What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-11-18 compared with 2021-11-17 · 110 added, 153 removed, 223 unchanged (54% of the section changed)

9 unchanged sentences

Risks Related to Our Business

The COVID-19 outbreak could adversely impact our results of operations.

The future impact of the COVID-19 outbreak, or any other future pandemic, and the spread of the pathogen on a global basis could adversely affect our businesses in a number of respects, although the extent, nature and timing of such impact cannot be predicted as of the date of this filing.

The COVID-19 outbreak has led countries around the world, as well as most states in the U.S., to implement restrictions from time-to-time relating to the operation of almost all types of businesses.

Within the U.S., the standards vary from state to state, but typically require all but “critical”, “essential” or “life-sustaining” businesses to close all offices and facilities.

We believe, based on the various standards published to date, that our businesses meet the requisite standard in all U.S states.

We also believe that our businesses meet the applicable standards to remain open in Canada, the U.K., Ireland and Australia.

As of the date of this filing, all of our manufacturing and distribution facilities in the U.S., Canada, the U.K., Ireland, Australia and China are operating, although some of them are operating at reduced capacity as a result of our implementation of procedures designed to prevent the spread of the virus, such as social distancing and staggered shifts.

However, government actions taken based on the changing nature of the outbreak in the U.S.

or in other countries in which we do business, as well as the changing of standards regarding what type of facilities are permitted to remain open and evolving interpretations of existing standards, could result in additional closures of Griffon facilities.

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.

On September 9, 2021, President Biden announced a proposed new rule requiring that all employers with at least 100 employees require that their employees be fully vaccinated or tested weekly.

Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an emergency temporary standard regulation to carry out this mandate.

On November 6, 2021, the Unites States Court of Appeals for the Fifth Circuit granted a stay of the emergency temporary standard, and on November 12, 2021 the Court upheld its stay and barred OSHA from enforcing the mandate “pending adequate judicial review” of a motion for permanent injunction.

At this time, it is unclear, among other things, when the vaccine mandate will go into effect (or if it will go into effect at all);

whether it will apply to all employees or only to employees who work in the office;

and how compliance will be documented.

As a company with more than 100 employees, it is anticipated that, should the vaccine mandate go into effect, we would be subject to the OSHA regulation concerning COVID-19 vaccination and the vaccine mandate.

Should the mandate apply to us, we may be required to implement a requirement that all of our employees get vaccinated, subject to limited exceptions.

At this time, it is not possible to predict the impact that a vaccine mandate, or a vaccine requirement should we adopt one, will have on us or on our workforce.

Any vaccine requirement or vaccine mandate, if implemented, may result in employee attrition, which could materially and adversely affect our business and results of operations.

If as a result of the COVID-19 outbreak, including a potential resurgence of the virus in the fall and winter months, governments take additional protective actions, or extend the time period for existing protective actions, it may have a material adverse impact on Griffon’s businesses and operating results.

This could include additional closures of our facilities of an unknown duration, or the closure of the facilities of our customers, suppliers, or other vendors in our supply chain.

Any disruption of our supply chain or the businesses of our customers could adversely impact our businesses and results of operations.

The COVID-19 outbreak has recently worsened in some U.S.

states, and as a result, some states have put in place new restrictions regarding the operation of many types of businesses or have tightened up restrictions already in place.

Many medical experts believe that during the winter, as the weather gets colder and more people spend time with others indoors, the COVID-19 infection rate will worsen.

In addition, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets worldwide, resulting in an economic downturn that has adversely impacted many businesses, including ours.

The extent and duration of the impact on the global economy and financial markets from the COVID-19 outbreak is difficult to predict, and the extent to which the COVID-19 outbreak will negatively affect us and the duration of any potential business disruption is uncertain.

The impact to our results will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of the COVID-19 outbreak and the actions taken by authorities and other entities to contain the COVID-19 outbreak or treat its impact, and the impact of such actions, all of which are beyond our control.

These potential impacts, while uncertain, could adversely affect our operating results.

To the extent the COVID-19 outbreak adversely affects our businesses, operations, financial condition and operating

results, it may also have the effect of heightening many of the other risks factors such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness, as described in more detail below.

Current worldwide economic uncertainty and market volatility could adversely affect Griffon’s businesses.

The current worldwide economic uncertainty and market volatility could continue to have an adverse effect on Griffon during 2022, particularly within the CPP and HBP segments, which is linked to the U.S.

The current worldwide economic uncertainty and market volatility could continue to have an adverse effect on Griffon during 2023, within both the CPP and HBP segments, which are linked to the U.S.

housing and the commercial property markets, and the U.S.

6 unchanged sentences

The CPP and HBP businesses serve residential and commercial construction and renovation, and are influenced by market conditions that affect these industries.

For the year ended September 30, 2021, approximately 54% and 46% of Griffon’s consolidated revenue was derived from the CPP and HBP segments, respectively, which was dependent on renovation of existing homes, new home construction, and commercial non-residential construction, repair and replacement.

For the year ended September 30, 2022, approximately 47% and 53% of Griffon’s consolidated revenue was derived from the CPP and HBP segments, respectively, which were dependent on renovation of existing homes, new home construction, and commercial non-residential construction, repair and replacement.

The strength of the U.S.

2 unchanged sentences

To the extent market conditions for residential or commercial construction and renovation are weaker than expected, this will likely have an adverse impact on the performance and financial results of the CPP and HBP businesses.

Griffon is exposed to fluctuations in inflation, which could negatively affect its business, financial condition and results of operations.

Inflation rates, including residential mortgage rates, particularly in the United States, have increased recently to historic levels.

According to the U.S.

Department of Labor, the annual inflation rate for the United States was approximately 8.2% for the twelve months ended September 30, 2022.

Continued high inflation or increases in inflation may result in decreased demand for Griffon’s products and services and increased operating costs and expenses, including labor costs and costs of raw materials and supplies.

In particular, higher home mortgage rates typically result in a slowdown in both the purchase and construction of new homes and renovation of existing homes, which will reduce demand for certain of Griffon’s products.

In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation.

Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks, which may result in economic recession.

In the event inflation continues to increase, we may seek to increase the sales prices of our products and services in order to maintain satisfactory margins.

Any attempts to offset Griffon’s cost increases with price increases may result in reduced sales, increase customer dissatisfaction or harm to reputation.

Additionally, Griffon’s operating companies may be unable to raise the prices of their products and services at or above the rate at which their costs increase, which may reduce revenues and operating margins and have a material adverse effect on financial results and future growth.

Griffon operates in highly competitive industries and may be unable to compete effectively.

6 unchanged sentences

Many of these retailers import products directly from foreign suppliers to source and sell products under their own private label brands to compete with CPP and HBP products and brands, which puts increasing price pressure on the products of these businesses.

In addition, the intense competition in the retail and e-commerce sectors, combined with the overall increasingly competitive economic environment, may result in a number of customers experiencing financial difficulty, or failing in the future.

In addition, the intense

competition in the retail and e-commerce sectors, combined with the overall increasingly competitive economic environment, may result in a number of customers experiencing financial difficulty, or failing in the future.

The loss of, or a failure by, one of CPP’s or HBP’s significant customers could adversely impact our sales and operating cash flows.

4 unchanged sentences

Home Depot, Lowe’s and Bunnings are significant customers of CPP, and Home Depot and Menards are significant customers of HBP.

Home Depot accounted for approximately 19% of consolidated revenue, 26% of CPP's revenue and 10% HBP's revenue for the year ended September 30, 2021.

Home Depot accounted for approximately 13% of consolidated revenue, 19% of CPP's revenue and 7% of HBP's revenue for the year ended September 30, 2022.

Future operating results will continue to substantially depend on the success of Griffon’s largest customers, as well as Griffon’s relationships with them.

4 unchanged sentences

Also, both CPP and HBP extend credit to its customers, which exposes it to credit risk.

The largest customer accounted for approximately 28%, 7% and 19% of the net accounts receivable of CPP, HBP and Griffon’s net accounts receivable as of September 30, 2021, respectively.

The largest customer accounted for approximately 26%, 7% and 17% of the net accounts receivable of CPP, HBP and Griffon as of September 30, 2022, respectively.

If this customer were to become insolvent or otherwise unable to pay its debts, the financial condition, results of operations and cash flows of CPP, HBP and Griffon could be adversely affected.

A significant customer of our discontinued DE segment is the U.S.

Government and its agencies and subcontractors, including Lockheed Martin and Boeing, and together accounts for approximately 69% of DE revenue.

Reliance on third party suppliers and manufacturers may impair the ability of CPP and HBP to meet its customer demands.

CPP and HBP rely on a limited number of domestic and foreign companies to supply components and manufacture certain of its products.

Reliance on third party suppliers and manufacturers may impair the ability of CPP and HBP to meet their customer demands.

CPP and HBP rely on a limited number of domestic and foreign companies to supply components and manufacture certain of their products.

The percentage of CPP and HBP worldwide sourced finished goods as a percent of revenue approximated 34% and 5%, respectively, in 2022.

6 unchanged sentences

Such events may impact the ability of CPP and HBP to fill orders, which could have a material adverse effect on customer relationships.

Recently, one of our suppliers informed HBP that a component it supplies to HBP was found to infringe on the intellectual property rights of one of its competitors.

This supplier has assured HBP that it is developing an alternative design for such component that will allow it to continue to meet HBP’s needs on an uninterrupted basis.

However, should the supply of this component be interrupted, it could adversely impact HBP’s business and results of operations.

A product provided to HBP by one of its suppliers was found to infringe on the intellectual property rights of a competitor of this supplier.

The supplier developed an alternative design for such product that has allowed it to meet HBP’s needs and which the supplier believes is non-infringing;

however, the competitor has alleged, in a pending administrative proceeding, that the redesigned product also infringes on its intellectual property rights.

The supplier is also appealing the initial finding of infringement and believes it has a reasonable likelihood of success.

However, should the alternative design be deemed to be an infringing product and should the supplier lose its appeal of the initial finding of infringement, and as a result the supply of this product is interrupted, it could adversely impact HBP’s business and results of operations.

If Griffon is unable to obtain raw materials for products at favorable prices it could adversely impact operating performance.

2 unchanged sentences

If temporary shortages due to disruptions in supply caused by weather, transportation, production delays or other factors require raw materials to be secured from sources other than current suppliers, the terms may not be as favorable as current terms or certain materials may not be available at all.

In recent years, both CPP and HBP have experienced price increases for most of its raw materials.

In recent years, both CPP and HBP have experienced price increases for most of their raw materials.

While most key raw materials used in Griffon’s businesses are generally available from numerous sources, raw materials are subject to price fluctuations.

Because raw materials in the aggregate constitute a significant component of the cost of goods sold, price fluctuations could have a material adverse effect on Griffon’s results of operations.

Griffon’s ability to pass raw material price increases to customers is limited due to supply arrangements and competitive pricing pressure, and there is generally a time lag between increased raw material costs and implementation of corresponding price increases for Griffon’s products.

Griffon’s ability to pass raw material price increases to customers is limited due to supply arrangements and competitive pricing pressure, and there is

generally a time lag between increased raw material costs and implementation of corresponding price increases for Griffon’s products.

In particular, sharp increases in raw material prices are more difficult to pass through to customers and may negatively affect short-term financial performance.

2 unchanged sentences

There are risks associated with conducting a business that may be impacted by political and other developments associated with international trade.

In this regard, certain products sold by CPP in the United States and elsewhere are sourced

and raw materials used by CPP may be sourced from China and therefore may have their prices impacted by tariffs imposed on trade between the United States and China.

In this regard, certain products sold by CPP in the United States and elsewhere are currently sourced from suppliers in China, with some of these products sourced exclusively from suppliers in China.

Certain raw materials used by CPP may be sourced from China and therefore may have their prices and availability impacted by tariffs imposed on trade between the United States and China.

The sourcing of CPP finished goods, components and raw materials from China are generally subject to supply agreements with Chinese companies.

1 unchanged sentence

Enforcement of existing laws or contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction.

The relative inexperience of China’s judiciary on matters of international trade in many cases creates additional uncertainty as to the outcome of any litigation.

The relative limited Chinese judicial precedent on matters of international trade in many cases creates additional uncertainty as to the outcome of any litigation.

In addition, interpretation of statutes and regulations in China may be subject to government policies or political changes.

2 unchanged sentences

at various times since March 2018, represents a continuing risk to CPP revenue and operating performance.

The United States entered into what is described as “Phase 1” trade agreement with China on January 15, 2020, which reduces some existing tariffs that had been imposed and defers proposed increases of the tariff rate on an additional $250 billion of Chinese goods from 25% to 30% that had been planned for October 15, 2019, and proposed 15% tariffs on an additional $160 billion of a wide range of goods and materials imported from China to be effective December 15, 2019.

Under the Phase 1 agreement, existing 25% tariffs previously imposed on $250 billion of Chinese goods will remain in place, while a 15% tariff on another $120 billion of Chinese goods has been reduced to 7.5%.

In response, China has imposed tariffs on certain U.S.

products, some of which are being reduced as part of the Phase 1 agreement.

China may take additional actions if additional U.S.

tariffs are reduced or imposed.

On May 8, 2020, the two countries reaffirmed their Phase 1 trade agreement notwithstanding the COVID-19 pandemic.

In October 2021 the U.S.

and Chinese trade representatives discussed the status of the Phase 1 agreement after the Biden administration outlined its agenda for trade policy with China.

The Biden administration has indicated it will continue the strict tariffs against Chinese imports to maintain pressure on China to live up to its commitments under the Phase 1 agreement, while reinstating the process for U.S.

importers to seek exclusions from the tariffs.

In view of the early stage of re-engagement on trade policy between the Chinese and U.S.

governments, any potential impact on our business remains uncertain.

Any escalation of trade tensions or the imposition of additional tariffs by the U.S.

Government on various steel and aluminum finished goods, as well as a variety of resins, fabrics and wood products could materially affect our operations.

As a result of these tariffs and the fluid nature of ongoing trade negotiations, we intend to continue to manage our China supply base, which may include raising prices on certain goods.

This may in turn result in reduced sales or the loss of customers and could impact our operating performance.

The tariffs currently apply to approximately $375 billion in annual U.S.

imports from China.

Section 301 of the Trade Act of 1974 requires that the duties must terminate after four years unless one or more domestic beneficiaries of the tariffs requests their continuation.

In September 2022, the United States Trade Representative (USTR) announced that it had received such requests and would therefore continue the tariffs pending a comprehensive review of their necessity.

The process for completing this review, which contemplates a period of public comment, means the tariffs will remain in effect for several months at least, with an unpredictable outcome.

In addition to tariffs, an increased global focus on forced labor in supply chains has the potential to impact our business operations.

In June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect and establishes a rebuttable presumption that goods made in whole or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China are produced with forced labor, and directs US Customs and Border Protection (CBP) to prevent entry of products made with forced labor into the U.S.

Importers whose shipments are detained by CBP under the UFLPA can rebut the presumption with “clear and convincing evidence” that the products were not produced with forced labor.

This requires that the importer submit detailed information regarding every supplier and sub-supplier, as well as all components and raw materials, relating to the goods being detained, and detention costs accrue during the pendency of CBP’s evaluation.

From June 21, 2022 through September 30, 2022, more than 1,450 shipments from China to U.S importers, valued at approximately $429 million, were targeted by CBP for further inspection.

Neither CPP nor its suppliers currently manufacture or source products, components or raw materials from the Uyghur region of China;

however, CBP takes a broad approach when targeting shipments they believe may have originated from the Uyghur region based on product definitions, tariff codes and supplier names that lead them to suspect the goods come from the Uyghur region.

As a result, CPP shipments may be targeted for detention in which case they become subject to the rebuttable presumption that they were sourced from the Uyghur region even though they are demonstrably outside the scope of the UFLPA.

In view of the increased enforcement of forced labor initiatives, we are updating our compliance measures and working with our China supply base to validate their supply chains, from raw materials through components to finished goods, to ensure our goods are not made using forced labor.

We cannot be certain that our products will not be targeted or that our shipments will not be detained, which may impact our operating performance.

Forced labor enforcement initiatives are targeting imports from other countries besides China, and we are monitoring the products and countries subject to increased scrutiny for potential impacts to our operations.

The continuing political and economic conflicts between U.S.

and China have resulted in and may continue to cause retaliatory policies from both countries, including a recent executive order issued by the U.S.

President eliminating the preferential trade status of Hong Kong in response to China’s action to impose new security measures and regulation on Hong Kong.

We cannot predict what new and additional retaliatory policies and regulations may be implemented by the Chinese government in response to U.S.

actions, and such policies and regulations may adversely affect our business operations in China.

and China have resulted in and may continue to cause retaliatory policies from both countries, and it is unknown whether current US-China relations over Taiwan, including the commencement of negotiations regarding a new trade initiative between the United States and Taiwan, will impact the ongoing trade dispute with China.

We cannot predict what new and additional retaliatory policies and regulations may be implemented by the Chinese government in response to the U.S./Taiwan engagement, and any such policies and regulations or other responses may adversely affect our business operations in China.

CPP and HBP operations are also subject to the effects of international trade agreements and regulations such as the United States-Mexico-Canada Agreement, and the activities and regulations of the World Trade Organization.

5 unchanged sentences

These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on CPP and HBP business and financial condition.

The COVID-19 outbreak, or any other future pandemic could adversely impact our results of operations.

The COVID-19 outbreak led countries around the world, as well as most states in the U.S., to implement restrictions from time-to-time relating to the operation of almost all types of businesses.

Most of these restrictions have been eliminated or reduced due to a reduction in the health risk of COVID-19.

As of the date of this filing, all of our manufacturing and distribution facilities are operating.

However, government actions taken based on the changing nature of the outbreak in the U.S.

or in other countries in which we do business could result in temporary closures of Griffon facilities.

During the height of COVID-19 our supply chain experienced certain disruptions which, together with other factors such as a shortage of labor, resulted in longer delivery lead times and restricted manufacturing capacity for certain of our products.

While our supply chain appears to generally be stable at this time, should a resurgence of COVID-19 occur, our supply chain could again be negatively impacted;

for example, certain of our suppliers could be required by government authorities to temporarily cease operations or might be limited in their production capacity.

If as a result of the COVID-19 outbreak, including a potential resurgence of the virus in the fall and winter months, governments take additional protective actions, it may have a material adverse impact on Griffon’s businesses and operating results for the reasons described above.

In such event, the extent and duration of any impact on our businesses would be difficult to predict.

To the extent the COVID-19 outbreak adversely affects our businesses, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks factors such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness, as described in more detail below.

Griffon’s businesses are subject to seasonal variations and the impact of uncertain weather patterns.

Griffon's revenue and earnings are generally lowest in our first and fourth quarters ending December 31, and September 30, respectively, and highest in the second and third quarters ending March 31, and June 30, respectively, primarily due to the seasonality within the AMES and Clopay businesses.

In 2021, 53% of AMES' sales occurred during the second and third quarters compared to 53% and 56% in 2020 and 2019, respectively.

In 2021 and 2020, as a result of the COVID-19 pandemic, sales orders shifted somewhat into the third and fourth quarters resulting in revenue increasing in these two quarters to 55% in each of 2021 and 2020 sales.

Clopay’s business is driven by renovation and construction during warm weather, which is generally at reduced levels during the winter months, generally in our second quarter.

Telephonics historically has had higher revenue and earnings in the second half of Griffon's fiscal year ending September 30 (although this has not always been the case).

In 2022, with the addition of Hunter Fan, 58% (55%, excluding Hunter Fan sales) of AMES' sales occurred during the second and third quarters compared to 53% in both 2021 and 2020.

HBP’s business is driven by renovation and construction during warm weather, which is generally at reduced levels during the winter months, generally in our second quarter.

Demand for lawn and garden products is influenced by weather, particularly weekend weather during the peak gardening season.

3 unchanged sentences

Unionized employees could strike or participate in a work stoppage.

At September 30, 2021, Griffon employed approximately 6,700 people on a full-time basis, excluding approximately 700 related to Telephonics, approximately 5% of whom are covered by collective bargaining or similar labor agreements (all within Telephonics and CPP).

At September 30, 2022, Griffon employed approximately 6,200 people on a full-time basis, approximately 4% of whom are covered by collective bargaining or similar labor agreements.

If unionized employees engage in a strike or other work stoppage, or if Griffon is unable to negotiate acceptable extensions of agreements with labor unions, a significant disruption of operations and increased operating costs could occur.

In addition, any renegotiation or renewal of labor agreements could result in higher wages or benefits paid to unionized employees, which could increase operating costs and as a result have a material adverse effect on profitability.

Telephonics’ business depends heavily upon government contracts and, therefore, the defense budget.

Telephonics sells products to the U.S.

Government and its agencies both directly and indirectly as a first-tier supplier to prime contractors in the defense industry such as Lockheed Martin, Boeing and Northrop Grumman.

In the year ended September 30, 2021, U.S.

government contracts and subcontracts accounted for approximately 10% of the combined revenue of Griffon’s consolidated revenue and Telephonics revenue.

Contracts involving the U.S.

government may include various risks, including:

• Termination for default or for convenience by the government;

• Reduction or modification in the event of changes in the government’s requirements or budgetary constraints;

• Increased or unexpected costs, causing losses or reduced profits under contracts where Telephonics’ prices are fixed, or determinations that certain costs are not allowable under particular government contracts;

• The failure or inability of the prime contractor to perform its contract under circumstances in which Telephonics is a subcontractor;

• Failure to observe and comply with government and procurement regulations such that Telephonics could be suspended or barred from bidding on or receiving awards of new government contracts;

• The failure of the government to exercise options for additional work provided for in contracts;

• The inherent discretion of government agencies in determining whether Telephonics has complied with all specifications set forth in a government contract;

• The government’s right, in certain circumstances, to freely use technology developed under these contracts.

Telephonics’ U.S.

Government end-user contracts contain a termination for convenience clause, regardless if Telephonics is the prime contractor or the subcontractor.

This clause generally entitles Telephonics, upon a termination for convenience, to receive the purchase price for delivered items, reimbursement of allowable work-in-process costs, and an allowance for profit.

Allowable costs would include the costs to terminate existing agreements with suppliers.

The programs in which Telephonics participate may extend for several years, and may be funded on an incremental basis.

Decreases in the U.S.

defense budget, in particular with respect to programs to which Telephonics supplies materials, could have a material adverse impact on Telephonics' financial conditions, results of operations and cash flows.

government may not continue to fund programs to which Telephonics’ development projects apply.

Even if funding is continued, Telephonics may fail to compete successfully to obtain funding pursuant to such programs.

Reductions to funding on existing

programs or delays in the funding of new opportunities could affect the timing of revenue recognition, and impact Telephonics' and Griffon's results of operations.

Telephonics’ business could be adversely affected by a government shutdown

The impact of a government shutdown for any duration could have a material adverse effect on Telephonics’ revenues, profits and cash flows.

Telephonics relies on government personnel to conduct routine business processes related to the inspection and delivery of products for various programs, to approve and pay certain billings and invoices, to process export licenses and for other administrative services that, if disrupted, could have an immediate impact on Telephonics’ business.

Telephonics’ business could be adversely affected by a negative audit by the U.S.

As a government contractor, and a subcontractor to government contractors, Telephonics is subject to audits and investigations by U.S.

Government Agencies such as the Defense Contract Audit Agency, the Defense Security Service, with respect to its classified contracts, other Inspectors General and the Department of Justice.

These agencies review a contractor’s performance under its contracts, its cost structure and compliance with applicable laws and standards as well as compliance with applicable regulations, including those relating to facility and personnel security clearances.

These agencies also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s management, purchasing, property, estimating, compensation, and accounting and information systems.

Any costs found to be misclassified or improperly allocated to a specific contract will not be reimbursed, or must be refunded if already billed and collected.

Griffon could incur significant expenses in complying with audits and subpoenas issued by the government in aid of inquiries and investigations.

If an audit or an investigation uncovers a failure to comply with applicable laws or regulations, or improper or illegal activities, Telephonics may be subject to civil and criminal penalties and/or administrative sanctions, which could include contract termination, forfeiture of profit, suspension of payments, fines, including treble damages, and suspension or prohibition from doing business with the U.S.

In addition, if allegations of impropriety are made, Telephonics and Griffon could suffer serious harm to their reputation.

Many Telephonics contracts contain performance obligations that require innovative design capabilities, are technologically complex, or are dependent upon factors not wholly within Telephonics' control.

Failure to meet these obligations could adversely affect customer relations, future business opportunities, and overall profitability.

Telephonics designs, develops and manufactures advanced and innovative surveillance and communication products for a broad range of applications for use in varying environments.

As with many of Telephonics' programs, system specifications, operational requirements and test requirements are challenging, exacerbated by the need for quick delivery schedules.

Technical problems encountered and delays in the development or delivery of such products, as well as the inherent discretion involved in government approval related to compliance with applicable specifications of products supplied under government contracts, could prevent Telephonics from meeting contractual obligations, which could subject Telephonics to termination for default.

Under a termination for default, the company is entitled to negotiate payment for undelivered work if the Government requests the transfer of title and delivery of partially completed supplies and materials.

Conversely, if the Government does not make this request, there is no obligation to reimburse the company for its costs incurred.

Telephonics may also be subject to the repayment of advance and progress payments, if any.

Additionally, Telephonics may be liable to the Government for any of its excess costs incurred in acquiring supplies and services similar to those terminated for default, and for other damages.

Should any of the foregoing events occur, it could result in a material adverse effect on Griffon's financial position.

Griffon's business could be negatively affected by cyber or other security threats or other disruptions.

Griffon and its operating companies are subjected to cyber and other security threats common to U.S.

defense contractor, Telephonics, in particular, may be the target of cyber security threats to its information technology infrastructure and unauthorized attempts to gain access to sensitive or highly confidential information that could compromise U.S.

The types of threats could vary from attacks common to most industries to more advanced and persistent, highly organized adversaries who target Telephonics because of national security information in its possession.

Individuals and groups of hackers and sophisticated organizations, including organizations sponsored by foreign countries, may use a wide variety of methods, such as deploying malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to gain access to our networks or using social engineering techniques to induce our employees to disclose passwords or other sensitive information or take other actions to gain access to our data.

Inadequate account security practices may also result in unauthorized access to confidential data.

For example, system administrators may fail to timely remove employee account access when no longer appropriate.

Employees or third parties may also intentionally compromise our systems, security or confidential information.

If Telephonics is unable to protect sensitive information, its customers or governmental authorities could question the adequacy of its security processes and procedures and its compliance with evolving government cyber security requirements for government contractors.

Due to the evolving nature of these security threats, and the increasing difficulty of detecting and defending against them, the risk and impact of any future incident cannot be predicted.

The costs related to cyber or other security threats or disruptions could be significant.

Security events such as these could adversely affect Griffon's internal operations, future financial results and reputation, as well as result in the loss of competitive advantages derived from research and development efforts and other intellectual property.

Griffon’s operations and reputation may be adversely impacted if our information technology (IT) systems, or the IT systems of third parties with whom we do business, fail to perform adequately or if we or such third parties are the subject of a data breach or cyber-attack.

We rely on IT systems, networks and services to conduct our business, including communicating with employees and our key commercial customers, ordering and managing materials and products from suppliers, shipping products to customers and analyzing and reporting results of operations.

While we have taken steps to ensure the security of our information technology systems, our systems may nevertheless be vulnerable to computer viruses, security breaches and other disruptions from unauthorized users.

Cyber criminals are becoming more sophisticated and knowledgeable every day, and as their tactics evolve, it is a constant challenge to ensure that our IT security practices are sufficient to protect our IT systems and data.

If our IT systems are damaged or cease to function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our customers and suppliers could be significantly impaired, which may adversely impact our business, operations and reputation.

In the normal course of our business, we collect, store, and transmit proprietary and confidential information regarding our brands, customers, employees, suppliers and others.

We also engage third parties that store, process and transmit these types of information, as well as personal information, on our behalf.

An operational failure or breach of security from increasingly sophisticated cyber threats could lead to loss, misuse or unauthorized disclosure of this information about our employees or customers, which may result in regulatory or other legal proceedings, and could have a material adverse effect on our business and reputation.

We also may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.

Any such attacks or precautionary measures taken to prevent anticipated attacks may result in increasing costs, including costs for additional technologies, training, and third-party consultants.

The losses incurred from a breach of data security and operational failures as well as the precautionary measures required to address this evolving risk may adversely impact our financial condition, results of operations and cash flows.

We depend on our information systems to process orders, manage inventory and accounts receivable collections, purchase, sell, and ship products efficiently and on a timely basis, maintain cost-effective operations, and provide superior service to our customers.

If these systems are damaged, infiltrated, shutdown, or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, hardware or software break-ins or viruses, other cyber security incidents, or otherwise), we may suffer disruption in our ability to manage and operate our business.

There can be no assurance that the precautions which we have taken against certain events that could disrupt the operations of our information systems will prevent the occurrence of such a disruption.

Any such disruption could have a material adverse effect on our business and results of operations.

Griffon may be unable to implement its acquisition growth strategy, which may result in added expenses without a commensurate increase in revenue and income, and divert management’s attention.

4 unchanged sentences

Further, there is a risk that acquisitions will not be properly integrated into Griffon’s existing structure.

Griffon closed the acquisitions of La Hacienda, Tuscan Path, ClosetMaid and Harper Brush in the months of July through November 2017, Kelkay in February 2018, CornellCookson in June 2018, Apta in November 2019 and Quatro in December 2020.

This integration risk may be exacerbated when numerous acquisitions are consummated in a short time period.

7 unchanged sentences

We may also incur debt or assume contingent liabilities in connection with acquisitions, which could impose restrictions on our business operations and harm our operating results.

The pendency of our current process to explore strategic alternatives and the possible failure to consummate a strategic transaction could adversely affect the trading price of our common stock and our future business and results of operations.

In May 2022, Griffon’s Board of Directors publicly announced that it would explore a comprehensive range of strategic alternatives to maximize shareholder value including a sale, merger, divestiture, recapitalization or other strategic transaction.

This process is active and ongoing.

The uncertainties associated with this process, and the expenses and efforts involved, may negatively affect our business and our relationships with employees, customers, suppliers, distributors and vendors.

If we do not enter into or consummate a strategic transaction, our business and results of operations could be adversely affected.

Furthermore, if we do not consummate a transaction, the price of our common stock may decline from the current market price, as the current market price might incorporate a market assumption that a transaction will be consummated.

A failed transaction may also result in reduced employee morale and productivity, negative publicity and a negative impression of us in the investment community.

Further, any disruptions to our business resulting from any announcement and pendency of a transaction, including any adverse changes in our relationships with our customers, suppliers, distributors, vendors and employees or recruiting and retention efforts, could continue or accelerate in the event of a failed acquisition.

Matters relating to any failed transaction may require significant costs and expenses and substantial management time and resources, which could otherwise have been devoted to operating and growing our businesses.

Risks Related to Our Indebtedness

While Griffon’s senior notes, which have limited covenants, are not due until 2028, and while its $400 million revolving line of credit, which is largely undrawn and has greater covenant requirements, does not mature until 2025, there are potential impacts from Griffon’s use of debt to finance certain of its activities, especially acquisitions and expansions, as set forth below.

While Griffon’s senior notes, which have limited covenants, are not due until 2028;

its $800 million Term Loan B (current balance of $496 million), which also has limited covenants, is not due until 2029;

and its $400 million revolving line of credit, which has greater covenant requirements, does not mature until 2025, there are potential impacts from Griffon’s use of debt to finance certain of its activities, especially acquisitions and expansions, as set forth below.

Compliance with restrictions and covenants in Griffon’s debt agreements may limit its ability to take corporate actions.

The credit agreement entered into by, and, to a lesser extent, the terms of the senior notes issued by, Griffon each contain covenants that restrict the ability of Griffon and its subsidiaries to, among other things, incur additional debt, pay dividends, incur liens and make investments, acquisitions, dispositions, restricted payments and capital expenditures.

Under the credit agreement, which is largely undrawn, Griffon is also required to comply with specific financial ratios and tests.

Under the credit agreement, Griffon is also required to comply with specific financial ratios and tests.

Griffon may not be able to comply in the future with these covenants or restrictions as a result of events beyond its control, such as prevailing economic, financial and industry conditions or a change in control of Griffon.

28 unchanged sentences

A lack of sufficient manufacturing capacity to meet demand could cause customer service levels to decrease, which may negatively affect customer demand for Griffon's products and customer relations generally, which in turn could have a material adverse effect on Griffon's business, results of operations, financial condition and cash flows.

In addition, operating facilities

at or near capacity may also increase production and distribution costs and negatively impact relations with employees or contractors, which could result in disruptions to operations.

In addition, operating facilities at or near capacity may also increase production and distribution costs and negatively impact relations with employees or contractors, which could result in disruptions to operations.

In addition, manufacturing costs may increase significantly and Griffon may not be able to pass along all or any of such increase to its customers;

7 unchanged sentences

Griffon is required to assess goodwill and indefinite-lived intangible assets annually for impairment or on an interim basis if changes in circumstances or the occurrence of events suggest impairment exists.

If impairment testing indicates that the carrying value of reporting units or indefinite-lived intangible assets exceeds the respective fair value, an impairment charge would be recognized.

If impairment testing indicates that the carrying amount of reporting units or indefinite-lived intangible assets exceeds the respective fair value, an impairment charge would be recognized.

If goodwill or indefinite-lived intangible assets were to become impaired, the results of operations could be materially and adversely affected.

For the fiscal year ended September 30, 2022, we recorded a non-cash, pre-tax goodwill impairment of $342,027, and a non-cash pre-tax indefinite-lived intangible assets impairment of $175,000.

These non-cash impairments resulted in an aggregate decrease of $8.43 in our earnings per share for the fiscal year ended September 30, 2022.

Should we have to record additional impairment charges in the future, it could similarly have a significant negative impact on our earnings per share for the year in which any such impairment charge is recorded.

If Griffon's subcontractors or suppliers fail to perform their obligations, Griffon's performance and ability to win future business could be harmed.

2 unchanged sentences

There is a risk that Griffon may have disputes regarding the quality and timeliness of work performed.

In addition, changes in the economic environment, including defense budgets and constraints on available financing, may adversely affect the financial stability of Griffon's supply chain and their ability to meet their performance requirements or to provide needed supplies on a timely basis.

In addition, changes in the economic environment, including constraints on available financing, may adversely affect the financial stability of Griffon's supply chain and their ability to meet their performance requirements or to provide needed supplies on a timely basis.

A disruption or failure of any supplier could have an adverse effect on Griffon's business resulting in an impact to profitability, possible termination of a contract, imposition of fines or penalties, and harm to Griffon's reputation impacting its ability to secure future business.

21 unchanged sentences

economic and political conditions and fluctuations in exchange rates.

Griffon and its companies conduct operations in Canada, Australasia, the U.K., Mexico and China, and sell their products in many countries around the world.

Griffon and its companies conduct operations in Canada, Australasia, the U.K., and China, and sell their products in many countries around the world.

Sales of products through non-U.S.

7 unchanged sentences

Griffon is subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business.

In addition, Griffon is subject to export controls, laws and regulations such as the Arms Export Control Act, the International Traffic in Arms Regulation and the Export Administration Regulations, as well as to economic sanctions, laws and embargoes imposed by various governments or organizations, including the U.S.

In addition, Griffon is subject to certain export controls, laws and regulations, as well as to economic sanctions, laws and embargoes imposed by various governments or organizations, including the U.S.

and the European Union or member countries.

Violations of anti-corruption, export controls or sanctions laws may result in severe criminal or civil sanctions and penalties, including debarment, loss of export privileges and loss of authorizations needed to conduct Griffon's international business, and could harm the ability to enter into contracts with the U.S.

Violations of anti-corruption, export controls or sanctions laws may result in severe criminal or civil sanctions and penalties, including loss of export privileges and loss of authorizations needed to conduct Griffon's international business.

Such violations could also result in Griffon being subject to other liabilities, which could have a material adverse effect on Griffon's business, results of operations and financial condition.

2 unchanged sentences

Such measures do not provide absolute protection and Griffon cannot give assurance that measures for protecting these proprietary rights are and will be adequate, or that competitors will not independently develop similar technologies.

Griffon may inadvertently infringe on, or may be accused of infringing on, proprietary rights held by another party.

Griffon or its suppliers may inadvertently infringe on, or may be accused of infringing on, proprietary rights of others.

Griffon is regularly improving its technology and employing existing technologies in new ways.

1 unchanged sentence

If Griffon is found to have infringed on the propriety rights held by others, any related litigation or settlement relating to such infringement may have a material effect on Griffon’s business, results of operations and financial condition.

It is also possible that Griffon’s suppliers may inadvertently infringe on, or be accused of infringing on, proprietary rights held by others.

For example, a product provided to HBP by one of its suppliers was found to infringe on the intellectual property rights of a competitor of this supplier.

If other Griffon suppliers are found to have infringed (or are alleged to have infringed) on

the propriety rights of others, such infringement may have a material adverse effect on Griffon’s business, results of operations and financial condition.

For example, the supplier may not be able to develop an alternative design that meets Griffon’s needs at a comparable cost or at all, and the supply of certain products or components to Griffon may be interrupted.

Griffon is exposed to product liability and warranty claims.

28 unchanged sentences

Actions taken by activist shareholders could be disruptive and costly and may conflict with or disrupt the strategic direction of our business.

Activist shareholders may from time to time attempt to effect changes in our strategic direction and seek changes regarding Griffon’s corporate governance or structure.

Similar to the activist shareholder campaign initiated in 2021, activist shareholders may from time to time attempt to effect changes in our strategic direction and seek changes regarding Griffon’s corporate governance or structure.

Our Board of Directors and management team strive to maintain constructive, ongoing communications with all shareholders who wish to speak with us, including activist shareholders, and welcomes their views and opinions with the goal of working together constructively to enhance value for all shareholders.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors