GRIFFON CORP 10-K

Item 8. Financial Statements and Supplementary Data The financial statements of Griffon and its subsidiaries and the report thereon of Grant Thornton LLP are included herein: ▪ Report of Independent Registered Public Accounting Firm. ▪ Consolidated Balance Sheets at September 30, 2021 and 2020. ▪ Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended September 30, 2021, 2020 and 2019. ▪ Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2020 and 2019. ▪ Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2021, 2020 and 2019. ▪ Notes to Consolidated Financial Statements. ▪ Schedule II – Valuation and Qualifying Account. 57 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Griffon Corporation Opinions on the financial statements and internal control over financial reporting We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. Basis for opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 58 Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue from Customer Contracts – Discontinued Defense Electronics Segment As described further in note 2 to the consolidated financial statements, the Company’s discontinued Defense Electronics segment earns its revenue as either a prime contractor or subcontractor from contract awards with the U.S. Government, as well as foreign governments and other commercial contracts. Such contracts are typically long-term in nature and revenue and profits are recognized over time, primarily under fixed-price arrangements, which are determined using a cost-to-cost method of accounting. Using the cost-to-cost method, revenue is recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. This method relies on substantial use of estimates. These estimations require the Company to have effective cost estimation processes, forecasting, and revenue and expense reporting. Due to these aspects, this issue was considered a critical audit matter. The principal consideration for our determination that Defense Electronics revenue and gross profit recognition is a critical audit matter is that significant management judgments and estimates are utilized to determine probable costs at contract completion and are subject to estimation uncertainty and require significant auditor subjectivity in evaluating those judgments and estimates. Our audit procedures related to Defense Electronics revenue recognition included the following. We tested the design and operating effectiveness of controls relating to the cost accumulation, cost estimation and revenue recognition processes, including the Company’s ability to develop the estimates utilized in determining costs at completion. We inspected a selection of contracts and evaluated those contracts for appropriate revenue recognition and consideration over key terms and provisions. We analyzed trends in revenue, costs and margin on all contracts, on a contract-by-contract basis, both year-over-year and since contract inception to assess the historical accuracy of management’s estimates in the final outcomes of projects. We assessed the appropriateness of adjustments to estimates on a cumulative basis for the year ended September 30, 2021 and their impact on the financial statements. We tested the cost accumulation process by obtaining and inspecting underlying documents for a sample of labor, material costs and overhead and agreeing to amounts recorded by the Company. We also recalculated revenue and gross profit recognized for the year ended September 30, 2021, for a selection of contracts, to test the accuracy of amounts recognized. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2006. New York, New York November 16 , 2021 59 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) At September 30, 2021 At September 30, 2020 CURRENT ASSETS Cash and equivalents $ 248,653 $ 218,089 Accounts receivable, net of allowances of $ 8,787 and $ 8,178 294,804 278,420 Inventories 472,794 320,188 Prepaid and other current assets 76,009 41,514 Assets of discontinued operations held for sale 273,414 245,726 Assets of discontinued operations not held for sale 605 2,091 Total Current Assets 1,366,279 1,106,028 PROPERTY, PLANT AND EQUIPMENT, net 292,622 297,084 OPERATING LEASE RIGHT-OF-USE ASSETS 144,598 154,349 GOODWILL 426,148 424,098 INTANGIBLE ASSETS, net 350,025 354,202 OTHER ASSETS 21,589 26,474 ASSETS OF DISCONTINUED OPERATIONS HELD FOR SALE — 79,952 ASSETS OF DISCONTINUED OPERATIONS 3,424 6,406 Total Assets $ 2,604,685 $ 2,448,593 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 12,486 $ 9,922 Accounts payable 260,140 172,537 Accrued liabilities 145,101 143,971 Current portion of operating lease liabilities 29,881 29,672 Liabilities of discontinued operations held for sale 80,748 81,923 Liabilities of discontinued operations 3,280 3,797 Total Current Liabilities 531,636 441,822 LONG-TERM DEBT, net 1,033,197 1,037,042 LONG-TERM OPERATING LEASE LIABILITIES 119,315 130,588 OTHER LIABILITIES 109,585 121,538 LIABILITIES OF DISCONTINUED OPERATIONS HELD FOR SALE — 10,438 LIABILITIES OF DISCONTINUED OPERATIONS 3,794 7,014 Total Liabilities 1,797,527 1,748,442 COMMITMENTS AND CONTINGENCIES - See Note 16 SHAREHOLDERS’ EQUITY Preferred stock, par value $ 0.25 per share, authorized 3,000 shares, no shares issued — — Common stock, par value $ 0.25 per share, authorized 85,000 shares, issued shares of 84,375 and 83,739 , respectively. 21,094 20,935 Capital in excess of par value 602,181 583,008 Retained earnings 669,998 607,518 Treasury shares, at cost, 27,762 common shares and 27,610 common shares, respectively. ( 416,850 ) ( 413,493 ) Accumulated other comprehensive loss ( 45,977 ) ( 72,092 ) Deferred compensation ( 23,288 ) ( 25,725 ) Total Shareholders’ Equity 807,158 700,151 Total Liabilities and Shareholders’ Equity $ 2,604,685 $ 2,448,593 The accompanying notes to consolidated financial statements are an integral part of these statements. 60 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share data) Years Ended September 30, 2021 2020 2019 Revenue $ 2,270,626 $ 2,066,546 $ 1,874,248 Cost of goods and services 1,629,513 1,482,552 1,357,403 Gross profit 641,113 583,994 516,845 Selling, general and administrative expenses 470,530 444,454 408,339 Income from continuing operations 170,583 139,540 108,506 Other income (expense) Interest expense ( 63,175 ) ( 66,544 ) ( 68,312 ) Interest income 440 749 799 Loss from debt extinguishment — ( 7,925 ) — Other, net 3,331 2,885 5,230 Total other income (expense) ( 59,404 ) ( 70,835 ) ( 62,283 ) Income before taxes from continuing operations 111,179 68,705 46,223 Provision for income taxes 39,940 26,262 20,753 Income from continuing operations 71,239 42,443 25,470 Discontinued operations: Income before tax from discontinued operations 8,897 14,052 14,905 Provision for income taxes 925 3,066 3,088 Income from discontinued operations 7,972 10,986 11,817 Net income $ 79,211 $ 53,429 $ 37,287 Basic earnings per common share: Income from continuing operations $ 1.40 $ 1.00 $ 0.62 Income from discontinued operations 0.16 0.26 0.29 Basic earnings per common share $ 1.56 $ 1.25 $ 0.91 Weighted-average shares outstanding 50,830 42,588 40,934 Diluted earnings per common share: Income from continuing operations $ 1.33 $ 0.94 $ 0.59 Income from discontinued operations 0.15 0.24 0.28 Diluted earnings per common share $ 1.48 $ 1.19 $ 0.87 Weighted-average shares outstanding 53,369 45,015 42,888 Net income $ 79,211 $ 53,429 $ 37,287 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 6,433 5,601 ( 8,460 ) Pension and other post retirement plans 17,796 ( 11,784 ) ( 23,055 ) Gain (loss) on cash flow hedge 1,886 7 ( 289 ) Total other comprehensive income (loss), net of taxes 26,115 ( 6,176 ) ( 31,804 ) Comprehensive income $ 105,326 $ 47,253 $ 5,483 The accompanying notes to consolidated financial statements are an integral part of these statements. 61 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS: Net income $ 79,211 $ 53,429 $ 37,287 Net income from discontinued operations ( 7,972 ) ( 10,986 ) ( 11,817 ) Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Depreciation and amortization 52,302 52,100 51,517 Stock-based compensation 20,088 17,580 15,914 Asset impairment charges - restructuring 6,655 4,692 — Provision for losses on accounts receivable 501 1,332 535 Amortization of deferred financing costs and debt discounts 2,640 3,661 5,393 Loss from debt extinguishment — 7,925 — Deferred income tax 13,763 2,122 ( 5,465 ) (Gain)/ loss on sale/disposal of assets and investments 231 ( 287 ) ( 179 ) Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable ( 7,002 ) ( 72,565 ) 13,422 (Increase) decrease in inventories ( 154,515 ) 23,262 ( 31,775 ) Increase in prepaid and other assets ( 9,598 ) ( 15,878 ) ( 4,456 ) Increase in accounts payable, accrued liabilities and income taxes payable 72,894 40,399 19,615 Other changes, net 1,834 1,017 355 Net cash provided by operating activities - continuing operations 71,032 107,803 90,346 CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS: Acquisition of property, plant and equipment ( 36,951 ) ( 41,168 ) ( 34,869 ) Acquired business, net of cash acquired ( 2,242 ) ( 10,531 ) ( 9,219 ) Investment purchases ( 17,211 ) ( 130 ) ( 149 ) Payments from sale of business — — ( 9,500 ) Insurance payments — — ( 10,604 ) Proceeds from sale of property, plant and equipment 237 352 280 Net cash used in investing activities - continuing operations ( 56,167 ) ( 51,477 ) ( 64,061 ) CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS: Proceeds from issuance of common stock — 178,165 — Dividends paid ( 17,139 ) ( 14,529 ) ( 13,676 ) Purchase of shares for treasury ( 3,357 ) ( 7,479 ) ( 1,478 ) Proceeds from long-term debt 20,912 1,240,080 201,748 Payments of long-term debt ( 27,833 ) ( 1,308,915 ) ( 218,248 ) Change in short-term borrowings — — ( 366 ) Financing costs ( 571 ) ( 17,384 ) ( 1,090 ) Contingent consideration for acquired businesses — ( 1,733 ) ( 1,686 ) Other, net ( 257 ) ( 15 ) ( 180 ) Net cash provided by (used) in financing activities - continuing operations ( 28,245 ) 68,190 ( 34,976 ) 62 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by operating activities 40,737 26,206 21,489 Net cash provided by (used in) investing activities 6,751 ( 7,387 ) ( 10,492 ) Net cash provided by discontinued operations 47,488 18,819 10,997 Effect of exchange rate changes on cash and equivalents ( 3,544 ) 2,377 313 NET INCREASE IN CASH AND EQUIVALENTS 30,564 145,712 2,619 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 218,089 72,377 69,758 CASH AND EQUIVALENTS AT END OF PERIOD $ 248,653 $ 218,089 $ 72,377 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 60,781 $ 63,139 $ 63,580 Cash paid for taxes 41,216 21,016 25,339 The accompanying notes to consolidated financial statements are an integral part of these statements. 63 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION Total (in thousands) SHARES PAR VALUE SHARES COST Balance at 9/30/2018 81,520 $ 20,380 $ 503,396 $ 550,523 35,846 $ ( 534,830 ) $ ( 34,112 ) $ ( 30,966 ) $ 474,391 Net income — — — 37,287 — — — — 37,287 Cumulative catch-up adjustment related to adoption of ASC 606 — — — ( 5,618 ) — — — — ( 5,618 ) Dividends — — — ( 13,676 ) — — — — ( 13,676 ) Shares withheld on employee taxes on vested equity awards — — — — 86 ( 1,106 ) — — ( 1,106 ) Amortization of deferred compensation — — — — — — — 2,726 2,726 Common stock acquired — — — — 37 ( 372 ) — — ( 372 ) Equity awards granted, net 1,255 314 ( 314 ) — — — — — — ESOP allocation of common stock — — 1,512 — — — — — 1,512 Stock-based compensation — — 13,285 — — — — — 13,285 Stock-based consideration — — 1,138 — — — — — 1,138 Other comprehensive loss, net of tax — — — — — — ( 31,804 ) — ( 31,804 ) Balance at 9/30/2019 82,775 $ 20,694 $ 519,017 $ 568,516 35,969 $ ( 536,308 ) $ ( 65,916 ) $ ( 28,240 ) $ 477,763 Net income — — — 53,429 — — — — 53,429 Dividends — — — ( 14,427 ) — — — — ( 14,427 ) Shares withheld on employee taxes on vested equity awards — — — — 341 ( 7,479 ) — — ( 7,479 ) Amortization of deferred compensation — — — — — — — 2,515 2,515 Common stock issued, net of issuance costs — — 46,900 — ( 8,700 ) 130,294 — — 177,194 Equity awards granted, net 964 241 ( 241 ) — — — — — — ESOP allocation of common stock — — 1,985 — — — — — 1,985 Stock-based compensation — — 14,702 — — — — — 14,702 Stock-based consideration — — 645 — — — — — 645 Other comprehensive loss, net of tax — — — — — — ( 6,176 ) — ( 6,176 ) Balance at 9/30/2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 64 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION Total (in thousands) SHARES PAR VALUE SHARES COST Balance at 9/30/2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 Net income — — — 79,211 — — — — 79,211 Dividends — — — ( 16,731 ) — — — — ( 16,731 ) Shares withheld on employee taxes on vested equity awards — — — — 152 ( 3,357 ) — — ( 3,357 ) Amortization of deferred compensation — — — — — — — 2,437 2,437 Equity awards granted, net 636 159 ( 159 ) — — — — — — ESOP allocation of common stock — — 2,922 — — — — — 2,922 Stock-based compensation — — 16,410 — — — — — 16,410 Other comprehensive income, net of tax — — — — — — 26,115 — 26,115 Balance at 9/30/2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 The accompanying notes to consolidated financial statements are an integral part of these statements. 65 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending September 30, NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). On September 27, 2021, Griffon announced it is exploring strategic alternatives, including a sale, for its Defense Electronics segment, which consists of its Telephonics Corporation subsidiary. 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. 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. During 2020, Griffon issued $ 1,000,000 of 5.75 % Senior Notes due in 2028 (the “2028 Senior Notes”) at par. Proceeds from the 2028 Senior Notes were used to redeem the $ 1,000,000 of 5.25 % Senior Notes due 2022 (the "2022 Senior Notes"). In January 2020, Griffon amended its credit agreement to increase the total amount available for borrowing from $ 350,000 to $ 400,000 , extend its maturity date from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility (the "Credit Agreement"). In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China. The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. operations. First, 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. 66 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 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 1, Item 1A, “Risk Factors” in this Form 10-K. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. Griffon currently conducts its operations through two reportable segments: • Consumer and Professional Products ("CPP") conducts its operations through The AMES Companies, Inc. (“AMES”). Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. Consolidation The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The results of operations of acquired businesses are included from the dates of acquisitions. Earnings per share Due to rounding, the sum of earnings per share may not equal earnings per share of Net income. Discontinued operations For the years ended September 30, 2021, 2020 and 2019, discontinued operations includes the Telephonics business, and the assets and liabilities of discontinued installations business and other discontinued activities which have been segregated from Griffon's continuing operations primarily related to insurance claims, product liability, warranty and environmental reserves. See Note 8, Discontinued Operations. Reclassifications Certain amounts in prior years have been reclassified to conform to the current year presentation. 67 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include expected loss allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, profits and loss recognition for performance obligations satisfied over time, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates. Cash and equivalents Griffon considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities, as well as insured bank deposits. Griffon had cash in non-U.S. bank accounts of approximately $ 65,000 and $ 55,000 at September 30, 2021 and 2020, respectively. Substantially all U.S. cash and equivalents are in excess of FDIC insured limits. Griffon regularly evaluates the financial stability of all institutions and funds that hold its cash and equivalents. Fair value of financial instruments The carrying values of cash and cash equivalents, accounts receivable, accounts and notes payable and revolving credit debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit debt is based upon current market rates. The fair value hierarchy, as outlined in the applicable accounting guidance, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of Griffon’s 2028 Senior Notes approximated $ 1,060,000 , on September 30, 2021. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with a value of $ 3,973 at September 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 Other current assets on the consolidated balance sheet. 68 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Items Measured at Fair Value on a Recurring Basis At September 30, 2021 and 2020, marketable debt and equity securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 16,044 ($ 15,050 cost basis) and $ 1,703 ($ 1,000 cost basis), respectively, were included in Prepaid and other current assets on the Consolidated Balance Sheets. In the normal course of business, Griffon’s operations are exposed to the effect of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. During 2021 and 2020, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in USD. At September 30, 2021 and 2020, Griffon had $ 20,000 and $ 32,000 of Australian dollar contracts at a weighted average rate of $ 1.27 and $ 1.41 , respectively,which qualified for hedge accounting. These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services. AOCI included deferred gains of $ 1,710 ($ 1,197 , net of tax) and deferred losses of $ 168 ($ 109 , net of tax) at September 30, 2021 and 2020, respectively. Upon settlement losses of $( 2,204 ) and $( 2,163 ) were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS") during 2021 and 2020, respectively. Contracts expire in 29 to 90 days . At September 30, 2021 and 2020, Griffon had $ 4,600 and $ 7,900 , respectively, of Canadian dollar contracts at a weighted average rate of $ 1.26 and $ 1.32 . These contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and fair value gains (losses) of $ 38 and $( 92 ) were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended September 30, 2021 and 2020, respectively. Realized (losses) gains of $( 381 ) and $ 189 , were recorded in Other income during 2021 and 2020, respectively. Contracts expire in 30 to 360 days . At September 30, 2021, Griffon did no t have Great Britain Pound contracts outstanding and had $ 5,400 of Great Britain Pound contracts at a weighted average rate of $ 0.77 at September 31, 2020. These contracts, which protect U.K. operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting; fair value (losses) gains of $ 30 and $ 39 were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended September 30, 2021 and September 30, 2020. Realized losses of $ 494 were recorded in Other income during the year ended September 30, 2021. There were no realized gains or losses recorded for these contracts during the year ended September 30, 2020. Pension plan assets with a fair value of $ 160,523 at September 30, 2021, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs), quoted market prices for similar assets (level 2 inputs) and fair value assumptions for unobservable inputs in which little or no market data exists (level 3). Non-U.S. currency translation Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates. Adjustments resulting from currency translation have been recorded in the equity section of the balance sheet in AOCI as cumulative translation adjustments. Cumulative translation adjustments were gains (losses) of $ 6,433 and $ 5,601 for 2021 and 2020, respectively. As of September 30, 2021 and 2020, the foreign currency translation components of Accumulated other comprehensive loss were $ 19,250 and $ 25,683 , respectively. Assets and liabilities of an entity that are denominated in currencies other than that entity’s functional currency are re-measured into the functional currency using period end exchange rates, or historical rates where applicable to certain balances. Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income as a component of Other income (expense). 69 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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). 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. Refer to Note 2 - Revenue for a discussion of our revenue recognition practices for each of our reportable segments. Accounts receivable, expected loss allowance for doubtful accounts and concentrations of credit risk Accounts receivable is composed principally of trade accounts receivable, that arise from the sale of goods or services on account, and is stated at historical cost. A substantial portion of Griffon’s trade receivables are from Home Depot, whose financial condition is dependent on the construction and related retail sectors of the economy. As a percentage of consolidated accounts receivable, Home Depot was 19 %. Griffon performs continuing evaluations of the financial condition of its customers, and although Griffon generally does not require collateral, letters of credit may be required from customers in certain circumstances. Trade receivables are recorded at the stated amount, less expected loss allowance for doubtful accounts and, when appropriate, for customer program reserves and cash discounts. The expected loss allowance represents estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency). The expected loss allowance for doubtful accounts includes amounts for certain customers where a risk of default has been specifically identified, as well as an amount for customer defaults based on a formula when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. The provision related to the expected loss allowance for doubtful accounts is recorded in Selling, general and administrative ("SG&A") expenses. The Company writes-off accounts receivable when they are deemed to be uncollectible. Customer program reserves and cash discounts are netted against accounts receivable when it is customer practice to reduce invoices for these amounts. The amounts netted against accounts receivable in 2021 and 2020 were $ 49,833 and $ 44,439 , respectively. All accounts receivable amounts are expected to be collected in less than one year. The Company does not currently have customers or contracts that prescribe specific retainage provisions. 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. 70 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Property, plant and equipment Property, plant and equipment includes the historical cost of land, buildings, equipment and significant improvements to existing plant and equipment or, in the case of acquisitions, a fair market value appraisal of such assets completed at the time of acquisition. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is recognized. No event or indicator of impairment occurred during the three years ended September 30, 2021, which would require additional impairment testing of property, plant and equipment. Depreciation expense, which includes amortization of assets under capital leases, was $ 42,741 , $ 42,614 and $ 42,124 in 2021, 2020 and 2019, respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets. Depreciation included in SG&A expenses was $ 14,362 , $ 13,944 and $ 13,314 in 2021, 2020 and 2019, respectively. The remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. Estimated useful lives for property, plant and equipment are as follows: buildings and building improvements, 25 to 40 years; machinery and equipment, 2 to 15 years; and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter. Capitalized interest costs included in Property, plant and equipment were $ 1,592 , $ 2,098 and $ 2,410 for the years ended September 30, 2021, 2020 and 2019, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2021 was approximately $ 261,101 . Goodwill and indefinite-lived intangibles Griffon has significant intangible and tangible long-lived assets on its balance sheet that includes goodwill and other intangible assets related to acquisitions. Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. We review goodwill and indefinite-lived intangibles for impairment at least annually in the fourth quarter, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below the carrying amount. Such events or changes in circumstance include significant deterioration in overall economic conditions, changes in the business climate in which our reporting units operate, a decline in our market capitalization, operating performance indicators, when some portion of a reporting unit is disposed of or classified as held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in operating segments. We had 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 % were applied to calculate each unit’s fair value. To substantiate fair values derived from the income approach methodology of valuation, the implied fair value was compared to the marketplace fair value of a comparable industry grouping for reasonableness. Further, the fair values were reconciled to Griffon’s market capitalization. We performed a qualitative assessment as of September 30, 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 71 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 did not result 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 Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. 72 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company has lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance). Definite-lived long-lived assets Amortizable intangible assets are carried at cost less accumulated amortization. For financial reporting purposes, definite-lived intangible assets are amortized on a straight-line basis over their useful lives, generally eight to twenty-five years . Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. There were no indicators of impairment during the three years ending September 30, 2021. Income taxes We are subject to Federal, state and local income taxes in the U.S. and in various taxing jurisdictions outside the U.S. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment. The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return. We record, as needed, a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Research and development costs, shipping and handling costs and advertising costs Research and development costs are charged to SG&A expense as incurred and amounted to approximately $ 7,000 in 2021 and $ 8,000 in 2020 and 2019. Total shipping and handling costs were $ 113,700 in 2021, $ 100,135 in 2020 and $ 93,700 in 2019, of which $ 58,100 in 2021, $ 54,500 in 2020 and $ 53,500 in 2019 were included in SG&A. Advertising costs, which are expensed as incurred in SG&A, was $ 19,000 in 2021, $ 18,000 in 2020 and $ 18,000 in 2019. 73 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Risk, retention and insurance Griffon’s property and casualty insurance programs contain various deductibles that, based on Griffon’s experience, are reasonable and customary for a company of its size and risk profile. Griffon generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, general, product and automobile liability as well as property damage and business interruption losses resulting from certain events. Griffon does not consider any of the deductibles to represent a material risk to Griffon. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably estimated. Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis. Pension benefits Griffon sponsors defined and supplemental benefit pension plans for certain retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. Actuarial assumptions used to determine pension liabilities, assets and expense are reviewed annually and modified based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plan's investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments, with the appropriate spot rate applicable to the timing of the projected future benefit payments. Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries; however, differences in actual experience or changes in assumptions may materially impact Griffon’s financial position or results of operations. All of the defined benefit plans are frozen and have ceased accruing benefits. The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $ 907 , $ 1,559 and $ 3,148 during 2021, 2020, and 2019 respectively. Issued but not yet effective accounting pronouncements In December 2019, the FASB issued guidance on simplifying the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. Our effective date for adoption of this ASU is our fiscal year beginning October 1, 2021 with early adoption permitted. The adoption of this guidance is not expected to have a material impact 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 was 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, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This guidance was 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 74 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. In August 2018, the FASB issued guidance to clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance is effective for fiscal years ending after December 15, 2020, with early adoption permitted, and was effective for the Company's for the fiscal year ended 2021. Adoption of this standard did not have a material impact on our consolidated financial statements and the related disclosures. The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements, and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. NOTE 2 – REVENUE The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services. These contracts require judgment in determining the number of performance obligations. For contracts with multiple performance obligations, judgment is required to determine whether performance obligations specified in these contacts are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of contracts, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. The transaction price includes variable consideration, such as discounts and volume rebates, when it is probable that a significant reversal of revenue recognized will not occur. Variable consideration is determined using either the expected value or the most likely amount of consideration to be received based on historical experience and the specific facts and circumstances at the time of evaluation. See Note 18 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. 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, 75 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 or Selling, General and Administrative expenses. 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. Discontinued Operations: Revenue from Defense Electronics 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 DE . Revenue recognized over time is generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers. Revenue and profits from such contracts are recognized over time as work is performed because control of the work in process transfers continuously to the customer. For U.S. Government contracts, the continuous transfer of control to the customer is supported by contract clauses that provide for: (i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative use to us. Foreign government and certain commercial contracts contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for product or services that do not have alternative use to us. Revenue and profits on fixed-price and cost-plus contracts that include performance obligations satisfied over time are recorded at amounts equal to the ratio of actual cumulative costs incurred divided by total estimated costs at completion, multiplied by the total estimated contract revenue, less the cumulative revenue recognized in prior periods. The profit recorded on a contract using this method is equal to the current estimated total profit margin multiplied by the cumulative revenue recognized, less the amount of cumulative profit previously recorded for the contract in prior periods. Accounting for the sales and profits on performance obligations for which progress is measured using the cost-to-cost method relies on the substantial use of estimates, these projections may be revised throughout the life of a contract. Components of this formula and ratio that may be estimated include gross profit margin and total costs at completion. The cost performance and estimates to complete long-term contracts are reviewed, at a minimum, on a quarterly basis, as well as when information becomes available that would necessitate a review of the current estimate. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss are often required as experience is gained, more information is obtained (even though the scope of work required under the contract may or may not change) and contract modifications occur. 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. Contract modifications routinely occur to account for changes in contract specifications or requirements. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Contract modifications for goods or services that are not distinct are accounted for as part of the existing contract on a cumulative catch-up basis. From time to time, Telephonics may combine contracts if they are negotiated together, have specific requirements to combine, or are otherwise closely related. 76 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 3 — ACQUISITIONS Griffon continually evaluates potential acquisitions that either strategically fit within its portfolio or expand its portfolio into new product lines or adjacent markets. Griffon has completed a number of acquisitions that have been accounted for as business combinations , in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition and have resulted in the recognition of goodwill . The operating results of the business acquisitions 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 U.K. market and increases its in-country operational footprint. The purchase price was finalized and goodwill of GBP 3,449 and acquired intangible assets of GBP 3,454 , was assigned to the CPP segment and is deductible for tax purposes. The purchase price was also allocated to 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 , During the year ended September 30, 2021, acquisition related costs were de minimis. During the year ended September 30, 2020, SG&A included acquisition costs of $ 2,960 . There were no acquisition-related costs in 2019. NOTE 4 — INVENTORIES The following table details the components of inventory: At September 30, 2021 At September 30, 2020 Raw materials and supplies $ 133,684 $ 110,696 Work in process 48,531 38,011 Finished goods 290,579 171,481 Total $ 472,794 $ 320,188 77 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 5 — PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At September 30, 2021 At September 30, 2020 Land, building and building improvements $ 164,486 $ 165,086 Machinery and equipment 520,110 493,146 Leasehold improvements 39,913 38,435 724,509 696,667 Accumulated depreciation and amortization ( 431,887 ) ( 399,583 ) Total $ 292,622 $ 297,084 Except as described in Note 10, Restructuring Charges, no event or indicator of impairment occurred during the year ended September 30, 2021 which would require additional impairment testing of property, plant and equipment. NOTE 6 – 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 $ 8,178 Provision for expected credit losses 795 Amounts written off charged against the allowance ( 393 ) Other, primarily foreign currency translation 207 Ending Balance, September 30, 2021 $ 8,787 78 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 7 — GOODWILL AND OTHER INTANGIBLES Griffon had two reporting units at September 30, 2021 and three reporting units at September 30, 2020, which are our operating segments. The change in reporting units was a result of classifying the Defense Electronics segment as a discontinued operation as of September 30, 2021. Refer to Note 1, for additional information on the Company's Goodwill and Goodwill and indefinite-lived intangibles annual impairment testing. The following table provides changes in carrying value of goodwill by segment through the year ended September 30, 2021: At September 30, 2019 Goodwill from acquisitions (a) Foreign currency translation adjustments At September 30, 2020 Goodwill from acquisitions (a) Foreign currency translation adjustments At September 30, 2021 Consumer and Professional Products $ 227,269 $ 4,451 $ 1,125 $ 232,845 $ 784 $ 1,266 $ 234,895 Home and Building Products 191,253 — — 191,253 — — 191,253 Total $ 418,522 $ 4,451 $ 1,125 $ 424,098 $ 784 $ 1,266 $ 426,148 (a) The increase in the CPP segment was due to the acquisitions of Apta in 2020 and Quatro in 2021. The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset: At September 30, 2021 At September 30, 2020 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 187,732 $ 75,794 23 $ 184,699 $ 65,417 Unpatented technology 13,429 2,439 13 13,503 2,633 Total amortizable intangible assets 201,161 78,233 198,202 68,050 Trademarks 227,097 — 224,050 — Total intangible assets $ 428,258 $ 78,233 $ 422,252 $ 68,050 The gross carrying amount of intangible assets was impacted by $ 3,924 related to foreign currency translation. Amortization expense for intangible assets subject to amortization was $ 9,561 , $ 9,486 and $ 9,393 in 2021, 2020 and 2019, respectively. Amortization expense for each of the next five years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2022 - $ 9,272 ; 2023 - $ 9,198 ; 2024 - $ 9,198 ; 2025 - $ 9,198 and 2026 - $ 9,198 ; thereafter - $ 76,864 . 79 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 8 — DISCONTINUED OPERATIONS In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component of an entity meets the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations , less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations. Defense Electronics (DE or Telephonics) The following amounts related to Telephonics have been segregated from Griffon's continuing operations and are reported as discontinued operations: For the Year Ended September 30, 2021 2020 2019 Revenue $ 271,060 $ 340,976 $ 335,041 Cost of goods and services 232,075 285,022 269,890 Gross profit 38,985 55,954 65,151 Selling, general and administrative expenses 35,532 42,314 39,194 Income from discontinued operations 3,453 13,640 25,957 Other income (expense) Gain on sale of business 5,291 — — Interest income, net 117 4 253 Other, net 36 408 ( 255 ) Total other income (expense) 5,444 412 ( 2 ) Income from discontinued operations before tax $ 8,897 $ 14,052 $ 25,955 The gain on sale of business relates to the divestiture of the SEG business on December 18, 2020, SEG had sales of approximately $ 6,713 , $ 31,758 , and $ 27,450 for the years ended 2021, 2020 and 2019. Income from discontinued operations includes severance charges of approximately $ 4,300 , with $ 2,100 recognized in fiscal 2020, and the remaining $ 2,200 recognized in fiscal 2021. 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. These actions reduced headcount by approximately 90 people. Income from discontinued operations includes charges of $ 5,601 recorded in fiscal 2021 primarily related to exiting our older weather radar product lines. The following amounts related to Telephonics have been segregated from Griffon's continuing operations and are reported as assets and liabilities of discontinued operations held for sale in the consolidated balance sheets: 80 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) At September 30, At September 30, 2021 2020 CURRENT ASSETS Accounts receivable, net 42,020 62,127 Contract assets, net of progress payments 72,983 84,426 Inventories 83,970 93,637 Prepaid and other current assets 4,409 5,536 PROPERTY, PLANT AND EQUIPMENT, net 45,371 46,880 OPERATING LEASE RIGHT-OF-USE ASSETS 1,167 7,278 GOODWILL 17,734 18,545 INTANGIBLE ASSETS, net 131 826 OTHER ASSETS 5,629 6,423 Total Assets Held for Sale $ 273,414 $ 325,678 CURRENT LIABILITIES Accounts payable 60,486 59,724 Accrued liabilities 15,153 20,023 Current portion of operating lease liabilities 287 2,176 LONG-TERM OPERATING LEASE LIABILITIES 867 5,466 OTHER LIABILITIES 3,955 4,972 Total Liabilities Held for Sale $ 80,748 $ 92,361 Installation Services and Other Discontinued Activities 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 Plastics divestiture and included an additional reserve for a legacy environmental matter. The following amounts summarize the total assets and liabilities of Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations and are reported as assets and liabilities of discontinued operations in the consolidated balance sheets: At September 30, 2021 At September 30, 2020 Assets of discontinued operations: Prepaid and other current assets $ 605 $ 2,091 Other long-term assets 3,424 6,406 Total assets of discontinued operations $ 4,029 $ 8,497 Liabilities of discontinued operations: Accrued liabilities, current $ 3,280 $ 3,797 Other long-term liabilities 3,794 7,014 Total liabilities of discontinued operations $ 7,074 $ 10,811 At September 30, 2021, Griffon’s liabilities for Installations Services and other discontinued operations primarily related to insurance claims, income taxes and product liability, warranty and environmental reserves totaling liabilities of approximately $ 7,074 . The decrease in assets and liabilities were primarily associated with insurance claims receivable and payable. There was no reported revenue in 2021, 2020 and 2019. 81 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 9 — ACCRUED LIABILITIES The following table details the components of accrued liabilities: At September 30, 2021 At September 30, 2020 Compensation $ 76,781 $ 73,262 Interest 4,156 4,371 Warranties and rebates 11,709 14,112 Insurance 10,462 9,552 Rent, utilities and freight 11,212 8,816 Income and other taxes 11,264 14,369 Marketing and advertising 5,157 7,968 Restructuring 682 845 Other 13,678 10,676 Total $ 145,101 $ 143,971 NOTE 10 – 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 the year ended September 30, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 21,418 . Cash charges totaled $ 14,763 and non-cash, asset-related charges totaled $ 6,655 ; the cash charges included $ 3,190 for one-time termination benefits and other personnel-related costs and $ 11,573 for facility and lease exit costs primarily driven by the consolidation of distribution facilities and system optimization. Non-cash charges of $ 6,655 predominantly related to inventory of $ 4,158 that have no recoverable value, and a $ 1,882 impairment charge related to machinery and equipment that have no recoverable value at one of the Company's owned manufacturing locations. In the year ended September 30, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 13,669 . Cash charges totaled $ 8,977 and non-cash, asset-related charges totaled $ 4,692 ; the cash charges included $ 5,620 for one-time termination benefits and other personnel-related costs and $ 3,357 for facility exit costs. Non-cash charges included a $ 1,968 impairment charge related to a facility’s operating lease as well as $ 671 of leasehold improvements made to the leased facility and $ 304 of inventory that have no recoverable value, and a $ 1,749 impairment charge related to machinery and equipment that have no recoverable value at one of the Company's owned manufacturing locations. 82 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) 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 exit costs. As a result of these transactions, headcount was reduced by 400 . A summary of the restructuring and other related charges included in Cost of goods and services and Selling, general and administrative expenses in the Company's Consolidated Statements of Operations were as follows: For the Year Ended September 30, 2021 September 30, 2020 Cost of goods and services $ 7,923 $ 4,159 Selling, general and administrative expenses 13,495 9,510 Total restructuring charges $ 21,418 $ 13,669 For the Year Ended September 30, 2021 September 30, 2020 Personnel related costs $ 3,190 $ 5,620 Facilities, exit costs and other 11,573 3,357 Non-cash facility and other 6,655 4,692 Total $ 21,418 $ 13,669 The following table summarizes the accrued liabilities of the Company's restructuring actions: Cash Charges Cash Charges Non Cash Charges Personnel related costs Facilities & Exit Costs Facility and Other Costs Total Accrued liability at September 30, 2019 $ — $ — $ — $ — Charges 5,620 3,357 4,692 13,669 Payments ( 5,039 ) ( 3,093 ) — ( 8,132 ) Non-cash charges (1) — $ — ( 4,692 ) ( 4,692 ) Accrued liability at September 30, 2020 $ 581 $ 264 $ — $ 845 Charges 3,190 11,573 6,655 21,418 Payments ( 3,353 ) ( 11,573 ) — ( 14,926 ) Non-cash charges (1) — ( 6,655 ) ( 6,655 ) Accrued liability at September 30, 2021 $ 418 $ 264 $ — $ 682 (1) Non-cash charges in Facility and Other Costs primarily represent the non-cash write-off of certain long-lived assets in connection with certain facility closures. NOTE 11 – WARRANTY LIABILITY CPP and HBP 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 and HBP to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. CPP offers an express limited warranty for a period of ninety days on all products from the date of the original purchase unless otherwise stated on the product or packaging from the date of original purchase. 83 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Years Ended September 30, 2021 2020 Balance, beginning of period $ 6,268 $ 2,814 Warranties issued and changes in estimated pre-existing warranties 15,560 16,291 Actual warranty costs incurred ( 14,010 ) ( 12,837 ) Balance, end of period $ 7,818 $ 6,268 NOTE 12 — LONG-TERM DEBT Debt at September 30, 2021 and 2020 consisted of the following: At September 30, 2021 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 315 $ ( 13,293 ) $ 987,022 5.75 % Revolver due 2025 (b) 13,483 — ( 1,718 ) 11,765 Variable Finance lease - real estate (c) 14,594 — ( 4 ) 14,590 Variable Non U.S. lines of credit (d) 3,012 — ( 17 ) 2,995 Variable Non U.S. term loans (d) 25,684 — ( 91 ) 25,593 Variable Other long term debt (e) 3,733 — ( 15 ) 3,718 Variable Totals 1,060,506 315 ( 15,138 ) 1,045,683 less: Current portion ( 12,486 ) — — ( 12,486 ) Long-term debt $ 1,048,020 $ 315 $ ( 15,138 ) $ 1,033,197 At September 30, 2020 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 363 $ ( 15,376 ) $ 984,987 5.75 % Revolver due 2025 (b) 12,858 — ( 2,209 ) 10,649 Variable Finance lease - real estate (c) 17,218 — ( 30 ) 17,188 Variable Non U.S. lines of credit (d) — — ( 30 ) ( 30 ) Variable Non U.S. term loans (f) 31,086 — ( 160 ) 30,926 Variable Other long term debt (g) 3,260 — ( 16 ) 3,244 Variable Totals 1,064,422 363 ( 17,821 ) 1,046,964 less: Current portion ( 9,922 ) — — ( 9,922 ) Long-term debt $ 1,054,500 $ 363 $ ( 17,821 ) $ 1,037,042 84 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Interest expense consists of the following for 2021, 2020 and 2019. Year Ended September 30, 2021 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.95 % $ 57,500 $ ( 48 ) $ 2,084 $ 59,536 Revolver due 2025 (b) Variable 1,078 — 491 1,569 Finance lease - real estate (c) 5.65 % 875 — 25 900 Non U.S. lines of credit (d) Variable 15 — 15 30 Non U.S. term loans (d) Variable 655 — 71 726 Other long term debt (e) Variable 443 — 2 445 Capitalized interest ( 31 ) — — ( 31 ) Totals $ 60,535 $ ( 48 ) $ 2,688 $ 63,175 Year Ended September 30, 2020 Effective Interest Rate Cash Interest Amort. Debt Discount Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.90 % $ 32,511 $ — $ 1,072 $ 33,583 Senior notes due 2022 (a) 5.67 % $ 22,816 $ 122 $ 1,735 $ 24,673 Revolver due 2025 (b) Variable 5,866 — 635 6,501 Finance lease - real estate (c) 4.45 % 386 — 25 411 Non U.S. lines of credit (d) Variable 12 — 15 27 Non U.S. term loans (d) Variable 975 — 55 1,030 Other long term debt (e) Variable 445 — 2 447 Capitalized interest ( 128 ) — — ( 128 ) Totals $ 62,883 $ 122 $ 3,539 $ 66,544 Year Ended September 30, 2019 Effective Interest Rate Cash Interest Amort. Debt Discount Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2022 (a) 5.66 % $ 52,500 $ 270 $ 3,803 $ 56,573 Revolver due 2025 (b) Variable 6,998 — 980 7,978 Finance lease - real estate (c) 6.7 % 372 — 25 397 Non U.S. lines of credit (d) Variable 19 — 15 34 Non U.S. term loans (d) Variable 1,592 — 109 1,701 Other long term debt (e) Variable 640 — 5 645 ESOP Loans (f) 6.3 % 937 — 186 1,123 Capitalized interest ( 139 ) — — ( 139 ) Totals $ 62,919 $ 270 $ 5,123 $ 68,312 85 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Minimum payments under debt agreements for the next five years are as follows: $ 16,724 in 2022, $ 17,267 in 2023, $ 1,888 in 2024, $ 15,296 in 2025, $ 1,892 in 2026 and $ 1,007,439 thereafter. (a) On June 22, 2020, in an unregistered offering through a private placement, Griffon completed the add-on offering of $ 150,000 principal amount of its 5.75 % senior notes due 2028, at 100.25 % of par, to Griffon's previously issued $ 850,000 principal amount of its 5.75 % senior notes due 2028, at of par, completed on February 19, 2020 (collectively, the "Senior Notes"). Proceeds from the Senior Notes were used to redeem the $ 1,000,000 of 5.25 % senior notes due 2022 (the "2022 Senior Notes"). As of September 30, 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. (b) On January 30, 2020, Griffon amended its Credit Agreement to increase the maximum borrowing availability from $ 350,000 to $ 400,000 , extend its maturity from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of $ 100,000 ; 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. (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 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. (d) 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. 86 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) 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. (g) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of financing leases. (f) 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 . At September 30, 2021, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. 87 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 13 – EMPLOYEE BENEFIT PLANS Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $ 8,576 in 2021, $ 6,855 in 2020 and $ 7,097 in 2019. The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $ 1,678 and $ 1,833 as of September 30, 2021 and 2020. The accumulated other comprehensive income (loss) for these plans was $( 118 ) and ($ 196 ) as of September 30, 2021 and 2020, respectively, and the 2021 and 2020 benefit expense was $ 35 and $ 46 , respectively. It is the Company’s practice to fund these benefits as incurred. Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss). Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the services of an investment manager to manage these assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2021 and 2020. The fair value of various other investments was determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). A small amount of plan assets are invested in private equity which consist primarily of investments in private companies which are valued using the net asset values provided by the underlying private investment companies as a practical expedient (level 3 inputs). The Clopay AMES Pension Plan and the AMES supplemental executive retirement plan are frozen to new entrants and participants in the plans no longer accrue benefits. The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $ 907 , $ 1,559 and $ 3,148 during 2021, 2020, and 2019 respectively. Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10 % change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon. 88 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Net periodic costs (benefits) were as follows: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2021 2020 2019 2021 2020 2019 Net periodic (benefits) costs: Interest cost $ 2,816 $ 4,267 $ 5,778 $ 162 $ 335 $ 503 Expected return on plan assets ( 10,177 ) ( 10,343 ) ( 10,331 ) — — — Amortization of: Prior service costs — — — — 14 14 Actuarial loss 5,776 3,769 630 516 399 258 Total net periodic (benefits) costs $ ( 1,585 ) $ ( 2,307 ) $ ( 3,923 ) $ 678 $ 748 $ 775 The tax benefits in 2021, 2020 and 2019 for the amortization of pension costs in Other comprehensive income (loss) were $ 270 , $ 878 and $ 221 , respectively. The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2021 2020 2019 2021 2020 2019 Discount rate 2.30 % 2.92 % 4.10 % 1.69 % 2.64 % 3.99 % Expected return on assets 6.75 % 7.00 % 7.00 % — % — % — % 89 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2021 2020 2021 2020 Change in benefit obligation: Benefit obligation at beginning of fiscal year $ 183,003 $ 177,797 $ 16,070 $ 16,180 Interest cost 2,816 4,267 162 335 Benefits paid ( 10,743 ) ( 10,747 ) ( 1,936 ) ( 1,939 ) Actuarial (gain) loss ( 4,571 ) 11,686 479 1,494 Benefit obligation at end of fiscal year 170,505 183,003 14,775 16,070 Change in plan assets: Fair value of plan assets at beginning of fiscal year 147,145 145,610 — — Actual return on plan assets 23,199 4,261 — — Company contributions 922 8,021 1,936 1,939 Benefits paid ( 10,743 ) ( 10,747 ) ( 1,936 ) ( 1,939 ) Fair value of plan assets at end of fiscal year 160,523 147,145 — — Projected benefit obligation in excess of plan assets $ ( 9,982 ) $ ( 35,858 ) $ ( 14,775 ) $ ( 16,070 ) Amounts recognized in the statement of financial position consist of: Accrued liabilities $ — $ — $ ( 1,884 ) $ ( 1,891 ) Other liabilities (long-term) ( 9,982 ) ( 35,858 ) ( 12,890 ) ( 14,179 ) Total Liabilities ( 9,982 ) ( 35,858 ) ( 14,774 ) ( 16,070 ) Net actuarial losses 38,296 61,666 7,662 7,700 Prior service cost — — — — Deferred taxes ( 8,042 ) ( 12,950 ) ( 1,609 ) ( 1,617 ) Total Accumulated other comprehensive loss, net of tax 30,254 48,716 6,053 6,083 Net amount recognized at September 30, $ 20,272 $ 12,858 $ ( 8,721 ) $ ( 9,987 ) Accumulated benefit obligations $ 170,505 $ 183,003 $ 14,775 $ 16,070 Information for plans with accumulated benefit obligations in excess of plan assets: ABO $ 170,505 $ 183,003 $ 14,775 $ 16,070 PBO 170,505 183,003 14,775 16,070 Fair value of plan assets 160,523 147,145 — — Actuarial gains as of September 30, 2021 were primarily the result of the actual return on assets versus the expected return on assets. Actuarial gains also resulted from the increase in the discount rate and the change in the mortality assumption for valuing the Projected Benefit Obligation. Actuarial losses as of September 30, 2020 were primarily the result of the decrease in the discount rate. The weighted-average assumptions used in determining the benefit obligations were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2021 2020 2021 2020 Weighted average discount rate 2.58 % 2.30 % 1.94 % 1.69 % 90 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Estimated future benefit payments to retirees, which reflect expected future service, are as follows: For the years ending September 30, Defined Benefits Supplemental Benefits 2022 $ 10,909 $ 1,884 2023 10,902 1,765 2024 10,876 1,641 2025 10,803 1,513 2026 10,789 1,383 2027 through 2031 51,669 4,965 During 2022, Griffon expects to contribute $ 1,884 in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon expects to contribute $ 953 to the Defined Benefit plan in 2022. The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2021 was 98.7 %. Since the plan was in excess of the 80 % funding threshold there were no plan restrictions. The expected level of 2022 catch up contributions is $ 198 . The actual and weighted-average asset allocation for qualified benefit plans were as follows: At September 30, 2021 2020 Target Cash and equivalents 1.2 % 0.4 % — % Equity securities 52.5 % 48.5 % 63.0 % Fixed income 26.9 % 31.9 % 37.0 % Other 19.4 % 19.2 % — % Total 100.0 % 100.0 % 100.0 % The following is a description of the valuation methodologies used for plan assets measured at fair value: Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2. Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy. Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are classified within Level 1 and Level 2 of the valuation hierarchy. Commingled funds – The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 or 3, as appropriate, of the valuation hierarchy and can be liquidated on demand. Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the net asset values provided by the underlying private investment companies as a practical expedient. These investments are classified within Level 2 of the valuation hierarchy. 91 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category: At September 30, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 1,867 $ — $ — $ 1,867 Government agency securities 32,217 4,608 — 36,825 Debt instruments 1,063 2,706 — 3,769 Equity securities 84,129 — — 84,129 Commingled funds — — 11,286 11,286 Limited partnerships and hedge fund investments — 19,823 — 19,823 Other Securities 2,379 160 — 2,539 Subtotal $ 121,655 $ 27,297 $ 11,286 $ 160,238 Accrued income and plan receivables 285 Total $ 160,523 At September 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 600 $ — $ — $ 600 Government and agency securities 33,675 6,136 — 39,811 Debt instruments 179 2,722 — 2,901 Equity securities 68,987 — — 68,987 Commingled funds — — 9,362 9,362 Limited partnerships and hedge fund investments — 17,867 — 17,867 Other Securities 2,488 163 — 2,651 Subtotal $ 105,929 $ 26,888 $ 9,362 $ 142,179 Accrued income and plan receivables 4,966 Total $ 147,145 92 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table represents level 3 significant unobservable inputs for the years ended September 30, 2021 and 2020: Significant Unobservable Inputs (Level 3) As of October 1, 2020 $ 8,776 Purchases, issuances and settlements — Gains and losses 586 As of September 30, 2020 9,362 Purchases, issuances and settlements — Gains and losses 1,924 As of September 30, 2021 $ 11,286 Griffon has an ESOP that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1 st following completion of one qualifying year of service (as defined in the plan). Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $ 290 for the plan year ended September 30, 2021), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $ 3,678 in 2021, $ 2,878 in 2020 and $ 2,629 in 2019. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2021 and 2020 based on the closing stock price of Griffon’s stock was $ 45,571 and $ 40,217 , respectively. The ESOP shares were as follows: At September 30, 2021 2020 Allocated shares 3,322,355 3,301,448 Unallocated shares 1,852,492 2,058,187 Total 5,174,847 5,359,635 NOTE 14 – INCOME TAXES Income taxes have been based on the following components of Income before taxes from continuing operations: For the Years Ended September 30, 2021 2020 2019 Domestic $ 57,059 $ 28,530 $ 23,437 Non-U.S. 54,120 40,175 22,786 $ 111,179 $ 68,705 $ 46,223 93 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Provision (benefit) for income taxes on income was comprised of the following from continuing operations: For the Years Ended September 30, 2021 2020 2019 Current $ 26,177 $ 24,140 $ 26,218 Deferred 13,763 2,122 ( 5,465 ) Total $ 39,940 $ 26,262 $ 20,753 U.S. Federal $ 14,577 $ 7,897 $ 8,973 State and local 7,132 7,223 5,499 Non-U.S. 18,231 11,142 6,281 Total provision $ 39,940 $ 26,262 $ 20,753 Differences between the effective income tax rate applied to Income before taxes from continuing operations and the U.S. Federal income statutory rate were as follows: For the Years Ended September 30, 2021 2020 2019 U.S. Federal income tax provision rate 21.0 % 21.0 % 21.0 % State and local taxes, net of Federal benefit 4.7 % 7.8 % 9.1 % Non-U.S. taxes - foreign permanent items and taxes 3.0 % 4.2 % 3.1 % Change in tax contingency reserves 0.2 % 0.2 % ( 1.1 ) % Impact of foreign rate change on deferred tax balances 2.8 % — % — % Tax Reform-Repatriation of Foreign Earnings and GILTI 0.4 % 0.3 % 1.6 % Change in valuation allowance 0.4 % ( 2.6 ) % 5.0 % Other non-deductible/non-taxable items, net 0.4 % 1.3 % 5.9 % Non-deductible officer's compensation 4.0 % 5.4 % 8.2 % Research and U.S. foreign tax credits ( 0.1 ) % 1.4 % ( 6.4 ) % Share based compensation ( 2.0 ) % — % 0.6 % Other 1.1 % ( 0.8 ) % ( 2.1 ) % Effective tax provision (benefit) rate 35.9 % 38.2 % 44.9 % 94 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows: At September 30, 2021 2020 Deferred tax assets: Bad debt reserves $ 2,066 $ 3,980 Inventory reserves 11,298 9,371 Deferred compensation (equity compensation and defined benefit plans) 10,598 18,904 Compensation benefits 5,269 5,499 Insurance reserve 2,183 1,918 Warranty reserve 3,761 3,981 Lease liabilities 39,378 43,045 Net operating loss 10,706 9,618 Tax credits 7,198 7,031 Capital loss carryback 2,533 2,205 Other reserves and accruals 7,474 6,094 102,464 111,646 Valuation allowance ( 10,425 ) ( 9,824 ) Total deferred tax assets 92,039 101,822 Deferred tax liabilities: Goodwill and intangibles ( 46,585 ) ( 44,051 ) Property, plant and equipment ( 53,817 ) ( 48,172 ) Right-of-use assets ( 38,511 ) ( 41,747 ) Other ( 1,232 ) ( 634 ) Total deferred tax liabilities ( 140,145 ) ( 134,604 ) Net deferred tax liabilities $ ( 48,106 ) $ ( 32,782 ) The components of the net deferred tax liability, by balance sheet account, were as follows: At September 30, 2021 2020 Other assets $ 323 $ 614 Other liabilities ( 49,289 ) ( 34,356 ) Liabilities of discontinued operations 860 960 Net deferred liability $ ( 48,106 ) $ ( 32,782 ) In 2021, the increase in the valuation allowance of $ 601 is primarily the result of foreign net operating losses and generation of state tax credits which will not be recognized, partially offset by the expiration of foreign tax credits during the year. In 2020, the decrease in valuation allowance of $ 999 is primarily due to the expiration of foreign tax credits during the year. At both September 30, 2021 and 2020, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30, 2021, we have approximately $ 143,058 of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. The Company continues to reinvest the undistributed earnings of its foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion in the future. Outside basis differences were impractical to account for at this time and are currently considered as being permanent in duration. 95 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) At September 30, 2021, Griffon had no loss carryforwards for U.S. tax purposes and $ 8,332 for non-U.S. tax purposes. At September 30, 2020, Griffon had no loss carryforwards for U.S. tax purposes and $ 9,671 for non-U.S. tax purposes. The non-U.S. loss carryforwards expire in varying amounts beginning in 2027 to indefinite carryfoward. At September 30, 2021 and 2020, Griffon had state and local loss carryforwards of $ 139,894 and $ 124,191 , respectively, which expire in varying amounts through 2040. At September 30, 2021 and 2020, Griffon had federal tax credit carryforwards of $ 5,933 and $ 5,954 , respectively, which expire in varying amounts through 2035. At September 30, 2021 and 2020, Griffon had capital loss carryovers for U.S. tax purposes of $ 10,327 and $ 10,500 , respectively, which expire in varying amounts through 2026. The losses were generated in September 30, 2021 and September 30, 2019 tax years. The carryovers are available for three-year carryback or five-year carryforward periods. We believe it is more likely than not that the benefit from certain federal and state tax attributes will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2021 and 2020 of $ 10,425 and $ 9,824 , respectively, on the deferred tax assets. As it becomes probable that the benefits of these attributes will be realized, the reversal of valuation allowance will be recognized as a reduction of income tax expense. If certain substantial changes in Griffon's ownership occur, there would be an annual limitation on the amount of carryforward(s) that can be utilized. Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia, U.K. and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2015. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2013. Various U.S. state and statutory tax audits are currently underway. The following is a roll forward of unrecognized tax benefits: Balance at September 30, 2019 $ 4,061 Additions based on tax positions related to the current year 125 Additions based on tax positions related to prior years 20 Reductions based on tax positions related to prior years ( 3 ) Lapse of Statutes ( 23 ) Balance at September 30, 2020 $ 4,180 Additions based on tax positions related to the current year 180 Additions based on tax positions related to prior years 24 Lapse of Statutes ( 7 ) Settlements — Balance at September 30, 2021 $ 4,377 If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $ 1,106 . Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2021 and 2020, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was $ 100 and $ 77 , respectively. Griffon cannot reasonably estimate the extent to which existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction. 96 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 15 – STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION During 2021, 2020 and 2019, the Company declared and paid cash dividends totaling $ 0.32 per share, $ 0.30 per share and $ 0.29 per share, respectively. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and recorded as a reduction of debt service payments and compensation expense. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. At September, 30, 2021, accrued dividends were $ 2,920 . 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. On August 18, 2020, the Company sold 8,000,000 shares of our common stock at a price of $ 21.50 per share through a public equity offering, for a total net proceeds of $ 163,830 , net of underwriting discounts, commissions and offering expenses. In addition, on August 21, 2020, pursuant to the exercise by the underwriters of their overallotment option, the underwriters purchased an additional 700,000 shares of common stock from the Company at a price of $ 21.50 , resulting in additional net proceeds to the Company of $ 14,335 . In total, the Company sold 8,700,000 shares of common stock at a price of $ 21.50 for a total net proceeds of $ 178,165 . The Company used a portion of the net proceeds to temporarily repay outstanding borrowings under its Credit Agreement. The Company intends to use the remainder of the proceeds for working capital and general corporate purposes, including to expand its current business through acquisitions of, or investments in, other businesses or products. On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Incentive Plan; and on January 30, 2020, shareholders approved Amendment No. 2 to the Incentive Plan, pursuant to which 1,700,000 shares were added to the Incentive Plan. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, which generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant. As of September 30, 2021, there are no stock options outstanding. The maximum number of shares of common stock available for award under the Incentive Plan is 5,050,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares of underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of September 30, 2021, 488,376 shares were available for grant. Compensation expense for restricted stock, including 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 date of grant, and for performance shares, including performance units, the likelihood of achieving the performance criteria. The Company recognizes forfeitures as they occur. Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within Selling, general and administrative expenses. The following table summarizes the Company’s compensation expense relating to all stock-based compensation plans: For the Years Ended September 30, 2021 2020 2019 Restricted stock $ 16,410 $ 14,702 $ 13,285 ESOP 3,678 2,878 2,629 Total stock based compensation $ 20,088 $ 17,580 $ 15,914 97 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) A summary of restricted stock activity, inclusive of restricted stock units, for 2021 is as follows: Shares Weighted Average Grant- Date Fair Value Unvested at September 30, 2020 3,685,590 $ 14.30 Granted 1,287,330 19.61 Vested ( 498,333 ) 21.33 Forfeited ( 608,534 ) 16.40 Unvested at September 30, 2021 3,866,053 15.32 The fair value of restricted stock which vested during 2021, 2020, and 2019 was $ 10,627 , $ 17,889 and $ 4,748 , respectively. Unrecognized compensation expense related to non-vested shares of restricted stock was $ 29,686 at September 30, 2021 and will be recognized over a weighted average vesting period of 2.5 years. At September 30, 2021, a total of approximately 4,354,429 shares of Griffon’s authorized Common Stock were reserved for issuance in connection with stock compensation plans. During 2021, Griffon granted 1,242,906 shares of restricted stock and restricted stock units to its employees. 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 488,095 restricted stock awards granted to six executives, with vesting periods ranging from 34 months to 60 months, with a total fair value of $ 10,836 , or a weighted average fair value of $ 22.20 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. On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $ 50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may purchase shares of its common stock, depending upon market conditions, in open market or privately negotiated transactions, including pursuant to a 10b5-1 plan. Shares repurchased are recorded at cost. During 2020, Griffon did no t purchase shares of common stock under these repurchase programs. At September 30, 2021 an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase authorizations. During the year ended September 30, 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. 98 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 16 – COMMITMENTS AND CONTINGENT LIABILITIES Purchase Commitments Purchase obligations are generally for the purchase of goods and services in the ordinary course of business. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Amounts purchased under such commitments were $ 235,148 , $ 142,044 and $ 143,523 for the years ended September 30, 2021, 2020 and 2019, respectively. Aggregate future minimum purchase obligations at September 30, 2021 are $ 255,661 in 2021, $ 38,581 in 2022, $ 0 in 2023, $ 0 in 2024 and $ 0 in 2025. Legal and environmental Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) 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. 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. One of Griffon’s insurers is defending Lightron, ISCP and Griffon subject to a reservation of rights. 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 June 2020, AMES completed the remediation required by the Record of Decision issued by DEC in 2019 ("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. AMES also completed a workplan approved by DEC to investigate the areas adjacent to the site perimeter. AMES has a number of defenses to liability in this matter, including its rights under a previous Consent Judgment entered into between DEC and a predecessor of AMES relating to the site. AMES’ insurer has accepted AMES’ claim for a substantial portion of the costs incurred and to be incurred for both the on-site and off-site activities. 99 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. NOTE 17 – EARNINGS PER SHARE Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. In August 2020, Griffon Corporation completed the Public Offering of 8,700,000 shares of our common stock at a price of $ 21.50 per share. Total proceeds, net of fees, were $ 178,165 . The following table is a reconciliation of the share amounts (in thousands) used in computing basic and diluted EPS for 2021, 2020 and 2019: 2021 2020 2019 Common shares outstanding 56,613 56,130 46,806 Unallocated ESOP shares ( 1,852 ) ( 2,058 ) ( 2,259 ) Non-vested restricted stock ( 3,601 ) ( 3,556 ) ( 3,420 ) Impact of weighted average shares ( 330 ) ( 7,928 ) ( 193 ) Weighted average shares outstanding - basic 50,830 42,588 40,934 Incremental shares from stock based compensation 2,539 2,427 1,954 Weighted average shares outstanding - diluted 53,369 45,015 42,888 Anti-dilutive shares were not material. Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share. 100 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 18 — REPORTABLE SEGMENTS Griffon conducts its operations through two reportable segments, as follows: • Consumer and Professional Products ("CPP") conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. On September 27, 2021, Griffon announced it is exploring strategic alternatives, including a sale, for its Defense Electronics segment, which conducts its operations through 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, founded in 1933, is a globally recognized 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. Information on Griffon’s reportable segments from continuing operations is as follows: For the Years Ended September 30, REVENUE 2021 2020 2019 Consumer and Professional Products $ 1,229,518 $ 1,139,233 $ 1,000,608 Home and Building Products 1,041,108 927,313 873,640 Defense Electronics 271,060 340,976 $ 335,041 Subtotal $ 2,541,686 $ 2,407,522 $ 2,209,289 Less: Defense Electronics ( 271,060 ) ( 340,976 ) ( 335,041 ) Total revenue $ 2,270,626 $ 2,066,546 $ 1,874,248 Griffon evaluates performance and allocates resources based on each segment's operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment Adjusted EBITDA”). 101 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table provides a reconciliation of Segment Adjusted EBITDA to Income before taxes from continuing operations: For the Years Ended September 30, 2021 2020 2019 Segment Adjusted EBITDA: Consumer and Professional Products $ 115,673 $ 104,053 $ 90,677 Home and Building Products 181,015 153,631 120,161 Defense Electronics 20,486 25,228 35,104 Subtotal 317,174 282,912 245,942 Less: Defense Electronics ( 20,486 ) ( 25,228 ) ( 35,104 ) Segment Adjusted EBITDA 296,688 257,684 210,838 Unallocated amounts, excluding depreciation ( 49,054 ) ( 48,262 ) ( 47,231 ) Adjusted EBITDA 247,634 209,422 163,607 Net interest expense ( 62,735 ) ( 65,795 ) ( 67,513 ) Depreciation and amortization ( 52,302 ) ( 52,100 ) ( 51,517 ) Restructuring charges ( 21,418 ) ( 13,670 ) — Loss from debt extinguishment — ( 7,925 ) — Acquisition contingent consideration — 1,733 1,646 Acquisition costs — ( 2,960 ) — Income before taxes from continuing operations $ 111,179 $ 68,705 $ 46,223 For the Years Ended September 30, DEPRECIATION and AMORTIZATION 2021 2020 2019 Segment: Consumer and Professional Products $ 34,433 $ 32,788 $ 32,289 Home and Building Products 17,370 18,361 18,334 Defense Electronics 10,762 10,645 10,667 Subtotal 62,565 61,794 61,290 Less: Defense Electronics ( 10,762 ) ( 10,645 ) ( 10,667 ) Total segment depreciation and amortization 51,803 51,149 50,623 Corporate 499 951 894 Total consolidated depreciation and amortization $ 52,302 $ 52,100 $ 51,517 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 28,265 $ 23,321 $ 17,828 Home and Building Products 8,648 17,499 16,498 Defense Electronics 10,343 7,830 10,492 Subtotal 47,256 48,650 44,818 Less: Defense Electronics ( 10,343 ) ( 7,830 ) ( 10,492 ) Total segment 36,913 40,820 34,326 Corporate 38 348 543 Total consolidated capital expenditures $ 36,951 $ 41,168 $ 34,869 102 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) ASSETS At September 30, 2021 At September 30, 2020 Segment assets: Consumer and Professional Products $ 1,377,618 $ 1,255,127 Home and Building Products 666,422 606,785 Total segment assets 2,044,040 1,861,912 Corporate 283,202 252,506 Total continuing assets 2,327,242 2,114,418 Discontinued operations - held for sale 273,414 325,678 Other discontinued operations 4,029 8,497 Consolidated total $ 2,604,685 $ 2,448,593 103 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. For the Year Ended September 30, 2021 For the Year Ended September 30, 2020 For the Year Ended September 30, 2019 Residential repair and remodel $ 185,896 $ 173,859 $ 140,369 Retail 577,839 575,947 528,279 Residential new construction 50,437 59,907 58,709 Industrial 43,411 40,285 45,129 International excluding North America 371,935 289,235 228,122 Total Consumer and Professional Products 1,229,518 1,139,233 1,000,608 Residential repair and remodel 516,995 467,112 439,287 Commercial construction 407,585 354,916 335,339 Residential new construction 116,528 105,285 99,014 Total Home and Building Products 1,041,108 927,313 873,640 Total Revenue $ 2,270,626 $ 2,066,546 $ 1,874,248 The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Year Ended September 30, 2021 Revenue by Geographic Area - Destination Consumer and Professional Products Home and Building Products Total United States $ 766,150 $ 986,925 $ 1,753,075 Europe 123,607 72 123,679 Canada 85,676 44,661 130,337 Australia 244,674 — 244,674 All other countries 9,411 9,450 18,861 Total Revenue $ 1,229,518 $ 1,041,108 $ 2,270,626 For the Year Ended September 30, 2020 Revenue by Geographic Area - Destination Consumer and Professional Products Home and Building Products Total United States $ 769,100 $ 877,115 $ 1,646,215 Europe 85,339 130 85,469 Canada 74,072 38,662 112,734 Australia 203,012 — 203,012 All other countries 7,710 11,406 19,116 Total Revenue $ 1,139,233 $ 927,313 $ 2,066,546 104 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For the Year Ended September 30, 2019 Revenue by Geographic Area - Destination Consumer and Professional Products Home and Building Products Total United States $ 690,772 $ 820,396 $ 1,511,168 Europe 63,284 109 63,393 Canada 72,327 39,472 111,799 Australia 165,291 16 165,307 All other countries 8,934 13,647 22,581 Total Revenue $ 1,000,608 $ 873,640 $ 1,874,248 As a percentage of segment revenue, CPP sales to The Home Depot approximated 26 %, 27 % and 28 % in 2021, 2020 and 2019, respectively; HBP sales to The Home Depot approximated 10 %, 12 % and 13 % in 2021, 2020 and 2019, respectively. As a percentage of Griffon's consolidated revenue, CPP sales to The Home Depot approximated 14 % in 2021, and approximated 13 % in both 2020 and 2019; HBP sales to The Home Depot approximated 5 % in 2021, 2020 and 2019. NOTE 19 – OTHER INCOME (EXPENSE) For the year ended September 30, 2021, 2020 and 2019, Other income (expense) from continuing operations of $ 3,331 , $ 2,885 and $ 5,230 , respectively, includes $ 81 , $ 915 and $ 438 , respectively, of net currency exchange transaction losses from receivables and payables held in non-functional currencies, $ 283 , $ 184 and $( 40 ), respectively, of net gains or (losses) on investments, and $ 907 and $ 1,559 and $ 3,148 , respectively, of net periodic benefit plan income. Other income (expense) also includes rental income of $ 1,848 in 2021, 2020 and 2019. NOTE 20 - OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: Years Ended September 30, 2021 2020 2019 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 6,433 $ — $ 6,433 $ 5,601 $ — $ 5,601 $ ( 8,460 ) $ — $ ( 8,460 ) Pension and other defined benefit plans 22,583 ( 4,787 ) 17,796 ( 14,955 ) 3,171 ( 11,784 ) ( 30,581 ) 7,526 ( 23,055 ) Cash flow hedge 2,694 ( 808 ) 1,886 10 ( 3 ) 7 ( 413 ) 124 ( 289 ) Total other comprehensive income (loss) $ 31,710 $ ( 5,595 ) $ 26,115 $ ( 9,344 ) $ 3,168 $ ( 6,176 ) $ ( 39,454 ) $ 7,650 $ ( 31,804 ) The components of Accumulated other comprehensive income (loss) are as follows: At September 30, 2021 2020 Foreign currency translation $ ( 19,250 ) $ ( 25,683 ) Pension and other defined benefit plans ( 28,802 ) ( 46,598 ) Cash flow hedge 2,075 189 Total $ ( 45,977 ) $ ( 72,092 ) 105 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Total comprehensive income (loss) were as follows: For the Years Ended September 30, 2021 2020 2019 Net income $ 79,211 $ 53,429 $ 37,287 Other comprehensive income (loss), net of taxes 26,115 ( 6,176 ) ( 31,804 ) Comprehensive income (loss) $ 105,326 $ 47,253 $ 5,483 Amounts reclassified from accumulated other comprehensive income (loss) to income (loss) were as follows: For the Years Ended September 30, Gain (Loss) 2021 2020 2019 Pension amortization $ ( 6,292 ) $ ( 4,182 ) $ ( 902 ) Cash flow hedges ( 2,204 ) ( 2,163 ) 1,361 Total before tax ( 8,496 ) ( 6,345 ) 459 Tax 1,784 1,332 ( 96 ) Net of tax $ ( 6,712 ) $ ( 5,013 ) $ 363 NOTE 21 — LEASES In February 2016, the FASB issued an Accounting Standards Update (ASU 2016-02) related to the accounting and financial statement presentation for leases. This new guidance requires a lessee to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet, with an election to exempt leases with a term of twelve months or less. The Company adopted the requirements of the new standard as of October 1, 2019 and applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we recognized ROU assets of $ 163,552 and lease liabilities of $ 163,676 associated with our operating leases. The standard had no material impact to retained earnings or on our Consolidated Statements of Income or Consolidated Statements of Cash Flows. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification. We also elected a practical expedient to determine the reasonably certain lease term. The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our operating leases are shown as separate line items on our Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. In connection with the Company's restructuring activities, during the year ended September 30, 2020, a $ 1,968 impairment charge was recorded related to a facility’s operating lease as well as $ 671 and of leasehold improvements made to the leased facility that have no recoverable value. See Note 10, Restructuring Charges. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. For leases existing as of October 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. 106 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company has lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance). Components of operating lease costs are as follows: For the Year Ended September 30, 2021 September 30, 2020 Fixed (a) $ 38,362 $ 36,155 Variable (a), (b) 7,573 7,178 Short-term (b) 4,210 5,470 Total $ 50,145 $ 48,803 (a) Primarily related to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. Fixed rent expense for all operating leases totaled approximately $ 34,816 in 2019. Supplemental cash flow information were as follows: For the Year Ended September 30, 2021 September 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 43,444 $ 48,141 Financing cash flows from finance leases 3,815 4,122 Total $ 47,259 $ 52,263 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: At September 30, 2021 At September 30, 2020 Operating Leases: Right of use assets: Operating right-of-use assets $ 144,598 $ 154,349 Lease Liabilities: Current portion of operating lease liabilities $ 29,881 $ 29,672 Long-term operating lease liabilities 119,315 130,588 Total operating lease liabilities $ 149,196 $ 160,260 Finance Leases: Right of use assets: Property, plant and equipment, net (1) $ 16,466 $ 18,774 Lease Liabilities: Notes payable and current portion of long-term debt $ 2,347 $ 3,352 Long-term debt, net 14,120 15,339 Total financing lease liabilities $ 16,467 $ 18,691 107 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) (1) For the years ended September 30, 2021 and 2020, finance lease assets are recorded net of accumulated depreciation of $ 6,136 and $ 2,383 , respectively. 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 September 30, 2021 and 2020, $ 14,590 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 September 30, 2021 are as follows (in thousands): Operating Leases Finance Leases 2022 $ 36,109 $ 3,174 2023 28,715 2,850 2024 21,545 2,281 2025 19,274 2,119 2026 13,165 2,106 2027 63,921 7,777 Total lease payments 182,729 20,307 Less: Imputed Interest ( 33,533 ) ( 3,840 ) Present value of lease liabilities $ 149,196 $ 16,467 Average lease terms and discount rates were as follows: September 30, 2021 September 30, 2020 Weighted-average remaining lease term (years) Operating Leases 8.0 8.4 Finance Leases 8.1 8.5 Weighted-average discount rate Operating Leases 4.48 % 4.36 % Finance Leases 5.48 % 5.51 % NOTE 22 – SUBSEQUENT EVENTS 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. Griffon currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors, at its discretion, based on various factors, and no assurance can be provided as to the payment of future dividends. ***** 108 SCHEDULE II GRIFFON CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 2021, 2020 and 2019 (in thousands) Description Balance at Beginning of Year Additions Reductions Other Balance at End of Year FOR THE YEAR ENDED SEPTEMBER 30, 2021 Allowance for Doubtful Accounts $ 8,178 $ 795 $ ( 393 ) $ 207 $ 8,787 Inventory valuation $ 18,903 $ 24,400 $ ( 12,099 ) $ 401 $ 31,605 Deferred tax valuation allowance $ 9,824 $ 601 $ — $ — $ 10,425 FOR THE YEAR ENDED SEPTEMBER 30, 2020 Allowance for Doubtful Accounts $ 7,588 $ 5,175 $ ( 4,584 ) $ ( 1 ) $ 8,178 Inventory valuation $ 15,218 $ 6,771 $ ( 3,412 ) $ 326 $ 18,903 Deferred tax valuation allowance $ 10,823 $ — $ ( 999 ) $ — $ 9,824 FOR THE YEAR ENDED SEPTEMBER 30, 2019 Allowance for Doubtful Accounts Allowance for Doubtful Accounts $ 6,115 $ 6,253 $ ( 4,799 ) $ 19 $ 7,588 Inventory valuation $ 15,940 $ 1,947 $ ( 2,614 ) $ ( 55 ) $ 15,218 Deferred tax valuation allowance $ 8,520 $ 2,303 $ — $ — $ 10,823 109 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.