What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-11-13 compared with 2019-11-22 · 280 added, 331 removed, 358 unchanged (63% of the section changed)

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and is listed on the New York Stock Exchange (NYSE:GFF).

On June 4, 2018, Clopay Corporation ("Clopay") (previously known as Clopay Building Products Company, Inc.) acquired CornellCookson, Inc.

In August 2020 Griffon Corporation completed the public offering of 8,700,000 shares of our common stock for total net proceeds of $178,165 (the "Public Offering").

The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement.

The Company intends to use the remainder of the proceeds for general corporate purposes, including to expand its current business through acquisitions of, or investments in, other businesses or products.

On February 19, 2020, Griffon issued, at par, $850,000 of 5.75% Senior Notes due in 2028 and on June 8, 2020 Griffon issued an additional $150,000 of notes under the same indenture at 100.25% of par (collectively the "2028 Senior Notes").

Proceeds from the 2028 Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022 (the "2022 Senior Notes").

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 (the "Credit Agreement").

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 June 4, 2018, Clopay Corporation ("Clopay") acquired CornellCookson, Inc.

("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for an effective purchase price of approximately $170,000.

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See Note 3, Acquisitions.

In the fourth quarter of fiscal 2019, Griffon modified its reportable segment structure to provide investors with improved visibility after a series of portfolio repositioning actions which included the divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into The AMES Companies, Inc.

(“AMES”), and the acquisition of CornellCookson by Clopay.

Griffon now reports its operations through three reportable segments:

the newly formed Consumer and Professional Products segment, which consists of AMES;

Home and Building Products, which consists of Clopay;

and Defense Electronics, which consists of Telephonics Corporation.

Griffon currently conducts its continuing operations through three reportable segments:

Impact of COVID-19 on Our Business

The health and safety of our employees, our customers and their families is a high priority for Griffon.

As of the date of this filing, all of Griffon's facilities are fully operational.

We 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.

We manufacture a substantial majority of the products that we sell, with the majority of our manufacturing activities conducted in the United States.

As a result, we have been able to mitigate the adverse impact of the COVID-19 pandemic on the global supply chain.

During fiscal 2020 and through the date of this filing, all of our businesses have experienced normal or better order patterns compared with the same time period last year, with the exception of HBP's sectional door business, which experienced an 18% decline in orders in April but subsequently rebounded.

Our supply chains have not experienced significant disruption, and at this time we do not anticipate any such significant disruption in the near term.

Although many U.S.

states lifted initial executive orders issued earlier in the year requiring all workers to remain at home unless their work is critical, essential, or life-sustaining, some states and localities have recently put in place new restrictions regarding the operation of many types of businesses, or have tightened up restrictions already in place, in response to the recent worsening of the COVID-19 outbreak .

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) Our Defense Electronics segment ("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.

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 3) CPP tools and storage products provide critical support for the national infrastructure including construction, maintenance, manufacturing and natural disaster recovery, 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 currently fully 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 Credit Agreement by $50,000, to $400,000 (of which $370,275 was available at September 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 5.75% 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.

In August 2020, we completed a Public Offering of 8,700,000 shares of our common stock for total net proceeds of $178,165 ;

a portion of these net proceeds were used to repay outstanding borrowing under our Credit Agreement.

At September 30, 2020 Griffon had cash and equivalents of $218,089.

We will continue to actively monitor the situation and may take further actions that impact our operations as may be required by federal, state or local authorities or that we determine is 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 businesses, 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.

Griffon conducts its operations through three reportable segments:

Consumer and Professional Products ("CPP") conducts its operations through AMES.

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2020 Compared to 2019

Revenue from continuing operations for the year ended September 30, 2019 was $2,209,289 , compared to $1,977,918 in the year ended September 30, 2018, an increase of 12% , primarily driven by increased revenue at CPP and HBP from both recent acquisitions and organic growth, and increased revenue at Defense Electronics.

Revenue from continuing operations for the year ended September 30, 2020 of $2,407,522 increased 9% compared to $2,209,289 in the year ended September 30, 2019, primarily driven by increased consumer demand for home improvement projects at both CPP and HBP, and increased revenue at DE.

Organic growth was 8%.

Gross profit for 2020 was $641,426 compared to $583,474 in 2019, with gross margin as a percent of sales (“gross margin”) of 26.6% in 2020, compared to 26.4% in 2019.

In 2020, Gross profit included restructuring charges of $4,159.

Excluding restructuring charges in 2020, Gross profit would have been $645,586 or 26.8% of revenue compared to $583,474 or 26.4% in the prior year.

Selling, general and administrative (“SG&A”) expenses from continuing operations in 2020 of $486,398 increased 9% from 2019 of $447,163 .

The 2020 SG&A expenses included restructuring charges of $11,630 , acquisition costs of $2,960 and the reversal of contingent consideration related to the Kelkay acquisition of $1,733 .

The 2019 SG&A expenses include income from the reversal of contingent consideration related to the Kelkay acquisition of $1,646 .

The 2018 SG&A expenses included acquisition costs of $7,597, special dividend ESOP charges of $3,220, cost of a life insurance benefit of $2,614 and secondary offering costs of $1,205.

Excluding these items from both periods the 2019 SG&A expenses increased 9% over 2018 primarily related to the June 4, 2018 acquisition of CornellCookson and increased distribution and related freight costs at HBP due to increased sales volume.

SG&A for 2019, as a percent of revenue, was 20.8% compared to 22.1% in 2018, or 20.9% and 21.3%, respectively, excluding the items detailed above.

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

Other income (expense) from continuing operations of $4,173 in 2019 and $4,880 in 2018 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non-functional currencies, and net gains or losses on investments.

Additionally, Other income (expense) included net periodic benefit plan income of $3,148 and $3,649, respectively.

Effective October 1, 2018, these benefit amounts are required to be included in other income;

in the past these were in Cost of goods and services and Selling, general and administrative expenses as a result of implementation of the new accounting standard on pensions.

All periods have been restated.

See Note 11 - Employee Benefit Plans for further information on the implementation of this guidance.

Excluding these items from both periods, the 2020 SG&A expenses would have been $473,541, or 19.7% of revenue compared to $448,809 or 20.3%, with the increase in expenses primarily due to the Apta acquisition and increased management incentives, partially offset by COVID-19 related reduced travel expenses.

Interest expense from continuing operations in 2020 of $66,544 decreased 2% compared to 2019 of $68,066 , primarily as a result of decreased outstanding borrowings and variable interest rates on our Revolving Credit Facility.

Other income (expense) from continuing operations of $1,445 and $3,127 in 2020 and 2019 , respectively, includes $915 and $438 , respectively, of net currency exchange transaction losses from receivables and payables held in non-functional currencies, $184 and $(40) , respectively, of net gains or (losses) on investments, and $1,559 and $3,148 , respectively, of net periodic benefit plan income.

Additionally, in 2020 , Other income (expense) also includes a one-time technology recognition award for $700 .

Griffon reported pretax income from continuing operations for 2020 of $82,757 compared to $72,178 for 2019.

In 2019, the Company recognized a tax provision of 36.8% compared to 1.6% in 2018 .

In 2020, the Company recognized an effective income tax rate of 35.4% compared to 36.8% in 2019 .

The 2020 tax rate included $654 of discrete and certain other tax provisions, net, and other items that affect comparability, as listed below.

The 2019 tax rate included $2,035 of discrete and certain other tax provisions, net.

The 2018 tax rate included $9,384 of discrete and certain other tax benefits, net, primarily from the revaluation of deferred tax liabilities and the provisional amount recorded for the IRC section 965 transition tax on the untaxed foreign earnings net of foreign tax credits, related to the TCJA.

Excluding the discrete and certain other tax benefits, net, and certain other items from continuing operations, as listed below, the effective tax rates for 2019 and 2018 were 34.3% and 33.8% , respectively.

Excluding the discrete and certain other tax provisions, net, and other items that affect comparability, as listed below, the effective income tax rates for 2020 and 2019 were 32.2% and 34.3% , respectively.

These rates reflect the impact of tax reserves and changes in earnings mix between U.S.

Income from continuing operations for 2020 was $53,429 , or $1.19 per share, compared to $45,622 , or $1.06 per share in 2019.

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

The 2020 income from continuing operations included the following:

– Restructuring charges of $15,790 ( $11,865 , net of tax, or $0.26 per share);

– Loss from debt extinguishment $7,925 ( $6,190 , net of tax, or $0.14 per share);

– Acquisition costs of $2,960 ( $2,306 , net of tax, or $0.05 per share);

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

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

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

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

– Acquisition contingent consideration benefit of $1,733 ( $1,403 , net of tax, or $0.03 per share);

– Discrete and certain other tax provision, net, of $654 or $0.01 per share.

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

Excluding these items from both reporting periods, 2020 Income from continuing operations would have been $73,041 , or $1.62 per share compared to $46,324 , or $1.08 per share, in 2019 .

2019 Compared to 2018

Revenue from continuing operations for the year ended September 30, 2018 was $1,977,918, compared to $1,524,997 in the year ended September 30, 2017, an increase of 30%, primarily driven by increased revenue at CPP and HBP from both recent acquisitions and organic growth, partially offset by decreased revenue at Defense Electronics.

Gross profit for 2018 was $529,181 compared to $408,126 in 2017, with gross margin as a percent of sales (“gross margin”) of 26.8% in 2018, consistent with 2017.

Selling, general and administrative (“SG&A”) expenses from continuing operations in 2018 of $436,380 increased 28% from 2017 of $341,092.

Revenue from continuing operations for the year ended September 30, 2019 was $2,209,289, compared to $1,977,918 in the year ended September 30, 2018, an increase of 12%, primarily driven by increased revenue at CPP and HBP from both recent acquisitions and organic growth, and increased revenue at Defense Electronics.

Organic growth was 5%.

Gross profit for 2019 was $583,474 compared to $511,318 in 2018, with gross margin of 26.4% in 2019, compared to 25.9% in 2018.

SG&A expenses from continuing operations in 2019 of $447,163 increased 7% from 2018 of $418,517 .

The 2019 SG&A expenses include income from the reversal of contingent consideration related to the Kelkay acquisition of $1,646.

The 2018 SG&A expenses included acquisition costs of $6,097, special dividend ESOP charges of $3,220, cost of a life insurance benefit of $2,614 and secondary offering costs of $1,205.

The 2017 SG&A expenses included acquisition costs of $9,617 and contract settlement charges of $5,137.

Excluding these items from both periods, the 2018 SG&A expenses increased 29% over 2017 primarily related to incremental SG&A expenses associated with acquisitions.

SG&A for 2018, as a percent of revenue, was 22.1%, compared to 22.4% for 2017, or 21.3% and 21.4%, respectively, excluding the items detailed above.

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

Other income (expense) from continuing operations of $4,880 in 2018 and $1,113 in 2017 consists primarily of currency exchange transaction gains and losses from receivables and payables held in non-functional currencies, and net gains on investments.

Additionally, Other income (expense) included net periodic benefit plan income of $3,649 and $1,993, respectively.

Effective October 1, 2018, these benefits amounts are required to be included in other income;

in the past these were in Cost of goods and services and Selling, general and administrative expenses, as a result of implementation of the new accounting standard on pensions.

All periods have been restated.

See Note 11 - Employee Benefit Plans for further information on the implementation of this guidance.

Griffon reported pretax income from continuing operations of $33,810 for 2018 compared to $16,698 for 2017.

In 2018, the Company recognized a tax provision of 1.6% compared to 6.5% in 2017.

Excluding these items from both periods the 2019 SG&A expenses increased 11% over 2018 primarily related to the June 4, 2018 acquisition of CornellCookson and increased distribution and related freight costs at HBP due to increased sales volume.

SG&A for 2019, as a percent of revenue, was 20.3% compared to 20.5% in 2018, excluding the items detailed above.

Interest expense from continuing operations in 2019 of $68,066 increased 4% compared to 2018 of $65,568, primarily as a result of increased outstanding borrowings and interest rates on our Revolving Credit Facility.

Other income (expense) from continuing operations of $3,127 in 2019 and $4,880 in 2018, includes $438 and $200 , respectively, of currency exchange transaction losses from receivables and payables held in non-functional currencies, and $(40) and $1,184 , respectively, of net gains or (losses) on investments.

Additionally, Other income (expense) included net periodic benefit plan income of $3,148 and $3,649 in 2019 and 2018, respectively.

Griffon reported pretax income from continuing operations for 2019 of $72,178 compared to $33,810 for 2018.

In 2019, the Company recognized an effective income tax rate of 36.8% compared to 1.6% in 2018.

The 2019 tax rate included $2,035 of discrete and certain other tax provisions, net.

The 2017 tax rate included $8,274 of discrete and certain other tax benefits, net, related primarily to excess tax benefits from the vesting of equity awards within income tax expense, a federal domestic production activities deduction and a federal R&D credit.

These rates reflect the impact of tax reserves and changes in earnings mix between U.S.

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

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

The 2018 income from continuing operations included the following:

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

The 2017 Income from continuing operations included the following:

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

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

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

– Discrete and certain other tax benefits, net, of $9,384 or $0.22 per share, primarily from the revaluation of deferred

tax liabilities and the provisional amount recorded for the IRC section 965 transition tax on the untaxed foreign earnings net of foreign tax credits related to the TCJA.

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

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Adjusting items:

Restructuring charges

Loss from debt extinguishment

Acquisition costs

Contract settlement charges

Acquisition contingent consideration

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Adjusting items, net of tax:

Restructuring charges

Loss from debt extinguishment

Acquisition costs

Contract settlement charges

Acquisition contingent consideration

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REPORTABLE SEGMENTS

Griffon now reports its operations through three reportable segments:

the newly formed Consumer and Professional Products segment, which consists of AMES;

Home and Building Products, which consists of Clopay;

and Defense Electronics, which consists of Telephonics Corporation.

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

comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure).

Griffon believes this information is useful to investors for the same reason.

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2020 Compared to 2019

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

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

Depreciation and amortization increased $1,473 from 2018, primarily from acquisitions.

Strategic Initiative

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

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.

Second, certain CPP U.S.

operations will be consolidated to optimize facilities footprint and talent.

CPP revenue in 2020 increased $138,625 , or 14% , compared to 2019, primarily from a 12% increase in volume, due to increased consumer demand for home improvement initiatives across most of our geographic regions supplemented by COVID-19 stay at home orders, favorable price and mix of 1% and an incremental 2% revenue contribution from the Apta acquisition, partially offset by an unfavorable impact of foreign exchange of 1%.

Organic growth was 12%.

CPP Adjusted EBITDA in 2020 increased $13,376 or 15% to $104,053 compared to $90,677 in 2019.

The favorable variance resulted primarily from the increased revenue noted above, partially offset by increased tariffs, COVID-19 related inefficiencies and direct costs, and an unfavorable foreign exchange impact of 1%.

Direct COVID-19 related expenses totaled approximately $5,000 in 2020.

Segment depreciation and amortization increased $499 from the comparable prior year period primarily due to the onset of depreciation for new assets placed in service.

This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint.

Apta is expected to contribute $15,000 in revenue in the first 12 months after the acquisition.

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, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China.

The expanded focus of this initiative leverages the same three key development areas being executed within our U.S.

First, multiple independent information systems will be unified into a single data and analytics platform, which will serve the whole AMES global enterprise.

Second, certain AMES global operations will be consolidated to optimize facilities footprint and talent.

Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth.

The roll-out of the new business platform will occur over approximately a three-year period, with completion expected by the end of calendar 2022.

When fully implemented, these actions will result in an annual cash savings of $15,000 to $20,000, and a $20,000 to $25,000 reduction in inventory at current operating levels.

The cost to implement this new business platform, over the three-year duration of the project, will include approximately $35,000 of one-time charges and approximately $40,000 in capital investments.

The one-time charges are comprised of $16,000 of cash charges, which includes $12,000 personnel-related costs such as training, severance, and duplicate personnel costs as well as $4,000 of facility and lease exit costs.

Expanding the roll-out of the new business platform from our AMES U.S.

operations to include AMES’ global operations will extend the duration of the project by one year, with completion now expected by the end of calendar year 2023.

When fully implemented, these actions will result in annual cash savings of $30,000 to $35,000 (increased from $15,000 to $20,000 ) and a reduction in inventory of $30,000 to $35,000 (increased from $20,000 to $25,000 ), both based on fiscal 2020 operating levels.

The cost to implement this new business platform, over the duration of the project, will include one-time charges of approximately $65,000 (increased from $35,000 ) and capital investments of approximately $65,000 (increased from $40,000 ).

The one-time charges are comprised of $46,000 of cash charges, which includes $26,000 of personnel-related costs such as training, severance,

and duplicate personnel costs as well as $20,000 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 year ended September 30, 2020 CPP incurred pre-tax restructuring and related exit costs approximating $13,669, comprised of cash charges of $8,977 and non-cash, asset-related charges of $4,692;

the cash charges included $5,620 for one-time termination benefits and other personnel-related costs and $3,357 for facility exit costs.

During the year ended September 30, 2020, capital expenditures of $6,733 were driven by investment in CPP business intelligence systems and e-commerce facility.

Non-Cash Charges

Personnel related costs

Facilities, exit costs and other

Facility and other

Capital Investments

Domestic Expansion

Global Expansion

Total Anticipated Charges

Total 2020 restructuring charges

Estimate to Complete

2019 Compared to 2018

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

Organic growth was 2%.

2018 CM revenue was $311,568.

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

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

CPP Adjusted EBITDA in 2019 was $90,677 compared to $77,061 in 2018, primarily driven by the increased revenue as noted above, partially offset by increased material and tariff costs.

Depreciation and amortization increased $1,473 from 2018, primarily from acquisitions.

2018 and 2017 acquisitions

On February 13, 2018, AMES acquired Kelkay, a leading United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the UK and Ireland for approximately $56,118 (GBP 40,452), subject to contingent consideration of up to GBP 7,000 .

In 2019, GBP 1,300 was reversed into income as it was highly probable a portion of the contingent consideration would not be earned;

this benefit was excluded from CPP Adjusted EBITDA.

2018 Acquisitions

On February 13, 2018, AMES acquired Kelkay, a leading United Kingdom manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the UK and Ireland for approximately $56,118 (GBP 40,452) and contingent consideration of approximately GBP 7,000 , of which approximately GBP 2,200 was earned.

This acquisition broadened AMES' product offerings in the market and increased its in-country operational footprint.

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ClosetMaid, as expected, generated over $300,000 in revenue in the first twelve months after the acquisition.

On September 29, 2017, AMES Australia completed the acquisition of Tuscan Landscape Group Pty, Ltd.

("Tuscan Path"), a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products, for approximately $18,000 (AUD 22,250 ).

The acquisition of Tuscan Path broadens AMES' outdoor living and lawn and garden business, and will strengthen AMES' industry leading position in Australia.

Tuscan Path, as expected, generated approximately AUD 25,000 of revenue in the first twelve months after the acquisition.

On July 31, 2017, The AMES Companies, Inc.

acquired La Hacienda Limited, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $11,400 (GBP 9,175 ).

The acquisition of La Hacienda broadens AMES' global outdoor living and lawn and garden business and supports AMES' UK expansion strategy.

La Hacienda, as expected, generated approximately GBP 14,000 of revenue in the first twelve months after the acquisition.

Home and Building Products

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2020 Compared to 2019

HBP revenue in 2020 increased $53,673 , or 6%, compared to 2019, with 4% from volume and 2% from favorable mix and pricing.

HBP Adjusted EBITDA in 2020 increased 33,470, or 28% to $153,631 compared to $120,161 in 2019, 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 $2,000 in 2020.

Depreciation and amortization remained consistent with the prior year.

On January 31, 2019, Clopay announced a $14,000 investment in facilities infrastructure and equipment at its rolling steel manufacturing location in Mountain Top, Pennsylvania.

This project includes a 95,000 square foot expansion to the already existing 184,000 square foot facility, along with the addition of state-of-the-art manufacturing equipment.

Through this expansion, the Mountain Top location improved its manufacturing efficiency and shipping operations, as well as increased manufacturing capacity to support full-rate production of new and core products.

The project was completed at the end of calendar 2019.

2019 Compared to 2018

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

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Depreciation and amortization increased $4,617 from 2018, primarily from acquisitions.

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

This project includes a 90,000 square foot expansion to the already existing 184,000 square foot facility, along with the addition of state of the art manufacturing equipment.

Through this expansion, the CornellCookson Mountain Top location will improve its manufacturing efficiency and shipping operations, as well as increase manufacturing capacity to support full-rate production of new and core products.

For the year ended September 30, 2019, $6,300 of the $14,000 was expended on this project.

The project is expected to be completed by the end of calendar 2019.

2018 Compared to 2017

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

2018 CC revenue was $66,654.

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

Depreciation and amortization increased $2,377 from 2017, primarily from acquisitions.

2018 Acquisition

On June 4, 2018, Clopay completed the acquisition of CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for $180,000, excluding certain post-closing adjustments primarily related to working capital.

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2020 Compared to 2019

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

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

During 2019, Defense Electronics was awarded new contracts and incremental funding on existing contracts approximating $350,200 .

DE revenue in 2020 increased $5,935, or 2%, compared to 2019, primarily due to increased deliveries and increased volume on airborne and ground communications systems as well as airborne surveillance systems, partially offset by reduced volume on Multi-Mode airborne maritime surveillance radar systems.

DE Adjusted EBITDA in 2020 decreased $9,876, or 28% to $25,228 , compared to $35,104 in 2019, primarily due to program inefficiencies associated with certain radar programs, unfavorable program mix and increased operating expenses primarily due to bid and proposal activities and timing of research and development initiatives, partially offset by program efficiencies within airborne intercommunication surveillance systems.

Direct COVID-19 related expenses totaled approximately $1,000 in 2020.

Segment depreciation and amortization remained consistent with the prior year period.

During 2020, DE was awarded new contracts and incremental funding on existing contracts approximating $331,700 .

Contract backlog was $380,000 at September 30, 2020 with 67% expected to be fulfilled in the next 12 months;

backlog restated for the adoption of revenue recognition guidance on October 1, 2018 was $374,200 at September 30, 2018.

Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of the U.S.

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 Congress, in the case of U.S.

government agencies.

The increase in backlog was primarily due to various U.S.

and international contract awards associated with radar and surveillance opportunities.

2019 Compared to 2018

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

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

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

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

Restructuring

In September 2020, Telephonics initiated a Voluntary Employee Retirement Plan, which was subsequently followed by a reduction in force in November 2020, to improve efficiencies by combining functions and responsibilities.

The combined actions are expected to incur severance charges of approximately $4,500 , with $2,120 recognized in the fourth quarter, and the balance to be recognized in the first quarter of 2021.

At the conclusion of these actions, headcount is expected to be reduced by approximately 90 people.

In addition, during fiscal 2020 Telephonics commenced a facility project to consolidate three Long Island based facilities into two company owned facilities with a total cost of approximately $4.0 million primarily comprised of capital expenditures in 2021.

Unallocated Amounts

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Depreciation and amortization of $62,409 in 2020 compared to $61,848 in 2019;

the increase was primarily due to depreciation and amortization on assets acquired in acquisitions.

the increase was primarily due to depreciation for new assets placed in service.

Depreciation and amortization of $61,848 in 2019 compared to $55,803 in 2018;

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Comprehensive Income (Loss)

During 2020, total other comprehensive income (loss), net of taxes, of $(6,176) included a gain of $5,601 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian, British and Australian currencies, all in comparison to the U.S.

a $11,784 loss from Pension and other post-retirement benefits, primarily associated with a decrease in the assumed discount rate compared to 2019;

and a $7 gain on cash flow hedges.

During 2019, total other comprehensive income (loss), net of taxes, of $(31,804) included a loss of $8,460 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian, British and Australian currencies, all in comparison to the U.S.

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and a $289 loss on cash flow hedges.

During 2018, total other comprehensive income, net of taxes, of $26,369 included a gain of $14,866 related to the removal of Plastics' foreign currency translation loss, which is considered in the gain on the disposal of discontinued operations;

a loss of $5,463 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian, British and Australian currencies, all in comparison to the U.S.

a $16,381 gain from Pension and other post-retirement benefits, primarily associated with a $10,053 SERP benefit related to the passing of our Chairman of the Board and an increase in the assumed discount rate compared to 2017;

and a $585 gain on cash flow hedges.

DISCONTINUED OPERATIONS

During 2019, Griffon recorded an $11,050 charge ($8,335, net of tax) to discontinued operations.

The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $465,000 Plastics divestiture and included an additional reserve for a legacy environmental matter.

During 2019, $9,500 of this charge was paid.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Plastics and on February 6, 2018, completed the sale to Berry for approximately $465,000, net of certain post-closing adjustments.

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Plastics is a global leader in the development and production of embossed, laminated and printed specialty plastic films for hygienic, health-care and industrial products and sells to some of the world's largest consumer products companies.

Installation Services and Other Discontinued Activities

In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry and a range of related building products, primarily for the new residential housing market.

Griffon sold eleven units, closed one unit and merged two units into HBP.

Operating results of substantially this entire segment have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented;

Installation Services is excluded from segment reporting.

Griffon substantially concluded remaining disposal activities in 2009.

There was no reported revenue in 2019, 2018 and 2017.

During 2017, Griffon recorded $5,700 of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association claims (HOA) related to installation services.

At September 30, 2019, Griffon’s liabilities for Plastics, Installations Services and other discontinued operations primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves totaling liabilities of approximately $7,664 .

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

During 2019, Griffon recorded an $11,050 charge ($8,335, net of tax) to discontinued operations.

The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $465,000 Plastics divestiture and included an additional reserve for a legacy environmental matter.

At September 30, 2020 and 2019, Griffon’s liabilities for discontinued operations primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves totaling liabilities of approximately $10,811 and $7,664 , respectively.

See Note 7, Discontinued Operations.

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Cash provided by operating activities from continuing operations for 2020 was $137,029 compared to $113,958 in 2019 .

Cash provided by income from continuing operations, adjusted for non-cash expenditures, was offset by a net increase in working capital, primarily driven by increased inventory, partially offset by decreases in accounts receivable, contract costs and recognized income not yet billed and increases in accounts payable.

2018 included cash expenditures of $14,821 related to items that affect comparability, primarily related to acquisition diligence.

2019 did not include such expenditures.

During 2019, Griffon used $74,553 in investing activities from continuing operations compared to $2,574 provided in 2018.

Cash provided by income from continuing operations, adjusted for non-cash expenditures, was offset by a net increase in working

capital, primarily driven by increased accounts receivable and prepaid and other current assets, partially offset by decreases in inventory and increases in accrued liabilities.

During 2020, Griffon used $59,307 in investing activities from continuing operations compared to $74,553 in 2019.

Payments for acquired businesses totaled $10,531 in 2020 compared to $9,219 in 2019.

Payments for acquired businesses in 2019 consisted solely of a final working capital adjustment for CornellCookson of $9,219.

Payments for acquired businesses in 2018 were made to consummate the October 2, 2017 acquisition of ClosetMaid for approximately $185,700, inclusive of post-closing adjustments and excluding the estimated present value of tax benefits.

Additionally, on November 6, 2017, AMES acquired Harper for approximately $5,000, excluding certain post-closing adjustments, and on February 13, 2018, AMES acquired Kelkay for approximately $56,118 (GBP 40,452) subject to contingent consideration of up to GBP 7,000.

Lastly, on June 4, 2018, Clopay acquired CornellCookson for $180,000 , excluding the estimated present value of tax benefits and post-closing adjustments, primarily consisting of a working capital adjustment which were primarily settled in 2019.

The 2019 payment related to sale of business of $9,500 resulted from a purchase price adjustment to resolve a claim related to the $465,000 Plastics divestiture.

The 2018 Proceeds from sale of business resulted from the sale of Plastics.

Insurance payment of $10,604 in 2019 and insurance proceeds of $8,254 in 2018 pertain to the settlement of a life insurance benefit.

The 2018 insurance proceeds were reclassified from operating activities to investing activities to comply with accounting guidance on the Statement of Cash Flows classification of certain cash receipts and cash payments.

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 $465,000 PPC divestiture and an insurance payment of $10,604 pertaining to the settlement of a certain life insurance benefit.

In 2020 , capital expenditures, net, totaled $48,646 compared to $45,081 in 2019.

Cash used by financing activities from continuing operations in 2019 totaled $34,976 compared to a source of cash of $39,065 in 2018.

Cash used by financing activities from continuing operations in 2019 consisted primarily of net borrowings of long term debt and payments of dividends.

Cash provided by financing activities from continuing operations in 2018 included an add-on offering of $275,000 aggregate principal amount of 5.25% senior notes due 2022, which was completed on October 2, 2017, the proceeds of which were used to purchase ClosetMaid, as well as for general corporate purposes (including reducing the outstanding balance of Griffon's Revolving Credit Facility (the "Credit Agreement")).

Cash provided by financing activities from continuing operations in 2020 totaled $68,190 compared to cash used in 2019 of $34,976 .

In August 2020, Griffon Corporation completed the Public Offering of 8,700,000 shares of our common stock for total net proceeds of $178,165 .

The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement.

At September 30, 2020, there were $12,858 in outstanding borrowings under the Credit Agreement, compared to $50,000 in outstanding borrowings at the same date in 2019.

In March 2019, Griffon borrowed approximately $34,000 under the Credit Agreement and replaced the third party lender under the ESOP loan.

Additionally, 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, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% Senior Notes, at par, completed on February 19, 2020.

Proceeds from the Senior Notes were used to redeem the $1,000,000 of 2022 Senior Notes.

Cash provided by financing activities in the current period also included financing payments of $17,384 primarily associated with the redemption of the $1,000,000 of 2022 Senior Notes;

and the amendment and extension of the Company's revolving credit facility which increased the maximum borrowing availability from $350,000 to $400,000 and extended its maturity date from March 22, 2021 to March 22, 2025.

During the year ended September, 30, 2020, COVID-19 did not had a material impact on our operations, and we anticipate our current cash balances, cash flows from operations and sources of liquidity including proceeds received from the August 2020 Public Offering will be sufficient to meet our cash requirements for the foreseeable future.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock.

Under these share repurchase programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions.

During 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share.

During 2020, Griffon did not purchase any shares of common stock under these repurchase programs.

At September 30, 2020, $57,955 remains under Griffon's Board authorized repurchase programs.

In addition to the repurchases under Board authorized programs, during 2019 , 85,847 shares, with a market value of $1,059 , or $12.34 per share, were withheld to settle employee taxes due upon the vesting of restricted stock and were added to treasury stock.

During 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 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 Board of Directors approved four quarterly cash dividends each for $0.0725 per share.

During 2020 , the Board of Directors approved four quarterly cash dividends each for $0.0750 per share, totaling $0.30.

On November 12, 2020, the Board of Directors declared a cash dividend of $0.08 per share, payable on December 17, 2020 to shareholders of record as of the close of business on November 25, 2020.

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Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations.

In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S taxes to repatriate these funds (unless U.S.

In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S taxes to repatriate these funds (unless applicable U.S.

taxes have already been paid).

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certain of such receipts are progress or performance based payments.

With respect to CPP and HBP, uncollected receivables have been immaterial in amount.

With respect to CPP and HBP, there have been no material adverse impacts on payment for sales.

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

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

Government and its agencies, through prime and subcontractor relationships, represented 10% of Griffon’s consolidated revenue and 69% of DE revenue.

Home Depot represented 17% of Griffon’s consolidated revenue, 27% of CPP's revenue and 12% of HBP's revenue.

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Debt, net of cash and equivalents

On October 2, 2017, in an unregistered offering through a private placement under Rule 144A, Griffon completed the add-on offering of $275,000 principal amount of its 5.25% senior notes due 2022, at 101.0% of par, to Griffon's previously issued $125,000 principal amount of its 5.25% senior notes due 2022, at 98.76% of par, completed on May 18, 2016 and $600,000 5.25% senior notes due in 2022 , at par, which was completed on February 27, 2014 (collectively the “Senior Notes”).

On June 22, 2020, in an unregistered offering through a private placement, Griffon completed the add-on offering of $150,000 principal amount of its 5.75% Senior Notes, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% Senior Notes, at of par, completed on February 19, 2020.

Proceeds from the Senior Notes were used to redeem the $1,000,000 of 5.25% 2022 Senior Notes.

As of September 30, 2020, outstanding Senior Notes due totaled $1,000,000 ;

interest is payable semi-annually on March 1 and September 1.

The net proceeds of the $275,000 add-on offering were used to acquire ClosetMaid, with the remaining proceeds used to pay down outstanding loan borrowings under Griffon's Revolving Credit Facility (the "Credit Agreement").

The net proceeds of the previously issued $125,000 add-on offering were used to pay down outstanding revolving loan borrowings under the Credit Agreement.

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

In connection with the issuance of the Senior Notes, all obligations under the $550,000 of 7.125% senior notes due in 2018 were discharged.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions.

On February 5, 2018, July 20, 2016 and June 18, 2014, Griffon exchanged all of the $275,000, $125,000 and $600,000 Senior Notes, respectively, for substantially identical Senior Notes registered under the Securities Act of 1933 via an exchange offer.

The fair value of the Senior Notes approximated $1,010,000 on September 30, 2019 based

upon quoted market prices (level 1 inputs).

In connection with the issuance and exchange of the $275,000 senior notes, Griffon capitalized $8,472 of underwriting fees and other expenses;

this is in addition to the $13,329 capitalized under previously issued $725,000 Senior Notes.

All capitalized fees for the Senior Notes will amortize over the term of the notes and, at September 30, 2019, $9,175 remained to be amortized.

On March 22, 2016, Griffon amended and restated the Credit Agreement to increase the commitments under the credit facility from $250,000 to $350,000 , extend its maturity from March 13, 2020 to March 22, 2021, and modify certain other provisions of the facility.

On October 2, 2017 and on May 31, 2018, Griffon amended the Credit Agreement in connection with the ClosetMaid and the CornellCookson acquisitions, respectively, to, among other things, modify the net leverage covenant.

On February 22, 2019, Griffon further amended the Revolving Credit Facility to, among other things, reflect changes in the lending group and certain corresponding changes in various administrative roles under the Revolving Credit Facility, make conforming administrative and technical changes and reflect changes in law.

The facility includes a letter of credit sub-facility with a limit of $50,000 and a multi-currency sub-facility of $100,000 .

On April 22, 2020 and August 3, 2020, Griffon exchanged substantially all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933, as amended (the "Securities Act"), via an exchange offer.

The fair value of the 2028 Senior Notes approximated $1,040,000 on September 30, 2020 based upon quoted market prices (level 1 inputs).

In connection with these transactions, Griffon capitalized $16,448 of underwriting fees and other expenses incurred related to the issuance and exchange of the Senior Notes, which will amortize over the term of such notes, and, at September 30, 2020, $15,376 remained to be amortized.

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 Credit Agreement to increase the maximum borrowing availability from $350,000 to $400,000 , extend its maturity from March 22, 2021 to March 22, 2025 and modify 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 );

and a multi-currency sub-facility of $100,000 .

The Credit Agreement provides for same day borrowings of base rate loans.

Borrowings under the Credit Agreement may be repaid and re-borrowed at any time, subject to final maturity of the facility or the occurrence of an event of default under the Credit Agreement.

Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, in each case without a floor, plus an applicable margin, which adjusts based on financial performance.

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 0.75% for base rate loans and 1.75% for LIBOR loans.

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and $370,275 was available, subject to certain loan covenants, for borrowing at that date.

On December 21, 2009, Griffon issued $100,000 principal of 4% convertible subordinated notes due 2017 (the “2017 Notes”).

On July 14, 2016, Griffon announced that it would settle, upon conversion, up to $125,000 of the conversion value of the 2017 Notes in cash, with amounts in excess of $125,000 , if any, to be settled in shares of Griffon common stock.

On January 17, 2017, Griffon settled the convertible debt for $173,855 with $125,000 in cash, utilizing borrowings under the Credit Agreement, and $48,858 , or 1,954,993 shares of common stock issued from treasury.

In September 2015 and March 2016, Griffon entered into mortgage loans in the amounts of $32,280 and $8,000 , respectively, that were due to mature in September 2025 and April 2018, respectively.

The mortgage loans were secured and collateralized by four properties occupied by Griffon's subsidiaries and were guaranteed by Griffon.

The loans had an interest rate of LIBOR plus 1.50% .

The loans were paid off during 2018.

In August 2016, Griffon’s ESOP entered into an agreement that refinanced the existing ESOP loan into a new Term Loan in the amount of $35,092 (the "Agreement").

The Agreement also provided for a Line Note with $10,908 available to purchase shares of Griffon common stock in the open market.

During 2017, Griffon's ESOP purchased 621,875 shares of common stock for a total of $10,908 or $17.54 per share, under a borrowing line that had then been fully utilized.

On June 30, 2017, the Term Loan and Line Note were combined into a single Term Loan.

At September 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 3.4x at September 30, 2020.

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 and a balloon payment due at maturity.

As a result of the special cash dividend of $1.00 per share, paid on April 16, 2018, the outstanding balance of the Term Loan was reduced by $5,705.

The Term Loan 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 on its $350,000 credit facility.

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.

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The amount outstanding on the internal loan at September 30, 2020 was $29,878 .

Two Griffon subsidiaries have capital leases outstanding for real estate located in Troy, Ohio and Ocala, Florida.

Two Griffon 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 5.6% , respectively.

The Troy, Ohio lease is secured by a mortgage on the underlying real estate and is guaranteed by Griffon.

The Troy, Ohio lease is secured by a mortgage on the real estate and is guaranteed by Griffon.

The Ocala, Florida lease contains two five-year renewal options.

As of September 30, 2020, $17,188 was outstanding, net of issuance costs.

Refer to Note 22 - Leases for further details.

In November 2012, Garant G.P.

(“Garant”) entered into a CAD 15,000 ( $11,315 as of September 30, 2019) revolving credit facility.

(“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ( $11,210 as of September 30, 2020) revolving credit facility.

The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum ( 1.44% LIBOR USD and 1.55% Bankers Acceptance Rate CDN as of September 30, 2020 ).

The revolving facility matures in October 2022.

is required to maintain a certain minimum equity.

Garant is required to maintain a certain minimum equity.

As of September 30, 2020 , there were no borrowings under the revolving credit facility with CAD 15,000 ( $11,210 as of September 30, 2020 ) available for borrowing.

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 30,000 term loan and an AUD 10,000 revolver.

The term loan refinanced two existing term loans and the revolver replaced two existing lines.

In December 2016, the amount available under the revolver was increased from AUD 10,000 to AUD 20,000 and, in March 2017 and September 2017, the term loan commitment was increased by AUD 5,000 and AUD 15,000, respectively.

In March 2019, the term loan commitment was reduced by AUD 10,000 with proceeds from a receivable purchase agreement in the amount of AUD 10,000.

The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 13,375 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.90% per annum ( 2.85% at September 30, 2019 ).

In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement;

the agreement was amended in March 2019.

As amended, 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 September 30, 2020 ).

During the year ended September 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 .

As of September 30, 2020 , the term loan had an outstanding balance of AUD 15,875 ( $11,287 as of September 30, 2020).

The revolving and receivable purchase facility matures in March 2020, but are renewable upon mutual agreement with the lender.

The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.8% and 1.0%, respectively, per annum ( 2.81% and 2.01% at September 30, 2019).

At September 30, 2019, there was AUD 16,000 ($10,816 at September 30, 2019) under the revolver and the receivable purchase facility had an outstanding balance of AUD 10,000 ( $6,760 at September 30, 2019).

The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries.

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 ( 2.04% and 1.49% , respectively, at September 30, 2020).

At September 30, 2020, there were no balances outstanding under the revolver and the receivable purchase facility.

The revolver, receivable purchase facility and term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries.

Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

In July 2018, the AMES Companies UK Ltd and its subsidiaries ("AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver.

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 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349 , respectively.

The Term Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8% , respectively (3.01% and 2.56% at September 30, 2019, respectively).

The revolving facility matures in June 2020, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.5% (2.25% as of September 30, 2019).

The term loan and mortgage loan accrue interest at the GBP LIBOR Rate plus 2.25% and 1.8% , respectively ( 2.30% and 1.85% at September 30, 2020, respectively).

The revolving facility matures in May 2021, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.5% ( 1.85% as of September 30, 2020).

As of September 30, 2020, the revolver had no outstanding balance while the term and mortgage loan balances amounted to GBP 15,398 ( $19,799 as of September 30, 2020).

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An invoice discounting arrangement was canceled and replaced by the above loan facilities.

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

At September 30, 2019 , Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

Net Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 4.8x at September 30, 2019.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock.

Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions.

During 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $372 or $9.92 per share.

At September 30, 2019, $57,955 remains under Griffon's Board authorized repurchase programs.

Furthermore, during 2019, an additional 3,861 shares, with a market value of $47, or $12.16 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting.

During 2019, 2018 and 2017, the Company declared and paid dividends totaling $0.29 per share, $0.28 per share and $0.24 per share, respectively.

In addition, on March 7, 2018, the Board of Directors declared a special cash dividend of $1.00 per share paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018.

The Company currently intends to pay dividends each quarter;

however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends.

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

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

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

During 2020 , Griffon used cash for discontinued operations from operating activities of $2,577 , primarily related insurance claims, warranty and environmental reserves.

Contractual Obligations

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Interest expense

Rental commitments

Operating lease obligations

Purchase obligations (b)

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______________

Included in long-term debt are capital leases of:

Included in long-term debt are finance leases of:

$4,282 (less than 1 year), $5,070 (1-3 years), $4,193 (3-5 years) and $9,850 (more than 5 years).

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Telephonics may enter into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to obtaining orders for its products and services from customers in foreign countries.

These agreements promote investment in the country, and may be satisfied through activities that do not require Griffon to use its cash, including transferring technology, providing manufacturing and other consulting support.

These agreements may also be satisfied through the use of cash for such activities as purchasing supplies from in-country vendors, setting up support centers, research and development investments, acquisitions, and building or leasing facilities for in-country operations, if applicable.

These agreements promote investment in the applicable country, and Telephonics' obligations under these agreements may be satisfied through activities that do not require Griffon to use its cash, including transferring technology, providing manufacturing and other consulting support.

The obligations under these agreements may also be satisfied through the use of cash for such activities as purchasing supplies from in-country vendors, setting up support centers, research and development investments, acquisitions, and building or leasing facilities for in-country operations, if applicable.

The amount of the offset requirement is determined by contract value awarded and negotiated percentages with customers.

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Historically, Telephonics has not been required to pay any such penalties and as of September 30, 2020 , no such penalties are estimable or probable.

ACCOUNTING POLICIES AND PRONOUNCEMENTS

Critical Accounting Policies

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the U.S.

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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.

and assessing the accounting treatment for commitments and contingencies.

Actual results may materially differ from these estimates.

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Revenue Recognition

On October 1, 2018, the Company adopted the requirements of Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective method applied to those contracts that were not completed as of October 1, 2018.

The Company’s comparative consolidated results over the prior period have not been adjusted and continue to be reported under previously issued guidance, ASC 605 - Revenue Recognition, which required that revenue was accounted for when the earnings process was complete.

This accounting standard did not materially impact the Company’s revenue recognition practices in our CPP and HBP Segments, however, it impacted revenue recognition practices in our Defense Electronics Segment.

The impact of adopting this accounting standard was not material to the Company’s consolidated financial statements as of and for the year ended September 30, 2019.

Under the modified retrospective method, the Company recognized the cumulative effect of initially applying this accounting standard as an adjustment to the opening balance in retained earnings of approximately $5,618 as of October 1, 2018, primarily relating to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and / or no right to payment.

For these contracts, the Company now recognizes revenue at a point in time, rather than over time as this measure more accurately depicts the transfer of control to the customer relative to the goods or services promised under the contract.

The Company’s accounting policy has been updated to align with the new standard to recognize revenue when the following criteria are met:

1) Contract with the customer has been identified;

2) Performance obligations in the contract have been identified;

3) Transaction price has been determined;

4) Transaction price has been allocated to the performance obligations;

and 5) Revenue is recognized when (or as) performance obligations are satisfied.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC Topic 606.

Effective October 1, 2018, the Company adopted Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

Our statement of operations for the year ended September 30, 2020 and 2019 and our balance sheet as of September 30, 2020 and 2019 are presented under ASC 606, while our statement of operations for the year ended September 30, 2018 is presented under ASC 605, Revenue Recognition.

Under ASC Topic 606, performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC Topic 606.

A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable.

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These contracts require judgment in determining the number of performance obligations.

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

Less than 20% of the Company’s performance obligations are recognized over time or under the percentage-of-completion method that relate to prime or subcontractors from contract awards with the U.S.

Government, as well as foreign governments and other commercial customers within our Defense Electronics Segment.

Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period.

We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an appropriate measure of progress towards satisfaction of performance obligations, as it most accurately depicts the progress of our work and transfer of control to our customers.

For contracts with multiple performance obligations, judgment is required to determine whether performance obligations specified in these contacts are distinct and should be accounted for as separate revenue transactions for recognition purposes.

In these types of contracts, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation.

The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.

The transaction price includes variable consideration, such as discounts and volume rebates, when it is probable that a significant reversal of revenue recognized will not occur.

Variable consideration is determined using either the expected value or the most likely amount of consideration to be received based on historical experience and the specific facts and circumstances at the time of evaluation.

Revenue from CPP and HBP Segments

A majority of the CPP and HBP Segments revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly.

Approximately 86% of the Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components primarily within the CPP and HBP Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment.

A majority of CPP's and HBP's revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly.

Payment terms generally range between 15 to 90 days and vary by the location of the business, the type of products manufactured to be sold and the volume of products sold, among other factors.

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Griffon provides for sales returns and allowances based upon historical returns experience.

The Company includes shipping costs billed to customers in revenue and the related shipping costs in Cost of Goods and Services.

The majority of the Company’s contracts in the CPP and HBP Segments offer assurance-type warranties in connection with the sale of a product to a customer.

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Shipping and handling charges are not considered a separate performance obligation.

If revenue is recognized for a good before it is shipped and handled, the related shipping and handling costs must be accrued.

Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue.

The Company's policies related to shipping, handling and taxes have not changed with the adoption of ASC 606.

Revenue from Defense Electronics Segment

The Company’s Defense Electronics segment earns a substantial portion of its revenue as either a prime contractor or subcontractor from contract awards with the U.S.

Government, as well as foreign governments and other, commercial, customers.

Approximately 14% of the Company’s performance obligations are recognized over time and relate to prime or subcontractors from contract awards with the U.S.

Government, as well as foreign governments and other commercial customers within our DE Segment.

Revenue recognized over time is generally accounted for using an input measure to determine progress completed at the end of the period.

We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers.

The Company’s DE Segment earns a substantial portion of its revenue as either a prime contractor or subcontractor from contract awards with the U.S.

Government, as well as foreign governments and other commercial customers to design, develop and manufacture highly sophisticated intelligence, surveillance and communications solutions.

These contracts are typically long-term in nature, usually greater than one year, and do not include a material long-term financing component, either implicitly or explicitly.

Revenue and profits from such contracts are recognized under the percentage-of-completion (over time) method of accounting.

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

Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods.

Revenue and profits from such contracts are recognized over time as work is performed because control of the work in process transfers continuously to the customer.

Government contracts, the continuous transfer of control to the customer is supported by contract clauses that provide for:

(i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative use to us.

Foreign government and certain commercial contracts contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for product or services that do not have alternative use to us.

Revenue and profits on fixed-price and cost-plus contracts that include performance obligations satisfied over time are 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.

Accounting for the sales and profits on performance obligations for which progress is measured using the cost-to-cost 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.

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The impact of such adjustments to estimates is made on a cumulative basis in the period when such information has become known.

In 2019, 2018 and 2017, income from operations included net favorable/(unfavorable) catch-up adjustments approximating $(4,500) , $1,400 and $600 , respectively.

The 2020, 2019, and 2018 income from operations included net favorable/(unfavorable) catch-up adjustments approximating $(10,650) , $(4,500) and $1,400 , respectively.

Gross profit is impacted by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions.

Revenue and profits on cost-reimbursable type contracts are recognized as allowable costs and are incurred on the contract at an amount equal to the allowable costs plus the estimated profit on those costs.

The estimated profit on a cost-reimbursable contract may be fixed or variable based on the contractual fee arrangement.

Incentive and award fees on these contracts are recorded as revenue when the criteria under which they are earned are reasonably assured of being met and can be estimated.

The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price.

To the extent actual costs vary from the estimates upon which the price was negotiated, more or less profit will be generated, or a loss could be incurred.

Cost-reimbursable type contracts provide for the payment of allowable costs incurred on the contract plus the estimated profit on those costs.

We provide our products and services under cost-plus-fixed-fee arrangements.

The fixed fee is negotiated at the inception of the contract and that fixed-fee does not vary with actual costs.

For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable.

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This loss had an immaterial impact on Griffon's Consolidated Financial Statements.

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

Substantially all of Telephonics’ U.S.

Government end-user contracts contain a termination for convenience clause, regardless whether Telephonics is the prime contractor or the subcontractor.

This clause generally entitles Telephonics, upon a termination for convenience, to receive the purchase price for delivered items, reimbursement of allowable work-in-process costs, and an allowance for profit.

Allowable costs would include the costs to terminate existing agreements with suppliers.

Contract modifications routinely occur to account for changes in contract specifications or requirements.

Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract.

Contract modifications for goods or services that are not distinct are accounted for as part of the existing contract on a cumulative catch-up basis.

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

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Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

As required under GAAP, goodwill and indefinite-lived intangibles are reviewed for impairment annually, for Griffon as of September 30, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using discounted future cash flows for each reporting unit.

The testing of goodwill and indefinite-lived intangibles for impairment involves significant use of judgment and assumptions in the determination of a reporting unit’s fair market value.

Based upon the results of the annual impairment review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, and no impairment existed as of September 30, 2019.

See Note 1, Description of Business and Summary of Significant Accounting Policies for a further discussion of our goodwill impairment testing process and methodology.

We review goodwill and indefinite-lived intangibles for impairment at least annually in the fourth quarter, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below the carrying amount.

events or changes in circumstance include significant deterioration in overall economic conditions, changes in the business climate in which our reporting units operate, a decline in our market capitalization, operating performance indicators, when some portion of a reporting unit is disposed of or classified as held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in operating segments.

We had three reporting units at September 30, 2020 and 2019, which are our operating segments.

We use both qualitative and quantitative approaches when testing goodwill and indefinite-lived intangibles for impairment.

When determining the approach to use, we consider the current facts and circumstances of each reporting unit, as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessment.

In addition, our qualitative approach evaluates industry and market conditions and various events impacting a reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment in which our reporting units operate and other reporting unit specific events and circumstances.

If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary.

However, if a quantitative assessment is necessary, we use the income approach methodology of valuation that includes the present value of expected future cash flows.

We performed a quantitative annual impairment test as of September 30, 2019, and an interim quantitative impairment test as of March 31, 2020, to assess the impact of the global outbreak of COVID-19, using discounted future cash flows for each reporting unit, which did not result in impairments to goodwill.

The more significant assumptions used for the interim impairment test as of March 31, 2020 were a five-year cash flow projection and a 3.0% terminal value to which discount rates between 7.1% and 9.0% 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.

We performed a qualitative assessment as of September 30, 2020, as the estimated fair values of each reporting unit significantly exceeded the carrying value based on our most recent quantitative assessment, which was performed as of March 31, 2020.

Our qualitative assessment determined that indicators that the fair value of each reporting unit was less than the carrying value were not present.

With respect to indefinite-lived intangibles we performed a quantitative annual impairment test as of September 30, 2019, and an interim quantitative impairment test as of March 31, 2020, to assess the impact of the global outbreak of COVID-19, using a relief from royalty method, neither of which resulted in an impairment.

We performed a qualitative assessment as of September 30, 2020 considering all the above factors and determined that indefinite-lived intangibles fair values were greater than their book values.

Long-lived amortizable intangible assets, such as customer relationships and software, and tangible assets, primarily property, plant and equipment, are amortized over their expected useful lives, which involve significant assumptions and estimates.

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Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside of Griffon’s control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of Griffon’s reporting units, which could result in an impairment charge in the future.

On October 1, 2019, the Company adopted the Accounting Standards Codifications ("ASC") Topic 842, Leases, which requires the recording of operating lease Right-of-Use ("ROU") assets and operating lease liabilities.

Finance leases were not impacted by the adoption of ASC Topic 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC Topic 840.

The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification.

We also elected a practical expedient to determine the reasonably certain lease term.

The Company applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted.

As a result, upon adoption, we have recognized ROU assets of $163,552 and lease liabilities of $163,676 associated with our operating leases.

The standard had no material impact to retained earnings or on our Consolidated Statements of Income or Consolidated Statements of Cash Flows.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

We use the implicit rate when readily determinable.

For leases existing as of October 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate.

Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

The Company determines if an arrangement is a lease at inception.

The ROU assets and short and long-term liabilities associated with our operating leases are shown as separate line items on our Consolidated Balance Sheets.

Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities.

For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term.

For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability.

For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Consolidated Balance Sheets.

Variable lease cost for both operating and finance leases, if any, is recognized as incurred.

The Company has lease agreements that contain both lease and non-lease components.

For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance).

Restructuring Reserves

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The liability for unrecognized tax benefits is generally presented as non-current.

However, if it is anticipated that a cash settlement will occur within one year, that portion of the liability is presented as current.

However, if it is anticipated that a cash settlement will occur within one year, that portion of

the liability is presented as current.

Interest and penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense.

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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;

Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries;

however, differences in actual experience or changes in the assumptions may materially affect Griffon’s financial position or results of operations.

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

Newly issued but not yet effective accounting pronouncements

In April 2019, the FASB issued guidance relating to accounting for credit losses on financial instruments, including trade receivables, and derivatives and hedging.

This guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, and will be effective for the Company beginning in 2021.

We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In February 2018, the FASB issued guidance that allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act ("TCJA"), from accumulated other comprehensive income to retained earnings.

This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted, and will be effective for the Company beginning in 2020.

We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In August 2018, the FASB issued guidance which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers.

This guidance expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss).

This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and will be effective for the Company beginning in 2021.

We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In August 2018, the FASB issued guidance to clarify disclosure requirements related to defined benefit pension and other post-retirement plans.

The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and will be effective for the Company beginning in 2022.

We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill.

This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those periods and will be effective for the Company beginning in 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

We do not expect this guidance to have a material impact on the Company's financial condition, results of operations and related disclosures.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases.

The liability will be equal to the present value of lease payments.

The Company adopted this new guidance on October 1, 2019, using the optional modified retrospective transition method and will not recast comparative periods in transition to the new standard.

During 2019 the Company developed a project plan to guide the implementation of ASC 2016-02.

The Company completed this plan including surveying the Company’s businesses, assessing the Company’s portfolio of leases and compiling a central repository of active leases.

The Company also implemented a lease accounting software solution to support the new reporting requirements and established a future lease process to keep the lease accounting portfolio up to date.

The Company evaluated key policy elections and considerations under the standard and completed an internal policy as well as training to address the new standard requirements.

The Company plans to elect the package of practical expedients and will not apply the recognition requirements to short-term leases.

Although management continues to evaluate the effect on the Company's Consolidated Balance Sheets and disclosures, management currently estimates total assets and liabilities will increase approximately $160,000 to $170,000 upon adoption, before considering deferred taxes.

Management does not expect a material impact to the Company’s Consolidated Statements of Operations and Comprehensive Income or Cash Flows.

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

Recently adopted accounting pronouncements

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of a stock compensation award previously granted to an employee.

This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017.

Early adoption is permitted as of the beginning of an annual period.

The new guidance was effective for the Company beginning in fiscal 2019;

however, the Company adopted this guidance as of October 1, 2018 and it did not have a material impact on the Company's financial condition, results of operations and related disclosures.

In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires companies to retrospectively present the service cost component of net periodic benefit cost for pension and retiree medical plans along with other compensation costs in operating income and present the other components of net periodic benefit cost below operating income in the income statement.

The guidance also allows only the service cost component of net periodic benefit cost to be eligible for capitalization within inventory or fixed assets on a prospective basis.

This guidance was effective for fiscal years beginning after December 15, 2017.

The Company adopted the requirements of the standard as of October 1, 2018 on a retrospective basis reclassifying the other components of the net periodic benefit costs from Selling, general and administrative expenses to a non-service expense within Other (income) expense, net.

This guidance did not have a material impact on the Company's results of operations.

See Note 11 - Employee Benefit Plans for further information on the implementation of this guidance.

In January 2017, the FASB issued guidance that clarifies the definition of a business, which will impact many areas of accounting including acquisitions, disposals, goodwill, and consolidation.

The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

This guidance is effective for annual periods beginning after December 15, 2017, including interim periods, within those periods and was effective for the Company beginning in fiscal 2019.

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

In August 2016, the FASB issued guidance on the Statement of Cash Flows Classification of certain cash receipts and cash payments (a consensus of the FASB Emerging Issues Task Force).

This guidance addresses the following eight specific cash flow issues:

Debt prepayment or debt extinguishment costs;

settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;

contingent consideration payments made after a business combination;

proceeds from the settlement of insurance claims;

proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies);

distributions received from equity method investees;

beneficial interests in securitization transactions;

and separately identifiable cash flows and application of the predominance principle.

This guidance was effective for the Company beginning in fiscal 2019.

The Company adopted the requirements of the standard in the first quarter of 2019 and it did not have a material impact on the Company's financial condition, results of operations and cash flows.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance.

Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several ASUs;

hereinafter the collection of revenue guidance is referred to as “ASC 606”.

The core principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

On October 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts.

Results for reporting periods beginning October 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition.

The Company recorded a net increase to beginning retained earnings of approximately $5,618 as of October 1, 2018 due to the cumulative impact of adopting ASC 606.

The impact to beginning retained earnings primarily related to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and/or no right to payment.

The adoption of ASC 606 did not have a material impact on the Company’s Consolidated Condensed Financial Statements as of and for the year ended September 30, 2019.

See Note 2 - Revenue for additional disclosures required by ASC 606.

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

New Accounting Standards

For a discussion of the new accounting standards impacting the Company, see Note 1 to the Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis