GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) December 31, 2021 September 30, 2021 CURRENT ASSETS Cash and equivalents $ 151,220 $ 248,653 Accounts receivable, net of allowances of $ 9,787 and $ 8,787 334,040 294,804 Inventories 531,182 472,794 Prepaid and other current assets 75,862 76,009 Assets of discontinued operations held for sale 261,514 273,414 Assets of discontinued operations 583 605 Total Current Assets 1,354,401 1,366,279 PROPERTY, PLANT AND EQUIPMENT, net 290,552 292,622 OPERATING LEASE RIGHT-OF-USE ASSETS 141,406 144,598 GOODWILL 426,683 426,148 INTANGIBLE ASSETS, net 346,802 350,025 OTHER ASSETS 19,524 21,589 ASSETS OF DISCONTINUED OPERATIONS 3,375 3,424 Total Assets $ 2,582,743 $ 2,604,685 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 15,675 $ 12,486 Accounts payable 243,611 260,140 Accrued liabilities 147,269 145,101 Current portion of operating lease liabilities 28,932 29,881 Liabilities of discontinued operations held for sale 74,256 80,748 Liabilities of discontinued operations 3,095 3,280 Total Current Liabilities 512,838 531,636 LONG-TERM DEBT, net 1,037,755 1,033,197 LONG-TERM OPERATING LEASE LIABILITIES 117,189 119,315 OTHER LIABILITIES 98,836 109,585 LIABILITIES OF DISCONTINUED OPERATIONS 3,740 3,794 Total Liabilities 1,770,358 1,797,527 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 812,385 807,158 Total Liabilities and Shareholders’ Equity $ 2,582,743 $ 2,604,685 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 1 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three Months Ended December 31, 2021 and 2020 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 Net income — — — 19,298 — — — — 19,298 Dividend — — — ( 4,739 ) — — — — ( 4,739 ) Shares withheld on employee taxes on vested equity awards — — — — 422 ( 10,886 ) — — ( 10,886 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net 113 28 ( 28 ) — — — — — — ESOP allocation of common stock — — 848 — — — — — 848 Stock-based compensation — — 2,866 — — — — — 2,866 Other comprehensive income, net of tax — — — — — — ( 2,751 ) — ( 2,751 ) Balance at December 31, 2021 84,488 $ 21,122 $ 605,867 $ 684,557 28,184 $ ( 427,736 ) $ ( 48,728 ) $ ( 22,697 ) $ 812,385 COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 Net income — — — 29,500 — — — — 29,500 Dividend — — — ( 4,469 ) — — — — ( 4,469 ) Shares withheld on employee taxes on vested equity awards — — — — 133 ( 2,909 ) — — ( 2,909 ) Amortization of deferred compensation — — — — — — — 609 609 Equity awards granted, net 494 123 ( 123 ) — — — — — — ESOP allocation of common stock — — 596 — — — — — 596 Stock-based compensation — — 3,428 — — — — — 3,428 Other comprehensive income, net of tax — — — — — — 13,141 — 13,141 Balance at December 31, 2020 84,233 $ 21,058 $ 586,909 $ 632,549 27,743 $ ( 416,402 ) $ ( 58,951 ) $ ( 25,116 ) 740,047 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended December 31, 2021 2020 Revenue $ 591,749 $ 541,523 Cost of goods and services 425,907 377,387 Gross profit 165,842 164,136 Selling, general and administrative expenses 127,352 111,709 Income from operations 38,490 52,427 Other income (expense) Interest expense ( 15,681 ) ( 15,690 ) Interest income 33 44 Other, net 1,381 357 Total other expense, net ( 14,267 ) ( 15,289 ) Income before taxes from continuing operations 24,223 37,138 Provision for income taxes 7,318 11,708 Income from continuing operations $ 16,905 $ 25,430 Discontinued operations: Income from operations of discontinued operations 3,014 2,031 Provision (benefit) for income taxes 621 ( 2,039 ) Income from discontinued operations 2,393 4,070 Net income $ 19,298 $ 29,500 Basic earnings per common share: Income from continuing operations $ 0.33 $ 0.50 Income from discontinued operations 0.05 0.08 Basic earnings per common share $ 0.38 $ 0.58 Basic weighted-average shares outstanding 51,178 50,596 Diluted earnings per common share: Income from continuing operations $ 0.31 $ 0.48 Income from discontinued operations 0.04 0.08 Diluted earnings per common share $ 0.36 $ 0.55 Diluted weighted-average shares outstanding 53,753 53,192 Dividends paid per common share $ 0.09 $ 0.08 Net income $ 19,298 $ 29,500 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments ( 2,319 ) 12,123 Pension and other post retirement plans 668 1,706 Change in cash flow hedges ( 1,100 ) ( 688 ) Total other comprehensive income, net of taxes ( 2,751 ) 13,141 Comprehensive income, net $ 16,547 $ 42,641 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,298 $ 29,500 Net income from discontinued operations ( 2,393 ) ( 4,070 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations: Depreciation and amortization 13,081 12,590 Stock-based compensation 4,867 4,208 Asset impairment charges - restructuring 289 193 Provision for losses on accounts receivable 352 93 Amortization of debt discounts and issuance costs 654 680 Deferred income taxes 2,883 321 (Gain) loss on sale of assets and investments ( 154 ) 174 Change in assets and liabilities, net of assets and liabilities acquired: Increase in accounts receivable ( 53,132 ) ( 40 ) Increase in inventories ( 59,478 ) ( 32,791 ) (Increase) decrease in prepaid and other assets 329 ( 4,901 ) Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities ( 12,204 ) 5,074 Other changes, net 662 1,284 Net cash provided by (used in) operating activities - continuing operations ( 84,946 ) 12,315 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 10,573 ) ( 9,022 ) Acquired businesses, net of cash acquired — ( 2,242 ) Proceeds from sale of investments 575 — Proceeds from the sale of property, plant and equipment 29 53 Other, net — 26 Net cash used in investing activities - continuing operations ( 9,969 ) ( 11,185 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 5,260 ) ( 4,422 ) Purchase of shares for treasury ( 10,886 ) ( 2,909 ) Proceeds from long-term debt 10,815 40,791 Payments of long-term debt ( 2,500 ) ( 42,120 ) Financing costs ( 753 ) ( 569 ) Other, net ( 28 ) ( 68 ) Net cash used in financing activities - continuing operations ( 8,612 ) ( 9,297 ) The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2021 2020 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by operating activities 7,857 7,762 Net cash provided by (used in) investing activities ( 853 ) 14,900 Net cash provided by discontinued operations 7,004 22,662 Effect of exchange rate changes on cash and equivalents ( 910 ) 1,223 NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 97,433 ) 15,718 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 248,653 218,089 CASH AND EQUIVALENTS AT END OF PERIOD $ 151,220 $ 233,807 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). On January 24, 2022, Griffon acquired Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a purchase price of approximately $ 845,000 , subject to customary post-closing adjustments. Hunter will be part of Griffon's Consumer and Professional Products segment as it complements and diversifies our portfolio of leading consumer brands and products. The acquisition of Hunter was financed with a new $ 800,000 seven year Term Loan B facility; and a combination of cash on hand and revolver borrowings under Griffon's revolving credit facility ("Credit Agreement") was used to fund the balance of the purchase price and related acquisition and debt expenditures. On September 27, 2021, Griffon announced it is exploring strategic alternatives for its Defense Electronics (DE) segment, which consists of its subsidiary Telephonics Corporation ("Telephonics"), including a sale. 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 Quarterly Report on Form 10-Q are to Griffon's continuing operations, unless specifically noted. Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions that are deployed across a wide range of land, sea and air applications. Telephonics designs, develops, manufactures and provides logistical support and lifecycle sustainment services to defense, aerospace and commercial customers worldwide. Griffon now conducts its operations through two reportable segments: • Consumer and Professional Products (“CPP”) is a leading North American manufacturer and a global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay Corporation ("Clopay"). Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand. 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 impacted, 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 6 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) products that we sell. While this helps mitigate the effects of global supplier and transportation disruptions, we are still impacted and are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2021, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business, properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s CPP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet information at September 30, 2021 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2021. The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include expected loss allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates. Certain amounts in the prior year have been reclassified to conform to current year presentation. NOTE 2 – FAIR VALUE MEASUREMENTS The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates. Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. 7 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) • 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 values of Griffon’s 2028 senior notes approximated $ 1,037,500 on December 31, 2021. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 4,000 at December 31, 2021 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets. Items Measured at Fair Value on a Recurring Basis At December 31, 2021, 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 $ 15,442 ($ 15,050 cost basis) were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on marketable debt and equity securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss). In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of December 31, 2021, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in U.S. dollars. At December 31, 2021, Griffon had $ 21,000 of Australian dollar contracts at a weighted average rate of $ 1.34 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred gains of $ 688 ($ 481 , net of tax) at December 31, 2021. Upon settlement, gains of $ 1,533 were recorded in COGS during the three months ended December 31, 2021. All contracts expire in 30 to 90 days. At December 31, 2021, Griffon had $ 6,675 of Canadian dollar contracts at a weighted average rate of $ 1.25 . The contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. For the three months ended December 31, 2021, fair value (losses) gains of $ 134 were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $ 14 were recorded in Other income during the three months ended December 31, 2021 for all settled contracts. All contracts expire in 30 to 270 days. NOTE 3 – REVENUE The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). 8 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The majority of the Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components primarily within the CPP and HBP Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment. Within our discontinued operation, 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. Revenue recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers. For a complete explanation of Griffon’s revenue accounting policies, this note should be read in conjunction with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2021. See Note 13 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. NOTE 4 – ACQUISITIONS Griffon continually evaluates potential acquisitions that 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 January 24, 2022, Griffon completed the acquisition of Hunter, a market leader in residential ceiling, commercial, and industrial fans, for a purchase price of approximately $ 845,000 , subject to customary post-closing adjustments. Hunter will be part of Griffon's CPP segment as it complements and diversifies our portfolio of leading consumer brands and products. As a result of the timing of this acquisition, all information required by the accounting guidance for business combinations, including certain pro forma information, is not disclosed. We will provide preliminary purchase price allocation information as well as other required disclosures in our Quarterly Report on Form 10-Q for the quarter ending March 31, 2022. 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 net purchase price of AUD $ 3,500 (approximately $ 2,700 ) in cash. The final purchase price allocated to goodwill and acquired intangibles 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. During the three months ended December 31, 2021, the Company incurred acquisition costs of $ 2,595 . During the three months ended December 31, 2020, acquisition costs were de minimis. 9 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 5 – INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or average cost) or market. The following table details the components of inventory: At December 31, 2021 At September 30, 2021 Raw materials and supplies $ 151,292 $ 133,684 Work in process 46,679 48,531 Finished goods 333,211 290,579 Total $ 531,182 $ 472,794 NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At December 31, 2021 At September 30, 2021 Land, building and building improvements $ 163,841 $ 164,486 Machinery and equipment 525,928 520,110 Leasehold improvements 40,111 39,913 729,880 724,509 Accumulated depreciation and amortization ( 439,328 ) ( 431,887 ) Total $ 290,552 $ 292,622 Depreciation and amortization expense for property, plant and equipment was $ 10,694 and $ 10,238 for the quarters ended December 31, 2021 and 2020, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 3,400 and $ 3,262 for the quarters ended December 31, 2021 and 2020. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. 10 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 7 – CREDIT LOSSES Effective October 1, 2020, the Company adopted accounting guidance related to accounting for credit losses on financial instruments, including trade receivables (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The guidance requires companies to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. The Company is exposed to credit losses primarily through sales of products and services. Trade receivables are recorded at their stated amount, less allowances for discounts, doubtful accounts and returns. The Company’s expected loss allowance methodology for trade receivables is primarily based on the aging method of the accounts receivables balances and the financial condition of its customers. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for doubtful accounts includes amounts for certain customers in which a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in SG&A expenses. The Company also considers current and expected future economic and market conditions, such as the COVID-19 pandemic, when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year. Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with this guidance in all material respects. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected: 2021 2020 Beginning Balance, October 1 $ 8,787 $ 8,178 Provision for expected credit losses 1,039 499 Amounts written off charged against the allowance ( 4 ) ( 42 ) Other, primarily foreign currency translation ( 35 ) 64 Ending Balance, December 31 $ 9,787 $ 8,699 11 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – GOODWILL AND OTHER INTANGIBLES The following table provides changes in the carrying value of goodwill by segment during the quarter ended December 31, 2021: At September 30, 2021 Foreign currency translations adjustments At December 31, 2021 Consumer and Professional Products $ 234,895 $ 535 $ 235,430 Home and Building Products 191,253 — 191,253 Total $ 426,148 $ 535 $ 426,683 The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At December 31, 2021 At September 30, 2021 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 187,409 $ 77,939 23 $ 187,732 $ 75,794 Technology and patents 13,429 2,569 13 13,429 2,439 Total amortizable intangible assets 200,838 80,508 201,161 78,233 Trademarks 226,472 — 227,097 — Total intangible assets $ 427,310 $ 80,508 $ 428,258 $ 78,233 The gross carrying amount of intangible assets was impacted by approximately $ 800 related to foreign currency translation. Amortization expense for intangible assets was $ 2,387 and $ 2,352 for the quarters ended December 31, 2021 and 2020, respectively. Amortization expense for the remainder of 2022 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2022 - $ 7,348 ; 2023 - $ 9,600 ; 2024 - $ 9,600 ; 2025 - $ 9,600 ; 2026 - $ 9,600 ; 2027 - $ 9,600 ; thereafter $ 64,982 . During the three months ended December 31, 2021, the Company determined that there were no triggering events and, as a result, there was no impairment to either its goodwill or indefinite-lived intangible assets at December 31, 2021. NOTE 9 – INCOME TAXES During the quarter ended December 31, 2021, the Company recognized a tax provision of $ 7,318 on income before taxes from continuing operations of $ 24,223 , compared to a tax provision of $ 11,708 on income before taxes from continuing operations of $ 37,138 in the comparable prior year quarter. The current year quarter results included restructuring charges of $ 1,716 ($ 1,330 , net of tax), acquisition costs of $ 2,595 ($ 2,003 , net of tax), proxy contest costs of $ 2,291 ($ 1,768 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of $ 881 . The prior year quarter results included restructuring charges of $ 3,079 ($ 2,301 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of $ 1,048 . Excluding these items, the effective tax rates for the quarters ended December 31, 2021 and 2020 were 31.5 % and 33.7 %, respectively. 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 10 – LONG-TERM DEBT At December 31, 2021 At September 30, 2021 Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Outstanding Balance Original Issuer Premium Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 302 ( 12,775 ) $ 987,527 5.75 % $ 1,000,000 $ 315 $ ( 13,293 ) $ 987,022 5.75 % Revolver due 2025 (b) 19,859 — ( 1,595 ) 18,264 Variable 13,483 — ( 1,718 ) 11,765 Variable Finance lease - real estate (c) 14,083 — — 14,083 Variable 14,594 — ( 4 ) 14,590 Variable Non US lines of credit (d) 6,533 — ( 13 ) 6,520 Variable 3,012 — ( 17 ) 2,995 Variable Non US term loans (d) 23,761 — ( 71 ) 23,690 Variable 25,684 — ( 91 ) 25,593 Variable Other long term debt (e) 3,360 — ( 14 ) 3,346 Variable 3,733 — ( 15 ) 3,718 Variable Totals 1,067,596 302 ( 14,468 ) 1,053,430 1,060,506 315 ( 15,138 ) 1,045,683 less: Current portion ( 15,675 ) — — ( 15,675 ) ( 12,486 ) — — ( 12,486 ) Long-term debt $ 1,051,921 $ 302 $ ( 14,468 ) $ 1,037,755 $ 1,048,020 $ 315 $ ( 15,138 ) $ 1,033,197 Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.9 % $ 14,375 $ ( 12 ) $ 518 $ 14,881 5.9 % $ 14,375 $ — $ 530 $ 14,905 Revolver due 2025 (b) Variable 261 — 122 383 Variable 129 — 123 252 Finance lease - real estate (c) 5.6 % 198 — 4 202 4.8 % 232 — 6 238 Non US lines of credit (d) Variable 3 — 4 7 Variable 3 — 4 7 Non US term loans (d) Variable 166 — 17 183 Variable 171 — 17 188 Other long term debt (e) Variable 97 — 1 98 Variable 107 — — 107 Capitalized interest ( 73 ) — — ( 73 ) ( 7 ) — — ( 7 ) Totals $ 15,027 $ ( 12 ) $ 666 $ 15,681 $ 15,010 $ — $ 680 $ 15,690 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (a) During 2020, Griffon issued, at par, $ 1,000,000 of 5.75 % Senior Notes due in 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem the $ 1,000,000 of 5.25 % Senior Notes due 2022. As of December 31, 2021, outstanding Senior Notes due totaled $ 1,000,000 ; interest is payable semi-annually on March 1 and September 1. The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The Senior Notes were registered under the Securities Act of 1933, as amended (the "Securities Act") via an exchange offer. The fair value of the Senior Notes approximated $ 1,037,500 on December 31, 2021 based upon quoted market prices (level 1 inputs). In connection with these transactions, Griffon capitalized $ 16,448 of underwriting fees and other expenses incurred related to the issuance and exchange of the 2028 Senior Notes, which is being amortized over the term of such notes, and at December 31, 2021, $ 12,775 remained to be amortized. (b) On December 9, 2021, Griffon amended its revolving credit facility (as amended, the "Credit Agreement") to replace the GBP LIBOR benchmark rate with Sterling Overnight Index Average ("SONIA"). The Credit Agreement's maximum borrowing availability is $ 400,000 and the revolving credit facility matures on March 22, 2025. The facility includes a letter of credit sub-facility with a limit of $ 100,000 ; a multi-currency sub-facility of $ 200,000 ; and contains a customary accordion feature that permits us to request, subject to each lender's consent, an increase in the maximum aggregate amount that can be borrowed by up to an additional $ 100,000 . Borrowings under the Credit Agreement may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a LIBOR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Current margins are 0.50 % for base rate loans, 1.50 % for LIBOR loans and 1.50 % for SONIA 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 December 31, 2021, there were $ 19,859 of outstanding borrowings under the Credit Agreement; outstanding standby letters of credit were $ 15,508 ; and $ 364,633 was available, subject to certain loan covenants, for borrowing at that date. (c) Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025, and bears interest at a fixed rate of approximately 5.6 %. During the period ended December 31, 2021, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0 %, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buy out option in November 2021. The Ocala, Florida lease contains two five -year renewal options. At December 31, 2021, $ 14,083 was outstanding, net of issuance costs. Refer to Note 21- Leases for further details. (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 11,708 as of December 31, 2021) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 1.40 % LIBOR USD and 1.53 % Bankers Acceptance Rate CDN as of December 31, 2021). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At December 31, 2021, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 11,708 as of December 31, 2021) available. In July 2016, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement. The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 9,625 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.95 % per annum ( 2.02 % at December 31, 2021). During fiscal 2020, the term loan balance was reduced by AUD 5,000 , from AUD 23,375 to AUD 18,375 with proceeds from an AUD 5,000 increase in the commitment of the receivables purchase line 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) from AUD 10,000 to AUD 15,000 . As of December 31, 2021, the term loan had an outstanding balance of AUD 9,625 ($ 6,965 as of December 31, 2021). The revolving facility and receivable purchase facility mature in March 2022, but are renewable upon mutual agreement with the lender. The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.9 % and 1.35 %, respectively, per annum ( 2.01 % and 1.42 %, respectively, at December 31, 2021). At December 31, 2021, there were no balances outstanding under the revolver and the receivable purchase facility. The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. In July 2018, The AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349 , respectively. The Term Loan and Mortgage Loans each accrue interest at the GBP LIBOR Rate plus 1.80 % ( 1.99 % at December 31, 2021). Effective, in January 2022, the Term Loan and Mortgage Loan were amended to replace GBP LIBOR with SONIA. The revolving facility accrues interest at the Bank of England Base Rate plus 3.25 % ( 3.50 % as of December 31, 2021) and was renewed in June 2021. The revolving credit facility matures in April 2022, but it is renewable upon mutual agreement with the lender. As of December 31, 2021, the revolver had an outstanding balance of GBP 4,935 ($ 6,533 as of December 31, 2021) while the term and mortgage loan balances amounted to GBP 12,687 ($ 16,796 as of December 31, 2021). The revolver and the term loan are both secured by substantially all of the assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. An invoice discounting arrangement was canceled and replaced by the above loan facilities. (e) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. Additionally, on January 24, 2022, in connection with the Hunter acquisition, Griffon amended and restated the Credit Agreement to provide for a new $ 800,000 seven year Term Loan B facility with initial pricing of the Secured Overnight Financing Rate floor of 50 basis points plus a spread of 275 basis points, for a total initial interest rate of 325 basis points. The Original Issue Discount was 99.75 %. Additionally, there are “step-down” features for the rate tied to achieving lower leverage ratio levels. The Term Loan B facility requires quarterly payments equal to 0.25 % of the outstanding principal amount, with a balloon payment due at maturity. Term Loan B borrowings may generally be repaid without penalty but may not be reborrowed. The Term Loan B facility is subject to the same affirmative and negative covenants that apply to the revolving credit facility, but is not subject to any financial maintenance tests. Term Loan B borrowings are secured by the same collateral package as borrowings under the revolving credit facility. At December 31, 2021, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. NOTE 11 — SHAREHOLDERS’ EQUITY During the three months ended December 31, 2021, the Company paid a quarterly cash dividend of $ 0.09 per share. During 2021, the Company paid a quarterly cash dividend of $ 0.08 per share, totaling $ 0.32 per share for the year. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. On January 31, 2022, the Board of Directors declared a quarterly cash dividend of $ 0.09 per share, payable on March 23, 2022 to shareholders of record as of the close of business on February 23, 2022. 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 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. A proposal to approve an Amended and Restated 2016 Equity Incentive Plan which includes, among other things, the addition of 1,200,000 shares to the Incentive Plan, is included in Griffon’s Proxy Statement dated December 30, 2021 related to the 2022 Annual Meeting of Shareholders, scheduled to be held on February 17, 2022. If shareholders approve this proposal, 1,200,000 shares will be added to the Incentive Plan as of the date of the 2022 Annual Meeting of Shareholders. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 5,050,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of December 31, 2021, there were 378,905 shares available for grant. Compensation expense for restricted stock and restricted stock units is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares granted multiplied by the stock price on the date of grant and, for performance shares, the likelihood of achieving the performance criteria. Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within SG&A expenses. During the first quarter of 2021, Griffon granted 236,973 shares of restricted stock and restricted stock units. This included 218,162 restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of three years , with a total fair value of $ 6,285 , or a weighted average fair value of $ 28.81 per share. Furthermore, this included an 18,811 restricted stock award granted to one executive, with a vesting period of three years and a total fair value of $ 507 or a weighted average fair value of $ 26.97 per share. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended December 31, 2021 2020 Restricted stock $ 3,890 $ 3,428 ESOP 977 780 Total stock based compensation $ 4,867 $ 4,208 On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $ 50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the three months ended December 31, 2021, Griffon did not purchase any shares of common stock under these repurchase programs. As of December 31, 2021, an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs. During the three months ended December 31, 2021, 421,860 shares, with a market value of $ 10,742 , or $ 25.46 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the three months ended December 31, 2021, an additional 5,480 shares, with a market value of $ 144 , or $ 26.31 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting. 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 12 – EARNINGS PER SHARE (EPS) Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share: Three Months Ended December 31, 2021 2020 Common shares outstanding 56,304 56,490 Unallocated ESOP shares ( 1,816 ) ( 2,010 ) Non-vested restricted stock ( 2,869 ) ( 3,687 ) Impact of weighted average shares ( 441 ) ( 197 ) Weighted average shares outstanding - basic 51,178 50,596 Incremental shares from stock based compensation 2,575 2,596 Weighted average shares outstanding - diluted 53,753 53,192 NOTE 13 – BUSINESS SEGMENTS Griffon reports its operations through two reportable segments, as follows: • Consumer and Professional Products (“CPP”) is a leading North American manufacturer and a global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, 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 for its Defense Electronics segment, which conducts its operations through Telephonics Corporation ("Telephonics"), including a sale. 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 Quarterly Report on Form 10-Q 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. 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Information on Griffon’s reportable segments from continuing operations is as follows: For the Three Months Ended December 31, REVENUE 2021 2020 Consumer and Professional Products $ 283,173 $ 291,042 Home and Building Products 308,576 250,481 Defense Electronics 53,993 67,768 Subtotal 645,742 609,291 Less: Defense Electronics ( 53,993 ) ( 67,768 ) Total revenue $ 591,749 $ 541,523 Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. The following table presents revenue disaggregated by end market and segment: For the Three Months Ended December 31, 2021 2020 Residential repair and remodel $ 38,759 $ 45,600 Retail 130,235 139,248 Residential new construction 10,327 13,515 Industrial 11,306 9,531 International excluding North America 92,546 83,148 Total Consumer and Professional Products 283,173 291,042 Residential repair and remodel 145,085 126,115 Commercial construction 130,789 95,939 Residential new construction 32,702 28,427 Total Home and Building Products 308,576 250,481 Total Consolidated Revenue $ 591,749 $ 541,523 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended December 31, 2021 2020 CPP HBP Total CPP HBP Total United States $ 164,899 $ 294,576 $ 459,475 $ 183,442 $ 236,531 $ 419,973 Europe 18,330 37 18,367 13,156 — 13,156 Canada 22,628 12,013 34,641 22,115 11,488 33,603 Australia 74,349 — 74,349 69,540 — 69,540 All other countries 2,967 1,950 4,917 2,789 2,462 5,251 Consolidated revenue $ 283,173 $ 308,576 $ 591,749 $ 291,042 $ 250,481 $ 541,523 Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations: For the Three Months Ended December 31, 2021 2020 Segment adjusted EBITDA: Consumer and Professional Products $ 16,214 $ 32,713 Home and Building Products 56,297 48,369 Defense Electronics 4,472 5,585 Subtotal 76,983 86,667 Less: Defense Electronics ( 4,472 ) ( 5,585 ) Segment adjusted EBITDA 72,511 81,082 Unallocated amounts, excluding depreciation * ( 12,957 ) ( 12,629 ) Adjusted EBITDA 59,554 68,453 Net interest expense ( 15,648 ) ( 15,646 ) Depreciation and amortization ( 13,081 ) ( 12,590 ) Restructuring charges ( 1,716 ) ( 3,079 ) Acquisition costs ( 2,595 ) — Proxy contest costs ( 2,291 ) — Income before taxes from continuing operations $ 24,223 $ 37,138 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) For the Three Months Ended December 31, DEPRECIATION and AMORTIZATION 2021 2020 Segment: Consumer and Professional Products $ 8,606 $ 8,199 Home and Building Products 4,338 4,341 Defense Electronics — 2,676 Subtotal 12,944 15,216 Less: Defense Electronics — ( 2,676 ) Total segment depreciation and amortization 12,944 12,540 Corporate 137 50 Total consolidated depreciation and amortization $ 13,081 $ 12,590 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 7,130 $ 6,907 Home and Building Products 3,349 2,115 Defense Electronics 853 2,904 Subtotal 11,332 11,926 Less: Defense Electronics ( 853 ) ( 2,904 ) Total segment 10,479 9,022 Corporate 94 — Total consolidated capital expenditures $ 10,573 $ 9,022 ASSETS At December 31, 2021 At September 30, 2021 Segment assets: Consumer and Professional Products $ 1,443,527 $ 1,377,618 Home and Building Products 686,009 666,422 Total segment assets 2,129,536 2,044,040 Corporate 187,735 283,202 Total continuing assets 2,317,271 2,327,242 Discontinued operations - held for sale 261,514 273,414 Other discontinued operations 3,958 4,029 Consolidated total $ 2,582,743 $ 2,604,685 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 14 – EMPLOYEE BENEFIT PLANS Defined benefit pension expense (income) included in Other Income (Expense), net was as follows: Three Months Ended December 31, 2021 2020 Interest cost $ 796 $ 744 Expected return on plan assets ( 2,589 ) ( 2,544 ) Amortization: Recognized actuarial loss 845 1,573 Net periodic expense (income) $ ( 948 ) $ ( 227 ) NOTE 15 – RECENT ACCOUNTING PRONOUNCEMENTS Issued but not yet effective accounting pronouncements In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606 (Revenue Guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. This update is effective for the Company beginning in fiscal 2023. Early adoption is permitted. New Accounting Standards Implemented 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. This guidance became effective for the Company beginning in fiscal 2022. We adopted the recognition of non-income taxes on the modified retrospective basis. 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 to clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and was effective for the Company in our fiscal year beginning in October 1, 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. 21 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 16 – 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 a discontinued operation: For the Quarter Ended December 31, 2021 2020 Revenue $ 53,993 $ 67,768 Cost of goods and services 40,961 62,101 Gross profit 13,032 5,667 Selling, general and administrative expenses 10,020 9,942 Income (loss) from discontinued operations 3,012 ( 4,275 ) Other income (expense) Gain on sale of business — 6,240 Other, net 2 66 Total other income (expense) 2 6,306 Income from discontinued operations before taxes $ 3,014 $ 2,031 Provision (benefit) for income taxes 621 ( 2,039 ) Income from discontinued operations $ 2,393 $ 4,070 During the three months ended December 31, 2021, Income from discontinued operations includes $ 1,792 of costs associated with consulting and stay bonuses. Depreciation and amortization was excluded from the current year results since DE is classified as a discontinued operation and, accordingly, the Company ceased depreciation and amortization in accordance with discontinued operations accounting guidelines. Depreciation and amortization would have been approximately $ 2,700 in the quarter ended December 31, 2021. The gain on sale of business relates to the divestiture of the SEG business on December 18, 2020; SEG had sales of $ 6,713 in the quarter ended December 31, 2020. In September 2020, a Voluntary Employee Retirement Plan was initiated, which was subsequently followed by a reduction in force in November 2020, to improve efficiencies by combining functions and responsibilities. The reduction in force initiative resulted in severance charges of approximately $ 2,200 , recorded in the first quarter ended December 31, 2020. 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 older weather radar product lines. 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following 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: At December 31, At September 30, 2021 2021 CURRENT ASSETS Accounts receivable, net 32,642 42,020 Contract assets, net of progress payments 69,043 72,983 Inventories 84,796 83,970 Prepaid and other current assets 4,363 4,409 PROPERTY, PLANT AND EQUIPMENT, net 46,205 45,371 OPERATING LEASE RIGHT-OF-USE ASSETS 1,167 1,167 GOODWILL 17,734 17,734 INTANGIBLE ASSETS, net 131 131 OTHER ASSETS 5,433 5,629 Total Assets Held for Sale $ 261,514 $ 273,414 CURRENT LIABILITIES Accounts payable 55,661 60,486 Accrued liabilities 15,547 15,153 Current portion of operating lease liabilities 221 287 LONG-TERM OPERATING LEASE LIABILITIES 817 867 OTHER LIABILITIES 2,010 3,955 Total Liabilities Held for Sale $ 74,256 $ 80,748 Installation Services and Other Discontinued Activities The following amounts summarize the total assets and liabilities related to the Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets: At December 31, 2021 At September 30, 2021 Assets of discontinued operations: Prepaid and other current assets $ 583 $ 605 Other long-term assets 3,375 3,424 Total assets of discontinued operations $ 3,958 $ 4,029 Liabilities of discontinued operations: Accrued liabilities, current $ 3,095 $ 3,280 Other long-term liabilities 3,740 3,794 Total liabilities of discontinued operations $ 6,835 $ 7,074 At December 31, 2021 and September 30, 2021, Griffon’s liabilities for Installations Services and other discontinued operations primarily related to insurance claims, warranty and environmental reserves totaling liabilities of approximately $ 6,835 and $ 7,074 , respectively. 23 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) There was no reported revenue in the quarters ended December 31 2021 and 2020. NOTE 17 – RESTRUCTURING CHARGES In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China. This initiative includes three key development areas. First, certain AMES U.S. and 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. We continue to expect the roll-out of the new business platform for our AMES U.S. and global operations to be completed by the end of calendar year 2023. When fully implemented, we expect these actions will result in AMES' EBITDA margins improving to 12 % plus, excluding the impact of Hunter, with annual cash savings of $ 30,000 to $ 35,000 and a reduction in inventory of $ 30,000 to $ 35,000 , 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. During the quarters ended December 31, 2021 and 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 1,716 and $ 3,079 , respectively. During the quarter ended December 31, 2021, cash charges totaled $ 1,427 and non-cash, asset-related charges totaled $ 289 ; the cash charges included $ 260 for one-time termination benefits and other personnel-related costs and $ 1,167 for facility exit costs. During the quarter ended December 31, 2020, cash charges totaled $ 2,886 and non-cash and asset-related charges totaled $ 193 ; the cash charges included $ 362 for one-time termination benefits and other personnel-related costs and $ 2,524 for facility exit costs. During the quarter ended December 31, 2021, there was no headcount reduction. A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended December 31, 2021 2020 Cost of goods and services $ 322 $ 541 Selling, general and administrative expenses 1,394 2,538 Total restructuring charges $ 1,716 $ 3,079 For the Three Months Ended December 31, 2021 2020 Personnel related costs $ 260 $ 362 Facilities, exit costs and other 1,167 2,524 Non-cash facility and other 289 193 Total $ 1,716 $ 3,079 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table summarizes the accrued liabilities of the Company's restructuring actions: Cash Charges Non-Cash Personnel related costs Facilities & Exit Costs Facility and Other Costs Total Accrued liability at September 30, 2021 $ 418 $ 264 $ — $ 682 Q1 Restructuring charges 260 1,167 289 1,716 Q1 Cash payments ( 275 ) ( 1,167 ) — ( 1,442 ) Q1 Non-cash charges — — ( 289 ) ( 289 ) Accrued liability at December 31, 2021 $ 403 $ 264 $ — $ 667 NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended December 31, 2021 and 2020, Other income (expense) of $ 1,381 and $ 357 , respectively, includes $ 394 and $ 699 , respectively, of net currency exchange losses in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $ 948 and $ 227 , respectively, as well as $ 93 and $ 330 , respectively, of net investment income. Other income (expense) also includes rental income of $ 462 in each of the three months ended December 31, 2021 and 2020. NOTE 19 – 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 original purchase unless otherwise stated on the product or packaging from the date of original purchase. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Three Months Ended December 31, 2021 2020 Balance, beginning of period $ 7,818 $ 6,268 Warranties issued and changes in estimated pre-existing warranties 3,461 3,576 Actual warranty costs incurred ( 1,707 ) ( 3,612 ) Balance, end of period $ 9,572 $ 6,232 25 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended December31, 2021 2020 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ ( 2,319 ) $ — $ ( 2,319 ) $ 12,123 $ — $ 12,123 Pension and other defined benefit plans 846 ( 178 ) 668 2,150 ( 444 ) 1,706 Cash flow hedges ( 1,571 ) 471 ( 1,100 ) ( 983 ) 295 ( 688 ) Total other comprehensive income (loss) $ ( 3,044 ) $ 293 $ ( 2,751 ) $ 13,290 $ ( 149 ) $ 13,141 The components of Accumulated other comprehensive income (loss) are as follows: At December 31, 2021 At September 30, 2021 Foreign currency translation adjustments $ ( 21,569 ) $ ( 19,250 ) Pension and other defined benefit plans ( 28,134 ) ( 28,802 ) Change in Cash flow hedges 975 2,075 $ ( 48,728 ) $ ( 45,977 ) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended December 31, Gain (Loss) 2021 2020 Pension amortization $ ( 845 ) $ ( 1,573 ) Cash flow hedges 1,533 ( 658 ) Total gain (loss) 688 ( 2,231 ) Tax benefit (expense) ( 144 ) 469 Total $ 544 $ ( 1,762 ) NOTE 21 — LEASES The Company recognizes right-of-use ("ROU") assets and lease liabilities on the balance sheet, with the exception of leases with a term of twelve months or less. The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our Operating leases are shown as separate line items on our Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments primarily include rent and insurance costs (lease components). The Company's leases also include non-lease components such as real estate taxes and common-area maintenance costs. The Company elected the practical expedient to account for lease and non-lease components as a single component. In certain of the Company's leases, the non-lease components are variable and in accordance with the standard are therefore excluded from lease payments to determine the ROU asset. 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 26 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) lease payments. We use the implicit rate when readily determinable. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets.Variable lease cost for both operating and finance leases, if any, is recognized as incurred. Components of operating lease costs are as follows: For the Three Months Ended December 31, 2021 2020 Fixed $ 9,747 $ 9,491 Variable (a), (b) 1,852 1,894 Short-term (b) 1,349 1,070 Total $ 12,948 $ 12,455 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. Supplemental cash flow information were as follows: For the Three Months Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 10,844 $ 10,609 Financing cash flows from finance leases 753 803 Total $ 11,597 $ 11,412 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: December 31, 2021 September 30, 2021 Operating Leases: Right of use assets: Operating right-of-use assets $ 141,406 $ 144,598 Lease Liabilities: Current portion of operating lease liabilities $ 28,932 $ 29,881 Long-term operating lease liabilities 117,189 119,315 Total operating lease liabilities $ 146,121 $ 149,196 Finance Leases: Property, plant and equipment, net (1) $ 15,719 $ 16,466 Lease Liabilities: Notes payable and current portion of long-term debt $ 2,359 $ 2,347 Long-term debt, net 13,569 14,120 Total financing lease liabilities $ 15,928 $ 16,467 (1) Finance lease assets are recorded net of accumulated depreciation of $ 3,961 and $ 6,136 as of December 31, 2021 and September 30, 2021, respectively. Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025, and bears interest at a fixed rate of approximately 5.6 %. During the period ended December 31, 2021, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0 %, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buy out option in November 2021. The Ocala, Florida lease contains two five -year renewal options. At December 31, 2021, $ 14,083 was outstanding, net of issuance costs. The aggregate future maturities of lease payments for operating leases and finance leases as of December 31, 2021 are as follows (in thousands): Operating Leases Finance Leases 2022 (a) $ 26,927 $ 2,362 2023 29,265 2,876 2024 22,123 2,312 2025 19,790 2,124 2026 13,554 2,106 2027 10,766 2,074 Thereafter 54,382 5,703 Total lease payments 176,807 19,557 Less: Imputed Interest ( 30,686 ) ( 3,629 ) Present value of lease liabilities $ 146,121 $ 15,928 (a) Excluding the three months ended December 31, 2021. 28 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Average lease terms and discount rates at December 31, 2021 were as follows: Weighted-average remaining lease term (years) Operating leases 8.0 Finance Leases 7.9 Weighted-average discount rate Operating Leases 4.45 % Finance Leases 5.49 % NOTE 22 — COMMITMENTS AND CONTINGENCIES Legal and environmental Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) which was owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon, for approximately three years . ISCP sold the Peekskill Site in November 1982. 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 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. 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. 30 Table of Contents (Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)