What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-11-13 compared with 2019-11-22 · 680 added, 713 removed, 1399 unchanged (50% of the section changed)

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Opinions on the financial statements and internal control over financial reporting

We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2019 and 2018, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2020 and 2019, the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

We also have audited the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements;

and (2) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition - Defense and Electronics Segment

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue from Customer Contracts - Defense and Electronics Segment

As described further in note 2 to the consolidated financial statements, the Company’s Defense and Electronics segment earns 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 contracts.

Such contracts are typically long-term in nature and revenue and profits are recognized over time, primarily under fixed-price arrangements, which are determined using a cost-to-cost method of accounting.

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

The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods.

Such contracts are typically long-term in nature and revenue and profits are recognized over time, primarily under fixed-price arrangements, which are determined using the cost-to-cost measure of progress.

Using the cost-to-cost measure of progress, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred to date, 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 profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods.

This method relies on substantial use of estimates.

These estimations require the Company to have effective cost estimation processes, forecasting, and revenue and expense reporting.

We identified Defense and Electronics segment revenue recognition (“segment revenue recognition”) for these long-term fixed-price contracts as a critical audit matter.

The principal consideration for our determination that segment revenue and gross profit recognition is a critical audit matter is that significant management judgments and estimates are utilized to determine probable costs at contract completion and are subject to estimation uncertainty and require significant auditor subjectivity in evaluating those judgments and estimates.

Due to these aspects, this issue was considered a critical audit matter.

The principal consideration for our determination that segment revenue and gross profit recognition is a critical audit matter is that significant management judgments and estimates are utilized to determine total costs at contract completion and are subject to estimation uncertainty and require significant auditor subjectivity in evaluating those judgments and estimates.

Our audit procedures related to the segment revenue recognition included the following.

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We also recalculated revenue and gross profit recognized for the year ended September 30, 2020, for a selection of contracts, to test the accuracy of amounts recognized.

Annual Goodwill and Indefinite-Lived Intangible Assets Impairment Testing

As described further in note 1 to the consolidated financial statements, the Company performed its annual impairment testing of goodwill as of September 30, 2019, comparing the fair value of the Company’s reporting units to the respective reporting unit’s carrying value, including goodwill.

Goodwill and Indefinite-Lived Intangible Assets Impairment Assessment

As described further in note 1 and note 6 to the consolidated financial statements, the Company tests goodwill at least annually at the reporting unit level.

Due to the impact of the COVID-19 pandemic on the general deterioration in economic and market conditions, the Company completed an interim goodwill impairment test as of March 31, 2020, in addition to the Company’s annual impairment assessment as of September 30, 2020.

The Company performed the interim impairment testing of goodwill as of March 31, 2020, comparing the fair value of the Company’s reporting units to the respective reporting unit’s carrying value, including goodwill.

The fair value of its reporting units was determined using the income approach methodology, that includes the present value of expected future cash flows and the use of market assumptions specific to the Company’s reporting units.

As a result of recent acquisitions and their integration in fiscal 2019, the Company re-evaluated its reportable segment structure at September 30, 2019, and now reports its operations through three reportable segments.

In connection with the change in segment structure the Company allocated goodwill to the new segment structure on a pro-rata basis, based on the relative fair value of each reporting unit as determined under the income approach.

The Company defines its reporting units as its three reportable segments:

Consumer and Professional Products (“CPP”), Home and Building Products (“HBP”) and Defense Electronics.

The Company used prospective financial information to which discount rates were applied to calculate each unit’s fair value, and the relative fair values for the CPP and HBP segments were used to determine the allocation of goodwill to CPP and HBP.

The implied fair value determined under the income approach was also compared to the marketplace fair value of a comparable industry grouping for reasonableness and further, the fair values were reconciled to the Company’s market capitalization.

Similarly to goodwill, the Company tested indefinite-lived intangibles for impairment as of September 30, 2019.

The Company used prospective financial information to which discount rates were applied to calculate each unit’s fair value.

Similarly to goodwill, the Company tested indefinite-lived intangibles for impairment as of March 31, 2020.

The Company utilized a relief from royalty method to calculate and compare the fair value of the intangible assets to its book value, which includes the use of market assumptions specific to the Company’s reporting units.

We identified annual impairment testing of goodwill and indefinite-lived intangible assets (“annual impairment testing”) as a critical audit matter.

The principal considerations for our determination that annual impairment testing is a critical audit matter is uncertainty surrounding significant management judgments and estimates utilized to assess and identify operating segments and reporting units and calculate the fair value of the respective reporting units and intangible assets for comparison to carrying value, which in turn requires auditor judgment.

Our audit procedures related to the annual impairment testing included the following:

We tested the design and operating effectiveness of controls relating to the Company’s assessment and identification of segments and reporting units, and controls relating to the annual impairment testing, including the Company’s ability to develop the estimates utilized in calculating the fair value of each reporting unit and indefinite-lived intangible assets.

With respect to the annual impairment assessment as of September 30, 2020, the Company performed a qualitative assessment to determine whether it was more likely than not that goodwill was impaired as of September 30, 2020.

This qualitative assessment was also used for the annual impairment testing of indefinite-lived intangibles.

We identified the Company’s interim impairment testing of goodwill and indefinite-lived intangible assets (“interim impairment testing”) as a critical audit matter.

The principal considerations for our determination that the interim impairment testing is a critical audit matter are as follows.

The determination of the fair value of reporting units requires management to make significant estimates and assumptions related to forecasts of future cash flows and discount rates.

This requires management to evaluate historical results and expectations of future

operating performance based on relevant information available to them regarding expectations of industry performance, as well as expectations for entity-specific performance.

In addition, determining the discount rate requires management to evaluate the appropriate risk premium based on their judgment of industry and entity-specific risks.

As disclosed by management, changes in these assumptions could have a significant impact on the fair value of the reporting units.

In turn, auditing these judgments and assumptions requires a high degree auditor judgment.

Our audit procedures related to the interim impairment testing included the following:

We tested the design and operating effectiveness of controls relating to the interim impairment testing, including the Company’s ability to develop the estimates utilized in calculating the fair value of each reporting unit and indefinite-lived intangible assets.

Such estimates included prospective financial information, long-term growth rates, discount rates and weighted average cost of capital.

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We tested the inputs, significant judgments and estimates utilized in performing the annual impairment tests, which included comparing management’s judgments and estimates to industry and market data.

We tested the Company’s allocation of goodwill to its CPP and HBP reporting units, which were based on significant judgments and estimates.

We tested the inputs, significant judgments and estimates, as follows:

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b) tested discounts rates by comparing to historical rates and industry expectations, compared rates to market comparable companies and independently calculated discount rates for comparison to those used by management;

c) tested weighted average cost of capital by analyzing the implied discount rate and independently calculated a weighted-average discount rate using individual discount rates and compared to the rate utilized by management;

and d) tested the accuracy of the computation on the re-allocation of goodwill based on the fair value amongst the reporting units, which included testing the carrying amount of goodwill to be allocated .

and c) tested weighted average cost of capital by analyzing the implied discount rate and independently calculated a weighted-average discount rate using individual discount rates and compared to the rate utilized by management.

We tested the inputs, significant judgment and estimates in the Company’s reconciliation to its market capitalization.

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a) allocation of unallocated corporate costs, whereby we agreed such costs to historical amounts, analyzed the composition of unallocated costs to assess appropriateness and sensitized the goodwill impairment analysis by allocating certain costs to the reporting units based on their relative fair values;

and b) fair values of each reporting unit as determined in the impairment testing and agreed equity values to audited financial information.

and b) fair values of each reporting unit as determined in the interim impairment testing and agreed equity values to audited financial information.

/S/ GRANT THORNTON LLP

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Accounts receivable, net of allowances of $17,758 and $7,881

Contract costs and recognized income not yet billed, net of progress payments of $13,861 and $3,172

Contract assets, net of progress payments of $24,175 and $11,259

Prepaid and other current assets

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PROPERTY, PLANT AND EQUIPMENT, net

OPERATING LEASE RIGHT-OF-USE ASSETS

INTANGIBLE ASSETS, net

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Accrued liabilities

Current portion of operating lease liabilities

Liabilities of discontinued operations

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LONG-TERM DEBT, net

LONG-TERM OPERATING LEASE LIABILITIES

OTHER LIABILITIES

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Interest income

Loss from debt extinguishment

Total other income (expense)

Income before taxes from continuing operations

Provision (benefit) for income taxes

Provision for income taxes

Income from continuing operations

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Stock-based compensation

Asset impairment charges - restructuring

Provision for losses on accounts receivable

Amortization of deferred financing costs and debt discounts

Loss from debt extinguishment

Deferred income tax

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Change in assets and liabilities, net of assets and liabilities acquired:

(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed

Increase in inventories

(Increase) decrease in accounts receivable and contract assets

(Increase) decrease in inventories

Increase in prepaid and other assets

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Acquired business, net of cash acquired

Investment sales (purchases)

Investment purchases

Proceeds (payments) from sale of business

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CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:

Proceeds from issuance of common stock

Dividends paid

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Change in short-term borrowings

Share premium payment on settled debt

Financing costs

Purchase of ESOP shares

Contingent consideration for acquired businesses

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CASH FLOWS FROM DISCONTINUED OPERATIONS:

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

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Effect of exchange rate changes on cash and equivalents

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

NET INCREASE IN CASH AND EQUIVALENTS

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

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Balance at 9/30/2017

Tax effect from exercise/vesting of equity awards, net

Net income (loss)

Shares withheld on employee taxes on vested equity awards

Amortization of deferred compensation

Common stock issued

Common stock acquired

Equity awards granted, net

Premium on settlement of convertible debt

Issuance of treasury stock in settlement of convertible debt

ESOP purchase of common stock

ESOP allocation of common stock

Stock-based compensation

Other comprehensive income, net of tax

Stock-based consideration

Other comprehensive loss, net of tax

Balance at 9/30/2018

Net income (loss)

Cumulative catch-up adjustment related to adoption of ASC 606

Shares withheld on employee taxes on vested equity awards

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Net income (loss)

Cumulative catch-up adjustment related to adoption of ASC 606(1)

Shares withheld on employee taxes on vested equity awards

GRIFFON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

Amortization of deferred compensation

Common stock acquired

Common stock issued, net of issuance costs

Equity awards granted, net

ESOP allocation of common stock

GRIFFON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

Stock-based compensation

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Balance at 9/30/2020

(1) See Note 1 - Recently adopted accounting pronouncements and Note 2 - Revenue for additional information.

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

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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.

("CornellCookson"), a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use.

The accounts, affected for adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of CornellCookson, are included in the Company’s consolidated financial statements from the date of acquisition of June 4, 2018.

See Note 3, Acquisitions.

On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Clopay Plastic Products Company, Inc.

("Plastics") and on February 6, 2018, completed the sale to Berry Global, Inc.

("Berry") for approximately $ 465,000 , net of certain post-closing adjustments.

As a result, Griffon classified the results of operations of the Plastics business as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations in the consolidated balance sheets.

All results and information presented exclude Plastics unless otherwise noted.

See Note 7, Discontinued Operations.

On October 2, 2017, Griffon acquired ClosetMaid LLC ("ClosetMaid").

ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of wood and wire closet organization, general living storage and wire garage storage products and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America.

The accounts, affected for adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of ClosetMaid are included in the Company’s consolidated financial statements from the date of acquisition of October 2, 2017.

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 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 segment, which consists of Clopay, and Defense Electronics segment, which consists of Telephonics Corporation.

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 (the “2028 Senior Notes”) 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").

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 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 March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S.

and the world.

While Griffon has not incurred significant disruptions to its manufacturing or supply chain thus far, the Company continues to actively monitor the situation and evaluate the nature and extent of the impact of the COVID-19 pandemic on its businesses, consolidated results of operations and financial condition.

Griffon places a high priority on the health and safety of its employees, customers and their families, and has 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 its employees of contracting COVID-19.

Although many U.S.

states lifted initial executive orders issued earlier in the year

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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.

As of the date of this filing, all of Griffon's facilities are fully operational and the Company’s supply chains have not experienced significant disruption.

Griffon manufactures a substantial majority of its products that it sells, with the majority of manufacturing activities conducted in the United States.

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

While Griffon is unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on its businesses, results of operations, liquidity or capital resources, Griffon will continue to actively monitor the situation and may take further actions that impact its operations as may be required by federal, state or local authorities or that it determines is in the best interests of its employees, customers, suppliers and shareholders.

For additional factors to consider, see Part 1, Item 1A, “Risk Factors” in this Form 10-K.

Griffon currently conducts its operations through three reportable segments:

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Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Defense Electronics conducts its operations through Telephonics Corporation ("Telephonics"), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

Defense Electronics ("DE") conducts its operations through Telephonics Corporation ("Telephonics"), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

Consolidation

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Discontinued operations

Installation Services

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

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

Installation Services is excluded from segment reporting.

During 2017, Griffon recorded $ 5,700 of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association claims related to the Clopay Services Corporation discontinued operations in 2008.

Clopay Plastic Products Company, Inc.

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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The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand.

Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, acquisition assumptions used and the accompanying disclosures.

These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future.

Actual results may ultimately differ from these estimates.

These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes

GRIFFON CORPORATION

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

in technology or demand.

Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, profits and loss recognition for performance obligations satisfied over time, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures.

These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future.

Actual results may ultimately differ from these estimates.

Cash and equivalents

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At September 30, 2020 and 2019, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 1,703 ( $ 1,000 cost basis) and $ 1,518 ( $ 1,000 cost basis), respectively, were included in Prepaid and other current assets on the Consolidated Balance Sheets.

During 2018, the Company settled trading securities with proceeds totaling $ 4,126 and recognized a loss of $ 1,251 in Other income (expense).

Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates.

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During 2020 and 2019, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in USD.

At September 30, 2019 and 2018, Griffon had $ 14,000 and $ 12,000 of Australian dollar contracts at a weighted average rate of $ 1.48 and $ 1.38 , respectively, which qualified for hedge accounting.

These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current assets, or Accrued liabilities, until settlement.

Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services.

AOCI included deferred gains of $ 327 ( $ 213 , net of tax) and deferred gains of $ 443 ( $ 288 , net of tax) at September 30, 2019 and 2018, respectively.

GRIFFON CORPORATION

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

settlement, gains of $ 1,932 and $ 657 were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS") during 2019 and 2018, respectively.

All contracts expire in 1 to 90 days .

At September 30, 2020 and 2019, Griffon had $ 32,000 and $ 14,000 of Australian dollar contracts at a weighted average rate of $ 1.41 and $ 1.48 , respectively, which qualified for hedge accounting.

Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services.

AOCI included deferred losses of $ 168 ( $ 109 , net of tax) and deferred gains of $ 327 ( $ 213 , net of tax) at September 30, 2020 and 2019, respectively.

Upon settlement, gains (losses) of $( 2,163 ) and $ 1,361 were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS") during 2020 and 2019, respectively.

Contracts expire in 30 to 146 days .

At September 30, 2020 and 2019, Griffon had $ 7,900 and $ 3,500 , respectively, of Canadian dollar contracts at a weighted average rate of $ 1.33 and $ 1.32 .

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dollar based purchases, do not qualify for hedge accounting and fair value gains (losses) of $( 92 ) and $ 14 were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended September 30, 2020 and 2019, respectively.

Realized gains and (losses) of $ 68 and $( 161 ) , were recorded in Other income during 2019 and 2018, respectively.

All contracts expire in 30 to 360 days .

Realized gains of $ 189 and $ 68 , were recorded in Other income during 2020 and 2019, respectively.

Contracts expire in 30 to 360 days .

At September 30, 2020, Griffon had $ 5,400 of Great Britain Pound contracts at a weighted average rate of $ 0.77 .

These contracts, which protect U.K.

operations from currency fluctuations for U.S.

dollar based purchases, do not qualify for hedge accounting and fair value gains of $ 39 were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended September 30, 2020.

There were no realized gains or losses recorded for these contracts during the year ended September 30, 2020.

Contracts expire in 2 to 208 days .

Pension plan assets with a fair value of $ 147,145 at September 30, 2020 , are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs), quoted market prices for similar assets (level 2 inputs) and fair value assumptions for unobservable inputs in which little or no market data exists (level 3).

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Assets and liabilities of an entity that are denominated in currencies other than that entity’s functional currency are re-measured into the functional currency using period end exchange rates, or historical rates where applicable to certain balances.

Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income (Loss) as a component of Other income (expense).

Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income as a component of Other income (expense).

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.

Refer to Note 2, Revenue for a discussion of our revenue recognition practices for each business segment.

GRIFFON CORPORATION

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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.

Once the Company has entered a contract or purchase order, it is evaluated to identify performance obligations.

Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations.

For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price).

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied.

A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer.

A majority of the Company’s contracts have a single performance obligation which represents, in most

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cases, the product being sold to the customer.

To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services.

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.

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.

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 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 (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.

Refer to Note 2 - Revenue for a discussion of our revenue recognition practices for each of our reportable segments.

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Contract costs and recognized income not yet billed

Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts.

Contract assets

Contract assets consists of amounts accounted for under the cost-to-cost method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts.

Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met.

At September 30, 2019 and 2018, approximately $ 13,100 and $ 29,500 , respectively, of contract costs and recognized income not yet billed were expected to be collected after one year.

As of September 30, 2019 , Contract costs and recognized income not yet billed included no reserves for contract risk and as of September 30, 2018, included $ 400 of reserves for contract risk.

At September 30, 2020 and 2019, approximately $ 7,500 and $ 13,100 , respectively, of contract assets were expected to be collected after one year.

Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs.

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Depreciation expense, which includes amortization of assets under capital leases, was $ 52,819 , $ 51,926 and $ 46,733 in 2020, 2019 and 2018, respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets.

Depreciation included in SG&A expenses was $ 19,026 , $ 16,306 and $ 12,995 in 2019, 2018 and 2017.

Depreciation included in SG&A expenses was $ 19,656 , $ 19,026 and $ 16,306 in 2020, 2019 and 2018, respectively.

The remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

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Goodwill and indefinite-lived intangibles

Goodwill is the excess of the acquisition cost of a business over the fair value of the identifiable net assets acquired.

Goodwill is not amortized, but is subject to an annual impairment test unless during an interim period, impairment indicators such as a significant change in the business climate exist.

Griffon now defines its reporting units as three reportable segments:

Griffon has significant intangible and tangible long-lived assets on its balance sheet that includes goodwill and other intangible assets related to acquisitions.

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.

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.

Such 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

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Before changing its reportable segment structure, the Company completed its annual impairment review of its legacy HBP reporting unit, which also was its legacy reportable segment, and determined that the fair value of the legacy HBP reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and no impairment existed.

Griffon also performed an impairment test of goodwill at Griffon's new reporting unit level as of September 30, 2019 .

The performance of the test involves a two-step process.

The first step involves comparing the fair value of Griffon’s reporting units with the reporting unit’s carrying amount, including goodwill.

Griffon generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the present value of expected future cash flows.

This method uses market assumptions specific to Griffon’s reporting units.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, Griffon performs the second step of the goodwill impairment test to determine the amount of impairment loss.

The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.

Griffon used 5 year projections and a 3.0 % terminal value to which discount rates between 7 % and 9.5 % were applied to calculate each unit’s fair value.

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 % were applied to calculate each unit’s fair value.

To substantiate fair values derived from the income approach methodology of valuation, the implied fair value was compared to the marketplace fair value of a comparable industry grouping for reasonableness.

Further, the fair values were reconciled to Griffon’s market capitalization.

Both market comparisons supported the implied fair values.

Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside Griffon’s control, or significant underperformance relative to historical or project future operating results, could result in a significantly different estimate of the fair value of the reporting units, which could result in a future impairment charge (level 3 inputs).

Based upon the results of the annual impairment review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and no impairment existed.

Similar to goodwill, Griffon tests indefinite-lived intangible assets at least annually and when indicators of impairment exist.

Griffon uses a relief from royalty method to calculate and compare the fair value of the intangible to its book value.

This method uses market assumptions specific to Griffon’s reporting units, which are reasonable and supportable.

If the fair value is less than the book value of the indefinite-lived intangibles, an impairment charge would be recognized.

There was no impairment related to goodwill or indefinite-lived intangibles during the three years ending September 30, 2019 .

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, which did not result in impairments.

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.

Long-lived intangible and tangible assets are tested for impairment by comparing estimated future undiscounted cash flows to the carrying value of the asset when an impairment indicator, such as change in business, customer loss or obsolete technology, exists.

Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty.

Actual results may differ materially from those estimates.

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

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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 Condensed 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 Condensed 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).

Definite-lived long-lived assets

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There were no indicators of impairment during the three years ending September 30, 2020 .

Income taxes are accounted for under the liability method.

Deferred taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts.

The carrying value of Griffon’s deferred tax assets is dependent upon Griffon’s ability to generate sufficient future taxable income in certain tax jurisdictions.

Should Griffon determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.

Griffon provides for uncertain tax positions and any related interest and penalties based upon Management’s assessment of whether a tax benefit is more likely than not of being sustained upon examination by tax authorities.

At September 30, 2019 Griffon believes that it has appropriately accounted for all unrecognized tax benefits.

As of September 30, 2019 , 2018 and 2017, Griffon has recorded unrecognized tax benefits in the amount of $ 4,061 , $ 4,519 and $ 4,825 , respectively.

Accrued interest and penalties related to income tax matters are recorded in the provision for income taxes.

We are subject to Federal, state and local income taxes in the U.S.

and in various taxing jurisdictions outside the U.S.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse.

We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified.

Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return.

We record, as needed, a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return.

To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

Research and development costs, shipping and handling costs and advertising costs

Research and development costs not recoverable under contractual arrangements are charged to SG&A expense as incurred and amounted to approximately $ 15,400 in each year ended September 30, 2020, 2019 and 2018.

SG&A expenses include shipping and handling costs of $ 54,500 in 2020 , $ 53,500 in 2019 and $ 41,700 in 2018 and advertising costs, which are expensed as incurred, of $ 19,000 in 2020 , $ 20,000 in 2019 and $ 21,000 in 2018.

GRIFFON CORPORATION

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On December 22, 2017, the "Tax Cuts and Jobs Act" ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code.

ASC 740, Accounting for Income Taxes , requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018.

Though certain key aspects of the TCJA were effective January 1, 2018 and had an immediate accounting effect, other significant provisions were not effective or did not result in accounting effects for September 30 fiscal year companies until October 1, 2018.

Among the significant changes to the U.S.

Internal Revenue Code, the TCJA reduced the U.S.

federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018.

The Company computed its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5 % .

The 21% Federal Tax Rate applies to fiscal years ended September 30, 2019 and each year thereafter.

In accordance with U.S.

GAAP for income taxes, as well as SAB 118, the Company made a reasonable estimate of the impacts of the TCJA for the year ended September 30, 2018 and recorded a $ 20,587 benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense, both of which have been reflected in the tax provision for 2018.

SAB 118 allows for a measurement period of up to one year from the date of enactment to complete the Company’s accounting for the impacts of the TCJA.

Our analysis under SAB 118 was completed in December 2018 and resulted in no material adjustments to the provision amounts recorded as of September 30, 2018.

The TCJA requires companies to pay a one-time transition tax on mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”).

The Company has recorded a provisional transition tax charge of $ 13,100 net of foreign tax credits for fiscal year 2018.

The Company ultimately incurred a transition tax charge of $ 12,699 .

Under the TCJA, the Company elected to pay the transition tax interest-free over eight years.

The TCJA makes broad and complex changes to the U.S.

tax code that affect our fiscal year ended September 30, 2019, including but not limited to:

(1) creating the base erosion anti-abuse tax measure that taxes certain payments between a U.S.

corporation and its foreign subsidiaries;

(2) creating a new provision designed to tax global intangible low-tax income (“GILTI”) of foreign subsidiaries;

and (3) a foreign derived intangible income.

We have estimated the impact of these changes in our income tax provision for 2019.

The GILTI provision of the TCJA requires the Company to include in its U.S.

Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets.

An accounting policy election is available to account for the tax effects of GILTI either as a current period expense when incurred, or to recognize deferred taxes for book and tax basis differences expected to reverse as GILTI in future years.

We have elected to account for the tax effects of GILTI as a current period expense when incurred.

Research and development costs, shipping and handling costs and advertising costs

Research and development costs not recoverable under contractual arrangements are charged to SG&A expense as incurred and amounted to approximately $ 15,400 in both 2019 and 2018, and $ 17,700 in 2017.

SG&A expenses include shipping and handling costs of $ 66,400 in 2019 , $ 59,600 in 2018 and $ 32,500 in 2017 and advertising costs, which are expensed as incurred, of $ 20,000 in 2019 , $ 21,000 in 2018 and $ 22,000 in 2017.

Risk, retention and insurance

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Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis.

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Pension benefits

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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 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 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.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $ 1,559 , $ 3,148 and $ 3,649 during 2020, 2019, and 2018 respectively.

Issued but not yet effective accounting pronouncements

In December 2019, the FASB issued guidance on simplifying the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications.

Our effective date for adoption of this ASU is our fiscal year beginning October 1, 2021 with early adoption permitted.

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

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

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

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.

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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 October 1, 2020.

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 Accounting Standard Codification 842 ("ASC 842") 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 the year the Company developed a project plan to guide the implementation of ASC 842.

The Company completed this plan including surveying the Company’s businesses,

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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 to 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 Earnings or Cash Flows.

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.

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 in the first quarter of 2019 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 was 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

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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 Implemented

In March 2020, the Financial Accounting Standards Board ("FASB") issued optional guidance for a limited time relating to accounting for the discontinuation of the LIBOR rate also known as reference rate reform.

The amendments in this update provide optional practical expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are applicable to contract modifications that replace a reference LIBOR rate beginning on March 12, 2020 through December 31, 2022.

The optional expedients primarily apply to the Griffon’s Credit Agreement and Non-U.S.

The optional expedients allow the Company to account for modifications due to reference rate reform by prospectively adjusting the effective interest rate on these agreements.

The Company expects to apply the optional practical expedients and exceptions to modifications of its agreements affected by reference rate reform.

As of September 30, 2020, the Company has not modified its agreements subject to reference rate reform.

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

Upon adoption of this guidance as of October 1, 2019, based on our evaluation, we elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

The adoption of this standard did not have an impact on the Company's financial condition, results of operations, or cash flow.

In February 2016, FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements.

The Company adopted the requirements of the new standard as of October 1, 2019 and 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 right-of-use 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.

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 early adopted this guidance for our annual goodwill impairment testing for the year ended September 30, 2020.

The adoption of this guidance did not have a material impact on the Company's financial condition, results of operations and related disclosures.

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

NOTE 2 – REVENUE

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.

The cumulative effect of the changes made to the Company's Consolidated October 1, 2018 Balance Sheet for the adoption of ASC 606 is as follows:

Balance Sheet

As Reported at September 30, 2018

Balance as of October 1, 2018

CURRENT ASSETS

Contract costs and recognized income not yet billed, net of progress payments

Total Current Assets

CURRENT LIABILITIES

Accounts payable

Billings in excess of costs (1)

Total Current Liabilities

OTHER LIABILITIES

Total Liabilities

SHAREHOLDERS' EQUITY

Retained Earnings

Total Shareholders' Equity

Total Liabilities and Shareholders’ Equity

(1) Billings in excess of costs is reported in Accounts payable on the Company's Consolidated Balance Sheets.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The impact to the Company's Consolidated Statement of Operations for the year ended September 30, 2019 and to the Company's Balance Sheet as of September 30, 2019 was as follows:

For the Year Ended September 30, 2019

Income Statement

Balances Without Adoption of ASC 606

Effect of Adoption Higher/(Lower)

Cost of goods and services

Income before taxes from continuing operations

Provision (benefit) from income taxes

Income from continuing operations

As of September 30, 2019

Balance Sheet

Balances Without Adoption of ASC 606

Effect of Adoption Higher/(Lower)

CURRENT ASSETS

Contract costs and recognized income not yet billed, net of progress payments

Total Current Assets

CURRENT LIABILITIES

Accounts payable

Billings in excess of costs

Total Current Liabilities

OTHER LIABILITIES

Total Liabilities

SHAREHOLDERS' EQUITY

Retained Earnings

Total Shareholders' Equity

Total Liabilities and Shareholders’ Equity

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.

See Note 18 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.

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.

The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied.

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.

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GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied.

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

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.

For contracts with multiple performance obligations, judgment is required to determine whether

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

performance obligations specified in these contacts are distinct and should be accounted for as separate revenue transactions for recognition purposes.

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.

See Note 19 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.

Revenue from CPP and HBP Segments

A majority of CPP and HBP Segment 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.

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

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.

Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications.

Such warranties do not represent a separate performance obligation.

Payment terms in CPP and HBP vary depending on the type and location of the customer and the products or services offered.

Payment terms in the CPP and HBP Segments vary depending on the type and location of the customer and the products or services offered.

Generally, the period between the time revenue is recognized and the time payment is due is not significant.

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.

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).

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

GRIFFON CORPORATION

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

As this method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract.

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.

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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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.

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.

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.

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.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Transaction Price Allocated to the Remaining Performance Obligations

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and the timing of governmental approvals.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Contract Balances

Contract assets were $ 84,426 as of September 30, 2020 compared to $ 105,111 as of September 30, 2019.

The $ 16,692 decrease in our contract assets balance was primarily due to the implementation of ASC 606.

Excluding the impact of ASC 606, the increase was primarily due to the timing of billings and work performed on various radar and surveillance programs.

Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract costs and recognized income not yet billed, net of progress payments in the Consolidated Balance Sheets.

The $ 20,685 decrease in our contract assets balance was primarily due to the timing of billings and work performed on various radar and surveillance programs.

Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract assets, net of progress payments in the Consolidated Balance Sheets.

Contract assets are transferred to receivables when the right to consideration becomes unconditional.

1 unchanged sentence

Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met.

At September 30, 2019 and 2018, approximately $ 13,100 and $ 29,500 , respectively, of contract costs and recognized income not yet billed were expected to be collected after one year.

As of September 30, 2019, Contract costs and recognized income not yet billed included no reserves for contract risk and as of September 30, 2018, included $ 400 of reserves for contract risk.

At September 30, 2020 and 2019, approximately $ 7,500 and $ 13,100 , respectively, of contract assets were expected to be collected after one year.

Contract liabilities were $ 24,386 as of September 30, 2020 compared to $ 26,259 as of September 30, 2019.

The $ 8,700 increase in the contract liabilities balance was primarily due to the implementation of ASC 606.

The $ 1,873 decrease in the contract liabilities balance was primarily due to the recognition of revenue primarily from surveillance and airborne maritime surveillance radar programs.

Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized.

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The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition in each instance.

On June 4, 2018, Clopay completed the acquisition of 100 % of the outstanding stock of CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use, for approximately $ 180,000 , excluding the estimated present value of tax benefits, and $ 12,426 of post-closing adjustments, primarily consisting of a working capital adjustment, of which $ 9,219 was paid in October 2018.

On November 29, 2019, AMES acquired 100 % of the outstanding stock of 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.

The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes.

The purchase price was primarily allocated to goodwill of GBP 3,449 , acquired intangible assets of GBP 3,454 , inventory of GBP 2,914 , accounts receivable and other assets of GBP 2,492 and accounts payable and other accrued liabilities of GBP 3,765 .

CornellCookson revenue in 2018 was $ 66,654 .

The acquisition of CornellCookson substantially expanded Clopay’s non-residential product offerings, and added an established professional dealer network focused on rolling steel door and grille products for commercial, industrial, institutional and retail use.

There is no other contingent consideration arrangement relative to the acquisition of CornellCookson.

CornellCookson’s accounts, affected for adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations are included in the Company’s consolidated financial statements from the date of acquisition.

22 unchanged sentences

Total goodwill and intangible assets

On February 13, 2018, AMES acquired 100 % of the outstanding stock of Kelkay Limited ("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 $ 56,118 (GBP 40,452 ), subject to contingent consideration of up to GBP 7,000 .

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

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

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The acquisition of ClosetMaid expanded Griffon’s Home and Building Products segment into the highly complementary home storage and organization category with a leading brand and product portfolio.

ClosetMaid's accounts, affected for adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations, are included in the Company’s consolidated financial statements from the date of acquisition.

The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date.

The excess of the purchase price

GRIFFON CORPORATION

1 unchanged sentence

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

The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes.

over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes.

Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of ClosetMaid, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets.

The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired ClosetMaid on October 1, 2016:

For the year ended September 30, 2017

Income from continuing operations

Griffon did not include any material, nonrecurring proforma adjustments directly attributable to the business combination in the proforma revenue and earnings.

These proforma amounts have been compiled by adding the historical results from continuing operations of Griffon, restated for classifying the results of operations of the Plastics business as a discontinued operation, to the historical results of ClosetMaid after applying Griffon’s accounting policies and the following proforma adjustments:

Additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2016.

Elimination of intercompany interest income recorded on ClosetMaid’s financial statements earned on an intercompany receivable due from ClosetMaid’s former parent.

Additional interest and related expenses from the add-on offering of $ 275,000 for the aggregate principal amount of 5.25 % senior notes due 2022 that Griffon used to acquire ClosetMaid.

Removal of $ 900 of restructuring costs from ClosetMaid's historical results for 2017.

The consequential tax effects of the above adjustments using a 39.7 % tax rate for 2017.

The calculation of the purchase price allocation is as follows:

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(2) Includes $ 1,500 in inventory basis step-up, which was charged to cost of goods sold over the inventory turns of the acquired entity.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the ClosetMaid acquisition are as follows:

2 unchanged sentences

Total goodwill and intangible assets

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

("Tuscan Path") for approximately $ 18,000 (AUD 22,250 ).

Tuscan Path is a leading Australian provider of pots, planters, pavers, decorative stone, and garden decor products.

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

The purchase price was primarily allocated to intangible assets of AUD 3,900 and inventory and accounts receivable of AUD 7,900 .

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

acquired La Hacienda Limited, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $ 11,400 (GBP 9,175 ), including an approximate contingent earn out payment of $ 790 (GBP 600 ).

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

The purchase price allocation was primarily allocated to intangible assets of approximately GBP 3,100 and inventory and accounts receivable of GBP 4,200 .

On December 30, 2016, AMES Australia acquired Home Living ("Hills") for approximately $ 6,051 (AUD 8,400 ).

The purchase price has been allocated to acquired assets and assumed liabilities and primarily consists of inventory, tooling and identifiable intangible assets, including trademarks, intellectual property and customer relationships.

Hills, founded in 1946, is a market leader in the supply of clothesline, laundry and garden products.

The Hills acquisition adds to AMES' existing broad category of products and enhances its lawn and garden product offerings in Australia.

The purchase price was primarily allocated to intangible assets of approximately AUD 6,400 with the remainder primarily inventory.

SG&A and Cost of goods and services included $ 6,097 and $ 1,500 of acquisition-related costs, respectively, in 2018.

SG&A included $ 9,617 acquisition-related costs in 2017.

During the year ended September 30, 2020, SG&A included acquisition costs of $ 2,960 .

There were no acquisition-related costs in 2019.

In 2018, SG&A and Cost of goods and services included $ 6,097 and $ 1,500 of acquisition-related costs, respectively..

NOTE 4 — INVENTORIES

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Finished goods

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

6 unchanged sentences

Accumulated depreciation and amortization

Except as described in Note 9, Restructuring Charges, no event or indicator of impairment occurred during the year ended September 30, 2020 which would require additional impairment testing of property, plant and equipment.

NOTE 6 — GOODWILL AND OTHER INTANGIBLES

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.

In connection with the Company's change in its reportable segments, the Company performed its annual impairment testing of goodwill at Griffon's new reporting unit level as of September 30, 2019 .

See in Note 1, Description of Business and Summary of Significant Accounting Policies, for a description of the Company's goodwill and indefinite-lived intangible impairment testing methodology.

The Company performed an impairment test before and after the change in our reportable segment structure, and as a result of this analysis, no impairment was identified.

ASC 350 “Intangibles - Goodwill and Other Intangibles” provides guidance on a company's subsequent measurement and recognition of goodwill and other intangibles, including subsequent changes to carrying amounts, including impairment and fair value adjustments.

In accordance with the guidance set forth in ASC 350,

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

and in connection with the modification of its reportable segment structure, using a relative fair value approach, the Company reallocated $ 148,076 of goodwill between the CPP and HBP segments.

See Note 18, Segment Information for further information on the Company's three reportable segments.

Griffon usually performs its annual goodwill impairment testing in the fourth quarter of each year.

In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing.

Given the general deterioration in economic and market conditions surrounding the COVID-19 pandemic, the Company considered the impact that the COVID-19 pandemic may have on its near and long-term forecasts and completed an interim impairment test as of March 31, 2020.

The Company determined that there was no impairment to either its goodwill or indefinite-lived intangible assets at March 31, 2020.

As of September 30, 2020 , the Company performed a qualitative assessment and determined it was not more likely than not that the fair value of any of its reporting units or its indefinite-lived intangible assets was less than their carrying values.

Based upon the results of the annual impairment qualitative review, it was determined that the fair value of each reporting unit substantially exceeded the carrying value of the assets, as performed under step one, and no impairment existed.

See Note 1, Description of Business and Summary of Significant Accounting Policies, for a description of the Company's goodwill and indefinite-lived intangible impairment testing methodology.

The following table provides changes in carrying value of goodwill by segment through the year ended September 30, 2020 :

1 unchanged sentence

Goodwill from acquisitions

Reallocation of Goodwill (1)

Foreign currency translation adjustments

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Goodwill from acquisitions

Reallocation of Goodwill

Foreign currency translation adjustments

3 unchanged sentences

Defense Electronics

(1) In accordance with the guidance set forth in ASC 350, and in connection with the modification of the Company's reportable segment structure, using a relative fair value approach, the Company reallocated $ 148,076 of goodwill between the CPP and HBP segments.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

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thereafter - $ 83,490 .

No event or indicator or impairment occurred during 2019, which would require impairment testing of long-lived intangible assets including goodwill.

NOTE 7 — DISCONTINUED OPERATIONS

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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.

The following amounts summarize the total assets and liabilities of Plastics and Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the consolidated balance sheets:

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

At September 30,

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At September 30, 2020 , 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 $ 10,811 .

The increase in assets and liabilities were primarily associated with insurance claims receivable and payable.

1 unchanged sentence

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.

In connection with the sale of Plastics, the Company recorded a $ 9,500 post-closing adjustment ( $ 7,085 , net of tax) during 2019 and recorded a gain on sale of $ 112,964 ( $ 81,041 , net of tax) during 2018.

In connection with the sale of Plastics, the Company recorded a $ 9,500 post-closing adjustment ( $ 7,085 , net of tax) during 2019 and recorded

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

a gain on sale of $ 112,964 ( $ 81,041 , net of tax) during 2018.

The following amounts related to the Plastics segment have been segregated from Griffon's continuing operations and are reported as discontinued operations:

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Installation Services and Other Discontinued Activities

and a range of related building products, primarily for the new residential housing market.

In 2008, Griffon sold eleven units, closed one unit and merged two units into HBP.

Griffon substantially concluded its remaining disposal activities in 2009.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Installation Services operating results have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented;

Installation Services is excluded from segment reporting.

There was no reported revenue in 2020, 2019 and 2018.

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 the Clopay Services Corporation discontinued operations in 2008.

NOTE 8 — ACCRUED LIABILITIES

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Marketing and advertising

Acquisition related accruals

Restructuring

NOTE 9 – RESTRUCTURING CHARGES

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.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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.

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

The remaining $ 19,000 of charges are non-cash and are primarily related to asset write-downs.

In the year ended September 30, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 13,669 .

For the year ended September 30, 2020, cash charges totaled $ 8,977 and non-cash, asset-related charges totaled $ 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.

Non-cash charges included a $ 1,968 impairment charge related to a facility’s operating lease as well as $ 671 of leasehold improvements made to the leased facility and $ 304 of inventory that have no recoverable value, and a $ 1,749 impairment charge related to machinery and equipment that have no recoverable value at one of the Company's owned manufacturing locations.

As a result of these transactions, headcount was reduced by 167 .

A summary of the restructuring and other related charges included in Cost of goods and services and Selling, general and administrative expenses in the Company's Consolidated Statements of Operations were as follows:

For the Year Ended September 30, 2020

Cost of goods and services

Selling, general and administrative expenses

Total restructuring charges

For the Year Ended September 30, 2020

Personnel related costs

Facilities, exit costs and other

Non-cash facility and other

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The following table summarizes the accrued liabilities of the Company's restructuring actions:

Non Cash Charges

Personnel related costs

Facility and Other Costs

Accrued liability at September 30, 2019

Non-cash charges (1)

Accrued liability at September 30, 2020

(1) Non-cash charges in Facility and Other Costs primarily represent the non-cash write-off of certain long-lived assets in connection with certain facility closures.

NOTE 10 – WARRANTY LIABILITY

Defense Electronics offers warranties against product defects for periods generally ranging from one to two years , depending on the specific product and terms of the customer purchase agreement.

HBP also offers warranties against product defects for periods generally ranging from one to ten years, with limited lifetime warranties on certain door models.

Typical warranties require CPP, HBP and Defense Electronics to repair or replace the defective products during the warranty period at no cost to the customer.

DE offers warranties against product defects for periods generally ranging from one to two years , depending on the specific product and terms of the customer purchase agreement.

CPP and HBP also offers warranties against product defects for periods generally ranging from one to ten years, with limited lifetime warranties on certain door models.

Typical warranties require CPP, HBP and DE to repair or replace the defective products during the warranty period at no cost to the customer.

At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary.

5 unchanged sentences

Actual warranty costs incurred

Other warranty liabilities assumed from acquisitions

Balance, end of period

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

NOTE 10 — NOTES PAYABLE, CAPITALIZED LEASES AND LONG-TERM DEBT

The present value of the net minimum payments on capitalized leases as of September 30, 2019 was follows:

At September 30,

Total minimum lease payments

Less amount representing interest payments

Present value of net minimum lease payments

Current portion

Capitalized lease obligation, less current portion

Minimum payments under capital leases for the next five years are as follows:

$ 3,950 in 2020 , $ 2,153 in 2021 , $ 668 in 2022 , $ 157 in 2023 , $ 0 in 2024 and $ 0 thereafter.

Included in the consolidated balance sheet at September 30, 2019 under Property, plant and equipment, are costs and accumulated depreciation subject to capitalized leases of $ 41,742 and $ 35,196 , respectively, and included in Other assets are deferred interest charges of $ 55 .

Included in the consolidated balance sheet at September 30, 2018 , under Property, plant and equipment are costs and accumulated depreciation subject to capitalized leases of $ 41,742 and $ 31,969 , respectively, and included in Other assets are deferred interest charges of $ 80 .

Amortization expense was $ 3,967 , $ 3,514 , and $ 1,683 in 2019 , 2018 and 2017 respectively.

In October 2006, a subsidiary of Griffon entered into a capital lease totaling $ 14,290 for real estate it occupies in Troy, Ohio.

Approximately $ 10,000 was used to acquire the building and the remaining amount was used for improvements.

The lease matures in 2021 , bears interest at a fixed rate of 5.0 % , is secured by a mortgage on the real estate and is guaranteed by Griffon.

NOTE 11 — LONG-TERM DEBT

Debt at September 30, 2020 and 2019 consisted of the following:

2 unchanged sentences

Interest Rate

Senior note due 2022

Senior notes due 2028

Revolver due 2025

Capital lease - real estate

Finance lease - real estate

lines of credit

9 unchanged sentences

Revolver due 2021

Capital lease - real estate

Finance lease - real estate

lines of credit

9 unchanged sentences

Senior notes due 2028

Senior notes due 2022

Revolver due 2025

Capital lease - real estate

Finance lease - real estate

lines of credit

1 unchanged sentence

Capitalized interest

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Year Ended September 30, 2019

5 unchanged sentences

Revolver due 2025

Real estate mortgages

Capital lease - real estate

Finance lease - real estate

lines of credit

1 unchanged sentence

Capitalized interest

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Year Ended September 30, 2018

5 unchanged sentences

Revolver due 2025

debt due 2017

Real estate mortgages

Capital lease - real estate

Finance lease - real estate

lines of credit

3 unchanged sentences

$ 9,922 in 2021 , $ 12,667 in 2022 , $ 16,124 in 2023 , $ 1,730 in 2024 , $ 14,628 in 2025 and $ 1,009,351 thereafter.

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 due 2028, at 100.25 % of par, to Griffon's previously issued $ 850,000 principal amount of its 5.75 % senior notes due 2028, at of par, completed on February 19, 2020 (collectively, the "Senior Notes").

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

As of 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.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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.

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

in addition to $ 13,329 capitalized under the 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 its Credit Agreement to increase the credit facility from $ 250,000 to $ 350,000 , extend its maturity from March 13, 2020 to March 22, 2021, and modify certain other provisions of the facility.

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 .

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.

1 unchanged sentence

The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries.

2 unchanged sentences

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 amount of $ 32,280 and $ 8,000 , respectively, that were due to mature in September 2025 and April 2018, respectively.

2 unchanged sentences

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 has now been fully utilized.

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

The Term Loan bears interest at LIBOR plus 2.91 % .

In August 2016 and as amended on June 30, 2017, Griffon’s ESOP entered into a Term Loan with a bank (the "ESOP Agreement").

The Term Loan interest rate was LIBOR plus 3.00 % .

The Term Loan required quarterly principal payments of $ 569 with a balloon payment due at maturity.

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 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

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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.

1 unchanged sentence

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.

2 unchanged sentences

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 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 ).

2 unchanged sentences

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 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 ).

As of September 30, 2019 , the term had an outstanding balance of AUD 25,875 ( $ 17,492 as of 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 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, 2019, there were 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.

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).

As of September 30, 2019, the revolver had no outstanding balance while the term and mortgage loan balances amounted to GBP 15,831 ( $ 19,485 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

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

loan balances amounted to GBP 15,398 ( $ 19,799 as of September 30, 2020).

The revolver and the term loan are both secured by substantially all of the assets of AMES UK and its subsidiaries.

1 unchanged sentence

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

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

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

At September 30, 2020 , Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

2 unchanged sentences

In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $ 11,956 in 2020 , $ 11,788 in 2019 and $ 11,053 in 2018.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans.

12 unchanged sentences

A small amount of plan assets are invested in private equity which consist primarily of investments in private companies which are valued using the net asset values provided by the underlying private investment companies as a practical expedient (level 3 inputs).

Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc.

Pension Plan.

The merged qualified defined benefit plan was named the Clopay Ames Pension Plan (the “Clopay AMES Plan”).

The Clopay portion of the Clopay AMES Plan has been frozen to new entrants since December 2000.

Certain employees who were part of the plan prior to December 2000 continued to accrue a service benefit through December 2010, at which time all plan participants stopped accruing service benefits.

The AMES portion of the Clopay AMES Plan has been frozen to all new entrants since November 2009 and stopped accruing benefits in December 2009.

The AMES supplemental executive retirement plan was frozen to new entrants and participants in the plan stopped accruing benefits in 2008.

In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changed certain presentation and disclosure requirements for employers that sponsor defined benefit and post-retirement pension plans.

The new standard requires the service cost component of the net benefit cost to be in the same line item as other compensation in operating income and the other components of net benefit plan cost, including interest costs, amortization of prior service costs and recognized actuarial costs to be presented outside of operating income on a retrospective basis.

The standard was effective for fiscal years beginning after December 15, 2017.

The Company adopted the requirements of the standard in the first quarter of 2019 on a retrospective basis reclassifying the other components of the net periodic benefit plan costs from Selling, general and administrative expenses to a non-service expense within Other income (expense).

The defined benefit and post-retirement pension plans did not have a service cost component.

The Company utilized a practical expedient included in the accounting guidance which allowed the Company to use amounts previously disclosed in its pension and other post-retirement benefits note for the prior period as the estimation basis for applying the required retrospective presentation requirements.

The Clopay AMES Pension Plan and the AMES supplemental executive retirement plan are frozen to new entrants and participants in the plans no longer accrue benefits.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $ 1,559 , $ 3,148 and $ 3,649 during 2020, 2019, and 2018 respectively.

The impact of this adoption resulted in a reclassification to the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for 2018 and 2017, in which previously reported Cost of goods and services and Selling, general and administrative expenses were increased by $ 3,649 and $ 1,993 , respectively with a corresponding offset to Other income (expense).

The remaining provisions of the standard did not have a material impact on our financial position, results of operations or liquidity.

Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets.

The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments.

The long-term rate of return assumption

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations.

The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations.

The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return.

2 unchanged sentences

A 10 % change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Net periodic costs (benefits) were as follows:

61 unchanged sentences

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

The actual and weighted-average asset allocation for qualified benefit plans were as follows:

At September 30,

Cash and equivalents

Equity securities

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:

8 unchanged sentences

The expected level of 2021 catch up contributions is $ 2,107 .

The actual and weighted-average asset allocation for qualified benefit plans were as follows:

At September 30,

Cash and equivalents

Equity securities

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Short-term investment funds – The fair value is determined using the Net Asset Value (“NAV”) provided by the administrator of the fund.

The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding.

The NAV is a quoted price in a market that is not active and is primarily classified as Level 2.

These investments can be liquidated on demand.

Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1.

3 unchanged sentences

Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities.

These investments are primarily classified within Level 1 of the valuation hierarchy.

These investments are classified within Level 1 and Level 2 of the valuation hierarchy.

Commingled funds – The fair values are determined using NAV provided by the administrator of the fund.

20 unchanged sentences

Other Securities

The following table represents level 3 significant unobservable inputs for the year ended September 30, 2019:

As of October 1, 2018

Purchases, issuances and settlements

Gains and losses

As of September 30, 2019

Accrued income and plan receivables

At September 30, 2019

5 unchanged sentences

Cash and equivalents

Government and agency securities

Debt instruments

2 unchanged sentences

Limited partnerships and hedge fund investments

Other Securities

Accrued income and plan receivables

The following table represents level 3 significant unobservable inputs for the years ended September 30, 2020 and 2019:

As of October 1, 2019

Purchases, issuances and settlements

Gains and losses

As of September 30, 2019

Purchases, issuances and settlements

Gains and losses

As of September 30, 2020

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Griffon has an ESOP that covers substantially all domestic employees.

3 unchanged sentences

Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans.

Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

closing price of Griffon common stock on the dividend payment date.

Compensation expense under the ESOP was $ 2,630 in 2019 , $ 9,532 in 2018 , including an impact of $ 2,588 from the April 2018 special dividend, and $ 5,643 in 2017.

Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date.

Compensation expense under the ESOP was $ 2,878 in 2020 , $ 2,629 in 2019 and $ 9,532 in 2018, including an impact of $ 2,588 from the April 2018 special dividend.

The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity.

5 unchanged sentences

NOTE 13 – INCOME TAXES

On December 22, 2017, the "Tax Cuts and Jobs Act" ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code.

Among the significant changes to the U.S.

Internal Revenue Code, the TCJA reduced the U.S.

federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S.

The TCJA lowered the Company’s U.S.

statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income.

The TCJA also created a new minimum tax on certain foreign earnings, for which the Company has elected to record as a current period expense when incurred.

The Company computed its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5 % .

4 unchanged sentences

Our analysis under SAB 118 was completed in December 2018 and resulted in no material adjustments to the provision amounts recorded as of September 30, 2018.

The TCJA requires companies to pay a one-time transition tax on mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”).

The Company has recorded a provisional transition tax charge of $ 13,100 net of foreign tax credits for fiscal year 2018.

The Company ultimately incurred a transition tax charge of $ 12,699 .

Under the TCJA, the Company elected to pay the transition tax interest-free over eight years.

The TCJA makes broad and complex changes to the U.S.

tax code that affect our fiscal year ended September 30, 2019, including but not limited to:

(1) creating the base erosion anti-abuse tax measure that taxes certain payments between a U.S.

corporation and its foreign subsidiaries;

(2) creating a new provision designed to tax global intangible low-tax income (“GILTI”) of foreign subsidiaries;

and (3) a foreign derived intangible income.

We have estimated the impact of these changes in our income tax provision for 2019.

The GILTI provision of the TCJA requires the Company to include in its U.S.

Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets.

We have elected to account for the tax effects of GILTI as a current period expense when incurred.

GRIFFON CORPORATION

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

The Company recorded a provisional transition tax charge of $ 13,100 net of foreign tax credits for fiscal year 2018.

The Company ultimately incurred a transition tax charge of $ 12,699 .

Under the TCJA, the Company elected to pay the transition tax interest-free over eight years and at September 30, 2020 has $ 8,344 remaining on this liability.

During fiscal 2020, the U.S.

federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions.

The Company evaluated the impact of the legislation and determined that while there was an impact on the timing of certain tax payments, there is no material impact on the Company’s consolidated financial statements or related disclosures

Income taxes have been based on the following components of Income before taxes from continuing operations:

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Total provision

Griffon's income tax provision from the excess tax benefits from vesting of equity awards to be recognized within income tax expense in 2019 totaled $ 304 , compared to income tax benefits in 2018 and 2017 of $ 1,299 and $ 4,440 , respectively.

Griffon’s income tax provision included benefits of $ 576 , $ 421 and $ 122 in 2019 , 2018 and 2017, respectively, reflecting the reversal of previously recorded tax liabilities including the resolution of various tax audits and the closing of certain statutes for prior years’ tax returns.

Differences between the effective income tax rate applied to Income and the U.S.

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taxes - foreign permanent items and taxes

Change in domestic manufacturing deduction

Change in tax contingency reserves

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Warranty reserve

Lease liabilities

Net operating loss

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Property, plant and equipment

Right-of-use assets

Total deferred tax liabilities

Net deferred tax liabilities

In 2019, the increase in the valuation allowance of $ 2,302 is primarily the result of the generation and usage or non-usage of Foreign Tax Credit generated during the year.

During the year ended September 30, 2020, the Company adopted ASU 2016-02 relating to Leases (Topic 842).

Deferred tax assets and liabilities were recorded relating to the lease liabilities and the right of use assets recognized under this new standard.

The Company adopted this update under the modified retrospective approach which required no adjustment to a prior period.

At September 30, 2020 the corresponding deferred tax asset and liabilities were $ 43,045 and $ 41,747 , respectively.

In 2020, the decrease in the valuation allowance of $ 999 is primarily the result of the expiration of foreign tax credits, partially offset by the generation and usage or non-usage of foreign tax credit generated during the year.

The components of the net deferred tax liability, by balance sheet account, were as follows:

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In the event these earnings are later remitted to the U.S., any estimated withholding tax on remittance of those earnings is expected to be immaterial to the income tax provision.

At September 30, 2019 and 2018 , Griffon had loss carryforwards for U.S.

tax purposes of $ 5,419 and $ 6,089 , respectively, and non-U.S.

tax purposes of $ 7,413 and $ 7,319 , respectively.

losses expire beginning in 2033.

loss carryforwards are available for carryforward indefinitely.

At September 30, 2019, Griffon had interest expense carryforwards for U.S.

tax purposes of $ 25,000 .

This carryforward is available for carryforward indefinitely.

GRIFFON CORPORATION

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

At September 30, 2020 , Griffon had no loss carryforwards for U.S.

tax purposes and $ 9,671 for non-U.S.

tax purposes.

At September 30, 2019 , Griffon had loss carryforwards for U.S.

and non-U.S tax purposes of $ 5,419 and $ 7,413 , respectively.

loss carryforwards are available for carryforward indefinitely.

At September 30, 2020 and 2019 , Griffon had interest expense carryforwards of $ 0 and $ 25,000 , respectively.

The interest expense carryforward was utilized in September 30, 2020.

At September 30, 2020 and 2019 , Griffon had state and local loss carryforwards of $ 124,191 and $ 127,354 , respectively, which expire in varying amounts through 2039 .

At September 30, 2020 and 2019 , Griffon had federal tax credit carryforwards of $ 5,954 and $ 8,948 , respectively, which expire in varying amounts through 2035 .

At September 30, 2019, Griffon had capital loss carryover for U.S.

tax purposes of $ 9,524 .

At September 30, 2020 and 2019, Griffon had capital loss carryovers for U.S.

tax purposes of $ 10,500 and $ 9,524 , respectively, generated in the September 30, 2019 tax year.

The carryover is available for three-year carryback or five-year carryforward.

We believe it is more likely than not that the benefit from certain federal tax credits, state net operating losses and credits, and foreign net operating losses will not be realized.

In recognition of this risk, we have provided a valuation allowance as of September 30, 2019 and 2018 of $ 10,823 and $ 8,520 , respectively, on the deferred tax assets relating to these federal credits, state net operating loss carryforwards and credits, and foreign net operating losses.

If our assumptions change and we determine we will be able to realize these federal credits, state net operating loss carryforwards or credits, or foreign net operating losses, the benefits relating to the reversal of the valuation allowance will be recognized as a reduction of income tax expense.

We believe it is more likely than not that the benefit from certain federal and state tax attributes will not be realized.

In recognition of this risk, we have provided a valuation allowance as of September 30, 2020 and 2019 of $ 9,824 and $ 10,823 , respectively, on the deferred tax assets.

As it becomes probable that the benefits of these attributes will be realized, the reversal of valuation allowance will be recognized as a reduction of income tax expense.

If certain substantial changes in Griffon's ownership occur, there would be an annual limitation on the amount of carryforward(s) that can be utilized.

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jurisdictions are no longer subject to income tax examinations for years before 2013.

state and non-U.S.

statutory tax audits are currently underway.

state and statutory tax audits are currently underway.

The following is a roll forward of unrecognized tax benefits:

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Additions based on tax positions related to prior years

Reductions based on tax positions related to prior years

Lapse of Statutes

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Additions based on tax positions related to prior years

Reductions based on tax positions related to prior years

Lapse of Statutes

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such dividends will be released upon vesting of the underlying restricted shares.

In March 2019, the ESOP Term Loan was refinanced with a loan from Griffon which was funded with cash and a draw on its $ 350,000 credit facility;

dividends paid on allocated shares in the ESOP are allocated to participant accounts in the form of additional shares.

At September, 30, 2020, accrued dividends were $ 3,535 .

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.

On August 18, 2020, the Company sold 8,000,000 shares of our common stock at a price of $ 21.50 per share through a public equity offering, for a total net proceeds of $ 163,830 , net of underwriting discounts, commissions and offering expenses.

In addition, on August 21, 2020, pursuant to the exercise by the underwriters of their overallotment option, the underwriters purchased an additional 700,000 shares of common stock from the Company at a price of $ 21.50 , resulting in additional net proceeds to the Company of $ 14,335 .

In total, the Company sold 8,700,000 shares of common stock at a price of $ 21.50 for a total net proceeds of $ 178,165 .

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

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

On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted.

On January 31, 2018, shareholders approved Amendment No.

1 to the Incentive Plan pursuant which, among other things, added 1,000,000 shares to the Incentive Plan.

Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant.

The maximum number of shares of common stock available for award under the Incentive Plan is 3,350,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited.

1 to the Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Incentive Plan;

and on January 30, 2020, shareholders approved Amendment No.

2 to the Incentive Plan, pursuant to which 1,700,000 shares were added to the Incentive Plan.

Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, which generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant.

As of September 30, 2020, there are no stock options outstanding.

The maximum number of shares of common stock available for award under the Incentive Plan is 5,050,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares of underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited.

As of September 30, 2020 , 1,167,172 shares were available for grant.

All grants outstanding under former equity plans will continue under their terms;

no additional awards will be granted under such plans.

Compensation expense for restricted stock and restricted stock units ("RSUs") is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares (or RSUs) granted multiplied by the stock price on date of grant, and for performance shares (or performance RSUs), the likelihood of achieving the performance criteria.

Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model.

Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within Selling, general and administrative expenses.

The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:

The following table summarizes the Company’s compensation expense relating to all stock-based compensation plans:

For the Years Ended September 30,

Pre-tax compensation expense

Total stock-based compensation expense, net of tax

Restricted stock

Total stock based compensation

GRIFFON CORPORATION

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

As of ended September 30, 2018 and 2017, a stock option to purchase 350,000 shares was outstanding and exercisable at a weighted average exercise price of $ 20.00 .

This option expired on October 1, 2018.

In 2018, the ESOP compensation expense includes dividends paid on allocated shares in connection with the special cash dividend as mentioned above, of $ 1.00 per share paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018.

A summary of restricted stock activity, inclusive of restricted stock units, for 2020 is as follows:

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During 2020, Griffon granted 1,061,624 shares of restricted stock and restricted stock units.

This included 734,270 shares of restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of three years , with a total fair value of $ 9,185 , or a weighted average fair value of $ 12.51 per share.

Also, this included 528,000 shares of restricted stock granted to two senior executives with a vesting period of four years and a two year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon's common stock.

The Monte Carlo Simulation model was chosen to value the two senior executive awards;

the total fair value of these restricted shares is approximately $ 3,576 , or a weighted average fair value of $ 6.77 .

This included 348,280 shares of restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of approximately three years , with a total fair value of $ 7,446 , or a weighted average fair value of $ 21.38 per share.

This also included 53,344 of restricted shares granted to non-employee directors of Griffon with a vesting period of three years and a fair value of $ 1,170 , or a weighted average fair value of $ 21.93 per share.

Furthermore, this included 660,000 shares of restricted stock granted to two senior executives with a vesting period of four years and a two year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon's common stock.

So long as the minimum performance condition is attained, the amount of shares that can vest will range from 480,000 to 660,000 .

The Monte Carlo Simulation model was chosen to value the two senior executive awards;

The total fair value of these restricted shares using the Monte Carlo Simulation model is approximately $ 9,534 , or a weighted average fair value of $ 14.45 .

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.

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Shares repurchased are recorded at cost.

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 no t purchase shares of common stock under these repurchase programs.

At September 30, 2020 an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase authorizations.

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 the year ended September 30, 2020 , 340,775 shares, with a market value of $ 7,409 , or $ 21.74 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock.

Furthermore, during 2020, an additional 3,307 shares, with a market value of $ 70 , or $ 21.22 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting.

On June 19, 2018, GS Direct, L.L.C., an affiliate of Goldman Sachs & Co., completed an underwritten secondary offering to sell 5,583,375 shares of Griffon's common stock, inclusive of the underwriters’ 30-day option to purchase additional shares.

On June 19, 2018, GS Direct, L.L.C., an affiliate of Goldman Sachs & Co.

("GS Direct") completed an underwritten secondary offering to sell 5,583,375 shares of Griffon's common stock, inclusive of the underwriters’ 30-day option to purchase additional shares.

GS Direct’s original 10,000,000 share investment was in 2008;

following the closing of the offering, GS Direct no longer owns any shares of Griffon.

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

GRIFFON CORPORATION

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

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

NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases

Griffon rents real property and equipment under operating leases expiring at various dates.

Most of the real property leases have escalation clauses related to increases in real property taxes.

Rent expense for all operating leases totaled approximately $ 37,068 , $ 35,726 and $ 26,297 in 2019 , 2018 and 2017, respectively.

Aggregate future minimum lease payments for operating leases at September 30, 2019 are $ 35,176 in 2020 , $ 30,730 in 2021 , $ 26,119 in 2022 , $ 20,008 in 2023 , $ 14,198 in 2024 and $ 78,105 thereafter.

Additionally, 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.

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

Griffon also has various finance equipment leases.

Refer to Note 22 - Leases for further information.

Aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2020 are as follows (in thousands):

Operating Leases

Finance Leases

Total lease payments

Imputed Interest

Present value of lease liabilities

Purchase Commitments

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Legal and environmental

Department of Environmental Conservation of New York State (“DEC”), with ISC Properties, Inc.

Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties, Inc.

Peekskill Site.

Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) owned by ISC Properties, Inc.

(“ISCP”), a wholly-owned subsidiary of Griffon.

ISCP sold the Peekskill Site in November 1982.

Subsequently, ISCP was advised by the DEC that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations.

Subsequently, ISCP was advised by the Department of Environmental Conservation of New York State (the "DEC") that sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to prior plating operations by a Lightron subsidiary.

In 1996, ISCP entered into a consent order with the DEC (the “Consent Order”), pursuant to which ISCP was required to perform a remedial investigation and prepare a feasibility study (the “Feasibility Study”).

After completing the initial remedial investigation, ISCP conducted, over the next several years, supplemental remedial investigations, including soil vapor investigations, as required by the Consent Order.

After completing the initial remedial investigation, ISCP conducted supplemental remedial investigations over the next several years, including soil vapor investigations, as required by the Consent Order.

In April 2009, the DEC advised ISCP that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009.

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ISCP satisfied its obligations under the Consent Order when DEC approved the Remedial Investigation and Feasibility Study for the Peekskill Site.

In June, 2011 the DEC issued a Remedial Action Plan for the Peekskill Site that set forth the specific remedies selected and responded to public comments.

The approximate cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $ 10,000 .

Following issuance of the Remedial Action Plan, the DEC implemented a portion of its plan, and also performed additional investigation for the presence of metals in soils and sediments downstream from the Peekskill Site.

During this investigation chromium was found to be present in sediments further downstream of the Peekskill site than previously detected.

In August 2018, the DEC sent a letter to the United States Environmental Protection Agency (the “EPA”), in which the DEC requested that the Peekskill Site be nominated by the EPA for inclusion on the National Priorities List (the “NPL”).

Based on DEC’s request and on an analysis by a consultant retained by the EPA, on May 15, 2019 the EPA added the Peekskill Site to the NPL under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA").

It is uncertain what subsequent action the EPA will take.

The EPA may, on its own or through the use of consultants, perform further studies of the site and/or subsequently remediate the site, and in such event, would likely seek reimbursement for the costs incurred from potentially responsible parties (“PRPs”).

Alternatively, the EPA could enter into negotiations with the PRPs to request that the PRPs perform further studies and/or remediate the site.

Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

In June 2011 the DEC issued a Record of Decision that set forth a Remedial Action Plan for the Peekskill Site that identified the specific remedies selected and responded to public comments.

The cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $ 10,000 .

GRIFFON CORPORATION

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

Improper Advertisement Claim involving Union Tools ® Products.

Beginning in December 2004, a customer of AMES had been named in various litigation matters relating to certain Union Tools products.

The plaintiffs in those litigation matters asserted causes of action against the customer of AMES for improper advertisement to end consumers.

The allegations suggested that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States.

The complaints asserted various causes of action against the customer of AMES under federal and state law, including common law fraud.

At some point, the customer may seek indemnity (including recovery of its legal fees and costs) against AMES for an unspecified amount.

Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against AMES.

During this investigation metals were found to be present in sediments further downstream from the Peekskill site than previously detected.

Based on the DEC’s request and an analysis by a consultant retained by the EPA, on May 15, 2019 the EPA added the Peekskill Site to the NPL and has since announced that it is performing a Remedial Investigation/Feasibility Study.

On August 25, 2020, the EPA send a letter to several parties, including Lightron and ISCP, requesting that each such party inform the EPA as to whether it would be willing to enter into discussions regarding implementation of a Remedial Investigation/Feasibility Study (“RI/FS”).

The EPA also sent a request for information to each party under Section 104(e) of CERCLA.

Lightron and ISCP have informed the EPA that they are willing to participate in discussions regarding implementation of the RI/FS.

Lightron and ISCP have also submitted responses to certain items contained in the Section 104(e) information request, with additional responses to follow.

The current owner of the property, which acquired the Peekskill Site from ISCP in 1982 and has no relationship with Lightron or ISCP, has also informed the EPA that it is willing to discuss implementation of the RI/FS, and has also received, and submitted certain information in response to, a Section 104(e) information request.

The EPA may decide to implement the RI/FS, on its own or through the use of consultants, may reach agreement with one or more parties to perform the RI/FS, or may offer to negotiate with one or more parties to accept a settlement addressing the potential liability of such parties for investigation and/or remediation at the Peekskill Site.

Should the EPA implement the RI/FS, or perform further studies and/or subsequently remediate the site, without first reaching agreement with one or more relevant parties, the EPA would likely seek reimbursement for the costs incurred from such parties.

Lightron has not engaged in any operations in over three decades.

ISCP functioned solely as a real estate holding company, and has not held any real property in over three decades.

Griffon does not acknowledge any responsibility to perform any investigation or remediation at the Peekskill Site.

Union Fork and Hoe, Frankfort, NY site.

The former Union Fork and Hoe property in Frankfort NY was acquired by AMES in 2006 as part of a larger acquisition, and has historic site contamination involving chlorinated solvents, petroleum hydrocarbons and metals.

AMES has entered into an Order on Consent with the New York State Department of Environmental Conservation.

While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, AMES is required to perform a remedial investigation of certain portions of the property and to recommend a remediation option.

At the conclusion of the remediation phase to the satisfaction of the DEC, the DEC will issue a Certificate of Completion.

AMES has performed significant investigative and remedial activities over the last few years under work plans approved by the DEC, and is currently implementing a Remedial Action Work Plan that was approved by the DEC;

such activity is expected to be completed by early 2020.

AMES entered into an Order on Consent with the New York State Department of Environmental Conservation (“DEC”).

While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, the Order required Ames to perform a remedial investigation of certain portions of the property and to recommend a remediation option.

In 2018, Ames submitted a Feasibility Study recommending excavation of shallow soils for lead, arsenic and hydrocarbons in addition to deeper excavation for lead.

DEC approved the selection of this remedy in 2019 by issuing a Record of Decision (“ROD”).

Beginning in late 2019 and through June 2020, Ames completed the remediation required by the ROD and filed a Construction Completion Report, a Site Management Plan and an environmental easement with the DEC.

While Ames was implementing the remediation required by the ROD, the DEC requested additional investigation of a small area on the site and of an area adjacent to the site perimeter.

Ames investigated the on-site area and has submitted a workplan to remediate the limited contamination found as a result of this investigation.

Ames has also submitted a workplan to investigate the areas adjacent to the site perimeter.

AMES has a number of defenses to liability in this matter, including its rights under a previous Consent Judgment entered into between the DEC and a predecessor of AMES relating to the site.

Ames’ insurer has accepted Ames’ claim for a substantial portion of the costs incurred and to be incurred for both the on-site and off-site activities.

Government investigations and claims

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Suspension or debarment could have a material adverse effect on Telephonics because of its reliance on government contracts.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

General legal

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NOTE 16 – EARNINGS PER SHARE

Basic and diluted EPS for 2019, 2018 and 2017 were determined using the following information (in thousands):

Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation.

In August 2020, Griffon Corporation completed the Public Offering of 8,700,000 shares of our common stock at a price of $ 21.50 per share.

Total proceeds, net of fees, were $ 178,165 .

The following table is a reconciliation of the share amounts (in thousands) used in computing basic and diluted EPS for 2020, 2019 and 2018 :

Common shares outstanding

Unallocated ESOP shares

Non-vested restricted stock

Impact of weighted average shares

Weighted average shares outstanding - basic

Incremental shares from stock based compensation

Convertible debt due 2017

Weighted average shares outstanding - diluted

Anti-dilutive options excluded from diluted EPS computation

Anti-dilutive shares were not material.

Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

NOTE 17 – RELATED PARTIES

On May 10, 2017, Griffon entered into an engagement letter with Goldman Sachs & Co.

(“Goldman Sachs”) pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the acquisition of ClosetMaid.

Griffon subsequently paid a customary financial advisory fee to Goldman Sachs under the terms of this engagement letter following consummation of the acquisition.

On September 5, 2017, Griffon entered into an engagement letter with Goldman Sachs pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the exploration of strategic alternatives for Plastics.

On September 5, 2017, Griffon entered into an engagement letter with Goldman Sachs & Co.

("Goldman Sachs") pursuant to which Goldman Sachs agreed to act as Griffon’s financial advisor in connection with the exploration of strategic alternatives for Plastics.

On November 15, 2017, Griffon signed an agreement to sell Plastics for approximately $ 465,000 to Berry.

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following the closing of the offering, GS Direct no longer owns any shares of Griffon.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

NOTE 18 — QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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as such the sum of the quarters may not be equal to the full year amounts.

2020 Net income, and the related per share earnings, included, net of tax, restructuring charges of $ 4,148 , $ 3,005 , $ 1,224 and $ 3,488 for the first, second, third and fourth quarters, respectively, acquisition costs of $ 2,321 for the second quarter, loss from debt extinguishment $ 5,245 and $ 969 for the second and third quarters, respectively, benefit from the reversal of contingent consideration related to the Kelkay acquisition of $ 1,403 for the fourth quarter.

The fourth quarter also includes a $ 15 and $ 24 tax benefit for acquisition costs and loss from debt extinguishment, respectively.

2019 Net income, and the related per share earnings, included, net of tax, a benefit from the reversal of contingent consideration related to the Kelkay acquisition of $ 1,333 for the fourth quarter.

2018 Net income, and the related per share earnings, included, net of tax, acquisition related costs of $ 2,348 , $ 378 , $ 2,320 for the first, second and third quarters, respectively, a cost of life insurance benefit of $ 248 for the first quarter, special dividend ESOP charges of $ 2,125 for the third quarter, and secondary equity offering costs of $ 795 for the third quarter.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

NOTE 19 — REPORTABLE SEGMENTS

The prior year amounts have been recast to reflect the change in the reporting segments in the current year.

Griffon now reports it operations through three reportable segments from continuing operations, as follows:

Griffon conducts its operations through three reportable segments from continuing operations, as follows:

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

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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 $ 465,000 , net of certain post-closing adjustments.

All results and information presented exclude Plastics unless otherwise noted.

See Note 7, Discontinued Operations to the Notes of the Financial Statements.

On October 2, 2017, Griffon acquired ClosetMaid.

The accounts of ClosetMaid, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, are included in the Company’s consolidated financial statements from the date of acquisition.

On June 4, 2018, Clopay acquired CornellCookson, a leading US manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional and retail use.

The accounts, affected for preliminary adjustments to reflect fair market values assigned to assets purchased and liabilities assumed, and results of operations of CornellCookson, are included in the Company’s consolidated financial statements from the date of acquisition.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Information on Griffon’s reportable segments from continuing operations is as follows:

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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 (“Segment Adjusted EBITDA”).

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The following table provides a reconciliation of Segment Adjusted EBITDA to Income before taxes and discontinued operations:

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Unallocated amounts, excluding depreciation

Adjusted EBITDA

Net interest expense

Depreciation and amortization

Restructuring charges

Loss from debt extinguishment

Acquisition contingent consideration

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Secondary equity offering costs

Contract settlement charges

Income before taxes from continuing operations

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

For the Years Ended September 30,

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Total consolidated capital expenditures

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

At September 30, 2020

At September 30, 2019

At September 30, 2017

Segment assets:

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Consolidated total

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Disaggregation of Revenue

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For the Year Ended September 30, 2020

For the Year Ended September 30, 2019

Residential repair and remodel

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Consolidated revenue

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Segment information by geographic region for 2018 and 2017 was as follows:

For the Years Ended September 30,

For the Year Ended September 30, 2019

Revenue by Geographic Area - Destination

Consumer and Professional Products

Home and Building Products

Defense Electronics

United States

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Consolidated revenue

For the Years Ended September 30,

LONG-LIVED ASSETS BY GEOGRAPHIC AREA

United States

United Kingdom

All other countries

Consolidated long-lived assets, net

As a percentage of consolidated revenue from continuing operations, CPP sales to The Home Depot approximated 28 % in 2019 , 29 % in 2018 and 28 % in 2017 ;

HBP sales to The Home Depot approximated 13 % in 2019 , 16 % in 2018 , and 18 % in 2017 ;

and Defense Electronics aggregate sales to the United States Government and its agencies approximated 10 % in both 2019 and 2018 , and 18 % in 2017 .

As a percentage of segment revenue, CPP sales to The Home Depot approximated 27 % , 28 % and 29 % in 2020 , 2019 and 2018 , respectively;

HBP sales to The Home Depot approximated 12 % , 13 % and 16 % in 2020 , 2019 and 2018 , respectively;

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

aggregate sales to the United States Government and its agencies approximated 69 % , 63 % and 62 % in 2020 , 2019 and 2018 , respectively.

As a percentage of Griffon's consolidated revenue from continuing operations, CPP sales to The Home Depot approximated 13 % , in both 2020 and 2019, and 14 % in 2018;

HBP sales to The Home Depot approximated 5 % in both 2020 and 2019, and 6 % in 2018;

and DE aggregate sales to the United States Government and its agencies approximated 9 % in 2020, and 10 % in both 2019 and 2018.

NOTE 20 – OTHER INCOME (EXPENSE)

Other income (expense) included $ 608 , ($ 200 ) and $( 723 ) for 2019, 2018 and 2017, respectively, of currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, as well as $( 40 ) , $ 1,184 and $ 53 , respectively, of investment income.

For the year ended September 30, 2020 , 2019 and 2018, Other income (expense) from continuing operations of $ 1,445 , $ 3,127 and $ 4,880 , respectively, includes $ 915 , $ 438 and $ 200 , respectively, of net currency exchange transaction losses from receivables and payables held in non-functional currencies, $ 184 , $( 40 ) and $ 1,184 , respectively, of net gains or (losses) on investments, and $ 1,559 and $ 3,148 and $ 3,649 , respectively, of net periodic benefit plan income.

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

NOTE 21 - OTHER COMPREHENSIVE INCOME (LOSS)

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Total other comprehensive income (loss)

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

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For the Years Ended September 30,

Net income (loss)

Other comprehensive income (loss), net of taxes

Comprehensive income (loss)

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

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Total before tax

NOTE 22 — LEASES

In February 2016, the FASB issued an Accounting Standards Update (ASU 2016-02) related to the accounting and financial statement presentation for leases.

This new guidance requires a lessee to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet, with an election to exempt leases with a term of twelve months or less.

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.

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

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 Condensed Consolidated Balance Sheets.

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

The Company's finance leases are immaterial.

ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment.

In connection with the Company's restructuring activities, during the year ended September 30, 2020, a $ 1,968 impairment charge was recorded related to a facility’s operating lease as well as $ 671 and of leasehold improvements made to the leased facility that have no recoverable value.

See Note 9, Restructuring Charges.

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.

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.

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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

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).

Components of operating lease costs are as follows:

For the Year Ended September 30, 2020

Variable (a), (b)

Short-term (b)

(a) Primarily related to common-area maintenance and property taxes.

(b) Not recorded on the balance sheet.

Fixed rent expense for all operating leases totaled approximately $ 37,068 and $ 35,726 in 2019 and 2018, respectively.

Supplemental cash flow information were as follows:

For the Year Ended September 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Financing cash flows from finance leases

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows:

At September 30, 2020

Operating Leases:

Right of use assets:

Operating right-of-use assets

Lease Liabilities:

Current portion of operating lease liabilities

Long-term operating lease liabilities

Total operating lease liabilities

Finance Leases:

Right of use assets:

Property, plant and equipment, net (1)

Lease Liabilities:

Notes payable and current portion of long-term debt

Long-term debt, net

Total financing lease liabilities

(1) Finance lease assets are recorded net of accumulated depreciation of $ 2,383 .

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 real estate and is guaranteed by Griffon.

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

As of September 30, 2020 and 2019, $ 17,188 and $ 4,333 , respectively, was outstanding, net of issuance costs.

The remaining lease liability balance relates to finance equipment leases.

Finance leases included in the consolidated balance sheet at September 30, 2019 , under Property, plant and equipment, net totaled $ 6,546 .

In 2019 and 2018, Depreciation expense was $ 3,967 , and $ 3,514 , respectively.

The aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2020 are as follows (in thousands):

Operating Leases

Finance Leases

Total lease payments

Imputed Interest

Present value of lease liabilities

GRIFFON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Average lease terms and discount rates were as follows:

September 30, 2020

Weighted-average remaining lease term (years)

Operating Leases

Finance Leases

Weighted-average discount rate

Operating Leases

Finance Leases

NOTE 23 – CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by the domestic assets of Clopay Corporation, Telephonics Corporation, The AMES Companies, Inc., ATT Southern LLC, Clopay Ames Holding Corp., ClosetMaid, LLC, CornellCookson, LLC and Cornell Real Estate Holdings, LLC.

Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally, by Clopay Corporation, Telephonics Corporation, The AMES Companies, Inc., ATT Southern LLC, Clopay Ames Holding Corp., ClosetMaid, LLC, CornellCookson, LLC and Cornell Real Estate Holdings, LLC.

all of which are indirectly 100 % owned by Griffon.

In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, presented below are condensed consolidating financial information as of September 30, 2019 and 2018, and for the years ended September 30, 2019 , 2018 and 2017.

In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are condensed consolidating financial information as of September 30, 2020 and 2019, and for the years ended September 30, 2020 , 2019 and 2018.

The financial information may not necessarily be indicative of results of operations or financial position had the guarantor companies or non-guarantor companies operated as independent entities.

The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly owned subsidiaries accounted for under the equity method.

The indenture relating to the Senior Notes (the “Indenture”) contains terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes.

The indenture relating to the Senior Notes (the “Indenture”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes.

These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indenture;

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Accounts receivable, net of allowances

Contract costs and recognized income not yet billed, net of progress payments

Contract assets, net of progress payments

Prepaid and other current assets

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PROPERTY, PLANT AND EQUIPMENT, net

OPERATING LEASE RIGHT-OF-USE ASSETS

INTANGIBLE ASSETS, net

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Accounts payable and accrued liabilities

Current portion of operating lease liabilities

Liabilities of discontinued operations

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LONG-TERM DEBT, net

LONG-TERM OPERATING LEASE LIABILITIES

INTERCOMPANY PAYABLES

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Accounts receivable, net of allowances

Contract costs and recognized income not yet billed, net of progress payments

Contract assets, net of progress payments

Inventories, net

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Interest income (expense), net

Loss on extinguishment of debt

Total other income (expense)

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Equity in net income (loss) of subsidiaries

Income (loss) from continuing operations

Income from operations of discontinued businesses

Provision (benefit) from income taxes

Income (loss) from discontinued operations

Net income (loss)

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Net income (loss)

Net (income) loss from discontinued operations

Net cash provided by operating activities

2 unchanged sentences

Acquired business, net of cash acquired

Proceeds from sale of business

Insurance proceeds

Proceeds from sale of assets

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

Purchase of shares for treasury

1 unchanged sentence

Payments of long-term debt

Change in short-term borrowings

Financing costs

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CASH AND EQUIVALENTS AT END OF PERIOD

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

GRIFFON CORPORATION

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

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Year Ended September 30, 2019

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Proceeds from sale of business

Insurance proceeds (payments)

Insurance payments

Proceeds from sale of assets

Investment purchases

Net cash provided by (used in) investing activities

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Financing costs

Contingent consideration for acquired businesses

Dividends paid

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CASH AND EQUIVALENTS AT END OF PERIOD

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

GRIFFON CORPORATION

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

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Year Ended September 30, 2018

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Acquired business, net of cash acquired

Investment purchases

Proceeds from sale of business

Insurance proceeds

Proceeds from sale of property, plant and equipment

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Payments of long-term debt

Share premium payment on settled debt

Change in short-term borrowings

Financing costs

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CASH AND EQUIVALENTS AT END OF PERIOD

NOTE 24 – SUBSEQUENT EVENTS

GRIFFON CORPORATION

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

NOTE 22 – SUBSEQUENT EVENTS

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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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 8. Financial Statements and Supplementary Data