GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) March 31, 2022 September 30, 2021 CURRENT ASSETS Cash and equivalents $ 122,293 $ 248,653 Accounts receivable, net of allowances of $ 13,500 and $ 8,787 512,449 294,804 Inventories 687,011 472,794 Prepaid and other current assets 62,975 76,009 Assets of discontinued operations held for sale 264,861 273,414 Assets of discontinued operations 497 605 Total Current Assets 1,650,086 1,366,279 PROPERTY, PLANT AND EQUIPMENT, net 304,169 292,622 OPERATING LEASE RIGHT-OF-USE ASSETS 149,587 144,598 GOODWILL 707,523 426,148 INTANGIBLE ASSETS, net 949,730 350,025 OTHER ASSETS 22,734 21,589 ASSETS OF DISCONTINUED OPERATIONS 3,194 3,424 Total Assets $ 3,787,023 $ 2,604,685 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 25,110 $ 12,486 Accounts payable 227,085 260,140 Accrued liabilities 222,334 145,101 Current portion of operating lease liabilities 32,210 29,881 Liabilities of discontinued operations held for sale 73,218 80,748 Liabilities of discontinued operations 3,312 3,280 Total Current Liabilities 583,269 531,636 LONG-TERM DEBT, net 1,941,725 1,033,197 LONG-TERM OPERATING LEASE LIABILITIES 122,488 119,315 OTHER LIABILITIES 251,921 109,585 LIABILITIES OF DISCONTINUED OPERATIONS 4,406 3,794 Total Liabilities 2,903,809 1,797,527 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 883,214 807,158 Total Liabilities and Shareholders’ Equity $ 3,787,023 $ 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 and Six Months Ended March 31, 2022 and 2021 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 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 Net income — — — 65,689 — — — — 65,689 Dividend — — — ( 5,352 ) — — — — ( 5,352 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net 258 65 ( 7,195 ) — ( 470 ) 7,130 — — — ESOP allocation of common stock — — 638 — — — — — 638 Stock-based compensation — — 4,314 — — — — — 4,314 Other comprehensive income, net of tax — — — — — — 4,949 — 4,949 Balance at March 31, 2022 84,746 $ 21,187 $ 603,624 $ 744,894 27,714 $ ( 420,606 ) $ ( 43,779 ) $ ( 22,106 ) $ 883,214 2 Table of Contents COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 Net income — — — 29,500 — — — — 29,500 Dividend — — — ( 4,469 ) — — — — ( 4,469 ) Shares withheld on employee taxes on vested equity awards — — — — 133 ( 2,909 ) — — ( 2,909 ) Amortization of deferred compensation — — — — — — — 609 609 Equity awards granted, net 494 123 ( 123 ) — — — — — — ESOP allocation of common stock — — 596 — — — — — 596 Stock-based compensation — — 3,428 — — — — — 3,428 Other comprehensive income, net of tax — — — — — — 13,141 — 13,141 Balance at December 31, 2020 84,233 $ 21,058 $ 586,909 $ 632,549 27,743 $ ( 416,402 ) $ ( 58,951 ) $ ( 25,116 ) 740,047 Net income — — — 17,112 — — — — 17,112 Dividend — — — ( 3,217 ) — — — — ( 3,217 ) Amortization of deferred compensation — — — — — — — 609 609 Equity awards granted, net 194 48 ( 48 ) — — — — — — ESOP allocation of common stock — — 756 — — — — — 756 Stock-based compensation — — 4,349 — — — — — 4,349 Other comprehensive income, net of tax — — — — — — 4,775 — 4,775 Balance at March 31, 2021 84,427 $ 21,106 $ 591,966 $ 646,444 27,743 $ ( 416,402 ) $ ( 54,176 ) $ ( 24,507 ) $ 764,431 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2022 2021 2022 2021 Revenue $ 779,617 $ 574,682 $ 1,371,366 $ 1,116,205 Cost of goods and services 518,974 413,476 944,881 790,863 Gross profit 260,643 161,206 426,485 325,342 Selling, general and administrative expenses 157,838 117,559 285,190 229,268 Income from operations 102,805 43,647 141,295 96,074 Other income (expense) Interest expense ( 21,408 ) ( 15,831 ) ( 37,089 ) ( 31,521 ) Interest income 32 304 65 348 Other, net 1,675 1,081 3,056 1,438 Total other expense, net ( 19,701 ) ( 14,446 ) ( 33,968 ) ( 29,735 ) Income before taxes from continuing operations 83,104 29,201 107,327 66,339 Provision for income taxes 24,533 11,082 31,851 22,790 Income from continuing operations $ 58,571 $ 18,119 $ 75,476 $ 43,549 Discontinued operations: Income (loss) from operations of discontinued operations 694 ( 1,341 ) 3,708 690 Provision (benefit) for income taxes ( 6,424 ) ( 334 ) ( 5,803 ) ( 2,373 ) Income (loss) from discontinued operations 7,118 ( 1,007 ) 9,511 3,063 Net income $ 65,689 $ 17,112 $ 84,987 $ 46,612 Basic earnings per common share: Income from continuing operations $ 1.13 $ 0.36 $ 1.47 $ 0.86 Income (loss) from discontinued operations 0.14 ( 0.02 ) 0.18 0.06 Basic earnings per common share $ 1.27 $ 0.34 $ 1.65 $ 0.92 Basic weighted-average shares outstanding 51,668 50,838 51,423 50,717 Diluted earnings per common share: Income from continuing operations $ 1.10 $ 0.34 $ 1.41 $ 0.82 Income (loss) from discontinued operations 0.13 ( 0.02 ) 0.18 0.06 Diluted earnings per common share $ 1.23 $ 0.32 $ 1.59 $ 0.88 Diluted weighted-average shares outstanding 53,430 53,264 53,602 53,211 Dividends paid per common share $ 0.09 $ 0.08 $ 0.18 $ 0.16 Net income $ 65,689 $ 17,112 $ 84,987 $ 46,612 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 6,049 1,739 3,730 13,862 Pension and other post retirement plans 140 1,245 808 2,951 Change in cash flow hedges ( 1,240 ) 1,791 ( 2,340 ) 1,103 Total other comprehensive income, net of taxes 4,949 4,775 2,198 17,916 Comprehensive income, net $ 70,638 $ 21,887 $ 87,185 $ 64,528 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 84,987 $ 46,612 Net income from discontinued operations ( 9,511 ) ( 3,063 ) Adjustments to reconcile net income to net cash used in operating activities of continuing operations: Depreciation and amortization 29,333 25,739 Stock-based compensation 9,959 9,501 Asset impairment charges - restructuring 806 2,690 Provision for losses on accounts receivable 578 194 Amortization of debt discounts and issuance costs 1,566 1,349 Fair value step-up of acquired inventory sold 2,701 — Deferred income taxes 2,883 2,215 (Gain) loss on sale of assets and investments ( 118 ) 151 Change in assets and liabilities, net of assets and liabilities acquired: Increase in accounts receivable ( 177,347 ) ( 65,398 ) Increase in inventories ( 106,534 ) ( 74,661 ) (Increase) decrease in prepaid and other assets 6,063 ( 842 ) Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities ( 18,524 ) 8,702 Other changes, net 525 2,400 Net cash used in operating activities - continuing operations ( 172,633 ) ( 44,411 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 22,030 ) ( 17,835 ) Acquired businesses, net of cash acquired ( 851,464 ) ( 2,242 ) Proceeds (payments) from investments 14,923 ( 2,138 ) Proceeds from the sale of property, plant and equipment 32 82 Other, net — 27 Net cash used in investing activities - continuing operations ( 858,539 ) ( 22,106 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 10,091 ) ( 8,678 ) Purchase of shares for treasury ( 10,886 ) ( 2,909 ) Proceeds from long-term debt 975,291 14,029 Payments of long-term debt ( 37,906 ) ( 7,573 ) Financing costs ( 16,457 ) ( 571 ) Other, net ( 27 ) ( 214 ) Net cash provided by ( used) in financing activities - continuing operations 899,924 ( 5,916 ) The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended March 31, 2022 2021 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by operating activities 9,846 17,058 Net cash provided by (used in) investing activities ( 1,445 ) 11,323 Net cash provided by discontinued operations 8,401 28,381 Effect of exchange rate changes on cash and equivalents ( 3,513 ) 1,527 NET DECREASE IN CASH AND EQUIVALENTS ( 126,360 ) ( 42,525 ) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 248,653 218,089 CASH AND EQUIVALENTS AT END OF PERIOD $ 122,293 $ 175,564 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 6 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). On September 27, 2021, Griffon announced it is exploring strategic alternatives for its Defense Electronics ("DE") segment, which consists of its Telephonics subsidiary, and on April 18, 2022, Griffon entered into a definitive agreement to sell Telephonics to TTM Technologies, Inc. ("TTM") for $ 330,000 in cash. The transaction is expected to close within the second calendar quarter of 2022. 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 noted otherwise. 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 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 contractual purchase price of approximately $ 845,000 , subject to customary post-closing adjustments. Hunter, which is part of Griffon's Consumer and Professional Products segment, complements and diversifies our portfolio of leading consumer brands and products. The acquisition of Hunter was primarily financed with a new $ 800,000 seven year Term Loan B facility; a combination of cash on hand and revolving credit facility borrowings was used to fund the balance of the purchase price and related acquisition and debt expenditures. 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 7 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) the risk to our employees of contracting COVID-19. In the United States, we manufacture a substantial majority of the products that we sell. While this helps mitigate the effects of global supplier and transportation disruptions, we are still impacted and are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. 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: 8 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) • Level 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. On March 31, 2022, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $ 945,000 and $ 792,000 , respectively. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 4,053 at March 31, 2022 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets. Items Measured at Fair Value on a Recurring Basis At March 31, 2022, 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 $ 995 ($ 1,000 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 March 31, 2022, 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 March 31, 2022, Griffon had $ 46,500 of Australian dollar contracts at a weighted average rate of $ 1.35 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $ 773 ($ 541 , net of tax) at March 31, 2022. Upon settlement, gains of $ 730 and $ 2,263 were recorded in COGS during the three and six months ended March 31, 2022, respectively. All contracts expire in 29 to 180 days. At March 31, 2022, Griffon had 48,600 of Chinese Yuan contracts at a weighted average rate of $ 6.52 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 $ 1,140 ($ 832 , net of tax) at March 31, 2022. Upon settlement, gains of $ 654 were recorded in COGS during the six months ended March 31, 2022. All contracts expire in 7 to 308 days. At March 31, 2022, Griffon had $ 6,950 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 and six months ended March 31, 2022, fair value (losses) gains of $( 136 ) and $ 2 , respectively, were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $ 16 and $ 2 were recorded in Other income during the three and six months ended March 31, 2022, respectively for all settled contracts. All contracts expire in 1 to 380 days. 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 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). 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 contractual purchase price of $ 845,000 , subject to customary post-closing adjustments. The acquisition was primarily financed with a new $ 800,000 seven year Term Loan B facility; a combination of cash on hand and revolver borrowings was used to fund the balance of the purchase price and related acquisition and debt expenditures. Hunter complements and diversifies Griffon's portfolio of leading consumer brands and products. The goodwill recognized was $ 279,658 , which was assigned to the CPP segment, and is not expected to be deductible for income tax purposes. The final purchase price allocation, which is expected to be completed in the first quarter of fiscal 2023, will be based on final appraisals and other analysis of fair values of acquired assets and liabilities. The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired Hunter on October 1, 2020: Proforma For the Three Months Ended March 31, (unaudited) Proforma For the Six Months Ended March 31, (unaudited) 2022 2021 2022 2021 Revenue $ 791,038 $ 673,597 $ 1,461,877 $ 1,277,382 Income from continuing operations 55,151 24,419 75,125 50,514 10 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Griffon did not include any material, nonrecurring proforma adjustments directly attributable to the business combination in the proforma revenue and earnings. These proforma amounts have been compiled by adding the historical results from continuing operations of Griffon, restated for classifying the results of operations of the Telephonics Corporate business as a discontinued operation, to the historical results of Hunter after applying Griffon’s accounting policies and the following proforma adjustments: • Additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2021. • Additional interest and related expenses from the new $ 800,000 seven year Term Loan B facility that Griffon used to acquire Hunter Fan. • The consequential tax effects of the above adjustments using a 21.9 % tax rate for the year ended September 30, 2021. The calculation of the preliminary purchase price allocation is as follows: Accounts receivable (1) $ 64,602 Inventories (2) 110,299 Other current assets 9,513 Property, plant and equipment 15,007 Operating lease right-of-use assets 12,447 Goodwill 279,658 Intangible assets 606,000 Total assets acquired $ 1,097,526 Accounts payable and accrued liabilities $ 70,768 Current portion of operating lease liabilities 3,323 Deferred tax liability (3) 161,381 Long-term operating lease liabilities 9,123 Other long-term liabilities 1,467 Total liabilities assumed $ 246,062 Total net assets acquired $ 851,464 (1) Includes $ 67,201 of gross accounts receivable of which $ 2,599 was not expected to be collected. The fair value of accounts receivable approximated book value acquired. (2) Includes $ 113,287 of gross inventory of which $ 2,988 was reserved for obsolete items. (3) Deferred tax liability recorded on intangibles assets. The amounts assigned to goodwill and major intangible asset classifications for the Hunter acquisition are as follows: Average Life (Years) Goodwill $ 279,658 N/A Indefinite-lived intangibles 356,000 N/A Definite-lived intangibles 250,000 20 Total goodwill and intangible assets $ 885,658 11 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 and six months ended March 31, 2022, the Company incurred acquisition costs of $ 6,708 and $ 9,303 , respectively. During the three and six months ended March 31, 2021, acquisition costs were de minimis. NOTE 5 – INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or average cost) or market. The following table details the components of inventory: At March 31, 2022 At September 30, 2021 Raw materials and supplies $ 164,912 $ 133,684 Work in process 48,267 48,531 Finished goods 473,832 290,579 Total $ 687,011 $ 472,794 NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At March 31, 2022 At September 30, 2021 Land, building and building improvements $ 163,567 $ 164,486 Machinery and equipment 546,663 520,110 Leasehold improvements 42,045 39,913 752,275 724,509 Accumulated depreciation and amortization ( 448,106 ) ( 431,887 ) Total $ 304,169 $ 292,622 Depreciation and amortization expense for property, plant and equipment was $ 11,782 and $ 10,742 for the quarters ended March 31, 2022 and 2021, respectively, and $ 22,476 and $ 20,980 for the six months ended March 31, 2022 and 2021, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 4,256 and $ 3,613 for the quarters ended March 31, 2022 and 2021, respectively, and $ 7,656 and $ 6,875 for the six months ended March 31, 2022 and 2021, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 7 – CREDIT LOSSES 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 the accounting guidance for credit losses on financial instruments, including trade receivables, 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: Six months ended March 31, 2022 2021 Beginning Balance, October 1 $ 8,787 $ 8,178 Accounts receivable, net acquired 2,599 — Provision for expected credit losses 1,889 1,234 Amounts written off charged against the allowance ( 10 ) ( 161 ) Other, primarily foreign currency translation 235 23 Ending Balance, March 31 $ 13,500 $ 9,274 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – GOODWILL AND OTHER INTANGIBLES The following table provides changes in the carrying value of goodwill by segment during the six months ended March 31, 2022: At September 30, 2021 Hunter Acquisition Foreign currency translations adjustments At March 31, 2022 Consumer and Professional Products $ 234,895 $ 279,658 $ 1,717 $ 516,270 Home and Building Products 191,253 — — 191,253 Total $ 426,148 $ 279,658 $ 1,717 $ 707,523 The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At March 31, 2022 At September 30, 2021 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 438,693 $ 82,866 23 $ 187,732 $ 75,794 Technology and patents 13,613 2,702 13 13,429 2,439 Total amortizable intangible assets 452,306 85,568 201,161 78,233 Trademarks 582,992 — 227,097 — Total intangible assets $ 1,035,298 $ 85,568 $ 428,258 $ 78,233 The gross carrying amount of intangible assets was impacted by $ 563 related to foreign currency translation. Amortization expense for intangible assets was $ 4,470 and $ 2,407 for the quarters ended March 31, 2022 and 2021, respectively, and $ 6,857 and $ 4,759 for the six months ended March 31, 2022 and 2021, respectively. The increase in intangible assets and amortization is related to the Hunter acquisition. 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 - $ 13,600 ; 2023 - $ 22,100 ; 2024 - $ 22,100 ; 2025 - $ 22,100 ; 2026 - $ 22,100 ; 2027 - $ 22,100 ; thereafter $ 242,638 . During the six months ended March 31, 2022, 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 March 31, 2022. 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 9 – INCOME TAXES During the quarter ended March 31, 2022, the Company recognized a tax provision of $ 24,533 on income before taxes from continuing operations of $ 83,104 , compared to a tax provision of $ 11,082 on income before taxes from continuing operations of $ 29,201 in the comparable prior year quarter. The current year quarter results included restructuring charges of $ 4,766 ($ 3,496 , net of tax), acquisition costs of $ 6,708 ($ 6,146 , net of tax), proxy expenses of $ 4,661 ($ 3,591 , net of tax), fair value step-up of acquired inventory sold of $ 2,701 ($ 2,007 , net of tax), and discrete and certain other tax benefits, net, that affect comparability of $ 693 . The prior year quarter results included restructuring charges of $ 7,502 ($ 5,605 , net of tax), and discrete tax and certain other tax provisions, net, that affect comparability of $ 1,417 . Excluding these items, the effective tax rates for the quarters ended March 31, 2022 and 2021 were 28.3 % and 31.5 %, respectively. During the six months ended March 31, 2022, the Company recognized a tax provision of $ 31,851 on income before taxes of $ 107,327 , compared to a tax provision of $ 22,790 on income before taxes of $ 66,339 in the comparable prior year period. The six month period ended March 31, 2022 included restructuring charges of $ 6,482 ($ 4,826 , net of tax), acquisition costs of $ 9,303 ($ 8,149 , net of tax), proxy expenses of $ 6,952 ($ 5,359 , net of tax), fair value step-up of acquired inventory sold of $ 2,701 ($ 2,007 , net of tax), and discrete and certain other tax benefits, net, that affect comparability of $ 1,574 . The six month period ended March 31, 2021 included restructuring charges of $ 10,581 ($ 7,906 , net of tax), and discrete tax and certain other tax provisions, net, that affect comparability of $ 369 . Excluding these items, the effective tax rates for the six months ended March 31, 2022 and 2021 were 29.0 % and 32.6 %, respectively. 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 10 – LONG-TERM DEBT At March 31, 2022 At September 30, 2021 Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 1,000,000 $ 290 ( 12,257 ) $ 988,033 5.75 % $ 1,000,000 $ 315 $ ( 13,293 ) $ 987,022 5.75 % Term Loan B 2029 (b) 800,000 ( 1,970 ) ( 15,235 ) 782,795 Variable — — — — — n/a Revolver due 2025 (b) 153,146 — ( 1,473 ) 151,673 Variable 13,483 — ( 1,718 ) 11,765 Variable Finance lease - real estate (c) 13,757 — — 13,757 Variable 14,594 — ( 4 ) 14,590 Variable Non US lines of credit (d) 11,713 — ( 9 ) 11,704 Variable 3,012 — ( 17 ) 2,995 Variable Non US term loans (d) 15,948 — ( 52 ) 15,896 Variable 25,684 — ( 91 ) 25,593 Variable Other long term debt (e) 2,991 — ( 14 ) 2,977 Variable 3,733 — ( 15 ) 3,718 Variable Totals 1,997,555 ( 1,680 ) ( 29,040 ) 1,966,835 1,060,506 315 ( 15,138 ) 1,045,683 less: Current portion ( 25,110 ) — — ( 25,110 ) ( 12,486 ) — — ( 12,486 ) Long-term debt $ 1,972,445 $ ( 1,680 ) $ ( 29,040 ) $ 1,941,725 $ 1,048,020 $ 315 $ ( 15,138 ) $ 1,033,197 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 14,375 $ ( 12 ) $ 518 $ 14,881 6.0 % $ 14,375 $ ( 12 ) $ 529 $ 14,892 Term Loan B due 2029 (b) 3.4 % 4,767 30 232 5,029 n/a — — — — Revolver due 2025 (b) Variable 990 — 123 1,113 Variable 287 — 122 409 Finance lease - real estate (c) 5.6 % 192 — — 192 5.9 % 224 — 7 231 Non US lines of credit (d) Variable 7 — 3 10 Variable 4 — 4 8 Non US term loans (d) Variable 185 — 18 203 Variable 163 — 18 181 Other long term debt (e) Variable 61 — — 61 Variable 115 — 1 116 Capitalized interest ( 81 ) — — ( 81 ) ( 6 ) — — ( 6 ) Totals $ 20,496 $ 18 $ 894 $ 21,408 $ 15,162 $ ( 12 ) $ 681 $ 15,831 Six Months Ended March 31, 2022 Six Months Ended March 31, 2021 Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 28,750 $ ( 24 ) $ 1,036 $ 29,762 6.0 % $ 28,750 $ ( 24 ) $ 1,071 $ 29,797 Term Loan B due 2029 (b) 3.4 % 4,767 30 232 5,029 n/a — — — — Revolver due 2025 (b) Variable 1,251 — 245 1,496 Variable 416 — 245 661 Finance lease - real estate (c) 5.5 % 390 — 4 394 5.6 % 456 — 13 469 Non US lines of credit (d) Variable 10 — 7 17 Variable 7 — 8 15 Non US term loans (d) Variable 351 — 35 386 Variable 334 — 35 369 Other long term debt (e) Variable 158 — 1 159 Variable 222 — 1 223 Capitalized interest ( 154 ) — — ( 154 ) ( 13 ) — — ( 13 ) Totals $ 35,523 $ 6 $ 1,560 $ 37,089 $ 30,172 $ ( 24 ) $ 1,373 $ 31,521 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (a) 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 $ 1,000,000 of 5.25 % Senior Notes due 2022. As of March 31, 2022, outstanding 2028 Senior Notes due totaled $ 1,000,000 ; interest is payable semi-annually on March 1 and September 1. The 2028 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The 2028 Senior Notes were 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 $ 945,000 on March 31, 2022 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 March 31, 2022, $ 12,257 remained to be amortized. (b) On January 24, 2022, Griffon amended and restated its Revolving Credit Facility (as amended, "Credit Agreement") to provide for a new $ 800,000 Term Loan B facility, due January 24, 2029, in addition to its current $ 400,000 revolving credit facility ("Revolver"), and replaced LIBOR with SOFR (Secured Overnight Financing Rate). The fair value of the Term Loan B facility approximated $ 792,000 on March 31, 2022 based upon quoted market prices (level 1 inputs). The Term Loan B contains a SOFR floor of 0.50 % and a current spread of 2.75 %, for a total current interest rate of 3.25 %. The Original Issue Discount for the Term Loan B was 99.75 %. Additionally, there are two interest rate step-downs tied to achieving decreased secured leverage ratio thresholds. The Term Loan B facility requires nominal quarterly principal payments equal to 0.25 % of the original outstanding principal amount, beginning with the quarter ended June 30, 2022; potential additional annual principal payments based on a percentage of excess cash flow and certain secured leverage thresholds starting with the fiscal year ending September 30, 2023; and a final balloon payment due at maturity. Term Loan B borrowings may generally be repaid without penalty but may not be re-borrowed. The Term Loan B facility is subject to the same affirmative and negative covenants that apply to the Revolver, but is not subject to any financial maintenance covenants. Term Loan B borrowings are secured by the same collateral as the Revolver. In connection with this amendment, Griffon capitalized $ 15,466 of underwriting fees and other expenses incurred, which are being amortized over the term of the loan. At March 31, 2022, $ 15,235 remained to be amortized. The Revolver's maximum borrowing availability is $ 400,000 and it matures on March 22, 2025. The Revolver 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 . In addition, on December 9, 2021, Griffon replaced the Revolver GBP LIBOR benchmark rate with a Sterling Overnight Index Average ("SONIA"). Borrowings under the Revolver may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a SOFR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.00 % for base rate loans, 2.00 % for SOFR loans and 2.00 % for SONIA loans. The Revolver 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. Both the Revolver and Term Loan B borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At March 31, 2022, there were $ 153,146 of outstanding borrowings under the Revolver; outstanding standby letters of credit were $ 13,815 ; and $ 233,039 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 %. The Ocala, Florida lease contains two five -year renewal options. At March 31, 2022, $ 13,757 was outstanding, net of issuance costs. During the year-to-date period ended March 31, 2022, 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 buyout option in November 2021. Refer to Note 21- Leases for further details. 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 12,018 as of March 31, 2022) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 1.75 % LIBOR USD and 2.38 % Bankers Acceptance Rate CDN as of March 31, 2022). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At March 31, 2022, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 12,018 as of March 31, 2022) available. During the period ended March 31,2022, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 18,375 term loan, AUD 20,000 revolver and AUD 15,000 receivable purchase facility agreement that was entered into in July 2016 and further amended in fiscal 2020. Griffon Australia paid off the term loan in the amount of AUD 9,625 and canceled the AUD 20,000 revolver. The amendment refinanced the existing AUD 15,000 receivable purchase facility. The receivable purchase facility matures in March 2023, but is renewable upon mutual agreement with the lender. The receivable purchase facility accrues interest at BBSY (Bank Bill Sap Rate) plus 1.25 %, respectively, per annum ( 1.31 % at March 31, 2022). At March 31, 2022, there was no balance outstanding under the receivable purchase facility with AUD 15,000 ($ 11,273 as of March 31, 2022) available. The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level. 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. Effective in January 2022, the Term Loan and Mortgage Loan were amended to replace GBP LIBOR with SONIA. The Term Loan and Mortgage Loans each accrue interest at the SONIA Rate plus 1.92 % ( 2.61 % at March 31, 2022). The revolving facility accrues interest at the Bank of England Base Rate plus 3.25 % ( 4.00 % as of March 31, 2022). The revolving credit facility matures in July 2022, but it is renewable upon mutual agreement with the lender. As of March 31, 2022, the revolver had an outstanding balance of GBP 2,827 ($ 3,713 as of March 31, 2022) while the term and mortgage loan balances amounted to GBP 12,145 ($ 15,948 as of March 31, 2022). 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. During the period ended March 31, 2022, AMES UK entered into a $ 8,500 trade loan facility agreement. The trade loan facility has a maximum loan period of 135 days and is due on June 29, 2022. The trade facility accrues interest at the Mid-point of the FED Target Range plus 2.50 % ( 2.88 % as of March 31, 2022). The trade facility had an outstanding balance of $ 8,000 as of March 31, 2022. (e) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. At March 31, 2022, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. NOTE 11 — SHAREHOLDERS’ EQUITY During the six months ended March 31, 2022, the Company paid two quarterly cash dividends of $ 0.09 per share each. 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 April 27, 2022, the Board of Directors declared a quarterly cash dividend of $ 0.09 per share, payable on June 16, 2022 to shareholders of record as of the close of business on May 19, 2022. On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan (the "Original Incentive Plan") pursuant to which, among other things, under which awards of performance shares, performance units, stock options, 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 Original Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Original Incentive Plan; and on January 30, 2020, shareholders approved Amendment No. 2 to the Original Incentive Plan, pursuant to which 1,700,000 shares were added to the Original Incentive Plan. On February 17, 2022, shareholders approved the Amended and Restated 2016 Equity Incentive Plan (the “Amended Incentive Plan”), which amended and restated the Original Incentive Plan and pursuant to which, among other things, 1,200,000 shares were added to the Original Incentive Plan. Options granted under the Amended 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 Amended Incentive Plan is 6,250,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares that were reserved for issuance under the Original Incentive Plan as of the effective date of the Original Incentive Plan, and (ii) any shares underlying awards outstanding on such date under the 2011 Incentive Plan that were subsequently canceled or forfeited. As of March 31, 2022, there were 867,180 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 2022, Griffon granted 236,973 shares of restricted stock and restricted stock units. This included 218,162 shares of restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of thirty-four months , 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 shares of 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. During the second quarter of 2022, Griffon granted 711,725 shares of restricted stock. This included 199,195 shares of restricted stock to nine executives with a vesting period of three years , with a total fair value of $ 1,494 , or a weighted average fair value of $ 22.50 per share. This also included 454,146 shares of restricted stock granted to two senior executives with a vesting period of thirty-four months and a two -year post-vesting holding period, subject to the achievement of certain performance conditions relating to required levels of return on invested capital and the relative total shareholder return of Griffon's common stock as compared to a market index. So long as the minimum performance condition is attained, the amount of shares that can vest will range from 113,538 to 454,146 . The total fair value of these restricted shares, assuming achievement of the performance conditions at target, is approximately $ 5,456 , or a weighted average fair value of $ 24.03 per share. Additionally, Griffon granted 58,384 restricted shares to the non-employee directors of Griffon with a vesting period of one year and a fair value of $ 1,375 , or a weighted average fair value of $ 23.55 per share. During the six months ended March 31, 2022, 469,855 shares granted were issued out of treasury stock. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Restricted stock $ 4,314 $ 4,286 $ 8,204 $ 7,714 ESOP 778 1,007 1,755 1,787 Total stock based compensation $ 5,092 $ 5,293 $ 9,959 $ 9,501 On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $ 50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the six months ended March 31, 2022, Griffon did not purchase any shares of common stock under these repurchase programs. As of March 31, 2022, an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs. 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) During the six months ended March 31, 2022, 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 six months ended March 31, 2022, 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. NOTE 12 – EARNINGS PER SHARE (EPS) Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation. The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share: Three Months Ended March 31, Six Months Ended March 31, 2022 2021 2022 2021 Common shares outstanding 57,032 56,684 57,032 56,684 Unallocated ESOP shares ( 1,769 ) ( 1,961 ) ( 1,769 ) ( 1,961 ) Non-vested restricted stock ( 3,533 ) ( 3,822 ) ( 3,533 ) ( 3,822 ) Impact of weighted average shares ( 62 ) ( 63 ) ( 307 ) ( 184 ) Weighted average shares outstanding - basic 51,668 50,838 51,423 50,717 Incremental shares from stock based compensation 1,762 2,426 2,179 2,494 Weighted average shares outstanding - diluted 53,430 53,264 53,602 53,211 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 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. Information on Griffon’s reportable segments from continuing operations is as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, REVENUE 2022 2021 2022 2021 Consumer and Professional Products $ 411,012 $ 331,871 $ 694,185 $ 622,913 Home and Building Products 368,605 242,811 677,181 493,292 Total revenue $ 779,617 $ 574,682 $ 1,371,366 $ 1,116,205 Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. The following table presents revenue disaggregated by end market and segment: For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Residential repair and remodel $ 50,478 $ 50,560 $ 89,237 $ 96,160 Retail 216,836 153,746 347,071 292,994 Residential new construction 12,019 14,540 22,346 28,055 Industrial 21,068 9,958 32,374 19,489 International excluding North America 110,611 103,067 203,157 186,215 Total Consumer and Professional Products 411,012 331,871 694,185 622,913 Residential repair and remodel 172,377 120,827 317,462 246,942 Commercial construction 157,376 94,751 288,165 190,690 Residential new construction 38,852 27,233 71,554 55,660 Total Home and Building Products 368,605 242,811 677,181 493,292 Total Consolidated Revenue $ 779,617 $ 574,682 $ 1,371,366 $ 1,116,205 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended March 31, 2022 2021 CPP HBP Total CPP HBP Total United States $ 264,747 $ 352,809 $ 617,556 $ 205,368 $ 230,955 $ 436,323 Europe 46,783 7 46,790 38,965 41 39,006 Canada 31,029 13,877 44,906 21,778 9,797 31,575 Australia 62,189 — 62,189 63,691 — 63,691 All other countries 6,264 1,912 8,176 2,069 2,018 4,087 Consolidated revenue $ 411,012 $ 368,605 $ 779,617 $ 331,871 $ 242,811 $ 574,682 For the Six Months Ended March 31, 2022 2022 2021 CPP HBP Total CPP HBP Total United States $ 429,646 $ 647,385 $ 1,077,031 $ 388,810 $ 467,486 $ 856,296 Europe 65,113 44 65,157 52,121 41 52,162 Canada 53,657 25,891 79,548 43,893 21,285 65,178 Australia 136,537 — 136,537 133,231 — 133,231 All other countries 9,232 3,861 13,093 4,858 4,480 9,338 Consolidated revenue $ 694,185 $ 677,181 $ 1,371,366 $ 622,913 $ 493,292 $ 1,116,205 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 March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Segment adjusted EBITDA: Consumer and Professional Products $ 47,844 $ 37,423 $ 64,058 $ 70,136 Home and Building Products 104,474 40,060 160,771 88,429 Segment adjusted EBITDA 152,318 77,483 224,829 158,565 Unallocated amounts, excluding depreciation * ( 12,750 ) ( 12,104 ) ( 25,707 ) ( 24,733 ) Adjusted EBITDA 139,568 65,379 199,122 133,832 Net interest expense ( 21,376 ) ( 15,527 ) ( 37,024 ) ( 31,173 ) Depreciation and amortization ( 16,252 ) ( 13,149 ) ( 29,333 ) ( 25,739 ) Restructuring charges ( 4,766 ) ( 7,502 ) ( 6,482 ) ( 10,581 ) Acquisition costs ( 6,708 ) — ( 9,303 ) — Proxy expenses ( 4,661 ) — ( 6,952 ) — Fair value step-up of acquired inventory sold ( 2,701 ) — ( 2,701 ) — Income before taxes from continuing operations $ 83,104 $ 29,201 $ 107,327 $ 66,339 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. 23 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) For the Three Months Ended March 31, For the Six Months Ended March 31, DEPRECIATION and AMORTIZATION 2022 2021 2022 2021 Segment: Consumer and Professional Products $ 11,791 $ 8,620 $ 20,397 $ 16,819 Home and Building Products 4,324 4,379 8,662 8,720 Total segment depreciation and amortization 16,115 12,999 29,059 25,539 Corporate 137 150 274 200 Total consolidated depreciation and amortization $ 16,252 $ 13,149 $ 29,333 $ 25,739 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 9,054 $ 6,813 $ 16,184 $ 13,720 Home and Building Products 2,403 1,998 5,752 4,113 Total segment 11,457 8,811 21,936 17,833 Corporate — 2 94 2 Total consolidated capital expenditures $ 11,457 $ 8,813 $ 22,030 $ 17,835 ASSETS At March 31, 2022 At September 30, 2021 Segment assets: Consumer and Professional Products $ 2,665,362 $ 1,377,618 Home and Building Products 714,647 666,422 Total segment assets 3,380,009 2,044,040 Corporate 138,462 283,202 Total continuing assets 3,518,471 2,327,242 Discontinued operations - held for sale 264,861 273,414 Other discontinued operations 3,691 4,029 Consolidated total $ 3,787,023 $ 2,604,685 NOTE 14 – EMPLOYEE BENEFIT PLANS Defined benefit pension expense (income) included in Other Income (Expense), net was as follows: Three Months Ended March 31, Six Months Ended March 31, 2022 2021 2022 2021 Interest cost $ 911 $ 745 $ 1,707 $ 1,489 Expected return on plan assets ( 2,835 ) ( 2,545 ) ( 5,424 ) ( 5,089 ) Amortization: Recognized actuarial loss 845 1,573 1,690 3,146 Net periodic expense (income) $ ( 1,079 ) $ ( 227 ) $ ( 2,027 ) $ ( 454 ) 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. The Company is currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and related disclosures. 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. NOTE 16 – DISCONTINUED OPERATIONS On September 27, 2021, Griffon announced it is exploring strategic alternatives for its DE segment, which consists of its Telephonics subsidiary, and on April 18, 2022, Griffon entered into a definitive agreement to sell Telephonics to TTM for $ 330,000 in cash. The transaction is expected to close within the second calendar quarter of 2022. 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. 25 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Revenue $ 56,273 $ 60,150 $ 110,266 $ 127,918 Cost of goods and services 45,188 51,411 86,149 113,512 Gross profit 11,085 8,739 24,117 14,406 Selling, general and administrative expenses 10,289 9,359 20,309 19,301 Income (loss) from discontinued operations 796 ( 620 ) 3,808 ( 4,895 ) Other income (expense) Interest income, net 2 1 2 1 Gain on sale of business — ( 949 ) — 5,291 Other, net ( 104 ) 227 ( 102 ) 293 Total other income (expense) ( 102 ) ( 721 ) ( 100 ) 5,585 Income from discontinued operations before taxes $ 694 $ ( 1,341 ) $ 3,708 $ 690 Provision (benefit) for income taxes ( 6,424 ) ( 334 ) ( 5,803 ) ( 2,373 ) Income from discontinued operations $ 7,118 $ ( 1,007 ) $ 9,511 $ 3,063 During the three and six months ended March 31, 2022, Income from discontinued operations includes $ 2,422 and $ 4,214 , respectively, 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 $ 2,400 and $ 5,100 in the three and six months ended March 31, 2022, respectively. Provision (benefit) for income taxes includes $ 4,954 of estimated deferred tax benefits related to the anticipated disposition of the Telephonics subsidiary. 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. 26 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 March 31, At September 30, 2022 2021 CURRENT ASSETS Accounts receivable, net $ 48,652 $ 42,020 Contract assets, net of progress payments 52,497 72,983 Inventories 87,265 83,970 Prepaid and other current assets 4,993 4,409 PROPERTY, PLANT AND EQUIPMENT, net 47,313 45,371 OPERATING LEASE RIGHT-OF-USE ASSETS 1,167 1,167 GOODWILL 17,734 17,734 INTANGIBLE ASSETS, net 131 131 OTHER ASSETS 5,109 5,629 Total Assets Held for Sale $ 264,861 $ 273,414 CURRENT LIABILITIES Accounts payable 58,681 60,486 Accrued liabilities 10,510 15,153 Current portion of operating lease liabilities 223 287 LONG-TERM OPERATING LEASE LIABILITIES 766 867 OTHER LIABILITIES 3,038 3,955 Total Liabilities Held for Sale $ 73,218 $ 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 March 31, 2022 At September 30, 2021 Assets of discontinued operations: Prepaid and other current assets $ 497 $ 605 Other long-term assets 3,194 3,424 Total assets of discontinued operations $ 3,691 $ 4,029 Liabilities of discontinued operations: Accrued liabilities, current $ 3,312 $ 3,280 Other long-term liabilities 4,406 3,794 Total liabilities of discontinued operations $ 7,718 $ 7,074 At March 31, 2022 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 $ 7,718 and $ 7,074 , respectively. There was no reported revenue in the quarter and six month period ended March 31 2022 and 2021. 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 United Kingdom (U.K.) and Australia businesses, and a manufacturing facility in China. On April 28, 2022, Griffon announced an accelerated timeline and reduced scope for the initiative, which will now be completed by the end of fiscal 2022. These changes reflect the rapid progress made with the initiative, and reduced investment in facilities expansion and equipment given recent significant increases in construction and equipment costs. Any remaining expenditures, after the end of fiscal 2022, including those related to the deployment of AMES' global information systems, will be included in the continuing operations of the business. Future investments in equipment, particularly for automation, will be part of normal-course annual capital expenditures. 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. When fully implemented and the efficiencies are fully realized, we expect annual cash savings of $ 25,000 (previously $ 30,000 to $ 35,000 ). The cost to implement this new business platform, over the duration of the project, will now include one-time charges of approximately $ 50,000 (previously $ 65,000 ) and capital investments of approximately $ 15,000 (previously $ 65,000 ), net of future proceeds from the sale of exited facilities. In the quarter and six months ended March 31, 2022, CPP incurred pre-tax restructuring and related exit costs approximating $ 4,766 and $ 6,482 , respectively. During the six months ended March 31, 2022, cash charges totaled $ 4,427 and non-cash, asset-related charges totaled $ 2,055 ; the cash charges included $ 2,138 for one-time termination benefits and other personnel-related costs and $ 2,289 for facility exit costs. Non-cash charges included a $ 1,766 impairment charge related to certain fixed assets at several manufacturing locations and $ 289 of inventory that have no recoverable value. During the six months ended March 31, 2022, headcount was reduced by 20 . In the quarter and six months ended March 31, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 7,502 and $ 10,581 , respectively. During the six months ended March 31, 2021, cash charges totaled $ 7,891 and non-cash, asset-related charges totaled $ 2,690 ; the cash charges included $ 1,084 for one-time termination benefits and other personnel related costs and $ 6,807 for facility and lease exit costs primarily driven by the consolidation of distribution facilities. Non-cash charges of $ 2,690 predominantly related to inventory that have no recoverable value. A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Cost of goods and services $ 2,455 $ 3,337 $ 2,777 $ 3,878 Selling, general and administrative expenses 2,311 4,165 3,705 6,703 Total restructuring charges $ 4,766 $ 7,502 $ 6,482 $ 10,581 28 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 March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Personnel related costs $ 1,878 $ 722 $ 2,138 $ 1,084 Facilities, exit costs and other 1,122 4,283 2,289 6,807 Non-cash facility and other 1,766 2,497 2,055 2,690 Total $ 4,766 $ 7,502 $ 6,482 $ 10,581 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 Q2 Restructuring charges 1,878 1,122 1,766 4,766 Q2 Cash payments ( 1,883 ) ( 1,122 ) — ( 3,005 ) Q2 Non-cash charges — — ( 1,766 ) ( 1,766 ) Accrued liability at March 31, 2022 $ 398 $ 264 $ — $ 662 NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended March 31, 2022 and 2021, Other income (expense) of $ 1,675 and $ 1,081 , respectively, includes $ 168 and $ 320 , 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 $ 1,079 and $ 227 , respectively, as well as $( 331 ) and $ 55 , respectively, of net investment income (loss). Other income (expense) also includes rental income of $ 462 in each of the three months ended March 31, 2022 and 2021. Additionally, it includes royalty income of $ 616 for the three months ended March 31, 2022. For the six months ended March 31, 2022 and 2021, Other income (expense) of $ 3,056 and $ 1,438 , respectively, includes $ 562 and $ 379 , 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 $ 2,027 and $ 454 , respectively, as well as $( 238 ) and $ 386 , respectively, of net investment income (loss). Other income (expense) also includes rental income of $ 924 in each of the six months ended March 31, 2022 and 2021. Additionally, it includes royalty income of $ 616 for the six months ended March 31, 2022. 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 and fan 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. 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Three Months Ended March 31, Six Months Ended March 31, 2022 2021 2022 2021 Balance, beginning of period $ 9,572 $ 6,232 $ 7,818 $ 6,268 Warranties issued and changes in estimated pre-existing warranties 5,788 4,933 9,249 8,509 Actual warranty costs incurred ( 3,755 ) ( 3,245 ) ( 5,462 ) ( 6,857 ) Other warranty liabilities assumed from acquisitions 6,353 — 6,353 — Balance, end of period $ 17,958 $ 7,920 $ 17,958 $ 7,920 NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended March 31, 2022 2021 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 6,049 $ — $ 6,049 $ 1,739 $ — $ 1,739 Pension and other defined benefit plans 177 ( 37 ) 140 1,585 ( 340 ) 1,245 Cash flow hedges ( 1,771 ) 531 ( 1,240 ) 2,559 ( 768 ) 1,791 Total other comprehensive income (loss) $ 4,455 $ 494 $ 4,949 $ 5,883 $ ( 1,108 ) $ 4,775 For the Six Months Ended March 31, 2022 2021 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 3,730 $ — $ 3,730 $ 13,862 $ — $ 13,862 Pension and other defined benefit plans 1,023 ( 215 ) 808 3,735 ( 784 ) 2,951 Cash flow hedges ( 3,342 ) 1,002 ( 2,340 ) 1,576 ( 473 ) 1,103 Total other comprehensive income (loss) $ 1,411 $ 787 $ 2,198 $ 19,173 $ ( 1,257 ) $ 17,916 The components of Accumulated other comprehensive income (loss) are as follows: At March 31, 2022 At September 30, 2021 Foreign currency translation adjustments $ ( 15,520 ) $ ( 19,250 ) Pension and other defined benefit plans ( 27,994 ) ( 28,802 ) Change in Cash flow hedges ( 265 ) 2,075 $ ( 43,779 ) $ ( 45,977 ) 30 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended March 31, For the Six Months Ended March 31, Gain (Loss) 2022 2021 2022 2021 Pension amortization $ ( 845 ) $ ( 1,573 ) $ ( 1,690 ) $ ( 3,146 ) Cash flow hedges 1,384 ( 1,741 ) 2,917 ( 2,399 ) Total gain (loss) $ 539 $ ( 3,314 ) $ 1,227 $ ( 5,545 ) Tax benefit (expense) ( 113 ) 696 ( 257 ) 1,165 Total $ 426 $ ( 2,618 ) $ 970 $ ( 4,380 ) 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 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 March 31, For the Six Months Ended March 31, 2022 2021 2022 2021 Fixed $ 9,906 $ 9,686 $ 19,653 $ 19,177 Variable (a), (b) 1,684 1,919 3,536 3,813 Short-term (b) 1,486 985 2,835 2,055 Total $ 13,076 $ 12,590 $ 26,024 $ 25,045 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. 31 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental cash flow information were as follows: For the Six Months Ended March 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 22,510 $ 21,223 Financing cash flows from finance leases 1,401 1,865 Total $ 23,911 $ 23,088 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: March 31, 2022 September 30, 2021 Operating Leases: Right of use assets: Operating right-of-use assets $ 149,587 $ 144,598 Lease Liabilities: Current portion of operating lease liabilities $ 32,210 $ 29,881 Long-term operating lease liabilities 122,488 119,315 Total operating lease liabilities $ 154,698 $ 149,196 Finance Leases: Property, plant and equipment, net (1) $ 15,113 $ 16,466 Lease Liabilities: Notes payable and current portion of long-term debt $ 2,329 $ 2,347 Long-term debt, net 13,019 14,120 Total financing lease liabilities $ 15,348 $ 16,467 (1) Finance lease assets are recorded net of accumulated depreciation of $ 4,488 and $ 6,136 as of March 31, 2022 and September 30, 2021, respectively. 32 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 %. The Ocala, Florida lease contains two five -year renewal options. At March 31, 2022, $ 13,757 was outstanding, net of issuance costs. During the six months ended March 31, 2022, 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 buyout option in November 2021. The aggregate future maturities of lease payments for operating leases and finance leases as of March 31, 2022 are as follows (in thousands): Operating Leases Finance Leases 2022 (a) $ 20,230 $ 1,541 2023 34,959 2,893 2024 26,530 2,322 2025 23,775 2,128 2026 15,566 2,106 2027 11,677 2,074 Thereafter 54,552 5,703 Total lease payments $ 187,289 $ 18,767 Less: Imputed Interest ( 32,591 ) ( 3,419 ) Present value of lease liabilities $ 154,698 $ 15,348 (a) Excluding the six months ended March 31, 2022. Average lease terms and discount rates at March 31, 2022 were as follows: Weighted-average remaining lease term (years) Operating leases 7.6 Finance Leases 7.8 Weighted-average discount rate Operating Leases 4.36 % 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 33 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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, and is now performing a statistical analysis to determine the area, if any, required to be remediated. 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. Memphis, TN site. Hunter Fan Company (“Hunter”) operated its headquarters and a production plant in Memphis, Tennessee for over 50 years (the “Memphis Site”). While Hunter completed certain on-site remediation of PCB-contaminated soils, Hunter did not investigate the extent to which PCBs existed beneath the building itself nor determine whether off-site areas had been impacted. Hunter vacated the Memphis Site approximately twenty years ago, and the on-site buildings have now been demolished. The State of Tennessee Department of Environment and Conservation (“TDEC”) identified the Memphis Site as being potentially contaminated, raising the possibility that site operations could have resulted in soil and groundwater contamination involving volatile organic compounds and metals. The TDEC performed a preliminary assessment of the site and recommended to the United States Environmental Protection Agency (“EPA”) that the site be listed on the National Priorities List established under CERCLA. The TDEC further recommended that the EPA fund an investigation of potential soil gas contamination in receptors near the site. The TDEC has also indicated that it will proceed with this investigation if the EPA does not act. It is unknown whether the EPA will add the Memphis Site to the National Priorities List, whether a site investigation will reveal contamination and, if there is contamination, the extent of such contamination. However, given that certain PCB work was not completed in the past and the TDEC’s stated intent for the EPA to perform an investigation (and the statement by the TDEC that it will perform the investigation if the EPA will not), liability is probable in this matter. There are other potentially responsible parties for this site, including a former owner of Hunter; Hunter has notified such former owner of this matter, which may have liability for any required remediation. 34 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) If the EPA decides to add this site to the National Priorities List, a Remedial Investigation/Feasibility Study (“RI/FS”) will be required. Hunter expects that EPA will ask it to perform this work. If Hunter does not reach an agreement with the EPA to perform this work, the EPA will implement the RI/FS on its own. Should the EPA implement the RI/FS or perform further studies and/or subsequently remediate the site without first reaching an agreement with one or more relevant parties, the EPA would likely seek from such parties, including Hunter, reimbursement for the costs incurred. General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. 35 Table of Contents (Unless otherwise indicated, US dollars and non US currencies are in thousands, except per share data)