GRIFFON CORP 10-Q

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS Overview Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). Business Strategy We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products. Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels, and conducting business across multiple countries which we consider our home markets. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions. Over the past three years, we have undertaken a series of transformative transactions. We integrated our most significant acquisitions into our wholly owned subsidiaries, The AMES Companies, Inc. ("AMES") and Clopay Corporation ("Clopay"), expanding the scope of both AMES and Clopay. In particular, CornellCookson has been integrated into Clopay, so that our leading company in residential garage doors and sectional commercial doors now includes a leading manufacturer of rolling steel doors and grille products. ClosetMaid was combined with AMES, and we established an integrated headquarters for AMES in Orlando, Florida. AMES is now positioned to fulfill its mission of Bringing Brands Together™ with the leading brands in home and garage organization, outdoor décor, and lawn, garden and cleaning tools. As a result of the expanded scope of the AMES and Clopay businesses, effective with our 2019 10-K filing on November 22, 2019, we now report each as a separate segment. Clopay remains in the Home and Building Products ("HBP") segment and AMES now constitutes our new Consumer and Professional Products ("CPP") segment. Impact of COVID-19 on Our Business Our first priority is the health and safety of our employees, our customers and their families. As of the date of this filing, all of Griffon's facilities are fully operational. All of Griffon’s facilities have implemented a variety of new policies and procedures, including additional cleaning, social distancing, staggered shifts and prohibiting or significantly restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. Since the end of the second quarter of fiscal 2020 and through the date of this filing, all of our businesses are experiencing normal or better order patterns compared with the same time period last year, with the exception of HBP's residential sectional garage door business, which experienced an 18% decline in orders in April; however, the quarter ended with volume in line with prior year driven by strong May and June orders. Our supply chains have generally not experienced significant disruption, and at this time we do not anticipate any such material disruption in the near term. Many U.S. states have lifted executive orders requiring all workers to remain at home unless their work is critical, essential, or life-sustaining. Regardless, we believe that, based on the various standards published to date, the work our employees are performing are either critical, essential and/or life-sustaining for the following reasons: 1) DE is a defense and national security-related operation supporting the U.S. Government, with a portion of its business being directly with the U.S. Government; 2) HBP residential and commercial garage doors, rolling steel doors and related products that (a) provide protection and support for the efficient and safe movement of people, goods, and equipment in and out of residential and commercial facilities, (b) help prevent fires from spreading from one location to another, and (c) protect warehouses and homes, and their contents, from damage caused by strong weather events such as hurricanes and tornadoes; and 41 Table of Contents 3) CPP tools and storage products provide critical support for the national infrastructure including construction, maintenance and manufacturing and is part of the essential supply base to many of its largest customers including Home Depot, Lowe's and Menards. Our AMES international facilities are operational, as they meet the applicable standards in their respective countries. Griffon believes it has adequate liquidity to invest in its existing businesses and execute its business plan, while managing its capital structure on both a short-term and long-term basis. In January 2020, Griffon increased total borrowing capacity under its revolving credit facility ("Credit Agreement") by $50,000, to $400,000 (of which $274,202 was available at June 30, 2020), and extended maturity of the facility to 2025. In addition the Credit Agreement has a $100,000 accordion feature (subject to lender consent). In February 2020, Griffon refinanced $850,000 of its $1,000,000 of senior notes due 2022 with new senior notes with a maturity of 2028 and in June 2020, refinanced the remaining $150,000 under the same terms and indenture as the $850,000 senior notes due 2028. While the first half of Griffon’s fiscal year is typically a net cash usage period, April typically begins Griffon’s period of strong cash generation, which usually continues through the end of the fiscal year. We will continue to actively monitor the situation and may take further actions that impact our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we believe it is important to discuss where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses. Please see Part II, item 1A "Risk Factors" in this Form 10-Q. Business Highlights On February 19, 2020, Griffon issued, at par, $850,000 of 5.75% Senior Notes due in 2028 (the “2028 Senior Notes”) and on June 8, 2020 Griffon issued an additional $150,000, at 100.25% of par, of notes under the same indenture. Proceeds from the 2028 Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022. In January 2020, Griffon amended its Credit Agreement to increase the total amount available for borrowing from $350,000 to $400,000, extend its maturity date from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility. In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations. This initiative includes three key development areas. First, multiple independent information systems will be unified into a single data and analytics platform which will serve the whole CPP U.S. enterprise. Second, certain CPP U.S. operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth. The roll-out of the new business platform will occur over approximately a three-year period, with completion expected by the end of calendar 2022. When fully implemented, these actions will result in an annual cash savings of $15,000 to $20,000 , and a $20,000 to $25,000 reduction in inventory, both based on operating levels at the beginning of the initiative. The cost to implement this new business platform, over the three-year duration of the project, will include approximately $35,000 of one-time charges and approximately $40,000 in capital investments. The one-time charges are comprised of $16,000 of cash charges, which includes $12,000 personnel-related costs such as training, severance, and duplicate personnel costs and $4,000 of facility and lease exit costs. The remaining $19,000 of charges are non-cash and are primarily related to asset write-downs. On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10,500 (GBP 8,750 ), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint. On September 5, 2017, Griffon announced the acquisition of ClosetMaid LLC ("ClosetMaid") and the commencement of the strategic alternatives process for Clopay Plastic Products ("Plastics"), beginning the transformation of Griffon. In October 2017, we acquired ClosetMaid from Emerson Electric Co. (NYSE:EMR) for an effective purchase price of approximately $165,000. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of wood and wire closet organization, general living storage and wire garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. We believe that ClosetMaid is the leading brand in its category, with excellent consumer recognition. 42 Table of Contents In February 2018, we closed on the sale of our Plastics business to Berry Global, Inc. ("Berry") for approximately $465,000, net of certain post-closing adjustments, thus exiting the specialty plastics industry that the Company had entered when it acquired Clopay in 1986. This transaction provided immediate liquidity and positions the Company to improve its cash flow conversion given the historically higher capital needs of Plastics' operations as compared to Griffon’s remaining businesses. In March 2018, we announced the combination of the ClosetMaid operations with those of AMES. ClosetMaid generated over $300,000 in revenue in the first twelve months after the acquisition, and we anticipate the integration with AMES will unlock additional value given the complementary products, customers, warehousing and distribution, manufacturing, and sourcing capabilities of the two businesses. In June 2018, Clopay acquired CornellCookson, Inc. ("CornellCookson"), a leading provider of rolling steel service doors, fire doors, and grilles, for an effective purchase price of approximately $170,000. This transaction strengthened Clopay's strategic portfolio with a line of commercial rolling steel door products to complement Clopay's sectional door offerings in the commercial industry, and expands the Clopay network of professional dealers focused on the commercial market. CornellCookson generated over $200,000 in revenue in its first full year of operations following the acquisition. During fiscal 2017 and 2018, Griffon also completed a number of other acquisitions to expand and enhance AMES' global footprint. In the United Kingdom, Griffon acquired La Hacienda, an outdoor living brand of unique heating and garden décor products, in July 2017, and Kelkay, a manufacturer and distributor of decorative outdoor landscaping, in February 2018. These two businesses provided AMES with additional brands and a platform for growth in the UK market and access to leading garden centers, retailers, and grocers in the UK and Ireland. In Australia, Griffon acquired Hills Home Living, the iconic brand of clotheslines and home products, from Hills Limited (ASX:HIL) in December 2016. In September 2017, Griffon acquired Tuscan Path, an Australian provider of pots, planters, pavers, decorative stone, and garden décor products. These acquisitions broadened AMES' outdoor living and lawn and garden business, strengthening AMES’ portfolio of brands and its market position in Australia and New Zealand. In November 2017, Griffon acquired Harper Brush Works, a leading U.S. manufacturer of cleaning products for professional, home, and industrial use, from Horizon Global (NYSE:HZN). This acquisition expanded the AMES line of long-handle tools in North America to include brooms, brushes, and other cleaning products. We believe these actions have established a solid foundation for continuing organic growth in sales, profit, and cash generation and bolsters Griffon’s platforms for opportunistic strategic acquisitions. Further Information Griffon posts and makes available, free of charge through its website at www.griffon.com , its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on Griffon's website is not part of this or any other report it files with or furnishes to the SEC. For information regarding revenue, profit and total assets of each segment, see the Reportable Segments footnote in the Notes to Consolidated Financial Statements. Reportable Segments: Griffon currently conducts its operations through three reportable segments: • CPP conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • HBP conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and 43 Table of Contents Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. • DE conducts its operations through Telephonics Corporation, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers. OVERVIEW Revenue for the quarter ended June 30, 2020 was $632,061 compared to $574,970 in the prior year comparable quarter, an increase of approximately 10%, driven by increased revenue at CPP and DE of 20% and 5%, respectively, partially offset by decreased revenue at HBP of 1%. Organic revenue growth was 9%. Income from continuing operations was $21,831 or $0.50 per share, compared to $14,128 , or $0.33 per share, in the prior year quarter. The current year quarter results from continuing operations included the following: – Restructuring charges of $1,633 ( $1,224 , net of tax, or $0.03 per share); – Loss from debt extinguishment $1,235 ( $969 , net of tax, or $0.02 per share); – Discrete and certain other tax provision, net, of $1,828 or $0.04 per share. The prior year quarter results from continuing operations included discrete and certain other tax benefits, net, of $669 or $0.02 per share. Excluding these items from the respective quarterly results, Income from continuing operations would have been $25,852 , or $0.59 per share, in the current year quarter compared to $13,459 , or $0.31 per share in the prior year quarter. Revenue for the nine months ended June 30, 2020 was $1,746,849 compared to $1,635,125 in the prior year period, an increase of 7%, driven by increased revenue at CPP and HBP driven by strong customer demand in the home improvement space. Organic growth was 6%. CPP revenue increased by 9%, 7% organically. HBP revenue increased by 6% and DE revenue increased by 3%. Income from continuing operations was $33,338 or $0.76 per share, compared to $29,371 , or $0.69 per share, in the prior year period. The current year-to-date results from continuing operations included the following: – Restructuring charges of $11,171 ( $8,377 , net of tax, or $0.19 per share); – Loss from debt extinguishment $7,925 ( $6,214 , net of tax, or $0.14 per share); – Acquisition costs of $2,960 ( $2,321 , net of tax, or $0.05 per share); and – Discrete and certain other tax provision, net, of $1,248 or $0.03 per share. The prior year-to-date results from continuing operations included discrete and certain other tax benefits, net, of $299 or $0.01 per share. Excluding these items from the respective periods, Income from continuing operations would have been $51,498 , or $1.18 per share in the current year period ended June 30, 2020 compared to $29,072 , or $0.68 per share, in the comparable prior year period. 44 Table of Contents Griffon evaluates performance based on Net income and the related Earnings per share excluding restructuring charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per share from continuing operations to Adjusted earnings per share from continuing operations: GRIFFON CORPORATION AND SUBSIDIARIES RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO ADJUSTED INCOME FROM CONTINUING OPERATIONS (Unaudited) For the Three Months Ended June 30, For the Nine Months Ended June 30, 2020 2019 2020 2019 Income from continuing operations $ 21,831 $ 14,128 $ 33,338 $ 29,371 Adjusting items: Restructuring charges 1,633 — 11,171 — Loss from debt extinguishment 1,235 — 7,925 — Acquisition costs — — 2,960 — Tax impact of above items (675 ) — (5,144 ) — Discrete and certain other tax provisions (benefits), net 1,828 (669 ) 1,248 (299 ) Adjusted income from continuing operations $ 25,852 $ 13,459 $ 51,498 $ 29,072 Diluted earnings per common share $ 0.50 $ 0.33 $ 0.76 $ 0.69 Adjusting items, net of tax: Restructuring charges 0.03 — 0.19 — Loss from debt extinguishment 0.02 — 0.14 — Acquisition costs — — 0.05 — Discrete and certain other tax provisions (benefits), net 0.04 (0.02 ) 0.03 (0.01 ) Adjusted earnings per common share $ 0.59 $ 0.31 $ 1.18 $ 0.68 Weighted-average shares outstanding (in thousands) 43,774 43,164 43,818 42,649 Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share. The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments. 45 Table of Contents RESULTS OF CONTINUING OPERATIONS Three and Nine months ended June 30, 2020 and 2019 In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide investors with improved visibility after a series of portfolio repositioning actions which included the divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into AMES, and the acquisition of CornellCookson by Clopay. Griffon now reports its operations through three reportable segments: the newly formed CPP segment, which consists of AMES; HBP, which consists of Clopay; and DE, which consists of Telephonics. Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors for the same reason. See table provided in Note 12 - Business Segments for a reconciliation of Segment Adjusted EBITDA to Income before taxes from continuing operations. 46 Table of Contents Consumer and Professional Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2020 2019 2020 2019 Revenue $ 328,929 $ 273,710 $ 844,917 $ 777,916 Adjusted EBITDA 37,115 11.3 % 23,970 8.8 % 84,068 9.9 % 73,151 9.4 % Depreciation and amortization 8,197 8,158 24,650 24,148 For the quarter ended June 30, 2020 , revenue increased $55,219 or 20% , compared to the prior year period, primarily due to increased volume of 19%, driven by increased consumer demand for home improvement initiatives in North America and Australia resulting from COVID-19 stay at home orders, favorable price and mix of 1% and incremental revenue from the Apta acquisition of 2%, partially offset by an unfavorable impact of foreign exchange of 2%. Organic growth was 18%. For the quarter ended June 30, 2020 , Adjusted EBITDA increased 55% to $37,115 compared to $23,970 in the prior year period. The favorable variance resulted primarily from the increased revenue noted above, partially offset by increased tariffs and COVID-19 related inefficiencies and direct costs. For the quarter ended June 30, 2020, EBITDA reflects an unfavorable foreign exchange impact of 2%. For the nine months ended June 30, 2020 , revenue increased $67,001 or 9% , compared to the prior year period, driven by increased volume of 6% for reasons noted above, favorable price and mix of 2% and incremental revenue from the Apta acquisition of 2%, partially offset by a 1% unfavorable impact due to foreign exchange. Organic growth was 7%. For the nine months ended June 30, 2020 , Adjusted EBITDA increased 15% to $84,068 compared to $73,151 in the prior year period. The favorable variance primarily resulted increased revenue noted above, partially offset by tariffs and COVID-19 related inefficiencies and direct costs. For the nine months ended June 30, 2020, EBITDA reflects an unfavorable foreign exchange impact of 2%. Direct COVID-19 related expenses totaled approximately $2,207 and $2,471 for the quarter and year to date periods, respectively. Segment depreciation and amortization remained consistent with the prior year comparable quarter and increased $502 from the year-to-date comparable period primarily due to the onset of depreciation for new assets placed in service. On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10,500 (GBP 8,750 ), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint. Strategic Initiative and Restructuring Charges In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations. This initiative includes three key development areas. First, multiple independent information systems will be unified into a single data and analytics platform which will serve the whole CPP U.S. enterprise. Second, certain CPP U.S. operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth. The roll-out of the new business platform will occur over approximately a three-year period, with completion expected by the end of calendar 2022. When fully implemented, these actions will result in an annual cash savings of $15,000 to $20,000 , and a $20,000 to $25,000 reduction in inventory, both based on operating levels at the beginning of the initiative. The cost to implement this new business platform, over the three-year duration of the project, will include approximately $35,000 of one-time charges and approximately $40,000 in capital investments. The one-time charges are comprised of $16,000 of cash charges, which includes $12,000 personnel-related costs such as training, severance, and duplicate personnel costs and $4,000 of facility and lease exit costs. The remaining $19,000 of charges are non-cash and are primarily related to asset write-downs. In connection with this initiative, during the nine months ended June 30, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $11,171 , comprised of cash charges of $6,479 and non-cash, asset-related charges of $4,692 ; the cash charges 47 Table of Contents included $4,842 for one-time termination benefits and other personnel-related costs and $1,637 for facility exit costs. During the quarter and nine month period ended June 30, 2020, capital expenditures of $3,371 and $3,671 , respectively, were driven by investment in CPP business intelligence systems and e-commerce facility. Cash Charges Non-Cash Charges Personnel related costs Facilities, exit costs and other Facility and other Total Capital Investments Anticipated Charges $ 12,000 $ 4,000 $ 19,000 $ 35,000 $ 40,000 Q1 FY2020 Activity (2,134 ) (140 ) (4,160 ) (6,434 ) — Q2 FY2020 Activity (1,658 ) (914 ) (532 ) (3,104 ) (300 ) Q3 FY2020 Activity (1,050 ) (583 ) — (1,633 ) (3,371 ) Total charges (4,842 ) (1,637 ) (4,692 ) (11,171 ) (3,671 ) Estimate to Complete $ 7,158 $ 2,363 $ 14,308 $ 23,829 $ 36,329 48 Table of Contents Home and Building Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2020 2019 2020 2019 Revenue $ 219,164 $ 221,521 $ 670,374 $ 631,615 Adjusted EBITDA 39,299 17.9 % 33,851 15.3 % 110,635 16.5 % 85,283 13.5 % Depreciation and amortization 4,507 4,626 13,975 13,683 For the quarter ended June 30, 2020 , revenue decreased $2,357 or 1% , compared to the prior year period, due to decreased volume driven by reduced residential sectional garage door orders in April of approximately18% and a subsequent recovery in May and June. For the quarter ended June 30, 2020 , Adjusted EBITDA increased 16% to $39,299 compared to $33,851 in the prior year period. EBITDA benefited from general operational efficiency improvements, partially offset by the decrease in revenue and COVID-19 related inefficiencies and direct costs. For the nine months ended June 30, 2020 , revenue increased $38,759 or 6% , compared to the prior year period, driven by increased volume of 4%, and favorable mix and pricing of 2%. For the nine months ended June 30, 2020 , Adjusted EBITDA increased 30% to $110,635 compared to $85,283 in the prior year period. The favorable variance resulted from the increased revenue noted above and general operational efficiency improvements, partially offset by COVID-19 related inefficiencies and direct costs. Direct COVID-19 related expenses totaled approximately $1,700 for the quarter and year-to-date periods. Segment depreciation and amortization decreased $119 from the prior year quarter due to fully depreciated assets, and increased $292 from the prior year-to-date period primarily due to the onset of depreciation for new assets placed in service. On January 31, 2019, HBP announced a $14,000 investment in facilities infrastructure and equipment at its CornellCookson location in Mountain Top, Pennsylvania. This project includes a 90,000 square foot expansion to the already existing 184,000 square foot facility, along with the addition of state of the art manufacturing equipment. Through this expansion, the CornellCookson Mountain Top location will improve its manufacturing efficiency and shipping operations, as well as increase manufacturing capacity to support full-rate production of new and core products. The project was substantially completed by the end of calendar 2019. Defense Electronics For the Three Months Ended June 30, For the Nine Months Ended June 30, 2020 2019 2020 2019 Revenue $ 83,968 $ 79,739 $ 231,558 $ 225,594 Adjusted EBITDA 4,122 4.9 % 7,280 9.1 % 12,845 5.5 % 17,001 7.5% Depreciation and amortization 2,666 2,669 7,986 7,926 For the quarter ended June 30, 2020 , revenue increased $4,229 , or 5% , compared to the prior year period, primarily due to increased deliveries and volume of radar and communication systems, partially offset by reduced volume of airborne surveillance systems. For the quarter ended June 30, 2020 , Adjusted EBITDA decreased $3,158 , or 43% , compared to the prior year comparable period, driven by unfavorable program mix, and program inefficiencies on radar and communications systems. For the nine months ended June 30, 2020 , revenue increased $5,964 , or 3% , compared to the prior year period, primarily due to increased deliveries and volume of radar and communication systems revenue, partially offset by reduced multi-mode radar and maritime surveillance radar revenue. 49 Table of Contents For the nine months ended June 30, 2020 , Adjusted EBITDA decreased $4,156 , or 24% , compared to the prior year comparable period due to unfavorable program mix, program inefficiencies and increased operating expenses primarily due to bid and proposal activities. Direct COVID-19 related expenses totaled approximately $600 and $700 for the quarter and year-to-date periods, respectively. Segment depreciation and amortization remained consistent with both the prior year comparable quarter and year-to-date period. During the nine months ended June 30, 2020 , DE was awarded several new contracts and received incremental funding on existing contracts approximating $192,700. Contract backlog was $350,443 at June 30, 2020 , an $18,703 increase from the second quarter, with 72% expected to be fulfilled in the next 12 months. Backlog was $389,300 at September 30, 2019. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer, or by Congress, in the case of US government agencies. Unallocated For the quarter ended June 30, 2020 , unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $11,080 compared to $12,033 in the prior year quarter. For the nine months ended June 30, 2020 , unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $34,969 compared to $34,505 in the prior year quarter. The decrease in the current quarter compared to the respective prior year quarter primarily relates to decreases in consulting fees, travel and administrative office costs; and the increase for nine months ended June 30, 2020 compared to the respective prior year period primarily relates to compensation and incentive costs. Segment Depreciation and Amortization Segment depreciation and amortization remained consistent with the prior year quarter and increased $854 for the nine months ended June 30, 2020 compared to the comparable prior year period, primarily due to the onset of depreciation for new assets placed in service. Other Income (Expense) For the quarters ended June 30, 2020 and 2019 , Other income (expense) includes $72 and $150 , respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $392 and $787 , respectively, as well as $294 and $(14) , respectively, of net investment (loss) income. For the nine months ended June 30, 2020 and 2019, Other income (expense) includes $441 and $535 , respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $1,170 and 2,361 , respectively, as well as $145 and $18 , respectively, of net investment (loss) income. During the nine months ended June 30, 2020, Other income (expense) also includes a one-time contract award of $700 . Provision for income taxes During the quarter ended June 30, 2020 , the Company recognized a tax provision of $12,649 on income before taxes from continuing operations of $34,480 , compared to a tax provision of $6,258 on income before taxes from continuing operations of $20,386 in the comparable prior year quarter. The current year quarter included restructuring charges of $1,633 ( $1,224 , net of tax), loss from debt extinguishment of $1,235 ( $969 , net of tax) and net discrete tax and certain other tax provisions, net of $1,828 , that affect comparability. The prior year quarter included net discrete tax and certain other tax benefits of $669 that affect comparability. Excluding these items, the effective tax rates for the quarters ended June 30, 2020 and 2019 were 30.8% and 34.0% , respectively. During the nine months ended June 30, 2020 , the Company recognized a tax provision of $21,022 on Income before taxes from continuing operations of $54,360 , compared to a tax provision of $14,664 on Income before taxes from continuing operations of $44,035 in the comparable prior year period. The nine month period ended June 30, 2020 included restructuring charges of $11,171 ( $8,377 , net of tax), acquisition costs of $2,960 ( $2,321 , net of tax), loss from debt extinguishment of $7,925 ( $6,214 , net of tax) and net discrete tax provisions of $1,248 . The nine month period ended June 30, 2019 included net discrete tax benefits of $299 . Excluding these items, the effective tax rates for the nine months ended June 30, 2020 and 2019 were 32.6% and 34.0% , respectively. 50 Table of Contents In response to the COVID-19 outbreak, the U.S. Congress approved certain changes to the federal tax laws in March 2020. While we are still assessing the impact of the legislation, we do not expect there to be a material impact to our consolidated financial statements at this time. Stock based compensation For the quarters ended June 30, 2020 and 2019 , stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled $4,507 and $4,047 , respectively. For the nine months ended June 30, 2020 and 2019 , stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP totaled $12,809 and $11,547 , respectively. Comprehensive income (loss) For the quarter ended June 30, 2020 , total other comprehensive income, net of taxes, of $8,702 included income of $ 9,508 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound, and Canadian and Australian Dollars all in comparison to the US Dollar; a $1,139 benefit from pension amortization of actuarial losses; and a $1,945 loss on cash flow hedges. For the quarter ended June 30, 2019, total other comprehensive loss, net of taxes, of $1,035 included a loss of $1,092 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound and Australian Dollar, partially offset by the strengthening of the Canadian Dollar, all in comparison to the US Dollar; a $184 benefit from pension amortization of actuarial losses; and a $127 loss on cash flow hedges. For the nine months ended June 30, 2020, total other comprehensive income, net of taxes, of $709 , included a loss of $493 from foreign currency translation adjustments primarily due to the weakening of the Canadian Dollar, partially offset by the strengthening of the Euro, British Pound and Australian currencies, all in comparison to the US Dollar, a $2,480 benefit from pension amortization of actuarial losses and a $1,278 loss on cash flow hedges. For the nine months ended June 30, 2019, total other comprehensive loss, net of taxes, of $3,605 included a loss of $3,943 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound, and Canadian and Australian Dollars, all in comparison to the US Dollar; a $552 benefit from pension amortization of actuarial losses; and a $214 loss on cash flow hedges. Discontinued operations During the quarter ended March 31, 2019, Griffon recorded an $11,000 charge ($7,646, net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $475,000 PPC divestiture and included an additional reserve for a legacy environmental matter. At June 30, 2020, Griffon's assets and liabilities are primarily for the Installations Services and other discontinued operations primarily related to insurance claims, income tax and product liability, warranty reserves and environmental reserves. See Note 15, Discontinued Operations. LIQUIDITY AND CAPITAL RESOURCES Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity are: cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in its existing businesses and execute strategic acquisitions, while managing its capital structure on both a short-term and long-term basis. The following table is derived from the Condensed Consolidated Statements of Cash Flows: 51 Table of Contents Cash Flows from Continuing Operations For the Nine months ended June 30, (in thousands) 2020 2019 Net Cash Flows Provided by (Used In): Operating activities $ 55,944 $ 14,982 Investing activities (45,073 ) (57,162 ) Financing activities (9,305 ) 33,905 Cash provided by operating activities from continuing operations for the nine months ended June 30, 2020 was $55,944 compared to $14,982 in the comparable prior year period. Cash provided by income from continuing operations, adjusted for non-cash expenditures, was partially offset by a net increase in working capital predominately consisting of net increases in accounts receivable and prepaid and other assets, a decrease in accounts payable due to the timing of payments, partially offset by a decrease in inventory. The working capital variances in the cash flow in the current year excludes a $28,648 benefit due to the October 1, 2019 prospective adoption of lease accounting guidance, which was in working capital in the prior year. During the nine months ended June 30, 2020 , Griffon used $45,073 of cash in investing activities from continuing operations compared to $57,162 used in the prior year comparable period. Payments for acquired businesses totaled $10,531 compared to $9,219 in the prior year comparable period. On November 29, 2019, AMES acquired 100% of the outstanding stock of Apta, a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10,500 (GBP 8,750 ), inclusive of a post-closing working capital adjustment, net of cash acquired. Payments for acquired businesses in the prior year consisted solely of a final purchase price adjustment for CornellCookson. Payments in the prior year comparable period also included $9,500 related to a purchase price adjustment to resolve a claim related to the $475,000 PPC divestiture and an insurance payment of $10,604 pertaining to the settlement of a certain life insurance benefit. Capital expenditures, net of proceeds from the sale of assets, for the nine months ended June 30, 2020 totaled $34,412 , an increase of $6,722 from the prior year period. During the nine months ended June 30, 2020 , cash used by financing activities from continuing operations totaled $9,305 as compared to $33,905 provided by in the comparable prior year period. On June 22, 2020, Griffon completed an add-on offering through a private placement of $150,000 aggregate principal amount of its 5.75% senior notes due 2028, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% senior notes due in 2028, at par, completed on February 19, 2020 (collectively the “Senior Notes”). Proceeds from the Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022. Cash provided by financing activities in the current period also included financing payments of $16,543 primarily associated with the redemption of the $1,000,000 of 5.25% Senior Notes due 2022 with the proceeds from the issuance of $850,000 of 5.75% Senior Notes due 2028; and the amendment and extension of the Company's revolving credit facility increasing the maximum borrowing availability from $350,000 to $400,000 and extending its maturity date from March 22, 2021 to March 22, 2025. At June 30, 2020 , there were $104,181 in outstanding borrowings under the Credit Agreement, compared to $122,806 in outstanding borrowings at the same date in the prior year. During the nine months ended June 30, 2020 , the Board of Directors approved three quarterly cash dividends of $0.075 per share each. On July 29, 2020, the Board of Directors declared a quarterly cash dividend of $0.075 per share, payable on September 17, 2020 to shareholders of record as of the close of business on August 20, 2020. During the nine months ended June 30, 2020 , 340,775 shares, with a market value of $7,409 , or $21.74 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the nine months ended June 30, 2020 , an additional 3,307 shares, with a market value of $70 , or $21.22 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting. On August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter and nine months ended June 30, 2020, Griffon did not purchase any shares of common stock under these repurchase programs. As of June 30, 2020 , an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs. Through June 30, 2020, COVID-19 has not had a material impact on our operations, and we anticipate our current cash balances, cash flows from operations and sources of liquidity will be sufficient to meet our cash requirements. Payments related to Telephonics revenue are received in accordance with the terms of development and production subcontracts; certain of such receipts are progress or performance based payments. With respect to CPP and HBP, there have been no material adverse impacts on payment for sales. 52 Table of Contents A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the nine months ended June 30, 2020 : • The United States Government and its agencies, through either prime or subcontractor relationships, represented 9% of Griffon’s consolidated revenue and 65% of Telephonics’ revenue. • The Home Depot represented 18% of Griffon’s consolidated revenue, 28% of CPP's revenue and 12% of HBP’s revenue. No other customer exceeded 10% of consolidated revenue. Future operating results will continue to depend substantially on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of the volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and results of operations. Cash and Equivalents and Debt June 30, September 30, (in thousands) 2020 2019 Cash and equivalents $ 71,999 $ 72,377 Notes payables and current portion of long-term debt 9,235 10,525 Long-term debt, net of current maturities 1,123,365 1,093,749 Debt discount/premium and issuance costs 17,303 9,857 Total debt 1,149,903 1,114,131 Debt, net of cash and equivalents $ 1,077,904 $ 1,041,754 On June 22, 2020, Griffon completed the add-on offering through a private placement of $150,000 principal amount of its 5.75% senior notes due 2028, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% senior notes due in 2028, at par, completed on February 19, 2020 (collectively, the “Senior Notes”). Proceeds from the Senior Notes were used to redeem the $1,000,000 of 5.25% senior notes due 2022 (the “2022 Senior Notes"). As of June 30, 2020 , outstanding Senior Notes due totaled $1,000,000 ; interest is payable semi-annually on March 1 and September 1. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On April 22, 2020, Griffon exchanged substantially all of the $850,000 Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933, as amended (the "Securities Act"), via an exchange offer. Griffon intends to complete an offer to exchange the remaining $150,000 Senior Notes for substantially identical Senior Notes registered under the Securities Act during the fourth quarter of fiscal 2020. The fair value of the Senior Notes approximated $980,000 on June 30, 2020 based upon quoted market prices (level 1 inputs). In connection with these transactions, Griffon capitalized $15,289 of underwriting fees and other expenses incurred related to the issuance and exchange of the 2028 Senior Notes, which will amortize over the term of such terms. Furthermore, all of the obligations associated with the 2022 Senior Notes were discharged. Additionally, Griffon recognized a $7,925 loss on the early extinguishment of debt of the 5.25% $1,000,000 2022 Senior Notes, comprised primarily of the write-off of $6,725 of remaining deferred financing fees, $607 of tender offer net premium expense and $593 of redemption interest expense. On January 30, 2020, Griffon amended its revolving credit facility (as amended, the "Credit Agreement") to increase the maximum borrowing availability from $350,000 to $400,000 and extend its maturity date from March 22, 2021 to March 22, 2025. The amended agreement also modified certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $100,000 (increased from $50,000 ); a multi-currency sub-facility of $200,000 (increased from $100,000 ); and contains a customary accordion feature that permits us to request, subject to each lender's consent, an increase in the maximum aggregate amount that can be borrowed by up to an additional $100,000 (increased from $50,000 ). Borrowings under the Credit Agreement may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, 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. At June 30, 2020 , there were $104,181 of outstanding borrowings under the Credit 53 Table of Contents Agreement; outstanding standby letters of credit were $21,617 ; and $274,202 was available, subject to certain loan covenants, for borrowing at that date. In August 2016, and as amended on June 30, 2017, Griffon’s ESOP entered into a Term Loan with a bank (the "ESOP Agreement"). The Term Loan interest rate was LIBOR plus 3.00% . The Term Loan required quarterly principal payments of $569 with a balloon payment due at maturity. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon, which was funded with cash and a draw under its Credit Agreement. The internal loan interest rate is fixed at 2.91% , matures in June 2033 and requires quarterly payments of principal, currently $635 , and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at June 30, 2020 was $30,513 . Two of Griffon's subsidiaries have finance leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in 2021 and 2025 , respectively, and bear interest at fixed rates of approximately 5.0% and 2.9% , respectively. The Troy, Ohio lease is secured by a mortgage on the underlying real estate and is guaranteed by Griffon. The Ocala, Florida lease contains one five-year renewal option. At June 30, 2020 , $11,528 was outstanding, net of issuance costs. In November 2012, Garant G.P. (“Garant”) entered into a CAD 15,000 ( $10,974 as of June 30, 2020 ) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum ( 1.46% LIBOR USD and 1.56% Bankers Acceptance Rate CDN as of June 30, 2020 ). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At June 30, 2020 , there were no borrowings under the revolving credit facility with CAD 15,000 ( $10,974 as of June 30, 2020 ) available for borrowing. In July 2016 and as amended in March 2019, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement. The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 9,625 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.95% per annum ( 2.09% at June 30, 2020 ). During the quarter ended June 30, 2020 , the term loan balance was reduced by AUD 5,000 , from AUD 23,375 to AUD 18,375 with proceeds from an AUD 5,000 increase in the commitment of the receivables purchase line from AUD 10,000 to AUD 15,000 . The term loan had an outstanding balance of AUD 17,125 ( $11,761 as of June 30, 2020 ). The revolving facility and receivable purchase facility mature in March 2022, but are renewable upon mutual agreement with the lender. The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.9% and 1.35% , respectively, per annum ( 2.05% and 1.49% , respectively, at June 30, 2020 ). At June 30, 2020 , there were no borrowings under the revolver and the receivable purchase facility. The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. In July 2018, the AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 350 and GBP 83 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,700 and GBP 2,500 , respectively. The Term Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8% , respectively ( 2.33% and 1.88% at June 30, 2020 , respectively). The revolving facility matures in June 2021, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.75% ( 1.85% as of June 30, 2020 ). As of June 30, 2020 , the revolver had no outstanding balance while the term and mortgage loan balances amounted to GBP 15,398 ( $18,975 as of June 30, 2020). The revolver and the term loan are both secured by substantially all of the assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. An invoice discounting arrangement was canceled and replaced by the above loan facilities. Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of capital leases. At June 30, 2020 , Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Net Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 4.4x at June 30, 2020 . On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. As of June 30, 2020 , an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs. 54 Table of Contents During the quarter ended June 30, 2020, there were no shares withheld to settle employee taxes due upon the vesting of restricted stock. During the nine months ended June 30, 2020 , 340,775 shares, with a market value of $7,409 , or $21.74 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the nine months ended June 30, 2020 , an additional 3,307 shares, with a market value of $70 , or $21.22 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting. During 2019, the Company declared and paid regular cash dividends totaling $0.29 per share. During the nine months ended June 30, 2020 , the Board of Directors approved and paid three quarterly cash dividends of $0.075 per share each. 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 July 29, 2020, the Board of Directors declared a quarterly cash dividend of $0.075 per share, payable on September 17, 2020 to shareholders of record as of the close of business on August 20, 2020. During the nine months ended June 30, 2020 and 2019, Griffon used cash for discontinued operations from operating activities of $2,481 and $3,874 , respectively, primarily related to the settling of certain liabilities and environmental costs associated with the Plastics business and Installations Services. CRITICAL ACCOUNTING POLICIES The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2019 . Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2019 . In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon. RECENT ACCOUNTING PRONOUNCEMENTS The FASB issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the “Company” or “Griffon”) operates and the United States and global economies. Statements in this Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings from cost control, restructuring, integration and disposal initiatives; the ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which 55 Table of Contents Telephonics supplies products, including as a result of defense budget cuts or other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost or lack of availability of raw materials such as resin, wood and steel, components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; unfavorable results of government agency contract audits of Telephonics; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; the impact of COVID-19 on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers and suppliers; Griffon's ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, the Tax Cuts Jobs Act of 2017. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2019 . Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.