GRIFFON CORP 10-Q

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS Overview Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. 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). Business Strategy We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products. Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels and conducting business across multiple countries which we consider our home markets. 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. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions. Over the past four years, we have undertaken a series of transformative transactions. We divested our specialty plastics business in 2018 to focus on our core markets and improve our free cash flow conversion. In our Consumer and Professional Products ("CPP") segment, we expanded the scope of our brands through the acquisition of Hunter Fan Company ("Hunter") on January 24, 2022 and ClosetMaid, LLC ("ClosetMaid") in 2018. In our Home and Building Products ("HBP") segment, we acquired CornellCookson, Inc. ("CornellCookson"), which has been integrated into Clopay Corporation ("Clopay") in our Home and Building Products ("HBP") segment, creating a leading North American manufacturer and marketer of residential garage doors and sectional commercial doors, and rolling steel doors and grille products under brands that include Clopay, Ideal and CornellCookson. We established an integrated headquarters for CPP in Orlando, Florida, for our portfolio of leading brands that includes AMES, Hunter, True Temper and ClosetMaid. CPP is now positioned to fulfill its mission of Bringing Brands Together™ with the leading brands in consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. On May 16, 2022, we announced that our Board of Directors initiated a process to review a comprehensive range of strategic alternatives to maximize shareholder value including a sale, merger, divestiture, recapitalization or other strategic transaction. There is no timeline for this review and there is no assurance that the Board of Director's review will result in any transaction being entered into or consummated. As previously announced, we do not intend to disclose further developments until our Board of Directors approves a specific transaction or otherwise concludes its review of strategic alternatives. On September 27, 2021, we announced we were exploring strategic alternatives for our Defense Electronics ("DE") segment, which consisted of our Telephonics Corporation ("Telephonics") subsidiary. On June 27, 2022, we completed the sale of Telephonics to TTM Technologies, Inc. (NASDAQ:TTMI) ("TTM") for $330,000 in cash, subject to customary post-closing adjustments. Since September 2021, we have classified the results of operations of our 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. On January 24, 2022, we 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 $845,000. Hunter, part of our CPP segment, complements and diversifies our portfolio of leading consumer brands and products. We financed the acquisition of Hunter with a new $800,000 seven year Term Loan B facility; we used a combination of cash on hand and revolver borrowings to fund the balance of the purchase price and related acquisition and debt expenditures. 36 Table of Contents Update of COVID-19 on Our Business The health and safety of our employees, our customers and their families is a high priority for Griffon. As of the date of this filing, all of Griffon's facilities are fully operational. We have implemented a variety of new policies and procedures, including additional cleaning, social distancing and restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. In the United States, we manufacture a substantial majority of the products that we sell. While this helps mitigate the effects of global supplier and transportation disruptions, we are still impacted by these disruptions. Our supply chain has experienced certain disruptions which, together with other factors such as a shortage of labor, has resulted in longer delivery lead times and restricted manufacturing capacity for certain of our products. Commodity prices have increased during COVID-19 and may continue to increase, and we may not be able to pass off all or any of such price increases to our customers on a timely basis, or at all. It is difficult to predict whether the supply chain disruptions that impact us will improve, worsen or remain the same in the near term. Our suppliers could be required by government authorities to temporarily cease operations in accordance with the various restrictions discussed above; might be limited in their production capacity due to complying with restrictions relating to the operation of businesses during the COVID-19 pandemic; or could suffer their own supply chain disruptions, impacting their ability to continue to supply us with the quantity of materials required by us. We believe that, based on the various standards published to date, the work our employees are performing are either critical, essential and/or life-sustaining for the following reasons: 1) HBP residential and commercial garage doors, rolling steel doors and related products (a) provide protection and support for the efficient and safe movement of people, goods, and equipment in and out of residential and commercial facilities, (b) help prevent fires from spreading from one location to another, and (c) protect warehouses and homes, and their contents, from damage caused by strong weather events such as hurricanes and tornadoes; and 2) CPP tools and storage products provide critical support for the national infrastructure including construction, maintenance, manufacturing and natural disaster recovery, and is part of the essential supply base to many of its largest customers including Home Depot, Lowe's and Menards. Our AMES international facilities are currently fully operational, as they meet the applicable standards in their respective countries. Griffon believes it has adequate liquidity to invest in its existing businesses and execute its business plan, while managing its capital structure on both a short-term and long-term basis. At June 30, 2022, $289,897 of revolver capacity was available under Griffon's Credit Agreement and Griffon had cash and equivalents of $144,687. We will continue to actively monitor the situation and may take further actions that impact our operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our businesses, results of operations, liquidity or capital resources, we believe it is important to discuss where our company stands today, how our response to COVID-19 is progressing and how our operations and financial condition may change as the fight against COVID-19 progresses. Business Highlights On September 27, 2021, we announced we were exploring strategic alternatives for our DE segment, which consists of our Telephonics subsidiary, and on June 27, 2022, Griffon completed the sale of Telephonics to TTM for $330,000, subject to customary post-closing adjustments. We believe that selling Telephonics will increase long-term value for Griffon shareholders, while creating enhanced growth opportunities for Telephonics. 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, a market leader in residential ceiling, commercial, and industrial fans, for a contractual purchase price of $845,000. The acquisition of Hunter was financed primarily 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 is expected to contribute approximately $360,000 in revenue in the first twelve months of operation after the acquisition. In August 2020 Griffon completed the public offering of 8,700,000 shares of our common stock for total net proceeds of $178,165. The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement. The Company used the remainder of the proceeds for general corporate purposes, including to expand its current business through acquisitions of, or investments in, other businesses or products. 37 Table of Contents During 2020, Griffon issued, at par, $1,000,000 of 5.75% Senior Notes due in 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022. In January 2020, Griffon amended its Credit Agreement to increase the total amount available for borrowing from $350,000 to $400,000, extend its maturity date from March 22, 2021 to March 22, 2025 and modify certain other provisions of the facility. 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). In June 2018, Clopay acquired CornellCookson, a leading provider of rolling steel service doors, fire doors, and grilles, for an effective purchase price of approximately $170,000. This transaction strengthened Clopay's strategic portfolio with a line of commercial rolling steel door products to complement Clopay's sectional door offerings in the commercial sector, and expands the Clopay network of professional dealers focused on the commercial market. In February 2018, we closed on the sale of our Clopay Plastics Products ("Plastics") business to Berry Global, Inc. ("Berry") for approximately $465,000, net of certain post-closing adjustments, thus exiting the specialty plastics industry that the Company had entered when it acquired Clopay Corporation in 1986. This transaction provided immediate liquidity and improved Griffon's cash flow given the historically higher capital needs of the Plastics operations as compared to Griffon’s remaining businesses. In October 2017, we acquired ClosetMaid from Emerson Electric Co. (NYSE:EMR) for an effective purchase price of approximately $165,000. ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of wood and wire closet organization, general living storage and wire garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. We believe that ClosetMaid is the leading brand in its category, with excellent consumer recognition. We believe these actions have established a solid foundation for growth in sales, profit, and cash generation and bolster Griffon’s platforms for opportunistic strategic acquisitions. Other Acquisitions and Dispositions On December 22, 2020, AMES acquired Quatro Design Pty Ltd (“Quatro”), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a purchase price of AUD $3,500 (approximately $2,700). Quatro contributed approximately $5,000 in revenue in the first twelve months after the acquisition. On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading U.K. supplier of innovative garden pottery and associated products sold to leading U.K. and Ireland garden centers for approximately $10,500 (GBP 8,750), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadened AMES' product offerings in the U.K. market and increased its in-country operational footprint. 38 Table of Contents On February 13, 2018, AMES acquired Kelkay, a leading U.K. manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the U.K. and Ireland. This acquisition broadened AMES' product offerings in the market and increased its in-country operational footprint. In November 2017, Griffon acquired Harper Brush Works, a leading U.S. manufacturer of cleaning products for professional, home, and industrial use, from Horizon Global (NYSE:HZN). This acquisition expanded the AMES line of long-handle tools in North America to include brooms, brushes, and other cleaning products. During fiscal 2017, Griffon also completed a number of other acquisitions to expand and enhance AMES' global footprint. In the United Kingdom, Griffon acquired La Hacienda, an outdoor living brand of unique heating and garden décor products, in July 2017. The acquisition of La Hacienda, together with the February 2018 acquisition of Kelkay and November 2020 acquisition of Apta, provides AMES with additional brands and a platform for growth in the U.K. market and access to leading garden centers, retailers, and grocers in the UK and Ireland. In Australia, Griffon acquired Hills Home Living, the iconic brand of clotheslines and home products, from Hills Limited (ASX:HIL) in December 2016, and in September 2017 Griffon acquired Tuscan Path, an Australian provider of pots, planters, pavers, decorative stone, and garden décor products. The Hills, Tuscan Path and December, 2020 Quatro acquisitions broadened AMES' outdoor living and lawn and garden business, strengthening AMES’ portfolio of brands and its market position in Australia and New Zealand. Further Information Griffon posts and makes available, free of charge through its website at www.griffon.com , its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on Griffon's website is not part of this or any other report it files with or furnishes to the SEC. For information regarding revenue, profit and total assets of each segment, see the Reportable Segments footnote in the Notes to Consolidated Financial Statements. Reportable Segments: Griffon 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. 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. 39 Table of Contents OVERVIEW Revenue for the quarter ended June 30, 2022 was $768,179 compared to $584,218 in the prior year comparable quarter, an increase of 31%. Revenue increased at HBP and CPP by 56% and 12%, respectively. Excluding the Hunter acquisition on January 24, 2022, revenue increased 13% to $662,405. Hunter contributed $105,774 of revenue for the quarter. Income from continuing operations was $52,782 or $0.98 per share, compared to $14,815, or $0.28 per share, in the prior year quarter. The current year quarter results from operations included the following: – Restructuring charges of $5,909 ($4,359, net of tax, or $0.08 per share); – Fair value step-up of acquired inventory sold of $2,700 ($2,005, net of tax, or $0.04 per share); – Strategic review - retention and other $3,220 ($2,416, net of tax, or $0.04 per share); – Debt extinguishment, net $5,287 ($4,022, net of tax, or $0.07 per share); – Discrete and certain other tax provisions, net, of $913 or $0.02 per share. The prior year quarter results from operations included the following: – Restructuring charges of $4,081 ($3,128, net of tax, or $0.06 per share); – Discrete and certain other tax provisions, net, of $2,850 or $0.05 per share. Excluding these items from the respective quarterly results, Income from continuing operations would have been $66,497, or $1.23 per share, in the current year quarter compared to $20,793, or $0.39 per share in the prior year quarter. Revenue for the nine months ended June 30, 2022 was $2,139,545 compared to $1,700,423 in the prior year period, an increase of 26%. Revenue increased at HBP and CPP by 44% and 12%, respectively. Excluding the Hunter acquisition, revenue increased 15% to $1,962,922. Hunter contributed $176,623 of revenue during the year to date period. Income from continuing operations was $127,646 or $2.38 per share, compared to $57,678, or $1.08 per share, in the prior year period. The current year-to-date results from operations included the following: – Restructuring charges of $12,391 ($9,185, net of tax, or $0.17 per share); – Acquisition costs of $9,303 ($8,149, net of tax, or $0.15 per share); and – Proxy expenses of $6,952 ($5,359, net of tax, or $0.10 per share); – Fair value step-up of acquired inventory sold of $5,401 ($4,012, net of tax, or $0.07 per share); – Strategic review - retention and other of $3,220 ($2,416, net of tax, or $0.04 per share); – Debt extinguishment, net $5,287 ($4,022, net of tax, or $0.07 per share); – Discrete and certain other tax benefits, net, of $661 or $0.01 per share. The prior year-to-date results from operations included the following: – Restructuring charges of $14,662 ($11,034, net of tax, or $0.21 per share); – Discrete and certain other tax provisions, net, of $3,219 or $0.06 per share. Excluding these items from the respective periods, Income from continuing operations would have been $160,128, or $2.98 per share in the current year period ended June 30, 2022 compared to $71,931, or $1.35 per share, in the comparable prior year period. 40 Table of Contents Griffon evaluates performance based on Net income and the related Earnings per share excluding restructuring charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per share from continuing operations to Adjusted earnings per share from continuing operations: For the Three Months Ended June 30, For the Nine Months Ended June 30, 2022 2021 2022 2021 (Unaudited) Income from continuing operations $ 52,782 $ 14,815 $ 127,646 $ 57,678 Adjusting items: Restructuring charges 5,909 4,081 12,391 14,662 Debt extinguishment, net 5,287 — 5,287 — Acquisition costs — — 9,303 — Strategic review - retention and other 3,220 — 3,220 — Proxy expenses — — 6,952 — Fair value step-up of acquired inventory sold 2,700 — 5,401 — Tax impact of above items (4,314) (953) (9,411) (3,628) Discrete and certain other tax provisions (benefits), net 913 2,850 (661) 3,219 Adjusted income from continuing operations $ 66,497 $ 20,793 $ 160,128 $ 71,931 Earnings per common share from continuing operations $ 0.98 $ 0.28 $ 2.38 $ 1.08 Adjusting items, net of tax: Restructuring charges 0.08 0.06 0.17 0.21 Debt extinguishment, net 0.07 — 0.07 — Acquisition costs — — 0.15 — Strategic review - retention and other 0.04 — 0.04 — Proxy expenses — — 0.10 — Fair value step-up of acquired inventory sold 0.04 — 0.07 — Discrete and certain other tax provisions (benefits), net 0.02 0.05 (0.01) 0.06 Adjusted earnings per common share from continuing operations $ 1.23 $ 0.39 $ 2.98 $ 1.35 Weighted-average shares outstanding (in thousands) 53,914 53,504 53,704 53,306 Note: Due to rounding, the sum of earnings per common share from continuing operations and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations. The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments. 41 Table of Contents RESULTS OF OPERATIONS Three and nine months ended June 30, 2022 and 2021 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 (primarily corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors for the same reason. See table provided in Note 13 - Business Segments for a reconciliation of Segment Adjusted EBITDA to Income before taxes from continuing operations. Consumer and Professional Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2022 2021 2022 2021 United States $ 248,068 $ 206,809 $ 677,714 $ 595,619 Europe 31,113 43,767 96,226 95,888 Canada 19,592 20,547 73,249 64,440 Australia 55,142 51,437 191,679 184,668 All other countries 8,719 2,266 17,951 7,124 Total Revenue $ 362,634 $ 324,826 $ 1,056,819 $ 947,739 Adjusted EBITDA 28,373 7.8 % 29,388 9.0 % $ 92,431 8.7 % $ 99,524 10.5 % Depreciation and amortization 13,434 8,781 $ 33,831 $ 25,600 For the quarter ended June 30, 2022, revenue increased $37,808, or 12%, compared to the prior year period primarily resulting from a 33% or $105,774 contribution from the January 24, 2022 Hunter acquisition, and price and mix of 10%, partially offset by a 28% reduction in volume, primarily in North America and the United Kingdom (U.K.), due to reduced consumer demand and rebalancing of customer inventory levels, and an unfavorable impact of foreign exchange of 3%. For the quarter ended June 30, 2022, Adjusted EBITDA decreased 3% to $28,373 compared to $29,388 in the prior year quarter. Excluding the $16,792 contributed from the Hunter acquisition, EBITDA of $11,581 decreased 61% primarily due to the unfavorable impact of the reduced North American and U.K. volume and increased material, labor and transportation costs, partially offset by the benefits of price and mix. The current quarter included increased demurrage and detention costs, primarily related to COVID and global supply chain disruptions, of approximately $6,548, primarily related to Hunter. For the nine months ended June 30, 2022, revenue increased $109,080, or 12%, compared to the prior year period primarily resulting from a 19% or $176,623 contribution from the Hunter acquisition, and price and mix of 12%, partially offset by an 18% reduction in volume, primarily in North America and the U.K. due to reduced consumer demand and rebalancing of customer inventory levels, and an unfavorable impact of foreign exchange of 1%. For the nine months ended June 30, 2022, Adjusted EBITDA decreased 7% to $92,431 compared to $99,524 in the prior year period. Excluding the Hunter contribution of $31,131, EBITDA of $61,300 decreased 38% primarily due to the unfavorable impact of the reduced North American and U.K. volume and increased material, labor and transportation costs, partially offset by the benefits of price and mix. The nine month period ended June 30, 2022, included increased demurrage and detention costs, primarily related to COVID and global supply chain disruptions, of approximately $13,482 ($7,699 related to Hunter). For the quarter and nine months ended June 30, 2022, segment depreciation and amortization increased $4,653 and $8,231, respectively, compared to the prior year comparable periods, due to new assets placed in service and the Hunter assets acquired. On January 24, 2022, Griffon completed the acquisition of Hunter Fan Company (“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. Hunter adds to Griffon's CPP segment, complementing and diversifying our portfolio of leading consumer brands and products. 42 Table of Contents 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. Strategic Initiative and Restructuring Charges In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES 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 connection with this initiative, during the three and nine months ended June 30, 2022, CPP incurred pre-tax restructuring and related exit costs approximating $5,909 and $12,391, respectively. Since inception of this initiative in fiscal 2020, total cumulative charges totaled $47,478, comprised of cash charges of $33,637 and non-cash, asset-related charges of $13,841; the cash charges included $12,561 for one-time termination benefits and other personnel-related costs and $21,076 for facility exit costs. Since inception of this initiative in fiscal 2020 and during the nine months ended June 30, 2022, capital expenditures of $21,844 and $6,337, respectively, were driven by investment in CPP business intelligence systems and an e-commerce facility. Cash Charges Non-Cash Charges Personnel related costs Facilities, exit costs and other Facility and other Total Capital Investments Phase I $ 12,000 $ 4,000 $ 19,000 $ 35,000 $ 40,000 Phase II 14,000 16,000 — 30,000 25,000 Increase (Reduction) in Scope (12,400) 2,100 (4,700) (15,000) (50,000) Total Anticipated Charges 13,600 22,100 14,300 50,000 15,000 Total 2020 restructuring charges (5,620) (3,357) (4,692) (13,669) (6,733) Total 2021 restructuring charges (3,190) (11,573) (6,655) (21,418) (8,774) Q1 FY2022 Activity (260) (1,167) (289) (1,716) (1,690) Q2 FY2022 Activity (1,878) (1,122) (1,766) (4,766) (861) Q3 FY2022 Activity $ (1,613) $ (3,857) $ (439) (5,909) $ (3,786) Total 2022 restructuring charges (3,751) (6,146) (2,494) (12,391) (6,337) Total cumulative charges (12,561) (21,076) (13,841) (47,478) $ (21,844) Estimate to Complete $ 1,039 $ 1,024 $ 459 $ 2,522 $ (6,844) (a) (a) Includes future proceeds from the sale of exited facilities. 43 Table of Contents Home and Building Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2022 2021 2022 2021 Residential $ 238,372 $ 156,638 $ 627,388 $ 459,240 Commercial 167,173 102,754 455,338 293,444 Total Revenue $ 405,545 $ 259,392 $ 1,082,726 $ 752,684 Adjusted EBITDA 119,847 29.6 % 42,156 16.3 % $ 280,618 25.9 % $ 130,585 17.3 % Depreciation and amortization 4,116 4,375 $ 12,778 $ 13,095 For the quarter ended June 30, 2022, HBP revenue increased $146,153, or 56%, compared to the prior year period due to favorable pricing and mix for both residential and commercial products. Increased commercial volume was offset by reduced residential volume due to labor and supply chain disruptions. For the quarter ended June 30, 2022, Adjusted EBITDA increased 184% to $119,847 compared to $42,156 in the prior year period. Adjusted EBITDA benefited from the increased revenue noted above, partially offset by increased material, labor and transportation costs. For the nine months ended June 30, 2022, revenue increased $330,042, or 44%, compared to the prior year period, due to favorable pricing and mix of 48% driven by both residential and commercial, partially offset by reduced volume of 4% driven by decreased residential volume due to labor and supply chain disruptions. For the nine months ended June 30, 2022, Adjusted EBITDA increased 115% to $280,618 compared to $130,585 in the prior year period. The favorable variance resulted from the increased revenue noted above, partially offset by increased material, labor and transportation costs. For the quarter and nine months ended June 30, 2022, segment depreciation and amortization decreased slightly compared with the prior year comparable periods. Unallocated For the quarter ended June 30, 2022, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $13,405 compared to $11,464 in the prior year quarter; for the nine months ended June 30, 2022, unallocated amounts totaled $39,724 compared to $36,810 in the prior year period. The increase in both the current quarter and nine month periods, compared to their respective comparable prior year periods, primarily relates to increased incentive and equity compensation, medical claims, and travel expenses. Proxy expenses During the nine months ended June 30, 2022, we incurred $6,952 of proxy expenses (including legal and advisory fees) in SG&A as a result of a proxy contest initiated by a shareholder during the most recently completed fiscal quarter. In the three months ended June 30, 2022, we did not incur any proxy expenses. There were no similar costs in the comparable period of the prior year. The proxy contest was completed at the shareholder meeting on February 17, 2022. Segment Depreciation and Amortization Segment depreciation and amortization increased $4,394 and $7,914 for the quarter and nine months ended June 30, 2022, respectively, compared to the comparable prior year periods, primarily due to depreciation and amortization on new assets placed in service and assets acquired in acquisitions. 44 Table of Contents Other Income (Expense) For the quarters ended June 30, 2022 and 2021, Other income (expense) of $2,084 and $587, respectively, includes $265 and $77, 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 $1,118 and $226, respectively, as well as $(91) and $111, respectively, of net investment income. Other income (expense) also includes rental income of $156 in both of the three months ended June 30, 2022 and 2021. Additionally, it includes royalty income of $1,444 for the three months ended June 30, 2022. For the nine months ended June 30, 2022 and 2021, Other income (expense) of $4,528 and $1,413, respectively, includes $297 and $(302), 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 $3,145 and $680, respectively, as well as $(328) and $496, respectively, of net investment income (loss). Other income (expense) also includes rental income of $468 in both of the nine months ended June 30, 2022 and 2021. Additionally, it includes royalty income of $1,444 for the nine months ended June 30, 2022. Provision for income taxes During the quarter ended June 30, 2022, the Company recognized a tax provision of $23,268 on income before taxes from continuing operations of $76,050, compared to a tax provision of $12,078 on income before taxes from continuing operations of $26,893 in the comparable prior year quarter. The current year quarter results included restructuring charges of $5,909 ($4,359, net of tax), fair value step-up of acquired inventory sold of $2,700 ($2,005, net of tax), strategic review (retention and other) of $3,220 ($2,416, net of tax), debt extinguishment, net of $5,287 ($4,022, net of tax), and discrete and certain other tax provisions, net, that affect comparability of $913. The prior year quarter results included restructuring charges of $4,081 ($3,128, net of tax), and discrete tax and certain other tax provisions, net, that affect comparability of $2,850. Excluding these items, the effective tax rates for the quarters ended June 30, 2022 and 2021 were 28.6% and 32.9%, respectively. During the nine months ended June 30, 2022, the Company recognized a tax provision of $55,119 on income before taxes of $182,765, compared to a tax provision of $34,868 on income before taxes of $92,546 in the comparable prior year period. The nine month period ended June 30, 2022 included restructuring charges of $12,391 ($9,185, 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 $5,401 ($4,012, net of tax), strategic review (retention and other) of $3,220 ($2,416, net of tax), debt extinguishment, net $5,287 ($4,022, net of tax), and discrete and certain other tax benefits, net, that affect comparability of $661. The nine month period ended June 30, 2021 included restructuring charges of $14,662 ($11,034, net of tax), and discrete tax and certain other tax provisions, net, that affect comparability of $3,219. Excluding these items, the effective tax rates for the nine months ended June 30, 2022 and 2021 were 28.9% and 32.9%, respectively. Stock based compensation For the quarters ended June 30, 2022 and 2021, stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled $6,019 and $5,590, respectively. For the nine months ended June 30, 2022 and 2021, stock based compensation expense totaled $15,978 and $15,091, respectively. Comprehensive income (loss) For the quarter ended June 30, 2022, total other comprehensive loss, net of taxes, of $14,177 included a loss of $17,823 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a $1,196 benefit from pension amortization; and a $2,450 a gain on cash flow hedges. For the quarter ended June 30, 2021, total other comprehensive income, net of taxes, of $2,739 included a gain of $1,160 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound and Canadian Dollar, partially offset by the weakening of the Australian Dollar, all in comparison to the US Dollar; a $1,245 benefit from pension amortization; and a $334 gain on cash flow hedges. 45 Table of Contents For the nine months ended June 30, 2022, total other comprehensive loss, net of taxes, of $11,979 included a loss of $14,093 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a $2,004 benefit from pension amortization of actuarial losses; and a $110 gain on cash flow hedges. For the nine months ended June 30, 2021, total other comprehensive income, net of taxes, of $20,655 included a gain of $15,022 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound, Canadian and Australian Dollars, all in comparison to the US Dollar; a $4,196 benefit from pension amortization of actuarial losses; and a $1,437 gain on cash flow hedges. DISCONTINUED OPERATIONS Defense Electronics On September 27, 2021, Griffon announced that it was exploring strategic alternatives for its DE segment, which consists of its Telephonics subsidiary. On June 27, 2022, Griffon completed the sale of Telephonics to TTM for $330,000 in cash, subject to customary post-closing adjustments. Griffon believes the sale of Telephonics will increase long-term value for Griffon shareholders, while creating enhanced growth opportunities for Telephonics. 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. In connection with the sale of Telephonics, the Company recorded a gain of $108,949 ($88,977, net of tax) during the quarter ended June 30, 2022 in discontinued operations. The gain and related tax for the sale of Telephonics is preliminary and is subject to finalization. At June 30, 2022, Griffon's discontinued assets and liabilities includes the Company's obligation of $27,703 in connection with the sale of Telephonics primarily related to income taxes payable. At June 30, 2022, Griffon’s liabilities for Installations Services and other discontinued operations primarily relate to insurance claims, warranty and environmental reserves total $6,928. See Note 16, Discontinued Operations. 46 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity Griffon believes it has adequate liquidity to invest in its existing businesses and execute its business plan, while managing its capital structure on both a short-term and long-term basis. Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our January 2022 secured $400,000 Credit Agreement. At June 30, 2022, $289,897 of revolver capacity was available under the Credit Agreement and we had cash and cash equivalents of $144,687. Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity include cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis. As of June 30, 2022, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $66,325. Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S. taxes to repatriate these funds (unless applicable U.S. taxes have already been paid). The following table is derived from the Condensed Consolidated Statements of Cash Flows: Cash Flows from Operations For the Nine months ended June 30, 2022 2021 Net Cash Flows Provided by (Used In): Operating activities $ (65,001) $ 13,314 Investing activities (574,256) (31,705) Financing activities 513,762 (14,327) Cash used in operating activities from continuing operations for the nine months ended June 30, 2022 was $65,001 compared to cash provided by continuing operations of $13,314 in the comparable prior year period. Cash provided by income from continuing operations, adjusted for non-cash expenditures, was more than offset by a net increase in working capital predominately consisting of increased inventory and accounts receivable primarily driven by reduced consumer demand and rebalancing of customer inventory levels in North America and the United Kingdom. Cash flows used in investing activities from continuing operations is primarily comprised of capital expenditures and business acquisitions as well as proceeds from the sale of businesses, investments and property, plant and equipment. During the nine months ended June 30, 2022, Griffon used $574,256 in investing activities from continuing operations compared to $31,705 used in the prior year comparable period. Griffon used $851,464 to acquire Hunter during the nine months ended June 30, 2022 as compared to the $2,242 used in the prior year comparable period to acquire Quatro. Capital expenditures, net of proceeds from the sale of assets, for the nine months ended June 30, 2022 totaled $33,427, an increase of $8,594 from the prior year period. Proceeds from the sale of investments totaled $14,923 during the nine months ended June 30, 2022 compared to cash used to purchase investments of $4,658 in the prior year comparable period. During the nine months ended June 30, 2022, cash provided by financing activities from continuing operations totaled $513,762 compared to cash used of $14,327 used in the prior year comparable period. Cash provided by financing activities in the current period consisted primarily of net proceeds from long-term debt of $556,431, partially offset by financing costs of $17,065, purchases of treasury shares to satisfy vesting of restricted stock of $10,886 and the payment of dividends of $14,906. During the current period Griffon prepaid $300,000 aggregate principal amount of its Term Loan B, which permanently reduces the outstanding balance. In connection with the prepayment of the Term Loan B, Griffon recognized a $6,296 charge related to the write-off of capitalized debt issuance costs. In addition, during the current period Griffon purchased $15,225 of its 2028 Senior Notes in the open market at a weighted average discount of 92.19% of par and recognized a net gain of $1,009 on the early extinguishment. Cash used in financing activities in the prior year comparable period consisted primarily of payments of dividends of 12,907 and purchases of treasury shares to satisfy vesting of restricted stock of $2,909, partially offset by net proceeds from long-term debt of $2,332. 47 Table of Contents During the nine months ended June 30, 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 nine months ended June 30, 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. During 2021, the Company declared and paid regular cash dividends totaling $0.32 per share, or $0.08 per share each quarter. During the nine months ended June 30, 2022, the Board of Directors approved and paid three quarterly cash dividends of $0.09 per share each. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. On June 27, 2022, the Board of Directors declared a special dividend of $2.00 per share, payable on July 20, 2022 to shareholders of record as of the close of business on July 8, 2022. As of June 30, 2022, the Company accrued $104,053 in connection with the declaration of the special dividend. On July 27, 2022, the Board of Directors declared a quarterly cash dividend of $0.09 per share, payable on September 15, 2022 to shareholders of record as of the close of business on August 18, 2022. On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of $50,000 of Griffon’s outstanding common stock. Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. As of June 30, 2022, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs. No shares were repurchased during the nine months ended June 30, 2022 under these share repurchase programs. During the nine months ended June 30, 2022, cash provided by discontinued operations from operating activities of $26,889 primarily related to DE operations partially offset by the settling of certain liabilities and environmental costs associated with the former Installations Services business. Cash provided by discontinued operations from investing activities related to DE operations capital expenditures. During the nine months ended June 30, 2021, cash provided by discontinued operations from operating activities of $27,035 primarily related to DE operations and the settling of certain liabilities and environmental costs associated with other discontinued operations. Cash provided by discontinued operations from investing activities of $8,155 primarily related to net proceeds received of $14,725 from DE's sale of its SEG business less capital expenditures of $6,151. Cash and Equivalents and Debt June 30, September 30, 2022 2021 Cash and equivalents $ 144,687 $ 248,653 Notes payables and current portion of long-term debt 13,085 12,486 Long-term debt, net of current maturities 1,574,697 1,033,197 Debt discount/premium and issuance costs 23,053 14,823 Total debt 1,610,835 1,060,506 Debt, net of cash and equivalents $ 1,466,148 $ 811,853 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. During the period ended June 30, 2022, Griffon purchased $15,225 of 2028 Senior Notes in the open market at a weighted average discount of 92.19% of par, for $14,036. In connection with this transaction Griffon recognized a $1,009 gain on the early extinguishment of debt comprised of $1,189 of face value in excess of purchase price, offset by $180 related to the write-off of underwriting fees and other expenses. As of June 30, 2022, outstanding 2028 Senior Notes due totaled $984,775; interest is payable semi-annually on March 1 and September 1. Subsequent to June 30, 2022, Griffon purchased $10,000 of 2028 Senior Notes in the open market at a weighted average discount of 91.25% of par, for $9,125. 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 $888,759 on June 30, 2022 based upon quoted market prices (level 1 inputs). In connection with issuance and exchange of the 2028 Senior Notes, Griffon capitalized $16,448 of underwriting fees and other expenses incurred, which is being amortized over the term of such notes, and at June 30, 2022, $11,562 remained to be amortized. 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 48 Table of Contents ("Revolver"), and replaced LIBOR with SOFR (Secured Overnight Financing Rate). The Term Loan B contains a SOFR floor of 0.50% and a current spread of 2.75%. Additionally, there are two interest rate step-downs tied to achieving decreased secured leverage ratio thresholds, the first of which was achieved at June 30, 2022. The decreased spread, effective in the fourth quarter of 2022, is 2.50%. The Original Issue Discount (OID) for the Term Loan B was 99.75%. 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. The Term Loan B facility requires nominal quarterly principal payments of $2,000, 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. During the period ended June 30, 2022, Griffon prepaid $300,000 aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance. In connection with the prepayment of the Term Loan B Griffon recognized a $6,296 charge on the prepayment of debt, $5,575 related to the write-off of underwriting fees and other expenses and $721 of the original issuer discount. 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. The fair value of the Term Loan B facility approximated $473,100 on June 30, 2022 based upon quoted market prices (level 1 inputs). At June 30, 2022, $9,174 of underwriting fees and other expenses incurred, 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 0.75% for base rate loans, 1.75% for SOFR loans and 1.75% 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 June 30, 2022, there were $97,816 of outstanding borrowings under the Revolver; outstanding standby letters of credit were $12,287; and $289,897 was available, subject to certain loan covenants, for borrowing at that date. 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 June 30, 2022, $13,426 was outstanding. During the period ended June 30, 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. In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($11,666 as of June 30, 2022) revolving credit facility. The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (3.09% LIBOR USD and 3.86% Bankers Acceptance Rate CDN as of June 30, 2022). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity. At June 30, 2022, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($11,666 as of June 30, 2022) available. On March 30, 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 in full and canceled 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 (2.39% at June 30, 2022). At June 30, 2022, there was no balance outstanding under the receivable purchase facility with AUD 15,000 ($10,392 as of June 30, 2022) available. The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries. 49 Table of Contents 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% (3.11% at June 30, 2022). The revolving facility accrues interest at the Bank of England Base Rate plus 3.25% (4.50% as of June 30, 2022). The revolving credit facility matures in September 2022, but it is renewable upon mutual agreement with the lender. As of June 30, 2022, the revolver had no outstanding balance while the term and mortgage loan balances amounted to GBP 11,603 ($14,193 as of June 30, 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 expired on June 30, 2022. The trade facility accrues interest at the Mid-point of the FED Target Range plus 2.50% (4.13% as of June 30, 2022). Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of capital leases. At June 30, 2022, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 3.2x at June 30, 2022. Capital Resource Requirements Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $984,775 payable in 2028 and related annual interest payments of approximately $57,246. As noted above, Griffon entered into a new $800,000 seven year Term Loan B facility with initial pricing of SOFR floor of 50 basis points plus a spread of 275 basis points. The OID was 99.75%. During the period ended June 30, 2022, Griffon prepaid $300,000 aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance. The Term Loan B facility requires quarterly payments equal to 0.25% of the outstanding principal amount, or $2,000, which began with the quarter ended June 30, 2022 and a balloon payment due at maturity. Customers A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the nine months ended June 30, 2022, The Home Depot represented 14% of Griffon’s consolidated revenue, 20% of CPP's revenue and 8% of HBP’s revenue. No other customer exceeded 10% of consolidated revenue. Future operating results will continue to depend substantially on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of the volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and results of operations. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, The AMES Companies, Inc., Clopay AMES Holding Corp., ClosetMaid LLC, AMES Hunter Holdings Corporation, Hunter Fan Company, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of June 30, 2022 and September 30, 2021 and for the nine months ended June 30, 2022 and for the year ended September 30, 2021. All intercompany balances and transactions between subsidiaries under Parent and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities. The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. 50 Table of Contents The indentures relating to the Senior Notes (the “Indentures”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indentures; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indentures (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indentures; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indentures, in compliance with the terms of the Indentures; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indentures, in each case in accordance with the terms of the Indentures; and (v) upon obtaining the requisite consent of the holders of the Senior Notes. Summarized Statements of Operations and Comprehensive Income (Loss) For the Nine Months Ended For the Year Ended June 30, 2022 September 30, 2021 Parent Company Guarantor Companies Parent Company Guarantor Companies Net sales $ — $ 1,717,178 $ — $ 1,991,434 Gross profit $ — $ 541,082 $ — $ 497,829 Income (loss) from operations $ (32,474) $ 232,275 $ (22,321) $ 123,870 Equity in earnings of Guarantor subsidiaries $ 144,389 $ — $ 79,055 $ — Net income (loss) $ (47,947) $ 144,389 $ (40,035) $ 79,055 Summarized Balance Sheet Information For the Nine Months Ended For the Year Ended June 30, 2022 September 30, 2021 Parent Company Guarantor Companies Parent Company Guarantor Companies Current assets $ 57,281 $ 1,026,662 $ 114,377 $ 951,609 Non-current assets 14,086 1,950,570 17,665 1,069,540 Total assets $ 71,367 $ 2,977,232 $ 132,042 $ 2,021,149 Current liabilities $ 200,229 $ 331,146 $ 41,334 $ 397,121 Long-term debt 1,549,596 13,294 998,787 14,482 Other liabilities 31,923 366,433 43,337 164,122 Total liabilities $ 1,781,748 $ 710,873 $ 1,083,458 $ 575,725 CRITICAL ACCOUNTING POLICIES The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2021. Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2021. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon. 51 RECENT ACCOUNTING PRONOUNCEMENTS The FASB issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, the impact of the Hunter Fan transaction, industries in which Griffon Corporation (the “Company” or “Griffon”) operates and the United States and global economies. Statements in this Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: impact of the strategic alternatives review process announced in May 2022; current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings from cost control, restructuring, integration and disposal initiatives; the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities (including, in particular, integration of the Hunter Fan acquisition); increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets, and to anticipate and meet customer demands for new products and product enhancements and innovations; increases in the cost or lack of availability of raw materials such as resin, wood and steel, components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; the impact of COVID-19 on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers and suppliers; Griffon’s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, changes in tax laws. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2021. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company's Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.