GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) June 30, 2021 September 30, 2020 CURRENT ASSETS Cash and equivalents $ 220,697 $ 218,089 Accounts receivable, net of allowances of $ 9,542 and $ 8,505 363,046 340,546 Contract assets, net of progress payments of $ 20,821 and $ 24,175 74,341 84,426 Inventories 510,309 413,825 Prepaid and other current assets 57,770 46,897 Assets of discontinued operations 695 2,091 Total Current Assets 1,226,858 1,105,874 PROPERTY, PLANT AND EQUIPMENT, net 338,762 343,964 OPERATING LEASE RIGHT-OF-USE ASSETS 150,924 161,627 GOODWILL 445,749 442,643 INTANGIBLE ASSETS, net 355,488 355,028 OTHER ASSETS 27,275 32,897 ASSETS OF DISCONTINUED OPERATIONS 3,607 6,406 Total Assets $ 2,548,663 $ 2,448,439 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 13,024 $ 9,922 Accounts payable 258,914 232,107 Accrued liabilities 160,002 163,994 Current portion of operating lease liabilities 30,896 31,848 Liabilities of discontinued operations 3,641 3,797 Total Current Liabilities 466,477 441,668 LONG-TERM DEBT, net 1,042,612 1,037,042 LONG-TERM OPERATING LEASE LIABILITIES 124,588 136,054 OTHER LIABILITIES 124,933 126,510 LIABILITIES OF DISCONTINUED OPERATIONS 4,712 7,014 Total Liabilities 1,763,322 1,748,288 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 785,341 700,151 Total Liabilities and Shareholders’ Equity $ 2,548,663 $ 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 Nine Months Ended June 30, 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 Net income — — — 16,707 — — — — 16,707 Dividend — — ( 4,546 ) — — — — ( 4,546 ) Amortization of deferred compensation — — — — — — — 610 610 Equity awards granted, net ( 7 ) ( 2 ) 2 — — — — — — ESOP allocation of common stock — — 856 — — — — — 856 Stock-based compensation — — 4,544 — — — — — 4,544 Other comprehensive income, net of tax — — — — — — 2,739 — 2,739 Balance at June 30, 2021 84,420 $ 21,104 $ 597,368 $ 658,605 27,743 $ ( 416,402 ) $ ( 51,437 ) $ ( 23,897 ) $ 785,341 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 Nine Months Ended June 30, 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 Net income — — — 21,831 — — — — 21,831 Dividend — — — ( 3,558 ) — — — — ( 3,558 ) Amortization of deferred compensation — — — — — — — 628 628 Equity awards granted, net ( 6 ) ( 1 ) 1 — — — — — — ESOP allocation of common stock — — 352 — — — — — 352 Stock-based compensation — — 3,930 — — — — — 3,930 Stock-based consideration — — 116 — — — — — 116 Other comprehensive income, net of tax — — — — — — 8,702 — 8,702 Balance at June 30, 2020 83,735 $ 20,934 $ 531,387 $ 591,482 36,310 $ ( 543,787 ) $ ( 65,207 ) $ ( 26,354 ) $ 508,455 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 June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Revenue $ 646,792 $ 632,061 $ 1,890,915 $ 1,746,849 Cost of goods and services 476,727 467,058 1,380,362 1,279,893 Gross profit 170,065 165,003 510,553 466,956 Selling, general and administrative expenses 125,579 113,509 373,963 357,774 Income from operations 44,486 51,494 136,590 109,182 Other income (expense) Interest expense ( 15,849 ) ( 16,725 ) ( 47,370 ) ( 49,807 ) Interest income 50 140 399 711 Gain on sale of business — — 5,291 — Loss from debt extinguishment, net — ( 1,235 ) — ( 7,925 ) Other, net 386 806 1,192 2,199 Total other expense, net ( 15,413 ) ( 17,014 ) ( 40,488 ) ( 54,822 ) Income before taxes 29,073 34,480 96,102 54,360 Provision for income taxes 12,366 12,649 32,783 21,022 Net income $ 16,707 $ 21,831 $ 63,319 $ 33,338 Basic earnings per common share $ 0.33 $ 0.52 $ 1.25 $ 0.80 Basic weighted-average shares outstanding 50,903 41,712 50,779 41,483 Diluted earnings per common share $ 0.31 $ 0.50 $ 1.19 $ 0.76 Diluted weighted-average shares outstanding 53,504 43,774 53,306 43,818 Dividends paid per common share $ 0.08 $ 0.075 $ 0.24 $ 0.225 Net income $ 16,707 $ 21,831 $ 63,319 $ 33,338 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 1,160 9,508 15,022 ( 493 ) Pension and other post retirement plans 1,245 1,139 4,196 2,480 Change in cash flow hedges 351 ( 1,945 ) 1,454 ( 1,278 ) Change in available-for-sale securities ( 17 ) — ( 17 ) — Total other comprehensive income, net of taxes 2,739 8,702 20,655 709 Comprehensive income, net $ 19,446 $ 30,533 $ 83,974 $ 34,047 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) Nine Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 63,319 $ 33,338 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 46,955 47,067 Stock-based compensation 15,092 12,809 Asset impairment charges - restructuring 9,483 4,692 Provision for losses on accounts receivable 173 512 Amortization of debt discounts and issuance costs 2,019 2,871 Loss from debt extinguishment, net — 7,925 Deferred income taxes 7,351 448 Loss (gain) on sale of assets and investments 155 ( 261 ) 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 ( 9,684 ) ( 81,718 ) (Increase) decrease in inventories ( 100,536 ) 34,518 Increase in prepaid and other assets ( 2,449 ) ( 17,393 ) Increase in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities 13,821 10,536 Other changes, net 1,611 600 Net cash provided by operating activities 42,019 55,944 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 33,889 ) ( 34,751 ) Acquired businesses, net of cash acquired ( 2,242 ) ( 10,531 ) Proceeds from sale of business, net 14,345 — Investment purchases ( 4,658 ) — Proceeds from the sale of property, plant and equipment 116 339 Other, net 28 ( 130 ) Net cash used in investing activities ( 26,300 ) ( 45,073 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 12,907 ) ( 10,639 ) Purchase of shares for treasury ( 2,909 ) ( 7,479 ) Proceeds from long-term debt 20,587 1,230,618 Payments of long-term debt ( 18,255 ) ( 1,205,231 ) Financing costs ( 571 ) ( 16,543 ) Other, net ( 272 ) ( 31 ) Net cash used in financing activities ( 14,327 ) ( 9,305 ) 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) Nine Months Ended June 30, 2021 2020 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in operating activities ( 1,669 ) ( 2,899 ) Net cash provided by investing activities 2,749 418 Net cash provided by (used in) discontinued operations 1,080 ( 2,481 ) Effect of exchange rate changes on cash and equivalents 136 537 NET DECREASE IN CASH AND EQUIVALENTS 2,608 ( 378 ) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 218,089 72,377 CASH AND EQUIVALENTS AT END OF PERIOD $ 220,697 $ 71,999 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 has, and could continue, to impact our business and consolidated results of operations and financial condition. As of the date of this filing, all of Griffon's facilities are fully operational. We have implemented a variety of new policies and procedures, including additional cleaning, social distancing, staggered shifts and prohibiting or significantly restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. In the United States, we manufacture a substantial majority of the products that we sell. While this helps mitigate the effects of global supplier and transportation disruptions, we are still impacted and 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 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) • 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 $ 1,061,250 on June 30, 2021. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 3,924 at June 30, 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 June 30, 2021, available-for-sale securities, measured at fair value based on quoted prices in active markets for the underlying assets (level 1 inputs), and trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 1,316 ($ 1,339 cost basis) and $ 2,196 ($ 1,000 cost basis), respectively, were included in Prepaid and other current assets on the Consolidated Balance Sheets. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in our Consolidated Balance Sheets as a component of AOCI. Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss). In the normal course of business, Griffon’s operations are exposed to the 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 June 30, 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 June 30, 2021, Griffon had $ 36,000 of Australian dollar contracts at a weighted average rate of $ 1.28 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 $ 1,317 ($ 922 , net of tax) at June 30, 2021. Upon settlement, losses of $ 413 and $ 2,812 were recorded in COGS during the three and nine months ended June 30, 2021, respectively. All contracts expire in 1 to 119 days. At June 30, 2021, Griffon had $ 8,425 of Canadian dollar contracts at a weighted average rate of $ 1.27 . The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and nine months ended June 30, 2021, fair value (losses) gains of $( 106 ) and $ 138 , 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 $ 124 and $ 285 were recorded in Other income during the three and nine months ended June 30, 2021, respectively, for all settled contracts. All contracts expire in 30 to 420 days. At June 30, 2021, Griffon had $ 950 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 nine months ended June 30, 2021, fair value (losses) gains of $( 111 ) and $ 30 , 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 $ 224 and $ 505 were recorded in Other income during the three and nine months ended June 30, 2021, respectively. All contracts expire in 6 to 21 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 9 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). 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 nine months ended June 30, 2021, income from operations included net unfavorable catch up adjustments approximating $ 1,131 and $ 4,351 , respectively. For the three and nine months ended June 30, 2020, income from operations included net unfavorable catch up adjustments of $ 2,805 and $ 3,228 , 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 June 30, 2021 and September 30, 2020 were approximately $ 12,500 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 June 30, 2021, we had $ 375,039 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 66 % 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 $ 74,341 as of June 30, 2021 compared to $ 84,426 as of September 30, 2020. The $ 10,085 net decrease in our contract assets balance was primarily due to the timing of billings and work performed in Communications and Surveillance 10 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) programs and decrease associated with the sale of Systems Engineering Group, Inc. ("SEG"), partially offset by timing of work performed on Naval & Cyber Systems. 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 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 June 30, 2021 and September 30, 2020, approximately $ 9,600 and $ 7,500 , respectively, of contract costs and recognized income not yet billed were expected to be collected after one year. Contract liabilities were $ 23,757 as of June 30, 2021 compared to $ 24,386 as of September 30, 2020. The $ 629 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 goodwill and acquired intangibles allocated to this acquisition was AUD $ 1,038 (approximately $ 784 ) and AUD $ 2,755 (approximately $ 2,082 ), 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 nine months ended June 30, 2021, acquisition costs were de minimis. During the nine months ended June 30, 2020, the Company incurred acquisition costs of $ 2,960 . The Company did no t incur acquisition costs in the three months ended June 30, 2020. 11 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. 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 June 30, 2021 At September 30, 2020 Raw materials and supplies $ 163,639 $ 146,351 Work in process 87,109 83,697 Finished goods 259,561 183,777 Total $ 510,309 $ 413,825 NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At June 30, 2021 At September 30, 2020 Land, building and building improvements $ 169,588 $ 167,005 Machinery and equipment 615,780 595,126 Leasehold improvements 55,507 53,386 840,875 815,517 Accumulated depreciation and amortization ( 502,113 ) ( 471,553 ) Total $ 338,762 $ 343,964 Depreciation and amortization expense for property, plant and equipment was $ 13,371 and $ 13,142 for the quarters ended June 30, 2021 and 2020, respectively, and $ 39,709 and $ 39,890 for the nine months ended June 30, 2021 and 2020, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 5,044 and $ 4,852 for the quarters ended June 30, 2021 and 2020, respectively, and $ 14,764 and $ 14,713 for the nine months ended June 30, 2021 and 2020, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 1,254 Amounts written off charged against the allowance ( 237 ) Other, primarily foreign currency translation 20 Ending Balance, June 30, 2021 $ 9,542 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – GOODWILL AND OTHER INTANGIBLES The following table provides changes in the carrying value of goodwill by segment during the nine months ended June 30, 2021: At September 30, 2020 Business Acquisitions (a) Business Divestitures (b) Foreign currency translations adjustments At June 30, 2021 Consumer and Professional Products $ 232,845 $ 784 $ — $ 3,133 $ 236,762 Home and Building Products 191,253 — — — 191,253 Defense Electronics 18,545 — ( 811 ) — 17,734 Total $ 442,643 $ 784 $ ( 811 ) $ 3,133 $ 445,749 (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 June 30, 2021 At September 30, 2020 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 189,511 $ 74,233 23 $ 185,940 $ 66,656 Technology and patents 19,568 8,237 13 19,464 8,360 Total amortizable intangible assets 209,079 82,470 205,404 75,016 Trademarks 228,879 — 224,640 — Total intangible assets $ 437,958 $ 82,470 $ 430,044 $ 75,016 The gross carrying amount of intangible assets was impacted by approximately $ 5,832 related to foreign currency translation. Amortization expense for intangible assets was $ 2,435 and $ 2,381 for the quarters ended June 30, 2021 and 2020, respectively, and $ 7,246 and $ 7,177 for the nine months ended June 30, 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 - $ 2,139 ; 2022 - $ 9,376 ; 2023 - $ 9,224 ; 2024 - $ 9,198 ; 2025 - $ 9,198 ; 2026 - $ 9,198 ; thereafter $ 78,276 . 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 nine months ended June 30, 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 June 30, 2021. 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 9 – INCOME TAXES During the quarter ended June 30, 2021, the Company recognized a tax provision of $ 12,366 on Income before taxes of $ 29,073 , compared to a tax provision of $ 12,649 on Income before taxes of $ 34,480 in the comparable prior year quarter. The current year quarter results included restructuring charges of $ 4,082 ($ 3,129 , net of tax) and discrete and certain other tax provisions, net, that affect comparability of $ 2,979 , primarily due to the impact of UK tax rate changes on deferred liabilities. The prior year quarter results included restructuring charges of $ 1,633 ($ 1,224 , net of tax), loss from debt extinguishment of $ 1,235 ($ 969 , net of tax) and discrete tax and certain other tax provisions, net, that affect comparability of $ 1,828 . Excluding these items, the effective tax rates for the quarters ended June 30, 2021 and 2020 were 31.2 % and 30.8 %, respectively. During the nine months ended June 30, 2021, the Company recognized a tax provision of $ 32,783 on Income before taxes of $ 96,102 , compared to a tax provision of $ 21,022 on Income before taxes of $ 54,360 in the comparable prior year period. The nine month period ended June 30, 2021 included restructuring charges of $ 22,444 ($ 17,080 , net of tax), gain on sale of the SEG business of $ 5,291 ($ 5,251 , net of tax) and discrete and certain other tax provisions, net, that affect comparability of $ 2,864 , primarily due to the impact of UK tax rate changes on deferred liabilities. The nine month period ended June 30, 2020 included restructuring charges of $ 11,171 ($ 8,377 , net of tax), acquisition costs of $ 2,960 ($ 2,321 , net of tax), loss from debt extinguishment of $ 7,925 ($ 6,214 , net of tax) and discrete tax and certain other tax provisions, net, that affect comparability of $ 1,248 . Excluding these items, the effective tax rates for the nine months ended June 30, 2021 and 2020 were 31.1 % and 32.6 %, 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) NOTE 10 – LONG-TERM DEBT At June 30, 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 $ 327 ( 13,811 ) $ 986,516 5.75 % $ 1,000,000 $ 363 $ ( 15,376 ) $ 984,987 5.75 % Revolver due 2025 (b) 20,775 — ( 1,841 ) 18,934 Variable 12,858 — ( 2,209 ) 10,649 Variable Finance lease - real estate (c) 15,265 — ( 11 ) 15,254 5.60 % 17,218 — ( 30 ) 17,188 5.60 % Non US lines of credit (d) 2,871 — ( 21 ) 2,850 Variable — — ( 30 ) ( 30 ) Variable Non US term loans (d) 28,204 — ( 113 ) 28,091 Variable 31,086 — ( 160 ) 30,926 Variable Other long term debt (e) 4,006 — ( 15 ) 3,991 Variable 3,260 — ( 16 ) 3,244 Variable Totals 1,071,121 327 ( 15,812 ) 1,055,636 1,064,422 363 ( 17,821 ) 1,046,964 less: Current portion ( 13,024 ) — — ( 13,024 ) ( 9,922 ) — — ( 9,922 ) Long-term debt $ 1,058,097 $ 327 $ ( 15,812 ) $ 1,042,612 $ 1,054,500 $ 363 $ ( 17,821 ) $ 1,037,042 Three Months Ended June 30, 2021 Three Months Ended June 30, 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 ) $ 496 $ 14,859 5.8 % $ 12,219 $ — $ 277 $ 12,496 Senior notes due 2022 (a) — — — — — 5.7 % 1,960 11 155 2,126 Revolver due 2025 (b) Variable 344 — 123 467 Variable 1,597 — 134 1,731 Finance lease - real estate (c) 5.8 % 215 — 6 221 6.3 % 33 — 6 39 Non US lines of credit (d) Variable 4 — 4 8 Variable 4 — ( 1 ) 3 Non US term loans (d) Variable 169 — 18 187 Variable 222 — 21 243 Other long term debt (e) Variable 107 — — 107 Variable 102 — 1 103 Capitalized interest — — — — ( 16 ) — — ( 16 ) Totals $ 15,214 $ ( 12 ) $ 647 $ 15,849 $ 16,121 $ 11 $ 593 $ 16,725 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Nine Months Ended June 30, 2021 Nine Months Ended June 30, 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 % $ 43,125 $ ( 35 ) $ 1,566 $ 44,656 5.9 % $ 17,785 $ — $ 412 $ 18,197 Senior notes due 2022 (a) — — — — — 5.7 % 23,125 123 1,734 24,982 Revolver due 2025 (b) Variable 760 — 368 1,128 Variable 4,798 — 531 5,329 Finance lease - real estate (c) 5.8 % 671 — 19 690 6.1 % 146 — 19 165 Non US lines of credit (d) Variable 11 — 12 23 Variable 11 — 11 22 Non US term loans (d) Variable 503 — 53 556 Variable 786 — 40 826 Other long term debt (e) Variable 329 — 1 330 Variable 394 — 1 395 Capitalized interest ( 13 ) — — ( 13 ) ( 109 ) — — ( 109 ) Totals $ 45,386 $ ( 35 ) $ 2,019 $ 47,370 $ 46,936 $ 123 $ 2,748 $ 49,807 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (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 June 30, 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 $ 1,061,250 on June 30, 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 June 30, 2021, there were $ 20,775 of outstanding borrowings under the Credit Agreement; outstanding standby letters of credit were $ 17,007 ; and $ 362,218 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 November 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, which is guaranteed by Griffon, and has a one dollar buyout at the end of the lease. The Ocala, Florida lease contains two five -year renewal options. At June 30, 2021, $ 15,254 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 ($ 12,126 as of June 30, 2021) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 1.40 % LIBOR USD and 1.48 % Bankers Acceptance Rate CDN as of June 30, 2021). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At June 30, 2021, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 12,126 as of June 30, 2021) available. 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 June 30, 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 June 30, 2021, the term loan had an outstanding balance of AUD 12,125 ($ 9,131 as of June 30, 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 June 30, 2021). At June 30, 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 % ( 1.86 % at June 30, 2021). The revolving facility accrues interest at the Bank of England Base Rate plus 1.8 % ( 1.90 % as of June 30, 2021) and was renewed in June 2021. The revolving credit facility matures in April 2022, but it is renewable upon mutual agreement with the lender. As of June 30, 2021, the revolver had an outstanding balance of GBP $ 2,073 ($ 2,871 as of June 30, 2021) while the term and mortgage loan balances amounted to GBP 13,771 ($ 19,073 as of June 30, 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 $ 620 , and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at June 30, 2021 was $ 27,988 . At June 30, 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 $ 0.24 per share for the nine months ended June 30, 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 July 29, 2021, the Board of Directors declared a quarterly cash dividend of $ 0.08 per share, payable on September 16, 2021 to shareholders of record as of the close of business on August 19, 2021. 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 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 June 30, 2021, there were 443,820 shares available for grant. 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 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. 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. During the third quarter of 2021, no grants were issued. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Restricted stock $ 4,544 $ 3,930 $ 12,321 $ 10,742 ESOP 1,047 577 2,771 2,067 Total stock based compensation $ 5,591 $ 4,507 $ 15,092 $ 12,809 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 nine months ended June 30, 2021, Griffon did not purchase any shares of common stock under these repurchase programs. As of June 30, 2021, an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs. During the third quarter ended June 30, 2021, no shares were withheld to settle employee taxes due upon the vesting of restricted stock. During the nine months ended June 30, 2021, 133,027 shares, with a market value of $ 2,774 , or $ 20.85 per 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) share, respectively, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the nine months ended June 30, 2021, an additional 6,507 shares, with a market value of $ 135 , or $ 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 June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Common shares outstanding 56,677 47,425 56,677 47,425 Unallocated ESOP shares ( 1,912 ) ( 2,108 ) ( 1,912 ) ( 2,108 ) Non-vested restricted stock ( 3,814 ) ( 3,555 ) ( 3,814 ) ( 3,555 ) Impact of weighted average shares ( 48 ) ( 50 ) ( 172 ) ( 279 ) Weighted average shares outstanding - basic 50,903 41,712 50,779 41,483 Incremental shares from stock based compensation 2,601 2,062 2,527 2,335 Weighted average shares outstanding - diluted 53,504 43,774 53,306 43,818 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) Information on Griffon’s reportable segments is as follows: For the Three Months Ended June 30, For the Nine Months Ended June 30, REVENUE 2021 2020 2021 2020 Consumer and Professional Products $ 324,826 $ 328,929 $ 947,739 $ 844,917 Home and Building Products 259,392 219,164 752,684 670,374 Defense Electronics 62,574 83,968 190,492 231,558 Total consolidated net sales $ 646,792 $ 632,061 $ 1,890,915 $ 1,746,849 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 June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Residential repair and remodel $ 50,165 $ 50,709 $ 146,325 $ 126,304 Retail 154,212 177,271 447,206 441,795 Residential new construction 12,147 14,487 40,202 44,344 Industrial 12,708 9,303 32,197 30,461 International excluding North America 95,594 77,159 281,809 202,013 Total Consumer and Professional Products 324,826 328,929 947,739 844,917 Residential repair and remodel 127,827 109,876 374,769 332,681 Commercial construction 102,754 84,521 293,444 262,708 Residential new construction 28,811 24,767 84,471 74,985 Total Home and Building Products 259,392 219,164 752,684 670,374 U.S. Government 45,275 54,802 127,644 151,126 International 15,141 24,779 53,533 68,333 Commercial 2,158 4,387 9,315 12,099 Total Defense Electronics 62,574 83,968 190,492 231,558 Total Consolidated Revenue $ 646,792 $ 632,061 $ 1,890,915 $ 1,746,849 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended June 30, 2021 2020 CPP HBP DE Total CPP HBP DE Total United States $ 206,809 $ 246,268 $ 37,192 $ 490,269 $ 232,544 $ 209,222 $ 56,294 $ 498,060 Europe 43,767 31 6,908 50,706 29,267 81 8,636 37,984 Canada 20,547 10,724 1,719 32,990 18,231 7,729 3,012 28,972 Australia 51,437 — 207 51,644 47,614 — 1,012 48,626 All other countries 2,266 2,369 16,548 21,183 1,273 2,132 15,014 18,419 Consolidated revenue $ 324,826 $ 259,392 $ 62,574 $ 646,792 $ 328,929 $ 219,164 $ 83,968 $ 632,061 For the Nine Months Ended June 30, 2021 2020 CPP HBP DE Total CPP HBP DE Total United States $ 595,619 $ 713,754 $ 118,736 $ 1,428,109 $ 584,114 $ 635,232 $ 157,508 $ 1,376,854 Europe 95,888 72 19,604 115,564 60,609 109 24,501 85,219 Canada 64,440 32,009 5,473 101,922 53,527 26,849 9,795 90,171 Australia 184,668 — 648 185,316 140,874 — 1,807 142,681 All other countries 7,124 6,849 46,031 60,004 5,793 8,184 37,947 51,924 Consolidated revenue $ 947,739 $ 752,684 $ 190,492 $ 1,890,915 $ 844,917 $ 670,374 $ 231,558 $ 1,746,849 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) For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Segment adjusted EBITDA: Consumer and Professional Products $ 29,388 $ 37,115 $ 99,524 $ 84,068 Home and Building Products 42,156 39,299 130,585 110,635 Defense Electronics 4,140 4,122 11,945 12,845 Segment adjusted EBITDA 75,684 80,536 242,054 207,548 Unallocated amounts, excluding depreciation * ( 10,924 ) ( 11,080 ) ( 34,873 ) ( 34,969 ) Adjusted EBITDA 64,760 69,456 207,181 172,579 Net interest expense ( 15,799 ) ( 16,585 ) ( 46,971 ) ( 49,096 ) Depreciation and amortization ( 15,806 ) ( 15,523 ) ( 46,955 ) ( 47,067 ) Loss from debt extinguishment — ( 1,235 ) — ( 7,925 ) Restructuring charges ( 4,082 ) ( 1,633 ) ( 22,444 ) ( 11,171 ) Acquisition costs — — — ( 2,960 ) Gain on sale of SEG business — — 5,291 — Income before taxes $ 29,073 $ 34,480 $ 96,102 $ 54,360 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. For the Three Months Ended June 30, For the Nine Months Ended June 30, DEPRECIATION and AMORTIZATION 2021 2020 2021 2020 Segment: Consumer and Professional Products $ 8,781 $ 8,197 $ 25,600 $ 24,650 Home and Building Products 4,375 4,507 13,095 13,975 Defense Electronics 2,501 2,666 7,911 7,986 Total segment depreciation and amortization 15,657 15,370 46,606 46,611 Corporate 149 153 349 456 Total consolidated depreciation and amortization $ 15,806 $ 15,523 $ 46,955 $ 47,067 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 5,365 $ 7,029 $ 19,085 $ 14,561 Home and Building Products 1,723 3,640 5,836 15,135 Defense Electronics 2,789 1,538 8,940 4,748 Total segment 9,877 12,207 33,861 34,444 Corporate 26 25 28 307 Total consolidated capital expenditures $ 9,903 $ 12,232 $ 33,889 $ 34,751 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) ASSETS At June 30, 2021 At September 30, 2020 Segment assets: Consumer and Professional Products $ 1,375,959 $ 1,255,127 Home and Building Products 627,704 606,785 Defense Electronics 280,195 329,128 Total segment assets 2,283,858 2,191,040 Corporate 260,503 248,902 Total continuing assets 2,544,361 2,439,942 Assets of discontinued operations 4,302 8,497 Consolidated total $ 2,548,663 $ 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 June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Interest cost $ 745 $ 1,148 $ 2,234 $ 3,450 Expected return on plan assets ( 2,544 ) ( 2,585 ) ( 7,633 ) ( 7,757 ) Amortization: Prior service cost — 3 — 11 Recognized actuarial loss 1,573 1,042 4,719 3,126 Net periodic expense (income) $ ( 226 ) $ ( 392 ) $ ( 680 ) $ ( 1,170 ) 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 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) 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 June 30, 2021 At September 30, 2020 Assets of discontinued operations: Prepaid and other current assets $ 695 $ 2,091 Other long-term assets 3,607 6,406 Total assets of discontinued operations $ 4,302 $ 8,497 Liabilities of discontinued operations: Accrued liabilities, current $ 3,641 $ 3,797 Other long-term liabilities 4,712 7,014 Total liabilities of discontinued operations $ 8,353 $ 10,811 At June 30, 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) 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 nine months ended June 30, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 4,082 and $ 14,663 , respectively. During the nine months ended June 30, 2021, cash charges totaled $ 10,781 and non-cash, asset-related charges totaled $ 3,882 ; the cash charges included $ 1,784 for one-time termination benefits and other personnel-related costs and $ 8,997 for facility and lease exit costs primarily driven by the consolidation of distribution facilities. Non-cash charges of $ 3,882 predominantly related to inventory that have no recoverable value. During the nine months ended June 30, 2021, headcount was reduced by 65 . In the quarter and nine months ended June 30, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 1,633 and $ 11,171 , respectively. During the nine months ended June 30, 2020, cash charges totaled $ 6,479 and non-cash, asset-related charges totaled $ 4,692 ; the cash charges included $ 4,842 for one-time termination benefits and other personnel-related costs and $ 1,637 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 nine months ended June 30, 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 June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Cost of goods and services $ 696 $ 20 $ 10,458 $ 4,096 Selling, general and administrative expenses 3,386 1,613 11,986 7,075 Total restructuring charges $ 4,082 $ 1,633 $ 22,444 $ 11,171 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) For the Three Months Ended June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Personnel related costs $ 700 $ 1,050 $ 3,964 $ 4,842 Facilities, exit costs and other 2,190 583 8,997 1,637 Non-cash facility and other 1,192 — 9,483 4,692 Total $ 4,082 $ 1,633 $ 22,444 $ 11,171 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 Q3 Restructuring charges 700 2,190 1,192 4,082 Q3 Cash payments ( 799 ) ( 2,190 ) — ( 2,989 ) Q3 Non-cash charges — — ( 1,192 ) ( 1,192 ) Accrued liability at June 30, 2021 $ 428 $ 264 $ — $ 692 NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended June 30, 2021 and 2020, Other income (expense) of $ 386 and $ 806 , respectively, includes $ 77 and $ 72 , 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 $ 226 and $ 392 , respectively, as well as $ 249 and $ 499 , respectively, of net investment income (loss). For the nine months ended June 30, 2021 and 2020, Other income (expense) of $ 1,192 and 2,199 includes $( 302 ) and $ 441 , 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 $ 680 and $ 1,170 , respectively, as well as $ 877 and $ 216 , respectively, of net investment income (loss). Additionally, in the prior year period, Other income (expense) also included a one-time technology recognition award for $ 700 . 28 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 Balance, beginning of period $ 12,678 $ 7,789 $ 10,843 $ 7,894 Warranties issued and changes in estimated pre-existing warranties 4,806 5,773 16,022 14,000 Actual warranty costs incurred ( 4,304 ) ( 3,661 ) ( 13,685 ) ( 11,993 ) Balance, end of period $ 13,180 $ 9,901 $ 13,180 $ 9,901 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended June 30, 2021 2020 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 1,160 $ — $ 1,160 $ 9,508 $ — $ 9,508 Pension and other defined benefit plans 1,576 ( 331 ) 1,245 1,443 ( 304 ) 1,139 Cash flow hedges 501 ( 150 ) 351 ( 2,779 ) 834 ( 1,945 ) Available-for-sale securities ( 23 ) 6 ( 17 ) — — — Total other comprehensive income (loss) $ 3,214 $ ( 475 ) $ 2,739 $ 8,172 $ 530 $ 8,702 For the Nine Months Ended June 30, 2021 2020 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 15,022 $ — $ 15,022 $ ( 493 ) $ — $ ( 493 ) Pension and other defined benefit plans 5,311 ( 1,115 ) 4,196 3,137 ( 657 ) 2,480 Cash flow hedges 2,077 ( 623 ) 1,454 ( 1,826 ) 548 ( 1,278 ) Available-for-sale securities ( 23 ) $ 6 ( 17 ) — — — Total other comprehensive income (loss) $ 22,387 $ ( 1,732 ) $ 20,655 $ 818 $ ( 109 ) $ 709 The components of Accumulated other comprehensive income (loss) are as follows: At June 30, 2021 At September 30, 2020 Foreign currency translation adjustments $ ( 10,661 ) $ ( 25,683 ) Pension and other defined benefit plans ( 42,402 ) ( 46,598 ) Change in Cash flow hedges 1,643 189 Available-for-sale securities ( 17 ) — $ ( 51,437 ) $ ( 72,092 ) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended June 30, For the Nine Months Ended June 30, Gain (Loss) 2021 2020 2021 2020 Pension amortization $ ( 1,573 ) $ ( 1,045 ) $ ( 4,719 ) $ ( 3,137 ) Cash flow hedges ( 413 ) 556 ( 2,812 ) 1,550 Total gain (loss) $ ( 1,986 ) $ ( 489 ) ( 7,531 ) ( 1,587 ) Tax benefit (expense) 417 102 1,582 333 Total $ ( 1,569 ) $ ( 387 ) $ ( 5,949 ) $ ( 1,254 ) 30 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 June 30, For the Nine Months Ended June 30, 2021 2020 2021 2020 Fixed $ 9,940 $ 9,909 $ 29,950 $ 28,648 Variable (a), (b) 3,012 2,032 6,146 5,608 Short-term (b) 933 1,280 3,100 4,103 Total $ 13,885 $ 13,221 $ 39,196 $ 38,359 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. 31 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental cash flow information were as follows: For the Nine Months Ended June 30, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 33,492 $ 32,882 Financing cash flows from finance leases 2,824 3,202 Total $ 36,316 $ 36,084 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: June 30, 2021 September 30, 2020 Operating Leases: Right of use assets: Operating right-of-use assets $ 150,924 $ 161,627 Lease Liabilities: Current portion of operating lease liabilities $ 30,896 $ 31,848 Long-term operating lease liabilities 124,588 136,054 Total operating lease liabilities $ 155,484 $ 167,902 Finance Leases: Property, plant and equipment, net (1) $ 17,326 $ 18,774 Lease Liabilities: Notes payable and current portion of long-term debt $ 2,782 $ 3,352 Long-term debt, net 14,564 15,339 Total financing lease liabilities $ 17,346 $ 18,691 (1) Finance lease assets are recorded net of accumulated depreciation of $ 5,258 and $ 2,383 as of June 30, 2021 and September 30, 2020, respectively. 32 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Two Griffon subsidiaries have finance leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in November 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, which is guaranteed by Griffon, and has a one dollar buyout at the end of the lease. The Ocala, Florida lease contains two five -year renewal options. As of June 30, 2021 and September 30, 2020, $ 15,254 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 June 30, 2021 are as follows (in thousands): Operating Leases Finance Leases 2021 (a) $ 9,771 $ 1,227 2022 35,363 3,166 2023 27,677 2,832 2024 20,719 2,244 2025 18,673 2,077 2026 12,689 2,075 Thereafter 64,282 7,777 Total lease payments 189,174 21,398 Less: Imputed Interest ( 33,690 ) ( 4,052 ) Present value of lease liabilities $ 155,484 $ 17,346 (a) Excluding the nine months ended June 30, 2021. Average lease terms and discount rates at June 30, 2021 were as follows: Weighted-average remaining lease term (years) Operating leases 8.0 Finance Leases 8.1 Weighted-average discount rate Operating Leases 4.46 % Finance Leases 5.48 % 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”) which was owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon, for approximately three years . 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 33 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) “Feasibility Study”). After completing the initial remedial investigation, ISCP conducted supplemental remedial investigations over the next several years, including soil vapor investigations, as required by the Consent Order. In April 2009, the DEC advised ISCP that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. ISCP submitted to the DEC a draft Feasibility Study which was accepted and approved by the DEC in February 2011. ISCP satisfied its obligations under the Consent Order when DEC approved the Remedial Investigation and Feasibility Study for the Peekskill Site. In June 2011 the DEC issued a Record of Decision that set forth a Remedial Action Plan for the Peekskill Site that identified the specific remedies selected and responded to public comments. The cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $ 10,000 . Following issuance of the Remedial Action Plan, the DEC implemented a portion of its plan, and 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. On May 15, 2019 the United States Environmental Protection Agency ("EPA") added the Peekskill Site to the National Priorities List under CERCLA and has since announced that it is performing a Remedial Investigation/Feasibility Study ("RI/FS"). 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 the RI/FS. The EPA also sent a request for information under Section 104(e) of CERCLA to each party. 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 (and DEC has approved) a workplan to investigate the areas adjacent to the site perimeter. The workplan is expected to be completed by October 1, 2021. 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. 34 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. 35 Table of Contents (Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)