GFF filing — read by section

Item 7. Management’s Discussion and Analysis

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 (Unless otherwise indicated, all references to years or year-end refers to the fiscal year ending September 30 and dollars are in thousands, except per share data) 
 
 OVERVIEW 
 
 The Company 
 
 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). 
 
 On September 27, 2021, Griffon announced it is exploring strategic alternatives, including a sale, for its Defense Electronics (DE) segment, which consists of its subsidiary Telephonics Corporation ("Telephonics"). As a result, Griffon classified the results of operations of the Telephonics business as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation as held for sale in the consolidated balance sheets. Accordingly, all references made to results and information in this Annual Report on Form 10-K are to Griffon's continuing operations, unless specifically noted. Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions that are deployed across a wide range of land, sea and air applications. Telephonics designs, develops, manufactures and provides logistical support and lifecycle sustainment services to defense, aerospace and commercial customers worldwide. 
 
 Griffon now conducts its operations through two reportable segments: 
 
 • Consumer and Professional Products ("CPP") conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. CPP revenue was 54%, 55%, and 53% of Griffon’s consolidated revenue in 2021, 2020 and 2019, respectively. 
 
 • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. HBP revenue was 46%, 45% and 47% of Griffon’s consolidated revenue in 2021, 2020 and 2019, respectively. 
 
 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. Quatro is expected 
 to contribute approximately $5,000 in annualized revenue in the first twelve months under AMES' ownership. 
 
 In August 2020 Griffon Corporation completed the public offering of 8,700,000 shares of our common stock for total net proceeds of $178,165 (the "Public Offering"). The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement. The Company intends to use the remainder of the proceeds for general corporate purposes, including to expand its current business through acquisitions of, or investments in, other businesses or products. 
 
 On February 19, 2020, Griffon issued, at par, $850,000 of 5.75% Senior Notes due in 2028 and on June 8, 2020 Griffon issued an additional $150,000 of notes under the same indenture at 100.25% of par (collectively the "2028 Senior Notes"). Proceeds from the 2028 Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022 (the "2022 Senior Notes"). 
 
 In January 2020, Griffon amended its credit agreement to increase the total amount available for borrowing from $350,000 to $400,000, extend its maturity date from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility (the "Credit Agreement"). 
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 On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10,500 (GBP 8,750), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint. Apta contributed approximately $20,000 in revenue in the first 12 months after the acquisition. 
 
 Update of COVID-19 on Our Business 
 
 The health and safety of our employees, our customers and their families is a high priority for Griffon. As of the date of this filing, all of Griffon's facilities are fully operational. We have implemented a variety of new policies and procedures, including additional cleaning, social distancing, staggered shifts and prohibiting or significantly restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. 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 by these disruptions. Our supply chain has experienced certain disruptions which, together with other factors such as a shortage of labor, has resulted in longer delivery lead times and restricted manufacturing capacity for certain of our products. Commodity prices have increased during COVID-19 and may continue to increase, and we may not be able to pass off all or any of such price increases to our customers on a timely basis, or at all. It is difficult to predict whether the supply chain disruptions that impact us will improve, worsen or remain the same in the near term. Our suppliers could be required by government authorities to temporarily cease operations in accordance with the various restrictions discussed above; might be limited in their production capacity due to complying with restrictions relating to the operation of businesses during the COVID-19 pandemic; or could suffer their own supply chain disruptions, impacting their ability to continue to supply us with the quantity of materials required by us. 
 
 During fiscal 2021 and through the date of this filing, all of our businesses have experienced normal or better order patterns compared with the same time period last year. U.S. executive orders issued in 2020, which required workers to remain at home unless their work is critical, essential, or life-sustaining, have been lifted. Regardless, we believe that, based on the various standards published to date, the work our employees are performing are either critical, essential and/or life-sustaining for the following reasons: 1) HBP residential and commercial garage doors, rolling steel doors and related products that (a) provide protection and support for the efficient and safe movement of people, goods, and equipment in and out of residential and commercial facilities, (b) help prevent fires from spreading from one location to another, and (c) protect warehouses and homes, and their contents, from damage caused by strong weather events such as hurricanes and tornadoes; and 2) CPP tools and storage products provide critical support for the national infrastructure including construction, maintenance, manufacturing and natural disaster recovery, and is part of the essential supply base to many of its largest customers including Home Depot, Lowe's and Menards. Our AMES international facilities are currently fully operational, as they meet the applicable standards in their respective countries. 
 
 On September 9, 2021, President Biden announced a proposed new rule requiring that all employers with at least 100 employees require that their employees be fully vaccinated or tested weekly. The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard regulation to carry out this mandate. On November 6, 2021, the Unites States Court of Appeals for the Fifth Circuit granted a stay of the emergency temporary standard, and on November 12, 2021 the Court upheld its stay and barred OSHA from enforcing the mandate “pending adequate judicial review” of a motion for permanent injunction. At this time, it is unclear, among other things, when the vaccine mandate will go into effect (or if it will go into effect at all); whether it will apply to all employees or only to employees who work in the office; and how compliance will be documented. 
 As a company with more than 100 employees, it is anticipated that, should the vaccine mandate go into effect, we would be subject to the OSHA regulation concerning COVID-19 vaccination and the vaccine mandate. Should the mandate apply to us, we may be required to implement a requirement that all of our employees get vaccinated, subject to limited exceptions. At this time, it is not possible to predict the impact that a vaccine mandate, or a vaccine requirement should we adopt one, will have on us or on our workforce. Any vaccine requirement or vaccine mandate, if implemented, may result in employee attrition, which could materially and adversely affect our business and results of operations. 
 
 Griffon believes it has adequate liquidity to invest in its existing businesses and execute its business plan, while managing its capital structure on both a short-term and long-term basis. In January 2020, Griffon increased total borrowing capacity under its Credit Agreement by $50,000, to $400,000 (of which $370,927 was available at September 30, 2021), and extended maturity of the facility to 2025. In addition, the Credit Agreement has a $100,000 accordion feature (subject to lender consent). In February 2020, Griffon refinanced $850,000 of its $1,000,000 of senior notes due 2022 with new 5.75% senior notes with a maturity of 2028, and in June 2020 refinanced the remaining $150,000 under the same terms and indenture as the $850,000 senior notes 
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 due 2028. In August 2020, we completed a Public Offering of 8,700,000 shares of our common stock for total net proceeds of $178,165; a portion of these net proceeds were used to repay outstanding borrowing under our Credit Agreement. At September 30, 2021 Griffon had cash and equivalents of $248,653. 
 
 We will continue to actively monitor the situation and may take further actions that impact our operations as may be required by federal, state or local authorities or that we determine is in the best interests of our employees, customers, suppliers and shareholders. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our businesses, results of operations, liquidity or capital resources, we believe it is important to discuss where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses. 
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 CONSOLIDATED RESULTS OF OPERATIONS 
 
 2021 Compared to 2020 
 
 Revenue for the year ended September 30, 2021 of $2,270,626 compared to $2,066,546 in the year ended September 30, 2020 increased 10% resulting from increased revenue at HBP and CPP of 12% and 8%, respectively. 
 
 Gross profit for 2021 was $641,113 compared to $583,994 in 2020. Gross margin as a percent of sales (“gross margin”) for 2021 and 2020 was 28.2% and 28.3%, respectively. In the years ended 2021 and 2020, gross profit included restructuring charges of $7,923 and $4,159, respectively. Excluding restructuring charges from both years, gross profit would have been $649,036 or 28.6% of revenue, compared to $588,153 or 28.5% in the prior year. 
 
 Selling, general and administrative (“SG&A”) expenses in 2021 of $470,530 increased 6% from $444,454 in 2020. The 2021 SG&A expenses included restructuring charges of $13,495. The 2020 SG&A expenses included restructuring charges of $9,510, acquisition costs of $2,960 and income from the reversal of contingent consideration related to the Kelkay acquisition of $1,733. Excluding these items from both periods, the 2021 SG&A expenses would have been $457,035, or 20.1% of revenue compared to $433,717 or 21.0%, with the increase in expenses primarily due to increased distribution and shipping costs. 
 
 Interest expense in 2021 of $63,175 decreased 5% compared to 2020 of $66,544, primarily as a result of decreased outstanding borrowings and decreased variable interest rates on our Revolving Credit Facility. 
 
 Other income (expense) of $3,331 and $2,885 in 2021 and 2020, respectively, includes $81 and $915, respectively, of net currency exchange transaction losses from receivables and payables held in non-functional currencies, $283 and $184, respectively, of net gains on investments, and $907 and $1,559, respectively, of net periodic benefit plan income. Other income (expense) also includes rental income of $1,848 in 2021 and 2020. 
 
 Griffon reported Income before tax from continuing operations for 2021 of $111,179 compared to $68,705 for 2020. In 2021, the Company had an effective income tax rate of 35.9% compared to 38.2% in 2020. The 2021 tax rate included $3,245 of discrete and certain other tax provisions, net, and other items that affect comparability, as listed below. The 2020 tax rate included $965 of discrete and certain other tax provisions, net, and other items that affect comparability, as listed below. Excluding the discrete and certain other tax provisions, net, and other items that affect comparability, as listed below, the effective income tax rates for 2021 and 2020 were 31.7% and 33.7%, respectively. These rates reflect the impact of tax reserves and changes in earnings mix between U.S. and non-U.S. operations. 
 
 Income from continuing operations for 2021 was $71,239, or $1.33 per share, compared to $42,443, or $0.94 per share in 2020. The 2021 income from continuing operations included the following: 
 
 – Restructuring charges of $21,418 ($16,131, net of tax, or 0.30 per share); 
 – Discrete and certain other tax provision, net, of $3,245 or 0.06 per share. 
 
 The 2020 income from continuing operations included the following: 
 
 – Restructuring charges of $13,670 ($10,177, net of tax, or $0.23 per share); 
 – Loss from debt extinguishment $7,925 ($6,167, net of tax, or $0.14 per share); 
 – Acquisition costs of $2,960 ($2,297, net of tax, or $0.05 per share); and 
 – Acquisition contingent consideration benefit of $1,733 ($1,403, net of tax, or $0.03 per share); and 
 – Discrete and certain other tax provision, net, of $965 or $0.02 per share. 
 
 Excluding these items from both reporting periods, 2021 Income from continuing operations would have been $90,615, or $1.70 per share compared to $60,646, or $1.35 per share, in 2020. 
 
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 2020 Compared to 2019 
 
 Revenue for the year ended September 30, 2020 of $2,066,546 increased 10% compared to $1,874,248 in the year ended September 30, 2019, primarily driven by increased consumer demand for home improvement projects at both CPP and HBP. Organic growth was 9%. 
 
 Gross profit for 2020 was $583,994 compared to $516,845 in 2019, with gross margin of 28.3% in 2020, compared to 27.6% in 2019. In 2020, gross profit included restructuring charges of $4,159. Excluding restructuring charges in 2020, gross profit would have been $588,153 or 28.5% of revenue compared to $516,845 or 27.6% in the prior year. 
 
 Selling, general and administrative (“SG&A”) expenses in 2020 of $444,454 increased 9% from $408,339 in 2019. The 2020 SG&A expenses included restructuring charges of $9,510, acquisition costs of $2,960 and the reversal of contingent consideration related to the Kelkay acquisition of $1,733. The 2019 SG&A expenses include income from the reversal of contingent consideration related to the Kelkay acquisition of $1,646. Excluding these items from both periods, the 2020 SG&A expenses would have been $433,717 or 21.0% of revenue compared to $409,985 or 21.9%, with the increase in expenses primarily due to the Apta acquisition and increased management incentives, partially offset by COVID-19 related reduced travel expenses. 
 
 Interest expense in 2020 of $66,544 decreased 3% compared to 2019 of $68,312, primarily as a result of decreased outstanding borrowings and variable interest rates on our Revolving Credit Facility. 
 
 Other income (expense) of $2,885 and $5,230 in 2020 and 2019, respectively, includes $915 and $438, respectively, of net currency exchange transaction losses from receivables and payables held in non-functional currencies, $184 and $(40), respectively, of net gains or (losses) on investments, and $1,559 and $3,148, respectively, of net periodic benefit plan income. Other income (expense) also includes rental income of $1,848 in 2020 and 2019. 
 
 Griffon reported Income before tax from continuing operations for 2020 of $68,705 compared to $46,223 for 2019. In 2020, the Company recognized an effective income tax rate of 38.2% compared to 44.9% in 2019. The 2020 tax rate included $965 of discrete and certain other tax provisions, net, and other items that affect comparability, as listed below. The 2019 tax rate included $1,786 of discrete and certain other tax provisions, net. Excluding the discrete and certain other tax provisions, net, and other items that affect comparability, as listed below, the effective income tax rates for 2020 and 2019 were 33.7% and 41.8%, respectively. These rates reflect the impact of tax reserves and changes in earnings mix between U.S. and non-U.S. operations. 
 
 Income from continuing operations for 2020 was $42,443, or $0.94 per share, compared to $25,470, or $0.59 per share in 2019. The 2020 income from continuing operations included the following: 
 
 – Restructuring charges of $13,670 ($10,177, net of tax, or $0.23 per share); 
 – Loss from debt extinguishment $7,925 ($6,167, net of tax, or $0.14 per share); 
 – Acquisition costs of $2,960 ($2,297, net of tax, or $0.05 per share); and 
 – Acquisition contingent consideration benefit of $1,733 ($1,403, net of tax, or $0.03 per share); and 
 – Discrete and certain other tax provision, net, of $965 or $0.02 per share. 
 
 The 2019 Income from continuing operations included a benefit from the reversal of contingent consideration related to the Kelkay acquisition of $1,646 ($1,333, net of tax, or $0.03 per share) and discrete and certain other tax provisions, net, of $1,786 or $0.04 per share. 
 
 Excluding these items from both reporting periods, 2020 Income from continuing operations would have been $60,646, or $1.35 share compared to $25,923, or $0.60 per share, in 2019. 
 
 Griffon evaluates performance based on Earnings per share and Net income excluding restructuring charges, loss on debt extinguishment, acquisition related expenses, discrete and certain other tax items, as well other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. 
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 The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per common share from continuing operations to Adjusted earnings per common share from continuing operations: 
 
 GRIFFON CORPORATION AND SUBSIDIARIES 
 RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS 
 TO ADJUSTED INCOME FROM CONTINUING OPERATIONS 
 (Unaudited) 
 
 For the Years Ended September 30, 
 2021 2020 2019 
 Income from continuing operations $ 71,239 $ 42,443 $ 25,470 
 Adjusting items: 
 Restructuring charges 21,418 13,670 — 
 Loss from debt extinguishment — 7,925 — 
 Acquisition costs — 2,960 — 
 
 Acquisition contingent consideration — (1,733) (1,646) 
 
 Tax impact of above items (5,287) (5,584) 313 
 Discrete and other certain tax provisions 3,245 965 1,786 
 Adjusted income from continuing operations $ 90,615 $ 60,646 $ 25,923 
 
 Earnings per common share from continuing operations $ 1.33 $ 0.94 $ 0.59 
 
 Adjusting items, net of tax: 
 Restructuring charges 0.30 0.23 — 
 Loss from debt extinguishment — 0.14 — 
 Acquisition costs — 0.05 — 
 
 Acquisition contingent consideration — (0.03) (0.03) 
 
 Discrete and other certain tax provisions 0.06 0.02 0.04 
 Adjusted earnings per share from continuing operations $ 1.70 1.35 $ 0.60 
 Weighted-average shares outstanding (in thousands) 53,369 45,015 42,888 

 Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share. 
 
 The tax impact for the above reconciling adjustments from GAAP to non-GAAP Income from continuing operations and the related EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments. 
 
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 REPORTABLE SEGMENTS 
 
 Griffon evaluates performance and allocates resources based on each segment's operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors for the same reason. 
 
 See table provided in Note 18 - Reportable Segments, for a reconciliation of Segment Adjusted EBITDA to Income before taxes from continuing operations. 
 
 Consumer and Professional Products 
 
 For the Years Ended September 30, 
 2021 2020 2019 
 
 United States $ 766,150 $ 769,100 $ 690,772 
 Europe 123,607 85,339 63,284 
 Canada 85,676 74,072 72,327 
 Australia 244,674 203,012 165,291 
 All other countries 9,411 7,710 8,934 
 
 Total Revenue $ 1,229,518 $ 1,139,233 $ 1,000,608 
 
 Adjusted EBITDA $ 115,673 9.4 % $ 104,053 9.1 % $ 90,677 9.1 % 
 
 Depreciation and amortization $ 34,433 $ 32,788 $ 32,289 
 
 2021 Compared to 2020 
 
 CPP revenue in 2021 increased $90,285, or 8%, compared to 2020, comprised of a 3% increase in volume, driven by increased consumer demand across all international geographies, partially offset by reduced volume in the U.S. due to labor, transportation and supply chain disruptions. Revenue also benefited from favorable price and mix of 1%, and a favorable impact from foreign exchange of 4%. 
 
 CPP Adjusted EBITDA in 2021 increased $11,620 or 11% to $115,673 compared to $104,053 in 2020. The favorable variance resulted primarily from the increased revenue noted above and a favorable foreign exchange impact of 5%, partially offset by increased U.S. material costs coupled with the lag in realization of price increases and COVID-19 related inefficiencies. 
 
 Segment depreciation and amortization increased $1,645 from the comparable prior year period primarily due to the onset of depreciation for new assets placed in service. 
 
 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. Quatro is expected 
 to contribute approximately $5,000 in annualized revenue in the first twelve months under AMES' ownership. 
 
 On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading U.K. 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 U.K. market and increases its in-country operational footprint. Apta contributed approximately $20,000 in revenue in the first 12 months after the acquisition. 
 
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 Strategic Initiative and Restructuring Charges 
 In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China. 
 
 The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. 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. 
 
 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 connection with this initiative, during the years ended September 30, 2021 and 2020, CPP incurred pre-tax restructuring and related exit costs approximating $21,418 and $13,669, respectively. Since inception of this initiative in fiscal 2020, total cumulative charges totaled $35,087, comprised of cash charges of $23,740 and non-cash, asset-related charges of $11,347; the cash charges included $8,810 for one-time termination benefits and other personnel-related costs and $14,930 for facility and lease exit costs primarily driven by the consolidation of distribution facilities and system optimization. During the years ended September, 30, 2021 and 2020, capital expenditures of $8,774 and $6,733, respectively, were driven by investment in CPP business intelligence systems and e-commerce facility. 
 
 Cash Charges Non-Cash Charges 
 Personnel related costs Facilities, exit costs and other Facility and other Total Capital Investments 
 
 Domestic Expansion $ 12,000 $ 4,000 $ 19,000 35,000 $ 40,000 
 Global Expansion 14,000 16,000 — 30,000 25,000 
 Total Anticipated Charges 26,000 20,000 19,000 65,000 65,000 
 
 Total 2020 restructuring charges (5,620) (3,357) (4,692) (13,669) (6,733) 
 Total 2021 restructuring charges (3,190) (11,573) (6,655) (21,418) (8,774) 
 Total cumulative charges $ (8,810) $ (14,930) $ (11,347) $ (35,087) $ (15,507) 
 Estimate to Complete $ 17,190 $ 5,070 $ 7,653 $ 29,913 $ 49,493 

 2020 Compared to 2019 
 
 CPP revenue in 2020 increased $138,625, or 14%, compared to 2019, primarily from a 12% increase in volume, due to increased consumer demand for home improvement initiatives across most of our geographic regions supplemented by COVID-19 stay at home orders, favorable price and mix of 1% and an incremental 2% revenue contribution from the Apta acquisition, partially offset by an unfavorable impact of foreign exchange of 1%. Organic growth was 12%. 
 
 CPP Adjusted EBITDA in 2020 increased $13,376 or 15% to $104,053 compared to $90,677 in 2019. The favorable variance resulted primarily from the increased revenue noted above, partially offset by increased tariffs, COVID-19 related inefficiencies and direct costs, and an unfavorable foreign exchange impact of 1%. 
 
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 Direct COVID-19 related expenses totaled approximately $5,000 in 2020. 
 
 Home and Building Products 
 
 For the Years Ended September 30, 
 2021 2020 2019 
 
 Residential $ 633,523 $ 572,397 $ 538,301 
 Commercial 407,585 354,916 335,339 
 Total Revenue $ 1,041,108 $ 927,313 $ 873,640 
 
 Adjusted EBITDA $ 181,015 17.4 % $ 153,631 16.6 % $ 120,161 13.8 % 
 
 Depreciation and amortization $ 17,370 $ 18,361 $ 18,334 

 2021 Compared to 2020 
 HBP revenue in 2021 increased $113,795, or 12%, compared to 2020, primarily due to favorable mix and pricing of 8% driven by both residential and commercial, and increased volume of 4% equally driven by both residential and commercial. 
 
 HBP Adjusted EBITDA in 2021 increased $27,384, or 18% to $181,015 compared to $153,631 in 2020. EBITDA benefited from the increased revenue noted above, partially offset by increased material costs coupled with the lag in realization of price increases and COVID-19 related inefficiencies. 
 
 Segment depreciation and amortization decreased $991from the comparable prior year period primarily due to fully depreciated assets. 
 
 2020 Compared to 2019 
 HBP revenue in 2020 increased $53,673, or 6%, compared to 2019, with 4% from volume and 2% from favorable mix and pricing. 
 
 HBP Adjusted EBITDA in 2020 increased 33,470, or 28% to $153,631 compared to $120,161 in 2019. The favorable variance resulted from the increased revenue noted above and general operational efficiency improvements, partially offset by COVID-19 related inefficiencies and direct costs. Direct COVID-19 related expenses totaled approximately $2,000 in 2020. 
 
 Unallocated Amounts 
 
 For 2021, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs, totaled $49,054 compared to $48,262 in 2020, with the increase primarily due to compensation and incentive costs. 
 
 For 2020, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs, totaled $48,262 compared to $47,231 in 2019, with the increase primarily due to compensation and incentive costs. 
 
 Depreciation and Amortization 
 
 Depreciation and amortization of $52,302 in 2021 compared to $52,100 in 2020; the increase was primarily due to depreciation for new assets placed in service. 
 
 Depreciation and amortization of $52,100 in 2020 compared to $51,517 in 2019; the increase was primarily due to depreciation for new assets placed in service. 
 
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 Comprehensive Income (Loss) 
 
 During 2021, total other comprehensive income (loss), net of taxes, of $26,115 included a gain of $6,433 from foreign currency translation adjustments primarily due to the strengthening of the Canadian, British and Australian currencies, all in comparison to the U.S. Dollar; a $17,796 gain from Pension and other post-retirement benefits, primarily related to the change between actual and expected return on assets compared to 2020; and a $1,886 gain on cash flow hedges. 
 During 2020, total other comprehensive income (loss), net of taxes, of $(6,176) included a gain of $5,601 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian, British and Australian currencies, all in comparison to the U.S. Dollar; a $11,784 loss from Pension and other post-retirement benefits, primarily associated with a decrease in the assumed discount rate compared to 2019; and a $7 gain on cash flow hedges. 
 
 DISCONTINUED OPERATIONS 
 
 Defense Electronics 
 
 On September 27, 2021, Griffon announced it will explore strategic alternatives for its DE segment, which consists of its Telephonics subsidiary. As a result, the DE segment results have been classified as a discontinued operation. 
 
 For the Years Ended September 30, 
 2021 2020 2019 
 
 Revenue $ 271,060 $ 340,976 $ 335,041 
 
 Adjusted EBITDA $ 20,486 7.6 % $ 25,228 7.4 % $ 35,104 10.5 % 
 
 Depreciation and amortization $ 10,762 $ 10,645 $ 10,667 
 
 2021 Compared to 2020 
 
 DE revenue in 2021 decreased $69,916, or 21%, compared to 2020. The current and prior year results include revenue from the SEG business of $6,713 and $31,758, respectively. Excluding SEG from both years, revenue decreased $44,871, or 15%. The decrease was driven by reduced volume due to delayed awards for Surveillance Systems and decreased deliveries for Communications Systems, partially offset by increased Radar Systems volume. 
 
 DE Adjusted EBITDA in 2021 decreased $4,742, or 19% to $20,486, compared to $25,228 in 2020. The current and prior year results include Adjusted EBITDA from the SEG business of $412 and $1,491, respectively. Excluding SEG from both years, Adjusted EBITDA decreased $3,663, or 15%. The decrease was due to the reduced revenue noted above and cost growth primarily for Surveillance Systems, partially offset by favorable program performance for Radar Systems and reduced operating expenses. 
 
 DE's depreciation and amortization remained consistent with the prior year period. 
 
 On December 18, 2020, DE completed the sale of its SEG business. 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 $32,000 for the fiscal year ended September 30, 2020. 
 
 During 2021, DE was awarded new contracts and incremental funding on existing contracts approximating $246,500 (excludes $5,500 of SEG awards). Contract backlog was $352,200 at September 30, 2021 with 62% expected to be fulfilled in the next 12 months; backlog was $370,000 at September 30, 2020 (excludes approximately $10,000 of SEG related backlog). The decrease in backlog is primarily due to awards delayed until 2022. Backlog is defined as unfilled firm orders for products and services for which funding has been both authorized and appropriated by the customer or Congress, in the case of U.S. government agencies. 
 
 2020 Compared to 2019 
 
 DE revenue in 2020 increased $5,935, or 2%, compared to 2019, primarily due to increased deliveries and increased volume on airborne and ground communications systems as well as airborne surveillance systems, partially offset by reduced volume on Multi-Mode airborne maritime surveillance radar systems. 
 
 45 

 DE Adjusted EBITDA in 2020 decreased $9,876, or 28% to $25,228, compared to $35,104 in 2019, primarily due to program inefficiencies associated with certain radar programs, unfavorable program mix and increased operating expenses primarily due to bid and proposal activities and timing of research and development initiatives, partially offset by program efficiencies within airborne intercommunication surveillance systems. 
 
 Direct COVID-19 related expenses totaled approximately $1,000 in 2020. 
 
 Restructuring Charges and Divestiture 
 
 In September 2020, a 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 reduction in force initiative resulted in severance charges of approximately $2,200, recorded in the first quarter of fiscal 2021. These actions reduced headcount by approximately 90 people. 
 
 In addition, in the first quarter of fiscal 2021, charges of $5,601 were recorded primarily related to exiting our older weather radar product lines. 
 
 DE recorded a pre-tax gain of $5,291 ($5,443, including a net tax benefit of $152) during the year ended September 30, 2021 related to the divestiture of SEG. 
 
 Other Discontinued Activities 
 
 In fiscal 2018, Griffon completed the sale of Plastics to Berry for approximately $465,000, net of certain post-closing adjustments. During 2019, Griffon recorded an $11,050 charge ($8,335, net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $465,000 Plastics divestiture and included an additional reserve for a legacy environmental matter. 
 
 At September 30, 2021 and 2020, Griffon’s liabilities for discontinued operations primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves totaling liabilities of approximately $10,811 and $7,074, respectively. See Note 8, Discontinued Operations. 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 
 Liquidity 
 
 Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity include cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis. 
 
 As of September 30, 2021, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $65,000. Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S. taxes to repatriate these funds (unless applicable U.S. taxes have already been paid). 
 
 Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our January 2020 five-year secured $400,000 revolving credit facility ("Credit Facility"). During the fiscal year ended September 30, 2021, the Company generated $71,032 of net cash from continuing operating activities and had $370,927 available, subject to certain loan covenants, for borrowing at that date. 
 
 46 

 The table below provides a summary of the Consolidated Statements of Cash Flows for the periods indicated. 
 
 Cash Flows from Continuing Operations Years Ended September 30, 
 (in thousands) 2021 2020 
 Net Cash Flows Provided By (Used In): 
 Operating activities $ 71,032 $ 107,803 
 Investing activities (56,167) (51,477) 
 Financing activities (28,245) 68,190 

 Cash provided by operating activities from continuing operations for 2021 was $71,032 compared to $107,803 in 2020, a decrease of $36,771. The variance was primarily due to increased working capital, primarily inventory, partially offset by increased in accounts payable and income from continuing operations, adjusted for non-cash expenditures. 
 Cash flows from investing activities from continuing operations is primarily comprised of capital expenditures and business acquisitions as well as proceeds from the sale of businesses, investments and property, plant and equipment. During 2021, Griffon used $56,167 in investing activities from continuing operations compared to $51,477 in 2020. Capital expenditures, net of proceeds from the sale of assets, totaled $36,714 in 2021 compared to $40,816 in 2020. Payments for acquired businesses totaled $2,242 in 2021 compared to $10,531 in 2020. On December 22, 2020, AMES acquired Quatro, a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects. On November 29, 2019, AMES acquired 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. During 2021, Griffon also invested $17,211, primarily in marketable debt and equity securities. 
 
 During 2021, Griffon used cash of $28,245 in financing activities from continuing operations compared to cash provided by of $68,190 in 2020. During 2021, cash flows from financing activities from continuing operations primarily consisted of the payment of dividends of $17,139, purchase of treasury shares to satisfy vesting of restricted stock of $(3,357) and net repayments of long-term debt and lease payments of $6,921. During 2020, cash flows from financing activities from continuing operations primarily consisted of proceeds from the issuance of common stock, partially offset by the payment of dividends of $14,529 and net repayments of long-term debt and lease payments of $68,835. At September 30, 2021, there were $13,483 in outstanding borrowings under the Credit Agreement, compared to 12,858 in outstanding borrowings at the same date in 2020. 
 
 In 2020, Griffon Corporation completed the Public Offering of 8,700,000 shares of our common stock for total net proceeds of $178,165. The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement. Additionally, on June 22, 2020, Griffon completed an add-on offering through a private placement of $150,000 aggregate principal amount of its 5.75% Senior Notes, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% Senior Notes, at par, completed on February 19, 2020. Proceeds from the Senior Notes were used to redeem the $1,000,000 of 2022 Senior Notes. Cash provided by financing activities in 2020 also included financing costs of $571 primarily associated with the redemption of the $1,000,000 of 2022 Senior Notes; and the amendment and extension of the Company's revolving credit facility which increased the maximum borrowing availability from $350,000 to $400,000 and extended its maturity date from March 22, 2021 to March 22, 2025. 
 
 During 2021, the Board of Directors approved four quarterly cash dividends each for $0.08 per share, totaling $0.32. On November 15, 2021, the Board of Directors declared a cash dividend of $0.09 per share, payable on December 16, 2021 to shareholders of record as of the close of business on November 29, 2021. 
 
 During 2021, 152,435 shares, with a market value of $3,222, or $21.14 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during 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. 
 
 On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During 2021, Griffon did not purchase any shares of common stock under these repurchase programs. At September 30, 2021, $57,955 remains under Griffon's Board authorized repurchase programs. 
 
 47 

 During 2021, cash provided by discontinued operations from operating activities of $40,737 primarily related to DE operations and the settling of certain Installation services and environmental liabilities. Cash provided by discontinued operations from investing activities of $6,751 primarily related to net proceeds received of $14,345 from DE's sale of its SEG business less capital expenditures of $10,343 and a recovery of insurance proceeds received of $2,748 associated with other discontinued operations. 
 
 Debt 
 
 At September 30, 2021 and 2020, Griffon had debt, net of cash and equivalents, as follows: 
 
 Cash and Equivalents and Debt At September 30, At September 30, 
 (in thousands) 2021 2020 
 Cash and equivalents $ 248,653 $ 218,089 
 Notes payables and current portion of long-term debt $ 12,486 $ 9,922 
 Long-term debt, net of current maturities 1,033,197 1,037,042 
 Debt discount and issuance costs 14,823 17,458 
 Total debt 1,060,506 1,064,422 
 Debt, net of cash and equivalents $ 811,853 $ 846,333 

 On June 22, 2020, in an unregistered offering through a private placement, Griffon completed the add-on offering of $150,000 principal amount of its 5.75% senior notes due 2028, at 100.25% of par, to Griffon's previously issued $850,000 principal amount of its 5.75% senior notes due 2028, at of par, completed on February 19, 2020 (collectively, the "Senior Notes"). Proceeds from the Senior Notes were used to redeem the $1,000,000 of 5.25% senior notes due 2022 (the "2022 Senior Notes"). As of September 30, 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 2028 Senior Notes approximated $1,060,000 on September 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 Senior Notes, which will amortize over the term of such notes, and, at September 30, 2021, $13,293 remained to be amortized. Furthermore, all of the obligations associated with the 2022 Senior Notes were discharged. Additionally, Griffon recognized a $7,925 loss on the early extinguishment of debt of the 2022 Senior Notes, comprised primarily of the write-off of $6,725 of remaining deferred financing fees, $607 of tender offer net premium expense and $593 of redemption interest expense. 
 
 On January 30, 2020, Griffon amended its Credit Agreement to increase the maximum borrowing availability from $350,000 to $400,000, extend its maturity from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $100,000 and a multi-currency sub-facility of $200,000; and contains a customary accordion feature that permits the Company to request, subject to each lender's consent, an increase in the maximum aggregate amount that can be borrowed 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 September 30, 2021, under the Credit Agreement, there were $13,483 in outstanding borrowings; outstanding standby letters of credit were $15,590; and $370,927 was available, subject to certain loan covenants, for borrowing at that date. 
 48 

 At September 30, 2021, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Net Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.8x at September 30, 2021. 
 
 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 in the first fiscal quarter of 2022. The Ocala, Florida lease contains two five-year renewal options. As of September 30, 2021, $14,590 was outstanding, net of issuance costs. Refer to Note 21 - Leases for further details. 
 
 In November 2012, Garant G.P. (“Garant”), a Griffon subsidiary, entered into a CAD 15,000 ($11,798 as of September 30, 2021) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (1.38% LIBOR USD and 1.51% Bankers Acceptance Rate CDN as of September 30, 2021 and September 29, 2021, respectively). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. As of September 30, 2021, there were no borrowings under the revolving credit facility with CAD 15,000 ($11,798 as of September 30, 2021) available for borrowing. 
 
 In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries ("Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement. The 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 September 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 September 30, 2021, the term loan had an outstanding balance of AUD 10,875 ($7,847 as of September 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 (1.97% and 1.41%, respectively, at September 30, 2021). At September 30, 2021, there were no borrowings outstanding under the revolver and the receivable purchase facility. The revolver, receivable purchase facility and term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. 
 
 In July 2018, the AMES Companies UK Ltd and its subsidiaries (collectively, "Ames UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349, respectively. The term loan and mortgage loan accrue interest at the GBP LIBOR Rate plus 1.8% (1.85% at September 30, 2021, respectively). The revolving facility matures in June 2022, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 3.25% (3.35% as of September 30, 2021). As of September 30, 2021, the revolver had an outstanding balance of GBP 2,234 ($3,012 as of September 30, 2021), while the term and mortgage loan balances amounted to GBP 13,229 ($17,837 as of September 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. 
 
 Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of financing leases. 
 
 In August 2016 and as amended on June 30, 2017, Griffon’s ESOP entered into a Term Loan with a bank (the "ESOP Agreement"). The Term Loan interest rate was LIBOR plus 3.00%. The Term Loan required quarterly principal payments of $569 with a balloon payment due at maturity. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon which was funded with cash and a draw under its Credit Agreement. The internal loan interest rate is fixed at 2.91%, matures in June 2033 and requires quarterly payments of principal, currently $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 September 30, 2021 was $27,368. 
 
 49 

 Capital Resource Requirements 
 
 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 project is expected to be completed by the end of calendar year 2023. For additional information, see CPP reportable segments discussion. 
 
 Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $1,000,000 payable in 2028 and related annual interest payments of approximately $57,500. 
 
 Griffon's purchase obligations, which are generally for the purchase of goods and services in the ordinary course of business over the next twelve months is approximately $255,661. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders in which the commitment is considered to be firm. 
 
 Griffon rents real property and equipment under operating leases expiring at various dates. Operating lease obligations over the next twelve months is approximately $36,109. Refer to Note 21 - Leases. 
 
 Customers 
 
 A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. In 2021, Home Depot represented 19% of Griffon’s consolidated revenue, 26% of CPP's revenue and 10% of HBP's revenue. 
 
 No other customer exceeded 10% or more of consolidated revenue. Future operating results will continue to substantially depend on the success of Griffon’s largest customers and our relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and operations. 
 
 Off-Balance Sheet Arrangements 
 
 Except for purchase obligations as disclosed herein, Griffon is not a party to any off-balance sheet arrangements. 
 
 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION 
 
 Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, Telephonics Corporation, The AMES Companies, Inc., ATT Southern LLC, Clopay AMES Holding Corp., ClosetMaid LLC, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of September 30, 2021 and September 30, 2020 and for the years ended September 30, 2021 and 2020. All intercompany balances and transactions between subsidiaries under Parent and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities. The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. 
 
 The indentures relating to the Senior Notes (the “Indentures”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indentures; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indentures (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indentures; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indentures, in compliance with the terms of the Indentures; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indentures, in each case in accordance with the terms of the Indentures; and (v) upon obtaining the requisite consent of the holders of the Senior Notes. 
 50 

 Summarized Statements of Operations and Comprehensive Income (Loss) 
 
 For the Year Ended For the Year Ended 
 September 30, 2021 September 30, 2020 
 Parent Company Guarantor Companies Parent Company Guarantor Companies 
 Net sales $ — $ 1,991,434 $ — $ 1,938,972 
 Gross profit $ — $ 497,829 $ — $ 488,048 
 Income (loss) from operations $ (22,321) $ 132,870 $ (24,876) $ 130,147 
 Equity in earnings of Guarantor subsidiaries $ 79,055 $ — $ 58,455 $ — 
 Net income (loss) $ (40,035) $ 79,055 $ (48,546) $ 58,455 

 Summarized Balance Sheet Information 
 
 For the Year Ended For the Year Ended 
 September 30, 2021 September 30, 2020 
 Parent Company Guarantor Companies Parent Company Guarantor Companies 
 Current assets $ 114,377 $ 951,609 $ 140,003 $ 776,069 
 Non-current assets 17,665 1,069,540 23,069 1,046,225 
 Total assets $ 132,042 $ 2,021,149 $ 163,072 $ 1,822,294 
 
 Current liabilities $ 41,334 $ 397,121 $ 39,130 $ 296,293 
 Long-term debt 998,787 14,482 995,636 $ 15,992 
 Other liabilities 43,337 164,122 38,024 $ 195,792 
 Total liabilities $ 1,083,458 $ 575,725 $ 1,072,790 $ 508,077 
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES 
 
 The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the U.S. of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. 
 
 An estimate is considered to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on Griffon’s financial position or results of operations. The following have been identified as the most critical accounting policies and estimates: 
 
 Revenue Recognition 
 
 The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). 
 
 51 

 A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services. These contracts require judgment in determining the number of performance obligations. For contracts with multiple performance obligations, judgment is required to determine whether performance obligations specified in these contacts are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of contracts, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. The transaction price includes variable consideration, such as discounts and volume rebates, when it is probable that a significant reversal of revenue recognized will not occur. Variable consideration is determined using either the expected value or the most likely amount of consideration to be received based on historical experience and the specific facts and circumstances at the time of evaluation. 
 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, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment. 
 A majority of the Company's revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly. Payment terms generally range between 15 to 90 days and vary by the location of the business, the type of products manufactured to be sold and the volume of products sold, among other factors. 
 The Company recognizes revenue from product sales when all factors are met, including when control of a product transfers to the customer upon its shipment, completion of installation, testing, certification or other substantive acceptance required under the contract. Other than standard product warranty provisions, sales arrangements provide for no other significant post-shipment obligations on the Company. From time-to-time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns and allowances based upon historical returns experience. The Company includes shipping costs billed to customers in revenue and the related shipping costs in either Cost of Goods and Services and Selling, general and administrative expenses, as applicable. 
 
 The majority of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation. 
 Payment terms vary depending on the type and location of the customer and the products or services offered. Generally, the period between the time revenue is recognized and the time payment is due is not significant. Shipping and handling charges are not considered a separate performance obligation. Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue. 
 Inventories 
 
 Inventories, stated at the lower of cost (first-in, first-out or average) or market, include material, labor and manufacturing overhead costs. 
 
 Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, HBP produces residential and commercial sectional garage doors, commercial rolling steel door and grille products, and CPP produces long-handled tools and landscaping products, and storage and organizational products, both in response to orders from customers of retailers and dealers or based on expected orders, as applicable. 
 
 Warranty Accruals 
 
 Direct customer and end-user warranties are provided on certain products. These warranties cover manufacturing defects that would prevent the product from performing in line with its intended and marketed use. The terms of such warranties vary by product line and generally provide for the repair or replacement of the defective product. Warranty claims data is collected and analyzed with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and the products’ respective sales and the amount of current sales. Based on such analysis, warranty accruals are recorded as an increase to cost of sales and regularly reviewed for adequacy. 
 52 

 Stock-based Compensation 
 
 Griffon has issued stock-based compensation to certain employees, officers and directors in the form of restricted stock and restricted stock units. 
 
 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 or units granted multiplied by the stock price on the date of grant, and for performance shares or units, the likelihood of achieving the performance criteria. For certain restricted stock grants with a performance metric related to Griffon's stock price, the company performs a valuation as of the date of grant and recognizes the expense over the vesting period. The Company recognizes forfeitures as they occur. 
 
 Expected Loss Allowances for Discount, Doubtful Account and Returns 
 
 Trade receivables are recorded at their stated amount, less allowances for discounts, doubtful accounts and returns. The expected loss allowance represents 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 expected loss 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. 
 
 Acquisitions 
 
 Acquired businesses are accounted for using the acquisition method of accounting which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the fair value of acquired in-process research and development be recorded on the balance sheet. Related transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. 
 
 Goodwill, Long-Lived Intangible and Tangible Assets, and Impairment 
 
 Griffon has significant intangible and tangible long-lived assets on its balance sheet that includes goodwill and other intangible assets related to acquisitions. Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. We review goodwill and indefinite-lived intangibles for impairment at least annually in the fourth quarter, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below the carrying amount. Such events or changes in circumstance include significant deterioration in overall economic conditions, changes in the business climate in which our reporting units operate, a decline in our market capitalization, operating performance indicators, when some portion of a reporting unit is disposed of or classified as held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in operating segments. 
 
 We had two reporting units as of September 30, 2021 and three reporting units as of September 30, 2020, which are our operating segments. The change in reporting units was a result of classifying our Defense Electronics segment as a discontinued operation as of September 30, 2021. We use both qualitative and quantitative approaches when testing goodwill and indefinite-lived intangibles for impairment. When determining the approach to use, we consider the current facts and circumstances of each reporting unit, as well as the excess of each reporting unit’s estimated fair value over its carrying value based on our most recent quantitative assessment. In addition, our qualitative approach evaluates industry and market conditions and various events impacting a reporting unit including, but not limited to, macroeconomic conditions, changes in the business environment in which our reporting units operate and other reporting unit specific events and circumstances. If, based on the qualitative assessment, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying value, then a quantitative assessment is not necessary. However, if a quantitative assessment is necessary, we use the income approach methodology of valuation that includes the present value of expected future cash flows. 
 
 We performed a quantitative annual impairment test as of September 30, 2019, and a quantitative impairment test as of March 31, 2020, to assess the impact of the global outbreak of COVID-19, using discounted future cash flows for each reporting unit, which did not result in impairments to goodwill. The more significant assumptions used for the impairment test as of March 31, 2020 were a five-year cash flow projection and a 3.0% terminal value to which discount rates between 7.1% and 9.0% were 
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 applied to calculate each unit’s fair value. To substantiate fair values derived from the income approach methodology of valuation, the implied fair value was compared to the marketplace fair value of a comparable industry grouping for reasonableness. Further, the fair values were reconciled to Griffon’s market capitalization. 
 
 We performed a qualitative assessment as of September 30, 2021 and 2020, as the estimated fair values of each reporting unit significantly exceeded the carrying value based on our most recent quantitative assessment, which was performed as of March 31, 2020. Our qualitative assessment determined that indicators that the fair value of each reporting unit was less than the carrying value were not present. In addition, we performed a qualitative assessment as of September 30 2021 of the Defense Electronics discontinued operation goodwill and determined that an indicator that the fair value was less than the carrying value of the business was not present. 
 
 With respect to indefinite-lived intangibles we performed a quantitative annual impairment test as of September 30, 2019, and a quantitative impairment test as of March 31, 2020, to assess the impact of the global outbreak of COVID-19, using a relief from royalty method, neither of which resulted in an impairment. We performed a qualitative assessment as of September 30, 2021 and 2020 considering all the above factors and determined that indefinite-lived intangibles fair values were greater than their book values. 
 
 Long-lived amortizable intangible assets, such as customer relationships and software, and tangible assets, primarily property, plant and equipment, are amortized over their expected useful lives, which involve significant assumptions and estimates. Long-lived intangible and tangible assets are tested for impairment by comparing estimated future undiscounted cash flows to the carrying value of the asset when an impairment indicator, such as change in business, customer loss or obsolete technology, exists. 
 
 Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside of Griffon’s control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of Griffon’s reporting units, which could result in an impairment charge in the future. 
 
 Leases 
 
 On October 1, 2019, the Company adopted the Accounting Standards Codifications ("ASC") Topic 842, Leases, which requires the recording of operating lease Right-of-Use ("ROU") assets and operating lease liabilities. Finance leases were not impacted by the adoption of ASC Topic 842, as finance lease liabilities and the corresponding assets were already recorded in the balance sheet under the previous guidance, ASC Topic 840. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification. We also elected a practical expedient to determine the reasonably certain lease term. 
 
 The Company applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we recognized ROU assets of $163,552 and lease liabilities of $163,676 associated with our operating leases. The standard had no material impact to retained earnings or on our Consolidated Statements of Income or Consolidated Statements of Cash Flows. 
 
 ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. For leases existing as of October 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. 
 
 The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our operating leases are shown as separate line items on our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. 
 
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 For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company has lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance). 
 
 Restructuring Reserves 
 
 From time to time, Griffon will establish restructuring reserves at an operation. These reserves, for both termination and facility related exit costs, require the use of estimates. Though Griffon believes the estimates made are reasonable, they could differ materially from the actual costs. 
 
 Income Taxes 
 
 Griffon’s effective tax rate is based on income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which Griffon operates. For interim financial reporting, the annual tax rate is estimated based on projected taxable income for the full year, and a quarterly income tax provision is recorded in accordance with the anticipated annual rate. As the year progresses, the annual tax rate is refined as new information becomes available, including year-to-date financial results. This process often results in changes to the effective tax rate throughout the year. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. 
 
 Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which a tax benefit has been recorded in the income statement. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses; a forecast of future profitability; the duration of statutory carryback and carryforward periods; the Company's experience with tax attributes expiring unused; and tax planning alternatives. The likelihood that the deferred tax asset balance will be recovered from future taxable income is assessed at least quarterly, and the valuation allowance, if any, is adjusted accordingly. 
 
 Tax benefits are recognized for an uncertain tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. A number of years may elapse before a particular matter for which Griffon has recorded a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, Griffon believes its liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in Griffon’s tax provision and effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit may require the use of cash in the period of resolution. The liability for unrecognized tax benefits is generally presented as non-current. However, if it is anticipated that a cash settlement will occur within one year, that portion of the liability is presented as current. Interest and penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense. 
 
 Pension Benefits 
 
 Griffon sponsors defined and supplemental benefit pension plans for certain active and retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. The actuarial assumptions used to determine pension liabilities, assets and expense are reviewed annually and modified based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plans’ investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments, with the appropriate spot rate applicable to the timing of the projected future benefit 
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 payments. Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect Griffon’s financial position or results of operations. 
 
 All of the defined benefit plans are frozen and have ceased accruing benefits. 
 
 New Accounting Standards 
 
 For a discussion of the new accounting standards impacting the Company, see Note 1 to the Consolidated Financial Statements.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
GRIFFON CORP 10-K

Item 7. Management’s Discussion and Analysis
