What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2023-01-31 · 241 added, 122 removed, 309 unchanged (54% of the section changed)

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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.

While the process remains ongoing, there is no assurance that the process will result in any transaction being entered into or consummated.

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, and on April 20, 2023, Griffon announced that its Board of Directors, after extensive evaluation and deliberation, determined that the ongoing execution of the Company’s strategic plan was the best way to maximize value for shareholders and unanimously decided to conclude its review.

On January 24, 2022, Griffon acquired Hunter, a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a contractual purchase price of $845,000.

Hunter, part of our CPP segment, complements and diversifies our portfolio of leading consumer brands and products.

We financed the acquisition of Hunter with a new $800,000 seven year Term Loan B facility;

We financed the acquisition of Hunter

with a new $800,000 seven year Term Loan B facility;

we used a combination of cash on hand and revolver borrowings to fund the balance of the purchase price and related acquisition and debt expenditures.

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.

Griffon believes it has adequate liquidity to invest in its existing businesses and execute its business plan, while managing its capital structure on both a short-term and long-term basis.

At December 31, 2022, $342,613 of revolver capacity was available under Griffon's Credit Agreement and Griffon had cash and equivalents of $120,558.

As of the date of this filing, government restrictions have been relaxed or eliminated as the health risk of COVID-19 has decreased;

however, the effects of COVID-19 continue to linger throughout the global economy and our businesses.

Though the severity of COVID-19 has subsided, new variants could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses.

CPP Global Sourcing Strategy Expansion and Restructuring Charges

On May 3, 2023, in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines.

By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace.

These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.

The global sourcing strategy expansion is expected to be complete by the end of calendar 2024.

Over that period, CPP expects to reduce its facility footprint by approximately 1.2 million square feet, or approximately 15%, and its headcount by approximately 600.

The affected U.S.

locations will include Camp Hill and Harrisburg, Pennsylvania;

Grantsville, Maryland;

Fairfield, Iowa;

and four wood mills.

Implementation of this strategy over the duration of the project will result in charges of $120,000 to $130,000, including $50,000 to $55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related to asset write-downs.

Capital investment in the range of $3,000 to $5,000 will also be required.

These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition.

Other Business Highlights

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We continue to expect that this initiative will result in annual cash savings of $25,000.

Realization of expected cash savings began in the current quarter.

Realization of cash savings began in the first quarter of fiscal 2023.

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.

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Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands.

Revenue for the quarter ended December 31, 2022 was $649,384 compared to $591,749 in the prior year comparable quarter, an increase of 10%.

Revenue increased at HBP by 29% but decreased at CPP by 11%.

Hunter contributed $54,117 of revenue for the quarter, excluding Hunter revenue increased 1% to $595,267.

Income from continuing operations was $48,702 or $0.88 per share, compared to $16,704, or $0.31 per share, in the prior year quarter.

Revenue for the quarter ended March 31, 2023 was $710,984 compared to $779,617 in the prior year comparable quarter, a decrease of 9%.

Revenue decreased at CPP by 24% partially offset by increased revenue at HBP of 8%.

Adjusting for the period Griffon did not own Hunter in the prior year quarter, organic revenue decreased 12% to $689,335 .

Hunter contributed $21,649 of revenue during the current quarter.

Loss from continuing operations was $62,255 or $1.17 per share, compared to income from continuing operations of $58,160, or $1.09 per share, in the prior year quarter.

The current year quarter results from operations included the following:

– Strategic review - retention and other of $6,190 ($4,658, net of tax, or $0.08 per share);

– Proxy contest costs of $1,503 ($1,153, net of tax, or $0.02 per share);

– Gain on sale of building of $10,852 ($8,323, net of tax, or $0.15 per share);

– Restructuring charges of $78,334 ($58,529, net of tax, or $1.06 per share);

– Intangible asset impairment charges of $100,000 ($74,256, net of tax, or $1.34 per share);

– Proxy costs of $614 ($471, net of tax, or 0.01 per share);

– Discrete and certain other tax benefits, net, of $8,723 or $0.16 per share.

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– Acquisition costs of $6,708 ($6,146, net of tax, or $0.12 per share);

– Proxy contest costs of $2,291 ($1,768, net of tax, or $0.03 per share);

– Proxy costs of $4,661 ($3,591, net of tax, or $0.07 per share);

– Fair value step-up of acquired inventory sold of $2,701 ($2,007 , net of tax, or $0.04 per share);

– Discrete and certain other tax benefits, net, of $683 or $0.01 per share.

Excluding these items from the respective quarterly results, Income from continuing operations would have been $66,936, or $1.21 per share, in the current year quarter compared to $72,717, or $1.36 per share in the prior year quarter.

Griffon evaluates performance based on Net income and the related Earnings per share excluding restructuring charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable.

Revenue for the six months ended March 31, 2023 was $1,360,368 compared to $1,371,366 in the prior year period, a decrease of 1%.

Decreased revenue of 18% at CPP was partially offset by increased revenue of 17% at HBP.

Adjusting for the period Griffon did not own Hunter in the prior year quarter, organic revenue decreased 6% to $1,284,602.

Hunter contributed $75,766 of revenue during the year-to-date period.

Loss from continuing operations was $13,553 or $0.26 per share, compared to income from continuing operations of $74,864, or $1.40 per share, in the prior year period.

The current year-to-date results from operations included the following:

– Strategic review - retention and other of $14,422 ($10,880, net of tax, or $0.20 per share);

– Restructuring charges of $78,334 ($58,529, net of tax, or $1.06 per share);

– Intangible asset impairment charges of $100,000 ($74,256, net of tax, or $1.34 per share);

– Proxy costs of $2,117 ($1,624, net of tax, or $0.03 per share);

– Gain on sale of building of $10,852 ($8,323, net of tax, or $0.15 per share);

– Discrete and certain other tax benefits, net, of $9,056 or $0.16 per share.

The prior year-to-date results from operations included the following:

– Restructuring charges of $6,482 ($4,826, net of tax, or $0.09 per share);

– Acquisition costs of $9,303 ($8,149, net of tax, or $0.15 per share);

– Proxy costs of $6,952 ($5,359, net of tax, or $0.10 per share);

– Fair value step-up of acquired inventory sold of $2,701 ($2,007 net of tax, or $0.04 per share);

– Discrete and certain other tax benefits, net, of $1,574 or $0.03 per share.

Excluding these items from the respective periods, Income from continuing operations would have been $114,357, or $2.07 per share in the current year period ended March 31, 2023 compared to $93,631, or $1.75 per share, in the comparable prior year period.

Griffon evaluates performance based on Net income and the related Earnings per share excluding restructuring charges, non-cash impairment charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable.

Griffon believes this information is useful to investors for the same reason.

The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per share from continuing operations to Adjusted earnings per share from continuing operations:

For the Three Months Ended December 31,

Income from continuing operations $ 48,702 $ 16,704

The following table provides a reconciliation of Income (loss) from continuing operations to Adjusted income from continuing operations and Earnings (loss) per share from continuing operations to Adjusted earnings per share from continuing operations:

For the Three Months Ended March 31, For the Six Months Ended March 31,

2023 2022 2023 2022

Income (loss) from continuing operations $ (62,255) $ 58,160 $ (13,553) $ 74,864

Adjusting items:

Restructuring charges (1)

78,334 4,766 78,334 6,482

Intangible asset impairment 100,000 — 100,000 —

Gain on sale of building — — (10,852) —

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Proxy expenses 614 4,661 2,117 6,952

Fair value step-up of acquired inventory sold (2)

— 2,701 — 2,701

Tax impact of above items (3)

(47,224) (3,596) (47,055) (5,097)

Discrete and certain other tax benefits, net (4)

(8,723) (683) (9,056) (1,574)

Adjusted income from continuing operations $ 66,936 $ 72,717 $ 114,357 $ 93,631

Earnings per common share from continuing operations $ 0.88 $ 0.31

Earnings (loss) per common share from continuing operations $ (1.17) $ 1.09 $ (0.26) $ 1.40

Adjusting items, net of tax:

Anti-dilutive share impact (5)

0.05 — 0.02 —

Restructuring charges (1)

1.06 0.07 1.06 0.09

Intangible asset impairment 1.34 — 1.34 —

Gain on sale of building — — (0.15) —

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Proxy expenses 0.01 0.07 0.03 0.10

Fair value step-up of acquired inventory sold — 0.04 — 0.04

Discrete and certain other tax benefits, net (4)

(0.16) (0.01) (0.16) (0.03)

Adjusted earnings per common share from continuing operations $ 1.21 $ 1.36 $ 2.07 $ 1.75

Weighted-average shares outstanding (in thousands) 53,038 51,668 52,809 51,423

Diluted weighted-average shares outstanding (in thousands) (5)

55,364 53,430 55,334 53,602

Due to rounding, the sum of earnings per common share from continuing operations and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations.

(1) For the quarter and six months ended March 31, 2023, restructuring charges relates to the CPP global sourcing expansion, of which $74,645 is included in Cost of goods and services and $3,689 is included in SG&A.

(2) The fair value step-up of acquired inventory sold is included in Cost of goods and services.

(3) The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments.

(4) Discrete and certain other tax benefits primarily relate to the impact of a rate differential between statutory and annual effective tax rate on items impacting the quarter.

(5) Loss from continuing operations is calculated using basic shares on the face of the income statement.

Per share impact of using diluted shares represents the impact of converting from the basic shares used in calculating earnings per share from the Loss from continuing operations to the diluted shares used in calculating earnings per share from the adjusted income from continuing operations.

RESULTS OF OPERATIONS

Three months ended December 31, 2022 and 2021

Three and Six months ended March 31, 2023 and 2022

Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (primarily corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure).

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Consumer and Professional Products

For the Three Months Ended December 31,

For the Three Months Ended March 31, For the Six Months Ended March 31,

2023 2022 2023 2022

United States $ 212,385 $ 264,747 $ 366,052 $ 429,646

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Depreciation and amortization 13,303 11,791 $ 26,430 $ 20,397

For the quarter ended December 31, 2022, revenue decreased $30,362, or 11%, compared to the prior year period due to a 34% reduction in volume primarily in the U.S., the United Kingdom (U.K.) and Australia and a 3% unfavorable currency impact, partially offset by a 19% or $54,117 contribution from the Hunter acquisition, and favorable price and mix of 7%.

For the quarter ended December 31, 2022, Adjusted EBITDA loss of $1,809 compared to Adjusted EBITDA of $16,214 in the prior year quarter.

The current quarter included Adjusted EBITDA of $4,428 from the Hunter acquisition.

Excluding the Hunter contribution, Adjusted EBITDA loss of $6,237 compared to Adjusted EBITDA of $16,214 in the prior year quarter.

The variance to prior year was primarily due to the unfavorable impact of the reduced volume noted above and the related impact on manufacturing absorption, and increased material costs in Australia and Canada, partially offset by the benefits of price and mix.

For the quarter ended December 31, 2022, segment depreciation and amortization increased $4,521 compared to the prior year comparable periods, due to the Hunter assets acquired and new assets placed in service.

On January 24, 2022, Griffon completed the acquisition of Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans for a contractual purchase price of $845,000.

For the quarter ended March 31, 2023, revenue decreased $96,687, or 24%, compared to the prior year period due to a 29% reduction in volume across all channels and geographies driven by reduced consumer demand, customer supplier diversification in the U.S.

and elevated customer inventory levels, coupled with an unfavorable foreign exchange impact of 2%.

These items were partially offset by $21,649 of Hunter revenue, or 5%, for the portion of the current quarter in which Hunter was not owned by Griffon in the prior year quarter, as well as price and mix of 2%.

Hunter contributed $76,209 in the current quarter compared to $70,849 in the prior year comparable period.

For the quarter ended March 31, 2023, Adjusted EBITDA of $19,635 compared to Adjusted EBITDA of $47,844 in the prior year quarter.

The variance to prior year was primarily due to the unfavorable impact of the reduced volume noted above, and its related impact on manufacturing and overhead absorption, and increased material costs in Australia and Canada.

This was partially offset by $3,251 from the Hunter acquisition for the portion of the current quarter in which Hunter was not owned by Griffon in the prior year quarter and reduced discretionary spending.

EBITDA reflected an unfavorable foreign exchange impact of 1%.

Hunter contributed $12,231 in the current quarter compared to $14,339 in the prior year comparable period.

For the six months ended March 31, 2023, revenue decreased $127,049, or 18%, compared to the prior year period due to a 31% reduction in volume across all channels and geographies driven by reduced customer demand, elevated customer inventory levels, primarily in North America, the impact of customer supplier diversification in the U.S., and an unfavorable foreign exchange impact of 2%.

These items were partially offset by $75,766 of Hunter revenue, or 11%, for the portion of the current quarter in which Hunter was not owned by Griffon in the prior year quarter, as well as price and mix of 4%.

Hunter contributed $130,326 during the six months ended March 31, 2023 compared to $70,849 in the prior year comparable period.

For the six months ended March 31, 2023, Adjusted EBITDA decreased 72% to $17,826 compared to $64,058 in the prior year period.

Excluding the Hunter contribution of $7,679, EBITDA of $10,147 decreased 84% primarily due to the unfavorable impact of the reduced volume noted above and its related impact on manufacturing and overhead absorption, and increased material costs in Australia, partially offset by reduced discretionary spending.

EBITDA reflected an unfavorable foreign exchange impact of 2%.

Hunter contributed $16,659 during the six months ended March 31, 2023 compared to $14,339 in the prior year comparable period.

For the quarter and six months ended March 31, 2023, segment depreciation and amortization increased $1,512 and $6,033, respectively, compared to the prior year comparable periods, due to the Hunter assets acquired and new assets placed in service.

On January 24, 2022, Griffon completed the acquisition of Hunter Fan Company (“Hunter”), a market leader in residential

ceiling, commercial, and industrial fans for a contractual purchase price of $845,000.

Hunter adds to Griffon's CPP segment, complementing and diversifying our portfolio of leading consumer brands and products.

CPP Global Sourcing Strategy Expansion and Restructuring Charges

These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.

The global sourcing strategy expansion is expected to be complete by the end of calendar 2024.

Over that period, CPP expects to reduce its U.S.

facility footprint by approximately 1.2 million square feet, or 30%, and its headcount by approximately 600.

The affected U.S.

locations will include Camp Hill and Harrisburg, PA;

Grantsville, MD;

Fairfield, IA;

and four wood mills.

Capital investment in the range of $3,000 to $5,000 will also be required.

In both the quarter and six months ended March 31, 2023, CPP incurred pre-tax restructuring and related exit costs approximating $78,334.

During the six months ended March 31, 2023, cash charges totaled $19,216 and non-cash, asset-related charges totaled $59,118;

the cash charges included $8,050 for one-time termination benefits and other personnel-related costs and $11,166 for facility exit and other related costs.

Non-cash charges included a $22,018 impairment charge related to certain fixed assets at several manufacturing locations and $37,100 to adjust inventory to net realizable value.

Cash Charges Non-Cash Charges

Personnel related costs Facilities, exit costs and other Facilities, inventory and other Total Capital Investments

Anticipated Charges (1)

19,500 35,500 75,000 130,000 5,000

Q2 FY2023 Activity (8,050) (11,166) (59,118) (78,334) —

Estimate to Complete $ 11,450 $ 24,334 $ 15,882 $ 51,666 $ 5,000

________________________

(1)The above table represents the upper range of anticipated charges during the duration of the project.

Home and Building Products

For the Three Months Ended December 31,

For the Three Months Ended March 31, For the Six Months Ended March 31,

2023 2022 2023 2022

Residential $ 220,416 $ 211,229 $ 447,475 $ 389,016

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Depreciation and amortization 3,811 4,324 $ 7,657 $ 8,662

For the quarter ended December 31, 2022, HBP revenue increased $87,997, or 29%, compared to the prior year period due to favorable pricing and mix of 23% and volume of 6% driven by both residential and commercial.

Residential and commercial sectional backlog and overall lead times continued to normalize during the quarter.

For the quarter ended December 31, 2022, Adjusted EBITDA increased 121% to $124,145 compared to $56,297 in the prior year period.

Adjusted EBITDA benefited from the increased revenue noted above and reduced material costs, partially offset by increased labor and transportation costs.

For the quarter ended December 31, 2022, segment depreciation and amortization decreased compared with the prior year comparable period due to fully depreciated assets.

For the quarter ended December 31, 2022, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $13,776 compared to $13,263 in the prior year quarter.

The increase in the current quarter, compared to the respective comparable prior year period, primarily relates to increased incentive and equity compensation.

For the quarter ended March 31, 2023, HBP revenue increased $28,054, or 8%, compared to the prior year period due to favorable pricing and mix of 14% driven by both residential and commercial.

Total volume decreased 6% due to decreased residential volume, partially offset by increased commercial volume.

For the quarter ended March 31, 2023, Adjusted EBITDA increased 26% to $131,871 compared to $104,474 in the prior year period.

Adjusted EBITDA benefited from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs.

For the six months ended March 31, 2023, revenue increased $116,051 or 17%, compared to the prior year period due to favorable mix and pricing of 17% driven by both residential and commercial.

Total volume was in line with the prior year period with increased commercial volume offset by decreased residential volume.

For the six months ended March 31, 2023, Adjusted EBITDA increased 59% to $256,016 compared to $160,771 in the prior year period.

The favorable variance resulted from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs.

For the quarter and six months ended March 31, 2023, segment depreciation and amortization decreased $513 and $1,005, respectively, compared to the prior year comparable periods, due to fully depreciated assets.

For the quarter ended March 31, 2023, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $14,630 compared to $13,056 in the prior year quarter;

for the six months ended March 31, 2023, unallocated amounts totaled $28,406 compared to $26,319 in the prior year period.

The increase in both the current quarter and six month periods, compared to their respective comparable prior year periods, primarily relates to increased incentive and equity compensation, medical claims, and travel expenses.

Proxy expenses

During the quarters ended December 31, 2022 and 2021, we incurred $1,503 ($1,153, net of tax) and $2,291 ($1,768, net of tax) of proxy expenses (including legal and advisory fees) in SG&A, respectively.

During the quarter ended December 31, 2021, proxy expenses related to a proxy contest initiated by a shareholder which was completed at the shareholder meeting on February 17, 2022.

During the quarter ended December 31, 2022, proxy expenses related to a settlement entered into with a shareholder that had submitted a slate of director nominees.

During the three and six months ended March 31, 2023, we incurred $614 ($471, net of tax) and $2,117 ($1,624, net of tax) of proxy expenses (including legal and advisory fees) in SG&A, respectively.

During the quarter and six months ended March 31, 2023, proxy expenses related to a settlement entered into with a shareholder that had submitted a slate of director nominees.

During the three and six months ended March 31, 2022, we incurred $4,661 and $6,952, respectively, of proxy expenses (including legal and advisory fees) in unallocated amounts as a result of a proxy contest initiated by a shareholder which was completed at the shareholder meeting on February 17, 2022.

Segment Depreciation and Amortization

Segment depreciation and amortization increased $4,029 for the quarter ended December 31, 2022 compared to the comparable prior year period, primarily due to depreciation and amortization on the Hunter assets acquired and new assets placed in service.

Segment depreciation and amortization increased $999 and $5,028 for the quarter and six months ended March 31, 2023, respectively, compared to the comparable prior year periods, primarily due to depreciation and amortization on new assets placed in service.

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.

For the quarters ended March 31, 2023 and 2022, Other income (expense) of $293 and $1,369, respectively, includes $164 and ($168), 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 $(217) and $1,079, respectively, and $73 and $(203), respectively, of net investment income.

Other income (expense) also includes rental income of $0 and $156 for the three months ended March 31, 2023 and 2022, respectively.

Additionally, it includes royalty income of $476 and 616 for the three months ended March 31, 2023 and 2022, respectively.

For the six months ended March 31, 2023 and 2022, Other income (expense) of $900 and $2,444, respectively, includes $98 and $(562), respectively, of net currency exchange losses in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $(433) and $2,027, respectively, as well as $107 and $171, respectively, of net investment income (loss).

Other income (expense) also includes rental income of $212 in both of the six months ended March 31, 2023 and 2022.

Additionally, it includes royalty income of $1,025 and $616 for the six months ended March 31, 2023 and 2022, respectively.

Provision for 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.

During the quarter ended March 31, 2023, the Company recognized a tax benefit of $27,904 on loss before taxes from continuing operations of $90,159, compared to a tax provision of $24,638 on income before taxes from continuing operations of $82,798 in the comparable prior year quarter.

The current year quarter results included strategic review costs (retention and other) of $6,190 ($4,658, net of tax), restructuring charges of $78,334 ($58,529, net of tax), intangible asset impairment charges of $100,000 ($74,256, net of tax), proxy costs of $614 ($471, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $8,723.

The prior year quarter results included restructuring charges of $4,766 ($3,496, net of tax), acquisition costs of $6,708 ($6,146, net of tax), proxy costs of $4,661 ($3,591, net of tax), fair value step-up of acquired inventory sold of $2,701 ($2,007, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $683.

Excluding these items, the effective tax rates for the quarters ended March 31, 2023 and 2022 were 29.5% and 28.5%, respectively.

During the six months ended March 31, 2023, the Company recognized a tax benefit of $8,586 on loss before taxes of $22,139, compared to a tax provision of $31,851 on income before taxes of $106,715 in the comparable prior year period.

The six months ended March 31, 2023 included a gain on the sale of a building of $10,852 ($8,323, net of tax), strategic review costs (retention and other) of $14,422 ($10,880, net of tax), restructuring charges of $78,334 ($58,529, net of tax), intangible asset impairment charges of $100,000 ($74,256, net of tax), proxy expenses of $2,117 ($1,624, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $9,056.

The six months ended March 31, 2022 included restructuring charges of $6,482 ($4,826, net of tax), acquisition costs of $9,303 ($8,149, net of tax), proxy costs of $6,952 ($5,359, net of tax), fair value step-up of acquired inventory sold of $2,701 ($2,007, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $1,574.

Excluding these items, the effective tax rates for the six months ended March 31, 2023 and 2022 were 29.4% and 29.1%, respectively.

Stock-based compensation

For the quarters ended December 31, 2022 and 2021, stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled $6,742 and $4,867, respectively.

For the quarters ended March 31, 2023 and 2022, stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled $6,593 and $5,092, respectively.

For the six months ended March 31, 2023 and 2022, stock based compensation expense totaled $13,335 and $9,959, respectively.

Comprehensive income (loss)

For the quarter ended December 31, 2022, total other comprehensive gain, net of taxes, of $12,219 included a gain of $11,937 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Australian Dollars and British Pound, all in comparison to the US Dollar;

For the quarter ended March 31, 2023, total other comprehensive loss, net of taxes, of $2,613 included a gain of $334 from foreign currency translation adjustments primarily due to the strengthening of the Euro and British Pound, partially offset by the weakening of Australian Dollars, all in comparison to the U.S.

a $746 benefit from pension amortization;

and a $1,533 a gain on cash flow hedges.

For the quarter ended March 31, 2022, total other comprehensive income (loss), net of taxes, of $4,949 included a gain of

$6,049 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian Dollar and

British Pound, offset by the weakening of the Australian Dollar, all in comparison to the US Dollar;

a $140 benefit from

pension amortization;

and a $1,240 loss on cash flow hedges.

For the quarter ended December 31, 2021, total other comprehensive loss, net of taxes, of $2,751 included a loss of $2,319 from foreign currency translation adjustments primarily due to the weakening of the Euro and British Pound, all in comparison to the US Dollar;

a $668 benefit from pension amortization;

For the six months ended March 31, 2023, total other comprehensive loss, net of taxes, of $14,832 included a gain of $12,271 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar;

a $1,608 benefit from pension amortization of actuarial losses;

and a $953 gain on cash flow hedges.

For the six months ended March 31, 2022, total other comprehensive income, net of taxes, of $2,198 included a gain of $3,730

from foreign currency translation adjustments primarily due to the strengthening of the Canadian and Australian Dollars, offset

by the weakening of the Euro and the British Pound, all in comparison to the US Dollar;

a $808 benefit from pension

amortization of actuarial losses;

and a $2,340 loss on cash flow hedges.

4 unchanged sentences

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.

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.

At March 31, 2023 and September 30, 2022, Griffon's discontinued assets and liabilities includes the Company's obligation of $4,587 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 March 31, 2023 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 totaling $8,593 and $8,072, respectively.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis.

As of December 31, 2022, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $49,600.

As of March 31, 2023, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $71,300.

Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations.

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Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our January 2025 five-year secured $400,000 revolving credit facility ("Credit Facility").

At December 31, 2022, $342,613 of revolver capacity was available, subject to certain loan covenants, for borrowing under the Credit Agreement and we had cash and cash equivalents of $120,558.

At March 31, 2023, $356,313 of revolver capacity was available, subject to certain loan covenants, for borrowing under the Credit Agreement and we had cash and cash equivalents of $175,592.

The following table is derived from the Condensed Consolidated Statements of Cash Flows:

Cash Flows from Operations For the Three Months Ended December 31,

Cash Flows from Operations For the Six Months Ended March 31,

Net Cash Flows Provided by (Used In):

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Financing activities (99,631) 899,924

Cash provided by operating activities from continuing operations for the three months ended December 31, 2022 was $75,480 compared to cash used in continuing operations of $85,005 in the comparable prior year period.

The variance was due to increased cash generated from operations at HBP and a decrease in working capital across all businesses, primarily accounts receivable and inventory.

During the quarter ended December 31, 2022, Cash provided by investing activities from continuing operations was $4,521 compared to cash used in investing activities from continuing operations of $9,969 in the comparable prior year period.

In the current quarter, cash flows provided by investing activities from continuing operations primarily consisted of proceeds totaling $11,815 from the sale of a building, partially offset by capital expenditures of $4,726 and a working capital adjustment payment of $2,568 related to the sale of Telephonics.

In the prior year comparable quarter, cash flows used in investing activities from continuing operations primarily consisted of capital expenditures of $10,573, partially offset by proceeds from the sale of investments totaling $575.

During the three months ended December 31, 2022, Cash used in financing activities from continuing operations totaled $78,363 compared to $8,612 used in the comparable prior year period.

Cash used in financing activities from continuing operations in the current period consisted of net repayments of long-term debt of $57,716, primarily related to the Credit Facility, the purchase of treasury shares to satisfy vesting of restricted stock of $12,735, the payment of dividends of $7,126 and the payment of financing costs of $744.

Cash used in financing activities from continuing operations in the prior year period consisted primarily of the purchase of treasury shares to satisfy vesting of restricted stock of $10,886 and the payment of dividends of $5,260, partially offset by net proceeds from long-term debt of $8,315.

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.

Cash provided by operating activities from continuing operations for the six months ended March 31, 2023 was $161,636 compared to cash used in continuing operations of $173,373 in the comparable prior year period.

The variance was due to increased cash generated from operations at HBP and a decrease in working capital across all businesses, primarily inventory and accounts receivable, partially offset by an increase in accounts payable and accrued liabilities.

During the six months ended March 31, 2023, Cash used in investing activities from continuing operations was $2,571 compared to $858,539 in the comparable prior year period.

In the current quarter, cash flows used in investing activities from continuing operations primarily consisted of a working capital adjustment payment of $2,568 related to the sale of Telephonics and capital expenditures of $11,837, partially offset by proceeds totaling $11,834 from the sale of a building.

In the prior year comparable quarter, cash flows used in investing activities from continuing operations primarily consisted of a $851,464 payment to acquire Hunter on January 24, 2022 and capital expenditures of $22,030, partially offset by proceeds from the sale of investments totaling $14,923.

During the six months ended March 31, 2023, Cash used in financing activities from continuing operations totaled $99,631 compared to cash provided by financing activities from continuing operations of $899,924 in the comparable prior year period.

Cash used in financing activities from continuing operations in the current period consisted of net repayments of long-term debt of $73,691, primarily related to the Credit Facility, the purchase of treasury shares to satisfy vesting of restricted stock of $12,989 and the payment of dividends of $12,824.

Cash provided by financing activities from continuing operations in the prior year period consisted primarily of net proceeds from long-term debt of $937,385, primarily related to the Credit Facility, partially offset by the purchase of treasury shares to satisfy vesting of restricted stock of $10,886 and the payment of dividends of $10,091.

During the six months ended March 31, 2023, 365,739 shares, with a market value of $12,881, or $35.22 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 March 31, 2023, 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.

During 2022, the Company declared and paid regular cash dividends totaling $0.36 per share, or $0.09 per share each quarter.

Additionally, on June 27, 2022, the Board of Directors declared a special dividend of $2.00 per share, paid on July 20, 2022.

During the three months ended December 31, 2022, the Board of Directors approved and paid a quarterly cash dividend of $0.10 per share.

During the six months ended March 31, 2023, the Board of Directors approved and paid two quarterly cash dividends of $0.10 per share each.

The Company currently intends to pay dividends each quarter;

however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends.

On 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 May 2, 2023, the Board of Directors declared a quarterly cash dividend of $0.125 per share, payable on June 15, 2023 to shareholders of record as of the close of business on May 25, 2023.

On April 20, 2023, the Board of Directors declared a special cash dividend of $2.00 per share, payable on May 19, 2023, to shareholders of record as of the close of business on May 9, 2023.

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of $50,000 of Griffon’s outstanding common stock.

Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions.

As of December 31, 2022, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs.

No shares were repurchased during the three months ended December 31, 2022 under these share repurchase programs.

During the three months ended December 31, 2022, cash used in discontinued operations from operating activities of $1,953 primarily related to the settling of certain liabilities and environmental costs associated with the former Installations Services business.

During the three months ended December 31, 2021, cash provided by discontinued operations from operating activities of $7,916 primarily related to DE operations and the settling of certain liabilities and environmental costs associated with the former Installations Services business.

During the three months ended December 31, 2021, Cash provided by discontinued operations from investing activities of $853 related to DE operations capital expenditures.

Cash and Equivalents and Debt December 31, September 30,

Under these share repurchase programs, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, pursuant to an accelerated share repurchase program or issuer tender offer, or in privately negotiated transactions.

As of March 31, 2023, an aggregate of $57,955 remains under Griffon's Board authorized repurchase programs.

No shares were repurchased during the six months ended March 31, 2023 under these share repurchase programs.

On April 20, 2023, the Company's Board of Directors approved an increase to its share repurchase authorization to $257,955 from the prior unused authorization of $57,955.

During the six months ended March 31, 2023, cash used in discontinued operations from operating activities of $2,598 primarily related to the settling of certain liabilities and environmental costs associated with DE and the former Installations Services businesses.

During the six months ended March 31, 2022, cash provided by discontinued operations from operating activities of $10,586 primarily related to DE operations and the settling of certain liabilities and environmental costs associated with the former Installations Services business.

During the six months ended March 31, 2022, Cash used by discontinued operations from investing activities of $1,445 related to DE operations capital expenditures.

Cash and Equivalents and Debt March 31, September 30,

Cash and equivalents $ 175,592 $ 120,184

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Debt, net of cash and equivalents $ 1,351,576 $ 1,475,376

During 2020, Griffon issued, at par, $1,000,000 of 5.75% Senior Notes due in 2028 (the “2028 Senior Notes”).

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.

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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;

As of March 31, 2023, outstanding 2028 Senior Notes due totaled $974,775;

interest is payable semi-annually on March 1 and September 1.

1 unchanged sentence

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.

On January 24, 2022, Griffon amended and restated its Revolving Credit Facility (as amended, "Credit Agreement") to provide for a new $800,000 Term Loan B facility, due January 24, 2029, in addition to its current $400,000 revolving credit facility ("Revolver"), and replaced LIBOR with SOFR (Secured Overnight Financing Rate).

The 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 fair value of the 2028 Senior Notes approximated $901,667 on March 31, 2023 based upon quoted market prices (level 1 inputs).

At March 31, 2023, $9,930 of underwriting fees and other expenses incurred remained to be amortized.

On January 24, 2022, Griffon amended and restated its Revolving Credit Facility (as amended, "Credit Agreement") to provide for a new $800,000 Term Loan B facility, due January 24, 2029, in addition to its $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 at March 31, 2023 a spread of 2.50% (7.55% as of March 31, 2023).

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;

The Term Loan B facility requires nominal quarterly principal payments of $2,000, 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.

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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 fair value of the Term Loan B facility approximated $489,540 on March 31, 2023 based upon quoted market prices (level 1 inputs).

At March 31, 2023, $8,120 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.

5 unchanged sentences

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.

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).

Griffon's SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 1.50% (5.71% at March 31, 2023).

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.

1 unchanged sentence

Both the Revolver and Term Loan B borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65% of the equity interest in Griffon’s material, first-tier foreign subsidiaries.

At December 31, 2022, there were $45,100 of outstanding borrowings under the Revolver;

At March 31, 2023, there were $30,880 of outstanding borrowings under the Revolver;

outstanding standby letters of credit were $12,807;

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The Ocala, Florida lease contains two five-year renewal options.

At December 31, 2022, $12,751 was outstanding.

At March 31, 2023, $12,406 was outstanding.

During 2022, the financing lease on the Troy, Ohio location expired.

3 unchanged sentences

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.

(“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($11,076 as of March 31, 2023) 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% CDOR and 5.79% Bankers Acceptance Rate CDN as of December 31, 2022).

The facility accrues interest at CDOR or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (6.25% using CDOR and 6.00% using Bankers Acceptance Rate CDN as of March 31, 2023).

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.

At March 31, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($11,076 as of March 31, 2023) 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.

In March 2023 the existing receivable purchase facility was renewed and increased from AUD 15,000 to AUD $30,000.

The receivable purchase facility matures in March 2024, 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 accrues interest at BBSY (Bank Bill Swap Rate) plus 1.25% per annum (4.88% at March 31, 2023).

At March 31, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($20,094 as of March 31, 2023) available.

The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries.

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In July 2018, The AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver.

The term loan and mortgage loan require quarterly principal payments

of GBP 438 and GBP 105 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,088 and GBP 2,349, respectively.

The term loan and mortgage 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 Term Loan and Mortgage Loans each accrue interest at the SONIA Rate plus 1.80% (5.98% at March 31, 2023).

The revolving facility accrues interest at the Bank of England Base Rate plus 3.25% (7.50% as of March 31, 2023).

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 had an outstanding balance of GBP 2,368 ($2,924 as of March 31, 2023) and the term and mortgage loan balances amounted to GBP 9,977 ($12,310 as of March 31, 2023).

The revolver and the term loan are both secured by substantially all the assets of AMES UK and its subsidiaries.

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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 its credit and loan agreements.

Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.7x at December 31, 2022.

At March 31, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.5x at March 31, 2023.

Capital Resource Requirements

Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $57,246, a Term Loan B facility maturing in 2029 with an outstanding balance of $494,000 on December 31, 2022 and revolving credit facility maturing in 2025 with an outstanding balance of $45,100.

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).

These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.

For additional information, see CPP reportable segments discussion.

Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $57,246, a Term Loan B facility maturing in 2029 with an outstanding balance of $492,000 on March 31, 2023 and revolving credit facility maturing in 2025 with an outstanding balance of $30,880.

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% (7.55% as of March 31, 2023).

Additionally, the Term Loan B facility requires quarterly payments of $2,000 and a balloon payment due at maturity.

For the revolving credit facility 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).

Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 1.50% (5.91% at March 31, 2023) and SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 1.50% (5.71% at March 31, 2023).

A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue.

For the three months ended December 31, 2022, our largest customer, The Home Depot, represented 11% of Griffon’s consolidated revenue, 14% of CPP's revenue and 8% of HBP’s revenue.

For the six months ended March 31, 2023, our largest customer, The Home Depot, represented 11% of Griffon’s consolidated revenue, 16% of CPP's revenue and 9% of HBP’s revenue.

No other customer exceeded 10% of consolidated revenue.

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Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, The AMES Companies, Inc., Clopay AMES Holding Corp., ClosetMaid LLC, AMES Hunter Holdings Corporation, Hunter Fan Company, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon.

In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of December 31, 2022 and September 30, 2022 and for the three months ended December 31, 2022 and for the year ended September 30, 2022.

In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of March 31, 2023 and September 30, 2022 and for the six months ended March 31, 2023 and for the year ended September 30, 2022.

All intercompany balances and transactions between subsidiaries under Parent and subsidiaries under the Guarantor have been eliminated.

The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis.

The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.

The summarized

information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities.

The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities.

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Summarized Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended For the Year Ended

December 31, 2022 September 30, 2022

For the Six Months Ended For the Year Ended

March 31, 2023 September 30, 2022

Parent Company Guarantor Companies Parent Company Guarantor Companies

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Summarized Balance Sheet Information

For the Three Months Ended For the Year Ended

December 31, 2022 September 30, 2022

For the Six Months Ended For the Year Ended

March 31, 2023 September 30, 2022

Parent Company Guarantor Companies Parent Company Guarantor Companies

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These risks and uncertainties include, among others:

the outcome (if any) and impact of the strategic alternatives review process announced in May 2022;

current economic conditions and uncertainties in the housing, credit and capital markets;

Griffon’s ability to achieve expected savings from cost control, restructuring, integration and disposal initiatives;

the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities (including, in particular, integration of the Hunter Fan acquisition);

Griffon’s ability to achieve expected savings and improved operational results from cost control, restructuring, integration and disposal initiatives (including, in particular, the expanded CPP outsourcing strategy announced in May 2023;

the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities);

increasing competition and pricing pressures in the markets served by Griffon’s operating companies;

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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-Q

Item 2. Management’s Discussion and Analysis