UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
S	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
For the quarterly period ended March 31, 2014
 
£	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.  S  Yes  £  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).  S Yes  £  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 £	 	Accelerated filer	x	
Non-accelerated filer  £	 	Smaller reporting company	£	
(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). £ Yes S No
 
The number of shares of common stock outstanding at April 30, 2014 was 54,512,132.

 	
Griffon Corporation and Subsidiaries
 
Contents
 
 	Page	
PART I - FINANCIAL INFORMATION	 	
 	 	
Item 1 - Financial Statements	 	
 	 	
Condensed Consolidated Balance Sheets at March 31, 2014 (unaudited) and September 30, 2013	1	
 	 	
Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended March 31, 2014 (unaudited)	1	
 	 	
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2014 and 2013 (unaudited)	2	
 	 	
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2014 and 2013 (unaudited)	3	
 	 	
Notes to Condensed Consolidated Financial Statements (unaudited)	4	
 	 	
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	26	
 	 	
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	38	
 	 	
Item 4 - Controls & Procedures	39	
 	 	
PART II - OTHER INFORMATION	 	
 	 	
Item 1 - Legal Proceedings	39	
 	 	
Item 1A - Risk Factors	39	
 	 	
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	40	
 	 	
Item 3 - Defaults Upon Senior Securities	40	
 	 	
Item 4 - Mine Safety Disclosures	40	
 	 	
Item 5 - Other Information	40	
 	 	
Item 6 - Exhibits	40	
 	 	
Signatures	42	
 	 	
Exhibit Index	43	

 	
Part I - Financial Information
Item 1 - Financial Statements
 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 	 	(Unaudited)
At March 31,
2014	 	 	At September
30, 2013	 	
CURRENT ASSETS	 	 	 	 	 	 	
Cash and equivalents	 	$	69,933	 	 	$	178,130	 	
Accounts receivable, net of allowances of $6,481 and $6,136	 	 	309,162	 	 	 	256,215	 	
Contract costs and recognized income not yet billed, net of progress payments of $ 13,173 and $6,941	 	 	107,825	 	 	 	109,828	 	
Inventories, net	 	 	256,690	 	 	 	230,120	 	
Prepaid and other current assets	 	 	51,212	 	 	 	48,903	 	
Assets of discontinued operations	 	 	1,217	 	 	 	1,214	 	
Total Current Assets	 	 	796,039	 	 	 	824,410	 	
PROPERTY, PLANT AND EQUIPMENT, net	 	 	357,882	 	 	 	353,593	 	
GOODWILL	 	 	370,172	 	 	 	357,730	 	
INTANGIBLE ASSETS, net	 	 	224,226	 	 	 	221,391	 	
OTHER ASSETS	 	 	30,774	 	 	 	28,580	 	
ASSETS OF DISCONTINUED OPERATIONS	 	 	3,107	 	 	 	3,075	 	
Total Assets	 	$	1,782,200	 	 	$	1,788,779	 	
 	 	 	 	 	 	 	 	 	
CURRENT LIABILITIES	 	 	 	 	 	 	 	 	
Notes payable and current portion of long-term debt	 	$	13,393	 	 	$	10,768	 	
Accounts payable	 	 	182,505	 	 	 	163,610	 	
Accrued liabilities	 	 	82,472	 	 	 	106,743	 	
Liabilities of discontinued operations	 	 	3,069	 	 	 	3,288	 	
Total Current Liabilities	 	 	281,439	 	 	 	284,409	 	
LONG-TERM DEBT, net of debt discount of $11,454 and $13,246	 	 	773,579	 	 	 	678,487	 	
OTHER LIABILITIES	 	 	165,071	 	 	 	170,675	 	
LIABILITIES OF DISCONTINUED OPERATIONS	 	 	4,359	 	 	 	4,744	 	
Total Liabilities	 	 	1,224,448	 	 	 	1,138,315	 	
COMMITMENTS AND CONTINGENCIES - See Note 19	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Total Shareholders’ Equity	 	 	557,752	 	 	 	650,464	 	
Total Liabilities and Shareholders’ Equity	 	$	1,782,200	 	 	$	1,788,779	 	
 
GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(Unaudited)
 
 	 	COMMON STOCK	 	 	CAPITAL IN
EXCESS OF	 	 	RETAINED	 	 	TREASURY SHARES	 	 	ACCUMULATED
OTHER
COMPREHENSIVE	 	 	DEFERRED	 	 	 	 	
(in thousands)	 	SHARES	 	 	PAR VALUE	 	 	PAR VALUE	 	 	EARNINGS	 	 	SHARES	 	 	COST	 	 	INCOME (LOSS)	 	 	COMPENSATION	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2013	 	 	77,616	 	 	$	19,404	 	 	$	494,412	 	 	$	434,363	 	 	 	18,527	 	 	$	(274,602	)	 	$	(3,339	)	 	$	(19,774	)	 	$	650,464	 	
Net loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(22,589	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(22,589	)	
Dividend	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,290	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,290	)	
Tax effect from exercise/vesting of equity awards, net	 	 	-	 	 	 	-	 	 	 	273	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	273	 	
Amortization of deferred compensation	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,043	 	 	 	1,043	 	
Common stock acquired	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,454	 	 	 	(63,370	)	 	 	-	 	 	 	-	 	 	 	(63,370	)	
Stock grants and equity awards, net	 	 	877	 	 	 	219	 	 	 	300	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	519	 	
ESOP purchase of common stock	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(10,000	)	 	 	(10,000	)	
ESOP allocation of common stock	 	 	-	 	 	 	-	 	 	 	204	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	204	 	
Stock-based compensation	 	 	-	 	 	 	-	 	 	 	4,996	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,996	 	
Other comprehensive loss, net of tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(498	)	 	 	-	 	 	 	(498	)	
Balance at March 31, 2014	 	 	78,493	 	 	$	19,623	 	 	$	500,185	 	 	$	408,484	 	 	 	23,981	 	 	$	(337,972	)	 	$	(3,837	)	 	$	(28,731	)	 	$	557,752	 	
 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
1	

 	
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
 
 	 	Three Months Ended March 31,	 	 	Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Revenue	 	$	507,687	 	 	$	488,743	 	 	$	961,145	 	 	$	912,492	 	
Cost of goods and services	 	 	397,700	 	 	 	383,246	 	 	 	745,655	 	 	 	709,325	 	
Gross profit	 	 	109,987	 	 	 	105,497	 	 	 	215,490	 	 	 	203,167	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	89,622	 	 	 	86,059	 	 	 	177,302	 	 	 	168,278	 	
Restructuring and other related charges	 	 	692	 	 	 	9,336	 	 	 	1,534	 	 	 	10,444	 	
Total operating expenses	 	 	90,314	 	 	 	95,395	 	 	 	178,836	 	 	 	178,722	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations	 	 	19,673	 	 	 	10,102	 	 	 	36,654	 	 	 	24,445	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	(12,389	)	 	 	(13,060	)	 	 	(25,523	)	 	 	(26,167	)	
Interest income	 	 	28	 	 	 	151	 	 	 	61	 	 	 	179	 	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	(38,890	)	 	 	-	 	
Other, net	 	 	783	 	 	 	422	 	 	 	1,689	 	 	 	908	 	
Total other expense, net	 	 	(50,468	)	 	 	(12,487	)	 	 	(62,663	)	 	 	(25,080	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss before taxes	 	 	(30,795	)	 	 	(2,385	)	 	 	(26,009	)	 	 	(635	)	
Benefit for income taxes	 	 	(4,970	)	 	 	(1,566	)	 	 	(3,420	)	 	 	(374	)	
Net loss	 	$	(25,825	)	 	$	(819	)	 	$	(22,589	)	 	$	(261	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic loss per common share	 	$	(0.53	)	 	$	(0.02	)	 	$	(0.44	)	 	$	(0.00	)	
Weighted-average shares outstanding	 	 	48,990	 	 	 	54,345	 	 	 	50,872	 	 	 	54,749	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted loss per common share	 	$	(0.53	)	 	$	(0.02	)	 	$	(0.44	)	 	$	(0.00	)	
Weighted-average shares outstanding	 	 	48,990	 	 	 	54,345	 	 	 	50,872	 	 	 	54,749	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(25,825	)	 	$	(819	)	 	$	(22,589	)	 	$	(261	)	
Other comprehensive income (loss), net of taxes:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustments	 	 	1,224	 	 	 	(5,924	)	 	 	(1,913	)	 	 	(2,921	)	
Pension and other post retirement plans	 	 	1,099	 	 	 	489	 	 	 	1,415	 	 	 	4,349	 	
Gain on cash flow hedge	 	 	-	 	 	 	171	 	 	 	-	 	 	 	171	 	
Total other comprehensive income (loss), net of taxes	 	 	2,323	 	 	 	(5,264	)	 	 	(498	)	 	 	1,599	 	
Comprehensive income (loss), net	 	$	(23,502	)	 	$	(6,083	)	 	$	(23,087	)	 	$	1,338	 	
 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
2	

 	
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 	 	Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net loss	 	$	(22,589	)	 	$	(261	)	
 	 	 	 	 	 	 	 	 	
Adjustments to reconcile net loss to net cash used in operating activities:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	33,232	 	 	 	35,038	 	
Stock-based compensation	 	 	4,996	 	 	 	6,298	 	
Asset impairment charges - restructuring	 	 	169	 	 	 	3,122	 	
Provision for losses on accounts receivable	 	 	132	 	 	 	440	 	
Amortization of deferred financing costs and debt discounts	 	 	3,188	 	 	 	3,102	 	
Loss from debt extinguishment, net	 	 	38,890	 	 	 	-	 	
Deferred income taxes	 	 	(57	)	 	 	(592	)	
(Gain) loss on sale/disposal of assets	 	 	180	 	 	 	(801	)	
Change in assets and liabilities, net of assets and liabilities acquired:	 	 	 	 	 	 	 	 	
Increase in accounts receivable and contract costs and recognized income not yet billed	 	 	(46,834	)	 	 	(87,531	)	
(Increase) decrease in inventories	 	 	(23,858	)	 	 	90	 	
Decrease in prepaid and other assets	 	 	3,482	 	 	 	411	 	
(Decrease) increase in accounts payable, accrued liabilities and income taxes payable	 	 	(18,713	)	 	 	7,080	 	
Other changes, net	 	 	1,145	 	 	 	(379	)	
Net cash used in operating activities	 	 	(26,637	)	 	 	(33,983	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	
Acquisition of property, plant and equipment	 	 	(34,845	)	 	 	(30,995	)	
Acquired business, net of cash acquired	 	 	(22,720	)	 	 	-	 	
Proceeds from sale of assets	 	 	294	 	 	 	1,216	 	
Net cash used in investing activities	 	 	(57,271	)	 	 	(29,779	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	
Proceeds from issuance of common stock	 	 	584	 	 	 	-	 	
Dividends paid	 	 	(3,290	)	 	 	(2,938	)	
Purchase of shares for treasury	 	 	(63,370	)	 	 	(22,109	)	
Proceeds from issuance of long-term debt	 	 	644,514	 	 	 	303	 	
Payments of long-term debt	 	 	(586,310	)	 	 	(5,400	)	
Change in short-term borrowings	 	 	4,908	 	 	 	2,157	 	
Financing costs	 	 	(10,687	)	 	 	(759	)	
Purchase of ESOP shares	 	 	(10,000	)	 	 	-	 	
Tax benefit from exercise/vesting of equity awards, net	 	 	273	 	 	 	150	 	
Other, net	 	 	144	 	 	 	242	 	
Net cash used in financing activities	 	 	(23,234	)	 	 	(28,354	)	
 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	 	 	 	 	 	 	 	
Net cash used in operating activities	 	 	(640	)	 	 	(478	)	
Net cash used in discontinued operations	 	 	(640	)	 	 	(478	)	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and equivalents	 	 	(415	)	 	 	(138	)	
 	 	 	 	 	 	 	 	 	
NET DECREASE IN CASH AND EQUIVALENTS	 	 	(108,197	)	 	 	(92,732	)	
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	 	 	178,130	 	 	 	209,654	 	
CASH AND EQUIVALENTS AT END OF PERIOD	 	$	69,933	 	 	$	116,922	 	
 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
3	

 	
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except share and 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. Griffon, to further diversify, 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 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 that make work easier for homeowners and professionals.	
 
 	-	CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.	
 
 	•	Telephonics Corporation (“Telephonics”) designs, develops and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.	
 
 	•	Clopay Plastic Products Company, Inc. (“Plastics”) is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.	
 
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, 2013, 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, 2013 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2013.
 
The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated on consolidation.
4	

 	
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 discontinued assets and liabilities, and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.
 
Certain amounts in the prior year have been reclassified to conform to current year presentation.
 
NOTE 2 - FAIR VALUE MEASUREMENTS
 
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates.
 
The fair values of Griffon’s senior notes due 2022 and 2017 4% convertible notes approximated $591,000 and $111,300, respectively, on March 31, 2014. Fair values were based upon quoted market prices (level 1 inputs).
 
Items Measured at Fair Value on a Recurring Basis
 
Insurance contracts and trading securities with values of $3,644 and $1,321 at March 31, 2014, respectively, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 2 inputs).
 
At March 31, 2014, Griffon had $3,861 of Australian dollar contracts at a weighted average rate of $1.10. The contracts, which protect Australia operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and a fair value gain of $16 and $54 was recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the quarter and six months ended March 31, 2014, respectively. All contracts expire in 15 to 80 days.
 
NOTE 3 - ACQUISITION
 
On December 31, 2013, Ames acquired Northcote Pottery (“Northcote”), founded in 1897 and a leading brand in the Australian outdoor planter and decor market, for approximately $22,000. Northcote complements Southern Patio, acquired in 2011, and adds to Ames’ existing lawn and garden operations in Australia. Northcote, which will be integrated with Ames, is expected to generate approximately $28,000 of annualized revenue. Included in selling, general and administrative expenses are $798 of acquisition costs, incurred by Griffon, related to this transaction in the first quarter of 2014.
 
The accounts of the acquired company, after adjustment to reflect fair market values (level 2 inputs) assigned to assets purchased, have been included in the consolidated financial statements from date of acquisition; acquired inventory was not significant.
5	

 	
The following table summarizes the preliminary fair values of the Northcote assets and liabilities as of the date of acquisition:
 
 	 	2014	 	
Current Assets, net of cash acquired	 	$	7,921	 	
PP&E	 	 	1,376	 	
Goodwill	 	 	11,617	 	
Amortizable intangible assets	 	 	6,023	 	
Indefinite life intangible assets	 	 	1,686	 	
Total assets acquired	 	 	28,623	 	
Total liabilities assumed	 	 	(6,903	)	
Net assets acquired	 	$	21,720	 	
 
The amounts assigned to major intangible asset classifications, none of which are tax deductible, for the Northcote acquisition are as follows:
 
 	 	 	 	 	Amortization	 	
 	 	2014	 	 	Period (Years)	 	
 Goodwill	 	$	11,617	 	 	 	N/A	 	
 Tradenames	 	 	1,686	 	 	 	Indefinite	 	
 Customer relationships	 	 	6,023	 	 	 	25	 	
 	 	$	19,326	 	 	 	 	 	
 
NOTE 4 - INVENTORIES
 
Inventories are stated at the lower of cost (first-in, first-out or average) or market.
 
The following table details the components of inventory:
 
 	 	At March 31,	 	 	At September 30,	 	
 	 	2014	 	 	2013	 	
Raw materials and supplies	 	$	73,152	 	 	$	65,560	 	
Work in process	 	 	68,795	 	 	 	63,930	 	
Finished goods	 	 	114,743	 	 	 	100,630	 	
Total	 	$	256,690	 	 	$	230,120	 	
 
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
 
The following table details the components of property, plant and equipment, net:
 
 	 	At March 31,	 	 	At September 30,	 	
 	 	2014	 	 	2013	 	
Land, building and building improvements	 	$	130,974	 	 	$	130,905	 	
Machinery and equipment	 	 	697,621	 	 	 	661,094	 	
Leasehold improvements	 	 	36,454	 	 	 	35,884	 	
 	 	 	865,049	 	 	 	827,883	 	
Accumulated depreciation and amortization	 	 	(507,167	)	 	 	(474,290	)	
Total	 	$	357,882	 	 	$	353,593	 	
 
Depreciation and amortization expense for property, plant and equipment was $14,491 and $15,695 for the quarters ended March 31, 2014 and 2013, respectively, and $29,396 and $31,066 for the six months ended March 31, 2014 and 2013, respectively.
6	

 	
No event or indicator of impairment occurred during the quarter ended March 31, 2014, which would require additional impairment testing of property, plant and equipment.
 
NOTE 6 - GOODWILL AND OTHER INTANGIBLES
 
The following table provides changes in the carrying value of goodwill by segment during the six months ended March 31, 2014:
 
 	 	At September 30,
2013	 	 	Goodwill from
2014 acquisitions	 	 	Other
adjustments
including currency
translations	 	 	At March 31,
2014	 	
Home & Building Products	 	$	269,802	 	 	$	11,617	 	 	$	244	 	 	$	281,663	 	
Telephonics	 	 	18,545	 	 	 	-	 	 	 	-	 	 	 	18,545	 	
Plastics	 	 	69,383	 	 	 	-	 	 	 	581	 	 	 	69,964	 	
Total	 	$	357,730	 	 	$	11,617	 	 	$	825	 	 	$	370,172	 	
 
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:
 
 	 	At March 31, 2014	 	 	 	 	 	At September 30, 2013	 	
 	 	Gross Carrying Amount	 	 	Accumulated Amortization	 	 	Average
Life
(Years)	 	 	Gross Carrying Amount	 	 	Accumulated Amortization	 	
Customer relationships	 	$	172,191	 	 	$	32,515	 	 	 	25	 	 	$	166,985	 	 	$	29,049	 	
Unpatented technology	 	 	6,804	 	 	 	3,177	 	 	 	13	 	 	 	6,804	 	 	 	2,916	 	
Total amortizable intangible assets	 	 	178,995	 	 	 	35,692	 	 	 	 	 	 	 	173,789	 	 	 	31,965	 	
Trademarks	 	 	80,923	 	 	 	-	 	 	 	 	 	 	 	79,567	 	 	 	-	 	
Total intangible assets	 	$	259,918	 	 	$	35,692	 	 	 	 	 	 	$	253,356	 	 	$	31,965	 	
 
Amortization expense for intangible assets was $1,949 and $1,986 for the quarters ended March 31, 2014 and 2013, respectively, and $3,836 and $3,972 for the six months ended March 31, 2014 and 2013, respectively.
 
No event or indicator of impairment occurred during the quarter ended March 31, 2014, which would require impairment testing of long-lived intangible assets including goodwill.
 
NOTE 7 - INCOME TAXES
 
In the quarter and six-month periods ended March 31, 2014 and 2013, the Company incurred pretax losses. The Company recognized tax benefits of 16.1% and 13.2% for the quarter and six-month periods ended March 31, 2014, respectively, compared to benefits of 65.7% and 59.0%, respectively, in the comparable prior year periods. The current and prior year benefit rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and changes in earnings mix between domestic and non-domestic operations, which are material relative to the level of pretax result.
 
The current quarter and six-month periods include $609 and $320, respectively, of provisions for discrete items resulting primarily from the conclusion of tax audits in certain jurisdictions, and the impact of tax law changes enacted in the current quarter. The comparable prior year periods included $309 and $364, respectively, of benefits from discrete items, primarily the retroactive extension of the federal R&D credit signed into law January 2, 2013.
 
Excluding discrete items, the effective tax benefit rates for the quarter and six month periods ended March 31, 2014 were 18.1% and 14.4%, respectively, compared to benefit rates of 52.7% and 1.7% in the comparable prior year periods, respectively.
7	

 	
NOTE 8 - LONG-TERM DEBT
 
 	 	 	 	At March 31, 2014	 	 	At September 30, 2013	 	
  	 	 	 	 	Outstanding Balance	 	 	 	Original Issuer Discount	 	 	 	Balance Sheet	 	 	 	Capitalized Fees & Expenses	 	 	 	Coupon Interest Rate	 	 	 	Outstanding Balance	 	 	 	Original Issuer Discount	 	 	 	Balance Sheet	 	 	 	Capitalized Fees & Expenses	 	 	 	Coupon Interest Rate	 	
Senior notes due 2018	 	(a)	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	 	n/a	 	 	$	550,000	 	 	$	-	 	 	$	550,000	 	 	$	7,328	 	 	 	7.10	%	
Senior notes due 2022	 	(a)	 	 	600,000	 	 	 	-	 	 	 	600,000	 	 	 	9,839	 	 	 	5.25	%	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	n/a	 	
Revolver due 2019	 	(a)	 	 	20,000	 	 	 	-	 	 	 	20,000	 	 	 	2,227	 	 	 	n/a	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,425	 	 	 	n/a	 	
Convert. debt due 2017	 	(b)	 	 	100,000	 	 	 	(11,454	)	 	 	88,546	 	 	 	1,256	 	 	 	4.00	%	 	 	100,000	 	 	 	(13,246	)	 	 	86,754	 	 	 	1,478	 	 	 	4.00	%	
Real estate mortgages	 	(c)	 	 	16,818	 	 	 	-	 	 	 	16,818	 	 	 	657	 	 	 	n/a	 	 	 	13,212	 	 	 	-	 	 	 	13,212	 	 	 	185	 	 	 	n/a	 	
ESOP Loans	 	(d)	 	 	30,087	 	 	 	-	 	 	 	30,087	 	 	 	79	 	 	 	n/a	 	 	 	21,098	 	 	 	-	 	 	 	21,098	 	 	 	24	 	 	 	n/a	 	
Capital lease - real estate	 	(e)	 	 	9,042	 	 	 	-	 	 	 	9,042	 	 	 	194	 	 	 	5.00	%	 	 	9,529	 	 	 	-	 	 	 	9,529	 	 	 	207	 	 	 	5.00	%	
Non U.S. lines of credit	 	(f)	 	 	9,443	 	 	 	-	 	 	 	9,443	 	 	 	-	 	 	 	n/a	 	 	 	4,606	 	 	 	-	 	 	 	4,606	 	 	 	-	 	 	 	n/a	 	
Non U.S. term loans	 	(f)	 	 	11,559	 	 	 	-	 	 	 	11,559	 	 	 	88	 	 	 	n/a	 	 	 	3,115	 	 	 	-	 	 	 	3,115	 	 	 	27	 	 	 	n/a	 	
Other long term debt	 	(g)	 	 	1,477	 	 	 	-	 	 	 	1,477	 	 	 	29	 	 	 	n/a	 	 	 	941	 	 	 	-	 	 	 	941	 	 	 	-	 	 	 	n/a	 	
Totals	 	 	 	 	798,426	 	 	 	(11,454	)	 	 	786,972	 	 	$	14,369	 	 	 	 	 	 	 	702,501	 	 	 	(13,246	)	 	 	689,255	 	 	$	11,674	 	 	 	 	 	
less: Current portion	 	 	 	 	(13,393	)	 	 	-	 	 	 	(13,393	)	 	 	 	 	 	 	 	 	 	 	(10,768	)	 	 	-	 	 	 	(10,768	)	 	 	 	 	 	 	 	 	
Long-term debt	 	 	 	$	785,033	 	 	$	(11,454	)	 	$	773,579	 	 	 	 	 	 	 	 	 	 	$	691,733	 	 	$	(13,246	)	 	$	678,487	 	 	 	 	 	 	 	 	 	
 
 	 	 	 	Three Months Ended March 31, 2014	 	 	Three Months Ended March 31, 2013	 	
 	 	 	 	Effective Interest Rate	 	 	Cash Interest	 	 	Amort. Debt
Discount	 	 	Amort.
Deferred Cost
& Other Fees	 	 	Total Interest Expense	 	 	Effective Interest Rate	 	 	Cash Interest	 	 	Amort. Debt
Discount	 	 	Amort.
Deferred Cost
& Other Fees	 	 	Total Interest Expense	 	
Senior notes due 2018	 	(a)	 	 	7.1	%	 	$	6,133	 	 	$	-	 	 	$	261	 	 	$	6,394	 	 	 	7.5	%	 	$	9,797	 	 	$	-	 	 	$	405	 	 	$	10,202	 	
Senior notes due 2022	 	(a)	 	 	5.3	%	 	 	2,800	 	 	 	-	 	 	 	111	 	 	 	2,911	 	 	 	n/a	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Revolver due 2019	 	(a)	 	 	n/a	 	 	 	306	 	 	 	-	 	 	 	142	 	 	 	448	 	 	 	n/a	 	 	 	206	 	 	 	-	 	 	 	157	 	 	 	363	 	
Convert. debt due 2017	 	(b)	 	 	9.3	%	 	 	1,000	 	 	 	909	 	 	 	110	 	 	 	2,019	 	 	 	9.3	%	 	 	1,000	 	 	 	834	 	 	 	111	 	 	 	1,945	 	
Real estate mortgages	 	(c)	 	 	3.8	%	 	 	122	 	 	 	-	 	 	 	37	 	 	 	159	 	 	 	5.4	%	 	 	135	 	 	 	-	 	 	 	22	 	 	 	157	 	
ESOP Loans	 	(d)	 	 	3.4	%	 	 	180	 	 	 	-	 	 	 	5	 	 	 	185	 	 	 	2.9	%	 	 	158	 	 	 	-	 	 	 	2	 	 	 	160	 	
Capital lease - real estate	 	(e)	 	 	5.3	%	 	 	114	 	 	 	-	 	 	 	7	 	 	 	121	 	 	 	5.2	%	 	 	125	 	 	 	-	 	 	 	7	 	 	 	132	 	
Non U.S. lines of credit	 	(f)	 	 	n/a	 	 	 	224	 	 	 	-	 	 	 	-	 	 	 	224	 	 	 	n/a	 	 	 	147	 	 	 	-	 	 	 	-	 	 	 	147	 	
Non U.S. term loans	 	(f)	 	 	n/a	 	 	 	101	 	 	 	-	 	 	 	-	 	 	 	101	 	 	 	n/a	 	 	 	133	 	 	 	-	 	 	 	25	 	 	 	158	 	
Other long term debt	 	(g)	 	 	n/a	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	n/a	 	 	 	136	 	 	 	-	 	 	 	-	 	 	 	136	 	
Capitalized interest	 	 	 	 	 	 	 	 	(173	)	 	 	-	 	 	 	-	 	 	 	(173	)	 	 	 	 	 	 	(340	)	 	 	-	 	 	 	-	 	 	 	(340	)	
Totals	 	 	 	 	 	 	 	$	10,807	 	 	$	909	 	 	$	673	 	 	$	12,389	 	 	 	 	 	 	$	11,497	 	 	$	834	 	 	$	729	 	 	$	13,060	 	
 
 	 	 	 	Six Months Ended March 31, 2014	 	 	Six Months Ended March 31, 2013	 	
 	 	 	 	Effective Interest Rate	 	 	Cash Interest	 	 	Amort. Debt Discount	 	 	Amort. Deferred Cost & Other Fees	 	 	Total Interest Expense	 	 	Effective Interest Rate	 	 	Cash Interest	 	 	Amort. Debt Discount	 	 	Amort. Deferred Cost & Other Fees	 	 	Total Interest Expense	 	
Senior notes due 2018	 	(a)	 	 	7.1	%	 	$	15,930	 	 	$	-	 	 	$	667	 	 	$	16,597	 	 	 	7.4	%	 	$	19,594	 	 	$	-	 	 	$	811	 	 	$	20,405	 	
Senior notes due 2022	 	(a)	 	 	5.3	%	 	 	2,800	 	 	 	-	 	 	 	111	 	 	 	2,911	 	 	 	n/a	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Revolver due 2019	 	(a)	 	 	n/a	 	 	 	473	 	 	 	-	 	 	 	278	 	 	 	751	 	 	 	n/a	 	 	 	424	 	 	 	-	 	 	 	313	 	 	 	737	 	
Convert. debt due 2017	 	(b)	 	 	9.1	%	 	 	2,000	 	 	 	1,792	 	 	 	221	 	 	 	4,013	 	 	 	9.2	%	 	 	2,000	 	 	 	1,645	 	 	 	222	 	 	 	3,867	 	
Real estate mortgages	 	(c)	 	 	4.0	%	 	 	252	 	 	 	-	 	 	 	73	 	 	 	325	 	 	 	5.4	%	 	 	274	 	 	 	-	 	 	 	43	 	 	 	317	 	
ESOP Loans	 	(d)	 	 	3.2	%	 	 	332	 	 	 	-	 	 	 	7	 	 	 	339	 	 	 	2.9	%	 	 	325	 	 	 	-	 	 	 	4	 	 	 	329	 	
Capital lease - real estate	 	(e)	 	 	5.3	%	 	 	233	 	 	 	-	 	 	 	14	 	 	 	247	 	 	 	5.3	%	 	 	256	 	 	 	-	 	 	 	13	 	 	 	269	 	
Non U.S. lines of credit	 	(f)	 	 	n/a	 	 	 	417	 	 	 	-	 	 	 	-	 	 	 	417	 	 	 	n/a	 	 	 	260	 	 	 	-	 	 	 	-	 	 	 	260	 	
Non U.S. term loans	 	(f)	 	 	n/a	 	 	 	153	 	 	 	-	 	 	 	4	 	 	 	157	 	 	 	n/a	 	 	 	306	 	 	 	-	 	 	 	51	 	 	 	357	 	
Other long term debt	 	(g)	 	 	n/a	 	 	 	11	 	 	 	-	 	 	 	21	 	 	 	32	 	 	 	n/a	 	 	 	251	 	 	 	-	 	 	 	-	 	 	 	251	 	
Capitalized interest	 	 	 	 	 	 	 	 	(266	)	 	 	-	 	 	 	-	 	 	 	(266	)	 	 	 	 	 	 	(625	)	 	 	-	 	 	 	-	 	 	 	(625	)	
Totals	 	 	 	 	 	 	 	$	22,335	 	 	$	1,792	 	 	$	1,396	 	 	$	25,523	 	 	 	 	 	 	$	23,065	 	 	$	1,645	 	 	$	1,457	 	 	$	26,167	 	
 
(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, starting September 1, 2014. Proceeds from the Senior Notes were used to redeem $550,000 of 7.125% senior notes due 2018, to pay a 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 fees and expenses. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. At the time of issuance of the Senior Notes, Griffon agreed that, within certain time periods after the issue date, it would offer to each noteholder, pursuant to a registration statement filed with and to be declared effective by the SEC, the opportunity to exchange its Senior Notes for new notes that have substantially identical terms to those of the Senior Notes (the only material difference being that the new notes are registered with the SEC).	

8	

 	
In connection with these transactions, Griffon capitalized $9,950 of underwriting fees and other expenses incurred related to issuance 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.
 
On February 14, 2014, Griffon amended its $225,000 Revolving Credit Facility (“Credit Agreement”) extending its maturity date from March 28, 2018 to March 28, 2019, amending certain financial maintenance ratio test thresholds and increasing certain baskets for permitted debt, guaranties, liens, asset sales, foreign acquisitions, investments and restricted payments. The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swing line sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or 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. The current margins are 1.25% for base rate loans and 2.25% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the ability of Griffon to incur indebtedness and liens and to 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 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.
 
At March 31, 2014, outstanding borrowings and standby letters of credit were $20,000 and $20,352, respectively; $184,648 was available for borrowing at that date.
 
(b)	On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”). The current conversion rate of the 2017 Notes is 68.6238 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.57 per share. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion; (ii) the 42nd trading day prior to maturity of the notes; and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of March 31, 2014, the above conversion price included dividends paid through March 27, 2014. At both March 31, 2014 and 2013, the 2017 Notes had a capital in excess of par component, net of tax, of $15,720.	
 
(c)	On October 21, 2013, Griffon refinanced two properties’ real estate mortgages to secure new loans totaling $17,175. The loans mature in October 2018, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 2.75%. At March 31, 2014, $16,818 was outstanding.	
 
(d)	In December 2013, Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into an agreement which refinanced the two existing ESOP loans into one new Term Loan in the amount of $21,098. The Agreement also provided a Line Note with $10,000 available to purchase shares of Griffon common stock in the open market through September 29, 2014. As of March 31, 2014, 749,977 shares of Griffon common stock, for a total of $10,000, were purchased with proceeds from the Line Note. In March 2014, the Line Note was combined with the Term Loan to form one new term loan. The loan bears interest at a) LIBOR plus 2.25% or b) the lender’s prime rate, at Griffon’s option. The loan requires quarterly principal payments of $505 through September 30, 2014 and $419 per quarter thereafter, with a balloon payment of approximately $19,000 due at maturity in December 2018. The loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets, and Griffon guarantees repayment. As of March 31, 2014, approximately $30,087 was outstanding.	

9	

 	
 	(e)	In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2022, bears interest at a fixed rate of 5.0%, is secured by a mortgage on the real estate and is guaranteed by Griffon.	
 
 	(f)	In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The term loan was paid off in December 2013 and the revolver had borrowings of $5,500 at March 31, 2014. The revolving facility matures in November 2014, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 2.20% per annum. Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA.	
 
Clopay do Brazil maintains lines of credit of approximately $5,700. Interest on borrowings accrues at a rate of Brazilian CDI plus 6.0% (16.55% at March 31, 2014). At March 31, 2014 there was approximately $3,943 borrowed under the lines. Clopay Plastic Products Co., Inc. 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 (1.45% LIBOR USD and 2.47% Bankers Acceptance Rate CDN as of March 31, 2014). The revolving facility matures in November 2015. Garant is required to maintain a certain minimum equity.  At March 31, 2014, there were no borrowings under the revolving credit facility with CAD $15,000 available for borrowing.
 
In December 2013, Northcote Holdings Pty. Ltd entered into an AUD $12,500 term loan. The term loan is unsecured, requires quarterly interest payments and principal is due at maturity (December 2016). The loan accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.8% per annum (5.5% at March 31, 2014). As of March 31, 2014, Griffon had an outstanding balance of $11,559. Subsidiaries of Northcote Holdings maintain a line of credit of approximately $2,800. The line of credit accrues interest at BBSY plus 2.25% per annum (4.95% at March 31, 2014). At March 31, 2014, there were no outstanding borrowings under the line. Griffon Corporation guarantees both the term loan and the line of credit.
 
 	(g)	Other long-term debt primarily consists of capital leases.	
 
At March 31, 2014, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.
 
NOTE 9 - SHAREHOLDERS’ EQUITY
 
During 2013, the Company declared and paid quarterly dividends of $0.025 per share, totaling $0.10 per share for the year. During the first and second quarter of 2014, the Board of Directors approved and paid a quarterly cash dividend of $0.03 per share. 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 shares; such dividends will be released upon vesting of the underlying restricted shares.
 
On May 1, 2014, the Board of Directors declared a quarterly cash dividend of $0.03 per share, payable on June 26, 2014 to shareholders of record as of the close of business on May 23, 2014.
 
Compensation expense for restricted stock is recognized ratably over the required service period based on the fair value of the grant calculated as the number of shares granted multiplied by the stock price on the date of grant and, for performance shares, the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting is amortized using the straight-line attribution method.
 
In February 2011, shareholders approved the Griffon Corporation 2011 Equity Incentive Plan under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, deferred shares and other stock-based awards may be granted. On January 30, 2014, shareholders approved an amendment and restatement of the Incentive Plan (as amended, the “Incentive Plan”), which, among other things, added 1,200,000 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 4,200,000 (600,000 of which may be issued as incentive stock options), plus any shares underlying awards outstanding on the effective date of the Incentive Plan under the 2006 Incentive Plan that are subsequently cancelled or forfeited. As of March 31, 2014, 963,657 shares were available for grant.
10	

 	
All grants outstanding under the Griffon Corporation 2001 Stock Option Plan, 2006 Equity Incentive Plan and Outside Director Stock Award Plan will continue under their terms; no additional awards will be granted under such plans.
 
During the first quarter of 2014, Griffon granted 599,328 restricted stock awards with vesting periods up to four years, 554,498 of which are also subject to certain performance conditions, with a total fair value of $7,426, or a weighted average fair value of $12.39 per share. During the second quarter of 2014, Griffon granted 518,490 restricted stock awards with vesting periods up to four years, 461,827 of which are also subject to certain performance conditions, with a total fair value of $7,074, or a weighted average fair value of $13.64 per share.
 
For the quarters ended March 31, 2014 and 2013, stock based compensation expense totaled $3,321 and $3,338, respectively. For the six months ended March 31, 2014 and 2013, stock based compensation expenses totaled $4,996 and $6,298, respectively.
 
In August 2011, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may purchase shares, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. In the six months ended March 31, 2014, Griffon purchased 598,481 shares of common stock under the authorized program, for a total of $7,501 or $12.53 per share. To date, Griffon has purchased 4,320,712 shares of common stock, for a total of $45,474 or $10.52 per share under this repurchase authorization. As of March 31, 2014, $4,525 remains under this $50,000 authorization.
 
On May 1, 2014, Griffon’s Board of Directors authorized the repurchase of up to an additional $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may purchase shares, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan.
 
During the first quarter, 288,012 shares, with a market value of $3,764 or $13.07 per share, withheld to settle employee taxes due upon the vesting of restricted stock, were added to treasury stock. During the second quarter, 123,052 shares, with a market value of $1,502 or $12.21 per share, withheld to settle employee taxes due upon the vesting of restricted stock, were added to treasury.
 
In connection with the Northcote acquisition, Griffon entered into certain retention arrangements with Northcote management. Under these arrangements, on January 10, 2014, Griffon issued 44,476 shares of common stock to Northcote management for an aggregate purchase price of $584 or $13.13 per share, and for each share of common stock purchased, Northcote management received one restricted stock unit, included in the detail in the prior paragraph, that vests in three equal installments over 3 years, subject to the attainment of specified performance criteria.
 
On December 10, 2013, Griffon repurchased 4,444,444 shares of its common stock for $50,000 from GS Direct, L.L.C. (“GS Direct”), an affiliate of The Goldman Sachs Group, Inc. The repurchase was effected in a private transaction at a per share price of $11.25, an approximate 9.2% discount to the stock’s closing price on November 12, 2013, the day before announcement of the transaction. The transaction was exclusive of the Company’s August 2011 $50,000 authorized share repurchase program. After closing the transaction, GS Direct continued to hold approximately 5.56 million shares (approximately 10%) of Griffon’s common stock. GS Direct also agreed that, subject to certain exceptions, if it intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2014, it will first negotiate in good faith to sell such shares to the Company.
11	

 	
In December 2013, Griffon’s Board of Directors authorized the ESOP to purchase up to $10,000 of Griffon’s outstanding common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. During the first quarter of 2014, the ESOP purchased 120,000 shares of common stock, for a total of $1,591 or $13.26 per share. During the second quarter of 2014, the ESOP purchased 629,977 shares of common stock, for a total of $8,409 or $13.35 per share. In total, during the six month ended March 31, 2014, the ESOP purchased 749,977 shares of common stock, for a total of $10,000 or $13.33 per share, exhausting the $10,000 authorization.
 
NOTE 10 - EARNINGS PER SHARE (EPS)
 
Basic EPS (and diluted EPS in periods where 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. 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 March 31,	 	 	Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Weighted average shares outstanding - basic	 	 	48,990	 	 	 	54,345	 	 	 	50,872	 	 	 	54,749	 	
Incremental shares from stock based compensation	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding - diluted	 	 	48,990	 	 	 	54,345	 	 	 	50,872	 	 	 	54,749	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Anti-dilutive options excluded from diluted EPS computation	 	 	644	 	 	 	856	 	 	 	644	 	 	 	856	 	
Anti-dilutive restricted stock excluded from diluted EPS computation	 	 	1,507	 	 	 	2,421	 	 	 	1,682	 	 	 	2,259	 	
 
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 business segments are as follows:
 
 	•	HBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains, as well as a global provider of non-powered landscaping products that make work easier for homeowners and professionals.	
 
 	•	Telephonics develops, designs and manufactures high-technology integrated information, communication and sensor system solutions to military and commercial markets worldwide.	
 
 	•	Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.	

12	

 	
Information on Griffon’s business segments is as follows:
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
REVENUE	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Home & Building Products:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ames	 	$	160,705	 	 	$	136,237	 	 	$	257,313	 	 	$	213,546	 	
CBP	 	 	90,838	 	 	 	89,499	 	 	 	212,680	 	 	 	202,366	 	
Home & Building Products	 	 	251,543	 	 	 	225,736	 	 	 	469,993	 	 	 	415,912	 	
Telephonics	 	 	104,185	 	 	 	121,631	 	 	 	200,210	 	 	 	217,681	 	
Plastics	 	 	151,959	 	 	 	141,376	 	 	 	290,942	 	 	 	278,899	 	
Total consolidated net sales	 	$	507,687	 	 	$	488,743	 	 	$	961,145	 	 	$	912,492	 	
 
The following table reconciles segment operating profit to Loss before taxes:
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
LOSS BEFORE TAXES	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Segment operating profit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	8,818	 	 	$	3,835	 	 	$	18,211	 	 	$	11,106	 	
Telephonics	 	 	10,677	 	 	 	13,753	 	 	 	21,329	 	 	 	28,398	 	
Plastics	 	 	9,352	 	 	 	916	 	 	 	15,177	 	 	 	3,558	 	
Total segment operating profit	 	 	28,847	 	 	 	18,504	 	 	 	54,717	 	 	 	43,062	 	
Net interest expense	 	 	(12,361	)	 	 	(12,909	)	 	 	(25,462	)	 	 	(25,988	)	
Unallocated amounts	 	 	(8,391	)	 	 	(7,980	)	 	 	(16,374	)	 	 	(15,567	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	(38,890	)	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,142	)	
Loss before taxes	 	$	(30,795	)	 	$	(2,385	)	 	$	(26,009	)	 	$	(635	)	
 
Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses, and gains (losses) from pension settlement and debt extinguishment, 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 Loss before taxes:
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Segment adjusted EBITDA:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	17,124	 	 	$	17,555	 	 	$	36,191	 	 	$	34,794	 	
Telephonics	 	 	12,535	 	 	 	15,505	 	 	 	24,931	 	 	 	31,869	 	
Plastics	 	 	16,216	 	 	 	12,352	 	 	 	28,959	 	 	 	21,671	 	
Total Segment adjusted EBITDA	 	 	45,875	 	 	 	45,412	 	 	 	90,081	 	 	 	88,334	 	
Net interest expense	 	 	(12,361	)	 	 	(12,909	)	 	 	(25,462	)	 	 	(25,988	)	
Segment depreciation and amortization	 	 	(16,336	)	 	 	(17,572	)	 	 	(33,032	)	 	 	(34,828	)	
Unallocated amounts	 	 	(8,391	)	 	 	(7,980	)	 	 	(16,374	)	 	 	(15,567	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	(38,890	)	 	 	-	 	
Restructuring charges	 	 	(692	)	 	 	(9,336	)	 	 	(1,534	)	 	 	(10,444	)	
Acquisition costs	 	 	-	 	 	 	-	 	 	 	(798	)	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,142	)	
Loss before taxes	 	$	(30,795	)	 	$	(2,385	)	 	$	(26,009	)	 	$	(635	)	

13	

 	
Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
DEPRECIATION and AMORTIZATION	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Segment:	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	7,614	 	 	$	9,157	 	 	$	15,648	 	 	$	18,017	 	
Telephonics	 	 	1,858	 	 	 	1,752	 	 	 	3,602	 	 	 	3,471	 	
Plastics	 	 	6,864	 	 	 	6,663	 	 	 	13,782	 	 	 	13,340	 	
Total segment depreciation and amortization	 	 	16,336	 	 	 	17,572	 	 	 	33,032	 	 	 	34,828	 	
Corporate	 	 	103	 	 	 	109	 	 	 	200	 	 	 	210	 	
Total consolidated depreciation and amortization	 	$	16,439	 	 	$	17,681	 	 	$	33,232	 	 	$	35,038	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CAPITAL EXPENDITURES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Segment:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	6,722	 	 	$	6,711	 	 	$	15,190	 	 	$	15,804	 	
Telephonics	 	 	5,520	 	 	 	2,630	 	 	 	8,887	 	 	 	3,452	 	
Plastics	 	 	4,390	 	 	 	4,333	 	 	 	10,150	 	 	 	11,701	 	
Total segment	 	 	16,632	 	 	 	13,674	 	 	 	34,227	 	 	 	30,957	 	
Corporate	 	 	297	 	 	 	33	 	 	 	618	 	 	 	38	 	
Total consolidated capital expenditures	 	$	16,929	 	 	$	13,707	 	 	$	34,845	 	 	$	30,995	 	
 
ASSETS	 	At March 31,
2014	 	 	At September 30,
2013	 	
Segment assets:	 	 	 	 	 	 	
Home & Building Products	 	$	995,765	 	 	$	908,386	 	
Telephonics	 	 	299,820	 	 	 	296,919	 	
Plastics	 	 	426,563	 	 	 	422,730	 	
Total segment assets	 	 	1,722,148	 	 	 	1,628,035	 	
Corporate	 	 	55,728	 	 	 	156,455	 	
Total continuing assets	 	 	1,777,876	 	 	 	1,784,490	 	
Assets of discontinued operations	 	 	4,324	 	 	 	4,289	 	
Consolidated total	 	$	1,782,200	 	 	$	1,788,779	 	
 
NOTE 12 - DEFINED BENEFIT PENSION EXPENSE
 
Defined benefit pension expense was as follows:
 
 	 	Three Months Ended
March 31,	 	 	Six Months Ended
March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Service cost	 	$	45	 	 	$	48	 	 	$	90	 	 	$	98	 	
Interest cost	 	 	2,500	 	 	 	2,422	 	 	 	5,000	 	 	 	4,847	 	
Expected return on plan assets	 	 	(2,885	)	 	 	(3,136	)	 	 	(5,770	)	 	 	(6,274	)	
Amortization:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Prior service cost	 	 	4	 	 	 	5	 	 	 	8	 	 	 	10	 	
Recognized actuarial loss	 	 	489	 	 	 	840	 	 	 	978	 	 	 	1,680	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,142	 	
Net periodic expense	 	$	153	 	 	$	179	 	 	$	306	 	 	$	2,503	 	
 
During the second quarter of 2014, the company contributed €1,300 (U.S. $1,776), which equaled the net balance sheet liability, in settlement of all remaining obligations for a non U.S. Pension liability.  There were no gains or losses recorded for this settlement.
14	

 	
First quarter of 2013, Selling, general and administrative expenses included a $2,142, non-cash, pension settlement loss resulting from the lump-sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472 and increased Accumulated Other Comprehensive Income (Loss) by $3,649.
 
NOTE 13 - RECENT ACCOUNTING PRONOUNCEMENTS
 
In February 2013, the FASB issued new accounting guidance requiring enhanced disclosures for items reclassified out of accumulated other comprehensive income (loss). The guidance does not amend any existing requirements for reporting net income (loss) or other comprehensive income (loss) in the financial statements. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2012, with early adoption permitted. As this new guidance is related to presentation only, the implementation of this guidance in the first quarter of fiscal year 2014 did not 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 March 31,
2014	 	At September 30,
2013	 	
Assets of discontinued operations:	 	 	 	 	 	 	 	 	
Prepaid and other current assets	 	$	1,217	 	 	$	1,214	 	
Other long-term assets	 	 	3,107	 	 	 	3,075	 	
Total assets of discontinued operations	 	$	4,324	 	 	$	4,289	 	
 	 	 	 	 	 	 	 	 	
Liabilities of discontinued operations:	 	 	 	 	 	 	 	 	
Accrued liabilities, current	 	$	3,069	 	 	$	3,288	 	
Other long-term liabilities	 	 	4,359	 	 	 	4,744	 	
Total liabilities of discontinued operations	 	$	7,428	 	 	$	8,032	 	
 
There was no Installation Services revenue or income for the quarter or six months ended March 31, 2014 or 2013.
 
NOTE 15 - RESTRUCTURING AND OTHER RELATED CHARGES
 
In January 2013, Ames announced its intention to close certain manufacturing facilities, and to consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs.
 
Ames anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $2,500 for one-time termination benefits and other personnel-related costs and $1,500 for facility exit costs. Ames expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $7,583 and $15,269 in restructuring costs and capital expenditures, respectively.
15	

 	
HBP recognized $692 and $1,534, respectively, for the three and six months ended March 31, 2014, and $4,563 and $5,671, respectively, for the three and six months ended March 31, 2013 in restructuring and other related exit costs; such charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the Ames plant consolidation initiatives. The 2013 period also included charges related to a CBP plant consolidation.
 
In February 2013, Plastics undertook a restructuring project, primarily in Europe, to exit low margin business and to eliminate approximately 80 positions, resulting in restructuring charges of $4,773, primarily related to one-time termination benefits and other personnel costs. The project was completed in 2013.
 
A summary of the restructuring and other related charges included in the line item “Restructuring and other related charges” in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were recognized as follows:
 
 	 	Workforce
Reduction	 	 	Facilities &
Exit Costs	 	 	Other
Related
Costs	 	 	Non-cash
Facility and
Other	 	 	Total	 	
Amounts incurred in:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Quarter ended December 31, 2012	 	$	994	 	 	$	39	 	 	$	75	 	 	$	-	 	 	$	1,108	 	
Quarter ended March 31, 2013	 	 	3,795	 	 	 	523	 	 	 	1,517	 	 	 	3,501	 	 	 	9,336	 	
Six Months Ended March 31, 2013	 	$	4,789	 	 	$	562	 	 	$	1,592	 	 	$	3,501	 	 	$	10,444	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Quarter ended December 31, 2013	 	$	638	 	 	$	95	 	 	$	109	 	 	$	-	 	 	$	842	 	
Quarter ended March 31, 2014	 	 	495	 	 	 	137	 	 	 	60	 	 	 	-	 	 	 	692	 	
Six Months Ended March 31, 2014	 	$	1,133	 	 	$	232	 	 	$	169	 	 	$	-	 	 	$	1,534	 	
 
The activity in the restructuring accrual recorded in accrued liabilities consisted of the following:
 
 	 	Workforce
Reduction	 	 	Facilities &
Exit Costs	 	 	Other
Related	 	 	Total	 	
Accrued liability at September 30, 2013	 	$	3,057	 	 	$	393	 	 	$	407	 	 	$	3,857	 	
Charges	 	 	1,133	 	 	 	232	 	 	 	169	 	 	 	1,534	 	
Payments	 	 	(2,094	)	 	 	(552	)	 	 	(425	)	 	 	(3,071	)	
Accrued liability at March 31, 2014	 	$	2,096	 	 	$	73	 	 	$	151	 	 	$	2,320	 	
 
NOTE 16 - OTHER EXPENSE
 
For the quarters ended March 31, 2014 and 2013, Other income (expense) included $436 and ($479), respectively, of net currency exchange (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries as well as $15 and $321, respectively, of net investment income.
 
For the six months ended March 31, 2014 and 2013, Other income (expense) included $679 and ($467), respectively, of net currency exchange (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries as well as $127 and $353, respectively, of net investment income.
 
NOTE 17 - WARRANTY LIABILITY
 
Telephonics offers warranties against product defects for periods generally ranging from one to two years, depending on the specific product and terms of the customer purchase agreement. 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 unless otherwise stated on the product or packaging from the date of original purchase.
16	

 	
Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:
 
 	 	Three Months Ended March 31,	 	 	Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Balance, beginning of period	 	$	6,929	 	 	$	7,743	 	 	$	6,649	 	 	$	8,856	 	
Warranties issued and changes in
estimated pre-existing warranties	 	 	1,135	 	 	 	662	 	 	 	2,101	 	 	 	656	 	
Actual warranty costs incurred	 	 	(953	)	 	 	(981	)	 	 	(1,639	)	 	 	(2,088	)	
Balance, end of period	 	$	7,111	 	 	$	7,424	 	 	$	7,111	 	 	$	7,424	 	
 
NOTE 18 - OTHER COMPREHENSIVE INCOME (LOSS)
 
The amounts recognized in other comprehensive income (loss) were as follows:
 
 	 	Three Months Ended March 31, 2014	 	 	Three Months Ended March 31, 2013	 	
 	 	Pre-tax	 	 	Tax	 	 	Net of tax	 	 	Pre-tax	 	 	Tax	 	 	Net of tax	 	
Foreign currency translation adjustments	 	$	1,224	 	 	$	-	 	 	$	1,224	 	 	$	(5,924	)	 	$	-	 	 	$	(5,924	)	
Pension and other defined benefit plans	 	 	1,698	 	 	 	(599	)	 	 	1,099	 	 	 	845	 	 	 	(356	)	 	 	489	 	
Gain on cash flow hedge	 	 	-	 	 	 	-	 	 	 	-	 	 	 	171	 	 	 	-	 	 	 	171	 	
Total other comprehensive income (loss)	 	$	2,922	 	 	$	(599	)	 	$	2,323	 	 	$	(4,908	)	 	$	(356	)	 	$	(5,264	)	
 
 	 	Six Months Ended March 31, 2014	 	 	Six Months Ended March 31, 2013	 	
 	 	Pre-tax	 	 	Tax	 	 	Net of tax	 	 	Pre-tax	 	 	Tax	 	 	Net of tax	 	
Foreign currency translation adjustments	 	$	(1,913	)	 	$	-	 	 	$	(1,913	)	 	$	(2,921	)	 	$	-	 	 	$	(2,921	)	
Pension and other defined benefit plans	 	 	2,191	 	 	 	(776	)	 	 	1,415	 	 	 	7,304	 	 	 	(2,955	)	 	 	4,349	 	
Gain on cash flow hedge	 	 	-	 	 	 	-	 	 	 	-	 	 	 	171	 	 	 	-	 	 	 	171	 	
Total other comprehensive income (loss)	 	$	278	 	 	$	(776	)	 	$	(498	)	 	$	4,554	 	 	$	(2,955	)	 	$	1,599	 	
 
Amounts reclassified from accumulated other comprehensive income (loss) to income (loss) were as follows:
 
 	 	Three Months Ended March 31,	 	 	Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Pension amortization	 	$	493	 	 	$	845	 	 	$	986	 	 	$	1,690	 	
Pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,142	 	
Total before tax	 	 	493	 	 	 	845	 	 	 	986	 	 	 	3,832	 	
Tax	 	 	(168	)	 	 	(296	)	 	 	(345	)	 	 	(1,341	)	
Net of tax	 	$	325	 	 	$	549	 	 	$	641	 	 	$	2,491	 	
 
NOTE 19 - COMMITMENTS AND CONTINGENCIES
 
Legal and environmental
 
Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties, Inc. (“ISC”), a wholly-owned subsidiary of Griffon. ISC sold the Peekskill Site in November 1982.
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Subsequently, Griffon was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did conduct accordingly over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.
 
In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order.  Pursuant to the requirements of  the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment medias, remediation alternatives having a current net capital cost value, in the aggregate, of approximately $5,000. In February 2011, the 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, the 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 the 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 the 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.
 
Department of Environmental Conservation of New York State, regarding Frankfort, NY site. During fiscal 2009, an underground fuel tank with surrounding soil contamination was discovered at the Frankfort, N.Y. site, which is the result of historical facility operations prior to Ames’ ownership. While Ames was actively working with the DEC and the New York State Department of Health to define remediation requirements relative to the underground fuel tank, the DEC took the position that Ames was responsible to remediate other types of contamination on the site. After negotiations with the DEC, on August 15, 2011, Ames executed an Order on Consent with the DEC.  The Order is without admission or finding of liability or acknowledgement that there has been a release of hazardous substances at the site.  Importantly, the Order does not waive any rights that Ames has under a 1991 Consent Judgment entered into between the DEC and a predecessor of Ames relating to the site.  The Order requires that Ames identify Areas of Concern at the site, and formulate a strategy to investigate and remedy both on and off site conditions in compliance with applicable environmental law. At the conclusion of the remedy phase of the remediation to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. On August 1, 2012, a fire occurred during the course of demolition of certain structures at the Frankfort, NY site, requiring cleanup and additional remediation under the oversight of the DEC. Demolition of the structures on the property has been substantially completed.  The DEC has inspected the progress of the work and is satisfied with the results thus far.  On February 12, 2013, the DEC issued comments to the Remedial Investigation Work Plan previously submitted by Ames in October 2011, and in response, Ames issued a Revised Remedial Investigation Work Plan.  Completion of the remedial investigation is dependent on timing of the DEC approval; no additional comments have been provided by the DEC to date. On October 21, 2013 Ames filed its revised Remedial Investigation Report (“RIR”) with the DEC. On February 3, 2014, the DEC accepted Ames’ RIR as a draft and requested certain revisions.  Ames is currently reviewing the requested revisions and will either revise the RIR as requested or negotiate alternate action acceptable to the DEC. On March 31, 2014, the DEC approved Ames Preliminary Schedule for “Additional Remedial Investigation/Feasibility Study Activities” (RI/FS) that identifies remedial investigations and remedial actions through to a Record of Decision. In accordance with the approved RI/FS schedule, Ames filed its work plan for Supplemental Remedial Investigation Activities with the DEC on April 3, 2014.
18	

 	
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, pursuant to subpoenas Griffon is currently providing information to the U.S. Department of Defense Office of the Inspector General and the DOJ.  No claim has been asserted against Griffon, and Griffon is unaware of any material financial exposure in connection with the inquiry.
 
In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages.  U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision.  Suspension or debarment could have material adverse effect on Telephonics because of its reliance on government contracts.
 
General legal
 
Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.
 
NOTE 20 - CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
 
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, The Ames Companies, Inc., ATT Southern, Inc. and Clopay Ames True Temper Holding Corp, each of which are 100%, indirectly, owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of March 31, 2014 and September 30, 2013 and for the quarter and six-month period ended March 31, 2014 and 2013. 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.
19	

 	
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 March 31, 2014
 
 	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
CURRENT ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and equivalents	 	$	4,199	 	 	$	25,259	 	 	$	40,475	 	 	$	-	 	 	$	69,933	 	
Accounts receivable, net of allowances	 	 	-	 	 	 	258,037	 	 	 	82,765	 	 	 	(31,640	)	 	 	309,162	 	
Contract costs and recognized income not yet billed, net of progress payments	 	 	-	 	 	 	107,388	 	 	 	437	 	 	 	-	 	 	 	107,825	 	
Inventories, net	 	 	-	 	 	 	197,947	 	 	 	58,814	 	 	 	(71	)	 	 	256,690	 	
Prepaid and other current assets	 	 	4,273	 	 	 	21,059	 	 	 	15,319	 	 	 	10,561	 	 	 	51,212	 	
Assets of discontinued operations	 	 	-	 	 	 	-	 	 	 	1,217	 	 	 	-	 	 	 	1,217	 	
Total Current Assets	 	 	8,472	 	 	 	609,690	 	 	 	199,027	 	 	 	(21,150	)	 	 	796,039	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PROPERTY, PLANT AND EQUIPMENT, net	 	 	1,424	 	 	 	255,330	 	 	 	101,128	 	 	 	-	 	 	 	357,882	 	
GOODWILL	 	 	-	 	 	 	290,761	 	 	 	79,411	 	 	 	-	 	 	 	370,172	 	
INTANGIBLE ASSETS, net	 	 	-	 	 	 	158,950	 	 	 	65,276	 	 	 	-	 	 	 	224,226	 	
INTERCOMPANY RECEIVABLE	 	 	558,505	 	 	 	886,492	 	 	 	83,046	 	 	 	(1,528,043	)	 	 	-	 	
EQUITY INVESTMENTS IN SUBSIDIARIES	 	 	787,103	 	 	 	549,256	 	 	 	1,783,996	 	 	 	(3,120,355	)	 	 	-	 	
OTHER ASSETS	 	 	47,410	 	 	 	51,142	 	 	 	7,435	 	 	 	(75,213	)	 	 	30,774	 	
ASSETS OF DISCONTINUED OPERATIONS	 	 	-	 	 	 	-	 	 	 	3,107	 	 	 	-	 	 	 	3,107	 	
Total Assets	 	$	1,402,914	 	 	$	2,801,621	 	 	$	2,322,426	 	 	$	(4,744,761	)	 	$	1,782,200	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CURRENT LIABILITIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable and current portion of long-term debt	 	$	1,847	 	 	$	1,098	 	 	$	10,448	 	 	$	-	 	 	$	13,393	 	
Accounts payable and accrued liabilities	 	 	22,247	 	 	 	194,512	 	 	 	70,153	 	 	 	(21,935	)	 	 	264,977	 	
Liabilities of discontinued operations	 	 	-	 	 	 	-	 	 	 	3,069	 	 	 	-	 	 	 	3,069	 	
Total Current Liabilities	 	 	24,094	 	 	 	195,610	 	 	 	83,670	 	 	 	(21,935	)	 	 	281,439	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LONG-TERM DEBT, net of debt discounts	 	 	736,786	 	 	 	8,298	 	 	 	28,495	 	 	 	-	 	 	 	773,579	 	
INTERCOMPANY PAYABLES	 	 	21,318	 	 	 	772,390	 	 	 	707,295	 	 	 	(1,501,003	)	 	 	-	 	
OTHER LIABILITIES	 	 	62,964	 	 	 	153,635	 	 	 	22,804	 	 	 	(74,332	)	 	 	165,071	 	
LIABILITIES OF DISCONTINUED OPERATIONS	 	 	-	 	 	 	-	 	 	 	4,359	 	 	 	-	 	 	 	4,359	 	
Total Liabilities	 	 	845,162	 	 	 	1,129,933	 	 	 	846,623	 	 	 	(1,597,270	)	 	 	1,224,448	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	 	 	557,752	 	 	 	1,671,688	 	 	 	1,475,803	 	 	 	(3,147,491	)	 	 	557,752	 	
Total Liabilities and Shareholders’ Equity	 	$	1,402,914	 	 	$	2,801,621	 	 	$	2,322,426	 	 	$	(4,744,761	)	 	$	1,782,200	 	

20	

 	
CONDENSED CONSOLIDATING BALANCE SHEETS
At September 30, 2013
 
 	 	Parent
Company	 	 	Guarantor
Companies	 	 	Non-Guarantor
Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CURRENT ASSETS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and equivalents	 	$	68,994	 	 	$	25,343	 	 	$	83,793	 	 	$	-	 	 	$	178,130	 	
Accounts receivable, net of allowances	 	 	-	 	 	 	213,506	 	 	 	76,241	 	 	 	(33,532	)	 	 	256,215	 	
Contract costs and recognized income not yet billed, net of progress payments	 	 	-	 	 	 	109,683	 	 	 	145	 	 	 	-	 	 	 	109,828	 	
Inventories, net	 	 	-	 	 	 	173,406	 	 	 	56,723	 	 	 	(9	)	 	 	230,120	 	
Prepaid and other current assets	 	 	(712	)	 	 	21,854	 	 	 	17,330	 	 	 	10,431	 	 	 	48,903	 	
Assets of discontinued operations	 	 	-	 	 	 	-	 	 	 	1,214	 	 	 	-	 	 	 	1,214	 	
Total Current Assets	 	 	68,282	 	 	 	543,792	 	 	 	235,446	 	 	 	(23,110	)	 	 	824,410	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
PROPERTY, PLANT AND EQUIPMENT, net	 	 	972	 	 	 	248,973	 	 	 	103,648	 	 	 	-	 	 	 	353,593	 	
GOODWILL	 	 	-	 	 	 	288,146	 	 	 	69,584	 	 	 	-	 	 	 	357,730	 	
INTANGIBLE ASSETS, net	 	 	-	 	 	 	160,349	 	 	 	61,042	 	 	 	-	 	 	 	221,391	 	
INTERCOMPANY RECEIVABLE	 	 	547,903	 	 	 	911,632	 	 	 	573,269	 	 	 	(2,032,804	)	 	 	-	 	
EQUITY INVESTMENTS IN SUBSIDIARIES	 	 	772,374	 	 	 	533,742	 	 	 	2,718,956	 	 	 	(4,025,072	)	 	 	-	 	
OTHER ASSETS	 	 	45,968	 	 	 	50,423	 	 	 	7,423	 	 	 	(75,234	)	 	 	28,580	 	
ASSETS OF DISCONTINUED OPERATIONS	 	 	-	 	 	 	-	 	 	 	3,075	 	 	 	-	 	 	 	3,075	 	
Total Assets	 	$	1,435,499	 	 	$	2,737,057	 	 	$	3,772,443	 	 	$	(6,156,220	)	 	$	1,788,779	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CURRENT LIABILITIES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable and current portion of long-term debt	 	$	1,000	 	 	$	1,079	 	 	$	8,689	 	 	$	-	 	 	$	10,768	 	
Accounts payable and accrued liabilities	 	 	41,121	 	 	 	183,665	 	 	 	70,427	 	 	 	(24,860	)	 	 	270,353	 	
Liabilities of discontinued operations	 	 	-	 	 	 	-	 	 	 	3,288	 	 	 	-	 	 	 	3,288	 	
Total Current Liabilities	 	 	42,121	 	 	 	184,744	 	 	 	82,404	 	 	 	(24,860	)	 	 	284,409	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
LONG-TERM DEBT, net of debt discounts	 	 	656,852	 	 	 	9,006	 	 	 	12,629	 	 	 	-	 	 	 	678,487	 	
INTERCOMPANY PAYABLES	 	 	20,607	 	 	 	796,741	 	 	 	1,188,017	 	 	 	(2,005,365	)	 	 	-	 	
OTHER LIABILITIES	 	 	65,455	 	 	 	153,970	 	 	 	25,578	 	 	 	(74,328	)	 	 	170,675	 	
LIABILITIES OF DISCONTINUED OPERATIONS	 	 	-	 	 	 	-	 	 	 	4,744	 	 	 	-	 	 	 	4,744	 	
Total Liabilities	 	 	785,035	 	 	 	1,144,461	 	 	 	1,313,372	 	 	 	(2,104,553	)	 	 	1,138,315	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	 	 	650,464	 	 	 	1,592,596	 	 	 	2,459,071	 	 	 	(4,051,667	)	 	 	650,464	 	
Total Liabilities and Shareholders’ Equity	 	$	1,435,499	 	 	$	2,737,057	 	 	$	3,772,443	 	 	$	(6,156,220	)	 	$	1,788,779	 	

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2014
 
($ in thousands)	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	-	 	 	$	396,505	 	 	$	127,782	 	 	$	(16,600	)	 	$	507,687	 	
Cost of goods and services	 	 	-	 	 	 	305,191	 	 	 	107,555	 	 	 	(15,046	)	 	 	397,700	 	
Gross profit	 	 	-	 	 	 	91,314	 	 	 	20,227	 	 	 	(1,554	)	 	 	109,987	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	7,161	 	 	 	68,234	 	 	 	15,833	 	 	 	(1,606	)	 	 	89,622	 	
Restructuring and other related charges	 	 	-	 	 	 	728	 	 	 	(36	)	 	 	-	 	 	 	692	 	
Total operating expenses	 	 	7,161	 	 	 	68,962	 	 	 	15,797	 	 	 	(1,606	)	 	 	90,314	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	(7,161	)	 	 	22,352	 	 	 	4,430	 	 	 	52	 	 	 	19,673	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income (expense), net	 	 	(2,885	)	 	 	(7,329	)	 	 	(2,147	)	 	 	-	 	 	 	(12,361	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(38,890	)	
Other, net	 	 	15	 	 	 	1,014	 	 	 	(194	)	 	 	(52	)	 	 	783	 	
Total other income (expense)	 	 	(41,760	)	 	 	(6,315	)	 	 	(2,341	)	 	 	(52	)	 	 	(50,468	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before taxes	 	 	(48,921	)	 	 	16,037	 	 	 	2,089	 	 	 	-	 	 	 	(30,795	)	
Provision (benefit) for income taxes	 	 	(11,045	)	 	 	6,053	 	 	 	22	 	 	 	-	 	 	 	(4,970	)	
Income (loss) before equity in net income of subsidiaries	 	 	(37,876	)	 	 	9,984	 	 	 	2,067	 	 	 	-	 	 	 	(25,825	)	
Equity in net income (loss) of subsidiaries	 	 	12,051	 	 	 	1,982	 	 	 	9,984	 	 	 	(24,017	)	 	 	-	 	
Net income (loss)	 	$	(25,825	)	 	$	11,966	 	 	$	12,051	 	 	$	(24,017	)	 	$	(25,825	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (loss)	 	$	(25,825	)	 	$	11,966	 	 	$	12,051	 	 	$	(24,017	)	 	$	(25,825	)	
Other comprehensive income (loss), net of taxes	 	 	170	 	 	 	80	 	 	 	2,073	 	 	 	-	 	 	 	2,323	 	
Comprehensive income (loss)	 	$	(25,655	)	 	$	12,046	 	 	$	14,124	 	 	$	(24,017	)	 	$	(23,502	)	
 
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2013
 
($ in thousands)	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	-	 	 	$	379,846	 	 	$	123,599	 	 	$	(14,702	)	 	$	488,743	 	
Cost of goods and services	 	 	-	 	 	 	292,369	 	 	 	104,011	 	 	 	(13,134	)	 	 	383,246	 	
Gross profit	 	 	-	 	 	 	87,477	 	 	 	19,588	 	 	 	(1,568	)	 	 	105,497	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	3,821	 	 	 	67,936	 	 	 	15,912	 	 	 	(1,610	)	 	 	86,059	 	
Restructuring and other related charges	 	 	-	 	 	 	5,372	 	 	 	3,964	 	 	 	-	 	 	 	9,336	 	
Total operating expenses	 	 	3,821	 	 	 	73,308	 	 	 	19,876	 	 	 	(1,610	)	 	 	95,395	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	(3,821	)	 	 	14,169	 	 	 	(288	)	 	 	42	 	 	 	10,102	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income (expense), net	 	 	(3,610	)	 	 	(6,824	)	 	 	(2,475	)	 	 	-	 	 	 	(12,909	)	
Other, net	 	 	322	 	 	 	1,546	 	 	 	(1,404	)	 	 	(42	)	 	 	422	 	
Total other income (expense)	 	 	(3,288	)	 	 	(5,278	)	 	 	(3,879	)	 	 	(42	)	 	 	(12,487	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before taxes	 	 	(7,109	)	 	 	8,891	 	 	 	(4,167	)	 	 	-	 	 	 	(2,385	)	
Provision (benefit) for income taxes	 	 	(4,393	)	 	 	2,750	 	 	 	77	 	 	 	-	 	 	 	(1,566	)	
Income (loss) before equity in net income of subsidiaries	 	 	(2,716	)	 	 	6,141	 	 	 	(4,244	)	 	 	-	 	 	 	(819	)	
Equity in net income (loss) of subsidiaries	 	 	1,897	 	 	 	(4,235	)	 	 	6,981	 	 	 	(4,643	)	 	 	-	 	
Net income (loss)	 	$	(819	)	 	$	1,906	 	 	$	2,737	 	 	$	(4,643	)	 	$	(819	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (loss)	 	$	(819	)	 	$	1,906	 	 	$	2,737	 	 	$	(4,643	)	 	$	(819	)	
Other comprehensive income (loss), net of taxes	 	 	(1,181	)	 	 	(1,422	)	 	 	(2,661	)	 	 	-	 	 	 	(5,264	)	
Comprehensive income (loss)	 	$	(2,000	)	 	$	484	 	 	$	76	 	 	$	(4,643	)	 	$	(6,083	)	

22	

 	
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2014
 
 	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	-	 	 	$	741,149	 	 	$	249,534	 	 	$	(29,538	)	 	$	961,145	 	
Cost of goods and services	 	 	-	 	 	 	565,174	 	 	 	206,949	 	 	 	(26,468	)	 	 	745,655	 	
Gross profit	 	 	-	 	 	 	175,975	 	 	 	42,585	 	 	 	(3,070	)	 	 	215,490	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	13,491	 	 	 	136,615	 	 	 	30,408	 	 	 	(3,212	)	 	 	177,302	 	
Restructuring and other related charges	 	 	-	 	 	 	1,492	 	 	 	42	 	 	 	-	 	 	 	1,534	 	
Total operating expenses	 	 	13,491	 	 	 	138,107	 	 	 	30,450	 	 	 	(3,212	)	 	 	178,836	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	(13,491	)	 	 	37,868	 	 	 	12,135	 	 	 	142	 	 	 	36,654	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income (expense), net	 	 	(6,490	)	 	 	(14,579	)	 	 	(4,393	)	 	 	-	 	 	 	(25,462	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(38,890	)	
Other, net	 	 	127	 	 	 	3,072	 	 	 	(1,368	)	 	 	(142	)	 	 	1,689	 	
Total other income (expense)	 	 	(45,253	)	 	 	(11,507	)	 	 	(5,761	)	 	 	(142	)	 	 	(62,663	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before taxes	 	 	(58,744	)	 	 	26,361	 	 	 	6,374	 	 	 	-	 	 	 	(26,009	)	
Provision (benefit) for income taxes	 	 	(15,579	)	 	 	11,692	 	 	 	467	 	 	 	-	 	 	 	(3,420	)	
Income (loss) before equity in net income of subsidiaries	 	 	(43,165	)	 	 	14,669	 	 	 	5,907	 	 	 	-	 	 	 	(22,589	)	
Equity in net income (loss) of subsidiaries	 	 	20,576	 	 	 	5,748	 	 	 	14,669	 	 	 	(40,993	)	 	 	-	 	
Net income (loss)	 	$	(22,589	)	 	$	20,417	 	 	$	20,576	 	 	$	(40,993	)	 	$	(22,589	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (loss)	 	$	(22,589	)	 	$	20,417	 	 	$	20,576	 	 	$	(40,993	)	 	$	(22,589	)	
Other comprehensive income (loss), net of taxes	 	 	340	 	 	 	1,869	 	 	 	(2,707	)	 	 	-	 	 	 	(498	)	
Comprehensive income (loss)	 	$	(22,249	)	 	$	22,286	 	 	$	17,869	 	 	$	(40,993	)	 	$	(23,087	)	
 
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended March 31, 2013
 
 	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	-	 	 	$	700,904	 	 	$	238,510	 	 	$	(26,922	)	 	$	912,492	 	
Cost of goods and services	 	 	-	 	 	 	531,186	 	 	 	202,365	 	 	 	(24,226	)	 	 	709,325	 	
Gross profit	 	 	-	 	 	 	169,718	 	 	 	36,145	 	 	 	(2,696	)	 	 	203,167	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	11,278	 	 	 	129,586	 	 	 	30,534	 	 	 	(3,120	)	 	 	168,278	 	
Restructuring and other related charges	 	 	-	 	 	 	6,480	 	 	 	3,964	 	 	 	-	 	 	 	10,444	 	
Total operating expenses	 	 	11,278	 	 	 	136,066	 	 	 	34,498	 	 	 	(3,120	)	 	 	178,722	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 	 	(11,278	)	 	 	33,652	 	 	 	1,647	 	 	 	424	 	 	 	24,445	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income (expense), net	 	 	(7,222	)	 	 	(13,703	)	 	 	(5,063	)	 	 	-	 	 	 	(25,988	)	
Other, net	 	 	355	 	 	 	3,765	 	 	 	(2,788	)	 	 	(424	)	 	 	908	 	
Total other income (expense)	 	 	(6,867	)	 	 	(9,938	)	 	 	(7,851	)	 	 	(424	)	 	 	(25,080	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before taxes	 	 	(18,145	)	 	 	23,714	 	 	 	(6,204	)	 	 	-	 	 	 	(635	)	
Provision (benefit) for income taxes	 	 	(9,759	)	 	 	8,948	 	 	 	437	 	 	 	-	 	 	 	(374	)	
Income (loss) before equity in net income of subsidiaries	 	 	(8,386	)	 	 	14,766	 	 	 	(6,641	)	 	 	-	 	 	 	(261	)	
Equity in net income (loss) of subsidiaries	 	 	8,125	 	 	 	(6,596	)	 	 	14,766	 	 	 	(16,295	)	 	 	-	 	
Net income (loss)	 	$	(261	)	 	$	8,170	 	 	$	8,125	 	 	$	(16,295	)	 	$	(261	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (loss)	 	$	(261	)	 	$	8,170	 	 	$	8,125	 	 	$	(16,295	)	 	$	(261	)	
Other comprehensive income (loss), net of taxes	 	 	422	 	 	 	3,457	 	 	 	(2,280	)	 	 	-	 	 	 	1,599	 	
Comprehensive income (loss)	 	$	161	 	 	$	11,627	 	 	$	5,845	 	 	$	(16,295	)	 	$	1,338	 	

23	

 	
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2014
 
 	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	(22,589	)	 	$	20,417	 	 	$	20,576	 	 	$	(40,993	)	 	$	(22,589	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	 	(30,836	)	 	 	(27,389	)	 	 	31,588	 	 	 	-	 	 	 	(26,637	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition of property, plant and equipment	 	 	(618	)	 	 	(29,921	)	 	 	(4,306	)	 	 	-	 	 	 	(34,845	)	
Acquired business, net of cash acquired	 	 	-	 	 	 	(1,000	)	 	 	(21,720	)	 	 	-	 	 	 	(22,720	)	
Intercompany distributions	 	 	10,000	 	 	 	(10,000	)	 	 	-	 	 	 	-	 	 	 	-	 	
Proceeds from sale of assets	 	 	-	 	 	 	230	 	 	 	64	 	 	 	-	 	 	 	294	 	
Net cash provided by (used in) investing activities	 	 	9,382	 	 	 	(40,691	)	 	 	(25,962	)	 	 	-	 	 	 	(57,271	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of common stock	 	 	584	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	584	 	
Purchase of shares for treasury	 	 	(63,370	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(63,370	)	
Proceeds from issuance of long-term debt	 	 	629,568	 	 	 	10,939	 	 	 	4,007	 	 	 	-	 	 	 	644,514	 	
Payments of long-term debt	 	 	(582,108	)	 	 	(12,097	)	 	 	7,895	 	 	 	-	 	 	 	(586,310	)	
Change in short-term borrowings	 	 	-	 	 	 	-	 	 	 	4,908	 	 	 	-	 	 	 	4,908	 	
Financing costs	 	 	(10,142	)	 	 	-	 	 	 	(545	)	 	 	-	 	 	 	(10,687	)	
Purchase of ESOP shares	 	 	(10,000	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(10,000	)	
Tax effect from exercise/vesting of equity awards, net	 	 	273	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	273	 	
Dividend	 	 	(8,290	)	 	 	5,000	 	 	 	-	 	 	 	-	 	 	 	(3,290	)	
Other, net	 	 	144	 	 	 	43,140	 	 	 	(43,140	)	 	 	-	 	 	 	144	 	
Net cash provided by (used in) financing activities	 	 	(43,341	)	 	 	46,982	 	 	 	(26,875	)	 	 	-	 	 	 	(23,234	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in discontinued operations	 	 	-	 	 	 	-	 	 	 	(640	)	 	 	-	 	 	 	(640	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and equivalents	 	 	-	 	 	 	-	 	 	 	(415	)	 	 	-	 	 	 	(415	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET DECREASE IN CASH AND EQUIVALENTS	 	 	(64,795	)	 	 	(21,098	)	 	 	(22,304	)	 	 	-	 	 	 	(108,197	)	
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	 	 	68,994	 	 	 	46,357	 	 	 	62,779	 	 	 	-	 	 	 	178,130	 	
CASH AND EQUIVALENTS AT END OF PERIOD	 	$	4,199	 	 	$	25,259	 	 	$	40,475	 	 	$	-	 	 	$	69,933	 	

24	

 	
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2013
 
 	 	Parent Company	 	 	Guarantor Companies	 	 	Non-Guarantor Companies	 	 	Elimination	 	 	Consolidation	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	(261	)	 	$	8,170	 	 	$	8,125	 	 	$	(16,295	)	 	$	(261	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	 	(43,968	)	 	 	(26,900	)	 	 	36,885	 	 	 	-	 	 	 	(33,983	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition of property, plant and equipment	 	 	(24	)	 	 	(28,624	)	 	 	(2,347	)	 	 	-	 	 	 	(30,995	)	
Intercompany distributions	 	 	10,000	 	 	 	(10,000	)	 	 	-	 	 	 	-	 	 	 	-	 	
Proceeds from sale of assets	 	 	-	 	 	 	1,171	 	 	 	45	 	 	 	-	 	 	 	1,216	 	
Net cash provided by (used in) investing activities	 	 	9,976	 	 	 	(37,453	)	 	 	(2,302	)	 	 	-	 	 	 	(29,779	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchase of shares for treasury	 	 	(22,109	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(22,109	)	
Proceeds from issuance of long-term debt	 	 	-	 	 	 	303	 	 	 	-	 	 	 	-	 	 	 	303	 	
Payments of long-term debt	 	 	(813	)	 	 	(514	)	 	 	(4,073	)	 	 	-	 	 	 	(5,400	)	
Change in short-term borrowings	 	 	-	 	 	 	-	 	 	 	2,157	 	 	 	-	 	 	 	2,157	 	
Financing costs	 	 	(759	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(759	)	
Tax effect from exercise/vesting of equity awards, net	 	 	150	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	150	 	
Dividend	 	 	(2,938	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,938	)	
Other, net	 	 	242	 	 	 	44,885	 	 	 	(44,885	)	 	 	-	 	 	 	242	 	
Net cash provided by (used in) financing activities	 	 	(26,227	)	 	 	44,674	 	 	 	(46,801	)	 	 	-	 	 	 	(28,354	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CASH FLOWS FROM DISCONTINUED OPERATIONS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in discontinued operations	 	 	-	 	 	 	-	 	 	 	(478	)	 	 	-	 	 	 	(478	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and equivalents	 	 	-	 	 	 	-	 	 	 	(138	)	 	 	-	 	 	 	(138	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	 	 	(60,219	)	 	 	(19,679	)	 	 	(12,834	)	 	 	-	 	 	 	(92,732	)	
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	 	 	125,093	 	 	 	34,782	 	 	 	49,779	 	 	 	-	 	 	 	209,654	 	
CASH AND EQUIVALENTS AT END OF PERIOD	 	$	64,874	 	 	$	15,103	 	 	$	36,945	 	 	$	-	 	 	$	116,922	 	

25	

 	
(Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)
 
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
BUSINESS OVERVIEW
 
Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. Griffon, to further diversify, 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 businesses: Home & Building Products (“HBP”), Telephonics Corporation (“Telephonics”) and Clopay Plastic Products Company (“Plastics”).
 
 	•	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 that make work easier for homeowners and professionals.  	
 	 	 	 	
 	 	-	CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.	
 	 	 	 	
 	•	Telephonics designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide.	
 	 	 	 	
 	•	Plastics is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications. 	
 
On May 1, 2014, Griffon’s Board of Directors authorized the repurchase of up to an additional $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may purchase shares, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan.
 
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, starting September 1, 2014. Proceeds from the Senior Notes were used to redeem $550,000 of 7.125% senior notes due 2018, to pay a 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 fees and expenses.  The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions.  
 
In connection with these transactions, Griffon capitalized $9,950 of underwriting fees and other expenses incurred related to issuance 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.
 
On February 14, 2014, Griffon amended its $225,000 Revolving Credit Facility (“Credit Agreement”), extending its maturity date from March 28, 2018 to March 28, 2019, amending certain financial maintenance ratio test thresholds and increasing certain baskets for permitted debt, guaranties, liens, asset sales, foreign acquisitions, investments and restricted payments.
26	

 	
On December 31, 2013, Ames acquired Northcote Pottery (“Northcote”), founded in 1897 and a leading brand in the Australian outdoor planter and decor market, for approximately $22,000. Northcote complements Southern Patio, acquired in 2011, and adds to Ames’ existing lawn and garden operations in Australia. Northcote, which will be integrated with Ames, is expected to generate approximately $28,000 of annualized revenue. Griffon incurred $798 of acquisition costs related to this transaction in the first quarter of 2014.
 
On December 10, 2013, Griffon repurchased 4,444,444 shares of its common stock for $50,000 from GS Direct, L.L.C. (“GS Direct”), an affiliate of The Goldman Sachs Group, Inc. The repurchase was effected in a private transaction at a per share price of $11.25, an approximate 9.2% discount to the stock’s closing price on November 12, 2013, the day before announcement of the transaction. The transaction was exclusive of the Company´s August 2011 $50,000 authorized share repurchase program. After closing the transaction, GS Direct continued to hold approximately 5.56 million shares (approximately 10%) of Griffon’s common stock. GS Direct also agreed that, subject to certain exceptions, if it intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2014, it will first negotiate in good faith to sell such shares to the Company.
 
In January 2013, Ames announced its intention to close certain manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. Management estimates that, upon completion, these actions will result in annual cash savings exceeding $10,000, based on current operating levels; these savings are consistent with those anticipated at the onset of the initiative.
 
Ames anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $2,500 for one-time termination benefits and other personnel-related costs and $1,500 for facility exit costs. Ames expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $7,583 and $15,269 in restructuring costs and capital expenditures, respectively.
 
First quarter 2013, Selling, general and administrative expenses included a $2,142, non-cash, pension settlement loss resulting from the lump-sum buyout of certain participant’s balances in the Company’s defined benefit plan. The buyouts, funded by the pension plan, reduced the Company’s net pension liability by $3,472.
 
OVERVIEW
 
Revenue for the quarter ended March 31, 2014 was $507,687 compared to $488,743 in the prior year quarter. Net loss was $25,825 or $0.53 per share, compared to a net loss of $819 or $0.02 per share, in the prior year quarter.
 
The current quarter included:
 	-	Restructuring charges of $692 ($429, net of tax or $0.01 per share);	
 	-	Loss from debt extinguishment of $38,890 ($24,964, net of tax or $0.51 per share);	
 	-	Discrete tax provisions, net, of $609 or $0.01 per share; and	
 	-	Impact of debt extinguishment on full year effective tax rate of $5,848 or $0.12 per share.	
 
The prior year quarter included:
 	-	Restructuring charges of $9,336 ($5,788, net of tax or $0.10 per share); and	
 	-	Discrete tax provisions, net, of $309 or $0.01 per share.  	
 
Excluding these items from the respective quarterly results, net income would have been $6,025 or $0.12 per share in the current quarter compared to $4,660 or $0.08 per share in the prior year quarter.
 
Revenue for the six months ended March 31, 2014 was $961,145 compared to $912,492 in the prior year period. Net loss was $22,589 or $0.44 per share, compared to a net loss of $261 or $0.00 per share, in the prior year period.
27	

 	
Results for the six months ended March 31, 2014 included:
 	-	Restructuring charges of $1,534 ($951, net of tax or $0.02 per share);	
 	-	Loss from debt extinguishment of $38,890 ($24,964, net of tax or $0.49 per share);	
 	-	Acquisition costs of $798 ($495, net of tax or $0.01 per share);	
 	-	Discrete tax provisions, net, of $320 or $0.01 per share; and	
 	-	Impact of debt extinguishment on full year effective tax rate of $5,848 or $0.12 per share.	
 
Results for the six months ended March 31, 2013 included:
 	-	Restructuring charges of $10,444 ($6,508, net of tax or $0.11 per share);	
 	-	Loss on pension settlement of $2,142 ($1,392, net of tax or $0.02 per share); and	
 	-	Discrete tax benefits, net, of $364 or $0.01 per share.  	
 
Excluding these items from the respective periods, net income would have been $9,989 or $0.20 per share in the six months ended March 31, 2014 compared to $7,275 or $0.13 per share in the six months ended March 31, 2013.
 
Griffon evaluates performance based on Earnings (loss) per share and Net income (loss) excluding restructuring charges, acquisition-related expenses, gains (losses) from pension settlement and debt extinguishment and discrete tax items, as applicable. Griffon believes this information is useful to investors. The following table provides a reconciliation of Net loss to adjusted net income and Earnings (loss) per share to Adjusted earnings per share:
 
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET LOSS
TO ADJUSTED NET INCOME
(Unaudited)
 
 	 	For the Three Months Ended
March 31,	 	 	For the Six Months Ended March
31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	$	(25,825	)	 	$	(819	)	 	$	(22,589	)	 	$	(261	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusting items, net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from debt extinguishment, net	 	 	24,964	 	 	 	-	 	 	 	24,964	 	 	 	-	 	
Restructuring and related	 	 	429	 	 	 	5,788	 	 	 	951	 	 	 	6,508	 	
Acquisition costs	 	 	-	 	 	 	-	 	 	 	495	 	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,392	 	
Extinguishment impact on period tax ratea	 	 	5,848	 	 	 	-	 	 	 	5,848	 	 	 	-	 	
Discrete tax provisions (benefits)	 	 	609	 	 	 	(309	)	 	 	320	 	 	 	(364	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted net income	 	$	6,025	 	 	$	4,660	 	 	$	9,989	 	 	$	7,275	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted loss per common share	 	$	(0.53	)	 	$	(0.02	)	 	$	(0.44	)	 	$	(0.00	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusting items, net of tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from debt extinguishment, net	 	 	0.51	 	 	 	-	 	 	 	0.49	 	 	 	-	 	
Restructuring	 	 	0.01	 	 	 	0.10	 	 	 	0.02	 	 	 	0.11	 	
Acquisition costs	 	 	-	 	 	 	-	 	 	 	0.01	 	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	0.02	 	
Extinguishment impact on period tax ratea	 	 	0.12	 	 	 	-	 	 	 	0.12	 	 	 	-	 	
Discrete tax provisions (benefits)	 	 	0.01	 	 	 	(0.01	)	 	 	0.01	 	 	 	(0.01	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted earnings per common share	 	$	0.12	 	 	$	0.08	 	 	$	0.20	 	 	$	0.13	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted-average shares outstanding (in thousands)	 	 	48,990	 	 	 	54,345	 	 	 	50,872	 	 	 	54,749	 	
 
a)	Prior to refinancing the debt and resultant loss on debt extinguishment, the Company anticipated its full year 2014 effective tax rate to approximate 40%.  As a result of the loss from debt extinguishment, the Company anticipates it will now incur a pretax loss for the full year 2014, and recognize a corresponding tax benefit at an effective rate approximating 13.0%.  In the current quarter, the impact of debt extinguishment on the full year effective tax rate was estimated to be a benefit of $5,848 or $0.12 per share.	

28	

 	
Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.
 
RESULTS OF OPERATIONS
 
Quarters ended March 31, 2014 and 2013
 
Griffon evaluates performance and allocates resources based on each segments’ operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason.
 
The following table provides a reconciliation of Segment operating profit to Loss before taxes:
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Segment operating profit:	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	8,818	 	 	$	3,835	 	 	$	18,211	 	 	$	11,106	 	
Telephonics	 	 	10,677	 	 	 	13,753	 	 	 	21,329	 	 	 	28,398	 	
Plastics	 	 	9,352	 	 	 	916	 	 	 	15,177	 	 	 	3,558	 	
Total segment operating profit	 	 	28,847	 	 	 	18,504	 	 	 	54,717	 	 	 	43,062	 	
Net interest expense	 	 	(12,361	)	 	 	(12,909	)	 	 	(25,462	)	 	 	(25,988	)	
Unallocated amounts	 	 	(8,391	)	 	 	(7,980	)	 	 	(16,374	)	 	 	(15,567	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	(38,890	)	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,142	)	
Loss before taxes	 	$	(30,795	)	 	$	(2,385	)	 	$	(26,009	)	 	$	(635	)	
 
The following table provides a reconciliation of Segment adjusted EBITDA to Loss before taxes:
 
 	 	For the Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Segment adjusted EBITDA:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Home & Building Products	 	$	17,124	 	 	$	17,555	 	 	$	36,191	 	 	$	34,794	 	
Telephonics	 	 	12,535	 	 	 	15,505	 	 	 	24,931	 	 	 	31,869	 	
Plastics	 	 	16,216	 	 	 	12,352	 	 	 	28,959	 	 	 	21,671	 	
Total Segment adjusted EBITDA	 	 	45,875	 	 	 	45,412	 	 	 	90,081	 	 	 	88,334	 	
Net interest expense	 	 	(12,361	)	 	 	(12,909	)	 	 	(25,462	)	 	 	(25,988	)	
Segment depreciation and amortization	 	 	(16,336	)	 	 	(17,572	)	 	 	(33,032	)	 	 	(34,828	)	
Unallocated amounts	 	 	(8,391	)	 	 	(7,980	)	 	 	(16,374	)	 	 	(15,567	)	
Loss from debt extinguishment, net	 	 	(38,890	)	 	 	-	 	 	 	(38,890	)	 	 	-	 	
Restructuring charges	 	 	(692	)	 	 	(9,336	)	 	 	(1,534	)	 	 	(10,444	)	
Acquisition costs	 	 	-	 	 	 	-	 	 	 	(798	)	 	 	-	 	
Loss on pension settlement	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(2,142	)	
Loss before taxes	 	$	(30,795	)	 	$	(2,385	)	 	$	(26,009	)	 	$	(635	)	

29	

 	
Home & Building Products
 
 	 	Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ames	 	$	160,705	 	 	 	 	 	$	136,237	 	 	 	 	 	$	257,313	 	 	 	 	 	$	213,546	 	 	 	 	
CBP	 	 	90,838	 	 	 	 	 	 	89,499	 	 	 	 	 	 	212,680	 	 	 	 	 	 	202,366	 	 	 	 	
Home & Building Products	 	$	251,543	 	 	 	 	 	$	225,736	 	 	 	 	 	$	469,993	 	 	 	 	 	$	415,912	 	 	 	 	
Segment operating profit	 	$	8,818	 	 	3.5	%	 	$	3,835	 	 	1.7	%	 	$	18,211	 	 	3.9	%	 	$	11,106	 	 	2.7	%	
Depreciation and amortization	 	 	7,614	 	 	 	 	 	 	9,157	 	 	 	 	 	 	15,648	 	 	 	 	 	 	18,017	 	 	 	 	
Restructuring charges	 	 	692	 	 	 	 	 	 	4,563	 	 	 	 	 	 	1,534	 	 	 	 	 	 	5,671	 	 	 	 	
Acquisition costs	 	 	-	 	 	 	 	 	 	-	 	 	 	 	 	 	798	 	 	 	 	 	 	-	 	 	 	 	
Segment adjusted EBITDA	 	$	17,124	 	 	6.8	%	 	$	17,555	 	 	7.8	%	 	$	36,191	 	 	7.7	%	 	$	34,794	 	 	8.4	%	
 
For the quarter ended March 31, 2014, revenue increased $25,807 or 11%, compared to the prior year quarter. Ames revenue increased 18% compared to the prior year quarter primarily due to improved U.S. and Canada snow tool and planter sales, and the inclusion of Northcote results, while CBP revenue increased 1%, primarily due to favorable mix, partially offset by lower volume influenced by inclement weather conditions.
 
For the quarter ended March 31, 2014, Segment operating profit was $8,818 compared to $3,835 in the prior year quarter. Excluding restructuring charges, primarily related to the manufacturing and operations consolidation initiative at Ames, current and prior year Segment operating profit was $9,510 and $8,398, respectively. Excluding restructuring, the increase in Segment operating profit was primarily from improved volume at Ames and favorable product mix at CBP, partially offset by higher distribution and selling costs. Ames also continued to experience manufacturing inefficiencies in connection with its plant consolidation initiative, which are expected to continue until the initiative is completed. The impact of Northcote in the quarter was not significant. Segment depreciation and amortization decreased $1,543 from the prior year period.
 
For the six months ended March 31, 2014, revenue increased $54,081 or 13%, compared to the prior year period. Ames revenue increased 20% mainly driven by improved US and Canadian snow tool and planter sales, and the inclusion of Northcote results. CBP revenue increased 5% due to higher volume and favorable product mix.
 
For the six months ended March 31, 2014, Segment operating profit was $18,211 compared to $11,106 in the prior year period. Excluding restructuring charges, primarily related to the consolidation initiative at Ames, and acquisition costs related to the Northcote transaction, current and prior year Segment operating profit was $20,543 and $16,777, respectively. Excluding restructuring and acquisition costs, the increase was primarily from improved volume at Ames and CBP, partially offset by higher distribution costs. Ames also continued to experience manufacturing inefficiencies in connection with its plant consolidation initiative, which are expected to continue until the initiative is completed. The impact of Northcote in the quarter was not significant. The prior year period benefitted from $1,000 in Byrd Amendment receipts (anti-dumping compensation from the government); current period Byrd Amendment receipts were not significant. Segment depreciation and amortization decreased $2,369 from the prior year period.
 
On December 31, 2013, Ames acquired Northcote, a leading brand in the Australian outdoor planter and decor market, for approximately $22,000. Northcote complements Southern Patio, acquired in 2011, and adds to Ames’ existing lawn and garden operations in Australia. Northcote, which will be integrated with Ames, is expected to generate approximately $28,000 of annualized revenue.
 
In January 2013, Ames announced its intention to close certain manufacturing facilities and consolidate affected operations primarily into its Camp Hill and Carlisle, PA locations. The intended actions, to be completed by the end of calendar 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. Management estimates that, upon completion, these actions will result in annual cash savings exceeding $10,000, based on current operating levels; these savings are consistent with those anticipated at the onset of the initiative.
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Ames anticipates incurring pre-tax restructuring and related exit costs approximating $8,000, comprised of cash charges of $4,000 and non-cash, asset-related charges of $4,000; the cash charges will include $2,500 for one-time termination benefits and other personnel-related costs and $1,500 for facility exit costs. Ames expects $20,000 in capital expenditures in connection with this initiative and, to date, has incurred $7,583 and $15,269 in restructuring costs and capital expenditures, respectively.
 
HBP recognized $692 and $1,534, respectively, for the three and six months ended March 31, 2014, and $4,563 and $5,671, respectively, for the three and six months ended March 31, 2013 in restructuring and other related exit costs; such charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the Ames plant consolidation initiatives. The 2013 period also included charges related to a CBP plant consolidation.
 
Telephonics
 
 	 	Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Revenue	 	$	104,185	 	 	 	 	 	$	121,631	 	 	 	 	 	$	200,210	 	 	 	 	$	217,681	 	 	 	
Segment operating profit	 	$	10,677	 	 	10.2	%	 	$	13,753	 	 	11.3	%	 	$	21,329	 	10.7	%	 	$	28,398	 	13.0	%	
Depreciation and amortization	 	 	1,858	 	 	 	 	 	 	1,752	 	 	 	 	 	 	3,602	 	 	 	 	 	3,471	 	 	 	
Segment adjusted EBITDA	 	$	12,535	 	 	12.0	%	 	$	15,505	 	 	12.7	%	 	$	24,931	 	12.5	%	 	$	31,869	 	14.6	%	
 
For the quarter ended March 31, 2014, revenue decreased $17,446 or 14% compared to the prior year quarter. The 2013 quarter included $13,225 of electronic warfare program revenue where Telephonics serves as a contract manufacturer; there was no such revenue in the current year quarter. Excluding revenue from these programs, current quarter revenue decreased 4% from the 2013 quarter, primarily due to lower mobile surveillance systems sales, partially offset by higher Identification Friend or Foe systems sales.
 
For the quarter ended March 31, 2014, Segment operating profit decreased $3,076 or 22%, and operating profit margin decreased 110 basis points compared to the prior year quarter; the prior year quarter benefitted from the electronic warfare programs, favorable program mix and manufacturing efficiencies, none of which were repeated in the current quarter.
 
For the six months ended March 31, 2014, revenue decreased $17,471 or 8%, compared to the prior year period. The prior year period included $13,225 of electronic warfare program revenue where Telephonics serves as a contract manufacturer; there was no such revenue in the current year period. Excluding revenue from these programs, revenue decreased 2% primarily due to reduced airborne intercommunication products and mobile surveillance systems sales, partially offset by higher Identification Friend or Foe products sales.
 
For the six months ended March 31, 2014, Segment operating profit decreased $7,069 or 25%, and operating margin decreased 230 basis points compared to the prior year period. The prior year period benefitted from the electronic warfare programs, favorable program mix and manufacturing efficiencies, which were not repeated in the current year period.
 
During the six months ended March 31, 2014, Telephonics was awarded several new contracts and incremental funding on existing contracts approximating $241,800. Contract backlog was $486,000 at March 31, 2014 with 66% expected to be fulfilled in the next 12 months. Backlog was $444,000 at September 30, 2013 and $416,000 at December 31, 2013. 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.
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Plastics
 
 	 	Three Months Ended March 31,	 	 	For the Six Months Ended March 31,	 	
 	 	2014	 	 	2013	 	 	2014	 	 	2013	 	
Revenue	 	$	151,959	 	 	 	 	 	$	141,376	 	 	 	 	$	290,942	 	 	 	 	$	278,899	 	 	 	
Segment operating profit	 	$	9,352	 	 	6.2	%	 	$	916	 	0.6	%	 	$	15,177	 	5.2	%	 	$	3,558	 	1.3	%	
Depreciation and amortization	 	 	6,864	 	 	 	 	 	 	6,663	 	 	 	 	 	13,782	 	 	 	 	 	13,340	 	 	 	
Restructuring charges	 	 	-	 	 	 	 	 	 	4,773	 	 	 	 	 	-	 	 	 	 	 	4,773	 	 	 	
Segment adjusted EBITDA	 	$	16,216	 	 	10.7	%	 	$	12,352	 	8.7	%	 	$	28,959	 	10.0	%	 	$	21,671	 	7.8	%	
 
For the quarter ended March 31, 2014, revenue increased $10,583, or 7%, compared to the prior year quarter. The increase reflected the benefit of favorable mix (6%), the pass through of higher resin costs in customer selling prices (1%) and higher volume (1%), partially offset by the impact of unfavorable foreign exchange translation (1%); the 1% volume increase was net of volume lost as a result of Plastics exiting certain low margin products in the second half of 2013. Plastics adjusts selling prices based on underlying resin costs on a delayed basis.
 
For the quarter ended March 31, 2014, Segment operating profit increased $8,436 compared to the prior year quarter; the prior year quarter included restructuring charges of $4,773. Excluding restructuring charges, Segment operating profit increased $3,663 primarily due to favorable mix, continued efficiency improvements and the positive impact of restructuring initiatives undertaken over the past year. Resin did not have a material impact on profit for the quarter.
 
For the six months ended March 31, 2014, revenue increased $12,043, or 4%, compared to the prior year quarter. The increase reflected the benefit of favorable mix (5%) and the pass through of higher resin costs in customer selling prices (1%), partially offset by the impact of lower volume (2%), the majority of which was attributable to Plastics exiting certain low margin products in the second half of 2013.
 
For the six months ended March 31, 2014, Segment operating profit increased $11,619 compared to the prior year period; the prior year period included restructuring charges of $4,773. Excluding restructuring charges, Segment operating profit increased $6,846 primarily due to continued efficiency improvements, favorable mix and an $800 favorable resin benefit, partially offset by the impact of reduced volume.
 
In February 2013, Plastics undertook a restructuring project, primarily in Europe, to exit low margin business and to eliminate approximately 80 positions, resulting in restructuring charges of $4,773, primarily related to one-time termination benefits and other personnel costs. The project was completed in 2013.
 
Unallocated
 
For the quarter ended March 31, 2014, unallocated amounts totaled $8,391 compared to $7,980 in the prior year; for the six months ended March 31, 2014, unallocated amounts totaled $16,374 compared to $15,567 in the prior year. The increase in the current quarter and six-month period compared to the respective prior year periods primarily related to increased compensation and incentive costs.
 
Segment Depreciation and Amortization
 
Segment depreciation and amortization decreased $1,236 and $1,796, respectively, for the quarter and six-month periods ended March 31, 2014 compared to the prior year periods primarily due to assets fully amortizing, partially offset by the onset of depreciation for new assets placed in service.
 
Other Expense
 
For the quarters ended March 31, 2014 and 2013, Other income (expense) included $436 and ($479), 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 $15 and $321, respectively, of net investment income.
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For the six months ended March 31, 2014 and 2013, Other income (expense) included $679 and ($467), 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 $127 and $353, respectively, of net investment income.
 
Provision (benefit) for income taxes
 
In the quarter and six-month periods ended March 31, 2014 and 2013, the Company incurred pretax losses. The Company recognized tax benefits of 16.1% and 13.2% for the quarter and six-month periods ended March 31, 2014, respectively, compared to benefits of 65.7% and 59.0%, respectively, in the comparable prior year periods. The current and prior year benefit rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and changes in earnings mix between domestic and non-domestic operations, which are material relative to the level of pretax result.  
 
The current quarter and six-month periods include $609 and $320, respectively, of provisions for discrete items resulting primarily from the conclusion of tax audits in certain jurisdictions, and the impact of tax law changes enacted in the current quarter.  The comparable prior year periods included $309 and $364, respectively, of benefits from discrete items, primarily the retroactive extension of the federal R&D credit signed into law January 2, 2013. Excluding discrete items, the effective tax benefit rates for the quarter and six month periods ended March 31, 2014 were 18.1% and 14.4%, respectively, compared to benefit rates of 52.7% and 1.7% in the comparable prior year periods, respectively.
 
Prior to refinancing the debt and resultant loss on debt extinguishment, the Company anticipated its full year 2014 effective tax rate to approximate 40%. As a result of the loss from debt extinguishment, the Company anticipates it will now incur a pretax loss for the full year 2014, and recognize a corresponding tax benefit at an effective rate approximating 13.0%. In the current quarter, the impact of debt extinguishment on the full year effective tax rate was estimated to be a benefit of $5,848 or $0.12 per share, as detailed in the Company’s Reconciliation of Net Income to Adjusted Net Income.
 
Stock based compensation
 
For the quarters ended March 31, 2014 and 2013, stock based compensation expense totaled $3,321 and $3,338, respectively. For the six months ended March 31, 2014 and 2013, stock based compensation expenses totaled $4,996 and $6,298, respectively.
 
Comprehensive income (loss)
 
For the quarter ended March 31, 2014, total other comprehensive income, net of taxes, of $2,323, included a $1,224 gain from Foreign currency translation adjustments primarily due to the strengthening of the Australian and Brazilian currencies, partially offset by the weakening of the Canadian currency and Euro, all in comparison to the U.S. Dollar, and a $1,099 benefit from Pension and other post retirement plans, primarily due to settling a non U.S. pension plan and amortization of actuarial losses.
 
For the six months ended March 31, 2014, total other comprehensive loss, net of taxes, of $498, included a $1,913 loss from Foreign currency translation adjustments primarily due to the weakening of the Canadian currency, partially offset by the strengthening of the Euro and the Australian currency, all in comparison to the U.S. Dollar, and a $1,415 benefit from Pension and other post retirement plans, primarily due to settling a non U.S. pension plan and amortization of actuarial losses.
 
Discontinued operations - Installation Services
 
There was no revenue or income from the Installation Services’ business for the quarters and six-month periods ended March 31, 2014 and 2013.
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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 remains in a strong financial position with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis.
 
The following table is derived from the Condensed Consolidated Statements of Cash Flows:
 
Cash Flows from Continuing Operations	 	Six Months Ended March 31,	 	
(in thousands)	 	2014	 	 	2013	 	
Net Cash Flows Used In:	 	 	 	 	 	 	 	 	
Operating activities	 	$	(26,637	)	 	$	(33,983	)	
Investing activities	 	 	(57,271	)	 	 	(29,779	)	
Financing activities	 	 	(23,234	)	 	 	(28,354	)	
 
Cash used in continuing operations for the six months ended March 31, 2014 was $26,637 compared to $33,983 in the prior year. The current year included $16,716 of interest payments made in conjunction with the redemption of the $550,000 7.125% senior notes due 2018; in prior years, such payments would have been made April 1. Excluding this payment, cash flow used in operating activities would have approximated $9,921. Current assets net of current liabilities, excluding short-term debt and cash, increased to $458,060 at March 31, 2014 compared to $372,639 at September 30, 2013, primarily due to increased inventory, contract costs and recognized income not yet billed and a decrease in accounts payable and accrued liabilities.
 
During the six months ended March 31, 2014, Griffon used cash for investing activities of $57,271 compared to $29,779 in the prior year; the acquisition of Northcote for approximately $22,000 impacted the current year. Current quarter capital expenditures totaled $34,845, an increase of $3,850 from the prior year quarter.
 
During the six months ended March 31, 2014, cash used in financing activities totaled $23,234 compared to $28,354 in the prior year. On May 1, 2014, Griffon’s Board of Directors authorized the repurchase of up to an additional $50,000 of Griffon’s outstanding common stock. Under this repurchase program, the Company may purchase shares, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. During the six months ended March 31, 2014, the Board of Directors approved two quarterly cash dividends of $0.03 per share. On December 10, 2013, Griffon repurchased 4,444,444 shares of its common stock for $50,000 from GS Direct, L.L.C. (“GS Direct”), an affiliate of The Goldman Sachs Group, Inc., in a private transaction. This purchase was exclusive of the Company’s August 2011 $50,000 authorized share repurchase program, of which $4,525 remains at March 31, 2014. In the six months ended March 31, 2014, Griffon purchased 598,481 shares of common stock under the August 2011 authorized program, for a total of $7,501 or $12.53 per shares. To date, Griffon has purchased 4,320,712 shares of common stock, for a total of $45,474 or $10.52 per share under the August 2011 share repurchase authorization. In December 2013, Griffon’s Employee Stock Ownership Plan (“ESOP”) entered into an agreement, which refinanced the two existing ESOP loans into one new Term Loan in the amount of $21,098. The Agreement also provided a Line Note with $10,000 available to purchase shares of Griffon common stock in the open market through September 29, 2014. In the six months ended March 31, 2014, 749,977 shares of Griffon common stock, for a total of $10,000, were purchased with proceeds from the Line Note. In the six months ended March 31, 2014, 411,064 shares, with a market value of $5,266 or $12.81 per share, withheld to settle employee taxes due upon the vesting of restricted stock, were added to treasury stock.
 
On May 1, 2014, the Board of Directors declared a quarterly cash dividend of $0.03 per share, payable on June 26, 2014 to shareholders of record as of the close of business on May 23, 2014.
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Payments related to Telephonics revenue are received in accordance with the terms of development and production subcontracts; certain of such receipts are progress or performance based payments. Plastics customers are generally substantial industrial companies whose payments have been steady, reliable and made in accordance with the terms governing such sales. Plastics sales satisfy orders that are received in advance of production, and where payment terms are established in advance. With respect to HBP, there have been no material adverse impacts on payment for sales.
 
A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the six months ended March 31, 2014:
 
 	•	The United States Government and its agencies, through either prime or subcontractor relationships, represented 15% of Griffon’s consolidated revenue and 73% of Telephonics’ revenue.	
 	•	Procter & Gamble Co. represented 13% of Griffon’s consolidated revenue and 44% of Plastics’ revenue.	
 	•	The Home Depot represented 11% of Griffon’s consolidated revenue and 22% of HBP’s revenue.	
 
No other customer exceeded 7% of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to fluctuation and may be reduced materially. The  loss of all or a portion of volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and operations.
 
Cash and Equivalents and Debt	 	At March 31,	 	 	At September 30,	 	
(in thousands)	 	2014	 	 	2013	 	
Cash and equivalents	 	$	69,933	 	 	$	178,130	 	
Notes payables and current portion of long-term debt	 	 	13,393	 	 	 	10,768	 	
Long-term debt, net of current maturities	 	 	773,579	 	 	 	678,487	 	
Debt discount	 	 	11,454	 	 	 	13,246	 	
Total debt	 	 	798,426	 	 	 	702,501	 	
Debt, net of cash and equivalents	 	$	728,493	 	 	$	524,371	 	
 
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, starting September 1, 2014. Proceeds from the Senior Notes were used to redeem $550,000 of 7.125% senior notes due 2018, to pay a 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 fees and expenses.  The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. At the time of issuance of the Senior Notes, Griffon agreed that, within certain time periods after the issue date, it would offer to each noteholder, pursuant to a registration statement filed with and to be declared effective by the SEC, the opportunity to exchange its Senior Notes for new notes that have substantially identical terms to those of the Senior Notes (the only material difference being that the new notes are registered with the SEC). The fair value of the Senior Notes approximated $591,000 on March 31, 2014 based upon quoted market prices (level 1 inputs).
 
In connection with these transactions, Griffon capitalized $9,950 of underwriting fees and other expenses incurred related to issuance 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 remaining deferred financing fees of $6,574 and $786 of prepaid interest on defeased notes.
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On February 14, 2014, Griffon amended its $225,000 Credit Agreement extending its maturity date from March 28, 2018 to March 28, 2019, amending certain financial maintenance ratio test thresholds and increasing certain baskets for permitted debt, guaranties, liens, asset sales, foreign acquisitions, investments and restricted payments. The facility includes a letter of credit sub-facility with a limit of $60,000, a multi-currency sub-facility of $50,000 and a swing line sub-facility with a limit of $30,000. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of a default or 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. The current margins are 1.25% for base rate loans and 2.25% for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio as well as customary affirmative and negative covenants and events of default. The Credit Agreement also includes certain restrictions, such as limitations on the ability of Griffon to incur indebtedness and liens and to 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 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.
 
At March 31, 2014, outstanding borrowings and standby letters of credit were $20,000 and $20,352, respectively; $184,648 was available for borrowing at that date.
 
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 68.6238 shares of Griffon’s common stock per $1,000 principal amount of notes, corresponding to a conversion price of $14.57 per share. When a cash dividend is declared that would result in an adjustment to the conversion ratio of less than 1%, any adjustment to the conversion ratio is deferred until the first to occur of (i) actual conversion; (ii) the 42nd trading day prior to maturity of the notes; and (iii) such time as the cumulative adjustment equals or exceeds 1%. As of March 31, 2014, the above conversion price included dividends paid through March 27, 2014. At both March 31, 2014 and 2013, 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 $112,600 on March 31, 2014 based upon quoted market prices (level 1 inputs).
 
On October 21, 2013, Griffon refinanced two properties’ real estate mortgages to secure new loans totaling $17,175. The loans mature in October 2018, are collateralized by the related properties and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus 2.75%. At March 31, 2014, $16,818 was outstanding.
 
In December 2013, Griffon’s ESOP entered into an agreement which refinanced the two existing ESOP loans into one new Term Loan in the amount of $21,098. The Agreement also provided a Line Note with $10,000 available to purchase shares of Griffon common stock in the open market through September 29, 2014. As of March 31, 2014, 749,977 shares of Griffon common stock, for a total of $10,000, were purchased with proceeds from the Line Note. In March 2014, the Line Note was combined with the Term Loan to form one new term loan. The loan bears interest at a) LIBOR plus 2.25% or b) the lender’s prime rate, at Griffon’s option.  The loan requires quarterly principal payments of $505 through September 30, 2014 and $419 per quarter thereafter, with a balloon payment of approximately $19,000 due at maturity in December 2018. The loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets, and Griffon guarantees repayment. At March 31, 2014, $30,087 was outstanding.
 
In October 2006, CBP entered into a capital lease totaling $14,290 for real estate in Troy, Ohio. The lease matures in 2022, bears interest at a fixed rate of 5.0%, is secured by a mortgage on the real estate and is guaranteed by Griffon. At December 31, 2013, $9,289 was outstanding.
 
In November 2010, Clopay Europe GMBH (“Clopay Europe”) entered into a €10,000 revolving credit facility and a €20,000 term loan. The term loan was paid off in December 2013 and the revolver had borrowings of $5,500 at March 31, 2014. The revolving facility matures in November 2014, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 2.20% per annum. Clopay Europe is required to maintain a certain minimum equity to assets ratio and keep leverage below a certain level, defined as the ratio of total debt to EBITDA.
 
Clopay do Brazil maintains lines of credit of approximately $5,700. Interest on borrowings accrues at a rate of Brazilian CDI plus 6.0% (16.55% at March 31, 2014). At March 31, 2014 there was approximately $3,943 borrowed under the lines. Clopay Plastic Products Co., Inc. guarantees the loan and lines.
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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 (1.45% LIBOR USD and 2.47% Bankers Acceptance Rate CDN as of March 31, 2014). The revolving facility matures in November 2015. Garant is required to maintain a certain minimum equity.  At March 31, 2014, there were no borrowings under the revolving credit facility with CAD $15,000 available.
 
In December 2013, Northcote Holdings Pty. Ltd entered into an AUD $12,500 term loan. The term loan is unsecured, requires quarterly interest payments and principal is due at maturity (December 2016). The loan accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 2.8% per annum (5.5% at March 31, 2014). As of March 31, 2014, Griffon had an outstanding balance of $11,559. Subsidiaries of Northcote Holdings maintain a line of credit of approximately $2,800. The line of credit accrues interest at BBSY plus 2.25% per annum (4.95% at March 31, 2014). At March 31, 2014, there were no outstanding borrowings under the line. Griffon Corporation guarantees both the term loan and the line of credit.
 
At March 31, 2014, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.
 
During the six month period ended March 31, 2014 and 2013, Griffon used cash for discontinued operations of $640 and $478, respectively, primarily related to settling remaining Installation Services liabilities and environmental costs.
 
CRITICAL ACCOUNTING POLICIES
 
The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates.
There have been no changes in Griffon’s critical accounting policies from September 30, 2013.
 
Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2013. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
The Financial Accounting Standards Board issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters.
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FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the “Company” or “Griffon”) operates and the United States and global economies. Statements in this Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings from cost control, integration and disposal initiatives; the ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which Griffon’s Telephonics Corporation supplies products, including as a result of sequestration at such time as the budgetary cuts mandated by sequestration begin to take effect; the ability of the federal government to fund and conduct its operations; increases in the cost of raw materials such as resin and steel; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation; unfavorable results of government agency contract audits of Telephonics Corporation; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; and possible terrorist threats and actions and their impact on the global economy. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
 
Griffon’s business’ activities necessitates the management of various financial and market risks, including those related to changes in interest rates, foreign currency rates and commodity prices.
 
Interest Rates
 
Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate debt and investments in cash and equivalents.
 
The revolving credit facility and certain other of Griffon’s credit facilities have a LIBOR-based variable interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point change in LIBOR would not have a material impact on Griffon’s results of operations or liquidity.
38	

 	
Foreign Exchange
 
Griffon conducts business in various non-U.S. countries, primarily in Canada, Germany, Brazil, United Kingdom, Turkey, China, Sweden, Australia and Mexico; therefore, changes in the value of the currencies of these countries affect the financial position and cash flows when translated into U.S. Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-U.S. operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 10% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows.
 
Item 4 - Controls and Procedures
 
Under the supervision and with the participation of Griffon’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), were evaluated as of the end of the period covered by this report. Based on that evaluation, Griffon’s CEO and CFO concluded that Griffon’s disclosure controls and procedures were effective at the reasonable assurance level.
 
During the period covered by this report, there were no changes in Griffon’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, Griffon’s internal control over financial reporting.
 
Limitations on the Effectiveness of Controls
 
Griffon believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance of achieving their objectives.
 
PART II - OTHER INFORMATION
 	
Item 1	Legal Proceedings	
 	None
 	
Item 1A	Risk Factors	
 	 	
 	In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2013, which could materially affect Griffon’s business, financial condition or future results. The risks described in Griffon’s Annual Report on Form 10-K are not the only risks facing Griffon. Additional risks and uncertainties not currently known to Griffon or that Griffon currently deems to be immaterial also may materially adversely affect Griffon’s business, financial condition and/or operating results.	

39	

 	
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
 
(a) Recent sales of unregistered securities.
On January 10, 2014, Griffon sold 44,476 shares of common stock to Ames management for an aggregate of $584 in a private offering pursuant to the exemption provided for in Section 4(2) of, and Regulation D promulgated pursuant to, the Securities Act of 1933.	
 
(c)
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
Period	 	(a) Total Number
of Shares (or
Units) Purchased	 	 	(b) Average Price
Paid Per Share (or
Unit)	 	 	(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs  (1)	 	 	(d) Maximum Number (or
Approximate Dollar
Value) of Shares (or Units)
That May Yet Be
Purchased Under the
Plans or Programs (1)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
January 1 - 31, 2014	 	 	-	 	 	$	-	 	 	 	-	 	 	 	 	 	
February 1 - 28, 2014	 	 	294,200	(2)	 	 	12.39	 	 	 	171,148	 	 	 	 	 	
March 1 - 31, 2014	 	 	361,633	 	 	 	12.55	 	 	 	361,633	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	655,833	 	 	$	12.47	 	 	 	532,781	 	 	$	4,525	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	1.	On August 2, 2011, the Company’s Board of Directors authorized the repurchase of up to an additional $50,000 of Griffon common stock; as of March 31, 2014, $4,525 remained available for the purchase of Griffon common stock under this program. On May 1, 2014, the Company’s Board of Directors authorized the repurchase of up to an additional $50,000 of Griffon common stock.	
 	2.	Includes 123,052 shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock, to satisfy tax-withholding obligations of the holders.	
 
Item 3

Item 4
 	Defaults Upon Senior Securities
None
 
Mine Safety Disclosures
Not applicable	
 	 	
Item 5	Other Information	
 	None	
 	 	
Item 6	Exhibits	
 
4.1	Indenture (relating to the 5.25% Senior Notes due 2022), dated as of February 27, 2014, among Griffon Corporation, the Guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (Exhibit 4.1 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	
 	 	
4.2	Registration Rights Agreement (relating to the 5.25% Senior Notes due 2022), dated as of February 27, 2014, by and among Griffon Corporation, the Guarantors party thereto and Deutsche Bank Securities Inc., as the Representative of the several Initial Purchasers (Exhibit 4.2 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	
 	 	
4.3	Supplemental Indenture (relating to the 7.125% Senior Notes due 2018), dated as of February 27, 2014, between Griffon Corporation and Wells Fargo Bank, National Association, as Trustee (Exhibit 4.3 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	

40	

 	
10.1	Purchase Agreement, dated as of February 12, 2014, by and among Griffon Corporation, the Guarantors named therein and Deutsche Bank Securities Inc., as Representative of the several Initial Purchasers named therein (Exhibit 99.1 to the Current Report on Form 8-K filed February 13, 2014 (Commission File No. 1-06620)).	
 	 	
10.2	Fourth Amendment to Amended and Restated Credit Agreement, dated as of February 14, 2014, to that certain Amended and Restated Credit Agreement, dated as of March 28, 2013 among Griffon Corporation, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities Inc., as syndication agent, Wells Fargo Bank, National Association, HSBC Bank USA, N.A and RBS Citizens, N.A., as co-documentation agents, and the other lenders party thereto (Exhibit 99.1 to the Current Report on Form 8-K filed February 14, 2014 (Commission File No. 1-06620))	
 	 	
10.3	Griffon Corporation 2011 Equity Incentive Plan, as amended and restated through January 30, 2014 (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement relating to the 2014 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on December 20, 2013).	
 	 	
31.1	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	XBRL Instance Document*	
 	 	
101.SCH	XBRL Taxonomy Extension Schema Document*	
 	 	
101.CAL	XBRL Taxonomy Extension Calculation Document*	
 	 	
101.DEF	XBRL Taxonomy Extension Definitions Document*	
 	 	
101.LAB	XBRL Taxonomy Extension Labels Document*	
 	 	
101.PRE	XBRL Taxonomy Extension Presentations Document*	
 	 	
*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.	

41	

 	
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 	GRIFFON CORPORATION	 	
 	 	 	
 	/s/ Douglas J. Wetmore	 	
 	Douglas J. Wetmore	 	
 	Executive Vice President and Chief Financial Officer	 	
 	(Principal Financial Officer)	 	
 	 	 	
 	/s/ Brian G. Harris	 	
 	Brian G. Harris	 	
 	Vice President, Controller and Chief Accounting Officer	
 	(Principal Accounting Officer)	 	
 
Date: May 2, 2014
42	

 	
EXHIBIT INDEX
 
4.1	Indenture (relating to the 5.25% Senior Notes due 2022), dated as of February 27, 2014, among Griffon Corporation, the Guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (Exhibit 4.1 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	
 	 	
4.2	Registration Rights Agreement (relating to the 5.25% Senior Notes due 2022), dated as of February 27, 2014, by and among Griffon Corporation, the Guarantors party thereto and Deutsche Bank Securities Inc., as the Representative of the several Initial Purchasers (Exhibit 4.2 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	
 	 	
4.3	Supplemental Indenture (relating to the 7.125% Senior Notes due 2018), dated as of February 27, 2014, between Griffon Corporation and Wells Fargo Bank, National Association, as Trustee  (Exhibit 4.3 to the Current Report on Form 8-K filed February 27, 2014 (Commission File No. 1-06620)).	
 	 	
10.1	Purchase Agreement, dated as of February 12, 2014, by and among Griffon Corporation, the Guarantors named therein and Deutsche Bank Securities Inc., as Representative of the several Initial Purchasers named therein (Exhibit 99.1 to the Current Report on Form 8-K filed February 13, 2014 (Commission File No. 1-06620)).	
 	 	
10.2	Fourth Amendment to Amended and Restated Credit Agreement, dated as of February 14, 2014, to that certain Amended and Restated Credit Agreement, dated as of March 28, 2013 among Griffon Corporation, JPMorgan Chase Bank, N.A., as administrative agent, Deutsche Bank Securities Inc., as syndication agent, Wells Fargo Bank, National Association, HSBC Bank USA, N.A and RBS Citizens, N.A., as co-documentation agents, and the other lenders party thereto (Exhibit 99.1 to the Current Report on Form 8-K filed February 14, 2014 (Commission File No. 1-06620))	
 	 	
10.3	Griffon Corporation 2011 Equity Incentive Plan, as amended and restated through January 30, 2014 (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement relating to the 2014 Annual Meeting of Shareholders, filed with the Securities and Exchange Commission on December 20, 2013).	
 	 	
31.1	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	XBRL Instance Document*	
 	 	
101.SCH	XBRL Taxonomy Extension Schema Document*	
 	 	
101.CAL	XBRL Taxonomy Extension Calculation Document*	
 	 	
101.DEF	XBRL Taxonomy Extension Definitions Document*	
 	 	
101.LAB	XBRL Taxonomy Extension Labels Document*	
 	 	
101.PRE	XBRL Taxonomy Extension Presentations Document*	
 	 	
*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”.	

43	

Exhibit 31.1	
 
CERTIFICATION
 
I, Ronald J. Kramer, certify that:
 
1.	I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	
 	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	
 	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: May 2, 2014
 	/s/ Ronald J. Kramer	 	
 	Ronald J. Kramer	 	
 	Chief Executive Officer	 	
 	(Principal Executive Officer)	 	

Exhibit 31.2
 
CERTIFICATION
 
I, Douglas J. Wetmore, certify that:
 
1.		I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;	
 	 	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	
 	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	
 	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	
 	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: May 2, 2014
 	/s/ Douglas J. Wetmore	 	
 	Douglas J. Wetmore	 	
 	Executive Vice President and Chief Financial Officer	
 	(Principal Financial Officer)	 	

Exhibit 32
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Ronald J. Kramer, Chief Executive Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.
 
 	/s/ Ronald J. Kramer	 	
 	Name: Ronald J. Kramer	 	
 	Date: May 2, 2014	 	
 
I, Douglas J. Wetmore, Executive Vice President and Chief Financial Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.
 
 	/s/ Douglas J. Wetmore	 	
 	Name: Douglas J. Wetmore	 	
 	Date: May 2, 2014	 	
 
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.