GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) December 31, 2022 September 30, 2022 CURRENT ASSETS Cash and equivalents $ 120,558 $ 120,184 Accounts receivable, net of allowances of $ 13,636 and $ 12,137 350,625 361,653 Inventories 646,352 669,193 Prepaid and other current assets 64,108 62,453 Assets of discontinued operations 1,122 1,189 Total Current Assets 1,182,765 1,214,672 PROPERTY, PLANT AND EQUIPMENT, net 290,505 294,561 OPERATING LEASE RIGHT-OF-USE ASSETS 182,799 183,398 GOODWILL 333,982 335,790 INTANGIBLE ASSETS, net 761,126 761,914 OTHER ASSETS 21,490 21,553 ASSETS OF DISCONTINUED OPERATIONS 4,571 4,586 Total Assets $ 2,777,238 $ 2,816,474 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 12,840 $ 12,653 Accounts payable 160,441 194,793 Accrued liabilities 178,154 171,797 Current portion of operating lease liabilities 31,283 31,680 Liabilities of discontinued operations 8,141 12,656 Total Current Liabilities 390,859 423,579 LONG-TERM DEBT, net 1,507,681 1,560,998 LONG-TERM OPERATING LEASE LIABILITIES 160,664 159,414 OTHER LIABILITIES 186,977 190,651 LIABILITIES OF DISCONTINUED OPERATIONS 4,209 4,262 Total Liabilities 2,250,390 2,338,904 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 526,848 477,570 Total Liabilities and Shareholders’ Equity $ 2,777,238 $ 2,816,474 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 1 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three Months Ended December 31, 2022 and 2021 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2022 84,746 $ 21,187 $ 627,982 $ 344,060 27,682 $ ( 420,116 ) $ ( 82,738 ) $ ( 12,805 ) $ 477,570 Net income — — — 48,702 — — — — 48,702 Dividend — — — ( 6,145 ) — — — — ( 6,145 ) Shares withheld on employee taxes on vested equity awards — — ( 180 ) — 333 ( 12,554 ) — — ( 12,734 ) Amortization of deferred compensation — — — — — — — 571 571 Equity awards granted, net — — ( 6,902 ) — ( 455 ) 6,902 — — — ESOP allocation of common stock — — 1,127 — — — — — 1,127 Stock-based compensation — — 5,538 — — — — — 5,538 Other comprehensive income, net of tax — — — — — — 12,219 — 12,219 Balance at December 31, 2022 84,746 $ 21,187 $ 627,565 $ 386,617 27,560 $ ( 425,768 ) $ ( 70,519 ) $ ( 12,234 ) $ 526,848 COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 Net income — — — 19,298 — — — — 19,298 Dividend — — — ( 4,739 ) — — — — ( 4,739 ) Shares withheld on employee taxes on vested equity awards — — — — 422 ( 10,886 ) — — ( 10,886 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net 113 28 ( 28 ) — — — — — — ESOP allocation of common stock — — 848 — — — — — 848 Stock-based compensation — — 2,866 — — — — — 2,866 Other comprehensive income, net of tax — — — — — — ( 2,751 ) — ( 2,751 ) Balance at December 31, 2021 84,488 $ 21,122 $ 605,867 $ 684,557 28,184 $ ( 427,736 ) $ ( 48,728 ) $ ( 22,697 ) $ 812,385 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended December 31, 2022 2021 Revenue $ 649,384 $ 591,749 Cost of goods and services 415,559 425,907 Gross profit 233,825 165,842 Selling, general and administrative expenses 152,720 127,352 Income from operations 81,105 38,490 Other income (expense) Interest expense ( 24,648 ) ( 15,681 ) Interest income 104 33 Gain on sale of building 10,852 — Other, net 607 1,075 Total other expense, net ( 13,085 ) ( 14,573 ) Income before taxes from continuing operations 68,020 23,917 Provision for income taxes 19,318 7,213 Income from continuing operations $ 48,702 $ 16,704 Discontinued operations: Income from operations of discontinued operations — 3,320 Provision for income taxes — 726 Income from discontinued operations — 2,594 Net income $ 48,702 $ 19,298 Basic earnings per common share: Income from continuing operations $ 0.93 $ 0.33 Income from discontinued operations — 0.05 Basic earnings per common share $ 0.93 $ 0.38 Basic weighted-average shares outstanding 52,579 51,178 Diluted earnings per common share: Income from continuing operations $ 0.88 $ 0.31 Income from discontinued operations — 0.05 Diluted earnings per common share $ 0.88 $ 0.36 Diluted weighted-average shares outstanding 55,298 53,753 Dividends paid per common share $ 0.10 $ 0.09 Net income $ 48,702 $ 19,298 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 11,937 ( 2,319 ) Pension and other post retirement plans 862 668 Change in cash flow hedges ( 580 ) ( 1,100 ) Total other comprehensive income (loss), net of taxes 12,219 ( 2,751 ) Comprehensive income, net $ 60,921 $ 16,547 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 48,702 $ 19,298 Net income from discontinued operations — ( 2,594 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations: Depreciation and amortization 17,113 13,081 Stock-based compensation 6,742 4,867 Asset impairment charges - restructuring — 289 Provision for losses on accounts receivable 482 352 Amortization of debt discounts and issuance costs 1,023 654 Deferred income taxes — 2,883 Gain on sale of assets and investments ( 10,923 ) ( 154 ) Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable 13,689 ( 53,030 ) (Increase) decrease in inventories 22,931 ( 59,478 ) Increase in prepaid and other assets 100 329 Decrease in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities ( 26,333 ) ( 12,164 ) Other changes, net 1,954 662 Net cash provided by (used in) operating activities - continuing operations 75,480 ( 85,005 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 4,726 ) ( 10,573 ) Payments related to sale of Telephonics ( 2,568 ) — Proceeds from investments — 575 Proceeds from the sale of property, plant and equipment 11,815 29 Net cash provided by (used in) investing activities - continuing operations 4,521 ( 9,969 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 7,126 ) ( 5,260 ) Purchase of shares for treasury ( 12,735 ) ( 10,886 ) Proceeds from long-term debt 29,823 10,815 Payments of long-term debt ( 87,539 ) ( 2,500 ) Financing costs ( 744 ) ( 753 ) Other, net ( 42 ) ( 28 ) Net cash used in financing activities - continuing operations ( 78,363 ) ( 8,612 ) The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2022 2021 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by (used in) operating activities ( 1,953 ) 7,916 Net cash used in investing activities — ( 853 ) Net cash provided by (used in) discontinued operations ( 1,953 ) 7,063 Effect of exchange rate changes on cash and equivalents 689 ( 910 ) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 374 ( 97,433 ) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 120,184 248,653 CASH AND EQUIVALENTS AT END OF PERIOD $ 120,558 $ 151,220 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). On June 27, 2022, we completed the sale of our Defense Electronics segment which consisted of our Telephonics subsidiary for $ 330,000 in cash. As a result, the results of operations of our Telephonics business is classified 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 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 May 16, 2022, Griffon announced that its 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. While the process remains ongoing, there is no assurance that the process will result in any transaction being entered into or consummated. On January 24, 2022, Griffon acquired Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a contractual purchase price of approximately $ 845,000 . Hunter, which is part of Griffon's Consumer and Professional Products 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 revolving credit facility borrowings to fund the balance of the purchase price and related acquisition and debt expenditures. 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 Corporation ("Clopay"). Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands. 6 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Update on COVID-19 on our Business The health and safety of our employees, our customers and their families is always a high priority for Griffon. As of the date of this filing, all of Griffon's facilities are fully operational. When COVID-19 struck, we implemented a variety of new policies and procedures, including additional cleaning, social distancing, staggered shifts and prohibiting or significantly restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. While many of these precautions have been relaxed or eliminated as the health risk of COVID-19 has decreased, we would not hesitate to reinstitute and/or modify these policies and procedures as necessary should the health risk return to an unacceptable level. In such event, our businesses or our suppliers could be required by government authorities to temporarily cease operations; might be limited in their production capacity due to complying with restrictions relating to the operation of businesses to mitigate the impacts of COVID-19; or could suffer their own supply chain disruptions, impacting their ability to continue to supply us with the quantity of materials required by us. While we are unable to determine or predict the nature, duration or scope of the overall impact COVID-19 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 we have responded (and will continue to respond) to COVID 19 and how our operations and financial condition may change as COVID-19 evolves. See information provided in Part 1, Item 1A, “Risk Factors” our Form 10-K filed on November 18, 2022. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business, properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s businesses, in particular its CPP operations, are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet information at September 30, 2022 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2022. The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include expected loss allowances for credit losses and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates. Certain amounts in the prior year have been reclassified to conform to current year presentation. 7 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 2 – FAIR VALUE MEASUREMENTS The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates. Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. On December 31, 2022, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $ 877,298 and $ 485,355 , respectively. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 3,466 at December 31, 2022 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets. Items Measured at Fair Value on a Recurring Basis At December 31, 2022, marketable debt and equity securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 67 ($ 83 cost basis) were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on marketable debt and equity securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss). In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of December 31, 2022, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade liabilities payable in U.S. dollars. At December 31, 2022, Griffon had $ 15,000 of Australian dollar contracts at a weighted average rate of $ 1.46 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred gains of $ 188 ($ 132 , net of tax) at December 31, 2022. Upon settlement, gains of $ 2,261 were recorded in COGS during the quarter ended December 31, 2022, respectively. All contracts expire in 30 to 90 days. At December 31, 2022, Griffon had $ 71,500 of Chinese Yuan contracts at a weighted average rate of $ 6.88 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI 8 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) included deferred gains of $ 109 ($ 79 , net of tax) at December 31, 2022. Upon settlement, losses of $ 1,257 were recorded in COGS during the quarter ended December 31, 2022. All contracts expire in 4 to 334 days. At December 31, 2022, Griffon had $ 6,900 of Canadian dollar contracts at a weighted average rate of $ 1.26 . The contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. For the three months ended December 31, 2022, fair value gains of $ 217 , respectively, were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $ 174 was recorded in Other income during the three months ended December 31, 2022, respectively for all settled contracts. All contracts expire in 30 to 300 days. NOTE 3 – REVENUE The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). The Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment. For a complete explanation of Griffon’s revenue accounting policies, this note should be read in conjunction with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2022. See Note 13 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. NOTE 4 – ACQUISITIONS Griffon continually evaluates potential acquisitions that strategically fit within its portfolio or expand its portfolio into new product lines or adjacent markets. Griffon has completed a number of acquisitions that have been accounted for as business combinations, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition and have resulted in the recognition of goodwill. The operating results of the business acquisitions are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation unless otherwise noted. On January 24, 2022, Griffon acquired Hunter, a market leader in residential ceiling, commercial, and industrial fans, from MidOcean for a contractual purchase price of $ 845,000 . The acquisition was primarily financed 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. Hunter complements and diversifies Griffon's portfolio of leading consumer brands and products. For the three months ended December 31, 2022, Hunter's revenue and Segment Adjusted EBITDA was $ 54,117 and $ 4,428 , respectively. The goodwill recognized was $ 256,728 , which was assigned to the CPP segment, and is not deductible for income tax purposes. The preliminary purchase price allocation is based on appraisals and other analysis of fair values of acquired assets and liabilities. The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired Hunter on October 1, 2020: 9 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Proforma For the Three Months Ended December 31, (unaudited) 2021 Revenue $ 670,839 Income from continuing operations 19,974 Griffon did not include any material, nonrecurring proforma adjustments directly attributable to the business combination in the proforma revenue and earnings. These proforma amounts have been compiled by adding the historical results from continuing operations of Griffon, restated for classifying the results of operations of the Telephonics business as a discontinued operation, to the historical results of Hunter after applying Griffon’s accounting policies and the following proforma adjustments: • Depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2021. • Additional interest and related expenses from the new $ 800,000 seven year Term Loan B facility that Griffon used to acquire Hunter Fan reduced by historical Hunter interest expense. • The tax effects on the above adjustments using the statutory tax rate of 25.7 % for Griffon and 27.1 % for Hunter. The calculation of the preliminary purchase price allocation is as follows: Accounts receivable (1) $ 64,602 Inventories (2) 110,299 Other current assets 7,940 Property, plant and equipment 15,007 Operating lease right-of-use assets 12,447 Goodwill 256,728 Intangible assets 616,000 Total assets acquired $ 1,083,023 Accounts payable and accrued liabilities $ 69,789 Current portion of operating lease liabilities 3,323 Deferred tax liability (3) 145,486 Long-term operating lease liabilities 9,123 Other long-term liabilities 3,848 Total liabilities assumed $ 231,569 Total net assets acquired $ 851,454 (1) Includes $ 67,201 of gross accounts receivable of which $ 2,599 was not expected to be collected. The fair value of accounts receivable approximated book value acquired. (2) Includes $ 113,287 of gross inventory of which $ 2,988 was reserved for obsolete items. (3) Deferred tax liability recorded on intangibles assets. 10 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The amounts assigned to goodwill and major intangible asset classifications for the Hunter acquisition are as follows: Average Life (Years) Goodwill $ 256,728 N/A Indefinite-lived intangibles (Hunter and Casablanca brands) 356,000 N/A Definite-lived intangibles (Customer relationships) 250,000 20 Total goodwill and intangible assets $ 862,728 During the quarter ended December 31, 2022, there were no acquisition costs. During the quarter ended December 31, 2021, the Company incurred acquisition costs of $ 2,595 . NOTE 5 – INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or average cost) or net realizable value. The following table details the components of inventory: At December 31, 2022 At September 30, 2022 Raw materials and supplies $ 163,118 $ 173,520 Work in process 34,484 50,963 Finished goods 448,750 444,710 Total $ 646,352 $ 669,193 NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At December 31, 2022 At September 30, 2022 Land, building and building improvements $ 157,626 $ 159,693 Machinery and equipment 518,478 511,779 Leasehold improvements 35,814 35,489 711,918 706,961 Accumulated depreciation and amortization ( 421,413 ) ( 412,400 ) Total $ 290,505 $ 294,561 Depreciation and amortization expense for property, plant and equipment was $ 11,489 and $ 10,694 for the quarters ended December 31, 2022 and 2021, respectively. Depreciation and amortization expense included in Selling, general and administrative ("SG&A") expenses was $ 4,239 and $ 3,400 for the quarters ended December 31, 2022 and 2021, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. 11 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 7 – CREDIT LOSSES The Company is exposed to credit losses primarily through sales of products and services. Trade receivables are recorded at their stated amount, less allowances for discounts, credit losses and returns. The Company’s expected loss allowance methodology for trade receivables is primarily based on the aging method of the accounts receivables balances and the financial condition of its customers. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for credit losses includes amounts for certain customers in which a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for credit losses is recorded in SG&A expenses. The Company also considers current and expected future economic and market conditions when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year. Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with the accounting guidance for credit losses on financial instruments, including trade receivables, in all material respects. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected: Three months ended December 31, 2022 2021 Beginning Balance, October 1 $ 12,137 $ 8,787 Provision for expected credit losses 1,457 1,039 Amounts written off charged against the allowance ( 48 ) ( 4 ) Other, primarily foreign currency translation 90 ( 35 ) Ending Balance, December 31 $ 13,636 $ 9,787 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – GOODWILL AND OTHER INTANGIBLES The following table provide a summary of the carrying value of goodwill by segment as of September 30, 2022 and December 31, 2022, as follows: At September 30, 2022 Hunter Acquisition (1) At December 31, 2022 Consumer and Professional Products $ 144,537 $ ( 1,808 ) $ 142,729 Home and Building Products 191,253 — 191,253 Total $ 335,790 $ ( 1,808 ) $ 333,982 (1) The decrease is due to the preliminary allocation of the purchase price for the Hunter acquisition. The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At December 31, 2022 At September 30, 2022 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 443,915 $ 97,316 23 $ 442,085 $ 91,143 Technology and patents 14,648 3,197 13 14,326 3,022 Total amortizable intangible assets 458,563 100,513 456,411 94,165 Trademarks 403,076 — 399,668 — Total intangible assets $ 861,639 $ 100,513 $ 856,079 $ 94,165 The gross carrying amount of intangible assets was impacted by $ 5,560 related to favorable foreign currency translation. Amortization expense for intangible assets was $ 5,624 and $ 2,387 for the quarters ended December 31, 2022 and 2021, respectively. The increase in intangible assets and amortization is related to the Hunter acquisition. Amortization expense for the remainder of 2023 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: remaining in 2023 - $ 16,161 ; 2024 - $ 21,305 ; 2025 - $ 21,305 ; 2026 - $ 21,305 ; 2027 - $ 21,305 ; 2028 - $ 21,305 ; thereafter $ 235,364 . During the quarter ended December 31, 2022, the Company determined that there were no triggering events and, as a result, there was no impairment to either its goodwill or indefinite-lived intangible assets at December 31, 2022. NOTE 9 – INCOME TAXES During the quarter ended December 31, 2022, the Company recognized a tax provision of $ 19,318 on income before taxes from continuing operations of $ 68,020 , compared to a tax provision of $ 7,213 on income before taxes from continuing operations of $ 23,917 in the comparable prior year quarter. The current year quarter results include a gain on the sale of a building of $ 10,852 ($ 8,323 , net of tax), strategic review (retention and other) of $ 8,232 ($ 6,222 , net of tax), proxy costs of $ 1,503 ($ 1,153 , net of tax), and discrete and certain other tax benefits, net, that affect comparability of $ 333 . The prior year quarter results included restructuring charges of $ 1,716 ($ 1,330 , net of tax), acquisition costs of $ 2,595 ($ 2,003 , net of tax), proxy contest costs of $ 2,291 ($ 1,768 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of $ 891 . Excluding these items, the effective tax rates for the quarters ended December 31, 2022 and 2021 were 29.1 % and 31.5 %, respectively. 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 10 – LONG-TERM DEBT At December 31, 2022 At September 30, 2022 Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 974,775 $ 254 ( 10,434 ) $ 964,595 5.75 % $ 974,775 $ 266 $ ( 10,939 ) $ 964,102 5.75 % Term Loan B due 2029 (b) 494,000 ( 1,101 ) ( 8,472 ) 484,427 Variable 496,000 ( 1,144 ) ( 8,823 ) 486,033 Variable Revolver due 2025 (b) 45,100 — ( 1,104 ) 43,996 Variable 97,328 — ( 1,227 ) 96,101 Variable Finance lease - real estate (c) 12,751 — — 12,751 Variable 13,091 — — 13,091 Variable Non US lines of credit (d) — — ( 4 ) ( 4 ) Variable — — ( 2 ) ( 2 ) Variable Non US term loans (d) 12,663 — ( 21 ) 12,642 Variable 12,090 — ( 27 ) 12,063 Variable Other long term debt (e) 2,127 — ( 13 ) 2,114 Variable 2,276 — ( 13 ) 2,263 Variable Totals 1,541,416 ( 847 ) ( 20,048 ) 1,520,521 1,595,560 ( 878 ) ( 21,031 ) 1,573,651 less: Current portion ( 12,840 ) — — ( 12,840 ) ( 12,653 ) — — ( 12,653 ) Long-term debt $ 1,528,576 $ ( 847 ) $ ( 20,048 ) $ 1,507,681 $ 1,582,907 $ ( 878 ) $ ( 21,031 ) $ 1,560,998 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Three Months Ended December 31, 2022 Three Months Ended December 31, 2021 Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.9 % $ 14,012 $ ( 12 ) $ 505 $ 14,505 5.9 % $ 14,375 $ ( 12 ) $ 518 $ 14,881 Term Loan B due 2029 (b) Variable 7,808 43 351 8,202 n/a — — — — Revolver due 2025 (b) Variable 1,344 — 123 1,467 Variable 261 — 122 383 Finance lease - real estate (c) 5.6 % 178 — — 178 5.6 % 198 — 4 202 Non US lines of credit (d) Variable 155 — 13 168 Variable 3 — 4 7 Non US term loans (d) Variable — — — — Variable 166 — 17 183 Other long term debt (e) Variable 130 — — 130 Variable 97 — 1 98 Capitalized interest ( 2 ) — — ( 2 ) ( 73 ) — — ( 73 ) Totals $ 23,625 $ 31 $ 992 $ 24,648 $ 15,027 $ ( 12 ) $ 666 $ 15,681 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (a) During 2020, Griffon issued, at par, $ 1,000,000 of 5.75 % Senior Notes due 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. In connection with the 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. During 2022, Griffon purchased $ 25,225 of 2028 Senior Notes in the open market at a weighted average discount of 91.82 % of par, or $ 23,161 . In connection with these purchases, Griffon recognized a $ 1,767 net gain on the early extinguishment of debt comprised of $ 2,064 of face value in excess of purchase price, offset by $ 297 related to the write-off of underwriting fees and other expenses. As of December 31, 2022, outstanding 2028 Senior Notes due totaled $ 974,775 ; interest is payable semi-annually on March 1 and September 1. The 2028 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The 2028 Senior Notes were registered under the Securities Act of 1933, as amended (the "Securities Act") via exchange offer. The fair value of the 2028 Senior Notes approximated $ 877,298 on December 31, 2022 based upon quoted market prices (level 1 inputs). At December 31, 2022, $ 10,434 of underwriting fees and other expenses incurred remained to be amortized. (b) On January 24, 2022, Griffon amended and restated its Revolving Credit Facility (as amended, "Credit Agreement") to provide for a new $ 800,000 Term Loan B facility, due January 24, 2029, in addition to its $ 400,000 revolving credit facility ("Revolver"), and replaced LIBOR with SOFR (Secured Overnight Financing Rate). The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50 %, and a current spread of 2.50 % ( 7.01 % as of December 31, 2022). Additionally, there are two interest rate step-downs tied to achieving decreased secured leverage ratio thresholds, the first of which was achieved during 2022. The Original Issue Discount 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 , which began 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 third quarter of 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 on an equal and ratable basis. The fair value of the Term Loan B facility approximated $ 485,355 on December 31, 2022 based upon quoted market prices (level 1 inputs). At December 31, 2022, $ 8,472 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 . During 2022, 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. Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 1.50 % ( 5.91 % at December 31, 2022) and SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 1.50 % ( 4.96 % at December 31, 2022). 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 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At December 31, 2022, there were $ 45,100 of outstanding borrowings under the Revolver; outstanding standby letters of credit were $ 12,287 ; and $ 342,613 was available, subject to certain loan covenants, for borrowing at that date. (c) Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025 and bears interest at a fixed rate of approximately 5.6 %. The Ocala, Florida lease contains two five-year renewal options. At December 31, 2022, $ 12,751 was outstanding. During 2022, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0 %, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buyout option in November 2021. Refer to Note 21- Leases for further details. (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 11,072 as of December 31, 2022) revolving credit facility. Effective in December 2022, the facility was amended to replace LIBOR (USD) with the Canadian Dollar Offer Rate ("CDOR"). The facility accrues interest at CDOR or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 6.04 % using CDOR and 5.79 % using Bankers Acceptance Rate CDN as of December 31, 2022). The revolving facility matures in December 2023, but is renewable upon mutual agreement with the lender. Garant is required to maintain a certain minimum equity. At December 31, 2022, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 11,072 as of December 31, 2022) available. During 2022, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 18,375 term loan, AUD 20,000 revolver and AUD 15,000 receivable purchase facility agreement that was entered into in July 2016 and further amended in fiscal 2020. Griffon Australia paid off the term loan in the amount of AUD 9,625 and canceled the AUD 20,000 revolver. The amendment refinanced the existing AUD 15,000 receivable purchase facility. The receivable purchase facility matures in March 2023, but is renewable upon mutual agreement with the lender. The receivable purchase facility accrues interest at BBSY (Bank Bill Swap Rate) plus 1.25 % per annum ( 4.51 % at December 31, 2022). At December 31, 2022, there was no balance outstanding under the receivable purchase facility with AUD 15,000 ($ 10,134 as of December 31, 2022) available. The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level. In July 2018, The AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349 , respectively. Effective in January 2022, the Term Loan and Mortgage Loan were amended to replace GBP LIBOR with SONIA. The Term Loan and Mortgage Loans each accrue interest at the SONIA Rate plus 1.80 % ( 5.23 % at December 31, 2022). The revolving facility accrues interest at the Bank of England Base Rate plus 3.25 % ( 6.75 % as of December 31, 2022). The revolving credit facility matures in July 2023, but is renewable upon mutual agreement with the lender. As of December 31, 2022, the revolver had no outstanding balance while the term and mortgage loan balances amounted to GBP 10,519 ($ 12,663 as of December 31, 2022). The revolver and the term loan are both secured by substantially all the assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. (e) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. At December 31, 2022, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 11 — SHAREHOLDERS’ EQUITY AND EQUITY COMPENSATION During the three months ended December 31, 2022, the Company paid a quarterly cash dividend of $ 0.10 per share. During 2022, the Company paid a regular quarterly cash dividend of $ 0.09 per share, totaling $ 0.36 per share for the year. Additionally, on June 27, 2022, the Board of Directors declared a special cash dividend of $ 2.00 per share, paid on July 20, 2022. For all dividends, a dividend payable is established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. On January 30, 2023, the Board of Directors declared a quarterly cash dividend of $ 0.10 per share, payable on March 23, 2023 to shareholders of record as of the close of business on February 23, 2023. On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan (the "Original Incentive Plan") pursuant to which, among other things, awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the Original Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Original Incentive Plan; and on January 30, 2020, shareholders approved Amendment No. 2 to the Original Incentive Plan, pursuant to which 1,700,000 shares were added to the Original Incentive Plan. On February 17, 2022, shareholders approved the Amended and Restated 2016 Equity Incentive Plan (the “Amended Incentive Plan”), which amended and restated the Original Incentive Plan and pursuant to which, among other things, 1,200,000 shares were added to the Original Incentive Plan. Options granted under the Amended Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Amended Incentive Plan is 6,250,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares that were reserved for issuance under the Original Incentive Plan as of the effective date of the Original Incentive Plan, and (ii) any shares underlying awards outstanding on such date under the 2011 Incentive Plan that were subsequently canceled or forfeited. As of December 31, 2022, there were 368,445 shares available for grant. Compensation expense for restricted stock and restricted stock units is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares or units granted multiplied by the stock price on the date of grant, and for performance shares, including performance units, the likelihood of achieving the performance criteria. The Company recognizes forfeitures as they occur. Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within SG&A expenses. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended December 31, 2022 2021 Restricted stock $ 5,538 $ 3,890 ESOP 1,204 977 Total stock-based compensation $ 6,742 $ 4,867 During the first quarter of 2023, Griffon granted 466,677 shares of restricted stock and restricted stock units ("RSUs"). This includes 249,480 shares of restricted stock and 11,901 RSUs granted to 44 executives and key employees, subject to certain performance conditions, with a vesting period of thirty-six months and a total fair value of $ 8,385 , or a weighted average fair value of $ 33.61 per share. This also includes 205,296 shares of restricted stock granted to two senior executives with a vesting period of thirty-six months and a two-year post-vesting holding period, subject to the achievement of certain performance conditions relating to required levels of return on invested capital and the relative total shareholder return of Griffon's common stock as compared to a market index. So long as the minimum performance conditions are attained, the amount of shares that can vest will range from a minimum of 51,324 to a maximum of 205,296 , with the target number of shares being 102,648 . The total fair value of these restricted shares, assuming achievement of the performance conditions at target, is $ 3,555 , or a 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) weighted average fair value of $ 34.63 per share. During the three months ended December 31, 2022, 454,776 shares granted were issued out of treasury stock. On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $ 50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the three months ended December 31, 2022, Griffon did not purchase any shares of common stock under these repurchase programs. As of December 31, 2022, an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs. During the three months ended December 31, 2022, 345,051 shares, with a market value of $ 12,627 , or $ 36.59 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during the three months ended December 31, 2022, an additional 3,066 shares, with a market value of $ 108 , or $ 35.31 per share, were withheld from common stock issued upon the vesting of restricted stock units to settle employee taxes due upon vesting. NOTE 12 – EARNINGS PER SHARE (EPS) Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock-based compensation. The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share: Three Months Ended December 31, 2022 2021 Common shares outstanding 57,186 56,304 Unallocated ESOP shares ( 979 ) ( 1,816 ) Non-vested restricted stock ( 3,230 ) ( 2,869 ) Impact of weighted average shares ( 398 ) ( 441 ) Weighted average shares outstanding - basic 52,579 51,178 Incremental shares from stock-based compensation 2,719 2,575 Weighted average shares outstanding - diluted 55,298 53,753 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 13 – BUSINESS SEGMENTS Griffon reports its operations through two reportable segments, as follows: • Consumer and Professional Products (“CPP”) is a leading North American manufacturer and a global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid. • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands. Information on Griffon’s reportable segments from continuing operations is as follows: For the Three Months Ended December 31, REVENUE 2022 2021 Consumer and Professional Products $ 252,811 $ 283,173 Home and Building Products 396,573 308,576 Total revenue $ 649,384 $ 591,749 Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. The following table presents revenue disaggregated by end market and segment: For the Three Months Ended December 31, 2022 2021 Residential repair and remodel $ 81,706 $ 38,759 Retail 68,497 130,235 Residential new construction 12,487 10,327 Industrial 17,093 11,306 International excluding North America 73,028 92,546 Total Consumer and Professional Products 252,811 283,173 Residential repair and remodel 190,730 145,085 Commercial construction 169,514 130,789 Residential new construction 36,329 32,702 Total Home and Building Products 396,573 308,576 Total Consolidated Revenue $ 649,384 $ 591,749 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended December 31, 2022 2021 CPP HBP Total CPP HBP Total United States $ 153,667 $ 379,300 $ 532,967 $ 164,899 $ 294,576 $ 459,475 Europe 4,696 16 4,712 18,330 37 18,367 Canada 23,116 15,355 38,471 22,628 12,013 34,641 Australia 66,217 — 66,217 74,349 — 74,349 All other countries 5,115 1,902 7,017 2,967 1,950 4,917 Consolidated revenue $ 252,811 $ 396,573 $ 649,384 $ 283,173 $ 308,576 $ 591,749 21 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations: For the Three Months Ended December 31, 2022 2021 Segment adjusted EBITDA: Consumer and Professional Products $ ( 1,809 ) $ 16,214 Home and Building Products 124,145 56,297 Segment adjusted EBITDA 122,336 72,511 Unallocated amounts, excluding depreciation * ( 13,776 ) ( 13,263 ) Adjusted EBITDA 108,560 59,248 Net interest expense ( 24,544 ) ( 15,648 ) Depreciation and amortization ( 17,113 ) ( 13,081 ) Gain on sale of building 10,852 — Strategic review - retention and other ( 8,232 ) — Proxy expenses ( 1,503 ) ( 2,291 ) Acquisition costs — ( 2,595 ) Restructuring charges — ( 1,716 ) Income before taxes from continuing operations $ 68,020 $ 23,917 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. For the Three Months Ended December 31, DEPRECIATION and AMORTIZATION 2022 2021 Segment: Consumer and Professional Products $ 13,127 $ 8,606 Home and Building Products 3,846 4,338 Total segment depreciation and amortization 16,973 12,944 Corporate 140 137 Total consolidated depreciation and amortization $ 17,113 $ 13,081 CAPITAL EXPENDITURES Segment: Consumer and Professional Products $ 2,658 $ 7,130 Home and Building Products 2,068 3,349 Total segment 4,726 10,479 Corporate — 94 Total consolidated capital expenditures $ 4,726 $ 10,573 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) ASSETS At December 31, 2022 At September 30, 2022 Segment assets: Consumer and Professional Products $ 1,908,749 $ 1,914,529 Home and Building Products 707,309 737,860 Total segment assets 2,616,058 2,652,389 Corporate 155,487 158,310 Total continuing assets 2,771,545 2,810,699 Discontinued operations 5,693 5,775 Consolidated total $ 2,777,238 $ 2,816,474 NOTE 14 – EMPLOYEE BENEFIT PLANS Defined benefit pension expense (income) included in Other Income (Expense), net was as follows: Three Months Ended December 31, 2022 2021 Interest cost $ 1,825 $ 796 Expected return on plan assets ( 2,553 ) ( 2,589 ) Amortization: Recognized actuarial loss 944 845 Net periodic expense (income) $ 216 $ ( 948 ) NOTE 15 – RECENT ACCOUNTING PRONOUNCEMENTS In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU No. 2021-08, Business Combinations (Topic 805); Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . This new guidance affects all entities that enter into a business combination within the scope of ASC 805-10. Under this new guidance, the acquirer should determine what contract assets and/or liabilities it would have recorded under ASC 606 (Revenue Guidance) as of the acquisition date, as if the acquirer had entered into the original contract at the same date and on the same terms as the acquirer. Under current U.S. GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. This update is effective for the Company beginning in fiscal 2023. Adoption of this standard did not have a material impact on our consolidated financial statements and the related disclosures. The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements, and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. 23 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 16 – DISCONTINUED OPERATIONS On September 27, 2021, Griffon announced it was exploring strategic alternatives for its DE segment, which consisted of its Telephonics subsidiary. On June 27, 2022, Griffon completed the sale of Telephonics to TTM for $ 330,000 in cash, excluding $ 2,568 for post-closing working capital adjustments. In connection with the sale of Telephonics, the Company recorded a gain of $ 107,517 ($ 89,241 , net of tax) for the year ended September 30, 2022. The gain and related tax for the sale of Telephonics is preliminary and is subject to finalization. In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component of an entity meets the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations. Defense Electronics (DE or Telephonics) The following amounts related to Telephonics have been segregated from Griffon's continuing operations and are reported as a discontinued operation: For the Three Months Ended December 31, 2021 Revenue $ 53,993 Cost of goods and services 40,961 Gross profit 13,032 Selling, general and administrative expenses 10,020 Income from discontinued operations 3,012 Other income (expense) Interest income, net — Other, net 308 Total other income (expense) 308 Income from discontinued operations before taxes $ 3,320 Provision for income taxes 726 Income from discontinued operations $ 2,594 Depreciation and amortization was excluded from the prior year results since DE was classified as a discontinued operation and, accordingly, the Company ceased depreciation and amortization in accordance with discontinued operations accounting guidelines. Depreciation and amortization would have been approximately $ 2,700 for the quarter ended December 31, 2021. 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following amounts summarize the total assets and liabilities related to Telephonics, Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets: At December 31, 2022 At September 30, 2022 Assets of discontinued operations: Prepaid and other current assets $ 1,122 $ 1,189 Other long-term assets 4,571 4,586 Total assets of discontinued operations $ 5,693 $ 5,775 Liabilities of discontinued operations: Accrued liabilities, current $ 8,141 $ 12,656 Other long-term liabilities 4,209 4,262 Total liabilities of discontinued operations $ 12,350 $ 16,918 At December 31, 2022 and September 30, 2022, Griffon's discontinued assets and liabilities includes the Company's obligation of $ 5,288 and $ 8,846 , respectively, in connection with the sale of Telephonics primarily related to certain customary post-closing adjustments, primarily working capital and stay bonuses. At December 31, 2022 and September 30, 2022, Griffon’s liabilities for Installations Services and other discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves total $ 7,062 and $ 8,072 , respectively. There was no reported revenue in the quarters ended December 31, 2022 and 2021 for Installations Services and other discontinued operations. NOTE 17 – RESTRUCTURING CHARGES In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP was 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 a reduced scope and accelerated timeline for the initiative, which was completed in fiscal 2022. The cost to implement this new business platform, over the duration of the project, included one-time charges of approximately $ 51,869 and capital investments of approximately $ 15,000 , net of future proceeds from the sale of exited facilities. Total cumulative charges of $ 51,869 consisted of cash charges totaling $ 35,691 and non-cash, asset-related charges totaling $ 16,178 ; the cash charges included $ 12,934 for one-time termination benefits and other personnel-related costs and $ 22,757 for facility exit costs. As a result of these transactions, headcount was reduced by approximately 420 . In the quarter ended December 31, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 1,716 . During the quarter ended December 31, 2021, cash charges totaled $ 1,427 and non-cash, asset-related charges totaled $ 289 ; the cash charges included $ 260 for one-time termination benefits and other personnel-related costs and $ 1,167 for facility exit costs. 25 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended December 31, 2021 Cost of goods and services $ 322 Selling, general and administrative expenses 1,394 Total restructuring charges $ 1,716 For the Three Months Ended December 31, 2021 Personnel related costs $ 260 Facilities, exit costs and other 1,167 Non-cash facility and other 289 Total $ 1,716 The following table summarizes the accrued liabilities of the Company's restructuring actions: Cash Charges Non-Cash Personnel related costs Facilities & Exit Costs Facility and Other Costs (1) Total Accrued liability at September 30, 2021 $ 418 $ 264 $ — $ 682 Q1 Restructuring charges 260 1,167 289 1,716 Q1 Cash payments ( 275 ) ( 1,167 ) — ( 1,442 ) Q1 Non-cash charges — — ( 289 ) ( 289 ) Accrued liability at December 31, 2021 $ 403 $ 264 $ — $ 667 ___________________ (1) Non-cash charges in Facility and Other Costs primarily represent the non-cash write-off of certain long-lived assets and inventory that has no recoverable value in connection with certain facility closures Cash Charges Personnel related costs Facilities & Exit Costs Total Accrued liability at September 30, 2022 $ 386 $ 264 $ 650 Q1 Cash payments ( 74 ) ( 93 ) ( 167 ) Accrued liability at December 31, 2022 $ 312 $ 171 $ 483 NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended December 31, 2022 and 2021, Other income (expense) of $ 607 and $ 1,075 , respectively, includes $ 67 and ($ 394 ), respectively, of net currency exchange gains (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 (expense) of $( 216 ) and $ 948 , respectively, and $ 33 and $ 374 , respectively, of net investment income. Other income (expense) also includes rental income of $ 212 and $ 156 for the three months ended December 31, 2022 and 2021, respectively. Additionally, it includes royalty income of $ 549 for the three months ended December 31, 2022. 26 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 19 – WARRANTY LIABILITY CPP and HBP offer warranties against product defects for periods generally ranging from one to ten years , with limited lifetime warranties on certain door and fan models. Typical warranties require CPP and HBP to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. CPP offers an express limited warranty for a period of ninety days on all products from the date of original purchase unless otherwise stated on the product or packaging from the date of original purchase. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Three Months Ended December 31, 2022 2021 Balance, beginning of period $ 16,786 $ 7,818 Warranties issued and changes in estimated pre-existing warranties 4,667 3,461 Actual warranty costs incurred ( 3,754 ) ( 1,707 ) Balance, end of period $ 17,699 $ 9,572 NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended December 31, 2022 2021 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 11,937 $ — $ 11,937 $ ( 2,319 ) $ — $ ( 2,319 ) Pension and other defined benefit plans 1,088 ( 226 ) 862 846 ( 178 ) 668 Cash flow hedges ( 829 ) 249 ( 580 ) ( 1,571 ) 471 ( 1,100 ) Total other comprehensive income (loss) $ 12,196 $ 23 $ 12,219 $ ( 3,044 ) $ 293 $ ( 2,751 ) The components of Accumulated other comprehensive income (loss) are as follows: At December 31, 2022 At September 30, 2022 Foreign currency translation adjustments $ ( 45,233 ) $ ( 57,170 ) Pension and other defined benefit plans ( 26,437 ) ( 27,299 ) Change in Cash flow hedges 1,151 1,731 $ ( 70,519 ) $ ( 82,738 ) 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended December 31, Gain (Loss) 2022 2021 Pension amortization $ ( 944 ) $ ( 845 ) Cash flow hedges 1,004 1,533 Total gain (loss) $ 60 $ 688 Tax benefit (expense) ( 13 ) ( 144 ) Total $ 47 $ 544 NOTE 21 — LEASES The Company recognizes right-of-use ("ROU") assets and lease liabilities on the balance sheet, with the exception of leases with a term of twelve months or less. The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our Operating leases are shown as separate line items on our Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments primarily include rent and insurance costs (lease components). The Company's leases also include non-lease components such as real estate taxes and common-area maintenance costs. The Company elected the practical expedient to account for lease and non-lease components as a single component. In certain of the Company's leases, the non-lease components are variable and in accordance with the standard are therefore excluded from lease payments to determine the ROU asset. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. Components of operating lease costs are as follows: For the Three Months Ended December 31, 2022 2021 Fixed $ 11,294 $ 9,747 Variable (a), (b) 2,772 1,852 Short-term (b) 2,204 1,349 Total $ 16,270 $ 12,948 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. 28 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental cash flow information were as follows: For the Three Months Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 9,623 $ 10,844 Financing cash flows from finance leases 744 753 Total $ 10,367 $ 11,597 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: December 31, 2022 September 30, 2022 Operating Leases: Right of use assets: Operating right-of-use assets $ 182,799 $ 183,398 Lease Liabilities: Current portion of operating lease liabilities $ 31,283 $ 31,680 Long-term operating lease liabilities 160,664 159,414 Total operating lease liabilities $ 191,947 $ 191,094 Finance Leases: Property, plant and equipment, net (1) $ 13,334 $ 13,696 Lease Liabilities: Notes payable and current portion of long-term debt $ 2,011 $ 2,065 Long-term debt, net 11,623 11,995 Total financing lease liabilities $ 13,634 $ 14,060 (1) Finance lease assets are recorded net of accumulated depreciation of $ 5,568 and $ 4,972 as of December 31, 2022 and September 30, 2022, respectively. 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025 and bears interest at a fixed rate of approximately 5.6 %. The Ocala, Florida lease contains two five-year renewal options. At December 31, 2022, $ 12,751 was outstanding. During 2022, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0 %, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buyout option in November 2021. The remaining lease liability balance relates to finance equipment leases. The aggregate future maturities of lease payments for operating leases and finance leases as of December 31, 2022 are as follows (in thousands): Operating Leases Finance Leases 2023 (a) $ 31,784 $ 2,074 2024 35,893 2,344 2025 33,183 2,169 2026 24,262 2,112 2027 20,101 2,074 2028 16,439 2,074 Thereafter 83,397 3,629 Total lease payments $ 245,059 $ 16,476 Less: Imputed Interest ( 53,112 ) ( 2,842 ) Present value of lease liabilities $ 191,947 $ 13,634 (a) Excluding the three months ended December 31, 2022. Average lease terms and discount rates at December 31, 2022 were as follows: Weighted-average remaining lease term (years): Operating leases 8.3 Finance Leases 7.2 Weighted-average discount rate: Operating Leases 5.68 % Finance Leases 5.54 % NOTE 22 — COMMITMENTS AND CONTINGENCIES Legal and environmental Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted lamp manufacturing and metal finishing operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) which was owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon, for approximately three years . ISCP sold the Peekskill Site in November 1982. Based upon studies conducted by ISCP and the New York Department of Environmental Conservation, soils and groundwater beneath the Peekskill Site contain chlorinated solvents and metals. Stream sediments downgradient fromthe Peekskill Site also contain metals. On May 15, 2019 the United States Environmental Protection Agency ("EPA") added the Peekskill Site to the National Priorities List under CERCLA and has since reached agreement with Lightron and ISCP wherein Lightron and ISCP will perform a Remedial Investigation/Feasibility Study (“RI/FS”). 30 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Lightron has not engaged in any operations in over three decades. ISCP functioned solely as a real estate holding company and has not held any real property in over three decades. Griffon does not acknowledge any responsibility to perform any investigation or remediation at the Peekskill Site. One of Griffon’s insurers is defending Lightron, ISCP and Griffon subject to a reservation of rights and is paying the costs of the RI/FS. Memphis, TN site. Hunter Fan Company (“Hunter”) operated headquarters and a production plant in Memphis, TN for over 50 years (the “Memphis Site”). While Hunter completed certain on-site remediation of PCB-contaminated soils, Hunter did not investigate the extent to which PCBs existed beneath the building itself nor determine whether off-site areas had been impacted. Hunter vacated the site approximately twenty years ago, and the on-site buildings have now been demolished. The State of Tennessee Department of Environment and Conservation (“TDEC”) identified the Memphis site as being potentially contaminated, raising the possibility that site operations could have resulted in soil and groundwater contamination involving volatile organic compounds and metals. In 2021, the TDEC performed a preliminary assessment of the site and recommended to the United States Environmental Protection Agency (“EPA”) that the site be listed on the National Priorities List established under CERCLA. The TDEC further recommended that the EPA fund an investigation of potential soil gas contamination in receptors near the site. The TDEC has also indicated that it will proceed with this investigation if the EPA does not act. It is unknown whether the EPA will add the Memphis Site to the National Priorities List, whether a site investigation will reveal contamination and, if there is contamination, the extent of such contamination. However, given that certain PCB work was not completed in the past and the TDEC’s stated intent for the EPA to perform an investigation (and the statement by the TDEC that it will perform the investigation if the EPA will not), liability is probable in this matter. There are other potentially responsible parties for this site, including a former owner of Hunter; Hunter has notified such former owner of this matter, which may have certain liability for any required remediation. If the EPA decides to add this site to the National Priorities List, a Remedial Investigation/Feasibility Study (“RI/FS”) will be required. Hunter expects that the EPA will ask it to perform this work. If Hunter does not reach an agreement with the EPA to perform this work, the EPA will implement the RI/FS on its own. Should the EPA implement the RI/FS or perform further studies and/or subsequently remediate the site without first reaching an agreement with one or more relevant parties, the EPA would likely seek from such parties, including Hunter, reimbursement for the costs incurred. General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. 31 Table of Contents (Unless otherwise indicated, US dollars and non-US currencies are in thousands, except per share data)