GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) March 31, 2021 September 30, 2020 CURRENT ASSETS Cash and equivalents $ 175,564 $ 218,089 Accounts receivable, net of allowances of $ 9,594 and $ 8,505 399,193 340,546 Contract assets, net of progress payments of $ 20,449 and $ 24,175 75,000 84,426 Inventories 484,753 413,825 Prepaid and other current assets 55,705 46,897 Assets of discontinued operations 1,525 2,091 Total Current Assets 1,191,740 1,105,874 PROPERTY, PLANT AND EQUIPMENT, net 341,005 343,964 OPERATING LEASE RIGHT-OF-USE ASSETS 154,929 161,627 GOODWILL 446,365 442,643 INTANGIBLE ASSETS, net 357,506 355,028 OTHER ASSETS 27,440 32,897 ASSETS OF DISCONTINUED OPERATIONS 5,295 6,406 Total Assets $ 2,524,280 $ 2,448,439 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 14,913 $ 9,922 Accounts payable 257,286 232,107 Accrued liabilities 151,091 163,994 Current portion of operating lease liabilities 30,685 31,848 Liabilities of discontinued operations 4,600 3,797 Total Current Liabilities 458,575 441,668 LONG-TERM DEBT, net 1,043,859 1,037,042 LONG-TERM OPERATING LEASE LIABILITIES 128,714 136,054 OTHER LIABILITIES 122,286 126,510 LIABILITIES OF DISCONTINUED OPERATIONS 6,415 7,014 Total Liabilities 1,759,849 1,748,288 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 764,431 700,151 Total Liabilities and Shareholders’ Equity $ 2,524,280 $ 2,448,439 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 1 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three and Six Months Ended March 31, 2021 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 Net income — — — 29,500 — — — — 29,500 Dividend — — — ( 4,469 ) — — — — ( 4,469 ) Shares withheld on employee taxes on vested equity awards — — — — 133 ( 2,909 ) — — ( 2,909 ) Amortization of deferred compensation — — — — — — — 609 609 Equity awards granted, net 494 123 ( 123 ) — — — — — — ESOP allocation of common stock — — 596 — — — — — 596 Stock-based compensation — — 3,428 — — — — — 3,428 Other comprehensive income, net of tax — — — — — — 13,141 — 13,141 Balance at December 31, 2020 84,233 $ 21,058 $ 586,909 $ 632,549 27,743 $ ( 416,402 ) $ ( 58,951 ) $ ( 25,116 ) 740,047 Net income — — — 17,112 — — — — 17,112 Dividend — — — ( 3,217 ) — — — — ( 3,217 ) Amortization of deferred compensation — — — — — — — 609 609 Equity awards granted, net 194 48 ( 48 ) — — — — — — ESOP allocation of common stock — — 756 — — — — — 756 Stock-based compensation — — 4,349 — — — — — 4,349 Other comprehensive income, net of tax — — — — — — 4,775 — 4,775 Balance at March 31, 2021 84,427 $ 21,106 $ 591,966 $ 646,444 27,743 $ ( 416,402 ) $ ( 54,176 ) $ ( 24,507 ) $ 764,431 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three and Six Months Ended March 31, 2020 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2019 82,775 $ 20,694 $ 519,017 $ 568,516 35,969 $ ( 536,308 ) $ ( 65,916 ) $ ( 28,240 ) $ 477,763 Net income — — — 10,612 — — — — 10,612 Dividend — — — ( 3,392 ) — — — — ( 3,392 ) Shares withheld on employee taxes on vested equity awards — — — — 80 ( 1,758 ) — — ( 1,758 ) Amortization of deferred compensation — — — — — — — 629 629 Equity awards granted, net 182 45 ( 45 ) — — — — — — ESOP allocation of common stock — — 609 — — — — — 609 Stock-based compensation — — 3,150 — — — — — 3,150 Stock-based consideration — — 239 — — — — — 239 Other comprehensive income, net of tax — — — — — — 6,841 — 6,841 Balance at December 31, 2019 82,957 $ 20,739 $ 522,970 $ 575,736 36,049 $ ( 538,066 ) $ ( 59,075 ) $ ( 27,611 ) $ 494,693 Net income — — — 895 — — — — 895 Dividend — — — ( 3,422 ) — — — — ( 3,422 ) Shares withheld on employee taxes on vested equity awards — — — — 261 ( 5,721 ) — — ( 5,721 ) Amortization of deferred compensation — — — — — — — 629 629 Equity awards granted, net 784 196 ( 196 ) — — — — — — ESOP allocation of common stock — — 435 — — — — — 435 Stock-based compensation — — 3,662 — — — — — 3,662 Stock-based consideration — — 117 — — — — — 117 Other comprehensive income, net of tax — — — — — — ( 14,834 ) — ( 14,834 ) Balance at March 31, 2020 83,741 $ 20,935 $ 526,988 $ 573,209 36,310 $ ( 543,787 ) $ ( 73,909 ) $ ( 26,982 ) $ 476,454 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 Revenue $ 634,832 $ 566,350 $ 1,244,123 $ 1,114,788 Cost of goods and services 464,516 414,318 903,635 812,835 Gross profit 170,316 152,032 340,488 301,953 Selling, general and administrative expenses 126,827 126,467 248,384 244,265 Income from operations 43,489 25,565 92,104 57,688 Other income (expense) Interest expense ( 15,831 ) ( 16,871 ) ( 31,521 ) ( 33,082 ) Interest income 304 310 349 571 Gain (adjustment) on sale of business ( 949 ) — 5,291 — Loss from debt extinguishment, net — ( 6,690 ) — ( 6,690 ) Other, net 847 615 806 1,393 Total other expense, net ( 15,629 ) ( 22,636 ) ( 25,075 ) ( 37,808 ) Income before taxes 27,860 2,929 67,029 19,880 Provision for income taxes 10,748 2,034 20,417 8,373 Net income $ 17,112 $ 895 $ 46,612 $ 11,507 Basic earnings per common share $ 0.34 $ 0.02 $ 0.92 $ 0.28 Basic weighted-average shares outstanding 50,838 41,565 50,717 41,369 Diluted earnings per common share $ 0.32 $ 0.02 $ 0.88 $ 0.26 Diluted weighted-average shares outstanding 53,264 43,734 53,211 43,826 Dividends paid per common share $ 0.08 $ 0.075 $ 0.16 $ 0.15 Net income $ 17,112 $ 895 $ 46,612 $ 11,507 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 1,739 ( 16,471 ) 13,862 ( 10,001 ) Pension and other post retirement plans 1,245 669 2,951 1,341 Change in cash flow hedges 1,791 968 1,103 667 Total other comprehensive income (loss), net of taxes 4,775 ( 14,834 ) 17,916 ( 7,993 ) Comprehensive income, net $ 21,887 $ ( 13,939 ) $ 64,528 $ 3,514 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 46,612 $ 11,507 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 31,149 31,544 Stock-based compensation 9,501 8,302 Asset impairment charges - restructuring 8,291 4,692 Provision for losses on accounts receivable 194 596 Amortization of debt discounts and issuance costs 1,349 2,267 Loss from debt extinguishment, net — 6,690 Deferred income taxes 2,334 408 Loss (gain) on sale of assets and investments 151 ( 274 ) Gain on sale of business ( 5,291 ) — Change in assets and liabilities, net of assets and liabilities acquired: Increase in accounts receivable and contract assets, net ( 47,146 ) ( 61,815 ) Increase in inventories ( 74,186 ) ( 21,262 ) (Increase) decrease in prepaid and other assets 271 ( 6,005 ) Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities ( 1,470 ) ( 38,053 ) Other changes, net 2,400 560 Net cash used in operating activities ( 25,841 ) ( 60,843 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 23,986 ) ( 22,519 ) Acquired businesses, net of cash acquired ( 2,242 ) ( 10,531 ) Proceeds from sale of business, net 14,725 — Investment purchases ( 2,138 ) — Proceeds from the sale of property, plant and equipment 82 290 Other, net 27 — Net cash used in investing activities ( 13,532 ) ( 32,760 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 8,678 ) ( 7,349 ) Purchase of shares for treasury ( 2,909 ) ( 7,479 ) Proceeds from long-term debt 14,029 1,061,343 Payments of long-term debt ( 7,573 ) ( 939,071 ) Financing costs ( 571 ) ( 13,176 ) Other, net ( 214 ) 83 Net cash provided by (used in) financing activities ( 5,916 ) 94,351 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended March 31, 2021 2020 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in operating activities ( 1,512 ) ( 1,994 ) Net cash provided by investing activities 2,749 — Net cash provided by (used in) discontinued operations 1,237 ( 1,994 ) Effect of exchange rate changes on cash and equivalents 1,527 ( 2,107 ) NET DECREASE IN CASH AND EQUIVALENTS ( 42,525 ) ( 3,353 ) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 218,089 72,377 CASH AND EQUIVALENTS AT END OF PERIOD $ 175,564 $ 69,024 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 6 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation 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). 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 Corporation ("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. 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. The impact from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, with disruptions to the business of our customers and suppliers, which could impact our business and consolidated results of operations and financial condition in the future. While we have not incurred significant disruptions to our manufacturing or to our supply chain thus far from the COVID-19 outbreak, we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. 7 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business, properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s CPP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet information at September 30, 2020 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020. The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, 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. Certain amounts in the prior year have been reclassified to conform to current year presentation. NOTE 2 – FAIR VALUE MEASUREMENTS The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate 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 and variable rate debt is based upon current market rates. Applicable accounting guidance establishes a fair value hierarchy requiring 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. 8 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) • 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 values of Griffon’s 2028 senior notes approximated $ 1,060,000 on March 31, 2021. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 3,821 at March 31, 2021 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets. Items Measured at Fair Value on a Recurring Basis At March 31, 2021, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 2,088 ($ 1,000 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss). In the normal course of business, Griffon’s operations are exposed to the effects 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. As of March 31, 2021, 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 US dollars. At March 31, 2021, Griffon had $ 61,000 of Australian dollar contracts at a weighted average rate of $ 1.29 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $ 831 ($ 582 , net of tax) at March 31, 2021. Upon settlement, losses of $ 1,741 and $ 2,399 were recorded in COGS during the three and six months ended March 31, 2021, respectively. All contracts expire in 30 to 180 days. At March 31, 2021, Griffon had $ 7,935 of Canadian dollar contracts at a weighted average rate of $ 1.30 . The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and six months ended March 31, 2021, fair value gains of $ 520 and $ 244 , respectively, were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $ 102 and $ 161 were recorded in Other income during the three and six months ended March 31, 2021, respectively, for all settled contracts. All contracts expire in 29 to 450 days. At March 31, 2021, Griffon had $ 5,200 of British Pound dollar contracts at a weighted average rate of $ 0.75 . The contracts, which protect United Kingdom operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and six months ended March 31, 2021, fair value gains of $ 386 and $ 141 , respectively, were recorded to Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $ 211 and $ 281 were recorded in Other income during the three and six months ended March 31, 2021, respectively. All contracts expire in 6 to 104 days. NOTE 3 – 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 9 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). 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. 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. 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. For the three and six months ended March 31, 2021, income from operations included net unfavorable catch up adjustments approximating $ 1,423 and $ 3,220 , respectively. For the three and six months ended March 31, 2020, income from operations included net unfavorable catch up adjustments of $ 2,188 and $ 422 , 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. 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, and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). These provisions had an immaterial impact on Griffon's Consolidated Financial Statements. The estimated remaining costs to complete loss contracts as of March 31, 2021 and September 30, 2020 were approximately $ 8,500 and $ 10,800 , respectively. For a complete explanation of Griffon’s revenue accounting policies, this note should be read in conjunction with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020. See Note 13 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. Transaction Price Allocated to the Remaining Performance Obligations On March 31, 2021, we had $ 353,870 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 65 % 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 $ 75,000 as of March 31, 2021 compared to $ 84,426 as of September 30, 2020. The $ 9,426 net decrease in our contract assets balance was primarily due to the timing of billings and work performed in Surveillance programs and decrease associated with the sale of Systems Engineering Group, Inc. ("SEG"). Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract costs and recognized income not yet billed, net of progress payments in the Consolidated Balance Sheets. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract costs and recognized income not yet billed 10 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) consists of amounts accounted for under the percentage of completion method of accounting, and represent 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 March 31, 2021 and September 30, 2020, approximately $ 7,700 and $ 7,500 , respectively, of contract costs and recognized income not yet billed were expected to be collected after one year. Contract liabilities were $ 22,964 as of March 31, 2021 compared to $ 24,386 as of September 30, 2020. The $ 1,422 decrease in the contract liabilities balance was primarily due to recognition of revenue in Naval & Cyber systems, partially offset by billings in Surveillance and Communications 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 4 – ACQUISITIONS AND DISPOSITIONS Acquisitions Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation unless otherwise noted. On December 22, 2020, AMES acquired Quatro Design Pty Ltd (“Quatro”), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a purchase price of AUD $ 3,500 (approximately $ 2,700 ) in cash. The purchase price is subject to additional contingent consideration of approximately AUD $ 1,000 (approximately $ 760 ) based on Quatro exceeding certain EBITDA performance targets in the first year. The preliminary acquired intangibles and goodwill allocated to this acquisition was AUD $ 2,755 (approximately $ 2,082 ) and AUD $ 1,648 (approximately $ 1,246 ), respectively, which was assigned to the CPP segment, and is not deductible for income tax purposes. 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 allocation was finalized and 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 , which was assigned to the CPP segment. During the three and six months ended March 31, 2021, acquisition costs were de minimis. During both the three and six months ended March 31, 2020, the Company incurred acquisition costs of $ 2,960 . Dispositions On December 18, 2020, Defense Electronics completed the sale of its SEG business for $ 15,000 . SEG provides sophisticated, highly technical engineering and analytical support to the Missile Defense Agency and various U.S. military commands. SEG had sales of approximately $ 7,000 for the first fiscal quarter ended December 31, 2020 and $ 31,000 for the fiscal year ended September 30, 2020. DE recorded a pre-tax gain of $ 5,291 ($ 5,251 , net of tax, or $ 0.10 per share) related to the divestiture of SEG. The sale does not represent a strategic shift that will have a major effect on operations and financial results. 11 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 5 – INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or average cost) or market. The following table details the components of inventory: At March 31, 2021 At September 30, 2020 Raw materials and supplies $ 155,720 $ 146,351 Work in process 86,299 83,697 Finished goods 242,734 183,777 Total $ 484,753 $ 413,825 NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At March 31, 2021 At September 30, 2020 Land, building and building improvements $ 169,081 $ 167,005 Machinery and equipment 611,187 595,126 Leasehold improvements 53,952 53,386 834,220 815,517 Accumulated depreciation and amortization ( 493,215 ) ( 471,553 ) Total $ 341,005 $ 343,964 Depreciation and amortization expense for property, plant and equipment was $ 13,450 and $ 13,316 for the quarters ended March 31, 2021 and 2020, respectively, and $ 26,338 and $ 26,748 for the six months ended March 31, 2021 and 2020, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 5,014 and $ 4,910 for the quarters ended March 31, 2021 and 2020, respectively, and $ 9,720 and $ 9,861 for the six months ended March 31, 2021 and 2020, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. 12 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 7 – CREDIT LOSSES Effective October 1, 2020, the Company adopted accounting guidance related to accounting for credit losses on financial instruments, including trade receivables (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The guidance requires companies to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. The Company is exposed to credit losses primarily through sales of products and services. Trade receivables are recorded at their stated amount, less allowances for discounts, doubtful accounts and returns. The Company’s expected loss allowance methodology for trade receivables is primarily based on the aging method of the accounts receivables balances and the financial condition of its customers. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for doubtful accounts includes amounts for certain customers in which 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. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in SG&A expenses. The Company also considers current and expected future economic and market conditions, such as the COVID-19 pandemic, when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year. Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with this guidance in all material respects. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected: Beginning Balance, October 1, 2020 $ 8,505 Provision for expected credit losses 1,228 Amounts written off charged against the allowance ( 161 ) Other, primarily foreign currency translation 22 Ending Balance, March 31, 2021 $ 9,594 13 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 8 – GOODWILL AND OTHER INTANGIBLES The following table provides changes in the carrying value of goodwill by segment during the six months ended March 31, 2021: At September 30, 2020 Business Acquisitions (a) Business Divestitures (b) Foreign currency translations adjustments At March 31, 2021 Consumer and Professional Products $ 232,845 $ 1,246 $ — $ 3,287 $ 237,378 Home and Building Products 191,253 — — — 191,253 Defense Electronics 18,545 — ( 811 ) — 17,734 Total $ 442,643 $ 1,246 $ ( 811 ) $ 3,287 $ 446,365 (a) The increase in the CPP segment was due to the acquisition of Quatro. (b) The decrease in the DE segment was due to the divestiture of SEG. The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At March 31, 2021 At September 30, 2020 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 189,189 $ 71,840 23 $ 185,940 $ 66,656 Technology and patents 19,529 8,030 13 19,464 8,360 Total amortizable intangible assets 208,718 79,870 205,404 75,016 Trademarks 228,658 — 224,640 — Total intangible assets $ 437,376 $ 79,870 $ 430,044 $ 75,016 The gross carrying amount of intangible assets was impacted by approximately $ 5,250 related to foreign currency translation. Amortization expense for intangible assets was $ 2,433 and $ 2,403 for the quarters ended March 31, 2021 and 2020, respectively, and $ 4,811 and $ 4,796 for the six months ended March 31, 2021 and 2020. Amortization expense for the remainder of 2021 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2021 - $ 4,574 ; 2022 - $ 9,376 ; 2023 - $ 9,224 ; 2024 - $ 9,198 ; 2025 - $ 9,198 ; 2026 - $ 9,198 ; thereafter $ 78,080 . Griffon performs its annual goodwill impairment testing in the fourth quarter of each year. The 2020 impairment testing resulted in all three reporting units having fair values substantially in excess of their carrying values. 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. In connection with the sale of the SEG business, the Company assessed the remaining DE reporting unit for impairment. The assessment determined that the fair value of the DE reporting unit substantially exceeded its carrying value and no impairment existed. During the six months ended March 31, 2021, the Company determined that there were no other triggering events and, as a result, there was no impairment to either its goodwill or indefinite-lived intangible assets at March 31, 2021. 14 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 9 – INCOME TAXES During the quarter ended March 31, 2021, the Company recognized a tax provision of $ 10,748 on income before taxes of $ 27,860 , compared to a tax provision of $ 2,034 on income before taxes of $ 2,929 in the comparable prior year quarter. The current year quarter results included restructuring charges of $ 7,562 ($ 5,651 , net of tax), reduction to gain on sale of the SEG business of $ 949 ($ 766 , net of tax) and discrete and certain other tax provisions, net, that affect comparability of $ 1,913 . The prior year quarter results included restructuring charges of $ 3,104 ($ 3,005 , net of tax), acquisition costs of $ 2,960 ($ 2,321 , net of tax), loss from debt extinguishment of $ 6,690 ($ 5,245 , net of tax) and discrete tax and certain other tax benefits, net, that affect comparability of $ 1,413 . Excluding these items, the effective tax rates for the quarters ended March 31, 2021 and 2020 were 30.0 % and 35.9 %, respectively. During the six months ended March 31, 2021, the Company recognized a tax provision of $ 20,417 on Income before taxes of $ 67,029 , compared to a tax provision of $ 8,373 on income before taxes of $ 19,880 in the comparable prior year period. The six month period ended March 31, 2021 included restructuring charges of $ 18,362 ($ 13,951 , net of tax), gain on sale of the SEG business of $ 5,291 ($ 5,251 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of $ 115 . The six month period ended March 31, 2020 included restructuring charges of $ 9,538 ($ 7,153 , net of tax), acquisition costs of $ 2,960 ($ 2,321 , net of tax), loss from debt extinguishment of $ 6,690 ($ 5,245 , net of tax) and discrete tax and certain other tax benefits, net, that affect comparability of $ 580 . Excluding these items, the effective tax rates for the six months ended March 31, 2021 and 2020 were 31.1 % and 34.4 %, respectively. 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 10 – LONG-TERM DEBT At March 31, 2021 At September 30, 2020 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 339 ( 14,329 ) $ 986,010 5.75 % $ 1,000,000 $ 363 $ ( 15,376 ) $ 984,987 5.75 % Revolver due 2025 (b) 20,622 — ( 1,963 ) 18,659 Variable 12,858 — ( 2,209 ) 10,649 Variable Finance lease - real estate (c) 15,924 — ( 17 ) 15,907 5.60 % 17,218 — ( 30 ) 17,188 5.60 % Non US lines of credit (d) 4,405 — ( 24 ) 4,381 Variable — — ( 30 ) ( 30 ) Variable Non US term loans (d) 29,870 — ( 133 ) 29,737 Variable 31,086 — ( 160 ) 30,926 Variable Other long term debt (e) 4,094 — ( 16 ) 4,078 Variable 3,260 — ( 16 ) 3,244 Variable Totals 1,074,915 339 ( 16,482 ) 1,058,772 1,064,422 363 ( 17,821 ) 1,046,964 less: Current portion ( 14,913 ) — — ( 14,913 ) ( 9,922 ) — — ( 9,922 ) Long-term debt $ 1,060,002 $ 339 $ ( 16,482 ) $ 1,043,859 $ 1,054,500 $ 363 $ ( 17,821 ) $ 1,037,042 Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 14,375 $ 12 $ 505 $ 14,892 6.0 % $ 5,566 $ — $ 135 $ 5,701 Senior notes due 2022 (a) — — — — — 5.7 % 8,040 45 628 8,713 Revolver due 2025 (b) Variable 287 — 122 409 Variable 1,819 — 165 1,984 Finance lease - real estate (c) 5.9 % 224 — 7 231 6.1 % 52 — 7 59 Non US lines of credit (d) Variable 4 — 4 8 Variable 3 — 8 11 Non US term loans (d) Variable 163 — 18 181 Variable 292 — 7 299 Other long term debt (e) Variable 115 — 1 116 Variable 132 — — 132 Capitalized interest ( 6 ) — — ( 6 ) ( 28 ) — — ( 28 ) Totals $ 15,162 $ 12 $ 657 $ 15,831 $ 15,876 $ 45 $ 950 $ 16,871 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Six Months Ended March 31, 2021 Six Months Ended March 31, 2020 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 28,750 $ 24 $ 1,023 $ 29,797 6.0 % $ 5,566 $ — $ 135 $ 5,701 Senior notes due 2022 (a) — — — — — 5.7 % 21,165 112 1,579 22,856 Revolver due 2025 (b) Variable 416 — 245 661 Variable 3,201 — 397 3,598 Finance lease - real estate (c) 5.6 % 456 — 13 469 6.0 % 113 — 13 126 Non US lines of credit (d) Variable 7 — 8 15 Variable 7 — 12 19 Non US term loans (d) Variable 334 — 35 369 Variable 564 — 19 583 Other long term debt (e) Variable 222 — 1 223 Variable 292 — — 292 Capitalized interest ( 13 ) — — ( 13 ) ( 93 ) — — ( 93 ) Totals $ 30,172 $ 24 $ 1,325 $ 31,521 $ 30,815 $ 112 $ 2,155 $ 33,082 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) (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, at 100.25 % of par, to Griffon's previously issued $ 850,000 principal amount of its 5.75 % Senior Notes, at par, completed on February 19, 2020 (collectively, the “Senior Notes”). Proceeds from the Senior Notes were used to redeem the $ 1,000,000 of 5.25 % 2022 senior notes. As of March 31, 2021, 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 Senior Notes approximated $ 1,060,000 on March 31, 2021 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 2028 Senior Notes, which is being amortized over the term of the 2028 Senior Notes. 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 $ 1,000,000 principal amount of 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 revolving credit facility (as amended, the "Credit Agreement") to increase the maximum borrowing availability from $ 350,000 to $ 400,000 , and extend its maturity date from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $ 100,000 ; a multi-currency sub-facility of $ 200,000 ; and contains a customary accordion feature that permits us to request, subject to each lender's consent, an increase in the maximum aggregate amount that can be borrowed by up to an additional $ 100,000 . 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 0.50 % for base rate loans and 1.50 % for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants, and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At March 31, 2021, there were $ 20,622 of outstanding borrowings under the Credit Agreement; outstanding standby letters of credit were $ 16,310 ; and $ 363,068 was available, subject to certain loan covenants, for borrowing at that date. (c) 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. At March 31, 2021, $ 15,907 was outstanding, net of issuance costs. Refer to Note 21- Leases for further details. (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 11,894 as of March 31, 2021) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 1.41 % LIBOR USD and 1.47 % Bankers Acceptance Rate CDN as of March 31, 2021). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At March 31, 2021, there were no borrowings under the revolving credit facility with CAD 15,000 ($ 11,894 as of March 31, 2021) available for borrowing. 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement. The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 9,625 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.95 % per annum ( 2.01 % at March 31, 2021). During fiscal 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 March 31, 2021, the term loan had an outstanding balance of AUD 13,375 ($ 10,192 as of March 31, 2021). 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 ( 1.98 % and 1.41 %, respectively, at March 31, 2021). At March 31, 2021, there were no balances outstanding under the revolver and the receivable purchase facility. The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. In July 2018, The AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349 , respectively. The Term Loan and Mortgage Loans each accrue interest at the GBP LIBOR Rate plus 1.8 % ( 1.85 % at March 31, 2021). 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 % ( 1.60 % as of March 31, 2021). As of March 31, 2021, the revolver had an outstanding balance of GBP $ 3,204 ($ 4,405 as of March 31, 2021) while the term and mortgage loan balances amounted to GBP 14,313 ($ 19,678 as of March 31, 2021). 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. (e) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. On March 13, 2019, Griffon's Employee Stock Ownership Plan entered into an agreement that refinanced a term loan with a bank with an internal loan from Griffon. 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 March 31, 2021 was $ 28,608 . At March 31, 2021, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. NOTE 11 — SHAREHOLDERS’ EQUITY During 2021, the Company paid a quarterly cash dividend of $ 0.08 per share in each quarter, totaling $ 0.16 per share for the six months ended March 31, 2021. During 2020, the Company paid a quarterly cash dividend of $ 0.075 per share, totaling $ 0.30 per share for the year. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. On April 29, 2021, the Board of Directors declared a quarterly cash dividend of $ 0.08 per share, payable on June 17, 2021 to shareholders of record as of the close of business on May 20, 2021. Compensation expense for restricted stock and restricted stock units is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares granted multiplied by the stock price on the date of grant and, for performance shares, 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 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within SG&A expenses. 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, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 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 underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of March 31, 2021, there were 437,276 shares available for grant. During the first quarter of 2021, Griffon granted 511,624 shares of restricted stock and restricted stock units. This included 226,811 restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of three years , with a total fair value of $ 5,500 , or a weighted average fair value of $ 24.25 per share. Furthermore, this included 284,813 restricted stock awards granted to five executives, with vesting periods of three years and a total fair value of $ 5,913 or a weighted average fair value of $ 20.76 per share. During the second quarter of 2021, Griffon granted 731,282 shares of restricted stock to six executives. This included 203,282 shares of restricted stock to four executives, subject to certain performance conditions, with vesting periods ranging from 34 months to 60 months, with a total fair value of $ 4,923 , or a weighted average fair value of $ 24.22 per share. This also included 528,000 shares of restricted stock granted to two senior executives with a vesting period of four years and a two -year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon's common stock. So long as the minimum performance condition is attained, the amount of shares that can vest will range from 384,000 to 528,000 . The total fair value of these restricted shares using the Monte Carlo Simulation model is approximately $ 7,824 , or a weighted average fair value of $ 14.82 per share. Additionally, Griffon granted 44,424 restricted shares to the non-employee directors of Griffon with a vesting period of three years and a fair value of $ 1,080 , or a weighted average fair value of $ 24.31 per share. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Restricted stock $ 4,349 $ 3,662 $ 7,777 $ 6,812 ESOP 944 658 1,724 1,490 Total stock based compensation $ 5,293 $ 4,320 $ 9,501 $ 8,302 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 this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the six months ended March 31, 2021, Griffon did not purchase any shares of common stock under these repurchase programs. As of March 31, 2021, an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs. During the second quarter ended March 31, 2021, no shares were withheld to settle employee taxes due upon the vesting of restricted stock. During the six months ended March 31, 2021, 133,027 shares, with a market value of $ 2,774 , or $ 20.85 per share, respectively, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the six months ended March 31, 2021, an additional 6,507 shares, with a market value of $ 135 , or 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) $ 20.75 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting. NOTE 12 – EARNINGS PER SHARE (EPS) Basic EPS 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. The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 Common shares outstanding 56,684 47,431 56,684 47,431 Unallocated ESOP shares ( 1,961 ) ( 2,159 ) ( 1,961 ) ( 2,159 ) Non-vested restricted stock ( 3,822 ) ( 3,562 ) ( 3,822 ) ( 3,562 ) Impact of weighted average shares ( 63 ) ( 145 ) ( 184 ) ( 341 ) Weighted average shares outstanding - basic 50,838 41,565 50,717 41,369 Incremental shares from stock based compensation 2,426 2,169 2,494 2,457 Weighted average shares outstanding - diluted 53,264 43,734 53,211 43,826 NOTE 13 – BUSINESS SEGMENTS Griffon reports its operations through three reportable segments, as follows: • CPP conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • HBP conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. • DE conducts its operations through Telephonics, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers. 21 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Information on Griffon’s reportable segments is as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, REVENUE 2021 2020 2021 2020 Consumer and Professional Products $ 331,871 $ 274,912 $ 622,913 $ 515,988 Home and Building Products 242,811 209,829 493,292 451,210 Defense Electronics 60,150 81,609 127,918 147,590 Total consolidated net sales $ 634,832 $ 566,350 $ 1,244,123 $ 1,114,788 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. The following table presents revenue disaggregated by end market and segment: For the Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Residential repair and remodel $ 50,560 $ 40,505 $ 96,160 $ 75,595 Retail 153,746 144,904 292,994 264,524 Residential new construction 14,540 14,884 28,055 29,857 Industrial 9,958 10,535 19,489 21,158 International excluding North America 103,067 64,084 186,215 124,854 Total Consumer and Professional Products 331,871 274,912 622,913 515,988 Residential repair and remodel 120,827 100,808 246,942 222,805 Commercial construction 94,751 86,300 190,690 178,187 Residential new construction 27,233 22,721 55,660 50,218 Total Home and Building Products 242,811 209,829 493,292 451,210 U.S. Government 35,045 53,623 82,369 96,324 International 21,497 25,021 38,392 43,554 Commercial 3,608 2,965 7,157 7,712 Total Defense Electronics 60,150 81,609 127,918 147,590 Total Consolidated Revenue $ 634,832 $ 566,350 $ 1,244,123 $ 1,114,788 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended March 31, 2021 2020 CPP HBP DE Total CPP HBP DE Total United States $ 205,368 $ 230,955 $ 34,166 $ 470,489 $ 191,412 $ 199,060 $ 55,071 $ 445,543 Europe 38,965 41 5,791 44,797 24,737 5 9,880 34,622 Canada 21,778 9,797 1,925 33,500 17,515 7,867 4,209 29,591 Australia 63,691 — 122 63,813 39,032 — 189 39,221 All other countries 2,069 2,018 18,146 22,233 2,216 2,897 12,260 17,373 Consolidated revenue $ 331,871 $ 242,811 $ 60,150 $ 634,832 $ 274,912 $ 209,829 $ 81,609 $ 566,350 For the Six Months Ended March 31, 2021 2020 CPP HBP DE Total CPP HBP DE Total United States $ 388,810 $ 467,486 $ 81,544 $ 937,840 $ 351,570 $ 426,010 $ 101,214 $ 878,794 Europe 52,121 41 12,696 64,858 31,342 28 15,865 47,235 Canada 43,893 21,285 3,754 68,932 35,296 19,120 6,783 61,199 Australia 133,231 — 441 133,672 93,260 — 795 94,055 All other countries 4,858 4,480 29,483 38,821 4,520 6,052 22,933 33,505 Consolidated revenue $ 622,913 $ 493,292 $ 127,918 $ 1,244,123 $ 515,988 $ 451,210 $ 147,590 $ 1,114,788 Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes: 23 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) For the Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Segment adjusted EBITDA: Consumer and Professional Products $ 37,423 $ 25,027 $ 70,136 $ 46,953 Home and Building Products 40,060 30,635 88,429 71,336 Defense Electronics 2,220 4,248 7,805 8,723 Segment adjusted EBITDA 79,703 59,910 166,370 127,012 Unallocated amounts, excluding depreciation * ( 11,922 ) ( 11,947 ) ( 23,949 ) ( 23,889 ) Adjusted EBITDA 67,781 47,963 142,421 103,123 Net interest expense ( 15,527 ) ( 16,561 ) ( 31,172 ) ( 32,511 ) Depreciation and amortization ( 15,883 ) ( 15,719 ) ( 31,149 ) ( 31,544 ) Loss from debt extinguishment — ( 6,690 ) — ( 6,690 ) Restructuring charges ( 7,562 ) ( 3,104 ) ( 18,362 ) ( 9,538 ) Acquisition costs — ( 2,960 ) — ( 2,960 ) Gain (adjustment) on sale of SEG business ( 949 ) — 5,291 — Income before taxes $ 27,860 $ 2,929 $ 67,029 $ 19,880 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. For the Three Months Ended March 31, For the Six Months Ended March 31, DEPRECIATION and AMORTIZATION 2021 2020 2021 2020 Segment: Consumer and Professional Products $ 8,620 $ 8,222 $ 16,819 $ 16,453 Home and Building Products 4,379 4,668 8,720 9,468 Defense Electronics 2,734 2,676 5,410 5,320 Total segment depreciation and amortization 15,733 15,566 30,949 31,241 Corporate 150 153 200 303 Total consolidated depreciation and amortization $ 15,883 $ 15,719 $ 31,149 $ 31,544 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 6,813 $ 3,800 $ 13,720 $ 7,532 Home and Building Products 1,998 3,556 4,113 11,495 Defense Electronics 3,247 1,921 6,151 3,210 Total segment 12,058 9,277 23,984 22,237 Corporate 2 70 2 282 Total consolidated capital expenditures $ 12,060 $ 9,347 $ 23,986 $ 22,519 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) ASSETS At March 31, 2021 At September 30, 2020 Segment assets: Consumer and Professional Products $ 1,408,545 $ 1,255,127 Home and Building Products 604,325 606,785 Defense Electronics 288,019 329,128 Total segment assets 2,300,889 2,191,040 Corporate 216,571 248,902 Total continuing assets 2,517,460 2,439,942 Assets of discontinued operations 6,820 8,497 Consolidated total $ 2,524,280 $ 2,448,439 NOTE 14 – EMPLOYEE BENEFIT PLANS Defined benefit pension expense (income) included in Other Income (Expense), net was as follows: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 Interest cost $ 745 $ 1,151 $ 1,489 $ 2,302 Expected return on plan assets ( 2,545 ) ( 2,586 ) ( 5,089 ) ( 5,172 ) Amortization: Prior service cost — 4 — 8 Recognized actuarial loss 1,573 1,042 3,146 2,084 Net periodic expense (income) $ ( 227 ) $ ( 389 ) $ ( 454 ) $ ( 778 ) NOTE 15 – RECENT ACCOUNTING PRONOUNCEMENTS Issued but not yet effective accounting pronouncements In August 2018, the Financial Accounting Standards Board ("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 is effective for the Company in our fiscal year beginning in October 1, 2021. We are currently evaluating the effects that the adoption of this guidance will have on our the related pension disclosures. 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 Accounting Standards Update ("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. New Accounting Standards Implemented 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 the Company beginning in fiscal 2021. Adoption of this standard did not have a material impact on our consolidated financial statements and the related disclosures. In August 2018, the FASB issued guidance which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. This guidance expands the disclosure requirements for Level 3 fair value measurements, 25 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This guidance is effective for the Company beginning in fiscal 2021. Adoption of this standard did not have a material impact on our consolidated financial statements and the related disclosures. In March 2020, the SEC adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered in Rule 3-10 of Regulation S-X, and affiliates whose securities collateralize securities registered or being registered in Rule 3-16 of Regulation S-X (SEC Release No. 33-10762). The amendment replaces the requirement to present condensed consolidating financial statements, comprised of balance sheets and statements of operations, comprehensive income and cash flows for all periods presented, with summarized financial information of the guarantor only for the most recently completed fiscal year and any subsequent interim period. We adopted the amendments to the disclosure requirements during the first quarter of fiscal 2021. This amendment did not have an impact on our consolidated financial statements as this amendment simplifies the financial disclosures required in our guarantor and non-guarantor financial information. See Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Guarantor Financial Information. 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 16 – DISCONTINUED OPERATIONS The following amounts summarize the total assets and liabilities related to the 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 Condensed Consolidated Balance Sheets: At March 31, 2021 At September 30, 2020 Assets of discontinued operations: Prepaid and other current assets $ 1,525 $ 2,091 Other long-term assets 5,295 6,406 Total assets of discontinued operations $ 6,820 $ 8,497 Liabilities of discontinued operations: Accrued liabilities, current $ 4,600 $ 3,797 Other long-term liabilities 6,415 7,014 Total liabilities of discontinued operations $ 11,015 $ 10,811 At March 31, 2021, Griffon's assets and liabilities consist primarily of insurance claims, income tax, product liability, and warranty and environmental reserves. NOTE 17 – RESTRUCTURING CHARGES In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China. The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. operations. First, certain AMES global operations will be consolidated to optimize facilities footprint and talent. Second, 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. Third, multiple independent information systems will be unified into a single data and analytics platform, which will serve the whole AMES global enterprise. 26 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Expanding the roll-out of the new business platform from our AMES U.S. operations to include AMES’ global operations will extend the duration of the project by one year, with completion now expected by the end of calendar year 2023. When fully implemented, these actions will result in annual cash savings of $ 30,000 to $ 35,000 and a reduction in inventory of $ 30,000 to $ 35,000 , both based on fiscal 2020 operating levels. The cost to implement this new business platform, over the duration of the project, will include one-time charges of approximately $ 65,000 and capital investments of approximately $ 65,000 . 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 the quarter and six months ended March 31, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 7,502 and $ 10,581 , respectively. During the six months ended March 31, 2021, cash charges totaled $ 7,891 and non-cash, asset-related charges totaled $ 2,690 ; the cash charges included $ 1,084 for one-time termination benefits and other personnel-related costs and $ 6,807 for facility and lease exit costs primarily driven by the consolidation of distribution facilities. Non-cash charges of $ 2,690 predominantly related to inventory that have no recoverable value. During the six months ended March 31, 2021, headcount was reduced by 65 . In the quarter and six months ended March 31, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 3,104 and $ 9,538 , respectively. During the six months ended March 31, 2020, cash charges totaled $ 4,846 and non-cash, asset-related charges totaled $ 4,692 ; the cash charges included $ 3,792 for one-time termination benefits and other personnel-related costs and $ 1,054 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. In September 2020, the DE Voluntary Employee Retirement Plan was initiated, which was subsequently followed by a reduction in force in November 2020, to improve efficiencies by combining functions and responsibilities. The combined actions resulted in severance charges of approximately $ 4,300 , with $ 2,120 recognized in the fourth quarter of fiscal 2020, and the remaining $ 2,180 was recognized during the six months ended March 31, 2021. These actions reduced headcount by approximately 90 people. In addition, charges of $ 5,601 were recorded during the quarter ended December 31, 2020, primarily related to exiting our older weather radar product lines. A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Cost of goods and services $ 3,337 $ 1,353 $ 9,762 $ 4,076 Selling, general and administrative expenses 4,225 1,751 8,600 5,462 Total restructuring charges $ 7,562 $ 3,104 $ 18,362 $ 9,538 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) For the Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Personnel related costs $ 782 $ 1,658 $ 3,264 $ 3,792 Facilities, exit costs and other 4,283 914 6,807 1,054 Non-cash facility and other 2,497 532 8,291 4,692 Total $ 7,562 $ 3,104 $ 18,362 $ 9,538 The following table summarizes the accrued liabilities of the Company's restructuring actions: Cash Charges Non-Cash Personnel related costs Facilities & Exit Costs Facility and Other Costs Total Accrued liability at September 30, 2020 $ 2,701 $ 264 $ — $ 2,965 Q1 Restructuring charges 2,482 2,524 5,794 10,800 Q1 Cash payments ( 1,598 ) ( 2,534 ) — ( 4,132 ) Q1 Non-cash charges — — ( 5,794 ) ( 5,794 ) Accrued liability at December 31, 2020 $ 3,585 $ 254 $ — $ 3,839 Q2 Restructuring charges 782 4,283 2,497 7,562 Q2 Cash payments ( 3,840 ) ( 4,273 ) — ( 8,113 ) Q2 Non-cash charges — — ( 2,497 ) ( 2,497 ) Accrued liability at March 31, 2021 $ 527 $ 264 $ — $ 791 NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended March 31, 2021 and 2020, Other income (expense) of $ 847 and $ 615 , respectively, includes $ 320 and $ 745 , respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $ 227 and $ 389 , respectively, as well as $ 55 and $( 230 ), respectively, of net investment income (loss). For the six months ended March 31, 2021 and 2020, Other income (expense) of $ 806 and 1,393 includes $( 379 ) and $ 369 , respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $ 454 and $ 778 , respectively, as well as $ 386 and $( 149 ), respectively, of net investment income (loss). Additionally, Other income (expense) also includes a one-time technology recognition award for $ 700 . NOTE 19 – 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 offer 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 original purchase unless otherwise stated on the product or packaging from the date of original purchase. 28 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 Balance, beginning of period $ 10,834 $ 7,344 $ 10,843 $ 7,894 Warranties issued and changes in estimated pre-existing warranties 6,477 4,862 11,216 8,227 Actual warranty costs incurred ( 4,633 ) ( 4,417 ) ( 9,381 ) ( 8,332 ) Balance, end of period $ 12,678 $ 7,789 $ 12,678 $ 7,789 NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended March 31, 2021 2020 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 1,739 $ — $ 1,739 $ ( 16,471 ) $ — $ ( 16,471 ) Pension and other defined benefit plans 1,585 ( 340 ) 1,245 847 ( 178 ) 669 Cash flow hedges 2,559 ( 768 ) 1,791 1,383 ( 415 ) 968 Total other comprehensive income (loss) $ 5,883 $ ( 1,108 ) $ 4,775 $ ( 14,241 ) $ ( 593 ) $ ( 14,834 ) For the Six Months Ended March 31, 2021 2020 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 13,862 $ — $ 13,862 $ ( 10,001 ) $ — $ ( 10,001 ) Pension and other defined benefit plans 3,735 ( 784 ) 2,951 1,694 ( 353 ) 1,341 Cash flow hedges 1,576 ( 473 ) 1,103 953 ( 286 ) 667 Total other comprehensive income (loss) $ 19,173 $ ( 1,257 ) $ 17,916 $ ( 7,354 ) $ ( 639 ) $ ( 7,993 ) The components of Accumulated other comprehensive income (loss) are as follows: At March 31, 2021 At September 30, 2020 Foreign currency translation adjustments $ ( 11,821 ) $ ( 25,683 ) Pension and other defined benefit plans ( 43,647 ) ( 46,598 ) Change in Cash flow hedges 1,292 189 $ ( 54,176 ) $ ( 72,092 ) 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, Gain (Loss) 2021 2020 2021 2020 Pension amortization $ ( 1,573 ) $ ( 1,046 ) $ ( 3,146 ) $ ( 2,092 ) Cash flow hedges ( 1,741 ) 1,050 ( 2,399 ) 994 Total gain (loss) $ ( 3,314 ) $ 4 ( 5,545 ) ( 1,098 ) Tax benefit (expense) 696 ( 1 ) 1,165 231 Total $ ( 2,618 ) $ 3 $ ( 4,380 ) $ ( 867 ) NOTE 21 — LEASES The Company recognizes right-of-use ("ROU") assets and lease liabilities on the balance sheet, with the exception of leases with a term of twelve months or less. 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. 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. 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. 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 Three Months Ended March 31, For the Six Months Ended March 31, 2021 2020 2021 2020 Fixed $ 9,970 $ 9,187 $ 20,010 $ 18,739 Variable (a), (b) 2,087 1,823 4,134 3,576 Short-term (b) 1,053 1,393 2,167 2,823 Total $ 13,110 $ 12,403 $ 26,311 $ 25,138 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. 30 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Supplemental cash flow information were as follows: For the Six Months Ended March 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 22,099 $ 21,582 Financing cash flows from finance leases 1,865 1,940 Total $ 23,964 $ 23,522 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: March 31, 2021 September 30, 2020 Operating Leases: Right of use assets: Operating right-of-use assets $ 154,929 $ 161,627 Lease Liabilities: Current portion of operating lease liabilities $ 30,685 $ 31,848 Long-term operating lease liabilities 128,714 136,054 Total operating lease liabilities $ 159,399 $ 167,902 Finance Leases: Property, plant and equipment, net (1) $ 18,068 $ 18,774 Lease Liabilities: Notes payable and current portion of long-term debt $ 3,110 $ 3,352 Long-term debt, net 14,950 15,339 Total financing lease liabilities $ 18,060 $ 18,691 (1) Finance lease assets are recorded net of accumulated depreciation of $ 4,296 and $ 2,383 as of March 31, 2021 and September 30, 2020, respectively. 31 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) 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 March 31, 2021 and September 30, 2020, $ 15,907 and $ 17,188 , respectively, was outstanding, net of issuance costs. The remaining lease liability balance relates to finance equipment leases. The aggregate future maturities of lease payments for operating leases and finance leases as of March 31, 2021 are as follows (in thousands): Operating Leases Finance Leases 2020 (a) $ 19,128 $ 2,381 2021 34,484 3,087 2022 26,884 2,749 2023 20,180 2,195 2024 18,214 2,077 2025 12,376 2,075 Thereafter 63,859 7,777 Total lease payments 195,125 22,341 Less: Imputed Interest ( 35,726 ) ( 4,281 ) Present value of lease liabilities $ 159,399 $ 18,060 (a) Excluding the six months ended March 31, 2021. Average lease terms and discount rates at March 31, 2021 were as follows: Weighted-average remaining lease term (years) Operating leases 8.1 Finance Leases 8.2 Weighted-average discount rate Operating Leases 4.45 % Finance Leases 5.50 % NOTE 22 — COMMITMENTS AND CONTINGENCIES 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. 32 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) 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 . 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 sent 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, New York 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 2011, remediation of chlorinated solvents in the groundwater was completed to the satisfaction of DEC. In 2018, Ames submitted a Feasibility Study recommending that the remaining soil contamination involving metals and petroleum be covered, excavated and removed to a licensed off-site location or placed under a cover on-site. DEC approved the selection of this remedy in 2019 by issuing a Record of Decision (“ROD”). In 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 DEC. While Ames was implementing the remediation required by the ROD, 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 completed remediation of that small area under a workplan approved by DEC. At the request of DEC, 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 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. 33 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) 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. 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. 34 Table of Contents (Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)