GRIFFON CORP 10-K

Item 8. Financial Statements and Supplementary Data The financial statements of Griffon and its subsidiaries and the report thereon of Grant Thornton LLP are included herein: ▪ Report of Independent Registered Public Accounting Firm. ▪ Consolidated Balance Sheets at September 30, 2020 and 2019 . ▪ Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended September 30, 2020 , 2019 and 2018 . ▪ Consolidated Statements of Cash Flows for the years ended September 30, 2020 , 2019 and 2018 . ▪ Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2020 , 2019 and 2018 . ▪ Notes to Consolidated Financial Statements. ▪ Schedule II – Valuation and Qualifying Account. 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Griffon Corporation 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, 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”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO. Basis for opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and limitations of internal control over financial reporting 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; (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; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 56 Critical audit matters 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 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 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. 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. We tested the design and operating effectiveness of controls relating to the cost accumulation, cost estimation and revenue recognition processes, including the Company’s ability to develop the estimates utilized in determining costs at completion. We inspected a selection of contracts; and evaluated those contracts for appropriate revenue recognition and consideration over key terms and provisions. We analyzed trends in revenue, costs and margin on all contracts, on a contract-by-contract basis, both year-over-year and since contract inception to assess the historical accuracy of management’s estimates in the final outcomes of projects. We assessed the appropriateness of adjustments to estimates on a cumulative basis for the year ended September 30, 2020 and their impact on the financial statements. We tested the cost accumulation process by obtaining and inspecting underlying documents for a sample of labor, material costs and overhead and agreeing to amounts recorded by the Company. 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. 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. The Company used prospective financial information to which discount rates were applied to calculate each unit’s fair value. 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 at March 31, 2020. 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. 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 57 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. With the assistance of valuation specialists, we evaluated the appropriateness of the valuation methodology utilized and assessed the appropriateness of inputs utilized. We evaluated the qualifications of those responsible for preparing the calculations of fair values. 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 inputs, significant judgments and estimates, as follows: a) tested prospective financial information and long-term growth rates by comparing to historical trends and industry expectations, performed a sensitivity analysis over growth rates and assessed management’s historical ability to accurately forecast; 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; 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. These included: 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 interim impairment testing and agreed equity values to audited financial information. /S/ GRANT THORNTON LLP We have served as the Company’s auditor since 2006. New York, New York November 12, 2020 58 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) At September 30, 2020 At September 30, 2019 CURRENT ASSETS Cash and equivalents $ 218,089 $ 72,377 Accounts receivable, net of allowances of $17,758 and $7,881 348,124 264,450 Contract assets, net of progress payments of $24,175 and $11,259 84,426 105,111 Inventories 413,825 442,121 Prepaid and other current assets 46,897 40,799 Assets of discontinued operations 2,091 321 Total Current Assets 1,113,452 925,179 PROPERTY, PLANT AND EQUIPMENT, net 343,964 337,326 OPERATING LEASE RIGHT-OF-USE ASSETS 161,627 — GOODWILL 442,643 437,067 INTANGIBLE ASSETS, net 355,028 356,639 OTHER ASSETS 32,897 15,840 ASSETS OF DISCONTINUED OPERATIONS 6,406 2,888 Total Assets $ 2,456,017 $ 2,074,939 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 9,922 $ 10,525 Accounts payable 232,107 250,576 Accrued liabilities 171,572 124,665 Current portion of operating lease liabilities 31,848 — Liabilities of discontinued operations 3,797 4,333 Total Current Liabilities 449,246 390,099 LONG-TERM DEBT, net 1,037,042 1,093,749 LONG-TERM OPERATING LEASE LIABILITIES 136,054 — OTHER LIABILITIES 126,510 109,997 LIABILITIES OF DISCONTINUED OPERATIONS 7,014 3,331 Total Liabilities 1,755,866 1,597,176 COMMITMENTS AND CONTINGENCIES - See Note 14 SHAREHOLDERS’ EQUITY Preferred stock, par value $0.25 per share, authorized 3,000 shares, no shares issued — — Common stock, par value $0.25 per share, authorized 85,000 shares, issued shares of 83,739 and 82,775, respectively. 20,935 20,694 Capital in excess of par value 583,008 519,017 Retained earnings 607,518 568,516 Treasury shares, at cost, 27,610 common shares and 35,969 common shares ( 413,493 ) ( 536,308 ) Accumulated other comprehensive loss ( 72,092 ) ( 65,916 ) Deferred compensation ( 25,725 ) ( 28,240 ) Total Shareholders’ Equity 700,151 477,763 Total Liabilities and Shareholders’ Equity $ 2,456,017 $ 2,074,939 The accompanying notes to consolidated financial statements are an integral part of these statements. 59 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share data) Years Ended September 30, 2020 2019 2018 Revenue $ 2,407,522 $ 2,209,289 $ 1,977,918 Cost of goods and services 1,766,096 1,625,815 1,466,600 Gross profit 641,426 583,474 511,318 Selling, general and administrative expenses 486,398 447,163 418,517 Income from continuing operations 155,028 136,311 92,801 Other income (expense) Interest expense ( 66,544 ) ( 68,066 ) ( 65,568 ) Interest income 753 806 1,697 Loss from debt extinguishment ( 7,925 ) — — Other, net 1,445 3,127 4,880 Total other income (expense) ( 72,271 ) ( 64,133 ) ( 58,991 ) Income before taxes from continuing operations 82,757 72,178 33,810 Provision for income taxes 29,328 26,556 555 Income from continuing operations $ 53,429 $ 45,622 $ 33,255 Discontinued operations: Income (loss) from operations of discontinued businesses — ( 11,050 ) 119,981 Provision for income taxes — ( 2,715 ) 27,558 Income (loss) from discontinued operations — ( 8,335 ) 92,423 Net income $ 53,429 $ 37,287 $ 125,678 Income from continuing operations $ 1.25 $ 1.11 $ 0.81 Income (loss) from discontinued operations — ( 0.20 ) 2.25 Basic earnings per common share $ 1.25 $ 0.91 $ 3.06 Weighted-average shares outstanding 42,588 40,934 41,005 Income from continuing operations $ 1.19 $ 1.06 $ 0.78 Income (loss) from discontinued operations — ( 0.20 ) 2.18 Diluted earnings per common share $ 1.19 $ 0.87 $ 2.96 Weighted-average shares outstanding 45,015 42,888 42,422 Net income $ 53,429 $ 37,287 $ 125,678 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 5,601 ( 8,460 ) 9,403 Pension and other post retirement plans ( 11,784 ) ( 23,055 ) 16,381 Gain (loss) on cash flow hedge 7 ( 289 ) 585 Total other comprehensive income (loss), net of taxes ( 6,176 ) ( 31,804 ) 26,369 Comprehensive income $ 47,253 $ 5,483 $ 152,047 The accompanying notes to consolidated financial statements are an integral part of these statements. 60 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS: Net income $ 53,429 $ 37,287 $ 125,678 Net (income) loss from discontinued operations — 8,335 ( 92,423 ) Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Depreciation and amortization 62,409 61,848 55,803 Stock-based compensation 17,580 15,914 19,610 Asset impairment charges - restructuring 4,692 — — Provision for losses on accounts receivable 1,332 535 96 Amortization of deferred financing costs and debt discounts 3,661 5,393 5,219 Loss from debt extinguishment 7,925 — — Deferred income tax 2,095 ( 2,222 ) ( 17,633 ) (Gain)/ loss on sale/disposal of assets and investments ( 287 ) ( 179 ) 290 Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable and contract assets ( 62,366 ) 8,279 2,681 (Increase) decrease in inventories 34,080 ( 24,938 ) ( 52,122 ) Increase in prepaid and other assets ( 13,582 ) ( 4,285 ) ( 2,285 ) Increase in accounts payable, accrued liabilities and income taxes payable 25,044 7,638 11,078 Other changes, net 1,017 353 2,200 Net cash provided by operating activities - continuing operations 137,029 113,958 58,192 CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS: Acquisition of property, plant and equipment ( 48,998 ) ( 45,361 ) ( 50,138 ) Acquired business, net of cash acquired ( 10,531 ) ( 9,219 ) ( 430,932 ) Investment purchases ( 130 ) ( 149 ) — Proceeds (payments) from sale of business — ( 9,500 ) 474,727 Insurance proceeds (payments) — ( 10,604 ) 8,254 Proceeds from sale of property, plant and equipment 352 280 663 Net cash provided by (used in) investing activities - continuing operations ( 59,307 ) ( 74,553 ) 2,574 CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS: Proceeds from issuance of common stock 178,165 — — Dividends paid ( 14,529 ) ( 13,676 ) ( 49,797 ) Purchase of shares for treasury ( 7,479 ) ( 1,478 ) ( 45,605 ) Proceeds from long-term debt 1,240,080 201,748 443,058 Payments of long-term debt ( 1,308,915 ) ( 218,248 ) ( 300,993 ) Change in short-term borrowings — ( 366 ) 144 Financing costs ( 17,384 ) ( 1,090 ) ( 7,793 ) Contingent consideration for acquired businesses ( 1,733 ) ( 1,686 ) — Other, net ( 15 ) ( 180 ) 51 Net cash provided by (used) in financing activities - continuing operations 68,190 ( 34,976 ) 39,065 61 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in operating activities ( 3,021 ) ( 2,123 ) ( 45,624 ) Net cash provided by (used in) investing activities 444 — ( 10,762 ) Net cash used in financing activities — — ( 22,541 ) Net cash used in discontinued operations ( 2,577 ) ( 2,123 ) ( 78,927 ) Effect of exchange rate changes on cash and equivalents 2,377 313 1,173 NET INCREASE IN CASH AND EQUIVALENTS 145,712 2,619 22,077 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 72,377 69,758 47,681 CASH AND EQUIVALENTS AT END OF PERIOD $ 218,089 $ 72,377 $ 69,758 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 63,139 $ 63,334 $ 59,793 Cash paid for taxes 21,016 25,339 32,140 The accompanying notes to consolidated financial statements are an integral part of these statements. 62 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION Total (in thousands) SHARES PAR VALUE SHARES COST Balance at 9/30/2017 80,663 $ 20,166 $ 487,077 $ 480,347 33,557 $ ( 489,225 ) $ ( 60,481 ) $ ( 39,076 ) $ 398,808 Net income (loss) — — — 125,678 — — — — 125,678 Dividends — — — ( 55,502 ) — — — — ( 55,502 ) Shares withheld on employee taxes on vested equity awards — — — — 200 ( 4,495 ) — — ( 4,495 ) Amortization of deferred compensation — — — — — — — 8,110 8,110 Common stock acquired — — — — 2,089 ( 41,110 ) — — ( 41,110 ) Equity awards granted, net 857 214 ( 214 ) — — — — — — ESOP allocation of common stock — — 4,756 — — — — — 4,756 Stock-based compensation — — 10,078 — — — — — 10,078 Stock-based consideration — — 1,699 — — — — — 1,699 Other comprehensive loss, net of tax — — — — — — 26,369 — 26,369 Balance at 9/30/2018 81,520 20,380 503,396 550,523 35,846 ( 534,830 ) ( 34,112 ) ( 30,966 ) 474,391 Net income (loss) — — — 37,287 — — — — 37,287 Cumulative catch-up adjustment related to adoption of ASC 606 — — — ( 5,618 ) — — — — ( 5,618 ) Dividends — — — ( 13,676 ) — — — — ( 13,676 ) Shares withheld on employee taxes on vested equity awards — — — — 86 ( 1,106 ) — — ( 1,106 ) Amortization of deferred compensation — — — — — — — 2,726 2,726 Common stock acquired — — — — 37 ( 372 ) — — ( 372 ) Equity awards granted, net 1,255 314 ( 314 ) — — — — — — ESOP allocation of common stock — — 1,512 — — — — — 1,512 Stock-based compensation — — 13,285 — — — — — 13,285 Stock-based consideration — — 1,138 — — — — — 1,138 Other comprehensive loss, net of tax — — — — — — ( 31,804 ) — ( 31,804 ) Balance at 9/30/2019 82,775 20,694 519,017 568,516 35,969 ( 536,308 ) ( 65,916 ) ( 28,240 ) 477,763 Net income (loss) — — — 53,429 — — — — 53,429 Dividends — — — ( 14,427 ) — — — — ( 14,427 ) Shares withheld on employee taxes on vested equity awards — — — — 341 ( 7,479 ) — — ( 7,479 ) Amortization of deferred compensation — — — — — — — 2,515 2,515 Common stock issued, net of issuance costs — — 46,900 — ( 8,700 ) 130,294 — — 177,194 Equity awards granted, net 964 241 ( 241 ) — — — — — — ESOP allocation of common stock — — 1,985 — — — — — 1,985 63 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) Stock-based compensation — — 14,702 — — — — — 14,702 Stock-based consideration — — 645 — — — — — 645 Other comprehensive loss, net of tax — — — — — — ( 6,176 ) — ( 6,176 ) Balance at 9/30/2020 83,739 20,935 583,008 607,518 27,610 ( 413,493 ) ( 72,092 ) ( 25,725 ) 700,151 The accompanying notes to consolidated financial statements are an integral part of these statements. 64 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending September 30, ) NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). 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. operations. 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 65 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: • Consumer and Professional Products ("CPP") conducts its operations through The AMES Companies, Inc. (“AMES”). Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. • 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 The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The results of operations of acquired businesses are included from the dates of acquisitions. Earnings per share Due to rounding, the sum of earnings per share may not equal earnings per share of Net income. Discontinued operations 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. 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. Reclassifications Certain amounts in prior years have been reclassified to conform to the current year presentation. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes 66 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (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 Griffon considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank deposits. Griffon had cash in non-U.S. bank accounts of approximately $ 55,000 and $ 34,200 at September 30, 2020 and 2019, respectively. Substantially all U.S. cash and equivalents are in excess of FDIC insured limits. Griffon regularly evaluates the financial stability of all institutions and funds that hold its cash and equivalents. Fair value of financial instruments The carrying values of cash and cash equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates. The fair value hierarchy, as outlined in the applicable accounting guidance, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of Griffon’s 2028 Senior Notes approximated $ 1,040,000 , on September 30, 2020 . Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with a value of $ 3,436 at September 30, 2020 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Other current assets on the consolidated balance sheet. Items Measured at Fair Value on a Recurring Basis At September 30, 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. In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. During 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. 67 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. 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 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 . These contracts, which protect Canadian operations from currency fluctuations for U.S. 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 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). Non-U.S. currency translation Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates. Adjustments resulting from currency translation have been recorded in the equity section of the balance sheet in AOCI as cumulative translation adjustments. Cumulative translation adjustments were gains (losses) of $ 5,601 and $( 8,460 ) for 2020 and 2019, respectively. As of September 30, 2020 and 2019, the foreign currency translation components of Accumulated other comprehensive loss were $ 25,683 and $ 31,284 , respectively. 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 as a component of Other income (expense). Revenue recognition 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 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 68 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. 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. Accounts receivable, allowance for doubtful accounts and concentrations of credit risk Accounts receivable is composed principally of trade accounts receivable, that arise from the sale of goods or services on account, and is stated at historical cost. A substantial portion of Griffon’s trade receivables are from customers within the CPP and HBP businesses, of which the largest customer is Home Depot, whose financial condition is dependent on the construction and related retail sectors of the economy. As a percentage of consolidated accounts receivable, U.S. Government related programs were 9 % and Home Depot was 18 % . Griffon performs continuing evaluations of the financial condition of its customers, and although Griffon generally does not require collateral, letters of credit may be required from customers in certain circumstances. Trade receivables are recorded at the stated amount, less allowance for doubtful accounts and, when appropriate, for customer program reserves and cash discounts. The allowance represents estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency). The allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically identified, as well as an amount for customer defaults based on a formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. The provision related to the allowance for doubtful accounts is recorded in Selling, general and administrative ("SG&A") expenses. The Company writes-off accounts receivable when they are deemed to be uncollectible. Customer program reserves and cash discounts are netted against accounts receivable when it is customer practice to reduce invoices for these amounts. The amounts netted against accounts receivable in 2020 and 2019 were $ 27,607 and $ 17,322 , respectively. All accounts receivable amounts are expected to be collected in less than one year. The Company does not currently have customers or contracts that prescribe specific retainage provisions. 69 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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, 2020 and 2019, approximately $ 7,500 and $ 13,100 , respectively, of contract assets were expected to be collected after one year. Inventories Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs. Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, Telephonics sells products in connection with programs authorized and approved under contracts awarded by the U.S. Government or agencies thereof and in accordance with customer specifications. HBP produces residential and commercial sectional garage doors, commercial rolling steel door and grille products, and CPP produces long-handled tools and landscaping products, and storage and organizational products, both in response to orders from customers of retailers and dealers or based on expected orders, as applicable. Property, plant and equipment Property, plant and equipment includes the historical cost of land, buildings, equipment and significant improvements to existing plant and equipment or, in the case of acquisitions, a fair market value appraisal of such assets completed at the time of acquisition. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is recognized. No event or indicator of impairment occurred during the three years ended September 30, 2020 , which would require additional impairment testing of property, plant and equipment. 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 $ 19,656 , $ 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. Estimated useful lives for property, plant and equipment are as follows: buildings and building improvements, 25 to 40 years ; machinery and equipment, 2 to 15 years ; and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter. Capitalized interest costs included in Property, plant and equipment were $ 2,520 , $ 2,925 and $ 2,896 for the years ended September 30, 2020 , 2019 and 2018, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2020 was approximately $ 262,255 . Goodwill and indefinite-lived intangibles 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 70 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. 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. Leases 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 71 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting purposes, definite-lived intangible assets are amortized on a straight-line basis over their useful lives, generally eight to twenty-five years . Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. There were no indicators of impairment during the three years ending September 30, 2020 . 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. 72 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Risk, retention and insurance Griffon’s property and casualty insurance programs contain various deductibles that, based on Griffon’s experience, are reasonable and customary for a company of its size and risk profile. Griffon generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, general, product and automobile liability as well as property damage and business interruption losses resulting from certain events. Griffon does not consider any of the deductibles to represent a material risk to Griffon. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably estimated. Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis. Pension benefits Griffon sponsors defined and supplemental benefit pension plans for certain retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. Actuarial assumptions used to determine pension liabilities, assets and expense are reviewed annually and modified based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plan's investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments, with the appropriate spot rate applicable to the timing of the projected future benefit payments. Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries; however, differences in actual experience or changes in assumptions may materially impact Griffon’s financial position or results of operations. All of the defined benefit plans are frozen and have ceased accruing benefits. 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. 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 fiscal 2021. 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. This guidance expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and will be effective for the Company beginning in 2021. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures. In August 2018, the FASB issued guidance to clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and will be effective for the Company beginning in 2022. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures. 73 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. Term Loans. 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. 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 is effective for the Company in fiscal 2020. 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 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. 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 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. 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. For contracts with multiple performance obligations, judgment is required to determine whether 74 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. 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. 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 Approximately 86 % of the Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components primarily within the CPP and HBP Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment. A majority of CPP's and HBP's revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly. Payment terms generally range between 15 to 90 days and vary by the location of the business, the type of products manufactured to be sold and the volume of products sold, among other factors. The Company’s CPP and HBP Segments recognize revenue from product sales when all factors are met, including when control of a product transfers to the customer upon its shipment, completion of installation, testing, certification or other substantive acceptance required under the contract. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations on the Company. From time-to-time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns and allowances based upon historical returns experience. The Company includes shipping costs billed to customers in revenue and the related shipping costs in Cost of Goods and Services. The majority of the Company’s contracts in the CPP and HBP Segments offer assurance-type warranties in connection with the sale of a product to a customer. 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 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. 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. Revenue from Defense Electronics Segment Approximately 14 % of the Company’s performance obligations are recognized over time and relate to prime or subcontractors from contract awards with the U.S. Government, as well as foreign governments and other commercial customers within our DE Segment. Revenue recognized over time is generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers. The Company’s DE Segment earns a substantial portion of its revenue as either a prime contractor or subcontractor from contract awards with the U.S. Government, as well as foreign governments and other commercial customers to design, develop and manufacture highly sophisticated intelligence, surveillance and communications solutions. These contracts are typically long-term in nature, usually greater than one year, and do not include a material long-term financing component, either implicitly or explicitly. Revenue and profits from such contracts are recognized over time as work is performed because control of the work in process transfers continuously to the customer. For U.S. Government contracts, the continuous transfer of control to the customer 75 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) is supported by contract clauses that provide for: (i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative use to us. Foreign government and certain commercial contracts contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for product or services that do not have alternative use to us. Revenue and profits on fixed-price and cost-plus contracts that include performance obligations satisfied over time are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. 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. The cost performance and estimates to complete long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss are often required as experience is gained, more information is obtained (even though the scope of work required under the contract may or may not change) and contract modifications occur. The impact of such adjustments to estimates is made on a cumulative basis in the period when such information has become known. The 2020, 2019, and 2018 income from operations included net favorable/(unfavorable) catch-up adjustments approximating $( 10,650 ) , $( 4,500 ) and $ 1,400 , respectively. Gross profit is impacted by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions. 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. 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. A provision for the entire amount of the estimated loss is recorded on a cumulative basis. The estimated remaining costs to complete loss contracts as of September 30, 2020 was $ 10,800 and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). This loss had an immaterial impact on Griffon's Consolidated Financial Statements. 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. 76 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 On September 30, 2020, we had $ 380,000 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 67 % of our remaining performance obligations as revenue within one year, with the balance to be completed thereafter. Backlog represents the dollar value of funded orders for which work has not been performed. Backlog generally increases with bookings, and converts into revenue as we incur costs related to contractual commitments or the shipment of product. Given the nature of our business and a larger dependency on international customers, our bookings, and therefore our backlog, is impacted by the longer maturation cycles resulting in delays in the timing and amounts of such awards, which are subject to numerous factors, including fiscal constraints placed on customer budgets; political uncertainty; the timing of customer negotiations; and the timing of governmental approvals. Contract Balances Contract assets were $ 84,426 as of September 30, 2020 compared to $ 105,111 as of September 30, 2019. 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. Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met. At September 30, 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 $ 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. The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as current on the Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. Current contract liabilities are recorded in Accounts payable on the Consolidated Balance Sheets. Contract liabilities are reduced when the associated revenue from the contract is recognized. NOTE 3 — ACQUISITIONS Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition in each instance. 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 . 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. 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. 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. The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair market values (level 3 inputs) at the acquisition date. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of CornellCookson, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets. 77 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The calculation of the purchase price allocation is as follows: Accounts receivable (1) $ 30,400 Inventories (2) 12,336 Property, plant and equipment 49,426 Goodwill 43,183 Intangible assets 67,600 Other current and non-current assets 2,648 Total assets acquired 205,593 Accounts payable and accrued liabilities 12,507 Long-term liabilities 660 Total liabilities assumed 13,167 Total $ 192,426 (1) Includes $ 30,818 of gross accounts receivable of which $ 418 was not expected to be collected. The fair value of accounts receivable approximated book value acquired. (2) Includes $ 13,434 of gross inventory of which $ 1,098 was reserved for obsolete items. The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the CornellCookson acquisition are as follows: Average Life (Years) Goodwill $ 43,183 N/A Indefinite-lived intangibles 53,500 N/A Definite-lived intangibles 14,100 12 Total goodwill and intangible assets $ 110,783 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 , of which approximately GBP 2,200 was earned. This acquisition broadened AMES' product offerings in the market and increased its in-country operational footprint. The purchase price was primarily allocated to tradenames of GBP 19,000 , customer related intangibles of GBP 6,640 , accounts receivable and inventory of GBP 8,894 and fixed assets and land of GBP 8,241 . On November 6, 2017, AMES acquired substantially all of the assets of Harper Brush Works ("Harper"), a division of Horizon Global, for $ 4,383 , inclusive of post-closing adjustments. Harper is a leading U.S. manufacturer of cleaning products for professional, home, and industrial use. The acquisition expanded AMES’ long-handled tool offering in North America to include brooms, brushes, and other cleaning tools and accessories. The purchase price was primarily allocated to intangible assets of $ 2,300 , inventory and accounts receivable of $ 3,900 and fixed assets of $ 900 . On October 2, 2017, Griffon Corporation completed the acquisition of 100 % of the outstanding equity interests of ClosetMaid, a market leader of home storage and organization products, for approximately $ 185,700 , inclusive of certain post-closing adjustments and excluding the present value of net tax benefits resulting from the transaction. 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 78 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. Goodwill recognized at the acquisition date represents the other intangible benefits that the Company will derive from the ownership of ClosetMaid, however, such intangible benefits do not meet the criteria for recognition of separately identifiable intangible assets. The calculation of the purchase price allocation is as follows: Accounts receivable (1) $ 32,234 Inventories (2) 28,411 Property, plant and equipment 47,464 Goodwill 70,159 Intangible assets 74,580 Other current and non-current assets 3,852 Total assets acquired 256,700 Accounts payable and accrued liabilities 68,251 Long-term liabilities 2,720 Total liabilities assumed 70,971 Total $ 185,729 (1) Includes $ 32,956 of gross accounts receivable of which $ 722 was not expected to be collected. The fair value of accounts receivable approximated book value acquired. (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. The amounts assigned to goodwill and major intangible asset classifications, all of which are tax deductible, for the ClosetMaid acquisition are as follows: Average Life (Years) Goodwill $ 70,159 N/A Indefinite-lived intangibles 47,740 N/A Definite-lived intangibles 26,840 21 Total goodwill and intangible assets $ 144,739 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 The following table details the components of inventory: At September 30, 2020 At September 30, 2019 Raw materials and supplies $ 135,083 $ 121,791 Work in process 81,624 93,830 Finished goods 197,118 226,500 Total $ 413,825 $ 442,121 79 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 The following table details the components of property, plant and equipment, net: At September 30, 2020 At September 30, 2019 Land, building and building improvements $ 167,005 $ 133,036 Machinery and equipment 595,126 580,698 Leasehold improvements 53,386 49,808 815,517 763,542 Accumulated depreciation and amortization ( 471,553 ) ( 426,216 ) Total $ 343,964 $ 337,326 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 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 : At September 30, 2018 Goodwill from acquisitions Reallocation of Goodwill (1) Foreign currency translation adjustments At September 30, 2019 Goodwill from acquisitions Foreign currency translation adjustments At September 30, 2020 Consumer and Professional Products $ 378,046 $ — $ ( 148,076 ) $ ( 2,701 ) $ 227,269 $ 4,451 $ 1,125 $ 232,845 Home and Building Products 42,804 300 148,076 73 191,253 — — 191,253 Defense Electronics 18,545 — — — 18,545 — — 18,545 Total $ 439,395 $ 300 $ — $ ( 2,628 ) $ 437,067 $ 4,451 $ 1,125 $ 442,643 (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. 80 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: At September 30, 2020 At September 30, 2019 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 185,940 $ 66,656 23 $ 183,515 $ 57,783 Unpatented technology 19,464 8,360 13 19,167 7,329 Total amortizable intangible assets 205,404 75,016 202,682 65,112 Trademarks 224,640 — 219,069 — Total intangible assets $ 430,044 $ 75,016 $ 421,751 $ 65,112 Amortization expense for intangible assets subject to amortization was $ 9,590 , $ 9,922 and $ 9,070 in 2020, 2019 and 2018, respectively. Amortization expense for each of the next five years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2021 - $ 9,443 ; 2022 - $ 9,436 ; 2023 - $ 9,357 ; 2024 - $ 9,331 and 2025 - $ 9,331 ; thereafter - $ 83,490 . NOTE 7 — DISCONTINUED OPERATIONS During 2019, Griffon recorded an $ 11,050 charge ( $ 8,335 , net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $ 465,000 Plastics divestiture and included an additional reserve for a legacy environmental matter. 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: At September 30, 2020 At September 30, 2019 Assets of discontinued operations: Prepaid and other current assets $ 2,091 $ 321 Other long-term assets 6,406 2,888 Total assets of discontinued operations $ 8,497 $ 3,209 Liabilities of discontinued operations: Accrued liabilities, current $ 3,797 $ 4,333 Other long-term liabilities 7,014 3,331 Total liabilities of discontinued operations $ 10,811 $ 7,664 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. Plastics 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. 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. 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 81 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: For the Year Ended September 30, 2019 2018 Revenue $ — $ 166,262 Cost of goods and services — 132,100 Gross profit — 34,162 Selling, general and administrative expenses 9,500 26,303 Restructuring charges — — Total operating expenses 9,500 26,303 Income from discontinued operations ( 9,500 ) 7,859 Other income (expense) Gain on sale of business — 112,964 Interest expense, net — ( 155 ) Other, net — ( 687 ) Total other income (expense) — 112,122 Income from operations of discontinued operations ( 9,500 ) 119,981 Installation Services and Other Discontinued Activities There was no reported revenue in 2020, 2019 and 2018. NOTE 8 — ACCRUED LIABILITIES The following table details the components of accrued liabilities: At September 30, 2020 At September 30, 2019 Compensation $ 83,308 $ 61,639 Interest 4,371 4,501 Warranties and rebates 18,687 13,171 Insurance 10,997 11,996 Rent, utilities and freight 8,816 5,326 Income and other taxes 14,707 7,814 Marketing and advertising 7,968 4,417 Restructuring 2,965 — Other 19,753 15,801 Total $ 171,572 $ 124,665 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. 82 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. 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. operations. 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 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 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 $ 4,159 Selling, general and administrative expenses 11,630 Total restructuring charges $ 15,789 For the Year Ended September 30, 2020 Personnel related costs $ 7,740 Facilities, exit costs and other 3,357 Non-cash facility and other 4,692 Total $ 15,789 83 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: Cash Charges Cash Charges Non Cash Charges Personnel related costs Facilities & Exit Costs Facility and Other Costs Total Accrued liability at September 30, 2019 $ — $ — $ — $ — Charges 7,740 3,357 4,692 15,789 Payments ( 5,039 ) ( 3,093 ) — ( 8,132 ) Non-cash charges (1) — $ — ( 4,692 ) ( 4,692 ) Accrued liability at September 30, 2020 $ 2,701 $ 264 $ — $ 2,965 (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 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. CPP offers an express limited warranty for a period of ninety days on all products from the date of the original purchase unless otherwise stated on the product or packaging from the date of original purchase. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Years Ended September 30, 2020 2019 Balance, beginning of period $ 7,894 $ 8,174 Warranties issued and changes in estimated pre-existing warranties 20,474 16,938 Actual warranty costs incurred ( 17,525 ) ( 17,218 ) Balance, end of period $ 10,843 $ 7,894 NOTE 11 — LONG-TERM DEBT Debt at September 30, 2020 and 2019 consisted of the following: At September 30, 2020 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 363 $ ( 15,376 ) $ 984,987 5.75 % Revolver due 2025 (b) 12,858 — ( 2,209 ) 10,649 Variable Finance lease - real estate (e) 17,218 — ( 30 ) 17,188 Variable Non U.S. lines of credit (f) — — ( 30 ) ( 30 ) Variable Non U.S. term loans (f) 31,086 — ( 160 ) 30,926 Variable Other long term debt (g) 3,260 — ( 16 ) 3,244 Variable Totals 1,064,422 363 ( 17,821 ) 1,046,964 less: Current portion ( 9,922 ) — — ( 9,922 ) Long-term debt $ 1,054,500 $ 363 $ ( 17,821 ) $ 1,037,042 84 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) At September 30, 2019 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2022 (a) $ 1,000,000 $ 867 $ ( 9,175 ) $ 991,692 5.25 % Revolver due 2021 (b) 50,000 — ( 1,243 ) 48,757 Variable Finance lease - real estate (e) 4,388 — ( 55 ) 4,333 5.00 % Non U.S. lines of credit (f) 17,576 — ( 45 ) 17,531 Variable Non U.S. term loans (f) 36,977 — ( 188 ) 36,789 Variable Other long term debt (g) 5,190 — ( 18 ) 5,172 Variable Totals 1,114,131 867 ( 10,724 ) 1,104,274 less: Current portion ( 10,525 ) — — ( 10,525 ) Long-term debt $ 1,103,606 $ 867 $ ( 10,724 ) $ 1,093,749 Interest expense consists of the following for 2020, 2019 and 2018. Year Ended September 30, 2020 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.90 % $ 32,511 $ — $ 1,072 $ 33,583 Senior notes due 2022 (a) 5.67 % $ 22,816 $ 122 $ 1,735 $ 24,673 Revolver due 2025 (b) Variable 5,866 — 635 6,501 Finance lease - real estate (e) Variable 386 — 25 411 Non U.S. lines of credit (f) Variable 12 — 15 27 Non U.S. term loans (f) Variable 975 — 55 1,030 Other long term debt (g) Variable 445 — 2 447 Capitalized interest ( 128 ) — — ( 128 ) Totals $ 62,883 $ 122 $ 3,539 $ 66,544 Year Ended September 30, 2019 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2022 (a) 5.66 % $ 52,500 $ 270 $ 3,803 $ 56,573 Revolver due 2025 (b) Variable 6,998 — 980 7,978 ESOP Loans (d) 6.3 % 937 — 186 1,123 Finance lease - real estate (e) Variable 372 — 25 397 Non U.S. lines of credit (f) Variable 19 — 15 34 Non U.S. term loan (f) Variable 1,592 — 109 1,701 Other long term debt (g) Variable 640 — 5 645 Capitalized interest ( 385 ) — — ( 385 ) Totals $ 62,673 $ 270 $ 5,123 $ 68,066 85 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 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2022 (a) 5.66 % $ 52,500 $ 270 $ 3,803 $ 56,573 Revolver due 2025 (b) Variable 3,718 — 565 4,283 Real estate mortgages (c) 6.3 % 1,802 — 124 1,926 ESOP Loans (d) 3.3 % 349 — 320 669 Finance lease - real estate (e) Variable 581 — 25 606 Non U.S. lines of credit (f) Variable 34 — 15 49 Non U.S. term loan (f) Variable 1,420 — 90 1,510 Other long term debt (g) Variable 494 — 7 501 Capitalized interest ( 549 ) — — ( 549 ) Totals $ 60,349 $ 270 $ 4,949 $ 65,568 Minimum payments under debt agreements for the next five years are as follows: $ 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. (a) 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 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On April 22, 2020 and August 3, 2020, Griffon exchanged substantially all of the Senior Notes for substantially identical Senior Notes registered under the Securities Act of 1933, as amended (the "Securities Act"), via an exchange offer. The fair value of the 2028 Senior Notes approximated $ 1,040,000 on September 30, 2020 based upon quoted market prices (level 1 inputs). In connection with these transactions, Griffon capitalized $ 16,448 of underwriting fees and other expenses incurred related to the issuance and exchange of the Senior Notes, which will amortize over the term of such notes, and, at September 30, 2020, $ 15,376 remained to be amortized. Furthermore, all of the obligations associated with the 2022 Senior Notes were discharged. Additionally, Griffon recognized a $ 7,925 loss on the early extinguishment of debt of the 5.25 % $ 1,000,000 2022 Senior Notes, comprised primarily of the write-off of $ 6,725 of remaining deferred financing fees, $ 607 of tender offer net premium expense and $ 593 of redemption interest expense. (b) 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. 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. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. 86 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. At September 30, 2020 , under the Credit Agreement, there were $ 12,858 in outstanding borrowings; outstanding standby letters of credit were $ 16,867 ; and $ 370,275 was available, subject to certain loan covenants, for borrowing at that date. (c) 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. The mortgage loans were secured and collateralized by four properties occupied by Griffon's subsidiaries and were guaranteed by Griffon. The loans had an interest at a rate of LIBOR plus 1.50 % . The loans were paid off during 2018. (d) In August 2016 and as amended on June 30, 2017, Griffon’s ESOP entered into a Term Loan with a bank (the "ESOP Agreement"). The Term Loan interest rate was LIBOR plus 3.00 % . The Term Loan required quarterly principal payments of $ 569 with a balloon payment due at maturity. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon which was funded with cash and a draw under its Credit Agreement. The internal loan interest rate is fixed at 2.91 % , matures in June 2033 and requires quarterly payments of principal, currently $ 635 , and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at September 30, 2020 was $ 29,878 . (e) 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, $ 17,188 was outstanding, net of issuance costs. Refer to Note 22 - Leases for further details. (f) In November 2012, Garant G.P. (“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 ). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. As of September 30, 2020 , there were no borrowings under the revolving credit facility with CAD 15,000 ( $ 11,210 as of September 30, 2020 ) available for borrowing. In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 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, 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 (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 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 87 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. AMES UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. An invoice discounting arrangement was canceled and replaced by the above loan facilities. (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. NOTE 12 – EMPLOYEE BENEFIT PLANS Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $ 11,956 in 2020 , $ 11,788 in 2019 and $ 11,053 in 2018. The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $ 1,833 and $ 1,852 as of September 30, 2020 and 2019 . The accumulated other comprehensive income (loss) for these plans was $( 196 ) and ($ 146 ) as of September 30, 2020 and 2019 , respectively, and the 2020 and 2019 benefit expense was $ 46 and $ 50 , respectively. It is the Company’s practice to fund these benefits as incurred. Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss). Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the services of an investment manager to manage these assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2020 and 2019. The fair value of various other investments was determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). 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). 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. Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10 % change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon. 88 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: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2020 2019 2018 2020 2019 2018 Net periodic (benefits) costs: Interest cost $ 4,267 $ 5,778 $ 5,084 $ 335 $ 503 $ 544 Expected return on plan assets ( 10,343 ) ( 10,331 ) ( 10,736 ) — — — Amortization of: Prior service costs — — — 14 14 14 Actuarial loss 3,769 630 755 399 258 628 Total net periodic (benefits) costs $ ( 2,307 ) $ ( 3,923 ) $ ( 4,897 ) $ 748 $ 775 $ 1,186 The tax benefits in 2020 , 2019 and 2018 for the amortization of pension costs in Other comprehensive income (loss) were $ 878 , $ 221 and $ 342 , respectively. The estimated net actuarial loss and prior service cost that will be amortized from AOCI into Net periodic pension cost during 2021 is $ 6,277 and $ 15 , respectively. The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2020 2019 2018 2020 2019 2018 Discount rate 2.92 % 4.10 % 3.64 % 2.64 % 3.99 % 3.18 % Expected return on assets 7.00 % 7.00 % 7.25 % — % — % — % 89 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2020 2019 2020 2019 Change in benefit obligation: Benefit obligation at beginning of fiscal year $ 177,797 $ 161,328 $ 16,180 $ 15,718 Interest cost 4,267 5,778 335 503 Benefits paid ( 10,747 ) ( 10,790 ) ( 1,939 ) ( 1,942 ) Actuarial (gain) loss 11,686 21,481 1,494 1,901 Benefit obligation at end of fiscal year 183,003 177,797 16,070 16,180 Change in plan assets: Fair value of plan assets at beginning of fiscal year 145,610 150,680 — — Actual return on plan assets 4,261 2,606 — — Company contributions 8,021 3,114 1,939 1,942 Benefits paid ( 10,747 ) ( 10,790 ) ( 1,939 ) ( 1,942 ) Fair value of plan assets at end of fiscal year 147,145 145,610 — — Projected benefit obligation in excess of plan assets $ ( 35,858 ) $ ( 32,187 ) $ ( 16,070 ) $ ( 16,180 ) Amounts recognized in the statement of financial position consist of: Accrued liabilities $ — $ — $ ( 1,891 ) $ ( 1,906 ) Other liabilities (long-term) ( 35,858 ) ( 32,187 ) ( 14,179 ) ( 14,279 ) Total Liabilities ( 35,858 ) ( 32,187 ) ( 16,070 ) ( 16,185 ) Net actuarial losses 61,666 47,663 7,700 6,609 Prior service cost — — — 14 Deferred taxes ( 12,950 ) ( 17,098 ) ( 1,617 ) ( 2,374 ) Total Accumulated other comprehensive loss, net of tax 48,716 30,565 6,083 4,249 Net amount recognized at September 30, $ 12,858 $ ( 1,622 ) $ ( 9,987 ) $ ( 11,936 ) Accumulated benefit obligations $ 183,003 $ 177,797 $ 16,070 $ 16,180 Information for plans with accumulated benefit obligations in excess of plan assets: ABO $ 183,003 $ 177,797 $ 16,070 $ 16,180 PBO 183,003 177,797 16,070 16,180 Fair value of plan assets 147,145 145,610 — — The weighted-average assumptions used in determining the benefit obligations were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2020 2019 2020 2019 Weighted average discount rate 2.30 % 2.92 % 1.69 % 2.64 % 90 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Estimated future benefit payments to retirees, which reflect expected future service, are as follows: For the years ending September 30, Defined Benefits Supplemental Benefits 2021 $ 11,006 $ 1,891 2022 10,964 1,787 2023 10,945 1,679 2024 10,892 1,556 2025 10,809 1,437 2026 through 2030 52,390 5,354 During 2021, Griffon expects to contribute $ 1,891 in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon expects to contribute $ 2,764 to the Defined Benefit plan in 2021 . The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2020 was 93.7 % . Since the plan was in excess of the 80 % funding threshold there were no plan restrictions. 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, 2020 2019 Target Cash and equivalents 0.4 % 1.9 % — % Equity securities 48.5 % 49.9 % 63.0 % Fixed income 31.9 % 29.4 % 37.0 % Other 19.2 % 18.8 % — % Total 100.0 % 100.0 % 100.0 % The following is a description of the valuation methodologies used for plan assets measured at fair value: Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2. Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy. Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are 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. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 or 3, as appropriate, of the valuation hierarchy and can be liquidated on demand. Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the net asset values provided by the underlying private investment companies as a practical expedient. These investments are classified within Level 2 of the valuation hierarchy. 91 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category: At September 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 600 $ — $ — $ 600 Government agency securities 33,675 6,136 — 39,811 Debt instruments 179 2,722 — 2,901 Equity securities 68,987 — — 68,987 Commingled funds — — 9,362 9,362 Limited partnerships and hedge fund investments — 17,867 — 17,867 Other Securities 2,488 163 — 2,651 Subtotal $ 105,929 $ 26,888 $ 9,362 $ 142,179 Accrued income and plan receivables 4,966 Total $ 147,145 At September 30, 2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 2,791 $ — $ — $ 2,791 Government and agency securities 28,297 9,119 — 37,416 Debt instruments 182 2,996 — 3,178 Equity securities 72,517 — — 72,517 Commingled funds — — 8,776 8,776 Limited partnerships and hedge fund investments — 18,569 — 18,569 Other Securities 1,913 159 — 2,072 Subtotal $ 105,700 $ 30,843 $ 8,776 $ 145,319 Accrued income and plan receivables 291 Total $ 145,610 The following table represents level 3 significant unobservable inputs for the years ended September 30, 2020 and 2019: Significant Unobservable Inputs (Level 3) As of October 1, 2019 $ — Purchases, issuances and settlements 7,695 Gains and losses 1,081 As of September 30, 2019 8,776 Purchases, issuances and settlements — Gains and losses 586 As of September 30, 2020 $ 9,362 92 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. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1 st following completion of one qualifying year of service (as defined in the plan). Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $ 285 for the plan year ended September 30, 2020 ), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $ 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. The fair value of the unallocated ESOP shares as of September 30, 2020 and 2019 based on the closing stock price of Griffon’s stock was $ 40,217 and $ 47,378 , respectively. The ESOP shares were as follows: At September 30, 2020 2019 Allocated shares 3,301,448 3,209,069 Unallocated shares 2,058,187 2,259,308 Total 5,359,635 5,468,377 NOTE 13 – INCOME TAXES On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S. tax law. 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 % . The 21% Federal Tax Rate applies to the fiscal year 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. 93 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (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: For the Years Ended September 30, 2020 2019 2018 Domestic $ 42,634 $ 49,723 $ 4,942 Non-U.S. 40,123 22,455 28,868 $ 82,757 $ 72,178 $ 33,810 Provision (benefit) for income taxes on income was comprised of the following from continuing operations: For the Years Ended September 30, 2020 2019 2018 Current $ 27,233 $ 28,778 $ 18,188 Deferred 2,095 ( 2,222 ) ( 17,633 ) Total $ 29,328 $ 26,556 $ 555 U.S. Federal $ 10,978 $ 14,160 $ ( 12,714 ) State and local 7,331 6,187 5,175 Non-U.S. 11,019 6,209 8,094 Total provision $ 29,328 $ 26,556 $ 555 Differences between the effective income tax rate applied to Income and the U.S. Federal income statutory rate from continuing operations were as follows: For the Years Ended September 30, 2020 2019 2018 U.S. Federal income tax provision (benefit) rate 21.0 % 21.0 % 24.5 % State and local taxes, net of Federal benefit 6.0 % 6.6 % 10.2 % Non-U.S. taxes - foreign permanent items and taxes 3.3 % 2.0 % 3.6 % Change in tax contingency reserves 0.1 % ( 0.7 )% ( 0.6 )% Impact of federal rate change on deferred tax balances — % — % ( 60.0 )% Tax Reform-Repatriation of Foreign Earnings and GILTI — % 1.0 % 61.6 % Change in valuation allowance ( 1.5 )% 3.3 % 13.4 % Other non-deductible/non-taxable items, net 1.4 % 3.1 % ( 5.2 )% Non-deductible officer's compensation 4.4 % 5.2 % 6.4 % Research and U.S. foreign tax credits 1.4 % ( 4.7 )% ( 39.4 )% Share based compensation — % 0.4 % ( 3.8 )% Other ( 0.7 )% ( 0.4 )% ( 9.1 )% Effective tax provision (benefit) rate 35.4 % 36.8 % 1.6 % 94 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows: At September 30, 2020 2019 Deferred tax assets: Bad debt reserves $ 3,980 $ 1,980 Inventory reserves 9,371 8,361 Deferred compensation (equity compensation and defined benefit plans) 18,904 16,544 Compensation benefits 5,499 5,186 Insurance reserve 1,918 1,873 Warranty reserve 3,981 2,896 Lease liabilities 43,045 — Net operating loss 9,618 11,077 Tax credits 7,031 9,373 Capital loss carryback 2,205 2,000 Interest — 5,250 Other reserves and accruals 6,094 3,738 111,646 68,278 Valuation allowance ( 9,824 ) ( 10,823 ) Total deferred tax assets 101,822 57,455 Deferred tax liabilities: Goodwill and intangibles ( 44,051 ) ( 42,477 ) Property, plant and equipment ( 48,172 ) ( 43,996 ) Right-of-use assets ( 41,747 ) — Other ( 634 ) ( 1,096 ) Total deferred tax liabilities ( 134,604 ) ( 87,569 ) Net deferred tax liabilities $ ( 32,782 ) $ ( 30,114 ) 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: At September 30, 2020 2019 Other assets $ 614 $ 137 Other liabilities ( 34,008 ) ( 31,141 ) Liabilities of discontinued operations 612 890 Net deferred liability $ ( 32,782 ) $ ( 30,114 ) At both September 30, 2020 and 2019 , Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30, 2020 , we have approximately $ 100,102 of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. 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. 95 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (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. The non-U.S. 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, 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 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. Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia, U.K. and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2015. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2013. Various U.S. state and statutory tax audits are currently underway. The following is a roll forward of unrecognized tax benefits: Balance at September 30, 2018 $ 4,519 Additions based on tax positions related to the current year 117 Additions based on tax positions related to prior years ( 559 ) Lapse of Statutes ( 16 ) Balance at September 30, 2019 4,061 Additions based on tax positions related to the current year 125 Additions based on tax positions related to prior years 20 Reductions based on tax positions related to prior years ( 3 ) Lapse of Statutes ( 23 ) Balance at September 30, 2020 $ 4,180 If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $ 909 . Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2020 and 2019 , the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was $ 77 and $ 66 , respectively. Griffon cannot reasonably estimate the extent to which existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction. 96 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 14 – STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION During 2020 , 2019 and 2018, the Company declared and paid cash dividends totaling $ 0.30 per share, $ 0.29 per share and $ 0.28 per share, respectively. In addition, on March 7, 2018, the Board of Directors declared a special cash dividend of $ 1.00 per share, totaling $ 38,073 and paid on April 16, 2018 to shareholders of record as of the close of business on March 29, 2018. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and recorded as a reduction of debt service payments and compensation expense. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted 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 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. 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 compensation plans: For the Years Ended September 30, 2020 2019 2018 Restricted stock $ 14,702 $ 13,285 $ 10,078 ESOP 2,878 2,629 9,532 Total stock based compensation $ 17,580 $ 15,914 $ 19,610 97 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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: Shares Weighted Average Grant- Date Fair Value Unvested at September 30, 2019 3,713,573 $ 12.96 Granted 1,061,624 17.10 Vested ( 831,748 ) 21.51 Forfeited ( 257,859 ) 15.35 Unvested at September 30, 2020 3,685,590 14.30 The fair value of restricted stock which vested during 2020, 2019, and 2018 was $ 17,889 , $ 4,748 and $ 11,216 , respectively. Unrecognized compensation expense related to non-vested shares of restricted stock was $ 22,340 at September 30, 2020 and will be recognized over a weighted average vesting period of 2.3 years. At September 30, 2020 , a total of approximately 4,852,762 shares of Griffon’s authorized Common Stock were reserved for issuance in connection with stock compensation plans. During 2020, Griffon granted 1,061,624 shares of restricted stock and restricted stock units. 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. Under these share repurchase programs, the Company may purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. Shares repurchased are recorded at cost. During 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. 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. ("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. 98 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES 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. 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 2021 $ 38,411 $ 4,282 2022 33,286 2,695 2023 25,599 2,375 2024 19,057 2,119 2025 16,334 2,074 2026 71,903 9,850 Total lease payments 204,590 23,395 Less: Imputed Interest ( 36,688 ) ( 4,704 ) Present value of lease liabilities $ 167,902 $ 18,691 Purchase Commitments Purchase obligations are generally for the purchase of goods and services in the ordinary course of business. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Amounts purchased under such commitments were $ 239,365 , $ 226,026 and $ 209,924 for the years ended September 30, 2020, 2019 and 2018, respectively. Purchase obligations that extend beyond 2020 are principally related to long-term contracts received from customers of Telephonics. Aggregate future minimum purchase obligations at September 30, 2020 are $ 377,388 in 2021, $ 9,748 in 2022, $ 12 in 2023, $ 0 in 2024 and $ 0 in 2025. Legal and environmental 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 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 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. ISCP submitted to the DEC a draft Feasibility Study which was accepted and approved by the DEC in February 2011. 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 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 . 99 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) 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 metals were found to be present in sediments further downstream from 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 under CERCLA (the “NPL”). 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 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. U.S. Government investigations and claims Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency, the Defense Criminal Investigative Service, and the Department of Justice which has responsibility for asserting claims on behalf of the U.S. Government. In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on Telephonics because of its reliance on government contracts. 100 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. NOTE 16 – EARNINGS PER SHARE 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 : 2020 2019 2018 Common shares outstanding 56,130 46,806 45,675 Unallocated ESOP shares ( 2,058 ) ( 2,259 ) ( 2,477 ) Non-vested restricted stock ( 3,556 ) ( 3,420 ) ( 2,522 ) Impact of weighted average shares ( 7,928 ) ( 193 ) 329 Weighted average shares outstanding - basic 42,588 40,934 41,005 Incremental shares from stock based compensation 2,427 1,954 1,417 Weighted average shares outstanding - diluted 45,015 42,888 42,422 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. NOTE 17 – RELATED PARTIES 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. Under the terms of the engagement letter, upon the closing of the transaction a customary advisory fee was paid by Griffon to Goldman Sachs. Goldman Sachs acted as a joint lead manager and as an initial purchaser in connection with Griffon’s add-on offering of $ 275,000 aggregate principal amount of 5.25 % senior notes due 2022 that closed on October 2, 2017, and received a customary fee upon closing of the offering. On June 19, 2018, 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 initial 10,000,000 share investment was in 2008; following the closing of the offering, GS Direct no longer owns any shares of Griffon. 101 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) Quarterly results of continuing operations for 2020 and 2019 were as follows: Quarter ended Revenue Gross Profit Income from continuing operations Per Share - Basic Per Share - Diluted 2020 December 31, 2019 $ 548,438 $ 149,921 $ 10,612 $ 0.26 $ 0.24 March 31, 2020 566,350 152,032 895 0.02 0.02 June 30, 2020 632,061 165,003 21,831 0.52 0.50 September 30, 2020 660,673 174,470 20,091 0.44 0.41 $ 2,407,522 $ 641,426 $ 53,429 $ 1.25 $ 1.19 2019 December 31, 2018 $ 510,522 $ 139,780 $ 8,753 $ 0.21 $ 0.21 March 31, 2019 549,633 133,537 6,490 0.16 0.15 June 30, 2019 574,970 151,699 14,128 0.34 0.33 September 30, 2019 574,164 158,458 16,251 0.40 0.37 $ 2,209,289 $ 583,474 $ 45,622 $ 1.11 $ 1.06 Notes to Quarterly Financial Information (unaudited): • Earnings (loss) per share are computed independently for each quarter and year presented; as such the sum of the quarters may not be equal to the full year amounts. • 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. NOTE 19 — REPORTABLE SEGMENTS Griffon conducts its operations through three reportable segments from continuing operations, as follows: • Consumer and Professional Products ("CPP") conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. • 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. 102 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: For the Years Ended September 30, REVENUE 2020 2019 2018 Consumer and Professional Products $ 1,139,233 $ 1,000,608 $ 953,612 Home and Building Products 927,313 873,640 697,969 Defense Electronics 340,976 335,041 326,337 Total consolidated net sales $ 2,407,522 $ 2,209,289 $ 1,977,918 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”). The following table provides a reconciliation of Segment Adjusted EBITDA to Income before taxes and discontinued operations: For the Years Ended September 30, 2020 2019 2018 Segment Adjusted EBITDA: Consumer and Professional Products $ 104,053 $ 90,677 $ 77,061 Home and Building Products 153,631 120,161 100,339 Defense Electronics 25,228 35,104 36,063 Segment Adjusted EBITDA 282,912 245,942 213,463 Unallocated amounts, excluding depreciation ( 47,013 ) ( 46,302 ) ( 45,343 ) Adjusted EBITDA 235,899 199,640 168,120 Net interest expense ( 65,791 ) ( 67,260 ) ( 63,871 ) Depreciation and amortization ( 62,409 ) ( 61,848 ) ( 55,803 ) Restructuring charges ( 15,790 ) — — Loss from debt extinguishment ( 7,925 ) — — Acquisition contingent consideration 1,733 1,646 — Acquisition costs ( 2,960 ) — ( 7,597 ) Special dividend charges — — ( 3,220 ) Cost of life insurance benefit — — ( 2,614 ) Secondary equity offering costs — — ( 1,205 ) Income before taxes from continuing operations $ 82,757 $ 72,178 $ 33,810 103 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, DEPRECIATION and AMORTIZATION 2020 2019 2018 Segment: Consumer and Professional Products $ 32,788 $ 32,289 $ 30,816 Home and Building Products 18,361 18,334 13,717 Defense Electronics 10,645 10,667 10,801 Total segment depreciation and amortization 61,794 61,290 55,334 Corporate 615 558 469 Total consolidated depreciation and amortization $ 62,409 $ 61,848 $ 55,803 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 23,321 $ 17,828 $ 23,040 Home and Building Products 17,499 16,498 13,547 Defense Electronics 7,830 10,492 10,941 Total segment 48,650 44,818 47,528 Corporate 348 543 2,610 Total consolidated capital expenditures $ 48,998 $ 45,361 $ 50,138 ASSETS At September 30, 2020 At September 30, 2019 Segment assets: Consumer and Professional Products $ 1,262,705 $ 1,070,510 Home and Building Products 606,785 571,216 Defense Electronics 329,128 347,575 Total segment assets 2,198,618 1,989,301 Corporate 248,902 82,429 Total continuing assets 2,447,520 2,071,730 Assets of discontinued operations 8,497 3,209 Consolidated total $ 2,456,017 $ 2,074,939 104 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. For the Year Ended September 30, 2020 For the Year Ended September 30, 2019 Residential repair and remodel $ 173,859 $ 140,369 Retail 575,947 528,279 Residential new construction 59,907 58,709 Industrial 40,285 45,129 International excluding North America 289,235 228,122 Total Consumer and Professional Products 1,139,233 1,000,608 Residential repair and remodel 467,112 439,287 Commercial construction 354,916 335,339 Residential new construction 105,285 99,014 Total Home and Building Products 927,313 873,640 U.S. Government 222,537 211,405 International 100,623 105,705 Commercial 17,816 17,931 Total Defense Electronics 340,976 335,041 Total Consolidated Revenue $ 2,407,522 $ 2,209,289 The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Year Ended September 30, 2020 Revenue by Geographic Area - Destination Consumer and Professional Products Home and Building Products Defense Electronics Total United States $ 769,100 $ 877,115 $ 234,382 $ 1,880,597 Europe 85,339 130 38,353 123,822 Canada 74,072 38,662 12,043 124,777 Australia 203,012 — 1,882 204,894 All other countries 7,710 11,406 54,316 73,432 Consolidated revenue $ 1,139,233 $ 927,313 $ 340,976 $ 2,407,522 For the Year Ended September 30, 2019 Revenue by Geographic Area - Destination Consumer and Professional Products Home and Building Products Defense Electronics Total United States $ 690,772 $ 820,396 $ 226,095 $ 1,737,263 Europe 63,284 109 36,915 100,308 Canada 72,327 39,472 10,568 122,367 Australia 165,291 16 3,712 169,019 All other countries 8,934 13,647 57,751 80,332 Consolidated revenue $ 1,000,608 $ 873,640 $ 335,041 $ 2,209,289 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; and DE 105 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) 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) The amounts recognized in other comprehensive income (loss) were as follows: Years Ended September 30, 2020 2019 2018 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 5,601 $ — $ 5,601 $ ( 8,460 ) $ — $ ( 8,460 ) $ 9,403 $ — $ 9,403 Pension and other defined benefit plans ( 14,955 ) 3,171 ( 11,784 ) ( 30,581 ) 7,526 ( 23,055 ) 24,081 ( 7,700 ) 16,381 Cash flow hedge 10 ( 3 ) 7 ( 413 ) 124 ( 289 ) 900 ( 315 ) 585 Total other comprehensive income (loss) $ ( 9,344 ) $ 3,168 $ ( 6,176 ) $ ( 39,454 ) $ 7,650 $ ( 31,804 ) $ 34,384 $ ( 8,015 ) $ 26,369 The components of Accumulated other comprehensive income (loss) are as follows: At September 30, 2020 2019 Foreign currency translation $ ( 25,683 ) $ ( 31,284 ) Pension and other defined benefit plans ( 46,598 ) ( 34,814 ) Cash flow hedge 189 182 Total $ ( 72,092 ) $ ( 65,916 ) Total comprehensive income (loss) were as follows: For the Years Ended September 30, 2020 2019 2018 Net income $ 53,429 $ 37,287 $ 125,678 Other comprehensive income (loss), net of taxes ( 6,176 ) ( 31,804 ) 26,369 Comprehensive income (loss) $ 47,253 $ 5,483 $ 152,047 106 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: For the Years Ended September 30, Gain (Loss) 2020 2019 2018 Pension amortization $ ( 4,182 ) $ ( 902 ) $ ( 1,397 ) Cash flow hedges ( 2,163 ) 1,361 657 Total before tax ( 6,345 ) 459 ( 740 ) Tax 1,332 ( 96 ) 155 Net of tax $ ( 5,013 ) $ 363 $ ( 585 ) 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. 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 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. 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 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. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. For leases existing as of October 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. 107 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. 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). Components of operating lease costs are as follows: For the Year Ended September 30, 2020 Fixed (a) $ 38,554 Variable (a), (b) 7,822 Short-term (b) 5,606 Total $ 51,982 (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 $ 48,141 Financing cash flows from finance leases 4,122 Total $ 52,263 108 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 $ 161,627 Lease Liabilities: Current portion of operating lease liabilities $ 31,848 Long-term operating lease liabilities 136,054 Total operating lease liabilities $ 167,902 Finance Leases: Right of use assets: Property, plant and equipment, net (1) $ 18,774 Lease Liabilities: Notes payable and current portion of long-term debt $ 3,352 Long-term debt, net 15,339 Total financing lease liabilities $ 18,691 (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 2021 $ 38,411 $ 4,282 2022 33,286 2,695 2023 25,599 2,375 2024 19,057 2,119 2025 16,334 2,074 2026 71,903 9,850 Total lease payments 204,590 23,395 Less: Imputed Interest ( 36,688 ) ( 4,704 ) Present value of lease liabilities $ 167,902 $ 18,691 109 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 8.3 Finance Leases 8.5 Weighted-average discount rate Operating Leases 4.38 % Finance Leases 5.51 % NOTE 23 – CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION 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, 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”) 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; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indenture (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indenture; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indenture, in compliance with the terms of the Indenture; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indenture, in each case in accordance with the terms of the Indenture; and (v) upon obtaining the requisite consent of the holders of the Senior Notes. 110 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING BALANCE SHEETS At September 30, 2020 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation CURRENT ASSETS Cash and equivalents $ 125,353 $ 35,685 $ 57,051 $ — $ 218,089 Accounts receivable, net of allowances — 293,943 54,181 — 348,124 Contract assets, net of progress payments — 80,572 3,854 — 84,426 Inventories — 347,473 66,352 — 413,825 Prepaid and other current assets 14,650 25,974 6,273 — 46,897 Assets of discontinued operations — — 2,091 — 2,091 Total Current Assets 140,003 783,647 189,802 — 1,113,452 PROPERTY, PLANT AND EQUIPMENT, net 1,182 296,082 46,700 — 343,964 OPERATING LEASE RIGHT-OF-USE ASSETS 9,209 129,813 22,605 — 161,627 GOODWILL — 377,060 65,583 — 442,643 INTANGIBLE ASSETS, net 93 217,317 137,618 — 355,028 INTERCOMPANY RECEIVABLE 568,124 704,415 257,013 ( 1,529,552 ) — EQUITY INVESTMENTS IN SUBSIDIARIES 1,724,821 784,644 3,176,855 ( 5,686,320 ) — OTHER ASSETS 12,585 25,953 ( 5,641 ) — 32,897 ASSETS OF DISCONTINUED OPERATIONS — — 6,406 — 6,406 Total Assets $ 2,456,017 $ 3,318,931 $ 3,896,941 $ ( 7,215,872 ) $ 2,456,017 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ — $ 2,855 $ 7,067 $ — $ 9,922 Accounts payable and accrued liabilities 37,281 276,580 89,818 — 403,679 Current portion of operating lease liabilities 1,849 24,436 5,563 — 31,848 Liabilities of discontinued operations — — 3,797 — 3,797 Total Current Liabilities 39,130 303,871 106,245 — 449,246 LONG-TERM DEBT, net 995,636 15,992 25,414 — 1,037,042 LONG-TERM OPERATING LEASE LIABILITIES 8,415 110,061 17,578 — 136,054 INTERCOMPANY PAYABLES 683,076 397,846 459,599 ( 1,540,521 ) — OTHER LIABILITIES 29,609 85,731 11,170 — 126,510 LIABILITIES OF DISCONTINUED OPERATIONS — — 7,014 — 7,014 Total Liabilities 1,755,866 913,501 627,020 ( 1,540,521 ) 1,755,866 SHAREHOLDERS’ EQUITY 700,151 2,405,430 3,269,921 ( 5,675,351 ) 700,151 Total Liabilities and Shareholders’ Equity $ 2,456,017 $ 3,318,931 $ 3,896,941 $ ( 7,215,872 ) $ 2,456,017 111 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING BALANCE SHEETS At September 30, 2019 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation CURRENT ASSETS Cash and equivalents 1,649 25,217 45,511 — 72,377 Accounts receivable, net of allowances — 225,870 38,580 — 264,450 Contract assets, net of progress payments — 104,109 1,002 — 105,111 Inventories, net — 372,581 69,540 — 442,121 Prepaid and other current assets 8,238 25,610 6,951 — 40,799 Assets of discontinued operations — — 321 — 321 Total Current Assets 9,887 753,387 161,905 — 925,179 PROPERTY, PLANT AND EQUIPMENT, net 1,184 289,282 46,860 — 337,326 GOODWILL — 375,734 61,333 — 437,067 INTANGIBLE ASSETS, net 93 224,275 132,271 — 356,639 INTERCOMPANY RECEIVABLE 5,834 881,110 75,684 ( 962,628 ) — EQUITY INVESTMENTS IN SUBSIDIARIES 1,628,031 581,438 3,233,038 ( 5,442,507 ) — OTHER ASSETS 8,182 10,010 ( 2,352 ) — 15,840 ASSETS OF DISCONTINUED OPERATIONS — — 2,888 — 2,888 Total Assets 1,653,211 3,115,236 3,711,627 ( 6,405,135 ) 2,074,939 CURRENT LIABILITIES Notes payable and current portion of long-term debt — 3,075 7,450 — 10,525 Accounts payable and accrued liabilities 41,796 265,055 68,390 — 375,241 Liabilities of discontinued operations — — 4,333 — 4,333 Total Current Liabilities 41,796 268,130 80,173 — 390,099 LONG-TERM DEBT, net 1,040,449 3,119 50,181 — 1,093,749 INTERCOMPANY PAYABLES 71,634 466,792 444,557 ( 982,983 ) — OTHER LIABILITIES 21,569 73,411 15,017 — 109,997 LIABILITIES OF DISCONTINUED OPERATIONS — — 3,331 — 3,331 Total Liabilities 1,175,448 811,452 593,259 ( 982,983 ) 1,597,176 SHAREHOLDERS’ EQUITY 477,763 2,303,784 3,118,368 ( 5,422,152 ) 477,763 Total Liabilities and Shareholders’ Equity 1,653,211 3,115,236 3,711,627 ( 6,405,135 ) 2,074,939 112 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Year Ended September 30, 2020 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation Revenue $ — $ 1,938,972 $ 507,621 $ ( 39,071 ) $ 2,407,522 Cost of goods and services — 1,450,924 355,696 ( 40,524 ) 1,766,096 Gross profit — 488,048 151,925 1,453 641,426 Selling, general and administrative expenses 24,876 357,901 103,991 ( 370 ) 486,398 Income (loss) from operations ( 24,876 ) 130,147 47,934 1,823 155,028 Other income (expense) Interest income (expense), net ( 27,129 ) ( 38,301 ) ( 361 ) — ( 65,791 ) Loss on extinguishment of debt ( 7,925 ) — — — ( 7,925 ) Other, net ( 523 ) ( 7,946 ) 11,762 ( 1,848 ) 1,445 Total other income (expense) ( 35,577 ) ( 46,247 ) 11,401 ( 1,848 ) ( 72,271 ) Income (loss) before taxes ( 60,453 ) 83,900 59,335 ( 25 ) 82,757 Provision (benefit) for income taxes ( 11,907 ) 25,445 15,788 2 29,328 Income (loss) before equity in net income of subsidiaries ( 48,546 ) 58,455 43,547 ( 27 ) 53,429 Equity in net income (loss) of subsidiaries 101,975 43,505 58,455 ( 203,935 ) — Net income (loss) $ 53,429 $ 101,960 $ 102,002 $ ( 203,962 ) $ 53,429 Comprehensive income (loss) $ 47,253 $ 101,960 $ 102,002 $ ( 203,962 ) $ 47,253 113 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Year Ended September 30, 2019 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation Revenue $ — $ 1,808,824 $ 437,542 $ ( 37,077 ) $ 2,209,289 Cost of goods and services — 1,353,663 310,707 ( 38,555 ) 1,625,815 Gross profit — 455,161 126,835 1,478 583,474 Selling, general and administrative expenses 22,566 327,306 97,661 ( 370 ) 447,163 Income (loss) from operations ( 22,566 ) 127,855 29,174 1,848 136,311 Other income (expense) Interest income (expense), net ( 27,883 ) ( 39,288 ) ( 89 ) — ( 67,260 ) Other, net ( 778 ) ( 17,699 ) 23,452 ( 1,848 ) 3,127 Total other income (expense) ( 28,661 ) ( 56,987 ) 23,363 ( 1,848 ) ( 64,133 ) Income (loss) before taxes ( 51,227 ) 70,868 52,537 — 72,178 Provision (benefit) for income taxes ( 7,425 ) 20,534 13,447 — 26,556 Income (loss) before equity in net income of subsidiaries ( 43,802 ) 50,334 39,090 — 45,622 Equity in net income (loss) of subsidiaries 81,089 44,303 50,334 ( 175,726 ) — Income (loss) from continuing operations 37,287 94,637 89,424 ( 175,726 ) 45,622 Income (loss) from operations of discontinued businesses — — ( 11,050 ) — ( 11,050 ) Provision (benefit) from income taxes — — ( 2,715 ) — ( 2,715 ) Income (loss) from discontinued operations — — ( 8,335 ) — ( 8,335 ) Net Income (loss) $ 37,287 $ 94,637 $ 81,089 $ ( 175,726 ) $ 37,287 Comprehensive income (loss) $ 5,483 $ 87,851 $ 87,875 $ ( 175,726 ) $ 5,483 114 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Year Ended September 30, 2018 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation Revenue $ — $ 1,638,792 $ 367,149 $ ( 28,023 ) $ 1,977,918 Cost of goods and services — 1,250,261 245,687 ( 29,348 ) 1,466,600 Gross profit — 388,531 121,462 1,325 511,318 Selling, general and administrative expenses 37,540 290,475 90,872 ( 370 ) 418,517 Income (loss) from operations ( 37,540 ) 98,056 30,590 1,695 92,801 Other income (expense) Interest income (expense), net ( 23,911 ) ( 31,913 ) ( 8,047 ) — ( 63,871 ) Other, net ( 7,666 ) 125,531 ( 111,248 ) ( 1,737 ) 4,880 Total other income (expense) ( 31,577 ) 93,618 ( 119,295 ) ( 1,737 ) ( 58,991 ) Income (loss) before taxes from continuing operations ( 69,117 ) 191,674 ( 88,705 ) ( 42 ) 33,810 Provision (benefit) for income taxes ( 17,692 ) 9,546 8,743 ( 42 ) 555 Income (loss) before equity in net income of subsidiaries ( 51,425 ) 182,128 ( 97,448 ) — 33,255 Equity in net income (loss) of subsidiaries 177,103 ( 151,864 ) 182,128 ( 207,367 ) — Income (loss) from continuing operations 125,678 30,264 84,680 ( 207,367 ) 33,255 Income from operations of discontinued businesses — 119,981 — — 119,981 Provision (benefit) from income taxes — 27,558 — — 27,558 Loss from discontinued operations — 92,423 — — 92,423 Net income (loss) $ 125,678 $ 122,687 $ 84,680 $ ( 207,367 ) $ 125,678 Comprehensive income (loss) $ 152,047 $ 143,936 $ 81,389 $ ( 225,325 ) $ 152,047 115 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2020 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 53,429 $ 101,960 $ 102,002 $ ( 203,962 ) $ 53,429 Net cash provided by operating activities 23,114 55,353 58,562 — 137,029 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 348 ) ( 42,268 ) ( 6,382 ) — ( 48,998 ) Acquired business, net of cash acquired — — ( 10,531 ) — ( 10,531 ) Proceeds from sale of assets — 345 7 — 352 Investment purchases ( 130 ) — — — ( 130 ) Net cash used in investing activities ( 478 ) ( 41,923 ) ( 16,906 ) — ( 59,307 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 178,165 — — — 178,165 Purchase of shares for treasury ( 7,479 ) — — — ( 7,479 ) Proceeds from long-term debt 1,234,723 — 5,357 — 1,240,080 Payments of long-term debt ( 1,272,688 ) ( 3,421 ) ( 32,806 ) — ( 1,308,915 ) Financing costs ( 17,384 ) — — — ( 17,384 ) Acquisition costs — — ( 1,733 ) — ( 1,733 ) Dividends paid ( 14,529 ) — — — ( 14,529 ) Other, net 260 580 ( 855 ) — ( 15 ) Net cash provided by (used in) financing activities 101,068 ( 2,841 ) ( 30,037 ) — 68,190 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in discontinued operations — — ( 2,577 ) — ( 2,577 ) Effect of exchange rate changes on cash and equivalents — ( 121 ) 2,498 — 2,377 NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 123,704 10,468 11,540 — 145,712 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,649 25,217 45,511 — 72,377 CASH AND EQUIVALENTS AT END OF PERIOD $ 125,353 $ 35,685 $ 57,051 $ — $ 218,089 116 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2019 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 37,287 $ 94,637 $ 81,089 $ ( 175,726 ) $ 37,287 Net (income) loss from discontinued operations — — 8,335 — 8,335 Net cash provided by (used in) operating activities 42,159 41,992 29,807 — 113,958 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 542 ) ( 38,872 ) ( 5,947 ) — ( 45,361 ) Acquired business, net of cash acquired ( 9,219 ) — — — ( 9,219 ) Proceeds from sale of business ( 9,500 ) — — — ( 9,500 ) Insurance payments ( 10,604 ) — — — ( 10,604 ) Proceeds from sale of assets — 254 26 — 280 Investment purchases ( 149 ) — — — ( 149 ) Net cash provided by (used in) investing activities ( 30,014 ) ( 38,618 ) ( 5,921 ) — ( 74,553 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury ( 1,478 ) — — — ( 1,478 ) Proceeds from long-term debt 163,297 — 38,451 — 201,748 Payments of long-term debt ( 173,345 ) ( 2,973 ) ( 41,930 ) — ( 218,248 ) Change in short-term borrowings — ( 366 ) — — ( 366 ) Financing costs ( 1,090 ) — — — ( 1,090 ) Contingent consideration for acquired businesses — — ( 1,686 ) — ( 1,686 ) Dividends paid ( 13,676 ) — — — ( 13,676 ) Other, net ( 180 ) 8,830 ( 8,830 ) — ( 180 ) Net cash provided by (used in) financing activities ( 26,472 ) 5,491 ( 13,995 ) — ( 34,976 ) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in discontinued operations — — ( 2,123 ) — ( 2,123 ) Effect of exchange rate changes on cash and equivalents — ( 1 ) 314 — 313 NET INCREASE IN CASH AND EQUIVALENTS ( 14,327 ) 8,864 8,082 — 2,619 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 15,976 16,353 37,429 — 69,758 CASH AND EQUIVALENTS AT END OF PERIOD $ 1,649 $ 25,217 $ 45,511 $ — $ 72,377 117 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2018 Parent Company Guarantor Companies Non-Guarantor Companies Elimination Consolidation CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 125,678 $ 122,687 $ 84,680 $ ( 207,367 ) $ 125,678 Net income (loss) from discontinued operations — ( 92,423 ) — — ( 92,423 ) Net cash provided by (used in) operating activities 381,417 ( 405,174 ) 108,981 ( 27,032 ) 58,192 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 544 ) ( 41,531 ) ( 8,063 ) — ( 50,138 ) Acquired business, net of cash acquired ( 368,936 ) ( 4,843 ) ( 57,153 ) — ( 430,932 ) Proceeds from sale of business — 474,727 — — 474,727 Insurance proceeds 8,254 — — — 8,254 Proceeds from sale of property, plant and equipment — 62 601 — 663 Net cash used in investing activities ( 361,226 ) 428,415 ( 64,615 ) — 2,574 CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury ( 45,605 ) — — — ( 45,605 ) Proceeds from long-term debt 411,623 2,125 29,310 — 443,058 Payments of long-term debt ( 269,478 ) ( 5,403 ) ( 26,112 ) — ( 300,993 ) Change in short-term borrowings — 144 — — 144 Financing costs ( 7,793 ) — — — ( 7,793 ) Purchase of ESOP shares — — — — — Dividends paid ( 49,797 ) — — — ( 49,797 ) Other, net ( 46,405 ) 4,733 14,691 27,032 51 Net cash provided by (used in) financing activities ( 7,455 ) 1,599 17,889 27,032 39,065 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by (used in) discontinued operations — ( 16,394 ) ( 62,533 ) — ( 78,927 ) Effect of exchange rate changes on cash and equivalents — ( 159 ) 1,332 — 1,173 NET DECREASE IN CASH AND EQUIVALENTS 12,736 8,287 1,054 — 22,077 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 3,240 8,066 36,375 — 47,681 CASH AND EQUIVALENTS AT END OF PERIOD $ 15,976 $ 16,353 $ 37,429 $ — $ 69,758 NOTE 24 – SUBSEQUENT EVENTS 118 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) 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. Griffon currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors, at its discretion, based on various factors, and no assurance can be provided as to the payment of future dividends. ***** 119 SCHEDULE II GRIFFON CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 2020, 2019 and 2018 (in thousands) Description Balance at Beginning of Year Recorded to Cost and Expense Accounts Written Off, net Other (1) Balance at End of Year FOR THE YEAR ENDED SEPTEMBER 30, 2020 Allowance for Doubtful Accounts Bad debts $ 1,881 $ 2,231 ( 255 ) $ ( 1 ) $ 3,856 Sales returns and allowances 6,000 12,163 ( 4,261 ) — 13,902 $ 7,881 $ 14,394 $ ( 4,516 ) $ ( 1 ) $ 17,758 Inventory valuation $ 26,169 $ 10,542 $ ( 3,412 ) $ 325 $ 33,624 Deferred tax valuation allowance $ 10,823 $ ( 999 ) $ — $ — $ 9,824 FOR THE YEAR ENDED SEPTEMBER 30, 2019 Allowance for Doubtful Accounts Bad debts $ 1,824 $ 464 $ ( 425 ) $ 18 $ 1,881 Sales returns and allowances 4,584 5,790 ( 4,374 ) — 6,000 $ 6,408 $ 6,254 $ ( 4,799 ) $ 18 $ 7,881 Inventory valuation $ 26,065 $ 2,774 $ ( 2,614 ) $ ( 56 ) $ 26,169 Deferred tax valuation allowance $ 8,520 $ 2,303 $ — $ — $ 10,823 FOR THE YEAR ENDED SEPTEMBER 30, 2018 Allowance for Doubtful Accounts Bad debts $ 1,109 $ ( 40 ) $ 11 $ 744 $ 1,824 Sales returns and allowances 4,857 4,088 ( 4,760 ) 399 4,584 $ 5,966 $ 4,048 $ ( 4,749 ) $ 1,143 $ 6,408 Inventory valuation $ 16,419 $ 1,924 $ ( 306 ) $ 8,028 $ 26,065 Deferred tax valuation allowance $ 17,466 $ ( 8,946 ) $ — $ — $ 8,520 Note (1): For the year ended September 30, 2018, Other primarily consists of opening balances of reserves assumed from acquisitions. 120 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.