Edgar Filing: GRIFFON CORP

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended December 31, 2015



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

For the transition period from to

Commission File Number: 1-06620

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)



DELAWARE		11-1893410
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

712 Fifth Ave, 18th Floor, New York, New York		10019
(Address of principal executive offices)		(Zip Code)

(212) 957-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer	ý
Non-accelerated filer o	Smaller reporting company	o
(Do not check if a smaller reporting company)

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

The number of shares of common stock outstanding at December 31, 2015 was 48,083,859.

Griffon Corporation and Subsidiaries

Contents



	Page
PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at December 31, 2015 (unaudited) and September 30, 2015	1

Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended December 31, 2015 (unaudited)	2

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended December 31, 2015 and 2014 (unaudited)	3

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 (unaudited)	4

Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	39

Item 4 - Controls & Procedures	40

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	41

Item 1A – Risk Factors	41

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3 – Defaults Upon Senior Securities	41

Item 4 – Mine Safety Disclosures	41

Item 5 – Other Information	42

Item 6 – Exhibits	44

Signatures	45

Exhibit Index	46

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



	(Unaudited)
	December 31, 2015		September 30, 2015
CURRENT ASSETS
Cash and equivalents	$	49,968	$	52,001
Accounts receivable, net of allowances of $5,156 and $5,342	205,882		218,755
Contract costs and recognized income not yet billed, net of progress payments of $17,517 and $16,467	122,923		103,895
Inventories, net	334,462		325,809
Prepaid and other current assets	56,826		55,086
Assets of discontinued operations	1,360		1,316
Total Current Assets	771,421		756,862
PROPERTY, PLANT AND EQUIPMENT, net	376,110		379,972
GOODWILL	356,412		356,241
INTANGIBLE ASSETS, net	211,472		213,837
OTHER ASSETS	25,198		22,346
ASSETS OF DISCONTINUED OPERATIONS	2,576		2,175
Total Assets	$	1,743,189	$	1,731,433

CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	15,189	$	16,593
Accounts payable	166,835		199,811
Accrued liabilities	96,524		104,997
Liabilities of discontinued operations	2,033		2,229
Total Current Liabilities	280,581		323,630
LONG-TERM DEBT, net	886,028		826,976
OTHER LIABILITIES	144,567		146,923
LIABILITIES OF DISCONTINUED OPERATIONS	3,634		3,379
Total Liabilities	1,314,810		1,300,908
COMMITMENTS AND CONTINGENCIES - See Note 18
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	428,379		430,525
Total Liabilities and Shareholders’ Equity	$	1,743,189	$	1,731,433

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

Table of Contents

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)



	COMMON STOCK			CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			TREASURY SHARES				ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION
(in thousands)	SHARES	PAR VALUE		CAPITAL IN EXCESS OF PAR VALUE			RETAINED EARNINGS			SHARES	COST			ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)			DEFERRED COMPENSATION			Total
Balance at September 30, 2015	79,080	$	19,770	$	518,485		$	454,548		30,737	$	(436,559	)	$	(91,188	)	$	(34,531	)	$	430,525
Net income	—	—		—			8,596			—	—			—			—			8,596
Dividend	—	—		—			(2,281		)	—	—			—			—			(2,281		)
Tax effect from exercise/vesting of equity awards, net	—	—		2,291			—			—	—			—			—			2,291
Amortization of deferred compensation	—	—		—			—			—	—			—			688			688
Common stock issued	14	3		(3		)	—			—	—			—			—			—
Common stock acquired	—	—		—			—			619	(10,910		)	—			—			(10,910		)
Common stock issued for equity awards, net	346	86		(86		)	—			—	—			—			—			—
ESOP allocation of common stock	—	—		382			—			—	—			—			—			382
Stock-based compensation	—	—		3,066			—			—	—			—			—			3,066
Other comprehensive loss, net of tax	—	—		—			—			—	—			(3,978		)	—			(3,978		)
Balance at December 31, 2015	79,440	$	19,859	$	524,135		$	460,863		31,356	$	(447,469	)	$	(95,166	)	$	(33,843	)	$	428,379

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(Unaudited)



	Three Months Ended December 31,
	2015			2014
Revenue	$	494,149		$	502,160
Cost of goods and services	378,044			384,171
Gross profit	116,105			117,989

Selling, general and administrative expenses	91,299			93,896

Income from operations	24,806			24,093

Other income (expense)
Interest expense	(12,023		)	(11,754		)
Interest income	11			117
Other, net	555			(451		)
Total other expense, net	(11,457		)	(12,088		)

Income before taxes	13,349			12,005
Provision for income taxes	4,753			4,534
Net income	$	8,596		$	7,471

Basic income per common share	$	0.20		$	0.16
Weighted-average shares outstanding	41,968			46,310

Diluted income per common share	$	0.19		$	0.16
Weighted-average shares outstanding	45,384			48,136

Dividends paid per common share	$	0.05		$	0.04

Net income	$	8,596		$	7,471
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	(3,349		)	(15,500		)
Pension and other post retirement plans	386			353
Cash flow hedge	(1,015		)	(74		)
Change in available-for-sale securities	—			(962		)
Total other comprehensive income (loss), net of taxes	(3,978		)	(16,183		)
Comprehensive income (loss), net	$	4,618		$	(8,712	)

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



	Three Months Ended December 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,596		$	7,471

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization	17,084			17,260
Stock-based compensation	3,066			2,577
Provision for losses on accounts receivable	(24		)	156
Amortization of debt discounts and issuance costs	1,671			1,634
Deferred income taxes	2,763			1,501
(Gain) loss on sale/disposal of assets and investments	(77		)	171
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	(6,106		)	24,824
Increase in inventories	(9,080		)	(32,658		)
(Increase) decrease in prepaid and other assets	316			(2,177		)
Decrease in accounts payable, accrued liabilities and income taxes payable	(38,324		)	(30,051		)
Other changes, net	519			1,242
Net cash used in operating activities	(19,596		)	(8,050		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(25,018		)	(18,921		)
Investment in unconsolidated joint venture	(2,726		)	—
Proceeds from sale of assets	484			107
Investment sales	715			—
Net cash used in investing activities	(26,545		)	(18,814		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(2,281		)	(1,910		)
Purchase of shares for treasury	(10,910		)	(13,170		)
Proceeds from long-term debt	79,874			10,279
Payments of long-term debt	(24,126		)	(11,295		)
Change in short-term borrowings	(147		)	(1,201		)
Financing costs	—			(29		)
Tax benefit from exercise/vesting of equity awards, net	2,291			342
Other, net	104			102
Net cash provided by (used in) financing activities	44,805			(16,882		)

CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities	(387		)	(380		)
Net cash used in discontinued operations	(387		)	(380		)

Effect of exchange rate changes on cash and equivalents	(310		)	(1,713		)

NET DECREASE IN CASH AND EQUIVALENTS	(2,033		)	(45,839		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	52,001			92,405
CASH AND EQUIVALENTS AT END OF PERIOD	$	49,968		$	46,566

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

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

Griffon currently conducts its operations through three reportable segments:


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


-	AMES is a global provider of non-powered landscaping products for homeowners and professionals.


-	CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional dealers and major home center retail chains.


•	Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide.


•	Clopay Plastic Products Company, Inc. (“PPC”) is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. As such, they should be read with reference to Griffon’s Annual Report on Form 10-K for the year ended September 30, 2015, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s HBP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet information at September 30, 2015 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2015.

The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated on consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves

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

Certain amounts in the prior year may have been reclassified to conform to current year presentation.

NOTE 2 – FAIR VALUE MEASUREMENTS

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

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


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

•

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


•	Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair values of Griffon’s 2022 senior notes and 2017, 4% convertible notes approximated $570,000 and $128,375, respectively, on December 31, 2015. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with values of $3,038 at December 31, 2015, are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets.

Items Measured at Fair Value on a Recurring Basis

At December 31, 2015, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $1,191 ($1,000 cost basis) were included in Prepaid and other current assets on the Consolidated Balance Sheets. 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 2016, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in US dollars.

At December 31, 2015, Griffon had $24,401 of Australian dollar contracts at a weighted average rate of $1.375, 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 are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services. Accumulated other comprehensive income (loss) included deferred losses of $512 ($333, net of tax) at December 31, 2015 and gains of $404 were recorded in COGS during the quarter ended December 31, 2015 for all settled contracts. All contracts expire in 31 to 270 days.

At December 31, 2015, Griffon had $5,300 of Canadian dollar contracts at a weighted average rate of $1.38. The contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. As of December 31, 2015, a fair value gain of $101 was recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). All contracts expire in 29 to 270 days.

NOTE 3 – ACQUISITIONS AND INVESTMENTS

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

On April 16, 2015, AMES acquired the assets of an operational wood mill in Champion, PA from the Babcock Lumber Company for $2,225. The purchase price was preliminarily allocated to property, plant and equipment. The wood mill secures wood supplies, lowers overall production costs and mitigates risk associated with manufacturing handles for wheelbarrows and long-handled tools.

NOTE 4 – INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out or average) or market.

The following table details the components of inventory:



	At December 31, 2015		At September 30, 2015
Raw materials and supplies	$	81,022	$	91,973
Work in process	74,023		70,811
Finished goods	179,417		163,025
Total	$	334,462	$	325,809

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

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



	At December 31, 2015			At September 30, 2015
Land, building and building improvements	$	128,830		$	131,546
Machinery and equipment	755,939			747,194
Leasehold improvements	46,201			47,465
	930,970			926,205
Accumulated depreciation and amortization	(554,860		)	(546,233		)
Total	$	376,110		$	379,972

Depreciation and amortization expense for property, plant and equipment was $15,209 and $15,279 for the quarters ended December 31, 2015 and 2014, respectively. Depreciation included in SG&A expenses was $3,157 and $3,170 for the quarters ended December 31, 2015 and 2014, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

No event or indicator of impairment occurred during the three months ended December 31, 2015, which would require additional impairment testing of property, plant and equipment.

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

The following table provides changes in the carrying value of goodwill by segment during the three months ended December 31, 2015:



	At September 30, 2015		Other adjustments including currency translations			At December 31, 2015
Home & Building Products	$	285,825	$	753		$	286,578
Telephonics	18,545		—			18,545
PPC	51,871		(582		)	51,289
Total	$	356,241	$	171		$	356,412

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



	At December 31, 2015					At September 30, 2015
	Gross Carrying Amount		Accumulated Amortization		Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	167,816	$	41,226	25	$	168,560	$	39,755
Unpatented technology	6,121		3,675		13	6,107		3,525
Total amortizable intangible assets	173,937		44,901			174,667		43,280
Trademarks	82,436		—			82,450		—
Total intangible assets	$	256,373	$	44,901		$	257,117	$	43,280

Amortization expense for intangible assets was $1,875 and $1,981 for the quarters ended December 31, 2015 and 2014, respectively.

No event or indicator of impairment occurred during the three months ended December 31, 2015, which would require impairment testing of long-lived intangible assets including goodwill.

NOTE 7 – INCOME TAXES

The effective tax rate for the quarter ended December 31, 2015 was 35.6% compared to 37.8% in the comparable prior year quarter. The current and prior year tax rates reflect the impact of permanent differences not deductible in determining taxable income, changes in earnings mix between domestic and non-domestic operations, and tax reserves.

The quarter ended December 31, 2015 included net tax benefits of $399 from discrete items primarily resulting from the retroactive extension of the federal R&D credit signed into law December 18, 2015. The comparable prior year quarter included $349 of discrete provisions that resulted from the provision for taxes on repatriation of foreign earnings, partially offset by the benefit of the retroactive extension of the federal R&D credit signed into law December 19, 2014, and release of a valuation allowance.

Excluding discrete items, the effective tax rate for the quarter ended December 31, 2015 was 38.6% compared to 34.9% in the comparable prior year quarter.

NOTE 8 – LONG-TERM DEBT



		At December 31, 2015														At September 30, 2015
		Outstanding Balance			Original Issuer Discount			Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate (1)		Outstanding Balance			Original Issuer Discount			Capitalized Fees & Expenses			Balance Sheet			Coupon Interest Rate (1)
Senior notes due 2022	(a)	$	600,000		$	—		$	(7,942	)	$	592,058		5.25	%	$	600,000		$	—		$	(8,264	)	$	591,736		5.25	%
Revolver due 2020	(b)	95,000			—			(1,914		)	93,086			n/a		35,000			—			(2,049		)	32,951			n/a
Convert. debt due 2017	(c)	100,000			(4,546		)	(480		)	94,974			4.00	%	100,000			(5,594		)	(571		)	93,835			4.00	%
Real estate mortgages	(d)	31,742			—			(458		)	31,284			n/a		32,280			—			(470		)	31,810			n/a
ESOP Loans	(e)	36,194			—			(207		)	35,987			n/a		36,744			—			(224		)	36,520			n/a
Capital lease - real estate	(f)	7,261			—			(150		)	7,111			5.00	%	7,524			—			(156		)	7,368			5.00	%
Non U.S. lines of credit	(g)	5,553			—			(12		)	5,541			n/a		8,934			—			(3		)	8,931			n/a
Non U.S. term loans	(g)	37,801			—			(265		)	37,536			n/a		39,142			—			(299		)	38,843			n/a
Other long term debt	(h)	3,640			—			—			3,640			n/a		1,575			—			—			1,575			n/a
Totals		917,191			(4,546		)	(11,428		)	901,217					861,199			(5,594		)	(12,036		)	843,569
less: Current portion		(15,189		)	—			—			(15,189		)			(16,593		)	—			—			(16,593		)
Long-term debt		$	902,002		$	(4,546	)	$	(11,428	)	$	886,028				$	844,606		$	(5,594	)	$	(12,036	)	$	826,976



		Three Months Ended December 31, 2015												Three Months Ended December 31, 2014
		Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense			Effective Interest Rate (1)		Cash Interest			Amort. Debt Discount		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2022	(a)	5.4	%	7,875			—		322		8,197			0.054		7,875			—		322		8,197
Revolver due 2020	(b)	n/a		571			—		115		686			n/a		338			—		158		496
Convert. debt due 2017	(c)	9.0	%	1,000			1,048		111		2,159			9.0	%	1,000			962		111		2,073
Real estate mortgages	(d)	3.3	%	151			—		12		163			3.9	%	124			—		36		160
ESOP Loans	(e)	3.0	%	256			—		18		274			2.8	%	260			—		17		277
Capital lease - real estate	(f)	5.4	%	93			—		6		99			5.3	%	106			—		6		112
Non U.S. lines of credit	(g)	n/a		259			—		24		283			n/a		141			—		—		141
Non U.S. term loans	(g)	n/a		284			—		13		297			n/a		388			—		16		404
Other long term debt	(h)	n/a		19			—		—		19			n/a		31			—		—		31
Capitalized interest				(156		)	—		2		(154		)			(143		)	—		6		(137		)
Totals				$	10,352		$	1,048	$	623	$	12,023				$	10,120		$	962	$	672	$	11,754

(1) not applicable = n/a

(a)

On February 27, 2014, in an unregistered offering through a private placement under Rule 144A, Griffon issued, at par, $600,000 of 5.25% Senior Notes due 2022 (“Senior Notes”); interest is payable semi-annually on March 1 and September 1. Proceeds from the Senior Notes 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 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 June 18, 2014, Griffon exchanged all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. The fair value of the Senior Notes approximated $570,000 on December 31, 2015 based upon quoted market prices (level 1 inputs).

In connection with these transactions, Griffon capitalized $10,313 of underwriting fees and other expenses incurred related to the issuance and exchange of the Senior Notes, which will amortize over the term of such notes. Griffon recognized a loss on the early extinguishment of debt on the 7.125% senior notes aggregating $38,890, comprised of the $31,530 tender offer premium, the write-off of $6,574 of remaining deferred financing fees and $786 of prepaid interest on defeased notes.

(b)

On March 13, 2015, Griffon amended its Revolving Credit Facility (the “Credit Agreement”) to increase the credit facility from $225,000 to $250,000, extend its maturity date from March 28, 2019 to March 13, 2020 and modify certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $50,000 (decreased from $60,000), and a multi-currency sub-facility of $50,000. The Credit Agreement provides for same day borrowings of base rate loans in lieu of a swing line sub-facility. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility, or the occurrence or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.00% for base rate loans and 2.00% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants, and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. The Credit Agreement also has a minimum liquidity covenant that requires cash and available borrowings under the Credit Agreement in the aggregate to equal or exceed $100,000 during the six month period prior to maturity of the 2017 Notes (which mature on January 15, 2017); such covenant will no longer apply after payment in full of the 2017 Notes. 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 each of Griffon’s material, first-tier foreign subsidiaries (except that a lien on the assets of Griffon's material domestic subsidiaries securing a limited amount of the debt under the credit agreement relating to Griffon's Employee Stock Ownership Plan ("ESOP") ranks pari passu with the lien granted on such assets under the Credit Agreement; see footnote (e) below). At December 31, 2015, outstanding borrowings and standby letters of credit were $95,000 and $15,922, respectively, under the Credit Agreement; $139,078 was available, subject to certain 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”). The current conversion rate of the 2017 Notes is 69.3811 shares of Griffon’s common stock per $1 principal amount of notes, corresponding to a conversion price of $14.41 per share. Prior to July 15, 2016, if for at least 20 trading days out of the last 30 trading days during any fiscal quarter the closing price of Griffon's common stock is 130% or greater than the conversion price on each such trading day, then at any time during the immediately subsequent fiscal quarter any holder has the option to convert such holder's notes (and the Company is required to notify the trustee under the notes, and the holders of the notes, that this condition to conversion has been met). At any time on or after July 15, 2016, any holder has the option to convert such holder's notes into shares of Griffon common stock. Griffon has the intent and ability to settle the principal component of any conversion of notes in cash. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion; (ii) the 42nd trading day prior to maturity of the notes; and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of December 31, 2015, aggregate dividends since the last conversion price adjustment of $0.13 per share would have resulted in an adjustment to the conversion ratio of approximately 0.77%. At both December 31, 2015 and 2014, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720. The fair value of the 2017 Notes approximated $128,375 on December 31, 2015 based upon quoted market prices (level 1 inputs). These notes are classified as long term debt as Griffon has the intent and ability to refinance the principal amount of the notes, including with borrowings under the Credit Agreement.

(d)

In September 2015, Griffon entered into a $32,280 mortgage loan secured by four properties occupied by Griffon's subsidiaries, refinancing two existing real estate mortgages and providing new mortgages on two existing real estate properties. The loans mature in September 2025, are collateralized by the specific properties financed and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 1.50%. At December 31, 2015, $31,284 was outstanding, net of issuance costs.

(e)

In December 2013, Griffon’s ESOP entered into an agreement that refinanced the two existing ESOP loans into one new Term Loan in the amount of $21,098 (the "Agreement"). The Agreement also provided for a Line Note with $10,000 available to purchase shares of Griffon common stock in the open market. In July 2014, Griffon's ESOP entered into an amendment to the existing Agreement which provided an additional $10,000 Line Note available to purchase shares in the open market. During 2014, the Line Notes were combined with the Term Loan to form one new Term Loan. The Term Loan bears interest at LIBOR plus 2.38% or the lender’s prime rate, at Griffon’s option. The Term Loan requires quarterly principal payments of $551, with a balloon payment of approximately $30,137 due at maturity on December 31, 2018. During 2014, 1,591,117 shares of Griffon common stock, for a total of $20,000 or $12.57 per share, were purchased with proceeds from the Line Notes. The Term Loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which lien ranks pari passu with the lien granted on such assets under the Credit Agreement) and is guaranteed by Griffon.


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

(g)

In September 2015, Clopay Europe GMBH (“Clopay Europe”) entered into a EUR 5,000 ($5,463 as of December 31, 2015) revolving credit facility and a EUR 15,000 ($16,389 as of December 31, 2015) term loan. The term loan is payable in twelve quarterly installments of EUR 1,250, bears interest at a fixed rate of 2.5% and matures in September 2018. The revolving facility matures in November 2016, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 1.75% per annum (1.75% at December 31, 2015). The revolver and the term loan are both secured by substantially all of the assets of Clopay Europe and its subsidiaries. Griffon guarantees the revolving facility and term loan. The term loan had an outstanding balance of EUR 13,750 ($15,023) and the revolver had no borrowings outstanding at December 31, 2015. Clopay Europe is required to maintain a certain minimum equity to assets ratio and is subject to a maximum debt leverage ratio (defined as the ratio of total debt to EBITDA).

Clopay do Brazil maintains lines of credit of R$12,800 ($3,278 as of December 31, 2015). Interest on borrowings accrues at a rate of Brazilian CDI plus 6.0% (20.14% at December 31, 2015). At December 31, 2015 there was approximately R$7,083 ($1,814 as of December 31, 2015) borrowed under the lines. PPC guarantees the loan and lines.

In November 2012, Garant G.P. (“Garant”) entered into a CAD $15,000 revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (1.73% LIBOR USD and 2.16% Bankers Acceptance Rate CDN as of December 31, 2015). The revolving facility matures in October 2016. Garant is required to maintain a certain minimum equity. At December 31, 2015, there was CAD $5,184 ($3,739 as of December 31, 2015) borrowed under the revolving credit facility with CAD $9,816 ($7,079 as of December 31, 2015) available for borrowing.

In December 2013 and May 2014, Griffon Australia Holdings Pty Ltd (formerly known as Northcote Holdings Australia Pty Ltd) entered into two unsecured term loans in the outstanding amounts of AUD 12,500 and AUD 20,000. The AUD 12,500 term loan requires quarterly interest payments with principal due upon maturity in December 2016. The AUD 20,000 term loan requires quarterly principal payments of AUD 625, with a balloon payment due upon maturity in May 2017. The loans accrue interest at Bank Bill Swap Bid Rate “BBSY” plus 2.8% per annum (4.86% at December 31, 2015 for each loan). As of December 31, 2015, Griffon had an outstanding combined balance of AUD 31,249 ($22,778 as of December 31, 2015) on the term loans, net of issuance costs.

A subsidiary of Northcote Holdings Pty Ltd also maintains a line of credit of AUD 5,000 ($3,644 as of December 31, 2015),which accrues interest at BBSY plus 2.50% per annum (4.56% at December 31, 2015). At December 31, 2015, there were no outstanding borrowings under the line. The assets of a subsidiary of Northcote Holdings Pty Ltd secures the AUD 5,000 line of credit.


(h)	Other long-term debt primarily consists of capital leases.

At December 31, 2015, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

NOTE 9 — SHAREHOLDERS’ EQUITY

During the first quarter of 2016, the Board of Directors approved a quarterly cash dividend of $0.05 per share, paid on December 23, 2015 to shareholders of record as of close of business on December 3, 2015. During 2015, the Company paid quarterly cash dividends of $0.04 per share, totaling $0.16 per share for the year. Dividends paid on allocated shares in the ESOP were used to pay down the ESOP loan and recorded as a reduction in expense. A dividend payable was established for the holders of restricted stock and restricted stock units (collectively, "restricted share awards"); such dividends will be released upon vesting of the underlying restricted share awards.

On January 28, 2016, the Board of Directors declared a quarterly cash dividend of $0.05 per share, payable on March 23, 2016 to shareholders of record as of the close of business on February 25, 2016.

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

On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 2,350,000 (600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are subsequently canceled or forfeited (as of December 31, 2015, 53,246 shares were available for grant under the 2011 Incentive Plan).

All grants outstanding under former equity plans will continue under their terms; no additional awards will be granted under such former plans.

During the first quarter of 2016, Griffon granted 372,243 shares of restricted stock and restricted stock units with a vesting period of three years, subject to certain performance conditions, with a total fair value of $6,425, or a weighted average fair value of $17.26 per share.

For the quarters ended December 31, 2015 and 2014, stock based compensation expense totaled $3,066 and $2,577, respectively.

During the quarter ended December 31, 2015, 186,539 shares, with a market value of $3,552 or $19.04 per share, respectively, were withheld to settle employee taxes due to the vesting of restricted stock, and were added to treasury.

On January 29, 2016, Griffon granted 605,000 shares of restricted stock to two senior executives with a vesting period of four years and a two year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon’s common stock. So long as the minimum performance condition is attained, the amount of shares that can vest will range from 220,000 to 605,000. The total fair value of these restricted shares is approximately $5,000.

On March 20 2015, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock; on July 29, 2015, an additional $50,000 was authorized. Under both programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter ended December 31, 2015, Griffon purchased 432,419 shares of common stock under both the May 2014 and March 2015 programs, for a total of $7,230 or $16.72 per share. As of December 31, 2015, $50,696 in the aggregate remains under the March 2015 and July 2015 Board authorizations.

From August 2011 to December 31, 2015, Griffon repurchased 12,739,196 shares of common stock, for a total of $160,362 or $12.59 per share, under Board authorized repurchase programs.

In addition to repurchases under Board authorized programs, on December 10, 2013, Griffon repurchased 4,444,444 shares of its common stock for $50,000, or $11.25 per share, from GS Direct, L.L.C. (“GS Direct”), an affiliate of The Goldman Sachs Group, Inc. Subject to certain exceptions, if GS Direct intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2016, it will first negotiate in good faith to sell such shares to the Company.

NOTE 10 – EARNINGS PER SHARE (EPS)

Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation and upon the settlement of the 2017 Convertible notes. In the quarter ended December 31, 2015, the 2017 Notes were anti-dilutive due to the conversion price being greater than the weighted-average stock price during the periods presented.

The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:



	Three Months Ended December 31,
	2015	2014
Weighted average shares outstanding - basic	41,968	46,310
Incremental shares from stock based compensation	2,195	1,826
Convertible debt due 2017	1,221	—

Weighted average shares outstanding - diluted	45,384	48,136

Anti-dilutive options excluded from diluted EPS computation	419	582

Griffon has the intent and ability to settle the principal amount of the 2017 Notes in cash, and as such, the potential issuance of shares related to the principal amount of the 2017 Notes does not affect diluted shares.

NOTE 11 – BUSINESS SEGMENTS

Griffon’s reportable segments are as follows:


•	HBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional dealers and major home center retail chains, as well as a global provider of non-powered landscaping products for homeowners and professionals.


•	Telephonics develops, designs and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide.


•	PPC is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

Information on Griffon’s reportable segments is as follows:



	For the Three Months Ended December 31,
REVENUE	2015		2014
Home & Building Products:
AMES	$	118,290	$	133,110
CBP	142,908		138,600
Home & Building Products	261,198		271,710
Telephonics	109,037		90,658
PPC	123,914		139,792
Total consolidated net sales	$	494,149	$	502,160

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



	For the Three Months Ended December 31,
INCOME (LOSS) BEFORE TAXES	2015			2014
Segment operating profit:
Home & Building Products	$	21,159		$	16,369
Telephonics	7,813			7,517
PPC	6,017			8,020
Total segment operating profit	34,989			31,906
Net interest expense	(12,012		)	(11,637		)
Unallocated amounts	(9,628		)	(8,264		)
Income before taxes	$	13,349		$	12,005

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

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



	For the Three Months Ended December 31,
	2015			2014
Segment adjusted EBITDA:
Home & Building Products	$	29,829		$	24,470
Telephonics	10,344			10,032
PPC	11,785			14,551
Total Segment adjusted EBITDA	51,958			49,053
Net interest expense	(12,012		)	(11,637		)
Segment depreciation and amortization	(16,969		)	(17,147		)
Unallocated amounts	(9,628		)	(8,264		)
Income before taxes	$	13,349		$	12,005

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



	For the Three Months Ended December 31,
DEPRECIATION and AMORTIZATION	2015		2014
Segment:
Home & Building Products	$	8,670	$	8,101
Telephonics	2,531		2,515
PPC	5,768		6,531
Total segment depreciation and amortization	16,969		17,147
Corporate	115		113
Total consolidated depreciation and amortization	$	17,084	$	17,260

CAPITAL EXPENDITURES
Segment:
Home & Building Products	$	17,280	$	10,261
Telephonics	1,280		969
PPC	6,404		7,679
Total segment	24,964		18,909
Corporate	54		12
Total consolidated capital expenditures	$	25,018	$	18,921



ASSETS	At December 31, 2015		At September 30, 2015
Segment assets:
Home & Building Products	$	1,052,909	$	1,034,032
Telephonics	300,622		302,560
PPC	338,536		343,519
Total segment assets	1,692,067		1,680,111
Corporate	47,186		47,831
Total continuing assets	1,739,253		1,727,942
Assets of discontinued operations	3,936		3,491
Consolidated total	$	1,743,189	$	1,731,433

NOTE 12 – DEFINED BENEFIT PENSION EXPENSE

Defined benefit pension expense (income) was as follows:



	Three Months Ended December 31,
	2015			2014
Interest cost	$	2,080		$	2,207
Expected return on plan assets	(2,916		)	(2,932		)
Amortization:
Prior service cost	4			4
Recognized actuarial loss	590			541
Net periodic expense (income)	$	(242	)	$	(180	)

NOTE 13 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued guidance on revenue from contracts with customers. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of

money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in 2019; early adoption is permitted beginning in 2018. We have not yet selected a transition method and are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.

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

In April 2015, the FASB issued guidance on simplifying the presentation of debt issuance costs. This guidance requires debt issuance costs on the balance sheet to be presented as a direct deduction from the carrying amount of a related debt liability, similar to debt discounts. The Company early adopted this guidance in March 2015 and applied it retrospectively for all periods presented in the financial statements. Adoption of this standard did not have a significant impact on the Company's consolidated financial statements.

In November 2015, the FASB issued guidance on simplifying the presentation of deferred income taxes, requiring deferred income tax liabilities and assets to be classified as non-current in the statement of financial position. This guidance may be applied retrospectively or prospectively to all annual and interim periods presented and is effective for the Company beginning in fiscal 2018; implementation of this guidance is not expected to have a material effect on the Company’s financial condition or results of operations.

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

NOTE 14 – DISCONTINUED OPERATIONS

The following amounts related to the Installation Services segment, discontinued in 2008, and other businesses discontinued several years ago, which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the condensed consolidated balance sheets:



	At December 31, 2015		At September 30, 2015
Assets of discontinued operations:
Prepaid and other current assets	$	1,360	$	1,316
Other long-term assets	2,576		2,175
Total assets of discontinued operations	$	3,936	$	3,491

Liabilities of discontinued operations:
Accrued liabilities, current	$	2,033	$	2,229
Other long-term liabilities	3,634		3,379
Total liabilities of discontinued operations	$	5,667	$	5,608

There was no Installation Services revenue or income for the three months ended December 31, 2015 or 2014.

NOTE 15 – OTHER EXPENSE

For the quarters ended December 31, 2015 and 2014, Other income (expense) included $431 and ($540), respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries as well as $192 and $46, respectively, of net investment income.

NOTE 16 – WARRANTY LIABILITY

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

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



	Three Months Ended December 31,
	2015			2014
Balance, beginning of period	$	4,756		$	4,935
Warranties issued and changes in estimated pre-existing warranties	917			948
Actual warranty costs incurred	(895		)	(975		)
Balance, end of period	$	4,778		$	4,908

NOTE 17 – OTHER COMPREHENSIVE INCOME (LOSS)

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



	Three Months Ended December 31, 2015									Three Months Ended December 31, 2014
	Pre-tax			Tax			Net of tax			Pre-tax			Tax			Net of tax
Foreign currency translation adjustments	$	(3,349	)	$	—		$	(3,349	)	$	(15,500	)	$	—		$	(15,500	)
Pension and other defined benefit plans	594			(208		)	386			545			(192		)	353
Cash flow hedge	(1,450		)	435			(1,015		)	(113		)	39			(74		)
Available-for-sale securities	$	—		$	—		$	—		$	(1,515	)	$	553		$	(962	)
Total other comprehensive income (loss)	$	(4,205	)	$	227		$	(3,978	)	$	(16,583	)	$	400		$	(16,183	)

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



	December 31, 2015			September 30, 2015
Foreign currency translation adjustments	$	(63,527	)	$	(60,178	)
Pension and other defined benefit plans	(31,306		)	(31,692		)
Cash flow hedge	(333		)	682
	$	(95,166	)	$	(91,188	)

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



	For the Three Months Ended December 31,
Gain (Loss)	2015			2014
Pension amortization	$	(594	)	$	(545	)
Cash flow hedges	405			113
Total gain (loss)	(189		)	(432		)
Tax benefit (expense)	87			153
Total	$	(102	)	$	(279	)

NOTE 18 — COMMITMENTS AND CONTINGENCIES

Legal and environmental

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

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

In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment medias, remediation alternatives having a current net capital cost value, in the aggregate, of approximately $5,000. In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has no further obligations under the consent order.

Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater medias, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is approximately $10,000. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.

It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

Improper Advertisement Claim involving Union Tools® Products. Since December 2004, a customer of AMES has been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters have asserted causes of action against the customer of AMES for improper advertisement to end consumers. The allegations suggest that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States. The complaints assert various causes of action against the customer of AMES under federal and state law, including common law fraud. At some point, likely once the litigation against the customer of AMES ends, the customer may seek indemnity (including recovery of its legal fees and costs) against AMES for an unspecified amount. Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against AMES.

Union Fork and Hoe, Frankfort, NY site. The former Union Fork and Hoe property in Frankfort, NY was acquired by Ames in 2006 as part of a larger acquisition, and has historic site contamination involving chlorinated solvents, petroleum hydrocarbons and metals. AMES has entered into an Order on Consent with the New York State Department of Environmental Conservation. While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, AMES is required to perform a remedial investigation of certain portions of the property and to recommend a remediation option. At the conclusion of the remediation phase to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. AMES has performed significant investigative and remedial activities in the last few years under work plans approved by the DEC, and the DEC recently approved the final remedial investigation report. AMES is now required to submit a Feasibility Study investigating four remedial options, and expects to do so in calendar 2016. The DEC is expected to issue a Record of Decision approving the selection of a remedial alternative in calendar 2016. Implementation of the selected remedial alternative is expected to occur in 2017. AMES has a number of defenses to liability in this matter, including its rights under a 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 (“DCAA”), the Defense Criminal Investigative Service (“DCIS”), and the Department of Justice ("DOJ") which has responsibility for asserting claims on behalf of the U.S. government. In addition to ongoing audits, Griffon is currently in discussions with the civil division of the U.S. Department of Justice regarding certain amounts the civil division has indicated it believes it is owed from Griffon with respect to certain U.S. government contracts in which Griffon acted as a subcontractor. No claim has been asserted against Griffon in connection with this matter, and Griffon believes that it does not have a material financial exposure in connection with this matter.

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

General legal

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

Operating Leases

Griffon rents 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 $7,333 and $7,762 for the three months ending December 31, 2015 and 2014, respectively. Aggregate future minimum lease payments for operating leases at December 31, 2015 are $26,145 in 2016, $20,391 in 2017, $17,666 in 2018, $14,609 in 2019, $10,005 in 2020 and $9,294 thereafter.

NOTE 19 — CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, The AMES Companies, Inc., ATT Southern, Inc. and Clopay Ames True Temper Holding Corp., all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of December 31, 2015 and September 30, 2015 and for the three months ended December 31, 2015 and 2014. The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.

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

CONDENSED CONSOLIDATING BALANCE SHEETS

At December 31, 2015



	Parent Company		Guarantor Companies		Non-Guarantor Companies		Elimination			Consolidation
CURRENT ASSETS
Cash and equivalents	$	3,589	$	12,108	$	34,271	$	—		$	49,968
Accounts receivable, net of allowances	—		173,229		56,542		(23,889		)	205,882
Contract costs and recognized income not yet billed, net of progress payments	—		122,655		268		—			122,923
Inventories, net	—		262,064		72,398		—			334,462
Prepaid and other current assets	20,530		28,850		11,782		(4,336		)	56,826
Assets of discontinued operations	—		—		1,360		—			1,360
Total Current Assets	24,119		598,906		176,621		(28,225		)	771,421
PROPERTY, PLANT AND EQUIPMENT, net	1,064		283,657		91,389		—			376,110
GOODWILL	—		284,875		71,537		—			356,412
INTANGIBLE ASSETS, net	—		151,299		60,173		—			211,472
INTERCOMPANY RECEIVABLE	575,596		974,449		273,821		(1,823,866		)	—
EQUITY INVESTMENTS IN SUBSIDIARIES	752,342		642,949		1,746,165		(3,141,456		)	—
OTHER ASSETS	42,072		33,002		9,444		(59,320		)	25,198
ASSETS OF DISCONTINUED OPERATIONS	—		—		2,576		—			2,576
Total Assets	$	1,395,193	$	2,969,137	$	2,431,726	$	(5,052,867	)	$	1,743,189
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	2,202	$	2,287	$	10,700	$	—		$	15,189
Accounts payable and accrued liabilities	33,681		185,267		68,020		(23,609		)	263,359
Liabilities of discontinued operations	—				2,033		—			2,033
Total Current Liabilities	35,883		187,554		80,753		(23,609		)	280,581

LONG-TERM DEBT, net	813,902		20,373		51,753		—			886,028
INTERCOMPANY PAYABLES	58,957		949,455		787,779		(1,796,191		)	—
OTHER LIABILITIES	58,072		125,825		26,840		(66,170		)	144,567
LIABILITIES OF DISCONTINUED OPERATIONS	—		—		3,634		—			3,634
Total Liabilities	966,814		1,283,207		950,759		(1,885,970		)	1,314,810
SHAREHOLDERS’ EQUITY	428,379		1,685,930		1,480,967		(3,166,897		)	428,379
Total Liabilities and Shareholders’ Equity	$	1,395,193	$	2,969,137	$	2,431,726	$	(5,052,867	)	$	1,743,189

CONDENSED CONSOLIDATING BALANCE SHEETS

At September 30, 2015



	Parent Company		Guarantor Companies		Non-Guarantor Companies		Elimination			Consolidation
CURRENT ASSETS
Cash and equivalents	$	2,440	$	10,671	$	38,890	$	—		$	52,001
Accounts receivable, net of allowances	—		178,830		61,772		(21,847		)	218,755
Contract costs and recognized income not yet billed, net of progress payments	—		103,879		16		—			103,895
Inventories, net	—		257,929		67,880		—			325,809
Prepaid and other current assets	23,493		27,584		12,488		(8,479		)	55,086
Assets of discontinued operations	—		—		1,316		—			1,316
Total Current Assets	25,933		578,893		182,362		(30,326		)	756,862

PROPERTY, PLANT AND EQUIPMENT, net	1,108		286,854		92,010		—			379,972
GOODWILL	—		284,875		71,366		—			356,241
INTANGIBLE ASSETS, net	—		152,412		61,425		—			213,837
INTERCOMPANY RECEIVABLE	542,297		904,840		263,480		(1,710,617		)	—
EQUITY INVESTMENTS IN SUBSIDIARIES	745,262		644,577		1,740,889		(3,130,728		)	—
OTHER ASSETS	41,774		30,203		9,959		(59,590		)	22,346
ASSETS OF DISCONTINUED OPERATIONS	—		—		2,175		—			2,175
Total Assets	$	1,356,374	$	2,882,654	$	2,423,666	$	(4,931,261	)	$	1,731,433
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	2,202	$	3,842	$	10,549	$	—		$	16,593
Accounts payable and accrued liabilities	30,158		222,758		72,843		(20,951		)	304,808
Liabilities of discontinued operations	—		—		2,229		—			2,229
Total Current Liabilities	32,360		226,600		85,621		(20,951		)	323,630
LONG-TERM DEBT, net	752,839		17,116		57,021		—			826,976
INTERCOMPANY PAYABLES	76,477		831,345		775,120		(1,682,942		)	—
OTHER LIABILITIES	64,173		126,956		28,428		(72,634		)	146,923
LIABILITIES OF DISCONTINUED OPERATIONS	—		—		3,379		—			3,379
Total Liabilities	925,849		1,202,017		949,569		(1,776,527		)	1,300,908
SHAREHOLDERS’ EQUITY	430,525		1,680,637		1,474,097		(3,154,734		)	430,525
Total Liabilities and Shareholders’ Equity	$	1,356,374	$	2,882,654	$	2,423,666	$	(4,931,261	)	$	1,731,433

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended December 31, 2015

($ in thousands)

Parent Company

Guarantor Companies

Non-Guarantor Companies

Elimination

Consolidation

Revenue