NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending
September 30,
)
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
Griffon Corporation (the “Company” or “Griffon”) is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
Headquartered in New York, N.Y., the Company was founded in 1959 and is incorporated in Delaware. Griffon is listed on the New York Stock Exchange and trades under the symbol GFF.
On September 5, 2017, Griffon announced it will explore strategic alternatives for Clopay Plastic Products Company, Inc. ("PPC") and on November 16, 2017, announced it entered into a definitive agreement to sell PPC to Berry Global Group, Inc. (NYSE:BERY) ("Berry") for
$475 million
in cash. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the first quarter of calendar 2018. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. PPC is a global leader in the development and production of embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells to some of the world's largest consumer products companies. See Note 6, Discontinued Operations.
On October 2, 2017, Griffon acquired ClosetMaid LLC ("ClosetMaid"). ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. Due to the acquisition of ClosetMaid occurring subsequent to Griffon's fiscal year end, ClosetMaid's results of operations, assets and liabilities were not included in Griffon's 2017 financial results or 2017 year-end balance sheet. See Note 2, Acquisitions.
Griffon currently conducts its continuing operations through
two
reportable segments:
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Home & Building Products (“HBP”) consists of
three
companies, The AMES Companies, Inc. (“AMES”) and Clopay Building Products (“CBP”):
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AMES is the leading U.S. manufacturer and a global provider of long-handled tools and landscaping products for homeowners and professionals.
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CBP is a leading manufacturer and marketer of residential and commercial garage doors and sells to professional dealers and some of the largest home center retail chains in North America.
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ClosetMaid LLC ("ClosetMaid"), founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers.
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Telephonics Corporation ("Telephonics") is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.
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Consolidation
The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The results of operations of acquired businesses are included from the dates of acquisitions.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Earnings per share
Due to rounding, the sum of earnings per share may not equal earnings per share of Net income.
Discontinued operations
Installation Services
In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market. Operating results of substantially all of this segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; Installation Services is excluded from segment reporting.
During the year ended September 30, 2017, Griffon recorded
$5,700
of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association claims related to the Clopay Services Corporation discontinued operations in 2008.
Clopay Plastic Products Company, Inc. ("PPC")
On September 5, 2017, Griffon announced it will explore strategic alternatives for PPC and on November 16, 2017, announced it entered into a definitive agreement to sell PPC to Berry for
$475 million
in cash. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the first quarter of calendar 2018. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. See Note 6, Discontinued Operations to the Notes of the Financial Statements.
At
September 30, 2017
, Griffon’s assets and liabilities for discontinued operations not held for sale related to its installation business primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves and assets and liabilities for discontinued operations held for sale related to its PPC business.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the current year presentation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, acquisition assumptions used and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Cash and equivalents
Griffon considers all highly liquid investments purchased with an initial maturity of
three months
or less to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank deposits. Griffon had cash in non-U.S. bank accounts of approximately
$26,500
and
$24,000
at
September 30, 2017
and
2016
, respectively. Substantially all U.S. cash and equivalents are in excess of FDIC insured limits. Griffon regularly evaluates the financial stability of all institutions and funds that hold its cash and equivalents.
Fair value of financial instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates.
The fair value hierarchy, as outlined in the applicable accounting guidance, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows:
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•
|
Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets.
|
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•
|
Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
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•
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Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
The fair value of Griffon’s 2022 senior notes approximated
$725,000
, on
September 30, 2017
. Fair values were based upon quoted market prices (level 1 inputs).
Insurance contracts with a value of
$3,083
at
September 30, 2017
are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Other current assets on the consolidated balance sheet.
Items Measured at Fair Value on a Recurring Basis
At
September 30, 2017
and 2016, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of
$3,352
(
$1,000
cost basis) and
$1,314
(
$1,000
cost basis) were included in Prepaid and other current assets on the Consolidated Balance Sheets. During the year ended September 30, 2016, the Company settled trading securities with proceeds totaling
$715
and recognized a loss of
$13
in Other income (expense). During the year ended September 30, 2015, the Company settled all outstanding available-for-sale securities with proceeds totaling
$8,891
and recognized a gain of
$489
in Other income, and accordingly, a gain of
$870
, net of tax, on available-for-sale securities was reclassified out of Accumulated other comprehensive income (loss) ("AOCI"). Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).
In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. During 2017 and 2016, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in USD.
At September 30, 2017 and 2016, Griffon had
$14,500
and
$25,500
of Australian dollar contracts at a weighted average rate of
$1.28
and
$1.30
, respectively, which qualified for hedge accounting. These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services. AOCI included deferred losses of
$175
(
$114
, net of tax) and deferred gains of
$1,545
(
$1,004
, net of tax) at
September 30, 2017
and 2016, respectively. Upon settlement, losses of
$(1,458)
and
$(752)
were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS") during the years ended
September 30, 2017
and September 30, 2016, respectively. All contracts expire in
13
to
269 days
.
At
September 30, 2017
and 2016, Griffon had
$4,690
and
$4,855
, respectively, of Canadian dollar contracts at a weighted average rate of
$1.25
and
$1.31
. These contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and fair value losses of
$378
and
$157
were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended
September 30, 2017
and 2016, respectively. Realized gains of
$200
and
$136
, were recorded in Other income during the years ended
September 30, 2017
and September 30, 2016, respectively. All contracts expire in
30
to
358
days
.
Pension plan assets with a fair value of
$150,822
at
September 30, 2017
, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs) and quoted market prices for similar assets (level 2 inputs).
Non-U.S. currency translation
Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates. Adjustments resulting from currency translation have been recorded in the equity section of the balance sheet in AOCI as cumulative translation adjustments. Cumulative translation adjustments were gains (losses) of
$32,227
and
$42,894
at
September 30, 2017
and
2016
, respectively. Assets and liabilities of an entity that are denominated in currencies other than that entity’s functional currency are remeasured into the functional currency using period end exchange rates, or historical rates where applicable to certain balances. Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income (Loss) as a component of Other income (expense).
Revenue recognition
Revenue is recognized when the following circumstances are satisfied: a) persuasive evidence of an arrangement exists, b) delivery has occurred, title has transferred or services are rendered, c) price is fixed and determinable and d) collectability is reasonably assured. Goods are sold on terms that transfer title and risk of loss at a specified location. Revenue recognition from product sales occurs when all factors are met, including transfer of title and risk of loss, which occurs either upon shipment or upon receipt by customers at the location specified in the terms of sale. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations. From time to time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns allowances based upon historical returns experience.
Telephonics earns a substantial portion of its revenue as either a prime or subcontractor from contract awards with the U.S. Government, as well as non-U.S. governments and other commercial customers. These formal contracts are typically long-term in nature, usually greater than
one year
. Revenue and profits from these long-term fixed price contracts are recognized under the percentage-of-completion method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (cost-to-cost method). Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. As this method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs at completion. The cost performance and estimates to complete on long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract’s estimated costs at completion and estimated profit or loss often are required as experience is gained, and as more information is obtained, even though the scope of work required under the contract may or may not change, or if contract
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
modifications occur. The impact of such adjustments or changes to estimates is made on a cumulative basis in the period when such information has become known. In 2017, 2016 and 2015, income from operations included net favorable/(unfavorable) catch-up adjustments approximating
$600
,
$(700)
and
$(400)
, respectively. Gross profit is affected by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions.
Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs, and are incurred on the contract at an amount equal to the allowable costs plus the estimated profit on those costs. The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement. Incentive and award fees on these contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated.
For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a cumulative basis. The estimated remaining costs to complete loss contracts as of September 30, 2017 was
$9,900
and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). This loss had an immaterial impact on Griffon's Consolidated Financial Statements.
Amounts representing contract change orders or claims are included in revenue only when they can be reliably estimated and their realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method.
From time to time, Telephonics may combine contracts if they are negotiated together, have specific requirements to combine, or are otherwise closely related. Contracts are segmented based on customer requirements.
Accounts receivable, allowance for doubtful accounts and concentrations of credit risk
Accounts receivable is composed principally of trade accounts receivable that arise from the sale of goods or services on account, and is stated at historical cost. A substantial portion of Griffon’s trade receivables are from customers of HBP, of which the largest customer is Home Depot, whose financial condition is dependent on the construction and related retail sectors of the economy. As a percentage of consolidated accounts receivable, U.S. Government related programs were
16%
and Home Depot was
19%
. Griffon performs continuing evaluations of the financial condition of its customers, and although Griffon generally does not require collateral, letters of credit may be required from customers in certain circumstances.
Trade receivables are recorded at the stated amount, less allowance for doubtful accounts and, when appropriate, for customer program reserves and cash discounts. The allowance represents estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency). The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically identified, as well as an amount for customer defaults based on a formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. The provision related to the allowance for doubtful accounts is recorded in Selling, general and administrative ("SG&A") expenses. The Company writes-off accounts receivable when they are deemed to be uncollectible.
Customer program reserves and cash discounts are netted against accounts receivable when it is customer practice to reduce invoices for these amounts. The amounts netted against accounts receivable in
2017
and
2016
were
$11,249
and
$8,509
, respectively.
All accounts receivable amounts are expected to be collected in less than one year.
The Company does not currently have customers or contracts that prescribe specific retainage provisions.
Contract costs and recognized income not yet billed
Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met. At September 30,
2017
and
2016
, approximately
$20,100
and
$12,000
, respectively, of contract costs and recognized income not yet billed were expected to be collected after one year. As of September 30,
2017
and
2016
, the unbilled receivable balance included $
2,850
and
$2,600
, respectively, of reserves for contract risk.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Inventories
Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs.
Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, Telephonics sells products in connection with programs authorized and approved under contracts awarded by the U.S. Government or agencies thereof and in accordance with customer specifications. HBP produces doors and long-handled tools and landscaping products in response to orders from customers of retailers and dealers or based on expected orders, as applicable.
Property, plant and equipment
Property, plant and equipment includes the historical cost of land, buildings, equipment and significant improvements to existing plant and equipment or, in the case of acquisitions, a fair market value appraisal of such assets completed at the time of acquisition. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is recognized. No event or indicator of impairment occurred during the three years ended
September 30, 2017
, which would require additional impairment testing of property, plant and equipment.
Depreciation expense, which includes amortization of assets under capital leases, was
$41,220
,
$39,734
and
$39,120
for the years ended
September 30, 2017
,
2016
and
2015
, respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets. Depreciation included in SG&A expenses was
$12,995
,
$11,721
and
$11,769
for the years ended
September 30, 2017
,
2016
and
2015
. The remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. Estimated useful lives for property, plant and equipment are as follows: buildings and building improvements,
25
to
40 years
; machinery and equipment,
2
to
15 years
and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter.
Capitalized interest costs included in Property, plant and equipment were
$4,807
,
$3,844
and
$4,165
for the years ended
September 30, 2017
,
2016
and
2015
, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at
September 30, 2017
was approximately
$286,056
.
Goodwill and indefinite-lived intangibles
Goodwill is the excess of the acquisition cost of a business over the fair value of the identifiable net assets acquired. Goodwill is not amortized, but is subject to an annual impairment test unless during an interim period, impairment indicators such as a significant change in the business climate exist.
Griffon performed its annual impairment testing of goodwill as of
September 30, 2017
. The performance of the test involves a two-step process. The first step involves comparing the fair value of Griffon’s reporting units with the reporting unit’s carrying amount, including goodwill. Griffon generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the present value of expected future cash flows. This method uses market assumptions specific to Griffon’s reporting units. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, Griffon performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.
Griffon defines its reporting units as its
two
reportable segments: HBP and Telephonics. Before Griffon classified PPC into discontinued operations, it had considered PPC to be both a reportable segment and reporting unit and tested PPC separately as part of its annual impairment testing of goodwill as of September 30, 2017. At September 30, 2017, HBP consisted of
two
components, AMES and CBP, which due to their similar economic characteristics, are aggregated into
one
reporting unit for goodwill testing.
Griffon used
5
year projections and a
3.0%
terminal value to which discount rates between
7.5%
and
9.5%
were applied to calculate each unit’s fair value. To substantiate fair values derived from the income approach methodology of valuation, the implied fair value was compared to the marketplace fair value of a comparable industry grouping for reasonableness. Further, the fair values were reconciled to Griffon’s market capitalization. Both market comparisons supported the implied fair values. Any changes in
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside Griffon’s control, or significant underperformance relative to historical or project future operating results, could result in a significantly different estimate of the fair value of the reporting units, which could result in a future impairment charge (level 3 inputs).
Based upon the results of the annual impairment review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and
no
impairment existed.
Similar to goodwill, Griffon tests indefinite-lived intangible assets at least annually and when indicators of impairment exist. Griffon uses a discounted cash flow method to calculate and compare the fair value of the intangible to its book value. This method uses market assumptions specific to Griffon’s reporting units, which are reasonable and supportable. If the fair value is less than the book value of the indefinite-lived intangibles, an impairment charge would be recognized.
There was
no
impairment related to any goodwill or indefinite-lived intangible at September 30, 2017, 2016 or 2015.
Definite-lived long-lived assets
Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting purposes, definite-lived intangible assets are amortized on a straight-line basis over their useful lives, generally
eight
to
twenty-five years
.
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.
There were
no
indicators of impairment during the three years ending
September 30, 2017
.
Income taxes
Income taxes are accounted for under the liability method. Deferred taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. The carrying value of Griffon’s deferred tax assets is dependent upon Griffon’s ability to generate sufficient future taxable income in certain tax jurisdictions. Should Griffon determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.
Griffon provides for uncertain tax positions and any related interest and penalties based upon Management’s assessment of whether a tax benefit is more likely than not of being sustained upon examination by tax authorities. At
September 30, 2017
Griffon believes that it has appropriately accounted for all unrecognized tax benefits. As of
September 30, 2017
,
2016
and
2015
, Griffon has recorded unrecognized tax benefits in the amount of
$4,825
,
$4,709
and
$6,613
, respectively. Accrued interest and penalties related to income tax matters are recorded in the provision for income taxes.
Research and development costs, shipping and handling costs and advertising costs
Research and development costs not recoverable under contractual arrangements are charged to SG&A expense as incurred and amounted to
$17,700
,
$18,000
and
$15,800
in
2017
,
2016
and
2015
, respectively.
SG&A expenses include shipping and handling costs of
$32,500
in
2017
,
$30,600
in
2016
and
$33,100
in
2015
and advertising costs, which are expensed as incurred, of
$22,000
in
2017
,
$23,000
in
2016
and
$23,000
in
2015
.
Risk, retention and insurance
Griffon’s property and casualty insurance programs contain various deductibles that, based on Griffon’s experience, are reasonable and customary for a company of its size and risk profile. Griffon generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, general, product and automobile liability as well as property damage and business interruption losses resulting from certain events. Griffon does not consider any of the deductibles to represent a material risk to Griffon. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably estimated. Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Pension benefits
Griffon sponsors defined and supplemental benefit pension plans for certain retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. Actuarial assumptions used to determine pension liabilities, assets and expense are reviewed annually and modified based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plan's investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments, with the appropriate spot rate applicable to the timing of the projected future benefit payments. Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries; however, differences in actual experience or changes in assumptions may materially impact Griffon’s financial position or results of operations.
All of the defined benefit plans are frozen and have ceased accruing benefits.
Newly issued but not yet effective accounting pronouncements
In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of a stock compensation award previously granted to an employee. This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. The new guidance is effective for the Company beginning in 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires companies to retrospectively present the service cost component of net periodic benefit cost for pension and retiree medical plans along with other compensation costs in operating income and present the other components of net periodic benefit cost below operating income in the income statement. The guidance also allows only the service cost component of net periodic benefit cost to be eligible for capitalization within inventory or fixed assets on a prospective basis. This guidance is effective, and should be applied retroactively, for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. The new guidance is effective for the Company beginning in 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those periods and will be effective for the Company beginning in 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In January 2017, the FASB issued guidance that clarifies the definition of a business, which will impact many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods and will be effective for the Company beginning in 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In August 2016, the Financial Accounting Standards Board ("FASB") issued guidance on the Statement of Cash Flows Classification of certain cash receipts and cash payments (a consensus of the emerging issues take force). This guidance addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
application of the predominance principle. This guidance will be effective for the Company beginning in fiscal 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the company beginning in fiscal 2019. We are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures.
In May 2014, the FASB issued guidance on revenue from contracts with customers. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in 2019; early adoption is permitted beginning in 2018. We have not yet selected a transition method and are currently evaluating the impact of the guidance on the Company's financial condition, results of operations and related disclosures. The FASB has also issued the following additional guidance clarifying certain issues on revenue from contracts with customers; Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients and Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. The Company is currently evaluating this guidance to determine the impact it will have on its consolidated financial statements.
Recently adopted accounting pronouncements
In March 2016, the FASB issued guidance on Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2016 using either prospective, retrospective or modified retrospective transition method, depending on the area covered in this guidance. The Company early adopted this guidance in fiscal 2016 in order to simplify the accounting for employee share-based payments..
Under this guidance all excess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to employee stock compensation was recognized within income tax expense for the year ended September 30, 2016. Under prior guidance, windfalls were recognized to Capital in excess of par value and shortfalls were only recognized to the extent they exceed the pool of windfall tax benefits. As a result of the adoption, a tax benefit of
$2,193
was recognized within income tax expense reflecting the excess tax benefits for the year ended September 30, 2016. The adoption was on a prospective basis and therefore had no impact on prior years. Additionally, income tax benefits at settlement of an award were previously reported as a reduction to operating cash flows and an increase to financing cash flows to the extent that those benefits exceeded the income tax benefits reported in earnings during the award's vesting period. Griffon has elected to apply that change in cash flow classification on a prospective basis, which has resulted in a
$2,291
increase to net cash provided by operating activities and a corresponding increase to net cash used in financing activities in the accompanying condensed consolidated statement of cash flows for the year ended September 30, 2016, as compared to the amounts previously reported. The remaining provisions of this accounting standard did not have a material impact on the accompanying condensed consolidated financial statements.
In November 2015, the FASB issued guidance on simplifying the presentation of deferred income taxes, requiring deferred income tax liabilities and assets to be classified as non-current in the statement of financial position. The guidance is effective for annual and interim reporting periods within those annual periods beginning after December 15, 2016 and may be applied retrospectively or prospectively. The Company early adopted this guidance in fiscal 2016 in order to simplify balance sheet presentation and applied it retrospectively for all periods presented in the financial statements. Accordingly, we reclassified current deferred taxes to non-current on the Consolidated Balance Sheet as of September 30, 2015 resulting in a decrease to both non-current deferred tax assets and non-current tax liabilities of
$3,793
and
$14,827
, respectively.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
In August 2014, the FASB issued guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and related footnote disclosures. Management is required to evaluate, at each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This guidance was effective prospectively for annual and interim reporting periods beginning in 2017; implementation of this guidance 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.
NOTE 2 — ACQUISITIONS
Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation.
On November 6, 2017, AMES acquired Harper Brush Works (“Harper”), a division of Horizon Global, for approximately
$5,000
. Harper is a leading U.S. manufacturer of cleaning products for professional, home, and industrial use. The acquisition will broaden AMES’ long-handle tool offering in North America to include brooms, brushes, and other cleaning tools and accessories.
On October 2, 2017, Griffon Corporation completed the acquisition of ClosetMaid, a market leader of home storage and organization products, for approximately
$200,000
, or
$175,000
inclusive of the net present value of tax benefits. ClosetMaid adds to Griffon's Home and Building Products segment, complementing and diversifying Griffon's portfolio of leading consumer brands and products. SG&A expenses included
$8,055
of related acquisition costs in 2017.
The accounts of ClosetMaid, after adjustments to reflect fair market values assigned to assets purchased, will be included in the consolidated financial statements from the date of acquisition of October 2, 2017, and as such will be included in Griffon's first quarter 2018 results. The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of ClosetMaid, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets. The calculation of the purchase price allocation, which is pending finalization of tax-related items and completion of the related final valuation, is as follows:
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,833
|
|
Accounts receivable, net
|
31,967
|
|
Inventories, net
|
36,354
|
|
Property, plant and equipment, net
|
44,134
|
|
Intangible assets, net
|
83,773
|
|
Goodwill
|
40,786
|
|
Other current and non-current assets
|
8,929
|
|
Total assets acquired
|
254,776
|
|
|
|
Accounts payable and accrued liabilities
|
54,776
|
|
Total liabilities assumed
|
54,776
|
|
Total
|
$
|
200,000
|
|
The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the ClosetMaid acquisition are as follows:
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Average
Life
(Years)
|
Goodwill
|
|
$
|
40,786
|
|
|
N/A
|
Indefinite-lived intangibles
|
|
53,290
|
|
|
N/A
|
Definite-lived intangibles
|
|
30,483
|
|
|
15
|
Total goodwill and intangible assets
|
|
$
|
124,559
|
|
|
|
On September 29, 2017, AMES Australia completed the acquisition of Tuscan Landscape Group Pty, Ltd. ("Tuscan Path") for approximately
$18,000
(AUD
22,250
). Tuscan Path is a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products. The acquisition of Tuscan Path broadens AMES' outdoor living and lawn and garden business, and will strengthen AMES' industry leading position in Australia. The purchase price was primarily allocated to intangible assets of AUD
3,900
and inventory and accounts receivable of AUD
7,900
. SG&A expenses included
$311
of related acquisition costs in 2017.
On July 31, 2017, The AMES Companies, Inc. acquired La Hacienda Limited, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately
$11,400
(GBP
9,175
), including an approximate contingent earn out payment of
$790
(GBP
600
). The acquisition of La Hacienda broadens AMES' global outdoor living and lawn and garden business and supports AMES' UK expansion strategy. The purchase price allocation was primarily allocated to intangible assets of approximately GBP
3,100
. SG&A expenses included
$647
of related acquisition costs in 2017.
On December 30, 2016, AMES Australia acquired Home Living ("Hills") for approximately
$6,051
(AUD
8,400
). Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products. The Hills acquisition adds to AMES' existing broad category of products and enhances its lawn and garden product offerings in Australia. The purchase price was primarily allocated to intangible assets of approximately AUD
6,400
.
On February 14, 2016, AMES Australia acquired substantially all of the Intellectual Property (IP) assets of Australia-based Nylex Plastics Pty Ltd. for
$1,744
(AUD
2,452
). Through this acquisition, AMES and Griffon secured the ownership of the trademark “Nylex” for certain categories of AMES products, principally in the country of Australia. Previously, the Nylex name was licensed. The acquisition of the Nylex IP was contemplated as a post-closing activity of the Cyclone acquisition and supports AMES' Australian watering products strategy. The purchase price was allocated to indefinite lived trademarks and is not deductible for income taxes.
In December 2015, Telephonics invested an additional
$2,726
increasing its equity stake from
26%
to
49%
in Mahindra Telephonics Integrated Systems ("MTIS"), a joint venture with Mahindra Defence Systems, a Mahindra Group Company. MTIS is an aerospace and defense manufacturing and development facility in Prithla, India.
This investment is accounted for using the equity method.
On April 16, 2015, AMES acquired the assets of an operational wood mill in Champion, PA from the Babcock Lumber Company for
$2,225
. The purchase price was allocated to property, plant and equipment. The wood mill secures wood supplies, lowers overall production costs and mitigates risk associated with manufacturing handles for wheelbarrows and long-handled tools.
NOTE 3 — INVENTORIES
The following table details the components of inventory:
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At September 30,
2016
|
Raw materials and supplies
|
$
|
67,990
|
|
|
$
|
59,207
|
|
Work in process
|
78,846
|
|
|
69,164
|
|
Finished goods
|
152,601
|
|
|
132,946
|
|
Total
|
$
|
299,437
|
|
|
$
|
261,317
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
The following table details the components of property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At September 30,
2016
|
Land, building and building improvements
|
$
|
71,764
|
|
|
$
|
65,615
|
|
Machinery and equipment
|
462,173
|
|
|
444,250
|
|
Leasehold improvements
|
43,040
|
|
|
37,414
|
|
|
576,977
|
|
|
547,279
|
|
Accumulated depreciation and amortization
|
(344,842
|
)
|
|
(310,374
|
)
|
Total
|
$
|
232,135
|
|
|
$
|
236,905
|
|
NOTE 5 — GOODWILL AND OTHER INTANGIBLES
The following table provides changes in carrying value of goodwill by segment through the year ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
2015
|
|
Foreign currency translation adjustments
|
|
September 30,
2016
|
|
Goodwill from acquisitions
|
|
Foreign currency translation adjustments
|
|
September 30,
2017
|
Home & Building Products
|
$
|
285,825
|
|
|
$
|
1,793
|
|
|
$
|
287,618
|
|
|
$
|
12,417
|
|
|
$
|
559
|
|
|
$
|
300,594
|
|
Telephonics
|
18,545
|
|
|
—
|
|
|
18,545
|
|
|
—
|
|
|
—
|
|
|
18,545
|
|
Total
|
$
|
304,370
|
|
|
$
|
1,793
|
|
|
$
|
306,163
|
|
|
$
|
12,417
|
|
|
$
|
559
|
|
|
$
|
319,139
|
|
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
|
|
At September 30, 2016
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Average
Life
(Years)
|
|
Gross Carrying
Amount
|
|
Accumulated Amortization
|
Customer relationships & other
|
$
|
152,025
|
|
|
$
|
43,421
|
|
|
25
|
|
$
|
148,288
|
|
|
$
|
36,867
|
|
Unpatented technology
|
6,193
|
|
|
4,719
|
|
|
12.5
|
|
6,073
|
|
|
4,061
|
|
Total amortizable intangible assets
|
158,218
|
|
|
48,140
|
|
|
|
|
154,361
|
|
|
40,928
|
|
Trademarks
|
95,049
|
|
|
—
|
|
|
|
|
84,516
|
|
|
—
|
|
Total intangible assets
|
$
|
253,267
|
|
|
$
|
48,140
|
|
|
|
|
$
|
238,877
|
|
|
$
|
40,928
|
|
Amortization expense for intangible assets subject to amortization was
$6,658
,
$6,608
and
$6,713
for the years ended
September 30, 2017
,
2016
and
2015
, respectively. Amortization expense for each of the next
five years
and thereafter, based on current intangible balances and classifications, is estimated as follows:
2018
-
$6,556
;
2019
-
$6,513
;
2020
-
$6,027
;
2021
-
$6,027
and
2022
-
$6,027
; thereafter -
$78,928
.
No event or indicator or impairment occurred during the current year, which would require impairment testing of long-lived intangible assets including goodwill.
NOTE 6 — DISCONTINUED OPERATIONS
PPC
On September 5, 2017, Griffon announced it will explore strategic alternatives for PPC and on November 16, 2017, announced it entered into a definitive agreement to sell PPC to Berry for
$475 million
in cash. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the first quarter of calendar 2018. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the consolidated balance sheets. All results and information presented exclude PPC unless otherwise noted. PPC is a global leader in the development and production of embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells to some of the world's largest consumer products companies.
The following amounts related to the PPC segment have been segregated from Griffon's continuing operations and are reported as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
$
|
460,914
|
|
|
$
|
480,126
|
|
|
$
|
532,741
|
|
Cost of goods and services
|
|
389,416
|
|
|
407,385
|
|
|
449,310
|
|
Gross profit
|
|
71,498
|
|
|
72,741
|
|
|
83,431
|
|
Selling, general and administrative expenses
|
|
43,518
|
|
|
45,673
|
|
|
49,324
|
|
Restructuring charges
|
|
—
|
|
|
5,900
|
|
|
—
|
|
Total operating expenses
|
|
43,518
|
|
|
51,573
|
|
|
49,324
|
|
Income from discontinued operations
|
|
27,980
|
|
|
21,168
|
|
|
34,107
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
63
|
|
|
1,234
|
|
|
358
|
|
Other, net
|
|
(59
|
)
|
|
(1,018
|
)
|
|
(821
|
)
|
Total other income (expense)
|
|
4
|
|
|
216
|
|
|
(463
|
)
|
Income from operations of discontinued operations
|
|
27,976
|
|
|
20,952
|
|
|
34,570
|
|
During the third quarter of 2016, PPC incurred pre-tax restructuring and related exit costs approximating
$5,900
primarily related to headcount reductions at PPC’s Dombuhl, Germany facility, other location headcount reductions and the shut down of PPC's Turkey facility. These actions resulted in the elimination of approximately
86
positions. The Dombuhl charges are related to an optimization plan that will drive innovation and enhance our industry leading position in printed breathable back sheet. The facility will be transformed into a state of the art hygiene products facility focused on breathable printed film and siliconized products. In conjunction with this effort, our customer base will be streamlined, and we will dispose of old assets and reduce overhead costs, allowing for gains in efficiencies.
A summary of the restructuring and other related charges included in the line item “Restructuring and other related charges” in the Consolidated Statements of Operations recognized for 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
Reduction
|
|
Facilities &
Exit Costs
|
|
Other Related
Costs
|
|
Non-cash
Facility and
Other
|
|
Total
|
Amounts incurred in the year ended:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
3,337
|
|
|
659
|
|
|
1,073
|
|
|
831
|
|
|
5,900
|
|
In 2017 and 2015,
no
restructuring and other related charges were incurred.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
The activity in the restructuring accrual recorded in Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
Reduction
|
|
Facilities &
Exit Costs
|
|
Other Related
Costs
|
|
Total
|
Accrued liability at September 30, 2015
|
$
|
163
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
163
|
|
Charges
|
3,337
|
|
|
659
|
|
|
1,073
|
|
|
5,069
|
|
Payments
|
(1,331
|
)
|
|
(659
|
)
|
|
(69
|
)
|
|
(2,059
|
)
|
Accrued liability at September 30, 2016
|
$
|
2,169
|
|
|
$
|
—
|
|
|
$
|
1,004
|
|
|
$
|
3,173
|
|
Payments
|
(1,761
|
)
|
|
—
|
|
|
(856
|
)
|
|
(2,617
|
)
|
Accrued liability at September 30, 2017
|
$
|
408
|
|
|
$
|
—
|
|
|
$
|
148
|
|
|
$
|
556
|
|
The following amounts related to the PPC segment have been segregated from Griffon's continuing operations and are reported as assets and liabilities of discontinued operations in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
At September 30, 2016
|
|
ASSETS
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
51,768
|
|
|
$
|
49,412
|
|
|
Inventories, net
|
45,742
|
|
|
47,551
|
|
|
Prepaid and other current assets
|
11,000
|
|
|
15,176
|
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
185,940
|
|
|
168,500
|
|
|
GOODWILL
|
57,087
|
|
|
55,022
|
|
|
INTANGIBLE ASSETS, net
|
12,298
|
|
|
12,650
|
|
|
OTHER ASSETS
|
6,889
|
|
|
14,413
|
|
|
Total Assets Held for Sale
|
$
|
370,724
|
|
|
362,724
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Notes payable and current portion of long-term debt
|
$
|
11,163
|
|
|
$
|
8,712
|
|
|
Accounts payable
|
36,619
|
|
|
42,211
|
|
|
Accrued liabilities
|
14,553
|
|
|
19,535
|
|
|
LONG-TERM DEBT, net
|
10,549
|
|
|
16,968
|
|
|
OTHER LIABILITIES
|
11,566
|
|
|
14,103
|
|
|
Total Liabilities Held for Sale
|
$
|
84,450
|
|
|
$
|
101,529
|
|
|
In September 2015, Griffon entered into mortgage loans in the amount of
$32,280
, secured by
four
properties occupied by Griffon's subsidiaries.
Two
of the
four
properties belong to PPC. The loan matures in
September 2025
, are collateralized by the specific properties financed and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus
1.50%
. At September 30, 2017, the loan related to the two PPC properties had an outstanding balance of
$11,601
, net of issuance costs.
In September 2015, Clopay Europe GmbH (“Clopay Europe”) entered into a EUR 5,000 ($5,884 as of September 30, 2017) revolving credit facility and a EUR 15,000 term loan. The term loan is payable in twelve quarterly installments of EUR 1,250, bears interest at a fixed rate of 2.5% and matures in September 2018. The revolving facility matures in September 2018, but is renewable upon mutual agreement with the bank. The revolving credit facility accrues interest at EURIBOR plus 2.55% per annum (2.55% at September 30, 2017). The revolver and the term loan are both secured by substantially all of the assets of Clopay Europe and its subsidiaries. Griffon guarantees the revolving facility and term loan. The term loan had an outstanding balance of EUR 5,000 ($5,884 at September 30, 2017) and the revolver had outstanding borrowings of EUR 2,500 ($2,942) at September 30, 2017. Clopay Europe is required to maintain a certain minimum equity to assets ratio and is subject to a maximum debt leverage ratio (defined as the ratio of total debt to EBITDA). Clopay Europe is in compliance with these covenants.
Clopay do Brasil maintains a line of credit of approximately R$7,000 ($2,210 as of September 30, 2017). Interest on borrowings accrues at various fixed rates (approximately 14.26% at September 30, 2017). As of September 30, 2017, there was approximately R$4,317 ($1,363 as of September 30, 2017) borrowed under the line. PPC guarantees the line.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Installation Services and Other Discontinued Activities
In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry
and a range of related building products, primarily for the new residential housing market. In 2008, Griffon sold
eleven
units, closed
one
unit and merged
two
units into CBP. Griffon substantially concluded its remaining disposal activities in 2009.
Installation Services operating results have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; Installation Services is excluded from segment reporting. There was
no
reported revenue in 2017, 2016 and 2015.
During the year ended September 30, 2017, Griffon recorded
$5,700
of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association claims (HOA) related to the Clopay Services Corporation discontinued operations in 2008.
At
September 30, 2017
, Griffon’s assets and liabilities for discontinued operations primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves. The following amounts related primarily to the installation services segment and other discontinued activities have been segregated from Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At September 30,
2016
|
Assets of discontinued operations:
|
|
|
|
|
|
Prepaid and other current assets
|
$
|
329
|
|
|
$
|
219
|
|
Other long-term assets
|
2,960
|
|
|
1,968
|
|
Total assets of discontinued operations
|
$
|
3,289
|
|
|
$
|
2,187
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
|
Accrued liabilities, current
|
$
|
8,342
|
|
|
$
|
1,684
|
|
Other long-term liabilities
|
3,037
|
|
|
1,706
|
|
Total liabilities of discontinued operations
|
$
|
11,379
|
|
|
$
|
3,390
|
|
NOTE 7 — ACCRUED LIABILITIES
The following table details the components of accrued liabilities:
|
|
|
|
|
|
|
|
|
|
At September 30,
2017
|
|
At September 30,
2016
|
Compensation
|
$
|
37,692
|
|
|
$
|
38,551
|
|
Interest
|
3,671
|
|
|
4,011
|
|
Warranties and rebates
|
6,236
|
|
|
6,322
|
|
Insurance
|
12,216
|
|
|
13,131
|
|
Rent, utilities and freight
|
2,149
|
|
|
1,525
|
|
Income and other taxes
|
6,291
|
|
|
10,687
|
|
Marketing and advertising
|
1,859
|
|
|
1,961
|
|
Other
|
13,144
|
|
|
7,871
|
|
Total
|
$
|
83,258
|
|
|
$
|
84,059
|
|
NOTE 8 –
WARRANTY LIABILITY
Telephonics offers warranties against product defects for periods generally ranging from
one
to
two years
, depending on the specific product and terms of the customer purchase agreement. CBP also offers warranties against product defects for periods generally ranging from
one
to
ten
years, with limited lifetime warranties on certain door models. Typical warranties require CBP and Telephonics to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
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.
Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
2017
|
|
2016
|
Balance, beginning of period
|
$
|
6,322
|
|
|
$
|
6,040
|
|
Warranties issued and changes in estimated pre-existing warranties
|
6,393
|
|
|
6,501
|
|
Actual warranty costs incurred
|
(6,479
|
)
|
|
(6,219
|
)
|
Balance, end of period
|
$
|
6,236
|
|
|
$
|
6,322
|
|
NOTE 9 — NOTES PAYABLE, CAPITALIZED LEASES
AND LONG-TERM DEBT
The present value of the net minimum payments on capitalized leases as of
September 30, 2017
was follows:
|
|
|
|
|
|
At September 30,
2017
|
Total minimum lease payments
|
$
|
8,213
|
|
Less amount representing interest payments
|
(806
|
)
|
Present value of net minimum lease payments
|
7,407
|
|
Current portion
|
(1,787
|
)
|
Capitalized lease obligation, less current portion
|
$
|
5,620
|
|
Minimum payments under capital leases for the next
five years
are as follows:
$2,120
in
2018
,
$1,967
in
2019
,
$2,073
in
2020
,
$1,761
in
2021
,
$291
in
2022
and
$1
thereafter.
Included in the consolidated balance sheet at
September 30, 2017
under Property, plant and equipment, are costs and accumulated depreciation subject to capitalized leases of
$19,238
and
$11,831
, respectively, and included in Other assets are deferred interest charges of
$105
.
Included in the consolidated balance sheet at
September 30, 2016
, under Property, plant and equipment are costs and accumulated depreciation subject to capitalized leases of
$18,039
and
$10,148
, respectively, and included in Other assets are deferred interest charges of
$131
. Amortization expense was
$1,683
,
$1,628
, and
$1,765
in
2017
,
2016
and
2015
, respectively.
In October 2006, a subsidiary of Griffon entered into a capital lease totaling
$14,290
for real estate it occupies in Troy, Ohio. Approximately
$10,000
was used to acquire the building and the remaining amount was used for improvements. The lease matures in
2022
, bears interest at a fixed rate of
5.0%
, is secured by a mortgage on the real estate and is guaranteed by Griffon.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Debt at
September 30, 2017
and
2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
|
|
|
Outstanding
Balance
|
|
Original
Issuer
Discount
|
|
Capitalized Fees & Expenses
|
|
Balance
Sheet
|
|
Coupon
Interest Rate
|
Senior note due 2022
|
(a)
|
|
$
|
725,000
|
|
|
(1,177
|
)
|
|
$
|
(9,220
|
)
|
|
$
|
714,603
|
|
|
5.25
|
%
|
Revolver due 2020
|
(b)
|
|
144,216
|
|
|
—
|
|
|
(1,951
|
)
|
|
142,265
|
|
|
n/a
|
|
Real estate mortgages
|
(d)
|
|
23,642
|
|
|
—
|
|
|
(320
|
)
|
|
23,322
|
|
|
n/a
|
|
ESOP Loans
|
(e)
|
|
42,675
|
|
|
—
|
|
|
(310
|
)
|
|
42,365
|
|
|
n/a
|
|
Capital lease - real estate
|
(f)
|
|
5,312
|
|
|
—
|
|
|
(105
|
)
|
|
5,207
|
|
|
5.00
|
%
|
Non U.S. lines of credit
|
(g)
|
|
9,402
|
|
|
|
|
|
(31
|
)
|
|
9,371
|
|
|
n/a
|
|
Non U.S. term loans
|
(g)
|
|
35,943
|
|
|
—
|
|
|
(108
|
)
|
|
35,835
|
|
|
n/a
|
|
Other long term debt
|
(h)
|
|
6,211
|
|
|
—
|
|
|
(21
|
)
|
|
6,190
|
|
|
n/a
|
|
Totals
|
|
|
992,401
|
|
|
(1,177
|
)
|
|
(12,066
|
)
|
|
979,158
|
|
|
|
|
less: Current portion
|
|
|
(11,078
|
)
|
|
—
|
|
|
—
|
|
|
(11,078
|
)
|
|
|
|
Long-term debt
|
|
|
$
|
981,323
|
|
|
$
|
(1,177
|
)
|
|
$
|
(12,066
|
)
|
|
$
|
968,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
|
|
|
Outstanding
Balance
|
|
Original
Issuer
Discount
|
|
Capitalized
Fees &
Expenses
|
|
Balance
Sheet
|
|
Coupon
Interest Rate
|
Senior notes due 2022
|
(a)
|
|
$
|
725,000
|
|
|
$
|
(1,447
|
)
|
|
$
|
(9,799
|
)
|
|
$
|
713,754
|
|
|
5.25
|
%
|
Revolver due 2020
|
(b)
|
|
—
|
|
|
—
|
|
|
(2,425
|
)
|
|
(2,425
|
)
|
|
n/a
|
|
Convert. debt due 2017
|
(c)
|
|
100,000
|
|
|
(1,248
|
)
|
|
(148
|
)
|
|
98,604
|
|
|
4.00
|
%
|
Real estate mortgages
|
(d)
|
|
25,280
|
|
|
—
|
|
|
(418
|
)
|
|
24,862
|
|
|
n/a
|
|
ESOP Loans
|
(e)
|
|
34,387
|
|
|
—
|
|
|
(237
|
)
|
|
34,150
|
|
|
n/a
|
|
Capital lease - real estate
|
(f)
|
|
6,447
|
|
|
—
|
|
|
(131
|
)
|
|
6,316
|
|
|
5.00
|
%
|
Non U.S. lines of credit
|
(g)
|
|
9,260
|
|
|
|
|
|
(1
|
)
|
|
9,259
|
|
|
n/a
|
|
Non U.S. term loans
|
(g)
|
|
22,446
|
|
|
—
|
|
|
(97
|
)
|
|
22,349
|
|
|
n/a
|
|
Other long term debt
|
(h)
|
|
4,029
|
|
|
—
|
|
|
(20
|
)
|
|
4,009
|
|
|
|
|
Totals
|
|
|
926,849
|
|
|
(2,695
|
)
|
|
(13,276
|
)
|
|
910,878
|
|
|
|
|
less: Current portion
|
|
|
(13,932
|
)
|
|
—
|
|
|
—
|
|
|
(13,932
|
)
|
|
|
|
Long-term debt
|
|
|
$
|
912,917
|
|
|
$
|
(2,695
|
)
|
|
$
|
(13,276
|
)
|
|
$
|
896,946
|
|
|
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Interest expense consists of the following for the years ended
September 30, 2017
,
2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
|
|
Effective
Interest Rate
|
|
Cash Interest
|
|
Amort. Debt
Discount
|
|
Amort.
Deferred Cost
& Other Fees
|
|
Total Interest
Expense
|
Senior notes due 2022
|
(a)
|
|
5.55
|
%
|
|
38,063
|
|
|
270
|
|
|
1,857
|
|
|
40,190
|
|
Revolver due 2018
|
(b)
|
|
n/a
|
|
|
4,951
|
|
|
—
|
|
|
567
|
|
|
5,518
|
|
Convert. debt due 2017
|
(c)
|
|
8.9
|
%
|
|
1,167
|
|
|
1,248
|
|
|
148
|
|
|
2,563
|
|
Real estate mortgages
|
(d)
|
|
2.6
|
%
|
|
582
|
|
|
—
|
|
|
58
|
|
|
640
|
|
ESOP Loans
|
(e)
|
|
4.2
|
%
|
|
1,557
|
|
|
—
|
|
|
133
|
|
|
1,690
|
|
Capital lease - real estate
|
(f)
|
|
5.5
|
%
|
|
296
|
|
|
—
|
|
|
25
|
|
|
321
|
|
Non U.S. lines of credit
|
(g)
|
|
n/a
|
|
|
76
|
|
|
—
|
|
|
128
|
|
|
204
|
|
Non U.S. term loans
|
(g)
|
|
n/a
|
|
|
860
|
|
|
—
|
|
|
67
|
|
|
927
|
|
Other long term debt
|
(h)
|
|
n/a
|
|
|
245
|
|
|
|
|
|
10
|
|
|
255
|
|
Capitalized interest
|
|
|
|
|
|
(795
|
)
|
|
|
|
|
|
|
|
(795
|
)
|
Totals
|
|
|
|
|
|
$
|
47,002
|
|
|
$
|
1,518
|
|
|
$
|
2,993
|
|
|
$
|
51,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
|
|
Effective
Interest Rate
|
|
Cash Interest
|
|
Amort. Debt
Discount
|
|
Amort.
Deferred Cost
& Other Fees
|
|
Total Interest
Expense
|
Senior notes due 2022
|
(a)
|
|
5.48
|
%
|
|
33,906
|
|
|
103
|
|
|
1,481
|
|
|
35,490
|
|
Revolver due 2018
|
(b)
|
|
n/a
|
|
|
2,564
|
|
|
—
|
|
|
512
|
|
|
3,076
|
|
Convert. debt due 2017
|
(c)
|
|
9.0
|
%
|
|
4,000
|
|
|
4,346
|
|
|
443
|
|
|
8,789
|
|
Real estate mortgages
|
(d)
|
|
2.2
|
%
|
|
439
|
|
|
—
|
|
|
62
|
|
|
501
|
|
ESOP Loans
|
(e)
|
|
3.1
|
%
|
|
1,090
|
|
|
—
|
|
|
236
|
|
|
1,326
|
|
Capital lease - real estate
|
(f)
|
|
5.5
|
%
|
|
353
|
|
|
—
|
|
|
25
|
|
|
378
|
|
Non U.S. lines of credit
|
(g)
|
|
n/a
|
|
|
553
|
|
|
—
|
|
|
91
|
|
|
644
|
|
Non U.S. term loan
|
(g)
|
|
n/a
|
|
|
659
|
|
|
—
|
|
|
13
|
|
|
672
|
|
Other long term debt
|
(h)
|
|
|
|
|
260
|
|
|
|
|
|
9
|
|
|
269
|
|
Capitalized interest
|
|
|
|
|
|
(1,202
|
)
|
|
|
|
|
|
|
|
(1,202
|
)
|
Totals
|
|
|
|
|
|
42,622
|
|
|
4,449
|
|
|
2,872
|
|
|
49,943
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2015
|
|
|
|
Effective
Interest Rate
|
|
Cash Interest
|
|
Amort. Debt
Discount
|
|
Amort.
Deferred Cost
& Other Fees
|
|
Total Interest
Expense
|
Senior notes due 2018
|
(a)
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
Senior notes due 2022
|
(a)
|
|
5.46
|
%
|
|
31,500
|
|
|
|
|
1,289
|
|
|
32,789
|
|
Revolver due 2018
|
(b)
|
|
n/a
|
|
|
2,301
|
|
|
—
|
|
|
520
|
|
|
2,821
|
|
Convert. debt due 2017
|
(c)
|
|
9.1
|
%
|
|
4,000
|
|
|
3,989
|
|
|
444
|
|
|
8,433
|
|
Real estate mortgages
|
(d)
|
|
3.8
|
%
|
|
468
|
|
|
—
|
|
|
576
|
|
|
1,044
|
|
ESOP Loans
|
(e)
|
|
2.9
|
%
|
|
1,025
|
|
|
—
|
|
|
69
|
|
|
1,094
|
|
Capital lease - real estate
|
(f)
|
|
5.3
|
%
|
|
405
|
|
|
—
|
|
|
25
|
|
|
430
|
|
Non U.S. lines of credit
|
(g)
|
|
n/a
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
95
|
|
Non U.S. term loan
|
(g)
|
|
n/a
|
|
|
1,335
|
|
|
—
|
|
|
57
|
|
|
1,392
|
|
Other long term debt
|
(h)
|
|
|
|
135
|
|
|
—
|
|
|
13
|
|
|
148
|
|
Capitalized interest
|
|
|
|
|
|
(470
|
)
|
|
—
|
|
|
—
|
|
|
(470
|
)
|
Totals
|
|
|
|
|
|
$
|
40,794
|
|
|
$
|
3,989
|
|
|
$
|
2,993
|
|
|
$
|
47,776
|
|
Minimum payments under debt agreements for the next five years are as follows:
$11,078
in
2018
,
$48,381
in
2019
,
$6,265
in
2020
,
$5,990
in
2021
,
$4,569
in
2022
and
$916,118
thereafter.
|
|
(a)
|
On May 18, 2016, in an unregistered offering through a private placement under Rule 144A, Griffon completed the add-on offering of
$125,000
principal amount of its
5.25%
senior notes due 2022, at
98.76%
of par, to Griffon's previous issuance of
$600,000
5.25%
senior notes due in
2022
, at par, which was completed on February 27, 2014 (collectively the “Senior Notes”). As of September 30, 2017, outstanding Senior Notes due totaled
$725,000
; interest is payable semi-annually on March 1 and September 1. The net proceeds of the add-on offering were used to pay down outstanding borrowings under Griffon's Revolving Credit Facility (the "Credit Agreement").
|
Proceeds from the
$600,000
5.25%
senior notes due in 2022 were used to redeem
$550,000
of
7.125%
senior notes due 2018, to pay a call and tender offer premium of
$31,530
and to make interest payments of
$16,716
, with the balance used to pay a portion of the related transaction fees and expenses. In connection with the issuance of the Senior Notes, all obligations under the
$550,000
of
7.125%
senior notes due in 2018 were discharged.
The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On July 20, 2016 and June 18, 2014, Griffon exchanged all of the
$125,000
and
$600,000
Senior Notes, respectively, for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer. The fair value of the Senior Notes approximated
$737,688
on September 30, 2017 based upon quoted market prices (level 1 inputs). In connection with the issuance and exchange of the
$125,000
senior notes, Griffon capitalized
$3,016
of underwriting fees and other expenses in the quarter, which will amortize over the term of such notes; Griffon capitalized
$10,313
in connection with the previously issued
$600,000
senior notes.
On October 2, 2017, Griffon completed an add-on offering of
$275,000
aggregate principal amount of
5.25%
senior notes due 2022 in an unregistered offering through a private placement. The
$275,000
senior notes were issued under the same indenture pursuant to which Griffon previously issued
$725,000
in aggregate principal amount of its
5.25%
Senior Notes due 2022. As of October 2, 2017, outstanding Senior Notes due totaled
$1,000,000
; interest is payable semi-annually on March 1 and September 1. The net proceeds of the add-on offering were used to acquire ClosetMaid, with the remaining proceeds used to pay down outstanding borrowings under Griffon's Credit Agreement.
|
|
(b)
|
On March 22, 2016, Griffon amended its Credit Agreement to increase the credit facility from
$250,000
to
$350,000
, extend its maturity from March 13, 2020 to March 22, 2021, and modify certain other provisions of the facility. The facility includes a letter sub-facility with a limit of
$50,000
and a multi-currency sub-facility of
$50,000
. The Credit Agreement provides for
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
same day borrowings of base rate loans. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence or event of default under the Credit Agreement. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance. Current margins are
1.25%
for base rate loans and
2.25%
for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than
65%
of the equity interest in Griffon’s material, first-tier foreign subsidiaries (except that a lien on the assets of Griffon’s material domestic subsidiaries securing a limited amount of the debt under the credit agreement relating to Griffon's Employee Stock Ownership Plan ("ESOP") ranks pari passu with the lien granted on such assets under the Credit Agreement; see footnote (d) below). On October 2, 2017, Griffon further amended the Credit Agreement to modify the maximum total leverage covenant for the quarters ending December 31, 2017, through March 31, 2019, to provide additional financial and operating flexibility. At
September 30, 2017
, there were
$144,216
outstanding borrowings and standby letters of credit were
$13,890
under the Credit Agreement;
$191,894
was available, subject to certain loan covenants, for borrowing at that date.
|
|
(c)
|
On December 21, 2009, Griffon issued
$100,000
principal of
4%
convertible subordinated notes due 2017 (the “2017 Notes”). On July 14, 2016, Griffon announced that it would settle, upon conversion, up to
$125,000
of the conversion value of the 2017 Notes in cash, with amounts in excess of
$125,000
, if any, to be settled in shares of Griffon common stock. On January 17, 2017, Griffon settled the convertible debt for
$173,855
with
$125,000
in cash, utilizing borrowings under the Credit Agreement, and
$48,858
, or
1,954,993
shares of common stock issued from treasury.
|
|
|
(d)
|
In September 2015 and March 2016, Griffon entered into mortgage loans in the amount of
$32,280
and
$8,000
, respectively. The mortgage loans are secured by
four
properties occupied by Griffon's subsidiaries. The loans mature in
September 2025
, and April 2018, respectively, are collateralized by the specific properties financed and are guaranteed by Griffon. The loans bear interest at a rate of LIBOR plus
1.50%
. At September 30, 2017, mortgage loans outstanding relating to continuing operations was
$23,322
, net of issuance costs.
|
|
|
(e)
|
In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan into a new Term Loan in the amount of
$35,092
(the "Agreement"). The Agreement also provided for a Line Note with
$10,908
available to purchase shares of Griffon common stock in the open market. During 2017, Griffon's ESOP purchased
621,875
shares of common stock for a total of
$10,908
or
$17.54
per share, under a borrowing line that has now been fully utilized. On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan. The Term Loan bears interest at LIBOR plus
2.50%
. The Term Loan requires quarterly principal payments of
$569
with a balloon payment due at maturity on March 22, 2020. As of
September 30, 2017
,
$42,365
, net of issuance costs, was outstanding under the Term Loan. The Term Loan is secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which lien ranks pari passu with the lien granted on such assets under the Credit Agreement) and is guaranteed by Griffon.
|
|
|
(f)
|
In October 2006, CBP entered into a capital lease totaling
$14,290
for real estate in Troy, Ohio. The lease matures in
2022
, bears interest at a fixed rate of
5.0%
, is secured by a mortgage on the real estate and is guaranteed by Griffon. As of September 30, 2016,
$5,207
was outstanding, net of issuance costs.
|
|
|
(g)
|
In November 2012, Garant G.P. (“Garant”) entered into a CAD
15,000
(
$12,033
as of September 30, 2017) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus
1.3%
per annum (
2.63%
LIBOR USD and
2.65%
Bankers Acceptance Rate CDN as of
September 30, 2017
). The revolving facility matures in October 2019. Garant is required to maintain a certain minimum equity. As of
September 30, 2017
, there were
no
borrowings under the revolving credit facility with CAD
15,000
(
$12,033
as of
September 30, 2017
) available for borrowing.
|
In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD
30,000
term loan and an AUD
10,000
revolver. The term loan refinanced
two
existing term loans and the revolver replaced two existing lines. In December 2016, the amount available under the revolver was increased from AUD
10,000
to AUD
20,000
and, in March 2017 the term loan commitment was increased by AUD
5,000
to AUD
33,500
. In September 2017, the term loan commitment was increased by AUD
15,000
to AUD
46,750
. The term loan requires quarterly principal payments
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
of AUD
1,250
plus interest with a balloon payment of AUD
37,125
due upon maturity in June 2019, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus
2.00%
per annum (
3.76%
at
September 30, 2017
). As of
September 30, 2017
, the term had an outstanding balance of AUD
45,875
(
$35,943
as of September 30, 2017). The revolving facility matures in November 2018, but is renewable upon mutual agreement with the bank, and accrues interest at BBSY plus
2.0%
per annum (
3.65%
at September 30, 2017). At September 30, 2017, the revolver had an outstanding balance of AUD
12,000
(
$9,402
at September 30, 2017). The revolver and the term loan are both secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon guarantees the term loan. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.
(h) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority and capital leases.
At
September 30, 2017
, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.
NOTE 10 – EMPLOYEE BENEFIT PLANS
Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were
$8,714
in
2017
,
$8,301
in
2016
and
$7,988
in
2015
.
The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was
$2,014
and
$2,081
as of
September 30, 2017
and
2016
. The accumulated other comprehensive income (loss) for these plans was
$(107)
and
($140)
as of
September 30, 2017
and
2016
, respectively, and the
2017
and
2016
benefit expense was
$41
and
$57
, respectively. It is the Company’s practice to fund these benefits as incurred.
Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the services of an investment manager to manage these assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of
September 30, 2017
and
2016
. The fair value of various other investments was determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). There were no pension assets measured using level 3 inputs.
Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc. Pension Plan. The merged qualified defined benefit plan was named the Clopay Ames Pension Plan (the “Clopay AMES Plan”).
The Clopay portion of the Clopay AMES Plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continued to accrue a service benefit through December 2010, at which time all plan participants stopped accruing service benefits.
The AMES portion of the Clopay AMES Plan has been frozen to all new entrants since November 2009 and stopped accruing benefits in December 2009.
The AMES supplemental executive retirement plan was frozen to new entrants and participants in the plan stopped accruing benefits in 2008.
In 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other post-retirement benefits from the single weighted-average discount rate to the spot rate method. There was no impact on the total benefit obligation.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A
10%
change in the discount rate, average wage increase or return on assets would not have a material effect on the financial statements of Griffon.
Net periodic costs (benefits) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits for the Years Ended
September 30,
|
|
Supplemental Benefits for the Years
Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Net periodic (benefits) costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
$
|
4,892
|
|
|
$
|
5,465
|
|
|
$
|
7,526
|
|
|
$
|
715
|
|
|
$
|
1,243
|
|
|
$
|
1,302
|
|
Expected return on plan assets
|
(10,943
|
)
|
|
(10,934
|
)
|
|
(11,728
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
1
|
|
|
1
|
|
|
1
|
|
|
15
|
|
|
19
|
|
|
16
|
|
Actuarial loss
|
1,980
|
|
|
1,131
|
|
|
1,008
|
|
|
1,347
|
|
|
1,224
|
|
|
1,157
|
|
Total net periodic (benefits) costs
|
$
|
(4,070
|
)
|
|
$
|
(4,337
|
)
|
|
$
|
(3,193
|
)
|
|
$
|
2,077
|
|
|
$
|
2,486
|
|
|
$
|
2,475
|
|
The tax benefits in
2017
,
2016
and
2015
for the amortization of pension costs in Other comprehensive income (loss) were
$1,170
,
$831
and
$764
, respectively.
The estimated net actuarial loss and prior service cost that will be amortized from AOCI into Net periodic pension cost during
2018
is
$2,132
and
$21
, respectively.
The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits for the Years Ended
September 30,
|
|
Supplemental Benefits for the Years
Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
3.64
|
%
|
|
3.42
|
%
|
|
3.98
|
%
|
|
3.18
|
%
|
|
2.86
|
%
|
|
3.50
|
%
|
Expected return on assets
|
7.25
|
%
|
|
7.50
|
%
|
|
8.00
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits at
September 30,
|
|
Supplemental Benefits at
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of fiscal year
|
$
|
189,156
|
|
|
$
|
184,846
|
|
|
$
|
35,774
|
|
|
$
|
37,305
|
|
Interest cost
|
4,892
|
|
|
5,465
|
|
|
715
|
|
|
1,243
|
|
Benefits paid
|
(10,393
|
)
|
|
(10,460
|
)
|
|
(4,057
|
)
|
|
(4,060
|
)
|
Actuarial (gain) loss
|
(9,318
|
)
|
|
9,305
|
|
|
195
|
|
|
1,286
|
|
Benefit obligation at end of fiscal year
|
174,337
|
|
|
189,156
|
|
|
32,627
|
|
|
35,774
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of fiscal year
|
144,316
|
|
|
144,625
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
13,152
|
|
|
10,151
|
|
|
—
|
|
|
—
|
|
Company contributions
|
3,747
|
|
|
—
|
|
|
4,057
|
|
|
4,060
|
|
Benefits paid
|
(10,393
|
)
|
|
(10,460
|
)
|
|
(4,057
|
)
|
|
(4,060
|
)
|
Fair value of plan assets at end of fiscal year
|
150,822
|
|
|
144,316
|
|
|
—
|
|
|
—
|
|
Projected benefit obligation in excess of plan assets
|
$
|
(23,515
|
)
|
|
$
|
(44,840
|
)
|
|
$
|
(32,627
|
)
|
|
$
|
(35,774
|
)
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,984
|
)
|
|
$
|
(4,030
|
)
|
Other liabilities (long-term)
|
(23,515
|
)
|
|
(44,840
|
)
|
|
(28,646
|
)
|
|
(31,744
|
)
|
Total Liabilities
|
(23,515
|
)
|
|
(44,840
|
)
|
|
(32,630
|
)
|
|
(35,774
|
)
|
Net actuarial losses
|
24,608
|
|
|
38,115
|
|
|
20,045
|
|
|
21,195
|
|
Prior service cost
|
—
|
|
|
1
|
|
|
42
|
|
|
56
|
|
Deferred taxes
|
(9,069
|
)
|
|
(13,341
|
)
|
|
(7,486
|
)
|
|
(7,438
|
)
|
Total Accumulated other comprehensive loss, net of tax
|
15,539
|
|
|
24,775
|
|
|
12,601
|
|
|
13,813
|
|
Net amount recognized at September 30,
|
$
|
(7,976
|
)
|
|
$
|
(20,065
|
)
|
|
$
|
(20,029
|
)
|
|
$
|
(21,961
|
)
|
Accumulated benefit obligations
|
$
|
174,337
|
|
|
$
|
189,156
|
|
|
$
|
32,627
|
|
|
$
|
35,774
|
|
Information for plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
ABO
|
$
|
174,337
|
|
|
$
|
189,156
|
|
|
$
|
32,627
|
|
|
$
|
35,774
|
|
PBO
|
174,337
|
|
|
189,156
|
|
|
32,627
|
|
|
35,774
|
|
Fair value of plan assets
|
150,822
|
|
|
144,316
|
|
|
—
|
|
|
—
|
|
The weighted-average assumptions used in determining the benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits at
September 30,
|
|
Supplemental Benefits at
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted average discount rate
|
3.64
|
%
|
|
3.42
|
%
|
|
3.18
|
%
|
|
2.86
|
%
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
The actual and weighted-average asset allocation for qualified benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
2017
|
|
2016
|
|
Target
|
Cash and equivalents
|
18.0
|
%
|
|
18.0
|
%
|
|
—
|
%
|
Equity securities
|
58.0
|
%
|
|
57.7
|
%
|
|
63.0
|
%
|
Fixed income
|
19.3
|
%
|
|
19.3
|
%
|
|
37.0
|
%
|
Other
|
4.7
|
%
|
|
5.0
|
%
|
|
—
|
%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Estimated future benefit payments to retirees, which reflect expected future service, are as follows:
|
|
|
|
|
|
|
|
|
For the years ending September 30,
|
Defined
Benefits
|
|
Supplemental Benefits
|
2018
|
$
|
10,568
|
|
|
$
|
4,057
|
|
2019
|
10,694
|
|
|
3,984
|
|
2020
|
10,836
|
|
|
3,784
|
|
2021
|
10,934
|
|
|
3,574
|
|
2022
|
10,913
|
|
|
3,356
|
|
2023 through 2027
|
53,926
|
|
|
12,035
|
|
During 2018, Griffon expects to contribute
$4,057
in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon expects to contribute
$2,449
to the Defined Benefit plan in
2018
.
The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2017 was
95.5%
. Since the plan was in excess of the
80%
funding threshold there were no plan restrictions. The expected level of
2018
catch up contributions is
$0
.
The following is a description of the valuation methodologies used for plan assets measured at fair value:
Short-term investment funds
– The fair value is determined using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and is primarily classified as Level 2. These investments can be liquidated on demand.
Government and agency securities
– When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2.
Equity securities
– The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy.
Debt securities
– The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are primarily classified within Level 2 of the valuation hierarchy.
Commingled funds
– The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 of the valuation hierarchy and can be liquidated on demand.
Interest in limited partnerships and hedge funds
- One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the estimated value of the various holdings of the fund portfolio. These investments are classified within Level 2 of the valuation hierarchy.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash and equivalents
|
$
|
27,156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,156
|
|
Short-term investment funds
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Government agency securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Debt instruments
|
14,520
|
|
|
—
|
|
|
—
|
|
|
14,520
|
|
Equity securities
|
40,423
|
|
|
—
|
|
|
—
|
|
|
40,423
|
|
Commingled funds
|
—
|
|
|
62,907
|
|
|
—
|
|
|
62,907
|
|
Limited partnerships and hedge fund investments
|
—
|
|
|
5,816
|
|
|
—
|
|
|
5,816
|
|
Total
|
$
|
82,099
|
|
|
$
|
68,723
|
|
|
$
|
—
|
|
|
$
|
150,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Cash and equivalents
|
$
|
26,008
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,008
|
|
Debt instruments
|
14,122
|
|
|
—
|
|
|
—
|
|
|
14,122
|
|
Equity securities
|
44,759
|
|
|
—
|
|
|
—
|
|
|
44,759
|
|
Commingled funds
|
—
|
|
|
53,703
|
|
|
—
|
|
|
53,703
|
|
Limited partnerships and hedge fund investments
|
—
|
|
|
5,724
|
|
|
—
|
|
|
5,724
|
|
Total
|
$
|
84,889
|
|
|
$
|
59,427
|
|
|
$
|
—
|
|
|
$
|
144,316
|
|
Griffon has an ESOP that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1
st
following completion of
one year
of service. Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed
$270
for the plan year ended
September 30, 2017
), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was
$5,643
in
2017
,
$3,689
in
2016
and
$3,400
in
2015
. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of
September 30, 2017
and
2016
based on the closing stock price of Griffon’s stock was
$69,394
and
$47,366
, respectively. The ESOP shares were as follows:
|
|
|
|
|
|
|
|
At September 30,
|
|
2017
|
|
2016
|
Allocated shares
|
2,676,486
|
|
|
2,596,016
|
|
Unallocated shares
|
3,125,850
|
|
|
2,784,579
|
|
|
5,802,336
|
|
|
5,380,595
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
NOTE 11 – INCOME TAXES
Income taxes have been based on the following components of Income before taxes from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
(1,339
|
)
|
|
$
|
23,163
|
|
|
$
|
6,184
|
|
Non-U.S.
|
18,037
|
|
|
9,050
|
|
|
12,882
|
|
|
$
|
16,698
|
|
|
$
|
32,213
|
|
|
$
|
19,066
|
|
Provision (benefit) for income taxes on income was comprised of the following from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
Current
|
$
|
(3,426
|
)
|
|
$
|
6,388
|
|
|
$
|
3,098
|
|
Deferred
|
2,341
|
|
|
6,044
|
|
|
3,674
|
|
Total
|
$
|
(1,085
|
)
|
|
$
|
12,432
|
|
|
$
|
6,772
|
|
U.S. Federal
|
$
|
(6,689
|
)
|
|
$
|
4,358
|
|
|
$
|
1,643
|
|
State and local
|
3,307
|
|
|
3,287
|
|
|
2,237
|
|
Non-U.S.
|
2,297
|
|
|
4,787
|
|
|
2,892
|
|
Total provision
|
$
|
(1,085
|
)
|
|
$
|
12,432
|
|
|
$
|
6,772
|
|
Griffon's Income tax provision for the years ended September 30, 2017 and 2016 included a
$4,440
and
$2,193
benefit, respectively, from the early adoption of the new FASB accounting guidance which now requires excess tax benefits from vesting of equity awards to be recognized within income tax expense. Under this guidance all excess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to employee stock compensation are recognized within income tax expense. Under prior guidance windfalls were recognized to Additional Paid In Capital and shortfalls were only recognized to the extent they exceed the pool of windfall tax benefits.
Griffon’s Income tax provision included benefits of
($122)
in
2017
,
($2,172)
in
2016
, and
($517)
in
2015
reflecting the reversal of previously recorded tax liabilities primarily due to the resolution of various tax audits and the closing of certain statutes for prior years’ tax returns.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Differences between the effective income tax rate applied to Income and U.S. Federal income statutory rate from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
U.S. Federal income tax provision (benefit) rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local taxes, net of Federal benefit
|
12.4
|
%
|
|
6.6
|
%
|
|
13.0
|
%
|
Non-U.S. taxes - foreign permanent items and taxes
|
(12.4
|
)%
|
|
(1.6
|
)%
|
|
(8.0
|
)%
|
Non-U.S. tax true-up
|
(11.4
|
)%
|
|
—
|
%
|
|
—
|
%
|
Change in domestic manufacturing deduction
|
(5.8
|
)%
|
|
—
|
%
|
|
—
|
%
|
Change in tax contingency reserves
|
0.7
|
%
|
|
(6.3
|
)%
|
|
(1.7
|
)%
|
Repatriation of foreign earnings
|
—
|
%
|
|
—
|
%
|
|
2.5
|
%
|
Change in valuation allowance
|
(0.6
|
)%
|
|
(0.6
|
)%
|
|
(12.5
|
)%
|
Non-deductible/non-taxable items, net
|
8.3
|
%
|
|
2.6
|
%
|
|
(2.3
|
)%
|
Research and U.S. foreign tax credits
|
(3.6
|
)%
|
|
8.8
|
%
|
|
(0.9
|
)%
|
Share based compensation
|
(26.6
|
)%
|
|
(5.7
|
)%
|
|
—
|
%
|
Other
|
(2.5
|
)%
|
|
(0.2
|
)%
|
|
10.4
|
%
|
Effective tax provision (benefit) rate
|
(6.5
|
)%
|
|
38.6
|
%
|
|
35.5
|
%
|
The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
Bad debt reserves
|
$
|
2,509
|
|
|
$
|
2,156
|
|
Inventory reserves
|
7,615
|
|
|
9,158
|
|
Deferred compensation (equity compensation and defined benefit plans)
|
27,430
|
|
|
39,866
|
|
Compensation benefits
|
6,111
|
|
|
5,770
|
|
Insurance reserve
|
2,985
|
|
|
3,285
|
|
Restructuring reserve
|
29
|
|
|
431
|
|
Warranty reserve
|
2,893
|
|
|
2,352
|
|
Net operating loss
|
37,383
|
|
|
31,732
|
|
Tax credits
|
1,866
|
|
|
3,573
|
|
Other reserves and accruals
|
7,658
|
|
|
4,238
|
|
|
96,479
|
|
|
102,561
|
|
Valuation allowance
|
(17,466
|
)
|
|
(12,832
|
)
|
Total deferred tax assets
|
79,013
|
|
|
89,729
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Deferred income
|
(1,862
|
)
|
|
(3,389
|
)
|
Goodwill and intangibles
|
(70,560
|
)
|
|
(72,907
|
)
|
Property, plant and equipment
|
(51,488
|
)
|
|
(46,391
|
)
|
Interest
|
—
|
|
|
(496
|
)
|
Deferred gain on assets held for sale
|
(16,300
|
)
|
|
—
|
|
Other
|
(1,016
|
)
|
|
(551
|
)
|
Total deferred tax liabilities
|
(141,226
|
)
|
|
(123,734
|
)
|
Net deferred tax liabilities
|
$
|
(62,213
|
)
|
|
$
|
(34,005
|
)
|
The increase in the valuation allowance of
$4,634
is primarily the result of a valuation allowance on accumulated Germany net operating losses resulting from management's assessment of current and future operational performance and related restructuring
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
efforts partially offset by a release related to expired tax credits. The deferred tax gain on assets held for sale results from the book versus tax outside basis difference. The Company has allocated this deferred tax liability and related tax expense to discontinued operations.
The components of the net deferred tax liability, by balance sheet account, were as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
2017
|
|
2016
|
Other assets
|
$
|
6
|
|
|
$
|
3
|
|
Assets of discontinued operations held for sale
|
6,745
|
|
|
7,271
|
|
Other liabilities
|
(58,505
|
)
|
|
(30,476
|
)
|
Liabilities of discontinued operations held for sale
|
(12,584
|
)
|
|
(11,449
|
)
|
Liabilities of discontinued operations not held for sale
|
2,125
|
|
|
646
|
|
Net deferred liability
|
$
|
(62,213
|
)
|
|
$
|
(34,005
|
)
|
At both
September 30, 2017
and
2016
, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. Griffon considers the earnings of these foreign subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. The majority of the amounts held outside the U.S. are generally utilized to support non U.S. liquidity needs in order to fund operations and growth of the foreign subsidiaries, and for funding of acquisitions. Griffon has not recorded deferred income taxes on the undistributed earnings of its non-U.S. subsidiaries because of management’s ability and intent to indefinitely reinvest such earnings outside the U.S. At
September 30, 2017
, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately
$49,659
. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. If a determination is made to repatriate some or all of these foreign earnings, the income tax provision would be adjusted in the period of that determination to accrue for the taxes payable on such earnings.
At
September 30, 2017
and
2016
, Griffon had loss carryforwards for U.S. tax purposes of
$1,264
and
$0
, respectively, and non-U.S. tax purposes of
$7,941
and
$6,900
, respectively. The U.S. losses expire beginning in 2029. The non-U.S. loss carryforwards are available for carryforward indefinitely.
At
September 30, 2017
and
2016
, Griffon had state and local loss carryforwards of
$114,837
and
$104,254
, respectively, which expire in varying amounts through
2036
.
At
September 30, 2017
and
2016
, Griffon had federal tax credit carryforwards of
$1,762
and
$3,199
, respectively, which expire beginning in
2020
.
We believe it is more likely than not that the benefit from certain state net operating losses and federal tax credits will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2017 and 2016 of
$1,343
and
$1,752
, respectively, on the deferred tax assets relating to these state net operating loss carryforwards and federal credits. If our assumptions change and we determine we will be able to realize these state net operating loss carryforwards or federal credits, the benefits relating to the reversal of the valuation allowance will be recognized as a reduction of income tax expense.
If certain substantial changes in Griffon's ownership occur, there would be an annual limitation on the amount of carryforward(s) that can be utilized.
Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia, Ireland and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2012. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2011. Various U.S. state and non-U.S. statutory tax audits are currently underway.
The following is a roll forward of unrecognized tax benefits:
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
|
|
|
|
|
Balance at September 30, 2015
|
$
|
6,613
|
|
Additions based on tax positions related to the current year
|
263
|
|
Reductions based on tax positions related to prior years
|
(1,082
|
)
|
Lapse of Statutes
|
(1,085
|
)
|
Balance at September 30, 2016
|
4,709
|
|
Additions based on tax positions related to the current year
|
177
|
|
Additions based on tax positions related to prior years
|
69
|
|
Reductions based on tax positions related to prior years
|
(8
|
)
|
Lapse of Statutes
|
(122
|
)
|
Balance at Balance at September 30, 2017
|
$
|
4,825
|
|
If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is
$1,553
. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At
September 30, 2017
and
2016
, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was
$174
and
$166
, respectively. Griffon cannot reasonably estimate the extent to which existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction.
NOTE 12 – STOCKHOLDERS’
EQUITY AND EQUITY COMPENSATION
During
2017
,
2016
and 2015, the Company declared and paid dividends totaling
$0.24
per share,
$0.20
per share and
$0.16
per share, respectively. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends.
On November 15, 2017, the Board of Directors declared a cash dividend of
$0.07
per share, payable on December 21, 2017 to shareholders of record as of the close of business on November 29, 2017.
On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire
ten years
after the date of grant and are granted at an exercise price of not less than
100%
of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is
2,350,000
(
600,000
of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of
September 30, 2017
,
1,276,824
shares were available for grant.
All grants outstanding under former equity plans will continue under their terms;
no
additional awards will be granted under such plans.
Compensation expense for restricted stock and restricted stock units ("RSUs") is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares (or RSUs) granted multiplied by the stock price on date of grant, and for performance shares (or performance RSUs), the likelihood of achieving the performance criteria. Compensation cost related to stock-based awards with graded vesting, generally over a period of
three
to
four years
, is recognized using the straight-line attribution method and recorded within Selling, general and administrative expenses. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
Pre-tax compensation expense
|
$
|
8,090
|
|
|
$
|
10,136
|
|
|
$
|
11,110
|
|
Tax benefit
|
(2,836
|
)
|
|
(3,553
|
)
|
|
(4,000
|
)
|
Total stock-based compensation expense, net of tax
|
$
|
5,254
|
|
|
$
|
6,583
|
|
|
$
|
7,110
|
|
All stock options are vested. A summary of stock option activity for the year ended
September 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Term (Years)
|
|
Aggregated
Intrinsic
Value
|
Outstanding and Exercisable at September 30, 2016
|
356,000
|
|
|
$
|
19.91
|
|
|
|
|
|
|
Exercised
|
(5,000
|
)
|
|
14.78
|
|
|
|
|
|
Forfeited/Expired
|
(1,000
|
)
|
|
14.78
|
|
|
|
|
|
|
Outstanding and Exercisable at September 30, 2017
|
350,000
|
|
|
20.00
|
|
|
1.0
|
|
$
|
770
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding & Exercisable
|
Range of
Exercises Prices
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contractual
Term (Years)
|
$20.00
|
350,000
|
|
|
20.00
|
|
|
1.0
|
A summary of restricted stock activity, inclusive of restricted stock units, for the year ended
September 30, 2017
, is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant- Date Fair Value
|
Unvested at September 30, 2016
|
2,868,520
|
|
|
$
|
12.10
|
|
Granted
|
869,194
|
|
|
17.87
|
|
Vested
|
(1,259,561
|
)
|
|
23.42
|
|
Forfeited
|
(222,357
|
)
|
|
15.72
|
|
Unvested at September 30, 2017
|
2,255,796
|
|
|
13.65
|
|
The fair value of restricted stock which vested during the year ended September 30, 2017, 2016, and 2015 was
$29,508
,
$23,965
and
$5,068
, respectively.
Unrecognized compensation expense related to non-vested shares of restricted stock was
$16,132
at
September 30, 2017
and will be recognized over a weighted average vesting period of
2.5
years.
At
September 30, 2017
, a total of approximately
3,882,620
shares of Griffon’s authorized Common Stock were reserved for issuance in connection with stock compensation plans.
During the first quarter of 2017, Griffon granted
300,494
shares of restricted stock, subject to certain performance conditions, with vesting periods of
three years
, with a total fair value of
$6,055
, or a weighted average fair value of
$20.15
per share. During the second quarter of 2017, Griffon granted
528,000
shares of restricted stock to
two
senior executives with a vesting period of
four
years and a
two
year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
relating to the price of Griffon's common stock. The Monte Carlo Simulation model was chosen to value the two senior executive awards; the total fair value of these restricted shares is approximately
$8,500
, or a weighted average fair value of
$16.10
. The grants issued to two senior executive are subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon’s common stock. So long as the minimum performance condition is attained, the amount of shares that can vest will range from
384,000
to
528,000
. Also, during the second quarter Griffon granted
40,700
shares with a vesting period of
three
years and a fair value of
$618
, or a weighted average fair value of
$15.18
per share. During the third and fourth quarters of 2017,
no
shares of restricted stock were granted.
On each of July 30, 2015 and August 3, 2016, Griffon’s Board of Directors authorized the repurchase of up to
$50,000
of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. Shares repurchased are recorded at cost. During 2017, Griffon purchased
129,000
shares of common stock under the these repurchase programs, for a total of
$2,201
or
$17.06
per share. From August 2011 and through September 30, 2017, Griffon repurchased
20,429,298
shares of common stock, for a total of
$261,621
or
$12.81
per share, under Board authorized share repurchase programs (which repurchases included exhausting the remaining availability under a Board authorized repurchase program that was in existence prior to 2011). This included the repurchase of
15,984,854
shares on the open market, as well as the December 10, 2013 repurchase of
4,444,444
shares from GS Direct for
$50,000
, or
$11.25
per share. At September 30, 2017, an aggregate of
$49,437
remains under Griffon's Board authorized repurchase authorizations.
In addition to the repurchases under Board authorized programs, during
2017
,
586,219
shares, with a market value of
$13,640
, or
$23.27
per share, were withheld to settle employee taxes due upon the vesting of restricted stock.
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 the shares outstanding at such time) of Griffon’s common stock. Subject to certain exceptions, if GS Direct intends to sell its remaining shares of Griffon common stock at any time prior to December 31, 2018, it will first negotiate in good faith to sell such shares to the Company.
During the year ended September 30, 2017 , Griffon's ESOP purchased
621,875
shares of common stock for a total of
$10,908
or
$17.54
per share, under a borrowing line that has now been fully utilized.
NOTE 13 – COMMITMENTS AND CONTINGENT LIABILITIES
Operating leases
Griffon rents real property and equipment under operating leases expiring at various dates. Most of the real property leases have escalation clauses related to increases in real property taxes. Rent expense for all operating leases totaled approximately
$26,297
,
$26,180
and
$26,273
in
2017
,
2016
and
2015
, respectively. Aggregate future minimum lease payments for operating leases at
September 30, 2017
are
$27,282
in
2018
,
$24,808
in
2019
,
$20,104
in
2020
,
$11,692
in
2021
,
$7,707
in
2022
and
$14,559
thereafter.
Purchase Commitments
Purchase obligations are generally for the purchase of goods and services in the ordinary course of business. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Purchase obligations that extend beyond 2017 are principally related to long-term contracts received from customers of Telephonics. Aggregate future minimum purchase obligations at September 30, 2017 are
$209,924
in 2018,
$10,943
in 2019,
$180
in 2020,
$573
in 2021 and
$1
in 2022.
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.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Subsequently, ISC was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. ISC then entered into a consent order with the DEC in 1996 (the “Consent Order”) to perform a remedial investigation and prepare a feasibility study. After completing the initial remedial investigation pursuant to the Consent Order, ISC was required by the DEC, and did accordingly conduct over the next several years, supplemental remedial investigations, including soil vapor investigations, under the Consent Order.
In April 2009, the DEC advised ISC’s representatives that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. With the acceptance of these reports, ISC completed the remedial investigation required under the Consent Order and was authorized, accordingly, by the DEC to conduct the Feasibility Study required by the Consent Order. Pursuant to the requirements of the Consent Order and its obligations thereunder, ISC, without acknowledging any responsibility to perform any remediation at the Site, submitted to the DEC in August 2009, a draft feasibility study which recommended for the soil, groundwater and sediment media, remediation alternatives having a current net capital cost value, in the aggregate, of approximately
$5,000
. In February 2011, DEC advised ISC it has accepted and approved the feasibility study. Accordingly, ISC has
no
further obligations under the consent order.
Upon acceptance of the feasibility study, DEC issued a Proposed Remedial Action Plan (“PRAP”) that sets forth the proposed remedy for the site. The PRAP accepted the recommendation contained in the feasibility study for remediation of the soil and groundwater media, but selected a different remediation alternative for the sediment medium. The approximate cost and the current net capital cost value of the remedy proposed by DEC in the PRAP is approximately
$10,000
. After receiving public comments on the PRAP, the DEC issued a Record of Decision (“ROD”) that set forth the specific remedies selected and responded to public comments. The remedies selected by the DEC in the ROD are the same remedies as those set forth in the PRAP.
It is now expected that DEC will enter into negotiations with potentially responsible parties to request they undertake performance of the remedies selected in the ROD, and if such parties do not agree to implement such remedies, then the State of New York may use State Superfund money to remediate the Peekskill site and seek recovery of costs from such parties. Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.
Improper Advertisement Claim involving Union Tools
®
Products.
Beginning in December 2004, a customer of AMES had been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters asserted causes of action against the customer of AMES for improper advertisement to end consumers. The allegations suggested that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States. The complaints asserted various causes of action against the customer of AMES under federal and state law, including common law fraud. At some point, the customer may seek indemnity (including recovery of its legal fees and costs) against AMES for an unspecified amount. Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against AMES.
Union Fork and Hoe, Frankfort, NY site.
The former Union Fork and Hoe property in Frankfort, NY was acquired by Ames in 2006 as part of a larger acquisition, and has historic site contamination involving chlorinated solvents, petroleum hydrocarbons and metals. AMES has entered into an Order on Consent with the New York State Department of Environmental Conservation. While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, AMES is required to perform a remedial investigation of certain portions of the property and to recommend a remediation option. At the conclusion of the remediation phase to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. AMES has performed significant investigative and remedial activities in the last few years under work plans approved by the DEC, and the DEC has approved the final remedial investigation report. AMES submitted a Feasibility Study, evaluating a number of remedial options, and recommending excavation and offsite disposal of lead contaminated soils, capping of other areas of the site impacted by other metals and performing limited groundwater monitoring. The Company is now awaiting a DEC decision on the Feasibility Study and the issuance of a Record of Decision. Implementation of the selected remedial alternative is expected to occur following regulatory approval. AMES has a number of defenses to liability in this matter, including its rights under a previous Consent Judgment entered into between the DEC and a predecessor of AMES relating to the site.
U.S. Government investigations and claims
Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency (“DCAA”), the Defense Criminal Investigative Service (“DCIS”), and the Department of Justice ("DOJ") which has responsibility
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
for asserting claims on behalf of the US government. During 2017, Telephonics and the civil department of the US Department of Justice (“DOJ”) settled a claim, pursuant to which Telephonics paid an amount of
$4,250
, related to certain amounts the DOJ indicated it believed it was owed from Telephonics with respect to certain US government contracts, performed during the 2005 to 2013 time period, in which Telephonics acted as a subcontractor.
In general, departments and agencies of the US 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. US Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future US Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on Telephonics because of its reliance on government contracts.
General legal
Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the
matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.
NOTE 14 – EARNINGS PER SHARE
Basic and diluted EPS for the years ended
September 30, 2017
,
2016
and
2015
were determined using the following information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Weighted average shares outstanding - basic
|
41,005
|
|
|
41,074
|
|
|
44,608
|
|
Incremental shares from stock based compensation
|
1,642
|
|
|
2,326
|
|
|
2,011
|
|
Convertible debt due 2017
|
364
|
|
|
709
|
|
|
320
|
|
Weighted average shares outstanding - diluted
|
43,011
|
|
|
44,109
|
|
|
46,939
|
|
Anti-dilutive options excluded from diluted EPS computation
|
—
|
|
|
6
|
|
|
493
|
|
Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share.
NOTE 15 – RELATED PARTIES
On May 10, 2017, Griffon entered into an engagement letter with Goldman Sachs & Co. LLC (“Goldman Sachs”) pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the acquisition of ClosetMaid. Griffon subsequently paid a customary financial advisory fee to Goldman Sachs under the terms of this engagement letter following consummation of the acquisition.
On September 5, 2017, Griffon entered into an engagement letter with Goldman Sachs pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the exploration of strategic alternatives for Clopay Plastics. On November 15, 2017, Griffon signed an agreement to sell Clopay Plastics for
$475,000
to Berry Global Group, Inc. Under the terms of the engagement letter, upon the closing of the transaction a customary advisory fee will be payable by Griffon to Goldman Sachs.
Goldman Sachs acted as a joint lead manager and as an initial purchaser in connection with Griffon’s add-on offering of
$275,000
aggregate principal amount of
5.25%
senior notes due 2022 that closed on October 2, 2017, and received a customary fee upon closing of the offering.
On December 10, 2013, Griffon repurchased
4,444,444
shares of its common stock for
$50,000
from GS Direct. 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. After closing the transaction, GS Direct continued to hold approximately
5.56
million shares (approximately
10%
of the shares outstanding at such time) of Griffon’s common stock. Subject to certain exceptions, if GS Direct intends to sell its remaining shares of Griffon common stock at any time prior to December 31,
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
2018, it will first negotiate in good faith to sell such shares to the Company.
NOTE 16 — QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for the years ended
September 30, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
Revenue
|
|
Gross Profit
|
|
Net Income
(loss)
|
|
Per Share -
Basic
|
|
Per Share -
Diluted
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
$
|
352,277
|
|
|
$
|
96,745
|
|
|
$
|
12,264
|
|
|
$
|
0.31
|
|
|
$
|
0.29
|
|
March 31, 2017
|
383,807
|
|
|
97,981
|
|
|
5,045
|
|
|
0.12
|
|
|
0.12
|
|
June 30, 2017
|
358,114
|
|
|
98,870
|
|
|
9,553
|
|
|
0.23
|
|
|
0.22
|
|
September 30, 2017
|
430,799
|
|
|
114,520
|
|
|
(11,950
|
)
|
|
(0.29
|
)
|
|
(0.28
|
)
|
|
$
|
1,524,997
|
|
|
$
|
408,116
|
|
|
$
|
14,912
|
|
|
$
|
0.36
|
|
|
$
|
0.35
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
$
|
370,235
|
|
|
$
|
98,454
|
|
|
$
|
10,788
|
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
March 31, 2016
|
385,108
|
|
|
95,661
|
|
|
6,095
|
|
|
0.15
|
|
|
0.14
|
|
June 30, 2016
|
347,327
|
|
|
102,267
|
|
|
7,596
|
|
|
0.19
|
|
|
0.18
|
|
September 30, 2016
|
374,365
|
|
|
104,311
|
|
|
5,531
|
|
|
0.14
|
|
|
0.13
|
|
|
$
|
1,477,035
|
|
|
$
|
400,693
|
|
|
$
|
30,010
|
|
|
$
|
0.73
|
|
|
$
|
0.68
|
|
Notes to Quarterly Financial Information (unaudited):
|
|
•
|
Earnings (loss) per share are computed independently for each quarter and year presented; as such the sum of the quarters may not be equal to the full year amounts.
|
|
|
•
|
Prior year quarterly net income (loss) amounts were restated to reflect the adoption of stock compensation as of October 1, 2015.
|
|
|
•
|
2017 Net income, and the related per share earnings, included, net of tax, acquisition related costs of
$6,145
and contract settlement charges of
$3,300
.
|
|
|
•
|
2016 Net income, and the related per share earnings, included, net of tax, restructuring and other related charges of
$4,247
for the third quarter.
|
NOTE 17 — REPORTABLE SEGMENTS
Griffon’s reportable segments from continuing operations are as follows:
|
|
•
|
HBP is a leading manufacturer and marketer of residential and commercial garage doors to professional dealers and to some of the largest home center retail chains in North America, as well as a global provider of long-handled tools and landscaping products for homeowners and professionals and is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products to home center retail chains, mass merchandisers, and direct-to builder professional installers.
|
|
|
•
|
Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.
|
On September 5, 2017, Griffon announced it will explore strategic alternatives for PPC and on November 15 ,2017, announced it entered into a definitive agreement to sell PPC to Berry for
$475 million
in cash. The transaction is subject to regulatory approval and customary closing conditions, and is expected to close in the first quarter of calendar 2018. As a result, Griffon classified the results of operations of the PPC business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the consolidated balance sheets. As a result, Griffon has classified PPC as a discontinued operation and all results and information presented exclude PPC unless otherwise noted. PPC is a global leader in the development and production of embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells to some of the world's largest consumer products companies. See Note 6, Discontinued Operations to the Notes of the Financial Statements.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
On October 2, 2017, Griffon acquired ClosetMaid. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of closet organization, home storage, and garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. Due to the acquisition of ClosetMaid occurring subsequent to Griffon's fiscal year end, ClosetMaid's results of operations, assets and liabilities were not included in Griffon's 2017 financial results or 2017 year-end balance sheet. ClosetMaid will be include in the HBP segment.
Information on Griffon’s reportable segments from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
REVENUE
|
2017
|
|
2016
|
|
2015
|
Home & Building Products:
|
|
|
|
|
|
|
|
|
AMES
|
$
|
545,269
|
|
|
$
|
513,973
|
|
|
$
|
535,881
|
|
CBP
|
568,001
|
|
|
527,370
|
|
|
516,320
|
|
Home & Building Products
|
1,113,270
|
|
|
1,041,343
|
|
|
1,052,201
|
|
Telephonics
|
411,727
|
|
|
$
|
435,692
|
|
|
$
|
431,090
|
|
Total consolidated net sales
|
$
|
1,524,997
|
|
|
$
|
1,477,035
|
|
|
$
|
1,483,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
INCOME BEFORE TAXES FROM CONTINUING OPERATIONS
|
2017
|
|
2016
|
|
2015
|
Segment operating profit:
|
|
|
|
|
|
Home & Building Products
|
$
|
89,495
|
|
|
$
|
79,682
|
|
|
$
|
58,883
|
|
Telephonics
|
29,943
|
|
|
42,801
|
|
|
43,006
|
|
PPC
|
25,291
|
|
|
20,313
|
|
|
33,137
|
|
Segment operating profit
|
144,729
|
|
|
142,796
|
|
|
135,026
|
|
Less: Operating (profit) from discontinued operations
|
25,291
|
|
|
20,313
|
|
|
33,137
|
|
Segment operating profit from continuing operations
|
119,438
|
|
|
122,483
|
|
|
101,889
|
|
Net interest expense
|
(51,449
|
)
|
|
(49,877
|
)
|
|
(47,515
|
)
|
Unallocated amounts
|
(42,398
|
)
|
|
(40,393
|
)
|
|
(35,308
|
)
|
Acquisition costs
|
(8,893
|
)
|
|
—
|
|
|
—
|
|
Income before taxes from continuing operations
|
$
|
16,698
|
|
|
$
|
32,213
|
|
|
$
|
19,066
|
|
Griffon evaluates performance and allocates resources based on each segment's operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”, a non-GAAP measure).
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
Segment adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Home & Building Products
|
$
|
126,766
|
|
|
$
|
114,949
|
|
|
$
|
94,226
|
|
Telephonics
|
45,931
|
|
|
53,385
|
|
|
53,028
|
|
PPC
|
52,760
|
|
|
50,079
|
|
|
57,103
|
|
Segment adjusted EBITDA
|
225,457
|
|
|
218,413
|
|
|
204,357
|
|
Less: EBITDA from discontinued operations
|
52,760
|
|
|
50,079
|
|
|
57,103
|
|
Total Segment adjusted EBITDA from continuing operations
|
172,697
|
|
|
168,334
|
|
|
147,254
|
|
Net interest expense
|
(51,449
|
)
|
|
(49,877
|
)
|
|
(47,515
|
)
|
Segment depreciation and amortization
|
(47,398
|
)
|
|
(45,851
|
)
|
|
(45,365
|
)
|
Unallocated amounts
|
(42,398
|
)
|
|
(40,393
|
)
|
|
(35,308
|
)
|
Acquisition costs
|
(9,617
|
)
|
|
—
|
|
|
—
|
|
Contract settlement charges
|
(5,137
|
)
|
|
—
|
|
|
—
|
|
Income before taxes from continuing operations
|
$
|
16,698
|
|
|
$
|
32,213
|
|
|
$
|
19,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
DEPRECIATION and AMORTIZATION
|
2017
|
|
2016
|
|
2015
|
Segment:
|
|
|
|
|
|
Home & Building Products
|
$
|
36,547
|
|
|
$
|
35,267
|
|
|
$
|
35,343
|
|
Telephonics
|
10,851
|
|
|
10,584
|
|
|
10,022
|
|
Total segment depreciation and amortization
|
47,398
|
|
|
45,851
|
|
|
45,365
|
|
Corporate
|
480
|
|
|
491
|
|
|
469
|
|
Total consolidated depreciation and amortization
|
$
|
47,878
|
|
|
$
|
46,342
|
|
|
$
|
45,834
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES
|
|
|
|
|
|
|
|
|
Segment:
|
|
|
|
|
|
|
|
|
Home & Building Products
|
$
|
24,476
|
|
|
$
|
49,351
|
|
|
$
|
38,896
|
|
Telephonics
|
8,204
|
|
|
9,007
|
|
|
6,347
|
|
Total segment
|
32,680
|
|
|
58,358
|
|
|
45,243
|
|
Corporate
|
2,257
|
|
|
918
|
|
|
1,065
|
|
Total consolidated capital expenditures
|
$
|
34,937
|
|
|
$
|
59,276
|
|
|
$
|
46,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
At September 30, 2017
|
|
At September 30, 2016
|
|
At September 30, 2015
|
Segment assets:
|
|
|
|
|
|
|
|
|
Home & Building Products
|
$
|
1,084,103
|
|
|
$
|
1,020,297
|
|
|
$
|
1,034,032
|
|
Telephonics
|
343,445
|
|
|
334,631
|
|
|
302,560
|
|
Total segment assets
|
1,427,548
|
|
|
1,354,928
|
|
|
1,336,592
|
|
Corporate
|
71,980
|
|
|
62,257
|
|
|
36,030
|
|
Total continuing assets
|
1,499,528
|
|
|
1,417,185
|
|
|
1,372,622
|
|
Assets of discontinued operations
|
374,013
|
|
|
364,911
|
|
|
340,191
|
|
Consolidated total
|
$
|
1,873,541
|
|
|
$
|
1,782,096
|
|
|
$
|
1,712,813
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
Segment information by geographic region was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
REVENUE BY GEOGRAPHIC AREA - DESTINATION
|
2017
|
|
2016
|
|
2015
|
United States
|
$
|
1,164,958
|
|
|
$
|
1,149,448
|
|
|
$
|
1,118,206
|
|
Europe
|
67,048
|
|
|
68,604
|
|
|
80,580
|
|
Canada
|
106,080
|
|
|
102,333
|
|
|
120,862
|
|
Australia
|
124,757
|
|
|
106,780
|
|
|
110,338
|
|
All other countries
|
62,154
|
|
|
49,870
|
|
|
53,305
|
|
Consolidated revenue
|
$
|
1,524,997
|
|
|
$
|
1,477,035
|
|
|
$
|
1,483,291
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
LONG-LIVED ASSETS BY GEOGRAPHIC AREA
|
2017
|
|
2016
|
|
2015
|
United States
|
$
|
358,795
|
|
|
$
|
370,332
|
|
|
$
|
367,248
|
|
Canada
|
36,383
|
|
|
35,984
|
|
|
36,449
|
|
Australia
|
35,917
|
|
|
26,196
|
|
|
22,136
|
|
United Kingdom
|
4,144
|
|
|
—
|
|
|
—
|
|
All other countries
|
2,023
|
|
|
2,342
|
|
|
2,872
|
|
Consolidated long-lived assets, net
|
$
|
437,262
|
|
|
$
|
434,854
|
|
|
$
|
428,705
|
|
As a percentage of consolidated revenue from continuing operations, HBP sales to Home Depot approximated
17%
in
2017
and
17%
in
2016
and
16%
in
2015
, respectively; and Telephonics aggregate sales to the United States Government and its agencies approximated
18%
in
2017
,
21%
in
2016
and
19%
in
2015
.
NOTE 18 – OTHER INCOME (EXPENSE)
Other income (expense) included
($723)
,
($550)
and
$(516)
for the years ended
September 30, 2017
,
2016
and
2015
, respectively, of currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, as well as
$53
,
$316
and
$424
, respectively, of investment income.
NOTE 19 - OTHER COMPREHENSIVE INCOME (LOSS)
The amounts recognized in other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
|
Pre-tax
|
Tax
|
Net of tax
|
|
Pre-tax
|
Tax
|
Net of tax
|
|
Pre-tax
|
Tax
|
Net of tax
|
Foreign currency translation adjustments
|
$
|
10,667
|
|
$
|
—
|
|
$
|
10,667
|
|
|
$
|
17,284
|
|
$
|
—
|
|
$
|
17,284
|
|
|
$
|
(56,358
|
)
|
$
|
—
|
|
$
|
(56,358
|
)
|
Pension and other defined benefit plans
|
14,160
|
|
(4,957
|
)
|
9,203
|
|
|
(8,694
|
)
|
3,043
|
|
(5,651
|
)
|
|
(6,655
|
)
|
2,329
|
|
(4,326
|
)
|
Cash flow hedge
|
1,370
|
|
(480
|
)
|
890
|
|
|
(2,593
|
)
|
907
|
|
(1,686
|
)
|
|
662
|
|
(232
|
)
|
430
|
|
Available-for-sale securities
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
(1,370
|
)
|
500
|
|
(870
|
)
|
Total other comprehensive income (loss)
|
$
|
26,197
|
|
$
|
(5,437
|
)
|
$
|
20,760
|
|
|
$
|
5,997
|
|
$
|
3,950
|
|
$
|
9,947
|
|
|
$
|
(63,721
|
)
|
$
|
2,597
|
|
$
|
(61,124
|
)
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
The components of Accumulated other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
2017
|
|
2016
|
Foreign currency translation adjustments
|
$
|
(32,227
|
)
|
|
$
|
(42,894
|
)
|
Pension and other defined benefit plans
|
(28,140
|
)
|
|
(37,343
|
)
|
Cash flow hedge
|
(114
|
)
|
|
(1,004
|
)
|
|
$
|
(60,481
|
)
|
|
$
|
(81,241
|
)
|
Total comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
|
2017
|
|
2016
|
|
2015
|
Net income (loss)
|
$
|
14,912
|
|
|
$
|
30,010
|
|
|
$
|
34,289
|
|
Other comprehensive income (loss), net of taxes
|
20,760
|
|
|
9,947
|
|
|
(61,124
|
)
|
Comprehensive income (loss)
|
$
|
35,672
|
|
|
$
|
39,957
|
|
|
$
|
(26,835
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss) to income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30,
|
Gain (Loss)
|
2017
|
|
2016
|
|
2015
|
Pension amortization
|
$
|
(3,343
|
)
|
|
$
|
(2,375
|
)
|
|
$
|
(2,182
|
)
|
Available-for-sale securities
|
—
|
|
|
—
|
|
|
1,370
|
|
Cash flow hedges
|
(1,458
|
)
|
|
(752
|
)
|
|
1,223
|
|
Total before tax
|
(4,801
|
)
|
|
(3,127
|
)
|
|
411
|
|
Tax
|
2
|
|
|
225
|
|
|
(164
|
)
|
Net of tax
|
$
|
(4,799
|
)
|
|
$
|
(2,902
|
)
|
|
$
|
247
|
|
NOTE 20 – CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Building Products Company, Inc., Clopay Plastic Products Company, Inc., Telephonics Corporation, The AMES Companies, Inc., ATT Southern, Inc., and Clopay Ames True Temper Holding, Corp., all of which are indirectly
100%
owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of September 30, 2017 and
2016
, and for the years ended September 30, 2017,
2016
and
2015
. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly owned subsidiaries accounted for under the equity method.
The indenture relating to the Senior Notes (the “Indenture”) contains terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indenture; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indenture (generally, a business the EBITDA of which constitutes less than
50%
of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indenture; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indenture, in compliance with the terms of the Indenture; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indenture, in each case in accordance with the terms of the Indenture; and (v) upon obtaining the requisite consent of the holders of the Senior Notes.
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING BALANCE SHEETS
At
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
3,240
|
|
|
8,066
|
|
|
36,375
|
|
|
—
|
|
|
47,681
|
|
Accounts receivable, net of allowances
|
—
|
|
|
168,731
|
|
|
59,929
|
|
|
(20,431
|
)
|
|
208,229
|
|
Contract costs and recognized income not yet billed, net of progress payments
|
—
|
|
|
131,383
|
|
|
279
|
|
|
—
|
|
|
131,662
|
|
Inventories, net
|
—
|
|
|
246,605
|
|
|
52,759
|
|
|
73
|
|
|
299,437
|
|
Prepaid and other current assets
|
21,131
|
|
|
15,854
|
|
|
3,002
|
|
|
80
|
|
|
40,067
|
|
Assets of discontinued operations held for sale
|
—
|
|
|
168,306
|
|
|
202,418
|
|
|
—
|
|
|
370,724
|
|
Assets of discontinued operations not held for sale
|
—
|
|
|
—
|
|
|
329
|
|
|
—
|
|
|
329
|
|
Total Current Assets
|
24,371
|
|
|
738,945
|
|
|
355,091
|
|
|
(20,278
|
)
|
|
1,098,129
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
645
|
|
|
200,362
|
|
|
31,128
|
|
|
—
|
|
|
232,135
|
|
GOODWILL
|
—
|
|
|
280,797
|
|
|
38,342
|
|
|
—
|
|
|
319,139
|
|
INTANGIBLE ASSETS, net
|
93
|
|
|
143,415
|
|
|
61,619
|
|
|
—
|
|
|
205,127
|
|
INTERCOMPANY RECEIVABLE
|
552,017
|
|
|
757,608
|
|
|
915,551
|
|
|
(2,225,176
|
)
|
|
—
|
|
EQUITY INVESTMENTS IN SUBSIDIARIES
|
863,149
|
|
|
877,641
|
|
|
1,613,891
|
|
|
(3,354,681
|
)
|
|
—
|
|
OTHER ASSETS
|
12,171
|
|
|
12,054
|
|
|
(1,002
|
)
|
|
(7,172
|
)
|
|
16,051
|
|
ASSETS OF DISCONTINUED OPERATIONS HELD FOR SALE
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
|
—
|
|
|
—
|
|
|
2,960
|
|
|
—
|
|
|
2,960
|
|
Total Assets
|
1,452,446
|
|
|
3,010,822
|
|
|
3,017,580
|
|
|
(5,607,307
|
)
|
|
1,873,541
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and current portion of long-term debt
|
2,854
|
|
|
1,471
|
|
|
6,753
|
|
|
—
|
|
|
11,078
|
|
Accounts payable and accrued liabilities
|
14,683
|
|
|
199,784
|
|
|
46,111
|
|
|
6,631
|
|
|
267,209
|
|
Liabilities of discontinued operations held for sale
|
—
|
|
|
47,426
|
|
|
37,024
|
|
|
—
|
|
|
84,450
|
|
Liabilities of discontinued operations
|
—
|
|
|
—
|
|
|
8,342
|
|
|
—
|
|
|
8,342
|
|
Total Current Liabilities
|
17,537
|
|
|
248,681
|
|
|
98,230
|
|
|
6,631
|
|
|
371,079
|
|
LONG-TERM DEBT, net
|
903,609
|
|
|
6,044
|
|
|
58,427
|
|
|
—
|
|
|
968,080
|
|
INTERCOMPANY PAYABLES
|
84,068
|
|
|
1,259,413
|
|
|
854,518
|
|
|
(2,197,999
|
)
|
|
—
|
|
OTHER LIABILITIES
|
48,424
|
|
|
76,036
|
|
|
14,135
|
|
|
(6,058
|
)
|
|
132,537
|
|
LIABILITIES OF DISCONTINUED OPERATIONS HELD FOR SALE
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
|
—
|
|
|
—
|
|
|
3,037
|
|
|
—
|
|
|
3,037
|
|
Total Liabilities
|
1,053,638
|
|
|
1,590,174
|
|
|
1,028,347
|
|
|
(2,197,426
|
)
|
|
1,474,733
|
|
SHAREHOLDERS’ EQUITY
|
398,808
|
|
|
1,420,648
|
|
|
1,989,233
|
|
|
(3,409,881
|
)
|
|
398,808
|
|
Total Liabilities and Shareholders’ Equity
|
1,452,446
|
|
|
3,010,822
|
|
|
3,017,580
|
|
|
(5,607,307
|
)
|
|
1,873,541
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING BALANCE SHEETS
At
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Companies
|
|
Non-Guarantor
Companies
|
|
Elimination
|
|
Consolidation
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
$
|
6,517
|
|
|
$
|
27,692
|
|
|
$
|
38,344
|
|
|
$
|
—
|
|
|
$
|
72,553
|
|
Accounts receivable, net of allowances
|
—
|
|
|
157,738
|
|
|
32,243
|
|
|
(5,642
|
)
|
|
184,339
|
|
Contract costs and recognized income not yet billed, net of progress payments
|
—
|
|
|
126,959
|
|
|
2
|
|
|
—
|
|
|
126,961
|
|
Inventories, net
|
—
|
|
|
217,143
|
|
|
44,174
|
|
|
—
|
|
|
261,317
|
|
Prepaid and other current assets
|
39,763
|
|
|
26,744
|
|
|
5,718
|
|
|
(48,796
|
)
|
|
23,429
|
|
Assets of discontinued operations held for sale
|
—
|
|
|
45,731
|
|
|
66,408
|
|
|
—
|
|
|
112,139
|
|
Assets of discontinued operations not held for sale
|
—
|
|
|
—
|
|
|
219
|
|
|
—
|
|
|
219
|
|
Total Current Assets
|
46,280
|
|
|
602,007
|
|
|
187,108
|
|
|
(54,438
|
)
|
|
780,957
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
957
|
|
|
207,801
|
|
|
28,147
|
|
|
—
|
|
|
236,905
|
|
GOODWILL
|
—
|
|
|
280,797
|
|
|
25,366
|
|
|
—
|
|
|
306,163
|
|
INTANGIBLE ASSETS, net
|
92
|
|
|
147,867
|
|
|
49,990
|
|
|
—
|
|
|
197,949
|
|
INTERCOMPANY RECEIVABLE
|
539,938
|
|
|
708,093
|
|
|
307,051
|
|
|
(1,555,082
|
)
|
|
—
|
|
EQUITY INVESTMENTS IN SUBSIDIARIES
|
824,889
|
|
|
866,595
|
|
|
1,669,799
|
|
|
(3,361,283
|
)
|
|
—
|
|
OTHER ASSETS
|
6,436
|
|
|
10,905
|
|
|
1,314
|
|
|
(11,086
|
)
|
|
7,569
|
|
ASSETS OF DISCONTINUED OPERATIONS HELD FOR SALE
|
—
|
|
|
100,094
|
|
|
150,491
|
|
|
—
|
|
|
250,585
|
|
ASSETS OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
|
—
|
|
|
—
|
|
|
1,968
|
|
|
—
|
|
|
1,968
|
|
Total Assets
|
$
|
1,418,592
|
|
|
$
|
2,924,159
|
|
|
$
|
2,421,234
|
|
|
$
|
(4,981,889
|
)
|
|
$
|
1,782,096
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and current portion of long-term debt
|
$
|
3,153
|
|
|
$
|
1,408
|
|
|
$
|
9,371
|
|
|
$
|
—
|
|
|
$
|
13,932
|
|
Accounts payable and accrued liabilities
|
65,750
|
|
|
176,912
|
|
|
29,212
|
|
|
(39,685
|
)
|
|
232,189
|
|
Liabilities of discontinued operations held for sale
|
—
|
|
|
26,643
|
|
|
43,815
|
|
|
—
|
|
|
70,458
|
|
Liabilities of discontinued operations not held for sale
|
—
|
|
|
—
|
|
|
1,684
|
|
|
—
|
|
|
1,684
|
|
Total Current Liabilities
|
68,903
|
|
|
204,963
|
|
|
84,082
|
|
|
(39,685
|
)
|
|
318,263
|
|
LONG-TERM DEBT, net
|
848,588
|
|
|
7,366
|
|
|
40,992
|
|
|
—
|
|
|
896,946
|
|
INTERCOMPANY PAYABLES
|
57,648
|
|
|
732,955
|
|
|
725,900
|
|
|
(1,516,503
|
)
|
|
—
|
|
OTHER LIABILITIES
|
32,506
|
|
|
102,666
|
|
|
19,777
|
|
|
(31,786
|
)
|
|
123,163
|
|
LIABILITIES OF DISCONTINUED OPERATIONS HELD FOR SALE
|
—
|
|
|
23,331
|
|
|
7,740
|
|
|
—
|
|
|
31,071
|
|
LIABILITIES OF DISCONTINUED OPERATIONS NOT HELD FOR SALE
|
—
|
|
|
—
|
|
|
1,706
|
|
|
—
|
|
|
1,706
|
|
Total Liabilities
|
1,007,645
|
|
|
1,071,281
|
|
|
880,197
|
|
|
(1,587,974
|
)
|
|
1,371,149
|
|
SHAREHOLDERS’ EQUITY
|
410,947
|
|
|
1,852,878
|
|
|
1,541,037
|
|
|
(3,393,915
|
)
|
|
410,947
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
1,418,592
|
|
|
$
|
2,924,159
|
|
|
$
|
2,421,234
|
|
|
$
|
(4,981,889
|
)
|
|
$
|
1,782,096
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Year Ended
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
Revenue
|
$
|
—
|
|
|
$
|
1,284,189
|
|
|
$
|
270,520
|
|
|
$
|
(29,712
|
)
|
|
$
|
1,524,997
|
|
Cost of goods and services
|
—
|
|
|
966,293
|
|
|
181,634
|
|
|
(31,046
|
)
|
|
1,116,881
|
|
Gross profit
|
—
|
|
|
317,896
|
|
|
88,886
|
|
|
1,334
|
|
|
408,116
|
|
Selling, general and administrative expenses
|
42,273
|
|
|
232,720
|
|
|
64,466
|
|
|
(370
|
)
|
|
339,089
|
|
Restructuring and other related charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total operating expenses
|
42,273
|
|
|
232,720
|
|
|
64,466
|
|
|
(370
|
)
|
|
339,089
|
|
Income (loss) from operations
|
(42,273
|
)
|
|
85,176
|
|
|
24,420
|
|
|
1,704
|
|
|
69,027
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
(13,804
|
)
|
|
(24,242
|
)
|
|
(13,403
|
)
|
|
—
|
|
|
(51,449
|
)
|
Other, net
|
59
|
|
|
1,395
|
|
|
(630
|
)
|
|
(1,704
|
)
|
|
(880
|
)
|
Total other income (expense)
|
(13,745
|
)
|
|
(22,847
|
)
|
|
(14,033
|
)
|
|
(1,704
|
)
|
|
(52,329
|
)
|
Income (loss) before taxes from continuing operations
|
(56,018
|
)
|
|
62,329
|
|
|
10,387
|
|
|
—
|
|
|
16,698
|
|
Provision (benefit) for income taxes
|
(11,338
|
)
|
|
24,560
|
|
|
(14,307
|
)
|
|
—
|
|
|
(1,085
|
)
|
Income (loss) before equity in net income of subsidiaries
|
(44,680
|
)
|
|
37,769
|
|
|
24,694
|
|
|
—
|
|
|
17,783
|
|
Equity in net income (loss) of subsidiaries
|
59,592
|
|
|
(25,231
|
)
|
|
37,770
|
|
|
(72,131
|
)
|
|
—
|
|
Income (loss) from continuing operations
|
14,912
|
|
|
12,538
|
|
|
62,464
|
|
|
(72,131
|
)
|
|
17,783
|
|
Income from operations of discontinued businesses
|
—
|
|
|
16,827
|
|
|
5,449
|
|
|
—
|
|
|
22,276
|
|
Provision (benefit) from income taxes
|
—
|
|
|
4,476
|
|
|
20,671
|
|
|
—
|
|
|
25,147
|
|
Loss from discontinued operations
|
—
|
|
|
12,351
|
|
|
(15,222
|
)
|
|
—
|
|
|
(2,871
|
)
|
Net income (loss)
|
$
|
14,912
|
|
|
$
|
24,889
|
|
|
$
|
47,242
|
|
|
$
|
(72,131
|
)
|
|
$
|
14,912
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
35,672
|
|
|
$
|
35,575
|
|
|
$
|
38,337
|
|
|
$
|
(73,912
|
)
|
|
$
|
35,672
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Year Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
Revenue
|
$
|
—
|
|
|
$
|
1,277,241
|
|
|
$
|
228,350
|
|
|
$
|
(28,556
|
)
|
|
$
|
1,477,035
|
|
Cost of goods and services
|
—
|
|
|
952,296
|
|
|
154,181
|
|
|
(30,135
|
)
|
|
1,076,342
|
|
Gross profit
|
—
|
|
|
324,945
|
|
|
74,169
|
|
|
1,579
|
|
|
400,693
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
26,427
|
|
|
228,961
|
|
|
63,335
|
|
|
(370
|
)
|
|
318,353
|
|
Restructuring and other related charges
|
—
|
|
|
1,299
|
|
|
(1,299
|
)
|
|
—
|
|
|
—
|
|
Total operating expenses
|
26,427
|
|
|
230,260
|
|
|
62,036
|
|
|
(370
|
)
|
|
318,353
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
(26,427
|
)
|
|
94,685
|
|
|
12,133
|
|
|
1,949
|
|
|
82,340
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
(12,549
|
)
|
|
(24,050
|
)
|
|
(13,278
|
)
|
|
—
|
|
|
(49,877
|
)
|
Other, net
|
337
|
|
|
1,862
|
|
|
(500
|
)
|
|
(1,949
|
)
|
|
(250
|
)
|
Total other income (expense)
|
(12,212
|
)
|
|
(22,188
|
)
|
|
(13,778
|
)
|
|
(1,949
|
)
|
|
(50,127
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
(38,639
|
)
|
|
72,497
|
|
|
(1,645
|
)
|
|
—
|
|
|
32,213
|
|
Provision (benefit) for income taxes
|
4,964
|
|
|
29,445
|
|
|
(21,977
|
)
|
|
—
|
|
|
12,432
|
|
Income (loss) before equity in net income of subsidiaries
|
(43,603
|
)
|
|
43,052
|
|
|
20,332
|
|
|
—
|
|
|
19,781
|
|
Equity in net income (loss) of subsidiaries
|
73,613
|
|
|
(2,858
|
)
|
|
43,052
|
|
|
(113,807
|
)
|
|
—
|
|
Income (loss) from continuing operations
|
$
|
30,010
|
|
|
$
|
40,194
|
|
|
$
|
63,384
|
|
|
$
|
(113,807
|
)
|
|
$
|
19,781
|
|
Income from operations of discontinued businesses
|
—
|
|
|
15,625
|
|
|
5,327
|
|
|
—
|
|
|
20,952
|
|
Provision (benefit) from income taxes
|
—
|
|
|
4,720
|
|
|
6,003
|
|
|
—
|
|
|
10,723
|
|
Income (loss) from discontinued operations
|
—
|
|
|
10,905
|
|
|
(676
|
)
|
|
—
|
|
|
10,229
|
|
Net income (loss)
|
$
|
30,010
|
|
|
$
|
51,099
|
|
|
$
|
62,708
|
|
|
$
|
(113,807
|
)
|
|
$
|
30,010
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
39,957
|
|
|
$
|
44,391
|
|
|
$
|
90,560
|
|
|
$
|
(134,951
|
)
|
|
$
|
39,957
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Year Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
Revenue
|
$
|
—
|
|
|
$
|
1,265,201
|
|
|
$
|
258,733
|
|
|
$
|
(40,643
|
)
|
|
$
|
1,483,291
|
|
Cost of goods and services
|
—
|
|
|
957,461
|
|
|
175,449
|
|
|
(41,966
|
)
|
|
1,090,944
|
|
Gross profit
|
—
|
|
|
307,740
|
|
|
83,284
|
|
|
1,323
|
|
|
392,347
|
|
Selling, general and administrative expenses
|
22,637
|
|
|
236,777
|
|
|
66,391
|
|
|
(370
|
)
|
|
325,435
|
|
Income (loss) from operations
|
(22,637
|
)
|
|
70,963
|
|
|
16,893
|
|
|
1,693
|
|
|
66,912
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
(8,741
|
)
|
|
(24,322
|
)
|
|
(14,452
|
)
|
|
—
|
|
|
(47,515
|
)
|
Other, net
|
438
|
|
|
1,847
|
|
|
(923
|
)
|
|
(1,693
|
)
|
|
(331
|
)
|
Total other income (expense)
|
(8,303
|
)
|
|
(22,475
|
)
|
|
(15,375
|
)
|
|
(1,693
|
)
|
|
(47,846
|
)
|
Income (loss) before taxes
|
(30,940
|
)
|
|
48,486
|
|
|
1,520
|
|
|
—
|
|
|
19,066
|
|
Provision (benefit) for income taxes
|
(31,241
|
)
|
|
21,408
|
|
|
16,605
|
|
|
—
|
|
|
6,772
|
|
Income (loss) before equity in net income of subsidiaries
|
301
|
|
|
27,078
|
|
|
(15,085
|
)
|
|
—
|
|
|
12,294
|
|
Equity in net income (loss) of subsidiaries
|
33,987
|
|
|
(38,487
|
)
|
|
27,078
|
|
|
(22,578
|
)
|
|
—
|
|
Income (loss) from continuing operations
|
34,288
|
|
|
(11,409
|
)
|
|
11,993
|
|
|
(22,578
|
)
|
|
12,294
|
|
Income (loss) from operations of discontinued businesses
|
2
|
|
|
33,175
|
|
|
1,393
|
|
|
—
|
|
|
34,570
|
|
Provision (benefit) from income taxes
|
1
|
|
|
11,890
|
|
|
684
|
|
|
—
|
|
|
12,575
|
|
Income (loss) from discontinued operations
|
1
|
|
|
21,285
|
|
|
709
|
|
|
—
|
|
|
21,995
|
|
Net Income (loss)
|
$
|
34,289
|
|
|
$
|
9,876
|
|
|
$
|
12,702
|
|
|
$
|
(22,578
|
)
|
|
$
|
34,289
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(26,835
|
)
|
|
$
|
(14,316
|
)
|
|
$
|
(21,980
|
)
|
|
$
|
36,296
|
|
|
$
|
(26,835
|
)
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
14,912
|
|
|
$
|
24,889
|
|
|
$
|
47,242
|
|
|
$
|
(72,131
|
)
|
|
$
|
14,912
|
|
Net (income) loss from discontinued operations
|
—
|
|
|
(12,351
|
)
|
|
15,222
|
|
|
—
|
|
|
2,871
|
|
Net cash provided by operating activities
|
(10,771
|
)
|
|
56,320
|
|
|
3,602
|
|
|
—
|
|
|
49,151
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
(15
|
)
|
|
(27,902
|
)
|
|
(7,020
|
)
|
|
—
|
|
|
(34,937
|
)
|
Acquired business, net of cash acquired
|
—
|
|
|
—
|
|
|
(34,719
|
)
|
|
—
|
|
|
(34,719
|
)
|
Purchase of securities
|
(1,824
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,824
|
)
|
Proceeds from sale of property, plant and equipment
|
—
|
|
|
144
|
|
|
(1
|
)
|
|
—
|
|
|
143
|
|
Net cash used in investing activities
|
(1,839
|
)
|
|
(27,758
|
)
|
|
(41,740
|
)
|
|
—
|
|
|
(71,337
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of shares for treasury
|
(15,841
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,841
|
)
|
Proceeds from long-term debt
|
201,124
|
|
|
—
|
|
|
32,319
|
|
|
—
|
|
|
233,443
|
|
Payments of long-term debt
|
(149,109
|
)
|
|
(1,282
|
)
|
|
(20,063
|
)
|
|
—
|
|
|
(170,454
|
)
|
Share premium payment on settled debt
|
(24,997
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,997
|
)
|
Change in short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financing costs
|
(1,548
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,548
|
)
|
Purchase of ESOP shares
|
(10,908
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,908
|
)
|
Dividends paid
|
(10,325
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,325
|
)
|
Other, net
|
20,937
|
|
|
(34,806
|
)
|
|
13,799
|
|
|
—
|
|
|
(70
|
)
|
Net cash used in financing activities
|
9,333
|
|
|
(36,088
|
)
|
|
26,055
|
|
|
—
|
|
|
(700
|
)
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
—
|
|
|
(12,100
|
)
|
|
9,950
|
|
|
—
|
|
|
(2,150
|
)
|
Effect of exchange rate changes on cash and equivalents
|
—
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
164
|
|
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
|
(3,277
|
)
|
|
(19,626
|
)
|
|
(1,969
|
)
|
|
—
|
|
|
(24,872
|
)
|
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
|
6,517
|
|
|
27,692
|
|
|
38,344
|
|
|
—
|
|
|
72,553
|
|
CASH AND EQUIVALENTS AT END OF PERIOD
|
$
|
3,240
|
|
|
$
|
8,066
|
|
|
$
|
36,375
|
|
|
$
|
—
|
|
|
$
|
47,681
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
30,010
|
|
|
$
|
51,099
|
|
|
$
|
62,708
|
|
|
$
|
(113,807
|
)
|
|
$
|
30,010
|
|
Net income (loss) from discontinued operations
|
—
|
|
|
10,905
|
|
|
(676
|
)
|
|
—
|
|
|
10,229
|
|
Net cash provided by (used in) operating activities
|
(11,879
|
)
|
|
87,252
|
|
|
4,745
|
|
|
—
|
|
|
80,118
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
(259
|
)
|
|
(62,176
|
)
|
|
3,159
|
|
|
—
|
|
|
(59,276
|
)
|
Intercompany distributions
|
—
|
|
|
(2,726
|
)
|
|
(1,744
|
)
|
|
—
|
|
|
(4,470
|
)
|
Proceeds from sale of property, plant and equipment
|
—
|
|
|
763
|
|
|
7
|
|
|
—
|
|
|
770
|
|
Investment purchases
|
715
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
715
|
|
Net cash provided by (used in) investing activities
|
456
|
|
|
(64,139
|
)
|
|
1,422
|
|
|
—
|
|
|
(62,261
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of shares for treasury
|
(65,307
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65,307
|
)
|
Proceeds from long-term debt
|
271,340
|
|
|
2,311
|
|
|
28,711
|
|
|
—
|
|
|
302,362
|
|
Payments of long-term debt
|
(177,513
|
)
|
|
(1,237
|
)
|
|
(29,764
|
)
|
|
—
|
|
|
(208,514
|
)
|
Change in short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financing costs
|
(4,277
|
)
|
|
—
|
|
|
(107
|
)
|
|
—
|
|
|
(4,384
|
)
|
Tax effect from exercise/vesting of equity awards, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends paid
|
(8,798
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,798
|
)
|
Other, net
|
55
|
|
|
(1,926
|
)
|
|
1,926
|
|
|
—
|
|
|
55
|
|
Net cash provided by (used in) financing activities
|
15,500
|
|
|
(852
|
)
|
|
766
|
|
|
—
|
|
|
15,414
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
—
|
|
|
(5,241
|
)
|
|
(8,364
|
)
|
|
—
|
|
|
(13,605
|
)
|
Effect of exchange rate changes on cash and equivalents
|
—
|
|
|
—
|
|
|
886
|
|
|
—
|
|
|
886
|
|
NET DECREASE IN CASH AND EQUIVALENTS
|
4,077
|
|
|
17,020
|
|
|
(545
|
)
|
|
—
|
|
|
20,552
|
|
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
|
2,440
|
|
|
10,672
|
|
|
38,889
|
|
|
—
|
|
|
52,001
|
|
CASH AND EQUIVALENTS AT END OF PERIOD
|
$
|
6,517
|
|
|
$
|
27,692
|
|
|
$
|
38,344
|
|
|
$
|
—
|
|
|
$
|
72,553
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Companies
|
|
Non-Guarantor Companies
|
|
Elimination
|
|
Consolidation
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
34,289
|
|
|
$
|
9,876
|
|
|
$
|
12,702
|
|
|
$
|
(22,578
|
)
|
|
$
|
34,289
|
|
Net (income) loss from discontinued operations
|
(1
|
)
|
|
(21,285
|
)
|
|
(709
|
)
|
|
—
|
|
|
(21,995
|
)
|
Net cash provided by (used in) operating activities
|
59,245
|
|
|
11,686
|
|
|
(39,075
|
)
|
|
—
|
|
|
31,856
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
(274
|
)
|
|
(27,281
|
)
|
|
(18,753
|
)
|
|
—
|
|
|
(46,308
|
)
|
Acquired business, net of cash acquired
|
—
|
|
|
(2,225
|
)
|
|
—
|
|
|
—
|
|
|
(2,225
|
)
|
Intercompany distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Investment sales
|
8,891
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,891
|
|
Proceeds from sale of property, plant and equipment
|
—
|
|
|
141
|
|
|
62
|
|
|
—
|
|
|
203
|
|
Net cash provided by (used in) investing activities
|
8,617
|
|
|
(29,365
|
)
|
|
(18,691
|
)
|
|
—
|
|
|
(39,439
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
371
|
|
Purchase of shares for treasury
|
(82,343
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(82,343
|
)
|
Proceeds from long-term debt
|
124,500
|
|
|
13,596
|
|
|
65,120
|
|
|
—
|
|
|
203,216
|
|
Payments of long-term debt
|
(116,702
|
)
|
|
(364
|
)
|
|
(70,669
|
)
|
|
—
|
|
|
(187,735
|
)
|
Change in short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financing costs
|
(615
|
)
|
|
(196
|
)
|
|
(77
|
)
|
|
—
|
|
|
(888
|
)
|
Tax effect from exercise/vesting of equity awards, net
|
345
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
345
|
|
Dividends paid
|
2,346
|
|
|
(10,000
|
)
|
|
—
|
|
|
—
|
|
|
(7,654
|
)
|
Other, net
|
347
|
|
|
6,341
|
|
|
(6,341
|
)
|
|
—
|
|
|
347
|
|
Net cash provided by (used in) financing activities
|
(71,751
|
)
|
|
9,377
|
|
|
(11,967
|
)
|
|
—
|
|
|
(74,341
|
)
|
CASH FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
—
|
|
|
5,139
|
|
|
40,533
|
|
|
—
|
|
|
45,672
|
|
Effect of exchange rate changes on cash and equivalents
|
—
|
|
|
—
|
|
|
(4,152
|
)
|
|
—
|
|
|
(4,152
|
)
|
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS
|
(3,889
|
)
|
|
(3,163
|
)
|
|
(33,352
|
)
|
|
—
|
|
|
(40,404
|
)
|
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD
|
6,329
|
|
|
13,835
|
|
|
72,241
|
|
|
—
|
|
|
92,405
|
|
CASH AND EQUIVALENTS AT END OF PERIOD
|
$
|
2,440
|
|
|
$
|
10,672
|
|
|
$
|
38,889
|
|
|
$
|
—
|
|
|
$
|
52,001
|
|
GRIFFON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(US dollars and non US currencies in thousands, except per share data)
NOTE 22 – SUBSEQUENT EVENTS
On November 15, 2017, the Board of Directors declared a cash dividend of
$0.07
per share, payable on December 21, 2017 to shareholders of record as of the close of business on November 29, 2017. Griffon currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors, at its discretion, based on various factors, and no assurance can be provided as to the payment of future dividends.
*****