
2018
2016
2017
(in thousands, except per share amounts)
$1,477,035
$1,524,997
$1,977,918

2015

$1,483,291

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 . .

Cash dividends declared per common

share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital expenditures . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . .

$

$

$

$

$

$

$

$

$

72,178
26,556

$

33,810
555

$

16,698
(1,085)

$

32,213
12,432

$

19,066
6,772

45,622

33,255

17,783

19,781

12,294

(8,335)
37,287

92,423
$ 125,678

1.11
(0.20)
0.91

40,934

1.06
(0.20)
0.87

42,888

0.29

45,361

61,848

$

$

$

$

$

$

$

0.81
2.25
3.06

41,005

0.78
2.18
2.96

42,422

1.28

50,138

55,803

$

$

$

$

$

$

$

$

(2,871)
14,912

0.43
(0.07)
0.36

41,005

0.41
(0.07)
0.35

43,011

0.24

34,937

47,878

$

$

$

$

$

$

$

$

10,229
30,010

0.48
0.25
0.73

41,074

0.45
0.23
0.68

44,109

0.20

59,276

46,342

$

$

$

$

$

$

$

$

21,995
34,289

0.28
0.49
0.77

44,608

0.26
0.47
0.73

46,939

0.16

46,308

45,834

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,074,939

$2,084,890

$1,873,541

$1,782,096

$1,712,813

Current portion of debt . . . . . . . . . . . . . . . .
Long term portion of debt, net . . . . . . . .
Total debt, net . . . . . . . . . . . . . . . . . . . . . . . . .

$

10,525
1,093,749
$1,104,274

$
13,011
1,108,071
$1,121,082

$

11,078
968,080
$ 979,158

$

13,932
896,946
$ 910,878

$

8,170
803,617
$ 811,787

Notes:

Results of operations from acquired businesses are included from the date of acquisition. The fair value
of assets and liabilities, inclusive of changes resulting from operating the businesses, are included in the
first period ended after the date of each acquisition, and all periods thereafter.

Excludes results of operations and assets and liabilities of discontinued operations for all periods
presented unless otherwise noted.

2019 includes a benefit from the reversal of contingent consideration related to the Kelkay acquisition
of $1,646 ($1,333, net of tax, or $0.03 per share) and discrete and certain other tax provisions, net, of
$2,035 or $0.05 per share.

2018 includes $7,597 of acquisition related costs ($5,047, net of tax, or $0.12 per share), special dividend
ESOP charges of $3,220 ($2,125, net of tax, or $0.05 per share), $1,205 of secondary equity offering
costs ($795, net of tax, or $0.02 per share), a cost of life insurance benefit of $2,614 ($248, net of tax, or
$0.01 per share) and discrete and certain other tax benefits, net, of $9,384, or $0.22 per share.

35

51599

2017 includes $9,617 of acquisition related costs ($6,145, net of tax, or $0.14 per share), $5,137 of
contract settlement charges ($3,300, net of tax, or $0.08 per share) and discrete tax benefits, net, of
$8,274, or $0.19 per share.

2016 includes discrete tax benefits, net, of $857 or $0.02 per share.

2015 includes discrete tax benefits, net, of $219 or $0.00 per share.

Due to rounding, the sum of earnings per share of Continuing operations and Discontinued operations
may not equal earnings per share or Net income.

36

70871

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

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

On June 4, 2018, Clopay Corporation (“Clopay”) (previously known as Clopay Building Products
Company, Inc.) acquired CornellCookson, Inc. (“CornellCookson”), a leading US manufacturer and
marketer of rolling steel door and grille products designed for commercial, industrial, institutional and
retail use, for an effective purchase price of approximately $170,000. CornellCookson, as expected,
generated over $200,000 in revenue in the first full year of operations. The accounts, affected for
adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and
results of operations of CornellCookson, are included in the Company’s consolidated financial
statements from the date of acquisition of June 4, 2018. See Note 3, Acquisitions.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Clopay Plastic
Products Company, Inc. (“Plastics”) and on February 6, 2018, completed the sale to Berry Global, Inc.
(“Berry”) for approximately $465,000, net of certain post-closing adjustments. As a result, Griffon
classified the results of operations of
the Plastics business as discontinued operations in the
Consolidated Statements of Operations for all periods presented and classified the related assets and
liabilities associated with the discontinued operations in the consolidated balance sheets. All results and
information presented exclude Plastics unless otherwise noted. See Note 7, Discontinued Operations.

On October 2, 2017, Griffon acquired ClosetMaid LLC (“ClosetMaid”) for approximately $185,700,
inclusive of post-closing adjustments, or $165,000 net of the estimated present value of tax benefits
resulting from the transaction. ClosetMaid, founded in 1965, is a leading North American manufacturer
and marketer of wood and wire closet organization, general living storage and wire garage storage
products and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-
builder professional installers in North America. ClosetMaid, as expected, generated over $300,000 in
revenue in the first twelve months after the acquisition. The accounts, affected for adjustments to reflect
fair market values assigned to assets purchased and liabilities assumed, and results of operations of
ClosetMaid are included in the Company’s consolidated financial statements from the date of
acquisition of October 2, 2017. See Note 3, Acquisitions.

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
The AMES Companies, Inc. (“AMES”), and the acquisition of CornellCookson by Clopay. Griffon now
reports its operations through three reportable segments: the newly formed Consumer and Professional
Products segment, which consists of AMES; Home and Building Products, which consists of Clopay;
and Defense Electronics, which consists of Telephonics Corporation.

37

86504

Griffon currently conducts its continuing operations through three reportable segments:

• Consumer and Professional Products (“CPP”) conducts its operations through AMES. Founded
in 1774, AMES is the leading North American manufacturer and a global provider of branded
consumer and professional tools and products for home storage and organization, landscaping,
and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading
brands including True Temper, AMES, and ClosetMaid. CPP revenue was 45%, 48%, and 36%
of Griffon’s consolidated revenue in 2019, 2018 and 2017, respectively.

• Home and Building Products (“HBP”) conducts its operations through Clopay. Founded in 1964,
Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North
America. Residential and commercial sectional garage doors are sold through professional
dealers and leading home center retail chains throughout North America under the brands
Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial,
industrial, institutional, and retail use are sold under the CornellCookson brand. HBP revenue
was 40%, 35% and 37% of Griffon’s consolidated revenue in 2019, 2018 and 2017, respectively.

• Defense Electronics conducts its operations through Telephonics Corporation (“Telephonics”),
founded in 1933, a globally recognized leading provider of highly sophisticated intelligence,
surveillance and communications solutions for defense, aerospace and commercial customers.
Telephonics’ revenue was 15%, 17% and 27% of Griffon’s consolidated revenue in 2019, 2018
and 2017, respectively.

CONSOLIDATED RESULTS OF OPERATIONS

2019 Compared to 2018

Revenue from continuing operations for the year ended September 30, 2019 was $2,209,289, compared
to $1,977,918 in the year ended September 30, 2018, an increase of 12%, primarily driven by increased
revenue at CPP and HBP from both recent acquisitions and organic growth, and increased revenue at
Defense Electronics. Organic growth was 5%. Gross profit for 2019 was $595,269 compared to $529,181
in 2018, with gross margin as a percent of sales (“gross margin”) of 26.9% in 2019, compared to 26.8%
in 2018.

Selling, general and administrative (“SG&A”) expenses from continuing operations in 2019 of $460,004
increased 5% from 2018 of $436,380. The 2019 SG&A expenses include income from the reversal of
contingent consideration related to the Kelkay acquisition of $1,646. The 2018 SG&A expenses
included acquisition costs of $7,597, special dividend ESOP charges of $3,220, cost of a life insurance
benefit of $2,614 and secondary offering costs of $1,205. Excluding these items from both periods the
2019 SG&A expenses increased 9% over 2018 primarily related to the June 4, 2018 acquisition of
CornellCookson and increased distribution and related freight costs at HBP due to increased sales
volume. SG&A for 2019, as a percent of revenue, was 20.8% compared to 22.1% in 2018, or 20.9% and
21.3%, respectively, excluding the items detailed above.

Interest expense from continuing operations in 2019 of $68,066 increased 3.8% compared to 2018 of
$65,568, primarily as a result of increased outstanding borrowings and interest rates on our Revolving
Credit Facility.

Other income (expense) from continuing operations of $4,173 in 2019 and $4,880 in 2018 consists
primarily of currency exchange transaction gains and losses from receivables and payables held in non-
functional currencies, and net gains or losses on investments. Additionally, Other income (expense)
included net periodic benefit plan income of $3,148 and $3,649, respectively. Effective October 1, 2018,
these benefit amounts are required to be included in other income; in the past these were in Cost of
goods and services and Selling, general and administrative expenses as a result of implementation of the
new accounting standard on pensions. All periods have been restated. See Note 11—Employee Benefit
Plans for further information on the implementation of this guidance.

38

53070

Griffon reported pretax income from continuing operations for 2019 of $72,178 compared to $33,810 for
2018. In 2019, the Company recognized a tax provision of 36.8% compared to 1.6% in 2018. The 2019
tax rate included $2,035 of discrete and certain other tax provisions, net. The 2018 tax rate included
$9,384 of discrete and certain other tax benefits, net, primarily from the revaluation of deferred tax
liabilities and the provisional amount recorded for the IRC section 965 transition tax on the untaxed
foreign earnings net of foreign tax credits, related to the TCJA.

Excluding the discrete and certain other tax benefits, net, and certain other items from continuing
operations, as listed below, the effective tax rates for 2019 and 2018 were 34.3% and 33.8%,
respectively. These rates reflect the impact of tax reserves and changes in earnings mix between U.S.
and non-U.S. operations.

Income from continuing operations for 2019 was $45,622, or $1.06 per share, compared to $33,255, or
$0.78 per share in 2018.

The 2019 Income from continuing operations included a benefit from the reversal of contingent
consideration related to the Kelkay acquisition of $1,646 ($1,333, net of tax, or $0.03 per share) and
discrete and certain other tax provisions, net, of $2,035 or $0.05 per share.

The 2018 income from continuing operations included the following:

– Acquisition costs of $7,597 ($5,047, net of tax, or $0.12 per share);

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

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

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

– Discrete and certain other tax benefits, net, of $9,384 or $0.22 per share, primarily from the
revaluation of deferred tax liabilities and the provisional amount recorded for the IRC
section 965 transition tax on the untaxed foreign earnings net of foreign tax credits related to
the TCJA.

Excluding these items from both reporting periods, 2019 Income from continuing operations would
have been $46,324, or $1.08 per share compared to $32,086, or $0.76 per share, in 2018.

2018 Compared to 2017

Revenue from continuing operations for the year ended September 30, 2018 was $1,977,918, compared
to $1,524,997 in the year ended September 30, 2017, an increase of 30%, primarily driven by increased
revenue at CPP and HBP from both recent acquisitions and organic growth, partially offset by
decreased revenue at Defense Electronics. Gross profit for 2018 was $529,181 compared to $408,126 in
2017, with gross margin as a percent of sales (“gross margin”) of 26.8% in 2018, consistent with 2017.

Selling, general and administrative (“SG&A”) expenses from continuing operations in 2018 of $436,380
increased 28% from 2017 of $341,092. The 2018 SG&A expenses included acquisition costs of $7,597,
special dividend ESOP charges of $3,220, cost of a life insurance benefit of $2,614 and secondary
offering costs of $1,205. The 2017 SG&A expenses included acquisition costs of $9,617 and contract
settlement charges of $5,137. Excluding these items from both periods, the 2018 SG&A expenses
increased 29% over 2017 primarily related to incremental SG&A expenses associated with acquisitions.
SG&A for 2018, as a percent of revenue, was 22.1%, compared to 22.4% for 2017, or 21.3% and 21.4%,
respectively, excluding the items detailed above.

Interest expense from continuing operations in 2018 of $65,568 increased 27% compared to 2017 of
$51,513, primarily as a result of increased debt levels related to the October 2017 add-on offering of
$275,000 of 5.25% senior notes due 2022, partially offset by lower outstanding borrowings on our
Revolving Credit Facility.

39

45585

Other income (expense) from continuing operations of $4,880 in 2018 and $1,113 in 2017 consists
primarily of currency exchange transaction gains and losses from receivables and payables held in non-
functional currencies, and net gains on investments. Additionally, Other income (expense) included net
periodic benefit plan income of $3,649 and $1,993, respectively. Effective October 1, 2018, these
benefits amounts are required to be included in other income; in the past these were in Cost of goods
and services and Selling, general and administrative expenses, as a result of implementation of the new
accounting standard on pensions. All periods have been restated. See Note 11 - Employee Benefit Plans
for further information on the implementation of this guidance.

Griffon reported pretax income from continuing operations of $33,810 for 2018 compared to $16,698 for
2017. In 2018, the Company recognized a tax provision of 1.6% compared to 6.5% in 2017. The 2018 tax
rate included $9,384 of discrete and certain other tax benefits, net, primarily from the revaluation of
deferred tax liabilities and the provisional amount recorded for the IRC section 965 transition tax on
the untaxed foreign earnings net of foreign tax credits, related to the TCJA. The 2017 tax rate included
$8,274 of discrete and certain other tax benefits, net, related primarily to excess tax benefits from the
vesting of equity awards within income tax expense, a federal domestic production activities deduction
and a federal R&D credit.

Excluding the discrete and certain other tax benefits, net, and certain other items from continuing
operations, as listed below, the effective tax rates for 2018 and 2017 were 33.8% and 39.7%,
respectively. These rates reflect the impact of tax reserves and changes in earnings mix between U.S.
and non-U.S. operations.

Income from continuing operations was $33,255, or $0.78 per share, for 2018 compared to $17,783, or
$0.41 per share in 2017.

The 2018 Income from continuing operations included the following:

– Acquisition costs of $7,597 ($5,047, net of tax, or $0.12 per share);

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

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

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

– Discrete and certain other tax benefits, net, of $9,384 or $0.22 per share, primarily from the
revaluation of deferred tax liabilities and the provisional amount recorded for the IRC
section 965 transition tax on the untaxed foreign earnings net of foreign tax credits related to
the TCJA.

The 2017 Income from continuing operations included the following:

– Acquisition costs of $9,617 ($6,145, net of tax, or $0.14 per share);

– Contract settlement charges of $5,137 ($3,300, net of tax, or $0.08 per share); and

– Discrete and certain other tax benefits, net, of $8,274, or $0.19 per share.

Excluding these items from both reporting periods, 2018 Income from continuing operations would
have been $32,086, or $0.76 per share compared to $18,954, or $0.44 per share, in 2017.

Griffon evaluates performance based on Earnings per share and Net income excluding restructuring
charges, loss on debt extinguishment, acquisition related expenses, discrete and certain other tax items,
as well other items that may affect comparability, as applicable. Griffon believes this information is
useful to investors for the same reason.

40

91101

The following table provides a reconciliation of Income from continuing operations to Adjusted income
from continuing operations and Earnings per common share from continuing operations to Adjusted
earnings per common share from continuing operations:

GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
TO ADJUSTED INCOME FROM CONTINUING OPERATIONS
(Unaudited)

For the Years Ended September 30,
2018

2019

2017

Income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . .

$45,622

$33,255

$17,783

Adjusting items:

Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition contingent consideration . . . . . . . . . . . . . . . . . . . .
Special dividend ESOP charges . . . . . . . . . . . . . . . . . . . . . . . . .
Secondary equity offering costs . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of life insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of above items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete and other certain tax provisions (benefits) . . . . .
Adjusted income from continuing operations . . . . . . . . . . . . . . . .

Earnings per common share from continuing operations. . . . .
Adjusting items, net of tax:

Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition contingent consideration . . . . . . . . . . . . . . . . . . . .
Special dividend ESOP charges . . . . . . . . . . . . . . . . . . . . . . . . .
Secondary equity offering costs . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of life insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete and other certain tax provisions (benefits) . . . . .
Adjusted earnings per share from continuing operations. . . . .

—
—
(1,646)
—
—
—
313
2,035
$46,324

$

1.06

—
—
(0.03)
—
—
—
0.05
1.08

$

7,597
—
—
3,220
1,205
2,614
(6,421)
(9,384)
$32,086

9,617
5,137
—
—
—
—
(5,309)
(8,274)
$18,954

0.78

$

0.41

0.12
—
—
0.05
0.02
0.01
(0.22)
0.76

0.14
0.08
—
—
—
—
(0.19)
0.44

$

Weighted-average shares outstanding (in thousands). . . . . . . . .

42,888

42,422

43,011

REPORTABLE SEGMENTS

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. Griffon now reports its operations through
three reportable segments: the newly formed Consumer and Professional Products segment, which
consists of AMES; Home and Building Products, which consists of Clopay; and Defense Electronics,
which consists of Telephonics Corporation.

Griffon evaluates performance and allocates resources based on each segment’s operating results from
continuing operations before interest income and expense, income taxes, depreciation and amortization,
unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment
and acquisition related expenses, as well as other items that may affect comparability, as applicable
(“Adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors
for the same reason.

See table provided in Note 18—Reportable Segments for a reconciliation of Segment Adjusted
EBITDA to Income before taxes from continuing operations.

41

88801

Consumer and Professional Products

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . .

$1,000,608

$953,612

$545,269

90,677 9.1%
32,289

77,061 8.1%
30,816

45,002 8.3%
25,207

For the Years Ended September 30,
2018

2019

2017

2019 Compared to 2018

CPP revenue in 2019 increased $46,996, or 5%, compared to 2018, driven by increased revenue from
pricing and mix of 3% and volume of 4%, partially offset by a 2% unfavorable impact due to foreign
exchange.

CPP Adjusted EBITDA in 2019 increased 18% to $90,677 compared to $77,061 in 2018, primarily
driven by the increased revenue as noted above, partially offset by increased material and tariff costs.
Depreciation and amortization increased $1,473 from 2018, primarily from acquisitions.

Strategic Initiative

Griffon is developing a next-generation business platform for The AMES Companies and its
ClosetMaid business (collectively “CPP”) to enhance the growth, efficiency, and competitiveness of its
U.S. operations.

This initiative includes three key development areas. First, multiple independent information systems
will be unified into a single data and analytics platform which will serve the whole CPP U.S. enterprise.
Second, certain CPP U.S. operations will be consolidated to optimize facilities footprint and talent.
Third, strategic investments in automation and facilities expansion will be made to increase the
efficiency of our manufacturing and fulfillment operations, and support e-commerce growth.

The roll-out of the new business platform will occur over approximately a three-year period, with
completion expected by the end of calendar 2022. When fully implemented, these actions will result in
an annual cash savings of $15,000 to $20,000, and a $20,000 to $25,000 reduction in inventory at current
operating levels.

The cost to implement this new business platform, over the three-year duration of the project, will
include approximately $35,000 of one-time charges and approximately $40,000 in capital investments.
The one-time charges are comprised of $16,000 of cash charges, which includes $12,000 personnel-
related costs such as training, severance, and duplicate personnel costs as well as $4,000 of facility and
lease exit costs. The remaining $19,000 of charges are non-cash and are primarily related to asset write-
downs.

2018 Compared to 2017

CPP revenue in 2018 increased $408,343, or 75%, compared to 2017 with 73% due to the acquisitions of
La Hacienda, Tuscan Path, ClosetMaid (“CM”), Harper and Kelkay, as well as increased revenue from
favorable mix and pricing of 2%. Organic growth was 2%. 2018 CM revenue was $311,568.

CPP Adjusted EBITDA in 2018 was $77,061 compared to $45,002 in 2017, an increase of $32,059, or
71%, primarily driven by the increased revenue as noted above, partially offset by increased steel and
resin costs, and tariffs. Depreciation and amortization increased $5,609 from 2017, primarily from
acquisitions.

42

49634

2018 and 2017 acquisitions

On February 13, 2018, AMES acquired Kelkay, a leading United Kingdom manufacturer and
distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in
the UK and Ireland for approximately $56,118 (GBP 40,452), subject to contingent consideration of up
to GBP 7,000. In 2019, GBP 1,300 was reversed into income as it was highly probable a portion of the
contingent consideration would not be earned; this benefit was excluded from CPP Adjusted EBITDA.
This acquisition broadened AMES’ product offerings in the market and increased its in-country
operational footprint. Kelkay contributed approximately $35,000 in revenue in the first twelve months
after the acquisition.

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

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

for approximately $185,700,

On September 29, 2017, AMES Australia completed the acquisition of Tuscan Landscape Group Pty,
Ltd. (“Tuscan Path”), a leading Australian provider of pots, planters, pavers, decorative stone, and
garden decor products, for approximately $18,000 (AUD 22,250). The acquisition of Tuscan Path
broadens AMES’ outdoor living and lawn and garden business, and will strengthen AMES’ industry
leading position in Australia. Tuscan Path, as expected, generated approximately AUD 25,000 of
revenue in the first twelve months after the acquisition.

On July 31, 2017, The AMES Companies, Inc. acquired La Hacienda Limited, a leading United
Kingdom outdoor living brand of unique heating and garden decor products, for approximately $11,400
(GBP 9,175). The acquisition of La Hacienda broadens AMES’ global outdoor living and lawn and
garden business and supports AMES’ UK expansion strategy. La Hacienda, as expected, generated
approximately GBP 14,000 of revenue in the first twelve months after the acquisition.

Home and Building Products

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . .

$873,640

$697,969

$568,001

120,161 13.8% 100,339 14.4%

18,334

13,717

81,764 14.4%
11,340

For the Years Ended September 30,
2018

2019

2017

2019 Compared to 2018

HBP revenue in 2019 increased $175,671, or 25%, compared to 2018, with 19% due to the acquisition of
CornellCookson, 5% from favorable mix and pricing and 1% from increased volume. Organic growth
was 6%. CornellCookson revenue was $202,742.

HBP Adjusted EBITDA in 2019 increased 20% to $120,161 compared to $100,339 in 2018, primarily
driven by the increased revenue as noted above, partially offset by increased material and tariff costs.
Depreciation and amortization increased $4,617 from 2018, primarily from acquisitions.

On January 31, 2019, Clopay announced a $14,000 investment in facilities infrastructure and equipment
at its CornellCookson location in Mountain Top, Pennsylvania. This project includes a 90,000 square

43

67362

foot expansion to the already existing 184,000 square foot facility, along with the addition of state of the
art manufacturing equipment. Through this expansion, the CornellCookson Mountain Top location will
improve its manufacturing efficiency and shipping operations, as well as increase manufacturing
capacity to support full-rate production of new and core products. For the year ended September 30,
2019, $6,300 of the $14,000 was expended on this project. The project is expected to be completed by
the end of calendar 2019.

2018 Compared to 2017

HBP revenue in 2018 increased $129,968, or 23%, compared to 2017 with 12% due to the acquisition of
CornellCookson, increased revenue from favorable mix and pricing of 10% and increased volume
contributed 2%. 2018 CC revenue was $66,654.

HBP Adjusted EBITDA in 2018 was $100,339 compared to $81,764 in 2017, an increase of $18,575, or
23%, primarily driven by the increased revenue as noted above, partially offset by increased steel and
resin costs, and tariffs. Depreciation and amortization increased $2,377 from 2017, primarily from
acquisitions.

Acquisitions

On June 4, 2018, Clopay completed the acquisition of CornellCookson, a leading US manufacturer and
marketer of rolling steel door and grille products designed for commercial, industrial, institutional and
retail use, for $180,000, excluding certain post-closing adjustments primarily related to working capital.
After taking into account the net of the estimated present value of tax benefits resulting from the
transaction, the effective purchase price is approximately $170,000. The acquisition of CornellCookson
substantially expanded Clopay’s non-residential product offerings, and added an established
professional dealer network focused on rolling steel door and grille products for commercial, industrial,
institutional and retail use. CornellCookson, as expected, generated over $200,000 in revenue in the first
full year of operations.

Defense Electronics

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . .

$335,041

$326,337

$411,727

35,104 10.5%
10,667

36,063 11.1%
10,801

45,931 11.2%
10,851

For the Years Ended September 30,
2018

2019

2017

2019 Compared to 2018

Defense Electronics revenue in 2019 increased $8,704, or 3%, compared to 2018, primarily due to
increased volume of ground and airborne maritime surveillance radars, partially offset by Multi-Mode
airborne maritime surveillance systems.

Defense Electronics Adjusted EBITDA in 2019 decreased $959, or 3%, compared to 2018, primarily
due to unfavorable mix and efficiencies associated with Multi-Mode maritime surveillance systems,
partially offset by reduced operating expenses.

During 2019, Defense Electronics was awarded new contracts and incremental funding on existing
contracts approximating $350,200. Contract backlog was $389,300 at September 30, 2019 with 72%
expected to be fulfilled in the next 12 months; backlog restated for the adoption of revenue recognition
guidance on October 1, 2018 was $374,200 at September 30, 2018. Backlog is defined as unfilled firm
orders for products and services for which funding has been both authorized and appropriated by the
customer or Congress, in the case of the U.S. government agencies. The increase in backlog was

44

31515

primarily due to various U.S. and international contract awards associated with radar and surveillance
opportunities.

2018 Compared to 2017

Defense Electronics revenue in 2018 decreased $85,390, or 21%, compared to 2017, primarily due to
decreased maritime surveillance radar and electronic countermeasure systems revenue.

Defense Electronics Adjusted EBITDA in 2018 decreased $9,868 from 2017, primarily due to the
decreased revenue noted above and the impact of revised estimates to complete remaining performance
obligations on certain airborne intercommunications systems.

Unallocated Amounts

For 2019, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs,
totaled $46,302 compared to $45,343 in 2018, with the increase primarily due to compensation and
incentive costs.

For 2018, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs,
totaled $45,343 compared to $41,918 in 2017, with the increase primarily due to compensation, incentive
and relocation costs.

Depreciation and Amortization

Depreciation and amortization of $61,848 in 2019 compared to $55,803 in 2018; the increase was
primarily due to depreciation and amortization on assets acquired in acquisitions.

Depreciation and amortization of $55,803 in 2018 compared to $47,878 in 2017; the increase was
primarily due to depreciation and amortization on assets acquired in acquisitions.

Comprehensive Income (Loss)

During 2019, total other comprehensive Income (loss), net of taxes, of $(31,804) included a loss of
$8,460 from foreign currency translation adjustments primarily due to the weakening of the Euro,
Canadian, British and Australian currencies, all in comparison to the U.S. Dollar; a $23,055 loss from
Pension and other post-retirement benefits, primarily associated with a decrease in the assumed
discount rate compared to 2018; and a $289 loss on cash flow hedges.

During 2018, total other comprehensive income, net of taxes, of $26,369 included a gain of $14,866
related to the removal of Plastics’ foreign currency translation loss, which is considered in the gain on
the disposal of discontinued operations; a loss of $5,463 from foreign currency translation adjustments
primarily due to the weakening of the Euro, Canadian, British and Australian currencies, all
in
comparison to the U.S. Dollar; a $16,381 gain from Pension and other post-retirement benefits,
primarily associated with a $10,053 SERP benefit related to the passing of our Chairman of the Board
and an increase in the assumed discount rate compared to 2017; and a $585 gain on cash flow hedges.

DISCONTINUED OPERATIONS

During 2019, Griffon recorded an $11,050 charge ($8,335, net of tax) to discontinued operations. The
charge consisted primarily of a purchase price adjustment to resolve a claim related to the $465,000
Plastics divestiture and included an additional reserve for a legacy environmental matter. During 2019,
$9,500 of this charge was paid.

45

13310

Plastics

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Plastics and on
February 6, 2018, completed the sale to Berry for approximately $465,000, net of certain post-closing
adjustments. As a result, Griffon classified the results of operations of the Plastics business as
discontinued operations in the Consolidated Statements of Operations for all periods presented and
classified the related assets and liabilities associated with the discontinued operations in the
consolidated balance sheets. All results and information presented exclude Plastics unless otherwise
noted. Plastics is a global leader in the development and production of embossed, laminated and printed
specialty plastic films for hygienic, health-care and industrial products and sells to some of the world’s
largest consumer products companies.

Installation Services and Other Discontinued Activities

In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all
operating activities of its Installation Services segment which sold, installed and serviced garage doors
and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for
the new residential housing market. Griffon sold eleven units, closed one unit and merged two units
into HBP. Operating results of substantially this entire segment have been reported as discontinued
operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all
periods presented; Installation Services is excluded from segment reporting.

Griffon substantially concluded remaining disposal activities in 2009. There was no reported revenue in
2019, 2018 and 2017. During 2017, Griffon recorded $5,700 of reserves in discontinued operations
related to historical environmental remediation efforts and to increase the reserve for homeowner
association claims (HOA) related to installation services.

At September 30, 2019, Griffon’s liabilities for Plastics, Installations Services and other discontinued
operations primarily related to insurance claims, income taxes and product liability, warranty and
environmental reserves totaling liabilities of approximately $7,664. At September 30, 2018, Griffon’s
liabilities for Plastics and Installations Services and other discontinued operations totaled approximately
$9,857 and primarily related to insurance claims, income taxes and product liability, warranty and
environmental reserves and stay and transaction bonuses. See Note 7, Discontinued Operations.

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 include cash flows from operating
activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract
long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest
in existing businesses and strategic acquisitions while managing its capital structure on both a short-term
and long-term basis.

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

Years Ended
September 30,

2019

2018

(in thousands)

Cash Flows from Continuing Operations
Net Cash Flows Provided By (Used In):

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$113,958
(74,553)
(34,976)

$58,192
2,574
39,065

Cash provided by operating activities from continuing operations for 2019 was $113,958 compared to
$58,192 in 2018. Cash provided by income from continuing operations, adjusted for non-cash

46

38809

expenditures, was offset by a net increase in working capital, primarily driven by increased inventory,
partially offset by decreases in accounts receivable, contract costs and recognized income not yet billed
and increases in accounts payable. 2018 included cash expenditures of $14,821 related to items that
affect comparability, primarily related to acquisition diligence. 2019 did not include such expenditures.

During 2019, Griffon used $74,553 in investing activities from continuing operations compared to $2,574
provided in 2018. Payments for acquired businesses totaled $9,219 in 2019 compared to $430,932 in
2018. Payments for acquired businesses in 2019 consisted solely of a final working capital adjustment for
CornellCookson of $9,219. Payments for acquired businesses in 2018 were made to consummate the
October 2, 2017 acquisition of ClosetMaid for approximately $185,700,
inclusive of post-closing
adjustments and excluding the estimated present value of tax benefits. Additionally, on November 6,
2017, AMES acquired Harper for approximately $5,000, excluding certain post-closing adjustments, and
on February 13, 2018, AMES acquired Kelkay for approximately $56,118 (GBP 40,452) subject to
contingent consideration of up to GBP 7,000. Lastly, on June 4, 2018, Clopay acquired CornellCookson
for $180,000, excluding the estimated present value of tax benefits and post-closing adjustments,
primarily consisting of a working capital adjustment which were primarily settled in 2019. The 2019
payment related to sale of business of $9,500 resulted from a purchase price adjustment to resolve a
claim related to the $465,000 Plastics divestiture. The 2018 Proceeds from sale of business resulted from
the sale of Plastics. Insurance payment of $10,604 in 2019 and insurance proceeds of $8,254 in 2018
pertain to the settlement of a life insurance benefit. The 2018 insurance proceeds were reclassified from
operating activities to investing activities to comply with accounting guidance on the Statement of Cash
Flows classification of certain cash receipts and cash payments. In 2019, capital expenditures, net,
totaled $45,081 compared to $49,475 in 2018.

Cash used by financing activities from continuing operations in 2019 totaled $34,976 compared to a
source of cash of $39,065 in 2018. Cash used by financing activities from continuing operations in 2019
consisted primarily of net borrowings of long term debt and payments of dividends. Cash provided by
financing activities from continuing operations in 2018 included an add-on offering of $275,000
aggregate principal amount of 5.25% senior notes due 2022, which was completed on October 2, 2017,
the proceeds of which were used to purchase ClosetMaid, as well as for general corporate purposes
(including reducing the outstanding balance of Griffon’s Revolving Credit Facility (the “Credit
Agreement”)). At September 30, 2019, there were $50,000 in outstanding borrowings under the Credit
Agreement, compared to $25,000 in outstanding borrowings at the same date in 2018. In March 2019,
Griffon borrowed approximately $34,000 under the Credit Agreement and replaced the third party
lender under the ESOP loan.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase
of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the
Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately
negotiated transactions. During 2019, Griffon purchased 37,500 shares of common stock under these
repurchase programs, for a total of $372 or $9.92 per share. At September 30, 2019, $57,955 remains
under Griffon’s Board authorized repurchase programs. In addition to the repurchases under Board
authorized programs, during 2019, 85,847 shares, with a market value of $1,059, or $12.34 per share,
were withheld to settle employee taxes due upon the vesting of restricted stock and were added to
treasury stock. Furthermore, during 2019, an additional 3,861 shares, with a market value of $47, or
$12.16 per share, were withheld from common stock issued upon the vesting of restricted stock units to
settle employee taxes due upon vesting.

During 2019, the Board of Directors approved four quarterly cash dividends each for $0.0725 per share.
On November 13, 2019, the Board of Directors declared a cash dividend of $0.075 per share, payable on
December 19, 2019 to shareholders of record as of the close of business on November 27, 2019.

As of September 30, 2019, the amount of cash, cash equivalents and marketable securities held by
foreign subsidiaries was $34,200. Our intent is to permanently reinvest these funds outside the U.S., and
we do not currently anticipate that we will need funds generated from foreign operations to fund our
domestic operations. In the event we determine that funds from foreign operations are needed to fund

47

90894

operations in the U.S., we will be required to accrue and pay U.S taxes to repatriate these funds (unless
U.S. taxes have already been paid).

Payments related to Telephonics revenue are received in accordance with the terms of development and
production subcontracts; certain of such receipts are progress or performance based payments. With
respect to CPP and HBP, uncollected receivables have been immaterial in amount.

A small number of customers account for, and are expected to continue to account for, a substantial
portion of Griffon’s consolidated revenue. In 2019:

a. The U.S. Government and its agencies,

through prime and subcontractor relationships,
represented 10% of Griffon’s consolidated revenue and 63% of Defense Electronics revenue.

b. Home Depot represented 18% of Griffon’s consolidated revenue, 28% of CPP’s revenue and

13% of HBP’s revenue.

No other customer exceeded 10% or more 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.

At September 30, 2019, Griffon had debt, net of cash and equivalents, as follows:

At September 30,
2019

At September 30,
2018

(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 and issuance costs . . . . . . . . . . . . . . . . . .

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

72,377

$

69,758

10,525
1,093,749
9,857

1,114,131

13,011
1,108,071
13,610

1,134,692

Debt, net of cash and equivalents . . . . . . . . . . . . . . . . .

$1,041,754

$1,064,934

On October 2, 2017, in an unregistered offering through a private placement under Rule 144A, Griffon
completed the add-on offering of $275,000 principal amount of its 5.25% senior notes due 2022, at
101.0% of par, to Griffon’s previously issued $125,000 principal amount of its 5.25% senior notes due
2022, at 98.76% of par, completed on May 18, 2016 and $600,000 5.25% senior notes due in 2022, at par,
which was completed on February 27, 2014 (collectively the “Senior Notes”). As of September 30, 2019,
outstanding Senior Notes due totaled $1,000,000; interest is payable semi-annually on March 1 and
September 1. The net proceeds of the $275,000 add-on offering were used to acquire ClosetMaid, with
the remaining proceeds used to pay down outstanding loan borrowings under Griffon’s Revolving
Credit Facility (the “Credit Agreement”). The net proceeds of the previously issued $125,000 add-on
offering were used to pay down outstanding revolving loan borrowings under the Credit Agreement.

Proceeds from the $600,000 5.25% senior notes due in 2022 were used to redeem $550,000 of 7.125%
senior notes due 2018, to pay a call and tender offer premium of $31,530 and to make interest payments
of $16,716, with the balance used to pay a portion of the related transaction fees and expenses. In
connection with the issuance of the Senior Notes, all obligations under the $550,000 of 7.125% senior
notes due in 2018 were discharged.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic
subsidiaries, and subject to certain covenants, limitations and restrictions. On February 5, 2018, July 20,
2016 and June 18, 2014, Griffon exchanged all of the $275,000, $125,000 and $600,000 Senior Notes,
respectively, for substantially identical Senior Notes registered under the Securities Act of 1933 via an
exchange offer. The fair value of the Senior Notes approximated $1,010,000 on September 30, 2019

48

28696

based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the
$275,000 senior notes, Griffon capitalized $8,472 of underwriting fees and other expenses; this is in
addition to the $13,329 capitalized under previously issued $725,000 Senior Notes. All capitalized fees
for the Senior Notes will amortize over the term of the notes and, at September 30, 2019, $9,175
remained to be amortized.

On March 22, 2016, Griffon amended and restated the Credit Agreement to increase the commitments
under the credit facility from $250,000 to $350,000, extend its maturity from March 13, 2020 to
March 22, 2021, and modify certain other provisions of the facility. On October 2, 2017 and on May 31,
2018, Griffon amended the Credit Agreement
in connection with the ClosetMaid and the
CornellCookson acquisitions, respectively, to, among other things, modify the net leverage covenant.
On February 22, 2019, Griffon further amended the Revolving Credit Facility to, among other things,
reflect changes in the lending group and certain corresponding changes in various administrative roles
under the Revolving Credit Facility, make conforming administrative and technical changes and reflect
changes in law. The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-
currency sub-facility of $100,000. The Credit Agreement provides for same day borrowings of base rate
loans. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to
final maturity of the facility or the occurrence of an event of default under the Credit Agreement.
Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without
a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are
1.75% for base rate loans and 2.75% for LIBOR loans. The Credit Agreement has certain financial
maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio
and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and
events of default. The negative covenants place limits on Griffon’s ability to, among other things, incur
indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit
Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first
priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of
not greater than 65% of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At
September 30, 2019, under the Credit Agreement, there were $50,000 in outstanding borrowings;
outstanding standby letters of credit were $21,281; and $278,719 was available, subject to certain loan
covenants, for borrowing at that date.

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

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

In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan into
a new Term Loan in the amount of $35,092 (the “Agreement”). The Agreement also provided for a
Line Note with $10,908 available to purchase shares of Griffon common stock in the open market.
During 2017, Griffon’s ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54
per share, under a borrowing line that had then been fully utilized. On June 30, 2017, the Term Loan
and Line Note were combined into a single Term Loan. The Term Loan interest rate was LIBOR plus
2.9%. The Term Loan required quarterly principal payments of $569 and a balloon payment due at
maturity. As a result of the special cash dividend of $1.00 per share, paid on April 16, 2018, the
outstanding balance of the Term Loan was reduced by $5,705. The Term Loan was secured by shares
purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which
ranked pari passu with the lien granted on such assets under the Credit Agreement) and was

49

72456

guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan
from Griffon, which was funded with cash and a draw on its $350,000 credit facility. The internal loan
interest rate is fixed at 2.91%, matures in June 2033 and requires quarterly payments of principal,
currently $569, and interest. The internal loan is secured by shares purchased with the proceeds of the
loan. The amount outstanding on the internal loan at September 30, 2019 was $32,418.

Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and
Ocala, Florida. The leases mature in 2021 and 2020, respectively, and bear interest at fixed rates of
approximately 5.0% and 8.0%, respectively. The Troy, Ohio lease is secured by a mortgage on the
underlying real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year
renewal options. As of September 30, 2019, $4,333 was outstanding, net of issuance costs.

In November 2012, Garant G.P. (“Garant”) entered into a CAD 15,000 ($11,315 as of September 30,
2019) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance
Rate (CDN) plus 1.3% per annum (3.38% LIBOR USD and 3.13% Bankers Acceptance Rate (CDN)
as of September 30, 2019). The revolving facility matures in October 2022. Garant is required to
maintain a certain minimum equity. As of September 30, 2019, there were no borrowings under the
revolving credit facility with CAD 15,000 ($11,315 as of September 30, 2019) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (“Griffon Australia”)
entered into an AUD 30,000 term loan and an AUD 10,000 revolver. The term loan refinanced two
existing term loans and the revolver replaced two existing lines. In December 2016, the amount
available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in March 2017 and
the term loan commitment was increased by AUD 5,000 and AUD 15,000,
September 2017,
respectively. In March 2019, the term loan commitment was reduced by AUD 10,000 with proceeds
from a receivable purchase agreement in the amount of AUD 10,000. The term loan requires quarterly
principal payments of AUD 1,250 plus interest with a balloon payment of AUD 13,375 due upon
maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.90% per
annum (2.85% at September 30, 2019). As of September 30, 2019, the term loan had an outstanding
balance of AUD 25,875 ($17,492 as of September 30, 2019). The revolving and receivable purchase
facility matures in March 2020, but are renewable upon mutual agreement with the lender. The
revolving facility and receivable purchase facility accrue interest at BBSY plus 1.8% and 1.0%,
respectively, per annum (2.81% and 2.01% at September 30, 2019). At September 30, 2019, there was
AUD 16,000 ($10,816 at September 30, 2019) under the revolver and the receivable purchase facility
had an outstanding balance of AUD 10,000 ($6,760 at September 30, 2019). The revolver, receivable
purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia
and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is
subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

In July 2018, the AMES Companies UK Ltd and its subsidiaries (“AMES UK”) entered into a GBP
14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan
require quarterly principal payments of GBP 350 and GBP 83 plus interest, respectively, and have
balloon payments due upon maturity, July 2023, of GBP 7,000 and GBP 2,333, respectively. The Term
Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8%, respectively
(3.01% and 2.56% at September 30, 2019, respectively). The revolving facility matures in June 2020, but
is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base
Rate plus 1.5% (2.25% as of September 30, 2019). As of September 30, 2019, the revolver had no
outstanding balance, while the term and mortgage loan balances amounted to GBP 15,831 ($19,485 as
of September 30, 2019). The revolver and the term loan are both secured by substantially all of the
assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum leverage ratio and a
minimum fixed charges cover ratio. An invoice discounting arrangement was canceled and replaced by
the above loan facilities.

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

50

28901

At September 30, 2019, Griffon and its subsidiaries were in compliance with the terms and covenants of
its credit and loan agreements. Net Debt to EBITDA (Leverage), as calculated in accordance with the
definition in the Credit Agreement, was 4.8x at September 30, 2019.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase
of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the
Company may, from time to time, purchase shares of its common stock in the open market, including
pursuant to a 10b5-1 plan, or in privately negotiated transactions. During 2019, Griffon purchased
37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share.
At September 30, 2019, $57,955 remains under Griffon’s Board authorized repurchase programs.

In addition to the repurchases under Board authorized programs, during 2019, 85,847 shares, with a
market value of $1,059, or $12.34 per share, were withheld to settle employee taxes due upon the
vesting of restricted stock, and were added to treasury stock. Furthermore, during 2019, an additional
3,861 shares, with a market value of $47, or $12.16 per share, were withheld from common stock issued
upon the vesting of restricted stock units to settle employee taxes due upon vesting.

During 2019, 2018 and 2017, the Company declared and paid dividends totaling $0.29 per share, $0.28
per share and $0.24 per share, respectively. In addition, on March 7, 2018, the Board of Directors
declared a special cash dividend of $1.00 per share paid on April 16, 2018 to shareholders of record as
of the close of business on March 29, 2018. The Company currently intends to pay dividends each
quarter; however, payment of dividends is determined by the Board of Directors at its discretion based
on various factors, and no assurance can be provided as to the payment of future dividends.

On November 13, 2019, the Board of Directors declared a cash dividend of $0.075 per share, payable on
December 19, 2019 to shareholders of record as of the close of business on November 27, 2019.

During 2019, Griffon used cash for discontinued operations from operating activities of $2,123,
primarily related to retention bonus payments for previous Plastics employees and certain legal and
consulting payments related to the sale of Plastics.

Contractual Obligations

At September 30, 2019, payments to be made pursuant to significant contractual obligations are as
follows:

Payments Due by Period

Long-term debt(a) . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . .
Rental commitments . . . . . . . . . . . . . . . .
Purchase obligations(b). . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . .
Supplemental & post-retirement

benefits(c) . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions(d). . . . . . . . . . . .
Total obligations. . . . . . . . . . . . . . . .

Total

$1,114,131
172,916
204,336
241,467
9,063

Less Than
1 Year

$ 10,525
57,771
35,176
239,365
9,063

3-5 Years

1-3 Years
(in thousands)
$

$1,102,217
115,142
56,849
2,087
—

658
3
34,206
15
—

14,255
766
$1,756,934

1,900
—
$353,800

3,516
—
$1,279,811

3,098
—
$37,980

More than
5 Years

$

731
—
78,105
—
—

5,741
—
$84,577

Other

$ —
—
—
—
—

—
766
$766

(a) Included in long-term debt are capital leases of: $3,950 (less than 1 year), $2,821 (1-3 years), $157

(3-5 years) and $0 (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 in which the commitment is considered

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to be firm. Purchase obligations that extend beyond 2019 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 2019.
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, 2019, Telephonics had outstanding offset
agreements approximating $40,000, primarily related to its Radar Systems division, some of which
extend through 2029. Offset programs usually extend over several years and in some cases provide for
penalties in the event Telephonics fails to perform in accordance with contract requirements.
Historically, Telephonics has not been required to pay any such penalties and as of September 30, 2019,
no such penalties are estimable or probable.

ACCOUNTING POLICIES AND PRONOUNCEMENTS

Critical Accounting Policies

The preparation of Griffon’s consolidated financial statements in conformity with accounting principles
generally accepted in the U.S. of America (“GAAP”) requires the use of estimates, assumptions,
judgments and subjective interpretations of accounting principles that have an impact on assets,
liabilities, revenue and expenses. These estimates can also affect supplemental information contained in
public disclosures of Griffon,
including information regarding contingencies, risk and its financial
condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on
historical experience, current conditions and various other assumptions, and form the basis for
estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting
treatment
for commitments and contingencies. Actual results may materially differ from these
estimates.

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:

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Revenue Recognition

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

This accounting standard did not materially impact the Company’s revenue recognition practices in our
CPP and HBP Segments, however, it impacted revenue recognition practices in our Defense Electronics
Segment. The impact of adopting this accounting standard was not material to the Company’s
consolidated financial statements as of and for the year ended September 30, 2019. Under the modified
retrospective method,
initially applying this
the Company recognized the cumulative effect of
accounting standard as an adjustment to the opening balance in retained earnings of approximately
$5,618 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment
containing provisions for radar and communication products that have an alternative use and / or no
right to payment. For these contracts, the Company now recognizes revenue at a point in time, rather
than over time as this measure more accurately depicts the transfer of control to the customer relative
to the goods or services promised under the contract.

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

Performance Obligations

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

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

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

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measure of progress towards satisfaction of performance obligations, as it most accurately depicts the
progress of our work and transfer of control to our customers.

Revenue from CPP and HBP Segments

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

The Company’s CPP and HBP Segments recognize revenue from product sales when all factors are
met, including when control of a product transfers to the customer upon its shipment, completion of
installation, testing, certification or other substantive acceptance required under the contract. Other
than standard product warranty provisions, sales arrangements provide for no other significant post-
shipment obligations on the Company. From time-to-time and for certain customers, rebates and other
sales incentives, promotional allowances or discounts are offered, typically related to customer purchase
volumes, all of which are fixed or determinable and are classified as a reduction of revenue and
recorded at the time of sale. Griffon provides for sales returns and allowances based upon historical
returns experience.

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

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

Revenue from Defense Electronics Segment

The Company’s Defense Electronics segment earns a substantial portion of its revenue as either a prime
contractor or subcontractor from contract awards with the U.S. Government, as well as foreign
governments and other, commercial, customers. These contracts are typically long-term in nature,
usually greater than one year and do not include a material long-term financing component, either
implicitly or explicitly. Revenue and profits from such contracts are recognized under the percentage-
of-completion (over time) method of accounting. Revenue and profits on fixed-price contracts that
contain engineering as well as production requirements are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each contract (cost-to-cost method).

Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative
costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract
revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract
using this method is equal to the current estimated total profit margin multiplied by the cumulative
revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior
periods. As this method relies on the substantial use of estimates, these projections may be revised
throughout the life of a contract. Components of this formula and ratio that may be estimated include
gross profit margin and total costs at completion. The cost performance and estimates to complete long-

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term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes
available that would necessitate a review of the current estimate. Adjustments to estimates for a
contract’s estimated costs at completion and estimated profit or loss are often required as experience is
gained, more information is obtained (even though the scope of work required under the contract may
or may not change) and contract modifications occur. The impact of such adjustments to estimates is
made on a cumulative basis in the period when such information has become known. In 2019, 2018 and
2017, income from operations included net favorable/(unfavorable) catch-up adjustments approximating
$(4,500), $1,400 and $600, respectively. Gross profit is impacted by a variety of factors, including the
mix of products, systems and services, production efficiencies, price competition and general economic
conditions.

Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs 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 with multiple performance obligations,
judgment is required to determine whether
performance obligations specified in these contacts are distinct and should be accounted for as separate
revenue transactions for recognition purposes. In these types of contracts, the Company allocates the
total transaction price to each performance obligation in an amount based on the estimated relative
standalone selling prices of the promised goods or services underlying each performance obligation. The
Company uses an observable price to determine the stand-alone selling price for separate performance
obligations or a cost plus margin approach when one is not available.

For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is
recognized in the period when identifiable. A provision for the entire amount of the estimated loss is
recorded on a cumulative basis. The estimated remaining costs to complete loss contracts, as of
September 30, 2019 was $9,800 and is recorded as a reduction to gross margin on the Consolidated
Statements of Operations and Comprehensive Income (Loss). This loss had an immaterial impact on
Griffon’s Consolidated Financial Statements.

Amounts representing contract change orders or claims are included in revenue only when they can be
reliably estimated and their realization is probable, and are determined on a percentage-of-completion
basis measured by the cost-to-cost method.

Substantially all of Telephonics’ U.S. Government end-user contracts contain a termination for
convenience clause, regardless whether Telephonics is the prime contractor or the subcontractor. This
clause generally entitles Telephonics, upon a termination for convenience, to receive the purchase price
for delivered items, reimbursement of allowable work-in-process costs, and an allowance for profit.
Allowable costs would include the costs to terminate existing agreements with suppliers.

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

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. HBP produces residential and commercial sectional garage doors, commercial rolling
steel door and grille products, and CPP produces long-handled tools and landscaping products, and
storage and organizational products, both in response to orders from customers of retailers and dealers
or based on expected orders, as applicable.

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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 such 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 such analysis, 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
restricted stock and restricted stock units.

Compensation expense for restricted stock and restricted stock units is recognized ratably over the
required service period based on the fair value of the grant, calculated as the number of shares or units
granted multiplied by the stock price on the date of grant, and for performance shares or units, the
likelihood of achieving the performance criteria. For certain restricted stock grants with a performance
metric related to Griffon’s stock price, the company performs a valuation as of the date of grant and
recognizes the expense over the vesting period. The Company recognizes forfeitures as they occur.

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 in which 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 that 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

56

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the fair value of each reporting unit substantially exceeded the carrying value of the assets, and no
impairment existed as of September 30, 2019. See Note 1, Description of Business and Summary of
Significant Accounting Policies for a further discussion of our goodwill impairment testing process and
methodology.

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
involve 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,
interest rates or other factors outside of Griffon’s control, or significant under-
market trends,
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.

Restructuring Reserves

From time to time, Griffon will establish restructuring reserves at an operation. These reserves, for both
termination and facility related 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 Company assesses whether a valuation allowance should be
established against its deferred tax assets based on consideration of all available evidence, both positive
and negative, using a more likely than not standard. This assessment considers, among other matters,
the nature, frequency and severity of recent losses; a forecast of future profitability; the duration of
statutory carryback and carryforward periods; the Company’s experience with tax attributes expiring
unused; and tax planning alternatives. 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

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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 non-current.
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, assets and
expense are reviewed annually and modified 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. Assumptions
used in determining 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.

All of the defined benefit plans are frozen and have ceased accruing benefits.

Newly issued but not yet effective accounting pronouncements

the FASB issued guidance relating to accounting for credit

In April 2019,
losses on financial
instruments, including trade receivables, and derivatives and hedging. This guidance is effective for all
entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years,
with early adoption permitted, and will be effective for the Company beginning in 2021. We are
currently evaluating the effects that the adoption of this guidance will have on our consolidated
financial statements and the related disclosures.

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

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

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

In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for
impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill
impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying
amount of that goodwill. This guidance is effective for annual periods beginning after December 15,
2019, including interim periods within those periods and will be effective for the Company beginning in
2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. We do not expect this guidance to have a material
impact on the
Company’s financial condition, results of operations and related disclosures.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-
of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of
lease payments. The Company adopted this new guidance on October 1, 2019, using the optional
modified retrospective transition method and will not recast comparative periods in transition to the
new standard. During 2019 the Company developed a project plan to guide the implementation of
ASC 2016-02. The Company completed this plan including surveying the Company’s businesses,
assessing the Company’s portfolio of leases and compiling a central repository of active leases. The
Company also implemented a lease accounting software solution to support
the new reporting
requirements and established a future lease process to keep the lease accounting portfolio up to date.
The Company evaluated key policy elections and considerations under the standard and completed an
internal policy as well as training to address the new standard requirements. The Company plans to
elect the package of practical expedients and will not apply the recognition requirements to short-term
leases. Although management continues to evaluate the effect on the Company’s Consolidated Balance
Sheets and disclosures, management currently estimates total assets and liabilities will
increase
approximately $160,000 to $170,000 upon adoption, before considering deferred taxes. Management
does not expect a material impact to the Company’s Consolidated Statements of Operations and
Comprehensive Income or Cash Flows.

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

Recently adopted accounting pronouncements

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of
a stock compensation award previously granted to an employee. This guidance is effective, and should
be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is
permitted as of the beginning of an annual period. The new guidance was effective for the Company
beginning in fiscal 2019; however, the Company adopted this guidance as of October 1, 2018 and it did
not have a material impact on the Company’s financial condition, results of operations and related
disclosures.

In March 2017, the FASB issued amendments to the Compensation—Retirement Benefits guidance
which requires companies to retrospectively present the service cost component of net periodic benefit
cost for pension and retiree medical plans along with other compensation costs in operating income and
present the other components of net periodic benefit cost below operating income in the income
statement. The guidance also allows only the service cost component of net periodic benefit cost to be
eligible for capitalization within inventory or fixed assets on a prospective basis. This guidance was
effective for fiscal years beginning after December 15, 2017. The Company adopted the requirements of
the standard as of October 1, 2018 on a retrospective basis reclassifying the other components of the net

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periodic benefit costs from Selling, general and administrative expenses to a non-service expense within
Other (income) expense, net. This guidance did not have a material impact on the Company’s results of
operations. See Note 11—Employee Benefit Plans for further information on the implementation of this
guidance.

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

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)
which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic
606, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenue
guidance is referred to as “ASC 606”. The core principle of ASC 606 is that revenue should be
recognized to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. On
October 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all
contracts. Results for reporting periods beginning October 1, 2018 are presented under ASC 606, while
prior period amounts were not adjusted and continue to be reported in accordance with the Company’s
historic accounting under Topic 605, Revenue Recognition. The Company recorded a net increase to
beginning retained earnings of approximately $5,618 as of October 1, 2018 due to the cumulative impact
of adopting ASC 606. The impact to beginning retained earnings primarily related to certain contracts
in the Defense Electronics Segment containing provisions for radar and communication products that
have an alternative use and/or no right to payment. The adoption of ASC 606 did not have a material
impact on the Company’s Consolidated Condensed Financial Statements as of and for the year ended
September 30, 2019. See Note 2—Revenue for additional disclosures required by ASC 606.

The Company has implemented all new accounting pronouncements that are in effect and that may
impact its financial statements.

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- and
EURIBOR- based variable interest rate. Due to the current and expected level of borrowings under

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these facilities, a 100 basis point change in LIBOR or EURIBOR would not have a material impact on
Griffon’s results of operations or liquidity.

Foreign Exchange

Griffon conducts business in various non-U.S. countries, primarily in Canada, Australia, United
Kingdom, Ireland, New Zealand and China; 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:4) Report of Independent Registered Public Accounting Firm.

(cid:4) Consolidated Balance Sheets at September 30, 2019 and 2018.

(cid:4) Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended

September 30, 2019, 2018 and 2017.

(cid:4) Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018 and 2017.

(cid:4) Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2019, 2018

and 2017.

(cid:4) Notes to Consolidated Financial Statements.

(cid:4) Schedule II—Valuation and Qualifying Account.

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21629

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Griffon Corporation

Opinions on the financial statements and internal control over financial reporting

We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware
corporation) and subsidiaries (the “Company”) as of September 30, 2019 and 2018, 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, 2019, and the related notes and
financial statement schedule included under Item 15(a) (collectively referred to as the “financial
statements”). We also have audited the Company’s internal control over financial reporting as of
September 30, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of September 30, 2019 and 2018, and the results of its operations
and its cash flows for each of the three years in the period ended September 30, 2019 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by COSO.

Basis for opinions

The Company’s management is responsible for these financial statements, 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 the Company’s financial statements
and an opinion on the Company’s internal control over financial reporting based on our audits. We are
a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. 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.

Definition and limitations of internal control over financial reporting

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

62

38417

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.

Because of its inherent limitations, 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.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the
financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the financial statements; and
(2) involved especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition—Defense and Electronics Segment

As described further in note 2 to the consolidated financial statements, the Company’s Defense and
Electronics segment earns its revenue as either a prime contractor or subcontractor from contract
awards with the U.S. Government, as well as foreign governments and other commercial contracts. Such
contracts are typically long-term in nature and revenue and profits are recognized over time, primarily
under fixed-price arrangements, which are determined using a cost-to-cost method of accounting. 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. This method relies on substantial use of estimates. These estimations require the Company to
have effective cost estimation processes, forecasting, and revenue and expense reporting. We identified
Defense and Electronics segment revenue recognition (“segment revenue recognition”) for these long-
term fixed-price contracts as a critical audit matter.

The principal consideration for our determination that segment revenue and gross profit recognition is a
critical audit matter is that significant management judgments and estimates are utilized to determine
probable costs at contract completion and are subject to estimation uncertainty and require significant
auditor subjectivity in evaluating those judgments and estimates.

Our audit procedures related to the segment revenue recognition included the following. We tested the
design and operating effectiveness of controls relating to the cost accumulation, cost estimation and
revenue recognition processes, including the Company’s ability to develop the estimates utilized in
determining costs at completion. We inspected a selection of contracts; and evaluated those contracts
for appropriate revenue recognition and consideration over key terms and provisions. We analyzed
trends in revenue, costs and margin on all contracts, on a contract-by-contract basis, both year-over-year
and since contract inception to assess the historical accuracy of management’s estimates in the final
outcomes of projects. We assessed the appropriateness of adjustments to estimates on a cumulative
basis for the year ended September 30, 2019 and their impact on the financial statements. We tested the

63

89174

cost accumulation process by obtaining and inspecting underlying documents for a sample of labor,
material costs and overhead and agreeing to amounts recorded by the Company. We also recalculated
revenue and gross profit recognized for the year ended September 30, 2019, for a selection of contracts,
to test the accuracy of amounts recognized.

Annual Goodwill and Indefinite-Lived Intangible Assets Impairment Testing

As described further in note 1 to the consolidated financial statements, the Company performed its
annual impairment testing of goodwill as of September 30, 2019, comparing the fair value of the
Company’s reporting units to the respective reporting unit’s carrying value, including goodwill. The fair
value of its reporting units was determined using the income approach methodology, that includes the
present value of expected future cash flows and the use of market assumptions specific to the
Company’s reporting units. As a result of recent acquisitions and their integration in fiscal 2019, the
Company re-evaluated its reportable segment structure at September 30, 2019, and now reports its
operations through three reportable segments. In connection with the change in segment structure the
Company allocated goodwill to the new segment structure on a pro-rata basis, based on the relative fair
value of each reporting unit as determined under the income approach. The Company defines its
reporting units as its three reportable segments: Consumer and Professional Products (“CPP”), Home
and Building Products (“HBP”) and Defense Electronics. The Company used prospective financial
information to which discount rates were applied to calculate each unit’s fair value, and the relative fair
values for the CPP and HBP segments were used to determine the allocation of goodwill to CPP and
HBP. The implied fair value determined under the income approach was also compared to the
marketplace fair value of a comparable industry grouping for reasonableness and further, the fair values
were reconciled to the Company’s market capitalization. Similarly to goodwill, the Company tested
indefinite-lived intangibles for impairment as of September 30, 2019. The Company utilized a relief
from royalty method to calculate and compare the fair value of the intangible assets to its book value,
which includes the use of market assumptions specific to the Company’s reporting units. We identified
impairment
annual
testing”) as a critical audit matter.

impairment testing of goodwill and indefinite-lived intangible assets (“annual

The principal considerations for our determination that annual impairment testing is a critical audit
matter is uncertainty surrounding significant management judgments and estimates utilized to assess
and identify operating segments and reporting units and calculate the fair value of the respective
reporting units and intangible assets for comparison to carrying value, which in turn requires auditor
judgment.

Our audit procedures related to the annual impairment testing included the following: We tested the
design and operating effectiveness of controls relating to the Company’s assessment and identification
of segments and reporting units, and controls relating to the annual impairment testing, including the
Company’s ability to develop the estimates utilized in calculating the fair value of each reporting unit
and indefinite-lived intangible assets. Such estimates included prospective financial information, long-
term growth rates, discount rates and weighted average cost of capital. With the assistance of valuation
specialists, we evaluated the appropriateness of the valuation methodology utilized and assessed the
appropriateness of inputs utilized. We evaluated the qualifications of those responsible for preparing
the calculations of fair values. We tested the inputs, significant judgments and estimates utilized in
performing the annual
impairment tests, which included comparing management’s judgments and
estimates to industry and market data. We tested the Company’s allocation of goodwill to its CPP and
HBP reporting units, which were based on significant judgments and estimates. We tested the inputs,
significant judgments and estimates, as follows: a) tested prospective financial information and long-
term growth rates by comparing to historical trends and industry expectations, performed a sensitivity
analysis over growth rates and assessed management’s historical ability to accurately forecast; b) tested
discounts rates by comparing to historical rates and industry expectations, compared rates to market
comparable companies and independently calculated discount rates for comparison to those used by
management; c) tested weighted average cost of capital by analyzing the implied discount rate and
independently calculated a weighted-average discount rate using individual discount rates and
compared to the rate utilized by management; and d) tested the accuracy of the computation on the

64

45840

re-allocation of goodwill based on the fair value amongst the reporting units, which included testing the
carrying amount of goodwill to be allocated. We tested the inputs, significant judgment and estimates in
the Company’s reconciliation to its market capitalization. These included: a) allocation of unallocated
corporate costs, whereby we agreed such costs to historical amounts, analyzed the composition of
unallocated costs to assess appropriateness and sensitized the goodwill
impairment analysis by
allocating certain costs to the reporting units based on their relative fair values; and b) fair values of
each reporting unit as determined in the impairment testing and agreed equity values to audited
financial information.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2006.
New York, New York
November 21, 2019

65

79515

GRIFFON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

CURRENT ASSETS

Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $7,881 and $6,408 . . . .
Contract costs and recognized income not yet billed, net of

progress payments of $13,861 and $3,172 . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2019

At September 30,
2018

$

72,377
264,450

$

69,758
280,509

105,111
442,121
40,799
321

925,179
337,326
437,067
356,639
15,840
2,888

121,803
398,359
42,121
324

912,874
342,492
439,395
370,858
16,355
2,916

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,074,939

$2,084,890

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES OF DISCONTINUED OPERATIONS . . . . . . . . . . . . . .

Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 shares of 82,775 and 81,520, respectively. . . . . . .
Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost, 35,969 common shares and 35,846

common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

10,525
250,576
124,665
4,333

390,099
1,093,749
109,997
3,331

1,597,176

—

20,694
519,017
568,516

(536,308)
(65,916)
(28,240)

Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . .

477,763
$2,074,939

$

13,011
233,658
139,192
7,210

393,071
1,108,071
106,710
2,647

1,610,499

—

20,380
503,396
550,523

(534,830)
(34,112)
(30,966)

474,391
$2,084,890

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

66

51252

GRIFFON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(in thousands, except per share data)

Years Ended September 30,
2018

2019

2017

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,209,289
1,614,020

$1,977,918
1,448,737

$1,524,997
1,116,871

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before taxes from continuing operations . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations:

Income (loss) from operations of discontinued businesses . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) from discontinued operations. . . . . . . . . . . . . . . . . . . . .

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . .
Basic earnings per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .

595,269
460,004

135,265

(68,066)
806
4,173

(63,087)

72,178
26,556

529,181
436,380

92,801

(65,568)
1,697
4,880

(58,991)

33,810
555

408,126
341,092

67,034

(51,513)
64
1,113

(50,336)

16,698
(1,085)

$

45,622

$

33,255

$

17,783

(11,050)
(2,715)

(8,335)

119,981
27,558

92,423

37,287

$ 125,678

1.11
(0.20)
0.91

40,934

1.06
(0.20)
0.87

$

$

$

$

0.81
2.25
3.06

41,005

0.78
2.18
2.96

$

$

$

$

$

$

$

$

$

$

22,276
25,147

(2,871)

14,912

0.43
(0.07)
0.36

41,005

0.41
(0.07)
0.35

Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,888

42,422

43,011

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of taxes:

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . .
Pension and other post retirement plans . . . . . . . . . . . . . . . . . . .
Gain (loss) on cash flow hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive income (loss), net of taxes . . . . . . . . . .

$

37,287

$ 125,678

$

14,912

(8,460)
(23,055)
(289)

(31,804)

9,403
16,381
585

26,369

10,667
9,203
890

20,760

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

5,483

$ 152,047

$

35,672

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

67

85187

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

Years Ended September 30,
2019
2017
2018

CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING

OPERATIONS:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities of

$ 37,287
8,335

$ 125,678
(92,423)

$ 14,912
2,871

continuing operations:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for losses on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs and debt discounts. . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on sale/disposal of assets and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accounts payable, accrued liabilities and income taxes payable . . . . . .
Other changes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities - continuing operations . . . . . . . . . . . . .

CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING

OPERATIONS:

Acquisition of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired business, net of cash acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment sales (purchases) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds (payments) from sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance proceeds (payments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities - continuing operations . . .

CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING

OPERATIONS:

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of shares for treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share premium payment on settled debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration for acquired businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used) in financing activities - continuing operations . . .

CASH FLOWS FROM DISCONTINUED OPERATIONS:

61,848
13,285
535
5,393
(2,222)
(179)

8,279
(24,938)
(4,285)
7,638
2,982
113,958

(45,361)
(9,219)
(149)
(9,500)
(10,604)
280
(74,553)

(13,676)
(1,478)
201,748
(218,248)
(366)
—
(1,090)
—
(1,686)
(180)
(34,976)

55,803
10,078
96
5,219
(17,633)
290

2,681
(52,122)
(2,285)
11,078
11,732
58,192

(50,138)
(430,932)
—
474,727
8,254
663
2,574

(49,797)
(45,605)
443,058
(300,993)
144
—
(7,793)
—
—
51
39,065

47,878
8,090
271
4,511
2,341
(126)

(19,131)
(29,299)
(4,781)
17,541
4,073
49,151

(34,937)
(34,719)
(1,824)
—
—
143
(71,337)

(10,325)
(15,841)
233,443
(170,454)
—
(24,997)
(1,548)
(10,908)
—
(70)
(700)

Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS . . . . . . . . . . . . . . .
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . .
CASH AND EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,123)
—
—
(2,123)
313
2,619
69,758
$ 72,377

(45,624)
(10,762)
(22,541)
(78,927)
1,173
22,077
47,681
$ 69,758

47,193
(45,075)
(4,268)
(2,150)
164
(24,872)
72,553
$ 47,681

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 63,334
25,339

$ 59,793
32,140

$ 48,137
20,998

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

68

60303

GRIFFON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)

Accumulated
Other
Comprehensive
Income (Loss)

Deferred
Compensation

Total

$(81,241)
—
—

$(31,678)
—
—

$410,947
14,912
(10,325)

—

—
—
—
—

—

—

—

—
—

—

(13,738)

3,510
—
—
—

—

—

3,510
22
(2,201)
—

(73,855)

48,858

(10,908)

(10,908)

—
—

2,736
8,090

20,760
$(60,481)
—
—

—
$(39,076)

20,760
$398,808
— 125,678
(55,502)
—

Common Stock

Shares

Par
Value

Capital in
Excess of
Par Value

Retained
Earnings

Treasury Shares

(in thousands)
Balance at 9/30/2016 . . . . . . . 79,966 $19,992 $529,980 $475,760 34,797 $(501,866)
—
Net income . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . .
—
Tax effect from

— 14,912
— (10,325)

—
—

—
—

—
—

Shares

Cost

—

—
3
—
694

—

—

—

—
—

—

—
—
—
174

(97)

—
22
—
(174)

— 586

(13,641)

—
—
—
—
— 129
—
—

—
—
(2,201)
—

— (73,855)

—

—

—

— 20,375

— (1,955)

28,483

—

—
—

—

2,736
8,090

—

—
—

—

—
—

—

—
—

exercise/vesting of equity
awards, net . . . . . . . . . . . . . .

Amortization of deferred

compensation . . . . . . . . . . . .
Common stock issued . . . . . .
Common stock acquired . . .
Equity awards granted, net
Premium on settlement of

convertible debt . . . . . . . . .

Issuance of treasury stock

in settlement of
convertible debt . . . . . . . . .

ESOP purchase of

common stock . . . . . . . . . . .

ESOP allocation of

common stock . . . . . . . . . . .
Stock-based compensation .
Other comprehensive

employee taxes on
vested equity awards. . . . .

Amortization of deferred

compensation . . . . . . . . . . . .
Common stock acquired . . .
Equity awards granted, net
ESOP allocation of

common stock . . . . . . . . . . .
Stock-based compensation .
Stock-based consideration . .
Other comprehensive loss,

income, net of tax . . . . . . .

—
Balance at 9/30/2017 . . . . . . . 80,663 $20,166 $487,077 $480,347 33,557 $(489,225)
—
Net income (loss) . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . .
—
Shares withheld on

— 125,678
— (55,502)

—
—

—
—

—
—

—

—

—

—

—

—

—
—
857

—
—
—

—

—
—
214

—

— 200

(4,495)

—
—
(214)

—
—
— 2,089
—
—

—
(41,110)
—

4,756
—
— 10,078
1,699
—

—
—
—

—
—
—

—
—
—

—

—
—
—

—
—
—

—

(4,495)

8,110
—
—

—
—
—

8,110
(41,110)
—

4,756
10,078
1,699

net of tax . . . . . . . . . . . . . . . .

—
Balance at 9/30/2018 . . . . . . . 81,520 $20,380 $503,396 $550,523 35,846 $(534,830)
—
Net income (loss) . . . . . . . . . .
Cumulative catch-up

— 37,287

—

—

—

—

—

—

—

—

adjustment related to
adoption of ASC 606(1) . .
Dividends . . . . . . . . . . . . . . . . . .
Shares withheld on

employee taxes on
vested equity awards. . . . .

Amortization of deferred

compensation . . . . . . . . . . . .
Common stock acquired . . .
Equity awards granted, net
ESOP allocation of

common stock . . . . . . . . . . .
Stock-based compensation .
Stock-based consideration . .
Other comprehensive loss,

—
—

—

—
—
1,255

—
—
—

— (5,618)
— (13,676)

—
—

—

—
—
314

—

—
—
(314)

—
1,512
— 13,285
1,138
—

—
—

86

—
37
—

—
—
—

—
—

(1,106)

—
(372)
—

—
—
—

—

—
—
—

—
—
—

net of tax . . . . . . . . . . . . . . . .

—
Balance at 9/30/2019 . . . . . . . 82,775 $20,694 $519,017 $568,516 35,969 $(536,308)

—

—

—

—

—

26,369
$(34,112)
—

—
$(30,966)
—

26,369
$474,391
37,287

—
—

—

—
—
—

—
—
—

—
—

—

2,726
—
—

—
—
—

(5,618)
(13,676)

(1,106)

2,726
(372)
—

1,512
13,285
1,138

(31,804)
$(65,916)

—
$(28,240)

(31,804)
$477,763

(1) See Note 1—Recently adopted accounting pronouncements and Note 2—Revenue for additional information.

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

69

43528

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

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

On June 4, 2018, Clopay Corporation (“Clopay”) (previously known as Clopay Building Products
Company, Inc.) acquired CornellCookson, Inc. (“CornellCookson”), a leading US manufacturer and
marketer of rolling steel door and grille products designed for commercial, industrial, institutional and
retail use. The accounts, affected for adjustments to reflect fair market values assigned to assets
purchased and liabilities assumed, and results of operations of CornellCookson, are included in the
Company’s consolidated financial statements from the date of acquisition of June 4, 2018. See Note 3,
Acquisitions.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Clopay Plastic
Products Company, Inc. (“Plastics”) and on February 6, 2018, completed the sale to Berry Global, Inc.
(“Berry”) for approximately $465,000, net of certain post-closing adjustments. As a result, Griffon
classified the results of operations of
the Plastics business as discontinued operations in the
Consolidated Statements of Operations for all periods presented and classified the related assets and
liabilities associated with the discontinued operations in the consolidated balance sheets. All results and
information presented exclude Plastics unless otherwise noted. See Note 7, Discontinued Operations.

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

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. Griffon now reports its operations through
three reportable segments: the newly formed Consumer and Professional Products segment, which
consists of AMES, Home and Building Products segment, which consists of Clopay, and Defense
Electronics segment, which consists of Telephonics Corporation.

70

28552

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Griffon currently conducts its operations through three reportable segments:

Inc.

(“AMES”). Founded in 1774, AMES is

• Consumer and Professional Products (“CPP”) conducts its operations through The AMES
Companies,
the leading North American
manufacturer and a global provider of branded consumer and professional tools and products
for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells
products globally through a portfolio of leading brands including True Temper, AMES, and
ClosetMaid.

• Home and Building Products (“HBP”) conducts its operations through Clopay. Founded in 1964,
Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North
America. Residential and commercial sectional garage doors are sold through professional
dealers and leading home center retail chains throughout North America under the brands
Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial,
industrial, institutional, and retail use are sold under the CornellCookson brand.

• Defense Electronics conducts its operations through Telephonics Corporation (“Telephonics”),
founded in 1933, a globally recognized leading provider of highly sophisticated intelligence,
surveillance and communications solutions for defense, aerospace and commercial customers.

Consolidation

The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. The results of operations of acquired
businesses are included from the dates of acquisitions.

Earnings per share

Due to rounding, the sum of earnings per share 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
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; Installation Services is excluded from segment reporting.

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

Clopay Plastic Products Company, Inc.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Plastics and on
February 6, 2018, completed the sale to Berry for approximately $465,000, net of certain post-closing
adjustments. As a result, Griffon classified the results of operations of the Plastics business as
discontinued operations in the Consolidated Statements of Operations for all periods presented and

71

94631

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

classified the related assets and liabilities associated with the discontinued operations in the
consolidated balance sheets. All results and information presented exclude Plastics unless otherwise
noted. See Note 7, Discontinued Operations.

Reclassifications

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, the valuation of assets and liabilities of
discontinued operations, acquisition assumptions used and the accompanying disclosures. These
estimates are based on management’s best knowledge of current events and actions Griffon may
undertake in the future. Actual results may ultimately differ from these estimates.

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 $34,200 and
$24,900 at September 30, 2019 and 2018, respectively. Substantially all U.S. cash and equivalents are in
excess of FDIC insured limits. 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 cash 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 value hierarchy, as outlined in the applicable accounting guidance, establishes a fair value
hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial instrument’s categorization within the
hierarchy is based on the lowest level of input that is significant to the fair value measurement. The
accounting guidance establishes three levels of inputs that may be used to measure fair value, as
follows:

• Level 1 inputs are measured and recorded at fair value based upon quoted prices in active

markets for identical assets.

72

08507

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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

• Level 3 inputs are unobservable inputs in which little or no market data exists, therefore

requiring an entity to develop its own assumptions.

The fair value of Griffon’s 2022 senior notes approximated $1,010,000, on September 30, 2019. Fair
values were based upon quoted market prices (level 1 inputs).

Insurance contracts with a value of $3,408 at September 30, 2019 are measured and recorded at fair
value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in
Other current assets on the consolidated balance sheet.

Items Measured at Fair Value on a Recurring Basis

At September 30, 2019 and 2018, trading securities, measured at fair value based on quoted prices in
active markets for similar assets (level 2 inputs), with a fair value of $2,754 ($2,233 cost basis) and
$2,644 ($2,086 cost basis), respectively, were included in Prepaid and other current assets on the
Consolidated Balance Sheets. During 2018, the Company settled trading securities with proceeds
totaling $4,126 and recognized a loss of $1,251 in Other income (expense). Realized and unrealized
gains and losses on trading securities and realized gains and losses on available-for-sale securities are
included in Other income in the Consolidated Statements of Operations and Comprehensive Income
(Loss).

In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign
currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts
such as foreign currency exchange contracts, including forwards and options. During 2019 and 2018,
Griffon entered into several such contracts in order to lock into a foreign currency rate for planned
settlements of trade and inter-company liabilities payable in USD.

At September 30, 2019 and 2018, Griffon had $14,000 and $12,000 of Australian dollar contracts at a
weighted average rate of $1.48 and $1.38, respectively, which qualified for hedge accounting. These
hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair
value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current
assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses were recognized in the
Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and
services. AOCI included deferred gains of $327 ($213, net of tax) and deferred gains of $443 ($288, net
of tax) at September 30, 2019 and 2018, respectively. Upon settlement, gains of $1,932 and $657 were
recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of
goods and services (“COGS”) during 2019 and 2018, respectively. All contracts expire in 1 to 90 days.

At September 30, 2019 and 2018, Griffon had $3,500 and $700, respectively, of Canadian dollar
contracts at a weighted average rate of $1.32 and $1.29. These contracts, which protect Canadian
operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge
accounting and fair value gains (losses) of $14 and $(7) were recorded in Other assets and to Other
income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years
ended September 30, 2019 and 2018, respectively. Realized gains and (losses) of $68 and $(161), were
recorded in Other income during 2019 and 2018, respectively. All contracts expire in 30 to 360 days.

73

68628

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Pension plan assets with a fair value of $145,319 at September 30, 2019, 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 fair value assumptions for unobservable inputs in which
little or no market data exists (level 3).

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 AOCI as cumulative translation adjustments. Cumulative
translation adjustments were gains (losses) of ($8,460) and $9,403 for 2019 and 2018, respectively. As of
September 30, 2019 and 2018, the foreign currency translation components of Accumulated other
comprehensive loss were $31,284 and $22,824, respectively. Assets and liabilities of an entity that are
denominated in currencies other than that entity’s functional currency are re-measured 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

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

This accounting standard did not materially impact the Company’s revenue recognition practices in our
CPP and HBP Segments, however, it impacted revenue recognition practices in our Defense Electronics
Segment. The impact of adopting this accounting standard was not material to the Company’s
consolidated financial statements as of and for the year ended September 30, 2019. Under the modified
retrospective method,
initially applying this
the Company recognized the cumulative effect of
accounting standard as an adjustment to the opening balance in retained earnings of approximately
$5,618 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment
containing provisions for radar and communication products that have an alternative use and / or no
right to payment. For these contracts, the Company now recognizes revenue at a point in time, rather
than over time as this measure more accurately depicts the transfer of control to the customer relative
to the goods or services promised under the contract.

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

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Performance Obligations

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

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

Over 80% of the Company’s performance obligations are recognized at a point in time that relates to
the manufacture and sale of a broad range of products and components within the CPP and HBP
Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to
the customer. Less than 20% of the Company’s performance obligations are recognized over time or
under the percentage-of-completion method that relate to prime or subcontractors from contract awards
with the U.S. Government, as well as foreign governments and other commercial customers within our
Defense Electronics Segment. Sales recognized over time are generally accounted for using an input
measure to determine progress completed at the end of the period. We believe that cumulative costs
incurred to date as a percentage of estimated total contract costs at completion is an appropriate
measure of progress towards satisfaction of performance obligations, as it most accurately depicts the
progress of our work and transfer of control to our customers. Refer to Note 2, Revenue for a
discussion of our revenue recognition practices for each of our reportable segments.

Accounts receivable, allowance for doubtful accounts and concentrations of credit risk

Accounts receivable is composed principally of trade accounts receivable, that arise 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 within the CPP and HBP businesses, of which the largest customer is
Home Depot, whose financial condition is dependent on the construction and related retail sectors of
the economy. As a percentage of consolidated accounts receivable, U.S. Government related programs
were 8% and Home Depot was 12%. 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 Selling, general and administrative (“SG&A”) expenses. The
Company writes-off accounts receivable when they are deemed to be uncollectible.

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Customer program reserves and cash discounts are netted against accounts receivable when it is
customer practice to reduce invoices for these amounts. The amounts netted against accounts receivable
in 2019 and 2018 were $17,322 and $15,530, respectively.

All accounts receivable amounts are expected to be collected in less than one year.

The Company does not currently have customers or contracts that prescribe specific retainage
provisions.

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. At
September 30, 2019 and 2018, approximately $13,100 and $29,500, respectively, of contract costs and
recognized income not yet billed were expected to be collected after one year. As of September 30,
2019, Contract costs and recognized income not yet billed included no reserves for contract risk and as
of September 30, 2018, included $400 of reserves for contract risk.

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. HBP produces residential and commercial sectional garage doors, commercial rolling
steel door and grille products, and CPP produces long-handled tools and landscaping products, and
storage and organizational products, both 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 or, in the case of acquisitions, a fair market value
appraisal of such assets completed at the time of acquisition. Expenditures for maintenance, repairs and
minor 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. No event or indicator of impairment occurred during the three years ended
September 30, 2019, which would require additional
testing of property, plant and
equipment.

impairment

Depreciation expense, which includes amortization of assets under capital leases, was $51,926, $46,733
and $41,220 in 2019, 2018 and 2017, respectively, and was calculated on a straight-line basis over the
estimated useful lives of the assets. Depreciation included in SG&A expenses was $19,026, $16,306 and
$12,995 in 2019, 2018 and 2017. The remaining components of depreciation, attributable to
lives for
manufacturing operations, are included in Cost of goods and services. Estimated useful
property, plant and equipment are as follows: buildings and building improvements, 25 to 40 years;

76

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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 $2,925, $2,896 and $4,891 for
the years ended September 30, 2019, 2018 and 2017, respectively. The original cost of fully-depreciated
property, plant and equipment remaining in use at September 30, 2019 was approximately $229,456.

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.

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. Griffon now defines its reporting units as
three reportable segments: the newly formed Consumer and Professional Products segment, which
consists of AMES, Home and Building Products segment, which consists of Clopay, and Defense
Electronics segment, which consists of Telephonics Corporation.

Before changing its reportable segment structure, the Company completed its annual
impairment
review of its legacy HBP reporting unit, which also was its legacy reportable segment, and determined
that the fair value of the legacy HBP reporting unit substantially exceeded the carrying value of the
assets, as performed under step one, and no impairment existed.

Griffon also performed an impairment test of goodwill at Griffon’s new reporting unit level as of
September 30, 2019. 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 reporting unit’s fair value, Griffon performs the second step of the goodwill
impairment test to 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 used 5 year projections and a 3.0% terminal value to which discount rates between 7% and
9.5% 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 compared to the marketplace
fair value of a comparable industry grouping for reasonableness. Further, the fair values were
reconciled to Griffon’s market capitalization. Both market comparisons 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 (level 3 inputs).

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 relief from royalty method to calculate and compare the fair value

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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.

There was no impairment related to goodwill or indefinite-lived intangibles during the three years
ending September 30, 2019.

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, 2019.

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, 2019 Griffon believes that it has appropriately
accounted for all unrecognized tax benefits. As of September 30, 2019, 2018 and 2017, Griffon has
recorded unrecognized tax benefits in the amount of $4,061, $4,519 and $4,825, respectively. Accrued
interest and penalties related to income tax matters are recorded in the provision for income taxes.

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

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

In accordance with U.S. GAAP for income taxes, as well as SAB 118, the Company made a reasonable
estimate of the impacts of the TCJA for the year ended September 30, 2018 and recorded a $20,587

78

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of
deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense,
both of which have been reflected in the tax provision for 2018. SAB 118 allows for a measurement
period of up to one year from the date of enactment to complete the Company’s accounting for the
impacts of the TCJA. Our analysis under SAB 118 was completed in December 2018 and resulted in no
material adjustments to the provision amounts recorded as of September 30, 2018.

The TCJA requires companies to pay a one-time transition tax on mandatory deemed repatriation of
post-1986 undistributed foreign earnings and profits (“E&P”). The Company has recorded a provisional
transition tax charge of $13,100 net of foreign tax credits for fiscal year 2018. The Company ultimately
incurred a transition tax charge of $12,699. Under the TCJA, the Company elected to pay the transition
tax interest-free over eight years.

The TCJA makes broad and complex changes to the U.S. tax code that affect our fiscal year ended
September 30, 2019, including but not limited to: (1) creating the base erosion anti-abuse tax measure
that taxes certain payments between a U.S. corporation and its foreign subsidiaries; (2) creating a new
provision designed to tax global intangible low-tax income (“GILTI”) of foreign subsidiaries; and (3) a
foreign derived intangible income. We have estimated the impact of these changes in our income tax
provision for 2019.

The GILTI provision of the TCJA requires the Company to include in its U.S. Income tax return
foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
An accounting policy election is available to account for the tax effects of GILTI either as a current
period expense when incurred, or to recognize deferred taxes for book and tax basis differences
expected to reverse as GILTI in future years. We have elected to account for the tax effects of GILTI
as a current period expense when incurred.

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 approximately $15,400 in both 2019 and 2018, and $17,700 in
2017.

SG&A expenses include shipping and handling costs of $66,400 in 2019, $59,600 in 2018 and $32,500 in
2017 and advertising costs, which are expensed as incurred, of $20,000 in 2019, $21,000 in 2018 and
$22,000 in 2017.

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
Griffon. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably
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.

79

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Pension benefits

Griffon sponsors defined and supplemental benefit pension plans for certain 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. Actuarial assumptions used to determine pension liabilities, assets and expense are
reviewed annually and modified based on current economic conditions and trends. The expected return
on plan assets is determined based on the nature of the plan’s 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. Assumptions used in determining
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 assumptions may materially impact Griffon’s financial position or results of operations.

All of the defined benefit plans are frozen and have ceased accruing benefits.

Newly issued but not yet effective accounting pronouncements

the FASB issued guidance relating to accounting for credit

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

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

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

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

In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for
impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill
impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying
amount of that goodwill. This guidance is effective for annual periods beginning after December 15,

80

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

2019, including interim periods within those periods and will be effective for the Company beginning
October 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. We do not expect this guidance to have a material impact on the
Company’s financial condition, results of operations and related disclosures.

In February 2016, the FASB issued Accounting Standard Codification 842 (“ASC 842”) on lease
accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases.
The liability will be equal to the present value of lease payments. The Company adopted this new
guidance on October 1, 2019, using the optional modified retrospective transition method and will not
recast comparative periods in transition to the new standard. During the year the Company developed a
project plan to guide the implementation of ASC 842. The Company completed this plan including
surveying the Company’s businesses, assessing the Company’s portfolio of leases and compiling a
central repository of active leases. The Company also implemented a lease accounting software solution
to support the new reporting requirements and established a future lease process to keep the lease
accounting portfolio up to date. The Company evaluated key policy elections and considerations under
the standard and completed an internal policy as well as training to address the new standard
requirements. The Company plans to elect the package of practical expedients and will not apply the
recognition requirements to short-term leases. Although management continues to evaluate the effect
to the Company’s Consolidated Balance Sheets and disclosures, management currently estimates total
assets and liabilities will increase approximately $160,000 to $170,000 upon adoption, before considering
deferred taxes. Management does not expect a material
impact to the Company’s Consolidated
Statements of Earnings or Cash Flows.

Recently adopted accounting pronouncements

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of
a stock compensation award previously granted to an employee. This guidance is effective, and should
be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is
permitted as of the beginning of an annual period. The new guidance was effective for the Company
beginning in fiscal 2019. The Company adopted this guidance as of October 1, 2018 and it did not have
a material impact on the Company’s financial condition, results of operations and related disclosures.

In March 2017, the FASB issued amendments to the Compensation—Retirement Benefits guidance
which requires companies to retrospectively present the service cost component of net periodic benefit
cost for pension and retiree medical plans along with other compensation costs in operating income and
present the other components of net periodic benefit cost below operating income in the income
statement. The guidance also allows only the service cost component of net periodic benefit cost to be
eligible for capitalization within inventory or fixed assets on a prospective basis. This guidance was
effective for fiscal years beginning after December 15, 2017. The Company adopted the requirements of
the standard in the first quarter of 2019 on a retrospective basis reclassifying the other components of
the net periodic benefit costs from Selling, general and administrative expenses to a non-service
expense within Other (income) expense, net. This guidance did not have a material impact on the
Company’s results of operations. See Note 11—Employee Benefit Plans for further information on the
implementation of this guidance.

In January 2017, the FASB issued guidance that clarifies the definition of a business, which will impact
many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new
standard is intended to help companies and other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or businesses. This guidance was effective for
annual periods beginning after December 15, 2017, including interim periods within those periods and
was effective for the Company beginning in fiscal 2019. The Company adopted the requirements of the

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

standard in the first quarter of 2019 and it did not have a material impact on the Company’s financial
condition, results of operations and related disclosures.

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)
which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of
Topic 606, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenue
guidance is referred to as “ASC 606”. The core principle of ASC 606 is that revenue should be
recognized to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. On
October 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all
contracts. Results for reporting periods beginning October 1, 2018 are presented under ASC 606, while
prior period amounts were not adjusted and continue to be reported in accordance with the Company’s
historic accounting under Topic 605, Revenue Recognition. The Company recorded a net increase to
beginning retained earnings of approximately $5,618 as of October 1, 2018 due to the cumulative impact
of adopting ASC 606. The impact to beginning retained earnings primarily related to certain contracts
in the Defense Electronics Segment containing provisions for radar and communication products that
have an alternative use and/or no right to payment.

The adoption of ASC 606 did not have a material impact on the Company’s Consolidated Condensed
Financial Statements as of and for the year ended September 30, 2019. See Note 2—Revenue for
additional disclosures required by ASC 606.

The Company has implemented all new accounting pronouncements that are in effect and that may
impact its financial statements.

NOTE 2—REVENUE

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

This accounting standard did not materially impact the Company’s revenue recognition practices in our
CPP and HBP Segments, however, it impacted revenue recognition practices in our Defense Electronics
Segment. The impact of adopting this accounting standard was not material to the Company’s
consolidated financial statements as of and for the year ended September 30, 2019. Under the modified
initially applying this
the Company recognized the cumulative effect of
retrospective method,

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

accounting standard as an adjustment to the opening balance in retained earnings of approximately
$5,618 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment
containing provisions for radar and communication products that have an alternative use and / or no
right to payment. For these contracts, the Company now recognizes revenue at a point in time, rather
than over time as this measure more accurately depicts the transfer of control to the customer relative
to the goods or services promised under the contract.

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

Balance Sheet

CURRENT ASSETS

Contract costs and recognized income not

yet billed, net of progress payments . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . .
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .

CURRENT LIABILITIES

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of costs(1). . . . . . . . . . . . .
Total Current Liabilities. . . . . . . . . . . . . . . .
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . .

SHAREHOLDERS’ EQUITY

As Reported at

September 30, 2018 Adjustments

Balance as of
October 1, 2018

$ 121,803
398,359
912,874
2,084,890

233,658
17,559
393,071
106,710
1,610,499

$(20,982)
22,025
1,043
1,043

$ 100,821
420,384
913,917
2,085,933

8,282
8,282
8,282
(1,621)
6,661

241,940
25,841
401,353
105,089
1,617,160

Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . .

550,523
474,391
$2,084,890

(5,618)
(5,618)
$ 1,043

544,905
468,773
$2,085,933

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

Sheets.

The impact to the Company’s Consolidated Statement of Operations for the year ended September 30,
2019 and to the Company’s Balance Sheet as of September 30, 2019 was as follows:

For the Year Ended September 30, 2019

Income Statement

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods and services . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes from continuing operations . .
Provision (benefit) from income taxes . . . . . . . . . . . . .
Income from continuing operations. . . . . . . . . . . . . . . .

As Reported

$2,209,289
1,614,020
72,178
26,556
45,622

Balances Without
Adoption of ASC 606

Effect of Adoption
Higher/(Lower)

$2,202,544
1,609,807
69,646
26,004
43,642

$6,745
4,213
2,532
552
1,980

83

25130

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Balance Sheet

CURRENT ASSETS

Contract costs and recognized
income not yet billed, net of
progress payments . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . .
Total Assets. . . . . . . . . . . . . . . . . . . . .

CURRENT LIABILITIES

Accounts payable . . . . . . . . . . . . . . . . . . . .
Billings in excess of costs . . . . . . .
Total Current Liabilities. . . . . . . . .
OTHER LIABILITIES . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . .

SHAREHOLDERS’ EQUITY

Retained Earnings . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . .

Total Liabilities and Shareholders’

As Reported

As of September 30, 2019
Balances Without
Adoption of ASC 606

Effect of Adoption
Higher/(Lower)

$ 105,111
442,121
925,179
2,074,939

250,576
26,259
390,099
109,997
1,597,176

568,516
477,763

$ 119,348
424,309
921,604
2,071,364

242,294
17,977
381,817
111,066
1,589,963

572,154
481,401

$(14,237)
17,812
3,575
3,575

8,282
8,282
8,282
(1,069)
7,213

(3,638)
(3,638)

Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,074,939

$2,071,364

$ 3,575

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

See Note 18—Business Segments for revenue from contracts with customers disaggregated by end
markets, segments and geographic location.

Performance Obligations

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

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

Over 80% of the Company’s performance obligations are recognized at a point in time that relates to
the manufacture and sale of a broad range of products and components within the CPP and HBP
Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to

84

67393

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

the customer. Less than 20% of the Company’s performance obligations are recognized over time or
under the percentage-of-completion method that relate to prime or subcontractors from contract awards
with the U.S. Government, as well as foreign governments and other commercial customers within our
Defense Electronics Segment. Sales recognized over time are generally accounted for using an input
measure to determine progress completed at the end of the period. We believe that cumulative costs
incurred to date as a percentage of estimated total contract costs at completion is an appropriate
measure of progress towards satisfaction of performance obligations, as it most accurately depicts the
progress of our work and transfer of control to our customers.

Revenue from CPP and HBP Segments

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

The Company’s CPP and HBP Segments recognize revenue from product sales when all factors are
met, including when control of a product transfers to the customer upon its shipment, completion of
installation, testing, certification or other substantive acceptance required under the contract. Other
than standard product warranty provisions, sales arrangements provide for no other significant post-
shipment obligations on the Company. From time-to-time and for certain customers, rebates and other
sales incentives, promotional allowances or discounts are offered, typically related to customer purchase
volumes, all of which are fixed or determinable and are classified as a reduction of revenue and
recorded at the time of sale. Griffon provides for sales returns and allowances based upon historical
returns experience.

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

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

Revenue from Defense Electronics Segment

The Company’s Defense Electronics segment earns a substantial portion of its revenue as either a prime
contractor or subcontractor from contract awards with the U.S. Government, as well as foreign
governments and other, commercial, customers. These contracts are typically long-term in nature,
usually greater than one year and do not include a material long-term financing component, either
implicitly or explicitly. Revenue and profits from such contracts are recognized under the percentage-
of-completion (over time) method of accounting. Revenue and profits on fixed-price contracts that

85

48056

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

contain engineering as well as production requirements are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each contract (cost-to-cost method).

Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative
costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract
revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract
using this method is equal to the current estimated total profit margin multiplied by the cumulative
revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior
periods. As this method relies on the substantial use of estimates, these projections may be revised
throughout the life of a contract. Components of this formula and ratio that may be estimated include
gross profit margin and total costs at completion. The cost performance and estimates to complete long-
term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes
available that would necessitate a review of the current estimate. Adjustments to estimates for a
contract’s estimated costs at completion and estimated profit or loss are often required as experience is
gained, more information is obtained (even though the scope of work required under the contract may
or may not change) and contract modifications occur. The impact of such adjustments to estimates is
made on a cumulative basis in the period when such information has become known. The 2019, 2018,
and 2017 income from operations
favorable/(unfavorable) catch-up adjustments
approximating $(4,500), $1,400 and $600, respectively. Gross profit is impacted by a variety of factors,
including the mix of products, systems and services, production efficiencies, price competition and
general economic conditions.

included net

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.

judgment is required to determine whether
For contracts with multiple performance obligations,
performance obligations specified in these contacts are distinct and should be accounted for as separate
revenue transactions for recognition purposes. In these types of contracts, the Company allocates the
total transaction price to each performance obligation in an amount based on the estimated relative
standalone selling prices of the promised goods or services underlying each performance obligation. The
Company uses an observable price to determine the stand-alone selling price for separate performance
obligations or a cost plus margin approach when one is not available.

For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is
recognized in the period when identifiable. A provision for the entire amount of the estimated loss is
recorded on a cumulative basis. The estimated remaining costs to complete loss contracts as of
September 30, 2019 was $9,800 and is recorded as a reduction to gross margin on the Consolidated
Statements of Operations and Comprehensive Income (Loss). This loss had an immaterial impact on
Griffon’s Consolidated Financial Statements.

Amounts representing contract change orders or claims are included in revenue only when they can be
reliably estimated and their realization is probable, and are determined on a percentage-of-completion
basis measured by the cost-to-cost method.

Substantially all of Telephonics’ U.S. Government end-user contracts contain a termination for
convenience clause, regardless whether Telephonics is the prime contractor or the subcontractor. This
clause generally entitles Telephonics, upon a termination for convenience, to receive the purchase price
for delivered items, reimbursement of allowable work-in-process costs, and an allowance for profit.
Allowable costs would include the costs to terminate existing agreements with suppliers.

86

49017

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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

Transaction Price Allocated to the Remaining Performance Obligations

On September 30, 2019, we had $389,300 of remaining performance obligations, which we also refer to
as total backlog. We expect to recognize approximately 72% of our remaining performance obligations
as revenue within one year, with the balance to be completed thereafter.

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

Contract Balances

Contract assets were $105,111 as of September 30, 2019 compared to $121,803 as of September 30, 2018.
The $16,692 decrease in our contract assets balance was primarily due to the implementation of
ASC 606. Excluding the impact of ASC 606, the increase was primarily due to the timing of billings and
work performed on various radar and surveillance programs. Contract assets primarily relate to the
Company’s right to consideration for work completed but not billed at the reporting date and are
recorded in Contract costs and recognized income not yet billed, net of progress payments in the
Consolidated Balance Sheets. Contract assets are transferred to receivables when the right
to
consideration becomes unconditional. Contract costs and recognized income not yet billed consists of
amounts accounted for under the percentage of completion method of accounting, recoverable costs
and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts
will be invoiced when applicable contract terms, such as the achievement of specified milestones or
product delivery, are met. At September 30, 2019 and 2018, approximately $13,100 and $29,500,
respectively, of contract costs and recognized income not yet billed were expected to be collected after
one year. As of September 30, 2019, Contract costs and recognized income not yet billed included no
reserves for contract risk and as of September 30, 2018, included $400 of reserves for contract risk.

Contract liabilities were $26,259 as of September 30, 2019 compared to $17,559 as of September 30,
2018. The $8,700 increase in the contract liabilities balance was primarily due to the implementation of
ASC 606. Contract liabilities relate to advance consideration received from customers for which
revenue has not been recognized. The Company often receives cash payments from customers in
advance of the Company’s performance resulting in contract liabilities. These contract liabilities are
classified as current on the Consolidated Balance Sheets based on the timing of when the Company
expects to recognize revenue. Current contract liabilities are recorded in Accounts payable on the
Consolidated Balance Sheets. Contract liabilities are reduced when the associated revenue from the
contract is recognized.

NOTE 3—ACQUISITIONS

Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities
assumed are recorded at fair value as of the date of acquisition using a method substantially similar to
the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired

87

36838

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

companies are included in Griffon’s consolidated financial statements from the date of acquisition in
each instance.

On June 4, 2018, Clopay completed the acquisition of 100% of
the outstanding stock of
CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products
designed for commercial, industrial, institutional and retail use, for approximately $180,000, excluding
the estimated present value of tax benefits, and $12,426 of post-closing adjustments, primarily consisting
of a working capital adjustment, of which $9,219 was paid in October 2018. CornellCookson revenue in
2018 was $66,654. The acquisition of CornellCookson substantially expanded Clopay’s non-residential
product offerings, and added an established professional dealer network focused on rolling steel door
and grille products for commercial, industrial, institutional and retail use. There is no other contingent
consideration arrangement relative to the acquisition of CornellCookson.

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

The calculation of the purchase price allocation is as follows:

Accounts receivable(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current and non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30,400
12,336
49,426
43,183
67,600
2,648

Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

205,593

Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,507
660

13,167

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$192,426

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

fair value of accounts receivable approximated book value acquired.

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

88

38291

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 CornellCookson acquisition are as follows:

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definite-lived intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 43,183 N/A
53,500 N/A
14,100

12

Total goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .

$110,783

Average
Life (Years)

On February 13, 2018, AMES acquired 100% of the outstanding stock of Kelkay Limited (“Kelkay”), a
leading United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold
to garden centers, retailers and grocers in the UK and Ireland for $56,118 (GBP 40,452), subject to
contingent consideration of up to GBP 7,000. In 2019, GBP 1,300 thousand was reversed into income as
it was highly probable a portion of the contingent consideration would not be earned. This acquisition
broadened AMES’ product offerings in the market and increased its in-country operational footprint.
The purchase price was primarily allocated to tradenames of GBP 19,000, customer related intangibles
of GBP 6,640, accounts receivable and inventory of GBP 8,894 and fixed assets and land of GBP 8,241.

On November 6, 2017, AMES acquired substantially all of the assets of Harper Brush Works
(“Harper”), a division of Horizon Global, for $4,383, inclusive of post-closing adjustments. Harper is a
leading U.S. manufacturer of cleaning products for professional, home, and industrial use. The
acquisition expanded AMES’ long-handled tool offering in North America to include brooms, brushes,
and other cleaning tools and accessories. The purchase price was primarily allocated to intangible assets
of $2,300, inventory and accounts receivable of $3,900 and fixed assets of $900.

On October 2, 2017, Griffon Corporation completed the acquisition of 100% of the outstanding equity
interests of ClosetMaid, a market leader of home storage and organization products, for approximately
$185,700,
inclusive of certain post-closing adjustments and excluding the present value of net tax
benefits resulting from the transaction. The acquisition of ClosetMaid expanded Griffon’s Home and
Building Products segment into the highly complementary home storage and organization category with
a leading brand and product portfolio.

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

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

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,823,497
15,070

Proforma
For the year ended
September 30, 2017
(unaudited)

89

89266

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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

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

• Elimination of intercompany interest income recorded on ClosetMaid’s financial statements

earned on an intercompany receivable due from ClosetMaid’s former parent.

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

• Removal of $900 of restructuring costs from ClosetMaid’s historical results for 2017.

• The consequential tax effects of the above adjustments using a 39.7% tax rate for 2017.

The calculation of the purchase price allocation is as follows:

Accounts receivable(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current and non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 32,234
28,411
47,464
70,159
74,580
3,852
256,700

68,251
2,720

Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70,971
$185,729

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

fair value of accounts receivable approximated book value acquired.

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

inventory turns of the acquired entity.

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

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definite-lived intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 70,159 N/A
47,740 N/A
26,840

21

Total goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .

$144,739

Average
Life (Years)

90

92914

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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

On July 31, 2017, The AMES Companies, Inc. acquired La Hacienda Limited, a leading United
Kingdom outdoor living brand of unique heating and garden decor products, for approximately $11,400
(GBP 9,175),
including an approximate contingent earn out payment of $790 (GBP 600). The
acquisition of La Hacienda broadens AMES’ global outdoor living and lawn and garden business and
supports AMES’ UK expansion strategy. The purchase price allocation was primarily allocated to
intangible assets of approximately GBP 3,100 and inventory and accounts receivable of GBP 4,200.

inventory,

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

tooling and identifiable intangible assets,

SG&A and Cost of goods and services included $6,097 and $1,500 of acquisition-related costs,
respectively,
in 2018. SG&A included $9,617 acquisition-related costs in 2017. There were no
acquisition-related costs in 2019.

NOTE 4—INVENTORIES

The following table details the components of inventory:

Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . .
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$121,791
93,830
226,500

$442,121

$ 97,645
83,578
217,136

$398,359

At September 30,
2019

At September 30,
2018

NOTE 5—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,
2019

At September 30,
2018

$ 133,036
580,698
49,808
763,542
(426,216)

$ 337,326

$ 130,296
544,875
50,111
725,282
(382,790)

$ 342,492

91

32384

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 6—GOODWILL AND OTHER INTANGIBLES

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. Griffon now reports its operations through
three reportable segments: the newly formed Consumer and Professional Products segment, which
consists of AMES; Home and Building Products, which consists of Clopay; and Defense Electronics,
which consists of Telephonics Corporation.

Before changing its reportable segment structure, the Company completed its annual
impairment
review of its legacy HBP reporting unit, which also was its legacy reportable segment, and determined
that the fair value of the legacy HBP reporting unit substantially exceeded the carrying value of the
assets, as performed under step one, and no impairment existed.

In connection with the Company’s change in its reportable segments, the Company performed its
annual impairment testing of goodwill at Griffon’s new reporting unit level as of September 30, 2019.
See in Note 1, Description of Business and Summary of Significant Accounting Policies, for a
description of the Company’s goodwill and indefinite-lived intangible impairment testing methodology.
The Company performed an impairment test before and after the change in our reportable segment
structure, and as a result of this analysis, no impairment was identified. ASC 350 “Intangibles—
Goodwill and Other Intangibles” provides guidance on a company’s subsequent measurement and
recognition of goodwill and other intangibles,
including subsequent changes to carrying amounts,
including impairment and fair value adjustments. In accordance with the guidance set forth in ASC 350,
and in connection with the modification of its reportable segment structure, using a relative fair value
approach, the Company reallocated $148,076 of goodwill between the CPP and HBP segments. See
Note 18, Segment Information for further information on the Company’s three reportable segments.

The following table provides changes in carrying value of goodwill by segment through the year ended
September 30, 2019:

At
September 30,
2017

Goodwill
from
acquisitions

Foreign
currency
translation
adjustments

At
September 30,
2018

Goodwill
from
acquisitions

Reallocation
of Goodwill

Foreign
currency
translation
adjustments

At
September 30,
2019

Consumer and Professional
Products . . . . . . . . . . . . . . . . .

Home and Building

Products . . . . . . . . . . . . . . . . .
Defense Electronics . . . . . . . .

$300,594

$ 77,024

$428

$378,046

$ —

$(148,076)

$(2,701)

$227,269

—
18,545

42,883
—

(79)
—

42,804
18,545

300
—

148,076
—

73
—

191,253
18,545

Total . . . . . . . . . . . . . . . . . .

$319,139

$119,907

$349

$439,395

$300

$

— $(2,628)

$437,067

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

At September 30, 2019
Gross
Carrying
Amount

Accumulated
Amortization

Customer relationships & other. . . . . . . . . . . . .
Unpatented technology . . . . . . . . . . . . . . . . . . . . .
Total amortizable intangible assets . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets. . . . . . . . . . . . . . . . . .

$183,515
19,167

202,682
219,069
$421,751

$57,783
7,329

65,112
—
$65,112

Average
Life
(Years)

23
13

At September 30, 2018
Gross
Carrying
Amount

Accumulated
Amortization

$186,031
19,004

205,035
221,883
$426,918

$49,822
6,238

56,060
—
$56,060

92

52247

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Amortization expense for intangible assets subject to amortization was $9,922, $9,070 and $6,658 in
2019, 2018 and 2017, respectively. Amortization expense for each of the next five years and thereafter,
based on current intangible balances and classifications, is estimated as follows: 2020 - $9,593; 2021 -
$9,387; 2022 - $9,387; 2023 - $9,234 and 2024 - $9,208; thereafter - $90,761.

No event or indicator or impairment occurred during 2019, which would require impairment testing of
long-lived intangible assets including goodwill.

NOTE 7—DISCONTINUED OPERATIONS

During 2019, Griffon recorded an $11,050 charge ($8,335, net of tax) to discontinued operations. The
charge consisted primarily of a purchase price adjustment to resolve a claim related to the $465,000
Plastics divestiture and included an additional reserve for a legacy environmental matter. During 2019,
$9,500 of this charge was paid.

The following amounts summarize the total assets and liabilities of Plastics and Installation Services and
other discontinued activities which have been segregated from Griffon’s continuing operations and are
reported as assets and liabilities of discontinued operations in the consolidated balance sheets:

At September 30,
2019

At September 30,
2018

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 . . . .

$ 321
2,888

$3,209

$4,333
3,331

$7,664

$ 324
2,916

$3,240

$7,210
2,647

$9,857

At September 30, 2019, Griffon’s liabilities for Plastics, Installations Services and other discontinued
operations primarily related to insurance claims, income taxes and product liability, warranty and
environmental reserves totaling liabilities of approximately $7,664.

Plastics

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Plastics and on
February 6, 2018, completed the sale to Berry for approximately $465,000, net of certain post-closing
adjustments. As a result, Griffon classified the results of operations of the Plastics business as
discontinued operations in the Consolidated Statements of Operations for all periods presented and
classified the related assets and liabilities associated with the discontinued operations in the
consolidated balance sheets. Plastics is a global leader in the development and production of embossed,
laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells
to some of the world’s largest consumer products companies. In connection with the sale of Plastics, the
Company recorded a $9,500 post-closing adjustment ($7,085, net of tax) during 2019 and recorded a
gain on sale of $112,964 ($81,041, net of tax) during 2018.

93

23213

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

The following amounts related to the Plastics segment have been segregated from Griffon’s continuing
operations and are reported as discontinued operations:

For the Year Ended September 30,
2018

2019

2017

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $166,262
— 132,100

$460,914
389,416

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense)
Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
9,500
—

9,500

(9,500)

34,162
26,303
—

26,303

7,859

71,498
43,518
—

43,518

27,980

— 112,964
(155)
—
(687)
—

—
(63)
59

Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations of discontinued operations . . . . . . . . . .

— 112,122
$(9,500) $119,981

(4)
$ 27,976

Installation Services and Other Discontinued Activities

In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all
operating activities of its Installation Services segment which sold, installed and serviced garage doors
and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for
the new residential housing market. In 2008, Griffon sold eleven units, closed one unit and merged two
units into HBP. Griffon substantially concluded its remaining disposal activities in 2009.

Installation Services operating results have been reported as discontinued operations
in the
Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented;
Installation Services is excluded from segment reporting. There was no reported revenue in 2019, 2018
and 2017.

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

94

83158

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 8—ACCRUED LIABILITIES

The following table details the components of accrued liabilities:

At September 30,
2019

At September 30,
2018

Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranties and rebates. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent, utilities and freight. . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and advertising. . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition related accruals . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 61,639
4,501
13,171
11,996
5,326
7,814
4,417
—
15,801

$124,665

$ 50,251
4,776
11,227
25,329
4,830
8,016
3,685
17,448
13,630

$139,192

NOTE 9—WARRANTY LIABILITY

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

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

Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranties issued and changes in estimated pre-existing

warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual warranty costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other warranty liabilities assumed from acquisitions. . . . . . . . . . . .
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended
September 30,

2019

2018

$ 8,174

$ 6,236

16,938
(17,218)
—
$ 7,894

8,770
(7,948)
1,116
$ 8,174

95

03806

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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, 2019 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 . . . . . . . . . . . . . . . . . . .

$ 6,928
(382)
6,546
(3,691)

$ 2,855

At September 30,
2019

Minimum payments under capital leases for the next five years are as follows: $3,950 in 2020, $2,153 in
2021, $668 in 2022, $157 in 2023, $0 in 2024 and $0 thereafter.

Included in the consolidated balance sheet at September 30, 2019 under Property, plant and equipment,
are costs and accumulated depreciation subject
to capitalized leases of $41,742 and $35,196,
respectively, and included in Other assets are deferred interest charges of $55. Included in the
consolidated balance sheet at September 30, 2018, under Property, plant and equipment are costs and
accumulated depreciation subject to capitalized leases of $41,742 and $31,969, respectively, and included
in Other assets are deferred interest charges of $80. Amortization expense was $3,967, $3,514, and
$1,683 in 2019, 2018 and 2017 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 2021, bears interest at a fixed rate of 5.0%, is
secured by a mortgage on the real estate and is guaranteed by Griffon.

Debt at September 30, 2019 and 2018 consisted of the following:

Senior note due 2022 . . . . . . . . . . . . . . . .
Revolver due 2021 . . . . . . . . . . . . . . . . . . .
Capital lease—real estate . . . . . . . . . . . .
Non U.S. lines of credit. . . . . . . . . . . . . .
Non U.S. term loans . . . . . . . . . . . . . . . . .
Other long term debt . . . . . . . . . . . . . . . .

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
less: Current portion . . . . . . . . . . . . . . . . .

(a)

(b)

(f)

(g)

(g)

(h)

Outstanding
Balance

$1,000,000
50,000
4,388
17,576
36,977
5,190

1,114,131
(10,525)

At September 30, 2019
Capitalized
Fees &
Expenses

Original
Issuer
Discount

Balance
Sheet

Coupon
Interest
Rate

$867
—
—
—
—
—

867
—

$ (9,175) $ 991,692

5.25%

(1,243)
(55)
(45)
(188)
(18)

48,757 Variable

4,333

5.00%

17,531 Variable
36,789 Variable
5,172 Variable

(10,724)
—

1,104,274
(10,525)

Long-term debt . . . . . . . . . . . . . . . . . . . . . .

$1,103,606

$867

$(10,724) $1,093,749

96

20051

Coupon
Interest
Rate

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Senior notes due 2022 . . . . . . . . . . . . . . .
Revolver due 2021 . . . . . . . . . . . . . . . . . . .
ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease—real estate . . . . . . . . . . . .
Non U.S. lines of credit. . . . . . . . . . . . . .
Non U.S. term loans . . . . . . . . . . . . . . . . .
Other long term debt . . . . . . . . . . . . . . . .

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
less: Current portion . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . .

(a)

(b)

(e)

(f)

(g)

(g)

(h)

Outstanding
Balance

$1,000,000
25,000
34,694
7,503
7,951
53,533
6,011

1,134,692
(13,011)
$1,121,681

At September 30, 2018
Capitalized
Fees &
Expenses

Original
Issuer
Discount

Balance
Sheet

$1,220
—
—
—
—
—
—

1,220
—
$1,220

$(12,968) $ 988,252

5.25%

(1,413)
(186)
(80)
(16)
(148)
(19)

23,587 Variable
34,508 Variable

5.00%

7,423
7,935 Variable
53,385 Variable
5,992 Variable

(14,830)
—

1,121,082
(13,011)
$(14,830) $1,108,071

Interest expense consists of the following for 2019, 2018 and 2017.

Year Ended September 30, 2019

Effective
Interest
Rate

Cash
Interest

Amort.
Debt
Discount

Amort.
Deferred
Cost &
Other Fees

Senior notes due 2022. . . . . . . . . . . . . . . . . . . .
Revolver due 2021 . . . . . . . . . . . . . . . . . . . . . . .
ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease—real estate . . . . . . . . . . . . . . . .
Non U.S. lines of credit . . . . . . . . . . . . . . . . . .
Non U.S. term loans . . . . . . . . . . . . . . . . . . . . .
Other long term debt . . . . . . . . . . . . . . . . . . . .
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Senior notes due 2022. . . . . . . . . . . . . . . . . . . .
Revolver due 2021 . . . . . . . . . . . . . . . . . . . . . . .
Real estate mortgages . . . . . . . . . . . . . . . . . . . .
ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease—real estate . . . . . . . . . . . . . . . .
Non U.S. lines of credit . . . . . . . . . . . . . . . . . .
Non U.S. term loan . . . . . . . . . . . . . . . . . . . . . .
Other long term debt . . . . . . . . . . . . . . . . . . . .
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a)

(b) Variable
(e)

(f) Variable
(g) Variable
(g) Variable
(h) Variable

6.3%

5.66% $52,500
6,998
937
372
19
1,592
640
(385)
$62,673

$270
—
—
—
—
—
—
—
$270

$3,803
980
186
25
15
109
5
—
$5,123

Year Ended September 30, 2018

Effective
Interest
Rate

Cash
Interest

Amort.
Debt
Discount

Amort.
Deferred
Cost &
Other Fees

(a)

(e)

(b) Variable
(d)

(f) Variable
(g) Variable
(g) Variable
(h) Variable

5.66% $52,500
3,718
3.3%
349
6.3% 1,802
581
34
1,420
494
(549)
$60,349

$270
—
—
—
—
—
—
—
—
$270

$3,803
565
320
124
25
15
90
7
—
$4,949

Total
Interest
Expense

$56,573
7,978
1,123
397
34
1,701
645
(385)
$68,066

Total
Interest
Expense

$56,573
4,283
669
1,926
606
49
1,510
501
(549)
$65,568

97

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Year Ended September 30, 2017

Effective
Interest
Rate

Cash
Interest

Amort.
Debt
Discount

Amort.
Deferred
Cost &
Other Fees

Senior notes due 2022. . . . . . . . . . . . . . . . . . . .
Revolver due 2021 . . . . . . . . . . . . . . . . . . . . . . .
Convert. debt due 2017 . . . . . . . . . . . . . . . . . .
Real estate mortgages . . . . . . . . . . . . . . . . . . . .
ESOP Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease—real estate . . . . . . . . . . . . . . . .
Non U.S. lines of credit . . . . . . . . . . . . . . . . . .
Non U.S. term loan . . . . . . . . . . . . . . . . . . . . . .
Other long term debt . . . . . . . . . . . . . . . . . . . .
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . .

(b) Variable
(c)

(a)

(d)

(e)

(f)

(g) Variable
(g) Variable
(h) Variable

5.55% $38,063
4,951
8.9% 1,167
2.6%
582
4.2% 1,557
296
5.5%
76
860
245
(795)

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$47,002

$ 270
—
1,248
—
—
—
—
—
—
—

$1,518

$1,857
567
148
58
133
25
128
67
10
—

$2,993

72226

Total
Interest
Expense

$40,190
5,518
2,563
640
1,690
321
204
927
255
(795)

$51,513

Minimum payments under debt agreements for the next five years are as follows: $10,525 in 2020,
$86,108 in 2021, $1,016,109 in 2022, $441 in 2023, $217 in 2024 and $731 thereafter.

(a) On October 2, 2017, in an unregistered offering through a private placement under Rule 144A,
Griffon completed the add-on offering of $275,000 principal amount of its 5.25% senior notes due
2022, at 101.0% of par, to Griffon’s previously issued $125,000 principal amount of its 5.25% senior
notes due 2022, at 98.76% of par, completed on May 18, 2016 and $600,000 5.25% senior notes due
in 2022, at par, which was completed on February 27, 2014 (collectively the “Senior Notes”). As of
September 30, 2019, outstanding Senior Notes due totaled $1,000,000; interest is payable semi-
annually on March 1 and September 1. The net proceeds of the $275,000 add-on offering were used
to acquire ClosetMaid with the remaining proceeds used to pay down outstanding loan borrowings
under Griffon’s Revolving Credit Facility (the “Credit Agreement”). The net proceeds of the
previously issued $125,000 add-on offering were used to pay down outstanding revolving loan
borrowings under the Credit Agreement.

Proceeds from the $600,000 5.25% senior notes due in 2022 were used to redeem $550,000 of 7.125%
senior notes due 2018, to pay a call and tender offer premium of $31,530 and to make interest
payments of $16,716, with the balance used to pay a portion of the related transaction fees and
expenses. In connection with the issuance of the Senior Notes, all obligations under the $550,000 of
7.125% senior notes due in 2018 were discharged.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic
subsidiaries, and subject to certain covenants, limitations and restrictions. On February 5, 2018,
July 20, 2016 and June 18, 2014, Griffon exchanged all of the $275,000, $125,000 and $600,000 Senior
Notes, respectively, for substantially identical Senior Notes registered under the Securities Act of
1933 via an exchange offer. The fair value of the Senior Notes approximated $1,010,000 on
September 30, 2019 based upon quoted market prices (level 1 inputs). In connection with the
issuance and exchange of the $275,000 senior notes, Griffon capitalized $8,472 of underwriting fees
and other expenses; in addition to $13,329 capitalized under the previously issued $725,000 Senior
Notes. All capitalized fees for the Senior Notes will amortize over the term of the notes and, at
September 30, 2019, $9,175 remained to be amortized.

(b) On March 22, 2016, Griffon amended its Credit Agreement to increase the credit facility from
$250,000 to $350,000, extend its maturity from March 13, 2020 to March 22, 2021, and modify certain
other provisions of the facility. On October 2, 2017 and on May 31, 2018, Griffon amended the
in connection with the ClosetMaid and the CornellCookson acquisitions,
Credit Agreement

98

38918

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

respectively to, among other things modify the net leverage covenant. On February 22, 2019, Griffon
further amended the Revolving Credit Facility, to, among other things, reflect changes in the lending
group and certain corresponding changes in various administrative roles under the Revolving Credit
Facility, make conforming administrative and technical changes and reflect changes in law. The
facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility
of $100,000. The Credit Agreement provides for same day borrowings of base rate loans. Borrowings
under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of
the facility or the occurrence of an event of default under the Credit Agreement. Interest is payable
on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an
applicable margin, which adjusts based on financial performance. Current margins are 1.75% for
base rate loans and 2.75% for LIBOR loans. The Credit Agreement has certain financial
maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage
ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants
and events of default. The negative covenants place limits on Griffon’s ability to, among other
things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings
under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are
secured, on a first priority basis, by substantially all domestic assets of the Company and the
guarantors, and a pledge of not greater than 65% of the equity interest in Griffon’s material, first-
tier foreign subsidiaries. At September 30, 2019, under the Credit Agreement, there were $50,000 in
outstanding borrowings; outstanding standby letters of credit were $21,281; and $278,719 was
available, subject to certain loan covenants, for borrowing at that date.

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

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

(e) In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan
into a new Term Loan in the amount of $35,092 (the “Agreement”). The Agreement also provided
for a Line Note with $10,908 available to purchase shares of Griffon common stock in the open
market. During 2017, Griffon’s ESOP purchased 621,875 shares of common stock for a total of
$10,908 or $17.54 per share, under a borrowing line that has now been fully utilized. On June 30,
2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan bears
interest at LIBOR plus 2.91%. The Term Loan required quarterly principal payments of $569 with a
balloon payment due at maturity. As a result of the special cash dividend of $1.00 per share, paid on
April 16, 2018, the outstanding balance of the Term Loan was reduced by $5,705. The Term Loan
was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount
of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit
Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was
refinanced with an internal loan from Griffon which was funded with cash and a draw on its $350,000
credit facility. The internal loan interest rate is fixed at 2.91%, matures in June 2033 and requires
quarterly payments of principal, currently $569, and interest. The internal loan is secured by shares
purchased with the proceeds of
loan at
September 30, 2019 was $32,418.

the loan. The amount outstanding on the internal

99

36339

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

(f) Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and
Ocala, Florida. The leases mature in 2021 and 2020, respectively, and bear interest at fixed rates of
approximately 5.0% and 8.0%, respectively. The Troy, Ohio lease is secured by a mortgage on the
real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year renewal
options. As of September 30, 2019, $4,333 was outstanding, net of issuance costs.

(g) In November 2012, Garant G.P. (“Garant”) entered into a CAD 15,000 ($11,315 as of September 30,
2019) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers
Acceptance Rate (CDN) plus 1.3% per annum (3.38% LIBOR USD and 3.13% Bankers
Acceptance Rate CDN as of September 30, 2019). The revolving facility matures in October
2022. Garant is required to maintain a certain minimum equity. As of September 30, 2019, there
were no borrowings under the revolving credit facility with CAD 15,000 ($11,315 as of September 30,
2019) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (“Griffon
Australia”) entered into an AUD 30,000 term loan and an AUD 10,000 revolver. The term loan
refinanced two existing term loans and the revolver replaced two existing lines. In December 2016,
the amount available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in
March 2017 and September 2017, the term loan commitment was increased by AUD 5,000 and AUD
15,000, respectively. In March 2019, the term commitment was reduced by AUD 10,000 with
proceeds from a receivable purchase agreement in the amount of AUD 10,000. The term loan
requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD
13,375 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY”
plus 1.90% per annum (2.85% at September 30, 2019). As of September 30, 2019, the term had an
outstanding balance of AUD 25,875 ($17,492 as of September 30, 2019). The revolving facility and
receivable purchase facility mature in March 2020, but are renewable upon mutual agreement with
the lender. The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.8%
and 1.0%, respectively, per annum (2.81% and 2.01%, respectively, at September 30, 2019). At
September 30, 2019, there were AUD 16,000 ($10,816 at September 30, 2019) under the revolver and
the receivable purchase facility had an outstanding balance of AUD 10,000 ($6,760 at September 30,
2019). The revolver, receivable purchase facility and the term loan are all secured by substantially all
of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a
certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed
charges cover ratio.

In July 2018, the AMES Companies UK Ltd and its subsidiaries (“Ames UK”) entered into a GBP
14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage
loan require quarterly principal payments of GBP 350 and GBP 83 plus interest, respectively, and
have balloon payments due upon maturity, July 2023, of GBP 7,000 and GBP 2,333, respectively.
The Term Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8%,
respectively (3.01% and 2.56% at September 30, 2019, respectively). The revolving facility matures
in June 2020, but is renewable upon mutual agreement with the lender, and accrues interest at the
Bank of England Base Rate plus 1.5% (2.25% as of September 30, 2019). As of September 30, 2019,
the revolver had no outstanding balance while the term and mortgage loan balances amounted to
GBP 15,831 ($19,485 as of September 30, 2019). The revolver and the term loan are both secured by
substantially all of the assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum
leverage ratio and a minimum fixed charges cover ratio. An invoice discounting arrangement was
canceled and replaced by the above loan facilities.

(h) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development

Authority, with the balance consisting of capital leases.

100

54088

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

At September 30, 2019, Griffon and its subsidiaries were in compliance with the terms and covenants of
its credit and loan agreements.

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 $11,788 in 2019, $11,053 in 2018 and
$10,079 in 2017.

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 $1,852 and $1,699 as of
September 30, 2019 and 2018. The accumulated other comprehensive income (loss) for these plans was
$(146) and ($60) as of September 30, 2019 and 2018, respectively, and the 2019 and 2018 benefit
expense was $50 and $45, 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 services of an investment manager to manage these assets based on agreed
upon risk profiles. 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 values 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, 2019 and 2018. The fair value of various other
investments was determined by the plan’s trustee using direct observable market corroborated inputs,
including quoted market prices for similar assets (level 2 inputs). A small amount of plan assets are
invested in private equity which consist primarily of investments in private companies which are valued
using the net asset values provided by the underlying private investment companies as a practical
expedient (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 Pension Plan (the
“Clopay AMES Plan”). The Clopay portion of the Clopay AMES 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 AMES portion of the Clopay AMES Plan has been frozen to all new entrants
since November 2009 and stopped accruing benefits in December 2009.

The AMES supplemental executive retirement plan was frozen to new entrants and participants in the
plan stopped accruing benefits in 2008.

In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation—Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost, which changed certain presentation and disclosure requirements for
employers that sponsor defined benefit and post-retirement pension plans. The new standard requires
the service cost component of the net benefit cost to be in the same line item as other compensation in

101

69111

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

operating income and the other components of net benefit plan cost,
including interest costs,
amortization of prior service costs and recognized actuarial costs to be presented outside of operating
income on a retrospective basis. The standard was effective for fiscal years beginning after December
15, 2017. The Company adopted the requirements of the standard in the first quarter of 2019 on a
retrospective basis reclassifying the other components of the net periodic benefit plan costs from
Selling, general and administrative expenses to a non-service expense within Other income (expense).
The defined benefit and post-retirement pension plans did not have a service cost component. The
Company utilized a practical expedient included in the accounting guidance which allowed the
Company to use amounts previously disclosed in its pension and other post-retirement benefits note for
the prior period as the estimation basis for applying the required retrospective presentation
requirements.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $3,148,
$3,649 and $1,993 during 2019, 2018, and 2017 respectively. The impact of this adoption resulted in a
reclassification to the Company’s Consolidated Statements of Operations and Comprehensive Income
(Loss) for 2018 and 2017, in which previously reported Cost of goods and services and Selling, general
and administrative expenses were increased by $3,649 and $1,993, respectively with a corresponding
offset to Other income (expense). The remaining provisions of the standard did not have a material
impact on our financial position, results of operations or liquidity.

Griffon uses judgment to establish the assumptions used in determining the future liability of the plan,
as well as the investment returns on the plan assets. The expected return on assets assumption used for
pension expense was developed through analysis of historical market returns, current market conditions
and past experience of plan 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 stream. The plans’ expected cash flows
are then discounted by the resulting year-by-year spot rates. A 10% change in the discount rate 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,
2018

2017

2019

Supplemental Benefits for the
Years Ended September 30,
2019
2017
2018

Net periodic (benefits) costs:
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets. . . . . . . . . . .
Amortization of:

$ 5,778
(10,331)

$ 5,084
(10,736)

$ 4,892
(10,943)

$503
—

$ 544
—

$ 715
—

Prior service costs . . . . . . . . . . . . . . . . . . .
Actuarial loss. . . . . . . . . . . . . . . . . . . . . . . .

—
630

—
755

1
1,980

14
258

14
628

15
1,347

Total net periodic (benefits) costs. . . . . . . .

$ (3,923)

$ (4,897)

$ (4,070)

$775

$1,186

$2,077

The tax benefits in 2019, 2018 and 2017 for the amortization of pension costs in Other comprehensive
income (loss) were $221, $342 and $1,170, respectively.

The estimated net actuarial loss and prior service cost that will be amortized from AOCI into Net
periodic pension cost during 2020 is $4,167 and $14, respectively.

102

99014

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 net periodic (benefits) costs were as follows:

Defined Benefits for the Years
Ended September 30,
2018

2019

2017

Supplemental Benefits for the
Years Ended September 30,
2018

2017

2019

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on assets. . . . . . . . . . . . . . . . .

2.92% 4.10%
7.00% 7.00%

3.64%
7.25%

2.64%
—%

3.99% 3.18%
—%

—%

Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows:

Defined Benefits at
September 30,

Supplemental Benefits at
September 30,

2019

2018

2019

2018

Change in benefit obligation:
Benefit obligation at beginning of fiscal year . . . . . . . . . . . . . . $161,328 $174,337 $ 15,718
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
503
(1,942)
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,901
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,084
(10,531)
(7,562)

5,778
(10,790)
21,481

$ 32,627
544
(3,001)
(14,452)

Benefit obligation at end of fiscal year . . . . . . . . . . . . . . . . . . . .

177,797

161,328

16,180

15,718

Change in plan assets:
Fair value of plan assets at beginning of fiscal year. . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

150,680
2,606
3,114
(10,790)

150,822
7,940
2,449
(10,531)

—
—
1,942
(1,942)

Fair value of plan assets at end of fiscal year. . . . . . . . . . . . . .
—
Projected benefit obligation in excess of plan assets . . . . . . . $ (32,187) $ (10,648) $(16,180)

150,680

145,610

—
—
3,001
(3,001)

—
$(15,718)

Amounts recognized in the statement of financial position

consist of:

Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other liabilities (long-term) . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $

(32,187)

— $ (1,906)
(14,279)

(10,648)

$ (1,906)
(13,812)

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(32,187)

(10,648)

(16,185)

(15,718)

Net actuarial losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47,663
—
(17,098)

19,088
—
(6,103)

6,609
14
(2,374)

Total Accumulated other comprehensive loss, net of tax . .
4,249
Net amount recognized at September 30, . . . . . . . . . . . . . . . . . . $ (1,622) $ 2,337 $(11,936)

12,985

30,565

4,965
28
(1,597)

3,396

$(12,322)

Accumulated benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . $177,797 $161,328 $ 16,180

$ 15,718

Information for plans with accumulated benefit

obligations in excess of plan assets:

ABO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $177,797 $161,328 $ 16,180
16,180
PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161,328
150,680

177,797
145,610

$ 15,718
15,718
—

The weighted-average assumptions used in determining the benefit obligations were as follows:

Weighted average discount rate. . . . . . . . . . . . . . . . . . . . .

103

Defined Benefits at
September 30,

Supplemental
Benefits at
September 30,

2019

2.92%

2018

2019

4.10% 2.64%

2018

3.99%

90781

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

The actual and weighted-average asset allocation for qualified benefit plans were as follows:

Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

At September 30,
2019
2018

Target

1.9% 18.0%
—%
49.9% 68.5% 63.0%
29.4% 9.5% 37.0%
—%
18.8% 4.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0%

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:

For the years ending September 30,

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 through 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Defined
Benefits

$11,017
11,094
11,026
10,990
10,933
53,249

Supplemental
Benefits

$1,900
1,807
1,709
1,608
1,490
5,741

During 2020, Griffon expects to contribute $1,900 in payments related to Supplemental Benefits that
will be funded from the general assets of Griffon. Griffon expects to contribute $6,758 to the Defined
Benefit plan in 2020.

The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding
Target Attainment Percent for the plan as of January 1, 2019 was 91.3%. Since the plan was in excess of
the 80% funding threshold there were no plan restrictions. The expected level of 2020 catch up
contributions is $2,440.

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 1.

Equity securities—The fair values reflect the closing price reported on a major market where the
individual mutual fund securities are traded in equity securities. These investments are classified within
Level 1 of the valuation hierarchy.

Debt securities—The fair values are based on a compilation of primarily observable market information
or a broker quote in a non-active market where the individual mutual fund securities are invested in
debt securities. These investments are primarily classified within Level 1 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

104

00161

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

liabilities, and then divided by the number of shares outstanding. These investments are generally
classified within Level 2 or 3, as appropriate, 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 net asset values provided by
the underlying private investment companies as a practical expedient. 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, 2019

Cash and equivalents . . . . . . . . . . . . . . . . . . . . .
Government agency securities . . . . . . . . . . . .
Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Commingled funds . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships and hedge fund

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,791
27,408
182
72,517
—

—
1,348

$ —
—
—
—
8,776

—
—

Total

$ 2,791
37,416
3,178
72,517
8,776

18,569
2,072

$ —
10,008
2,996
—
—

18,569
724

$32,297

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$104,246

$8,776

$145,319

The following table represents level 3 significant unobservable inputs for the year ended September 30,
2019:

As of October 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases, issuances and settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Significant
Unobservable
Inputs
(Level 3)

$ —
7,695
1,081

$8,776

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

At September 30, 2018

Cash and equivalents . . . . . . . . . . . . . . . . . . . . .
Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Commingled funds . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships and hedge fund

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,209
14,269
41,042
—

—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$82,520

$ —
—
—
62,088

6,026

$68,114

$—
—
—
—

—

$—

Total

$ 27,209
14,269
41,042
62,088

6,026

$150,634

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 qualifying year of service (as defined in the plan).
individual accounts based on the proportion of each
Securities are allocated to participants’

105

94375

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

participant’s aggregate compensation (not to exceed $280 for the plan year ended September 30, 2019),
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 $2,630 in 2019, $9,532 in 2018, including an impact of
$2,588 from the April 2018 special dividend, and $5,643 in 2017. 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, 2019 and 2018 based on the closing stock
price of Griffon’s stock was $47,378 and $40,010, respectively. The ESOP shares were as follows:

Allocated shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,209,069
2,259,308
5,468,377

3,157,530
2,477,385
5,634,915

At September 30,
2019
2018

NOTE 12—INCOME TAXES

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

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

In accordance with U.S. GAAP for income taxes, as well as SAB 118, the Company made a reasonable
estimate of the impacts of the TCJA for the year ended September 30, 2018 and recorded a $20,587
benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of
deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense,
both of which have been reflected in the tax provision for 2018. SAB 118 allows for a measurement
period of up to one year from the date of enactment to complete the Company’s accounting for the
impacts of the TCJA. Our analysis under SAB 118 was completed in December 2018 and resulted in no
material adjustments to the provision amounts recorded as of September 30, 2018.

The TCJA requires companies to pay a one-time transition tax on mandatory deemed repatriation of
post-1986 undistributed foreign earnings and profits (“E&P”). The Company has recorded a provisional
transition tax charge of $13,100 net of foreign tax credits for fiscal year 2018. The Company ultimately
incurred a transition tax charge of $12,699. Under the TCJA, the Company elected to pay the transition
tax interest-free over eight years.

106

40883

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

The TCJA makes broad and complex changes to the U.S. tax code that affect our fiscal year ended
September 30, 2019, including but not limited to: (1) creating the base erosion anti-abuse tax measure
that taxes certain payments between a U.S. corporation and its foreign subsidiaries; (2) creating a new
provision designed to tax global intangible low-tax income (“GILTI”) of foreign subsidiaries; and (3) a
foreign derived intangible income. We have estimated the impact of these changes in our income tax
provision for 2019.

The GILTI provision of the TCJA requires the Company to include in its U.S. Income tax return
foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
An accounting policy election is available to account for the tax effects of GILTI either as a current
period expense when incurred, or to recognize deferred taxes for book and tax basis differences
expected to reverse as GILTI in future years. We have elected to account for the tax effects of GILTI
as a current period expense when incurred.

Income taxes have been based on the following components of Income before taxes from continuing
operations:

For the Years Ended September 30,
2018

2019

2017

Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$49,723
22,455
$72,178

$ 4,942
28,868
$33,810

$ (1,339)
18,037
$16,698

Provision (benefit) for income taxes on income was comprised of the following from continuing
operations:

For the Years Ended September 30,
2018

2019

2017

Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,778
(2,222)
$26,556

$14,160
6,187
6,209
$26,556

$ 18,188
(17,633)
555

$

$(12,714)
5,175
8,094
555

$

$(3,426)
2,341
$(1,085)

$(6,689)
3,307
2,297
$(1,085)

Griffon’s income tax provision from the excess tax benefits from vesting of equity awards to be
recognized within income tax expense in 2019 totaled $304, compared to income tax benefits in 2018
and 2017 of $1,299 and $4,440, respectively.

Griffon’s income tax provision included benefits of $576, $421 and $122 in 2019, 2018 and 2017,
respectively, reflecting the reversal of previously recorded tax liabilities including the resolution of
various tax audits and the closing of certain statutes for prior years’ tax returns.

107

91044

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

Differences between the effective income tax rate applied to Income and the U.S. Federal income
statutory rate from continuing operations were as follows:

For the Years Ended
September 30,
2018

2017

2019

U.S. Federal income tax provision (benefit) rate . . . . . .
State and local taxes, net of Federal benefit. . . . . . . . . . .
Non-U.S. taxes—foreign permanent items and taxes. . .
Non-U.S. tax true-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in domestic manufacturing deduction . . . . . . . . .
Change in tax contingency reserves . . . . . . . . . . . . . . . . . . .
Impact of federal rate change on deferred tax

balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax Reform-Repatriation of Foreign Earnings and

GILTI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
Other non-deductible/non-taxable items, net. . . . . . . . . . .
Non-deductible officer’s compensation. . . . . . . . . . . . . . . . .
Research and U.S. foreign tax credits . . . . . . . . . . . . . . . . .
Share based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax provision (benefit) rate. . . . . . . . . . . . . .

21.0% 24.5% 35.0%
6.6% 10.2% 12.4%
3.6% (12.4)%
2.0%
—% (11.4)%
—%
—% (5.8)%
0.7%
(0.7)% (0.6)% 0.7%

—% (60.0)%

—%

—%
1.0% 61.6%
3.3% 13.4% (0.6)%
3.1% (5.2)% 7.6%
5.2%
0.7%
6.4%
(4.7)% (39.4)% (3.6)%
0.4% (3.8)% (26.6)%
(1.1)% (9.1)% (2.5)%
1.6% (6.5)%
36.8%

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carryback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reserves and accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:

At September 30,
2019
2018

$ 1,980
8,361

$ 1,404
7,709

16,544
5,186
1,873
2,896
11,077
9,373
2,000
5,250
3,738
68,278
(10,823)

57,455

11,437
5,434
1,782
2,598
10,593
6,379
—
—
5,433
52,769
(8,520)

44,249

Goodwill and intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(42,477)
(43,996)
(1,096)

(44,402)
(39,260)
(1,086)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(87,569)

(84,748)

Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(30,114) $(40,499)

108

00670

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

In 2019, the increase in the valuation allowance of $2,302 is primarily the result of the generation and
usage or non-usage of Foreign Tax Credit generated during the year.

The components of the net deferred tax liability, by balance sheet account, were as follows:

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .

$
137
(31,141)
890

$
61
(42,689)
2,129

Net deferred liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(30,114) $(40,499)

At September 30,
2019
2018

At both September 30, 2019 and 2018, Griffon has a policy election to indefinitely reinvest the
undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30,
2019, we have approximately $83,002 of unremitted earnings of non-U.S. subsidiaries. The Company
generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned
to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any
estimated withholding tax on remittance of those earnings is expected to be immaterial to the income
tax provision.

At September 30, 2019 and 2018, Griffon had loss carryforwards for U.S. tax purposes of $5,419 and
$6,089, respectively, and non-U.S. tax purposes of $7,413 and $7,319, respectively. The U.S. losses
expire beginning in 2033. The non-U.S. loss carryforwards are available for carryforward indefinitely.

At September 30, 2019, Griffon had interest expense carryforwards for U.S. tax purposes of $25,000.
This carryforward is available for carryforward indefinitely.

At September 30, 2019 and 2018, Griffon had state and local loss carryforwards of $127,354 and
$124,442, respectively, which expire in varying amounts through 2039.

At September 30, 2019 and 2018, Griffon had federal tax credit carryforwards of $8,948 and $5,740,
respectively, which expire in varying amounts through 2035.

At September 30, 2019, Griffon had capital
carryover is available for three-year carryback or five-year carryforward.

loss carryover for U.S. tax purposes of $9,524. The

We believe it is more likely than not that the benefit from certain federal tax credits, state net operating
losses and credits, and foreign net operating losses will not be realized. In recognition of this risk, we
have provided a valuation allowance as of September 30, 2019 and 2018 of $10,823 and $8,520,
respectively, on the deferred tax assets relating to these federal credits, state net operating loss
carryforwards and credits, and foreign net operating losses. If our assumptions change and we
determine we will be able to realize these federal credits, state net operating loss carryforwards or
credits, or foreign net operating losses, the benefits relating to the reversal of the valuation allowance
will be recognized as a reduction of income tax expense.

If certain substantial changes in Griffon’s ownership occur, there would be an annual limitation on the
amount of carryforward(s) that can be utilized.

Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia,
U.K. and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject
to income tax examination for years before 2014. Griffon’s major U.S. state and other non-U.S.
jurisdictions are no longer subject to income tax examinations for years before 2012. Various U.S. state
and non-U.S. statutory tax audits are currently underway.

109

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

The following is a roll forward of unrecognized tax benefits:

Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . .
Additions based on tax positions related to prior years. . . . . . . . . . . . . . . . . . . . .
Reductions based on tax positions related to prior years . . . . . . . . . . . . . . . . . . .
Lapse of Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . .
Additions based on tax positions related to prior years. . . . . . . . . . . . . . . . . . . . .
Lapse of Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,825
152
(253)
26
(194)
(37)

4,519
117
(559)
(16)

Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,061

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $790.
Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in
income tax expense. At September 30, 2019 and 2018, 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 $66 and $122, 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

During 2019, 2018 and 2017, the Company declared and paid cash dividends totaling $0.29 per share,
$0.28 per share and $0.24 per share, respectively. In addition, on March 7, 2018, the Board of Directors
declared a special cash dividend of $1.00 per share, totaling $38,073 and paid on April 16, 2018 to
shareholders of record as of the close of business on March 29, 2018. The Company currently intends to
pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at
its discretion based on various factors, and no assurance can be provided as to the payment of future
dividends. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and
recorded as a reduction of debt service payments and compensation expense. A dividend payable was
established for the holders of restricted shares; such dividends will be released upon vesting of the
underlying restricted shares. In March 2019, the ESOP Term Loan was refinanced with a loan from
Griffon which was funded with cash and a draw on its $350,000 credit facility; dividends paid on
allocated shares in the ESOP are allocated to participant accounts in the form of additional shares.

On November 13, 2019, the Board of Directors declared a cash dividend of $0.075 per share, payable on
December 19, 2019 to shareholders of record as of the close of business on November 27, 2019.

On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan
(“Incentive Plan”) under which awards of performance shares, performance units, stock options, stock
appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based
awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the
Incentive Plan pursuant which, among other things, added 1,000,000 shares to the Incentive Plan.
Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock
options, generally expire ten years after the date of grant and are granted at an exercise price of not less
than 100% of the fair market value at the date of grant. The maximum number of shares of common
stock available for award under the Incentive Plan is 3,350,000 (600,000 of which may be issued as
incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan

110

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such
effective date under the 2011 Incentive Plan that are canceled or forfeited. As of September 30, 2019,
270,937 shares were available for grant.

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

Compensation expense for restricted stock and restricted stock units (“RSUs”) is recognized ratably
over the required service period based on the fair value of the grant, calculated as the number of shares
(or RSUs) granted multiplied by the stock price on date of grant, and for performance shares (or
performance RSUs), the likelihood of achieving the performance criteria. Compensation cost related to
stock-based awards with graded vesting, generally over a period of three to four years, is recognized
using the straight-line attribution method and recorded within Selling, general and administrative
expenses. The following table summarizes the Company’s compensation expense relating to all stock-
based incentive plans:

For the Years Ended September 30,
2018

2019

2017

Pre-tax compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense, net of tax . .

$13,285
(2,115)
$11,170

$10,078
(2,036)
$ 8,042

$ 8,090
(2,836)
$ 5,254

As of ended September 30, 2018 and 2017, a stock option to purchase 350,000 shares was outstanding
and exercisable at a weighted average exercise price of $20.00. This option expired on October 1, 2018.

A summary of restricted stock activity, inclusive of restricted stock units, for 2019 is as follows:

Unvested at September 30, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at September 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted
Average
Grant-Date
Fair Value

$14.89
10.11
13.15
17.18

12.96

Shares

2,849,828
1,262,270
(361,152)
(37,373)

3,713,573

The fair value of restricted stock which vested during 2019, 2018, and 2017 was $4,748, $11,216 and
$29,508, respectively.

Unrecognized compensation expense related to non-vested shares of restricted stock was $20,358 at
September 30, 2019 and will be recognized over a weighted average vesting period of 1.9 years.

At September 30, 2019, a total of approximately 3,984,510 shares of Griffon’s authorized Common
Stock were reserved for issuance in connection with stock compensation plans.

During 2019, Griffon granted 1,262,270 shares of restricted stock and restricted stock units. This
included 734,270 shares of restricted stock and restricted stock units, subject to certain performance
conditions, with vesting periods of three years, with a total fair value of $9,185, or a weighted average
fair value of $12.51 per share. Also, this included 528,000 shares of restricted stock granted to two
senior executives with a vesting period of four years and a two year post-vesting holding period, subject
to the achievement of certain absolute and relative performance conditions relating to the price of
Griffon’s common stock. The Monte Carlo Simulation model was chosen to value the two senior

111

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

executive awards; the total fair value of these restricted shares is approximately $3,576, or a weighted
average fair value of $6.77. So long as the minimum performance condition is attained, the amount of
shares that can vest will range from 384,000 to 528,000.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase
of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the
Company may purchase shares of its common stock, depending upon market conditions, in open market
or privately negotiated transactions,
including pursuant to a 10b5-1 plan. Shares repurchased are
recorded at cost. During 2019, Griffon purchased 37,500 shares of common stock under these
repurchase programs, for a total of $372 or $9.92 per share. At September 30, 2019 an aggregate of
$57,955 remains under Griffon’s Board authorized repurchase authorizations.

In addition to the repurchases under Board authorized programs, during 2019, 85,847 shares, with a
market value of $1,059, or $12.34 per share, were withheld to settle employee taxes due upon the
vesting of restricted stock, and were added to treasury stock. Furthermore, during 2019, an additional
3,861 shares, with a market value of $47, or $12.16 per share, were withheld from common stock issued
upon the vesting of restricted stock units to settle employee taxes due upon vesting.

On June 19, 2018, GS Direct, L.L.C., an affiliate of Goldman Sachs & Co., completed an underwritten
secondary offering to sell 5,583,375 shares of Griffon’s common stock, inclusive of the underwriters’
30-day option to purchase additional shares. GS Direct’s original 10,000,000 share investment was in
2008; following the closing of the offering, GS Direct no longer owns any shares of Griffon.

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

During 2017, Griffon’s ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54
per share, under a borrowing line that has now been fully utilized and converted to a loan.

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 $37,068, $35,726 and $26,297 in 2019, 2018 and 2017,
respectively. Aggregate future minimum lease payments for operating leases at September 30, 2019 are
$35,176 in 2020, $30,730 in 2021, $26,119 in 2022, $20,008 in 2023, $14,198 in 2024 and $78,105
thereafter.

Purchase Commitments

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. Amounts purchased under such commitments were $226,026, $209,924 and $213,674 for the years
ended September 30, 2019, 2018 and 2017, respectively. Purchase obligations that extend beyond 2019
are principally related to long-term contracts received from customers of Telephonics. Aggregate future

112

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

minimum purchase obligations at September 30, 2019 are $239,365 in 2020, $2,045 in 2021, $42 in 2022,
$15 in 2023 and $0 in 2024.

Legal and environmental

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

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

investigations,

In April 2009, the DEC advised ISCP that both the DEC and the New York State Department of
Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional
Data Collection Summary Report dated January 30, 2009. ISCP submitted to the DEC a draft
Feasibility Study which was accepted and approved by the DEC in February 2011. ISCP satisfied its
obligations under the Consent Order when DEC approved the Remedial Investigation and Feasibility
Study for the Peekskill Site. In June, 2011 the DEC issued a Remedial Action Plan for the Peekskill
Site that set forth the specific remedies selected and responded to public comments. The approximate
cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $10,000.

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

In August 2018, the DEC sent a letter to the United States Environmental Protection Agency (the
“EPA”), in which the DEC requested that the Peekskill Site be nominated by the EPA for inclusion on
the National Priorities List (the “NPL”). Based on DEC’s request and on an analysis by a consultant
retained by the EPA, on May 15, 2019 the EPA added the Peekskill Site to the NPL under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
(“CERCLA”).

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

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

Improper Advertisement Claim involving Union Tools® Products. Beginning in December 2004, a
customer of AMES had been named in various litigation matters relating to certain Union Tools
products. The plaintiffs in those litigation matters asserted causes of action against the customer of
AMES for improper advertisement to end consumers. The allegations suggested that advertisements led
the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of

113

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

the United States. The complaints asserted various causes of action against the customer of AMES
under federal and state law, including common law fraud. At some point, the customer may seek
indemnity (including recovery of its legal fees and costs) against AMES for an unspecified amount.
Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse
against AMES.

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

U.S. Government investigations and claims

Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit
and review by various agencies and instrumentalities of the United States government, including among
others, the Defense Contract Audit Agency, the Defense Criminal Investigative Service, and the
Department of Justice which has responsibility for asserting claims on behalf of the U.S. Government.

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

General legal

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

114

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 15—EARNINGS PER SHARE

Basic and diluted EPS for 2019, 2018 and 2017 were determined using the following information (in
thousands):

2019

2018

2017

Weighted average shares outstanding—basic. . . . . . . . . . . . . .
Incremental shares from stock based compensation. . . . . . .
Convertible debt due 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

40,934
1,954
—

41,005
1,417
—

41,005
1,642
364

Weighted average shares outstanding—diluted. . . . . . . . . . . .

42,888

42,422

43,011

Anti-dilutive options excluded from diluted EPS

computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in
determining earnings per share.

NOTE 16—RELATED PARTIES

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

On September 5, 2017, Griffon entered into an engagement letter with Goldman Sachs pursuant to
which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the exploration of
strategic alternatives for Plastics. On November 15, 2017, Griffon signed an agreement to sell Plastics
for approximately $465,000 to Berry. Under the terms of the engagement letter, upon the closing of the
transaction a customary advisory fee was paid by Griffon to Goldman Sachs.

Goldman Sachs acted as a joint lead manager and as an initial purchaser in connection with Griffon’s
add-on offering of $275,000 aggregate principal amount of 5.25% senior notes due 2022 that closed on
October 2, 2017, and received a customary fee upon closing of the offering.

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

115

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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 continuing operations for 2019 and 2018 were as follows:

Quarter ended

Revenue

Gross Profit

Income from
continuing
operations

Per Share
—Basic

Per Share
—Diluted

2019
December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . .

2018
December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . .

$ 510,522
549,633
574,970
574,164

$143,046
137,504
154,483
160,236

$2,209,289

$595,269

$ 437,303
478,560
516,550
545,505

$120,779
121,379
138,682
148,341

$1,977,918

$529,181

$ 8,753
6,490
14,128
16,251

$45,622

$22,831
1,951
7,442
1,031

$33,255

$0.21
0.16
0.34
0.40

$1.11

$0.54
0.05
0.18
0.03

$0.81

$0.21
0.15
0.33
0.37

$1.06

$0.53
0.05
0.18
0.02

$0.78

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.

• 2019 Net income, and the related per share earnings, included, net of tax, a benefit from the
reversal of contingent consideration related to the Kelkay acquisition of $1,333 for the fourth
quarter.

• 2018 Net income, and the related per share earnings, included, net of tax, acquisition related
costs of $2,348, $378, $2,320 for the first, second and third quarters, respectively, a cost of life
insurance benefit of $248 for the first quarter, special dividend ESOP charges of $2,125 for the
third quarter, and secondary equity offering costs of $795 for the third quarter.

NOTE 18—REPORTABLE SEGMENTS

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide
investors with improved visibility after a series of portfolio repositioning actions which included the
divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into
AMES, and the acquisition of CornellCookson by Clopay. The prior year amounts have been recast to
reflect the change in the reporting segments in the current year. Griffon now reports it operations
through three reportable segments from continuing operations, as follows:

• Consumer and Professional Products (“CPP”) conducts its operations through AMES. Founded
in 1774, AMES is the leading North American manufacturer and a global provider of branded
consumer and professional tools and products for home storage and organization, landscaping,
and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading
brands including True Temper, AMES, and ClosetMaid.

• Home and Building Products (“HBP”) conducts its operations through Clopay. Founded in 1964,
Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North

116

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GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

America. Residential and commercial sectional garage doors are sold through professional
dealers and leading home center retail chains throughout North America under the brands
Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial,
industrial, institutional, and retail use are sold under the CornellCookson brand.

• Defense Electronics conducts its operations through Telephonics Corporation (“Telephonics”),
founded in 1933, a globally recognized leading provider of highly sophisticated intelligence,
surveillance and communications solutions for defense, aerospace and commercial customers.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Plastics and on
February 6, 2018, completed the sale to Berry for $465,000, net of certain post-closing adjustments. As a
result, Griffon classified the results of operations of the Plastics business as discontinued operations in
the Consolidated Statements of Operations for all periods presented and classified the related assets
and liabilities associated with the discontinued operations in the consolidated balance sheets. All results
and information presented exclude Plastics unless otherwise noted. See Note 7, Discontinued
Operations to the Notes of the Financial Statements.

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

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

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

For the Years Ended September 30,
2019
2017
2018

Revenue

Consumer and Professional Products . . . . .
Home and Building Products . . . . . . . . . . . .
Defense Electronics . . . . . . . . . . . . . . . . . . . . . .
Total consolidated net sales . . . . . . . . . . . . . . . . . .

$1,000,608
873,640
335,041
$2,209,289

$ 953,612
697,969
326,337
$1,977,918

$ 545,269
568,001
411,727
$1,524,997

Griffon evaluates performance and allocates resources based on each segment’s operating results from
continuing operations before interest income and expense, income taxes, depreciation and amortization,
unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment
and acquisition related expenses, as well as other items that may affect comparability, as applicable
(“Segment Adjusted EBITDA”).

117

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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 before taxes
and discontinued operations:

For the Years Ended September 30,
2018

2019

2017

Segment Adjusted EBITDA:

Consumer and Professional Products . . . . . . . . . .
Home and Building Products. . . . . . . . . . . . . . . . . .
Defense Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . .
Unallocated amounts, excluding depreciation . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . .
Acquisition contingent consideration. . . . . . . . . . . . . . .
Acquisition costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special dividend charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of life insurance benefit . . . . . . . . . . . . . . . . . . . . . .
Secondary equity offering costs . . . . . . . . . . . . . . . . . . . .
Contract settlement charges . . . . . . . . . . . . . . . . . . . . . . .

$ 90,677
120,161
35,104
245,942
(46,302)
(67,260)
(61,848)
1,646
—
—
—
—
—

$ 77,061
100,339
36,063
213,463
(45,343)
(63,871)
(55,803)
—
(7,597)
(3,220)
(2,614)
(1,205)
—

$ 45,002
81,764
45,931
172,697
(41,918)
(51,449)
(47,878)
—
(9,617)
—
—
—
(5,137)

Income before taxes from continuing operations. . .

$ 72,178

$ 33,810

$ 16,698

For the Years Ended September 30,
2018

2019

2017

Depreciation and Amortization
Segment:

Consumer and Professional Products . . . . . . . . . . .
Home and Building Products . . . . . . . . . . . . . . . . . . .
Defense Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total segment depreciation and amortization . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consolidated depreciation and amortization . . .

$32,289
18,334
10,667

61,290
558
$61,848

$30,816
13,717
10,801

55,334
469
$55,803

$25,207
11,340
10,851

47,398
480
$47,878

Capital Expenditures
Segment:

Consumer and Professional Products . . . . . . . . . . .
Home and Building Products . . . . . . . . . . . . . . . . . . .
Defense Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,828
16,498
10,492
44,818
543

$23,040
13,547
10,941
47,528
2,610

$14,259
10,217
8,204
32,680
2,257

Total consolidated capital expenditures . . . . . . . . . . . . .

$45,361

$50,138

$34,937

118

73382

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

At September 30,
2019

At September 30,
2018

At September 30,
2017

Assets
Segment assets:

Consumer and Professional

Products . . . . . . . . . . . . . . . . . . . . .
Home and Building Products. . .
Defense Electronics . . . . . . . . . . . .

Total segment assets . . . . . . . . . . . . . . . .
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total continuing assets. . . . . . . . . . . . . .
Assets of discontinued operations. . .

$1,070,510
571,216
347,575

1,989,301
82,429
2,071,730
3,209

$1,221,143
410,488
346,907

1,978,538
103,112
2,081,650
3,240

$ 879,452
204,651
343,445

1,427,548
71,980
1,499,528
374,013

Consolidated total . . . . . . . . . . . . . . . . . .

$2,074,939

$2,084,890

$1,873,541

Disaggregation of Revenue

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

For the Year Ended
September 30, 2019

Residential repair and remodel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential new construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International excluding North America . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consumer and Professional Products . . . . . . . . . . . . . . . . . . . . . .
Residential repair and remodel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential new construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Home and Building Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Defense Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 140,369
528,279
58,709
45,129
228,122

1,000,608
439,287
335,339
99,014

873,640
211,405
105,705
17,931

335,041
$2,209,289

119

08630

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

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

For the Year Ended September 30, 2019

Consumer and
Professional
Products

Home and
Building
Products

Defense
Electronics

Total

Revenue by Geographic Area—Destination

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 690,772
63,284
72,327
165,291
8,934
$1,000,608

$820,396
109
39,472
16
13,647
$873,640

$226,095
36,915
10,568
3,712
57,751
$335,041

$1,737,263
100,308
122,367
169,019
80,332
$2,209,289

Segment information by geographic region for 2018 and 2017 was as follows:

For the Years Ended
September 30,

2018

2017

Revenue by Geographic Area—Destination

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,521,187
102,814
123,341
166,980
63,596
$1,977,918

$1,164,958
67,048
106,080
124,757
62,154
$1,524,997

For the Years Ended September 30,
2018

2019

2017

Long-Lived Assets by Geographic Area

United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated long-lived assets, net . . . . . . . . . . . . . . . . . . . . . . . . . .

$576,930
32,013
30,228
46,550
6,876
1,368
$693,965

$612,294
33,884
33,288
24,892
7,017
1,975
$713,350

$358,795
36,383
35,917
4,144
—
2,023
$437,262

As a percentage of consolidated revenue from continuing operations, CPP sales to The Home Depot
approximated 28% in 2019, 29% in 2018 and 28% in 2017; HBP sales to The Home Depot
approximated 13% in 2019, 16% in 2018, and 18% in 2017; and Defense Electronics aggregate sales to
the United States Government and its agencies approximated 10% in both 2019 and 2018, and 18% in
2017.

NOTE 19—OTHER INCOME (EXPENSE)

Other income (expense) included $608, ($200) and $(723) for 2019, 2018 and 2017, 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
$(40), $1,184 and $53, respectively, of investment income.

120

55028

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 20—OTHER COMPREHENSIVE INCOME (LOSS)

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

2019

Years Ended September 30,
2018

2017

Pre-tax

Tax

Net of
tax

Pre-tax

Tax

Net of
tax

Pre-tax

Tax

Net of
tax

Foreign currency
translation
adjustments. . . . . . . $ (8,460) $ — $ (8,460) $ 9,403 $ — $ 9,403 $10,667 $ — $10,667

Pension and other
defined benefit
plans . . . . . . . . . . . . .
Cash flow hedge . . . .

Total other

(30,581) 7,526
124

(413)

(23,055) 24,081
900

(289)

(7,700) 16,381
585

(315)

14,160
1,370

(4,957)
(480)

9,203
890

comprehensive
income (loss) . . . . . $(39,454) $7,650 $(31,804) $34,384 $(8,015) $26,369 $26,197 $(5,437) $20,760

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

Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other defined benefit plans . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(34,814)
182

$(31,284) $(22,824)
(11,759)
471
$(65,916) $(34,112)

At September 30,
2019
2018

Total comprehensive income (loss) were as follows:

For the Years Ended September 30,
2018

2019

2017

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of taxes. . . .

$ 37,287
(31,804)

$125,678
26,369

$14,912
20,760

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . .

$ 5,483

$152,047

$35,672

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

For the Years Ended September 30,
2018

2019

2017

Gain (Loss)
Pension amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (902)
1,932

1,030
(216)
$ 814

$(1,397)
657

(740)
155
$ (585)

$(3,343)
(1,458)

(4,801)
1,680
$(3,121)

121

09348

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 21—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 Corporation, Telephonics Corporation, The AMES
Companies, Inc., ATT Southern LLC, Clopay Ames Holding Corp., ClosetMaid, LLC, CornellCookson,
LLC and Cornell Real Estate Holdings, LLC. all of which are indirectly 100% owned by Griffon. In
accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented
below are condensed consolidating financial information as of September 30, 2019 and 2018, and for the
years ended September 30, 2019, 2018 and 2017. 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.

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

122

86173

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, 2019

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

CURRENT ASSETS

Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net of allowances . . . . . . . .
Contract costs and recognized income not yet
billed, net of progress payments . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets. . . . . . . . . . . . . . .
Assets of discontinued operations. . . . . . . . . . . . . .

—
—
8,238
—

Total Current Assets . . . . . . . . . . . . . . . . . . . . . .
PROPERTY, PLANT AND EQUIPMENT, net . . .
GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTANGIBLE ASSETS, net. . . . . . . . . . . . . . . . . . . . . . .
INTERCOMPANY RECEIVABLE . . . . . . . . . . . . . . .
EQUITY INVESTMENTS IN SUBSIDIARIES . . .
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASSETS OF DISCONTINUED OPERATIONS. . .

9,887
1,184
—
93
5,834
1,628,031
8,182
—

1,649 $
—

25,217 $
227,069

45,511 $
38,580

— $

(1,199)

72,377
264,450

104,109
372,839
25,754
—

754,988
289,282
375,734
224,275
864,884
581,438
24,635
—

1,002
69,540
6,951
321

—
(258)
(144)
—

161,905
46,860
61,333
132,271
75,684
3,233,038
(2,352)
2,888

(1,601)
—
—
—
(946,402)
(5,442,507)
(14,625)
—

105,111
442,121
40,799
321

925,179
337,326
437,067
356,639
—
—
15,840
2,888

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,653,211 $3,115,236 $3,711,627 $(6,405,135) $2,074,939

CURRENT LIABILITIES

Notes payable and current portion of long-

term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

— $

3,075 $

Accounts payable and accrued liabilities . . . . . . .
Liabilities of discontinued operations . . . . . . . . . .

Total Current Liabilities . . . . . . . . . . . . . . . . . .
LONG-TERM DEBT, net . . . . . . . . . . . . . . . . . . . . . . . . .
INTERCOMPANY PAYABLES . . . . . . . . . . . . . . . . . .
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES OF DISCONTINUED

OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41,796
—

41,796
1,040,449
71,634
21,569

266,411
—

269,486
3,119
457,265
81,582

7,450 $
68,390
4,333

— $

(1,356)
—

10,525
375,241
4,333

80,173
50,181
444,557
15,017

(1,356)

390,099
— 1,093,749
—
109,997

(973,456)
(8,171)

—

—

3,331

—

3,331

Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . .

1,175,448
477,763

811,452
2,303,784

593,259
3,118,368

(982,983)
(5,422,152)

1,597,176
477,763

Total Liabilities and Shareholders’ Equity . . . . . $1,653,211 $3,115,236 $3,711,627 $(6,405,135) $2,074,939

123

57005

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, 2018

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

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

$

15,976 $
—

16,353 $
234,885

37,429 $
69,729

— $

(24,105)

—
—
12,179
—

28,155
936
6,646
93
56,396
1,528,932
8,651
—

121,393
332,067
21,313
—

726,011
299,920
361,507
293,093
314,394
968,330
15,942
—

410
66,373
6,168
324

180,433
41,636
71,242
77,672
(121,445)
3,347,894
374
2,916

—
(81)
2,461
—

(21,725)
—
—
—
(249,345)
(5,845,156)
(8,612)
—

69,758
280,509

121,803
398,359
42,121
324

912,874
342,492
439,395
370,858
—
—
16,355
2,916

Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,629,809 $2,979,197

$3,600,722

$(6,124,838)

$2,084,890

CURRENT LIABILITIES

Notes payable and current portion of long-

term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . .
Liabilities of discontinued operations. . . . . . . .

$

2,276 $
26,639
—

Total Current Liabilities . . . . . . . . . . . . . . . .
LONG-TERM DEBT, net. . . . . . . . . . . . . . . . . . . . . . .
INTERCOMPANY PAYABLES. . . . . . . . . . . . . . . .
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES OF DISCONTINUED

OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28,915
1,044,071
66,058
16,374

3,398 $

303,154
(22,327)

284,225
6,110
(77,760)
73,391

7,337
59,531
29,537

96,405
57,890
263,227
20,592

$

— $

(16,474)
—

13,011
372,850
7,210

(16,474)

393,071
— 1,108,071
—
106,710

(251,525)
(3,647)

—

—

2,647

—

2,647

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . .

1,155,418
474,391

285,966
2,693,231

440,761
3,159,961

(271,646)
(5,853,192)

1,610,499
474,391

Total Liabilities and Shareholders’ Equity . .

$1,629,809 $2,979,197

$3,600,722

$(6,124,838)

$2,084,890

124

23633

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, 2019

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods and services. . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . .

— $1,808,824 $437,542 $ (37,077) $2,209,289
1,614,020
— 1,341,868
595,269
— 466,956
460,004
340,147

(38,555)
1,478
(370)

310,707
126,835
97,661

22,566

Income (loss) from operations. . . . . . . . . . . . .

(22,566)

126,809

29,174

1,848

135,265

Other income (expense)

Interest income (expense), net . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(27,883)
(778)

(39,288)
(16,653)

Total other income (expense). . . . . . . . .

(28,661)

(55,941)

Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . .

(51,227)
(7,425)

Income (loss) before equity in net income of

subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of subsidiaries. . . . .
Income (loss) from continuing operations . . . . . .
Income from operations of discontinued

businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) from income taxes. . . . .
Income (loss) from discontinued operations. . . .

(43,802)
81,089
37,287

—
—
—

(89)
23,452

23,363

52,537
13,447

—
(1,848)

(1,848)

—
—

39,090
50,334
89,424

—
(175,726)
(175,726)

70,868
20,534

50,334
44,303
94,637

— (11,050)
— (2,715)
— (8,335)

—
—
—

(67,260)
4,173

(63,087)

72,178
26,556

45,622
—
45,622

(11,050)
(2,715)
(8,335)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,287 $

94,637 $ 81,089 $(175,726) $

37,287

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . $ 5,483 $

87,851 $ 87,875 $(175,726) $

5,483

125

51480

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, 2018

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods and services . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .

— $1,638,792 $ 367,149 $ (28,023) $1,977,918
1,448,737
— 1,232,398
529,181
— 406,394
436,380
308,338

(29,348)
1,325
(370)

245,687
121,462
90,872

37,540

Income (loss) from operations . . . . . . . . . . . .

(37,540)

98,056

30,590

1,695

92,801

Other income (expense)

Interest income (expense), net. . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(23,911)
(7,666)

(31,913)
125,531

(8,047)
(111,248)

Total other income (expense) . . . . . . . .

(31,577)

93,618

(119,295)

Income (loss) before taxes . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . .

(69,117)
(17,692)

191,674
9,546

(88,705)
8,743

—
(1,737)

(1,737)

(42)
(42)

Income (loss) before equity in net income of

subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of subsidiaries . . . .
Income (loss) from continuing operations . . . . .

Income (loss) from operations of

discontinued businesses. . . . . . . . . . . . . . . . .
Provision (benefit) from income taxes . . . .
Income (loss) from discontinued operations . . .

(51,425)
177,103
125,678

182,128
(151,864)
30,264

(97,448)
182,128
84,680

—
(207,367)
(207,367)

— 119,981
27,558
—
92,423
—

—
—
—

—
—
—

(63,871)
4,880

(58,991)

33,810
555

33,255
—
33,255

119,981
27,558
92,423

Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,678 $ 122,687 $ 84,680 $(207,367) $ 125,678

Comprehensive income (loss) . . . . . . . . . . . . . . . . . $152,047 $ 143,936 $ 81,389 $(225,325) $ 152,047

126

64621

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, 2017

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods and services. . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . .

— $1,284,189 $270,520
181,634
—
88,886
—
64,465
40,231

966,283
317,906
236,766

$(29,712) $1,524,997
1,116,871
408,126
341,092

(31,046)
1,334
(370)

Income (loss) from operations . . . . . . . . . . .

(40,231)

81,140

24,421

1,704

67,034

Other income (expense)

Interest income (expense), net . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13,804)
(1,983)

(24,242)
5,431

(13,403)
(631)

Total other income (expense) . . . . . . .

(15,787)

(18,811)

(14,034)

—
(1,704)

(1,704)

(51,449)
1,113

(50,336)

Income (loss) before taxes from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . .

Income (loss) before equity in net income of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of subsidiaries. . . .

Income (loss) from continuing operations. . . . .
Income from operations of discontinued

businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) from income taxes . . . . . . . .

Loss from discontinued operations. . . . . . . . . . . .

(56,018)
(11,338)

62,329
24,560

10,387
(14,307)

—
—

(44,680)
59,592

14,912

37,769
(25,231)

12,538

—
—

—

16,827
4,476

12,351

24,694
37,770

62,464

5,449
20,671

(15,222)

—
(72,131)

(72,131)

—
—

—

16,698
(1,085)

17,783
—

17,783

22,276
25,147

(2,871)

Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,912 $

24,889 $ 47,242

$(72,131) $

14,912

Comprehensive income (loss) . . . . . . . . . . . . . . . . . $ 35,672 $

35,575 $ 38,337

$(73,912) $

35,672

127

03444

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, 2019

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .

$ 37,287

$ 94,637

$ 81,089

$(175,726)

$ 37,287

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies

Elimination

Consolidation

Net (income) loss from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating

—

—

8,335

activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,159

41,992

29,807

CASH FLOWS FROM INVESTING

ACTIVITIES:

Acquisition of property, plant and

equipment . . . . . . . . . . . . . . . . . . . . . . . . .

Acquired business, net of cash

acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business. . . . . . .
Insurance proceeds . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . .
Investment purchases . . . . . . . . . . . . . . . .

Net cash used in investing

activities. . . . . . . . . . . . . . . . . . . . . . . . .

CASH FLOWS FROM FINANCING

ACTIVITIES:

(542)

(38,872)

(5,947)

(9,219)
(9,500)
(10,604)
—
(149)

—
—
—
254
—

—
—
—
26
—

(30,014)

(38,618)

(5,921)

Purchase of shares for treasury . . . . . .
Proceeds from long-term debt . . . . . . .
Payments of long-term debt . . . . . . . . .
Change in short-term borrowings . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs. . . . . . . . . . . . . . . . . . . . .
Dividends paid. . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)

financing activities. . . . . . . . . . . . . . .

(1,478)
163,297
(173,345)
—
(1,090)
—
(13,676)
(180)

—
—
(2,973)
(366)
—
—
—
8,830

—
38,451
(41,930)
—
—
(1,686)
—
(8,830)

(26,472)

5,491

(13,995)

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 . . . . . . . .

CASH AND EQUIVALENTS AT

—

—

—

(1)

(2,123)

314

(14,327)

8,864

8,082

BEGINNING OF PERIOD . . . . . . . . . . .

15,976

16,353

37,429

—

—

—

—
—
—
—
—

—

—
—
—
—
—
—
—
—

—

—

—

—

—

8,335

113,958

(45,361)

(9,219)
(9,500)
(10,604)
280
(149)

(74,553)

(1,478)
201,748
(218,248)
(366)
(1,090)
(1,686)
(13,676)
(180)

(34,976)

(2,123)

313

2,619

69,758

CASH AND EQUIVALENTS AT END
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . .

$

1,649

$ 25,217

$ 45,511

$

— $ 72,377

128

36255

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, 2018

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies Elimination Consolidation

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 125,678

$ 122,687

$ 84,680

$(207,367) $ 125,678

Net (income) loss from discontinued

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in)

— (92,423)

—

—

(92,423)

operating activities . . . . . . . . . . . . . . . . . .

381,417

(405,174)

108,981

(27,032)

58,192

CASH FLOWS FROM INVESTING

ACTIVITIES:

Acquisition of property, plant and

equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquired business, net of cash

acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business . . . . . . . .
Insurance proceeds (payments) . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . .

Net cash provided by (used in)

investing activities. . . . . . . . . . . . . . . . .

CASH FLOWS FROM FINANCING

ACTIVITIES:

(544)

(41,531)

(8,063)

—

(50,138)

(368,936)

(4,843)
— 474,727
—
62

8,254
—

(57,153)
—
—
601

— (430,932)
474,727
—
8,254
—
663
—

(361,226)

428,415

(64,615)

—

2,574

Purchase of shares for treasury . . . . . . . .
Proceeds from long-term debt . . . . . . . . .
Payments of long-term debt . . . . . . . . . . .
Change in short-term borrowings . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(45,605)
411,623
(269,478)
—
(7,793)
(49,797)
(46,405)

—
2,125
(5,403)
144
—
—
4,733

—
29,310
(26,112)
—
—
—
14,691

(45,605)
—
—
443,058
— (300,993)
—
144
(7,793)
—
(49,797)
—
51
27,032

(7,455)

1,599

17,889

27,032

39,065

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 IN CASH AND

— (16,394)

(62,533)

—

(159)

1,332

—

—

—

—

(78,927)

1,173

22,077

47,681

EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . .

12,736

8,287

1,054

CASH AND EQUIVALENTS AT

BEGINNING OF PERIOD . . . . . . . . . . . . .

CASH AND EQUIVALENTS AT END

3,240

8,066

36,375

OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,976

$ 16,353

$ 37,429

$

— $ 69,758

129

93085

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, 2017

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,912

$ 24,889

$ 47,242

$(72,131)

$ 14,912

Parent
Company

Guarantor
Companies

Non-
Guarantor
Companies

Elimination

Consolidation

Net income (loss) from discontinued

operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in)

— (12,351)

15,222

operating activities . . . . . . . . . . . . . . . .

(10,771)

56,320

3,602

CASH FLOWS FROM INVESTING

ACTIVITIES:

Acquisition of property, plant and

equipment . . . . . . . . . . . . . . . . . . . . . . . . .

Acquired business, net of cash

acquired . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment purchases . . . . . . . . . . . . . . . .
Proceeds from sale of property,

plant and equipment. . . . . . . . . . . . . . .

Net cash used in investing

activities. . . . . . . . . . . . . . . . . . . . . . . . .

CASH FLOWS FROM FINANCING

ACTIVITIES:

(15)

(27,902)

(7,020)

—
(1,824)

— (34,719)
—
—

—

144

(1)

(1,839)

(27,758)

(41,740)

Purchase of shares for treasury . . . . . .
Proceeds from long-term debt . . . . . . .
Payments of long-term debt . . . . . . . . .
Share premium payment on settled

debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . .
Purchase of ESOP shares . . . . . . . . . . . .
Dividends paid. . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)

financing activities. . . . . . . . . . . . . . .

(15,841)
201,124
(149,109)

—
—
(1,282)

—
32,319
(20,063)

(24,997)
(1,548)
(10,908)
(10,325)
20,937

—
—
—
—
(34,806)

—
—
—
—
13,799

9,333

(36,088)

26,055

CASH FLOWS FROM

DISCONTINUED OPERATIONS:
Net cash provided by (used in)

discontinued operations. . . . . . . . . . . .

— (12,100)

9,950

Effect of exchange rate changes on cash

and equivalents . . . . . . . . . . . . . . . . . . . . . . . .

NET DECREASE IN CASH AND

—

—

164

EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . .

(3,277)

(19,626)

(1,969)

CASH AND EQUIVALENTS AT

BEGINNING OF PERIOD . . . . . . . . . . .
CASH AND EQUIVALENTS AT END
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

—
—

—

—

—
—
—

—
—
—
—
—

—

—

—

—

—

2,871

49,151

(34,937)

(34,719)
(1,824)

143

(71,337)

(15,841)
233,443
(170,454)

(24,997)
(1,548)
(10,908)
(10,325)
(70)

(700)

(2,150)

164

(24,872)

72,553

6,517

27,692

38,344

$

3,240

$ 8,066

$ 36,375

$

— $ 47,681

130

27507

GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(US dollars and non US currencies in thousands, except per share data)

NOTE 22—SUBSEQUENT EVENTS

On November 13, 2019, the Board of Directors declared a cash dividend of $0.0750 per share, payable
on December 19, 2019 to shareholders of record as of the close of business on November 27, 2019.
Griffon currently intends to pay dividends each quarter; however, payment of dividends is determined
by the Board of Directors, at its discretion, based on various factors, and no assurance can be provided
as to the payment of future dividends.

*****

131

41225

SCHEDULE II

GRIFFON CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended September 30, 2019, 2018 and 2017
(in thousands)

Description

Balance at
Beginning of
Year

Recorded to
Cost and
Expense

Accounts
Written Off,
net

Other (1)

Balance at
End of Year

FOR THE YEAR ENDED SEPTEMBER 30, 2019
Allowance for Doubtful Accounts

Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales returns and allowances . . . . . . . . . . . .

$ 1,824
4,584

$ 6,408

Inventory valuation . . . . . . . . . . . . . . . . . . . . .

$26,065

Deferred tax valuation allowance . . . . . . .

$ 8,520

FOR THE YEAR ENDED SEPTEMBER 30, 2018
Allowance for Doubtful Accounts

$
464
(2,331)

$(1,867)

$ 2,774

$ 2,302

(425)
3,748

$ 3,323

$

$

18
—

18

$ 1,881
6,000

$ 7,881

$(2,614)

$ (56)

$26,169

$ —

$ —

$10,823

Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales returns and allowances . . . . . . . . . . . .

$ 1,109
4,857

$ 5,966

$
(40)
(5,880)

$(5,920)

$

11
5,208

$ 5,219

Inventory valuation . . . . . . . . . . . . . . . . . . . . .

$16,419

$ 1,924

$ (306)

Deferred tax valuation allowance . . . . . . .

$17,466

$(8,946)

$ —

FOR THE YEAR ENDED SEPTEMBER 30, 2017
Allowance for Doubtful Accounts

Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales returns and allowances . . . . . . . . . . . .

$ 1,217
3,475

$ 4,692

Inventory valuation . . . . . . . . . . . . . . . . . . . . .

$15,338

Deferred tax valuation allowance . . . . . . .

$12,832

$

279
1,401

$ 1,680

$

851

$ 4,634

$ (387)
(19)

$ (406)

$

203

$ —

$ 744
399

$1,143

$8,028

$ —

$ —
—

$ —

$

27

$ —

$ 1,824
4,584

$ 6,408

$26,065

$ 8,520

$ 1,109
4,857

$ 5,966

$16,419

$17,466

Note (1): For the year ended September 30, 2018, Other primarily consists of opening balances of
reserves assumed from acquisitions.

132

50376

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.

SEC guidance permits the exclusion of an evaluation of the effectiveness of a registrant’s disclosure
controls and procedures as they relate to the internal control over financial reporting for an acquired
business during the first year following such acquisition. Management’s evaluation and conclusion as to
the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of
September 30, 2019.

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 2013 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, 2019 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, 2019, 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, 2019 that have materially affected, or are reasonably likely to materially affect, the
registrant’s internal control over financial reporting.

Inherent Limitations on the Effectiveness of 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

133

97459

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;

(ii) provide reasonable assurance that
statements

transactions are recorded as necessary to permit
preparation of
in accordance with generally accepted accounting
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

None.

PART III

The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance
(with respect to directors and corporate governance); Item 11, Executive Compensation; Item 12,
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters;
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, 2020, to be filed with the Securities and Exchange Commission within 120 days following
the end of Griffon’s fiscal year ended September 30, 2019. Information required by Part III, Item 10,
relating to the executive officers of the Registrant, appears under Item 1 of this report.

134

12576

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
21st day of November 2019.

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 21, 2019 by the following persons on behalf of the Registrant in the capacities indicated:

/s/ RONALD J. KRAMER

Chairman of the Board and Chief Executive Officer

Ronald J. Kramer

(Principal Executive Officer)

/s/ ROBERT F. MEHMEL

President, Chief Operating Officer and Director

Robert F. Mehmel

/s/ BRIAN G. HARRIS

Senior Vice President and Chief Financial Officer

Brian G. Harris

(Principal Financial Officer)

/s/ W. CHRISTOPHER DURBOROW

Vice President, Controller and Chief Accounting Officer

W. Christopher Durborow

(Principal Accounting Officer)

/s/ HENRY A. ALPERT

Director

Henry A. Alpert

/s/ THOMAS BROSIG

Thomas Brosig

Director

/s/ LOUIS J. GRABOWSKY

Director

Louis J. Grabowsky

/s/ ROBERT G. HARRISON

Director

Robert G. Harrison

/s/ LACY M. JOHNSON

Director

Lacy M. Johnson

/s/ VICTOR EUGENE RENUART

Director

Victor Eugene Renuart

/s/ JAMES W. SIGHT

James W. Sight

Director

/s/ KEVIN F. SULLIVAN

Director

Kevin F. Sullivan

/s/ SAMANTA HEGEDUS STEWART

Director

Samanta Hegedus Stewart

/s/ CHERYL L. TURNBULL

Director

Cheryl L. Turnbull

/s/ WILLIAM H. WALDORF

Director

William H. Waldorf

135

08629

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 21, 2019

/s/ RONALD J. KRAMER

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

12231

Exhibit 31.2

I, Brian G. Harris, 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 21, 2019

/s/ BRIAN G. HARRIS

Brian G. Harris
Chief Financial Officer
(Principal Financial Officer)

32529

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, 2019 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), Ronald J. Kramer, as Chief Executive Officer of Griffon, and Brian G. Harris,
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 21, 2019

/s/ BRIAN G. HARRIS

Name: Brian G. Harris
Title:

Chief Financial Officer
(Principal Financial Officer)

Date: November 21, 2019

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.

09335

C O M P A N Y P R O F I L E

CONSUMER AND PROFESSIONAL PRODUCTS
The AMES Companies, founded in 1774, is the leading North American manufacturer and a global provider of branded

consumer and professional tools and products for home storage and organization,

landscaping, and enhancing outdoor lifestyles.

AMES sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. More
information is available at www.ames.com and www.closetmaid.com.

HOME AND BUILDING PRODUCTS

Clopay Corporation, since 1964,

is the largest manufacturer and marketer of garage doors and rolling steel doors in North

America. Sectional garage doors are sold to residential and commercial customers through professional dealers and leading home
center retail chains throughout North America under the Clopay, Ideal, and Holmes brands. Rolling steel door and grille products

designed for commercial,

industrial,

institutional, and retail use are sold under the CornellCookson brand. More information is

available at www.clopay.com and www.cornellcookson.com.

Telephonics, founded in 1933,

is a globally recognized leading provider of highly sophisticated intelligence, surveillance and

DEFENSE ELECTRONICS

communications solutions for defense, aerospace and commercial customers.
More information is available at www.telephonics.com.

DIRECTORS

Henry A. Alpert
President, Spartan Petroleum Corp.
(petroleum distributor/real estate)

Thomas J. Brosig
President, Nikki Beach Worldwide
(luxury lifestyle and hospitality brand)

Louis J. Grabowsky
Co-Founder and Principal, Juniper Capital
Management

Rear Admiral Robert G. Harrison
USN (Ret.)

Lacy M. Johnson
Partner
Ice Miller LLP

Ronald J. Kramer
Chairman of the Board and
Chief Executive Officer

Robert F. Mehmel
President and Chief Operating Officer

General Victor Eugene Renuart
USAF (Ret.)
President, The Renuart Group, LLC
(defense consulting firm)

James W. Sight
Private Investor

Samanta Hegedus Stewart
Senior Vice President and
Head of Investor Relations,
Endeavor

Kevin F. Sullivan
Managing Director
MidOcean Credit Partners

Cheryl L. Turnbull
Senior Director — New Ventures and Venture
Capital, The Ohio State University

Independent Registered Public
Accountants
Grant Thornton LLP

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

this report will be
Additional copies of
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.griffon.com

to

its

included as
Griffon Corporation has
exhibits
on
Report
Annual
Form 10-K for fiscal year 2019 filed with
the SEC certifications of Griffon’s Chief
Executive Officer and Chief Financial Officer
the company’s
certifying the quality of
public
Chief
Executive Officer has also submitted to
the NYSE a certification that he is not aware
of any violations by Griffon of the NYSE
corporate governance listing standards.

disclosures.

Griffon’s

William H. Waldorf
President, Landmark Capital, LLC
(investments)

OFFICERS

Ronald J. Kramer
Chairman of the Board and
Chief Executive Officer

Robert F. Mehmel
President and
Chief Operating Officer

Brian G. Harris
Senior Vice President and
Chief Financial Officer

Seth L. Kaplan
Senior Vice President,
General Counsel and Secretary

Michael A. Sarrica
Senior Vice President, Operations

W. Christopher Durborow
Vice President, Controller and
Chief Accounting Officer

Michael W. Hansen
Vice President, Corporate Strategy
and Development

Denise A. Lueders
Vice President, Taxation

Thomas D. Gibbons
Vice President and Treasurer

Tracy J.I. Fitzgerald
Vice President, Internal Audit

Annual Report 2019