GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) June 30, 2023 September 30, 2022 CURRENT ASSETS Cash and equivalents $ 151,790 $ 120,184 Accounts receivable, net of allowances of $ 12,516 and $ 12,137 359,398 361,653 Inventories 554,958 669,193 Prepaid and other current assets 64,108 62,453 Assets of discontinued operations 984 1,189 Total Current Assets 1,131,238 1,214,672 PROPERTY, PLANT AND EQUIPMENT, net 262,623 294,561 OPERATING LEASE RIGHT-OF-USE ASSETS 174,187 183,398 GOODWILL 327,864 335,790 INTANGIBLE ASSETS, net 651,096 761,914 OTHER ASSETS 20,066 21,553 ASSETS OF DISCONTINUED OPERATIONS 4,141 4,586 Total Assets $ 2,571,215 $ 2,816,474 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 10,043 $ 12,653 Accounts payable 152,202 194,793 Accrued liabilities 183,161 171,797 Current portion of operating lease liabilities 29,637 31,680 Liabilities of discontinued operations 7,260 12,656 Total Current Liabilities 382,303 423,579 LONG-TERM DEBT, net 1,536,415 1,560,998 LONG-TERM OPERATING LEASE LIABILITIES 154,608 159,414 OTHER LIABILITIES 156,533 190,651 LIABILITIES OF DISCONTINUED OPERATIONS 5,650 4,262 Total Liabilities 2,235,509 2,338,904 COMMITMENTS AND CONTINGENCIES - See Note 22 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 335,706 477,570 Total Liabilities and Shareholders’ Equity $ 2,571,215 $ 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 and Nine Months Ended June 30, 2023 and 2022 (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 — — — — 345 ( 12,734 ) — — ( 12,734 ) Amortization of deferred compensation — — — — — — — 571 571 Equity awards granted, net — — ( 7,082 ) — ( 467 ) 7,082 — — — 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 Net loss — — — ( 62,255 ) — — — — ( 62,255 ) Dividend — — — ( 5,714 ) — — — — ( 5,714 ) Shares withheld on employee taxes on vested equity awards — — — — 21 ( 254 ) — — ( 254 ) Amortization of deferred compensation — — — — — — — 570 570 Equity awards granted, net — — ( 617 ) — ( 40 ) 617 — — — ESOP allocation of common stock — — 1,207 — — — — — 1,207 Stock-based compensation — — 5,296 — — — — — 5,296 Other comprehensive income, net of tax — — — — — — 2,613 — 2,613 Balance at March 31, 2023 84,746 $ 21,187 $ 633,451 $ 318,648 27,541 $ ( 425,405 ) $ ( 67,906 ) $ ( 11,664 ) $ 468,311 Net income — — — 49,205 — — — — 49,205 Dividend — — — ( 121,461 ) — — — — ( 121,461 ) Amortization of deferred compensation — — — — — — — 6,630 6,630 Common stock acquired — — — — 2,542 ( 86,009 ) — — ( 86,009 ) ESOP allocation of common stock — — 13,609 — — — — — 13,609 Stock-based compensation — — 5,106 — — — — — 5,106 Other comprehensive income, net of tax — — — — — — 315 — 315 Balance at June 30, 2023 84,746 $ 21,187 $ 652,166 $ 246,392 30,083 $ ( 511,414 ) $ ( 67,591 ) $ ( 5,034 ) $ 335,706 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three and Nine Months Ended June 30, 2023 and 2022 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 Net income — — — 19,298 — — — — 19,298 Dividend — — — ( 4,739 ) — — — — ( 4,739 ) Shares withheld on employee taxes on vested equity awards — — — — 422 ( 10,886 ) — — ( 10,886 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net 113 28 ( 28 ) — — — — — — ESOP allocation of common stock — — 848 — — — — — 848 Stock-based compensation — — 2,866 — — — — — 2,866 Other comprehensive income, net of tax — — — — — — ( 2,751 ) — ( 2,751 ) Balance at December 31, 2021 84,488 $ 21,122 $ 605,867 $ 684,557 28,184 $ ( 427,736 ) $ ( 48,728 ) $ ( 22,697 ) $ 812,385 Net income — — — 65,689 — — — — 65,689 Dividend — — — ( 5,352 ) — — — — ( 5,352 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net 258 65 ( 7,195 ) — ( 470 ) 7,130 — — — ESOP allocation of common stock — — 638 — — — — — 638 Stock-based compensation — — 4,314 — — — — — 4,314 Other comprehensive income, net of tax — — — — — — 4,949 — 4,949 Balance at March 31, 2022 84,746 $ 21,187 $ 603,624 $ 744,894 27,714 $ ( 420,606 ) $ ( 43,779 ) $ ( 22,106 ) $ 883,214 Net income — — — 140,287 — — — — 140,287 Dividend — — — ( 109,487 ) — — — — ( 109,487 ) Amortization of deferred compensation — — — — — — — 591 591 Equity awards granted, net — — ( 484 ) — ( 32 ) 484 — — — ESOP allocation of common stock — — 757 — — — — — 757 Stock-based compensation — — 5,130 — — — — — 5,130 Other comprehensive income, net of tax — — — — — — ( 14,177 ) — ( 14,177 ) Balance at June 30, 2022 84,746 $ 21,187 $ 609,027 $ 775,694 27,682 $ ( 420,122 ) $ ( 57,956 ) $ ( 21,515 ) $ 906,315 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, 2023 2022 2023 2022 Revenue $ 683,430 $ 768,179 $ 2,043,798 $ 2,139,545 Cost of goods and services 408,806 507,578 1,340,857 1,452,459 Gross profit 274,624 260,601 702,941 687,086 Selling, general and administrative expenses 172,439 157,387 485,460 442,577 Intangible asset impairment — — 100,000 — Total operating expenses 172,439 157,387 585,460 442,577 Income from operations 102,185 103,214 117,481 244,509 Other income (expense) Interest expense ( 25,641 ) ( 24,022 ) ( 75,168 ) ( 61,111 ) Interest income 434 61 774 126 Gain on sale of building — — 10,852 — Debt extinguishment, net — ( 5,287 ) — ( 5,287 ) Other, net 1,475 2,084 2,375 4,528 Total other expense, net ( 23,732 ) ( 27,164 ) ( 61,167 ) ( 61,744 ) Income before taxes from continuing operations 78,453 76,050 56,314 182,765 Provision for income taxes 29,248 23,268 20,662 55,119 Income from continuing operations $ 49,205 $ 52,782 $ 35,652 $ 127,646 Discontinued operations: Income from operations of discontinued operations — 113,457 — 117,777 Provision for income taxes — 25,952 — 20,149 Income from discontinued operations — 87,505 — 97,628 Net income $ 49,205 $ 140,287 $ 35,652 $ 225,274 Basic earnings per common share: Income from continuing operations $ 0.94 $ 1.02 $ 0.68 $ 2.48 Income from discontinued operations — 1.69 — 1.89 Basic earnings per common share $ 0.94 $ 2.71 $ 0.68 $ 4.37 Basic weighted-average shares outstanding 52,304 51,734 52,640 51,527 Diluted earnings per common share: Income from continuing operations $ 0.90 $ 0.98 $ 0.65 $ 2.38 Income from discontinued operations — 1.62 — 1.82 Diluted earnings per common share $ 0.90 $ 2.60 $ 0.65 $ 4.19 Diluted weighted-average shares outstanding 54,602 53,914 55,087 53,704 Dividends paid per common share $ 2.125 $ 0.09 $ 2.325 $ 0.27 Net income $ 49,205 $ 140,287 $ 35,652 $ 225,274 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 2,309 ( 17,823 ) 14,580 ( 14,093 ) Pension and other post retirement plans 747 1,196 2,355 2,004 Change in cash flow hedges ( 2,741 ) 2,450 ( 1,788 ) 110 Total other comprehensive income (loss), net of taxes 315 ( 14,177 ) 15,147 ( 11,979 ) Comprehensive income, net $ 49,520 $ 126,110 $ 50,799 $ 213,295 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) Nine Months Ended June 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 35,652 $ 225,274 Net income from discontinued operations — ( 97,628 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations: Depreciation and amortization 50,036 47,021 Stock-based compensation 28,587 15,978 Intangible asset impairments 100,000 — Asset impairment charges - restructuring 59,118 2,494 Provision for losses on accounts receivable 689 1,008 Amortization of debt discounts and issuance costs 3,068 2,753 Debt extinguishment, net — 5,287 Fair value step-up of acquired inventory sold — 5,401 Deferred income tax provision (benefit) ( 25,744 ) 1,465 Gain on sale of assets and investments ( 10,852 ) ( 303 ) Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable 6,236 ( 81,825 ) (Increase) decrease in inventories 84,190 ( 135,473 ) (Increase) decrease in prepaid and other assets 1,887 ( 13,388 ) Decrease in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities ( 36,945 ) ( 44,864 ) Other changes, net 13,081 1,799 Net cash provided by (used in) operating activities - continuing operations 309,003 ( 65,001 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 20,183 ) ( 33,516 ) Acquired businesses, net of cash acquired — ( 851,464 ) Proceeds (payments) from sale of business, net ( 2,568 ) 295,712 Proceeds from investments — 14,923 Proceeds from the sale of property, plant and equipment 11,840 89 Net cash used in investing activities - continuing operations ( 10,911 ) ( 574,256 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 127,372 ) ( 14,906 ) Purchase of shares for treasury ( 98,350 ) ( 10,886 ) Proceeds from long-term debt 102,558 984,314 Payments of long-term debt ( 139,244 ) ( 427,883 ) Financing costs — ( 17,065 ) Other, net ( 152 ) 188 Net cash provided by ( used in) financing activities - continuing operations ( 262,560 ) 513,762 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended June 30, 2023 2022 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by (used in) operating activities ( 2,799 ) 26,889 Net cash used in investing activities — ( 2,627 ) Net cash provided by (used in) discontinued operations ( 2,799 ) 24,262 Effect of exchange rate changes on cash and equivalents ( 1,127 ) ( 2,733 ) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 31,606 ( 103,966 ) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 120,184 248,653 CASH AND EQUIVALENTS AT END OF PERIOD $ 151,790 $ 144,687 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 6 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). On August 1, 2023, Griffon amended its credit agreement to increase the total amount available for borrowing under its revolving credit facility from $ 400,000 to $ 500,000 , extend the maturity date of the revolving credit facility from March 22, 2025 to August 1, 2028 and modify certain other provisions of the facility (the "Credit Agreement"). See Note 10, Long-Term Debt for further details. On June 27, 2022, we completed the sale of our Defense Electronics segment which consisted of our Telephonics subsidiary for $ 330,000 in cash, excluding customary post-closing adjustments. 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 the related assets and liabilities have been classified as assets and liabilities of discontinued operations 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, 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 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: • 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. • 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. 7 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 On May 11, 2023, the U.S. Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19; 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. See Part 1, Item 1A, “Risk Factors” of 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, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates. Certain amounts in the prior year have been reclassified to conform to current year presentation. NOTE 2 – FAIR VALUE MEASUREMENTS The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates. Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: 8 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. On June 30, 2023, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $ 904,104 and $ 487,550 , respectively. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 3,697 at June 30, 2023 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 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 June 30, 2023, 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 June 30, 2023, Griffon had $ 18,000 of Australian dollar contracts at a weighted average rate of $ 1.45 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 $ 757 ($ 530 , net of tax) at June 30, 2023. Upon settlement, gains of $ 882 and $ 3,298 were recorded in COGS during the three and nine months ended June 30, 2023, respectively. All contracts expire in 30 to 89 days. At June 30, 2023, Griffon had $ 55,500 of Chinese Yuan contracts at a weighted average rate of $ 6.95 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 AOCI and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $ 1,672 ($ 1,220 , net of tax) at June 30, 2023. Upon settlement, losses of $ 241 and $ 1,644 were recorded in COGS during the three and nine months ended June 30, 2023, respectively. All contracts expire in 5 to 392 days. At June 30, 2023, Griffon had $ 5,800 of Canadian dollar contracts at a weighted average rate of $ 1.33 . 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 and nine months ended June 30, 2023, fair value losses of $ 116 and $ 4 , 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 $ 51 and $ 317 was recorded in Other income during the three months and nine months ended June 30, 2023, respectively, for all settled contracts. All contracts expire in 5 to 447 days. 9 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 3 – REVENUE The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). The 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. 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 nine months ended June 30, 2023, Hunter's revenue and Segment adjusted EBITDA was $ 218,105 and $ 41,746 , respectively. Based on the final purchase price allocation, the goodwill recognized was $ 250,711 , which was assigned to the CPP segment, and is not deductible for income tax purposes. The following unaudited proforma summary from continuing operations for the nine month period presents consolidated information as if the Company acquired Hunter on October 1, 2021: Proforma For the Nine Months Ended June 30, 2022 (unaudited) Revenue $ 2,230,056 Income from continuing operations 127,299 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 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. 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 calculation of the final 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 250,711 Intangible assets 616,000 Total assets acquired $ 1,077,006 Accounts payable and accrued liabilities $ 70,039 Current portion of operating lease liabilities 3,323 Deferred tax liability (3) 139,219 Long-term operating lease liabilities 9,123 Other long-term liabilities 3,848 Total liabilities assumed $ 225,552 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 primarily intangibles assets. The amounts assigned to goodwill and major intangible asset classifications for the Hunter acquisition are as follows: Average Life (Years) Goodwill $ 250,711 N/A Indefinite-lived intangibles (Hunter and Casablanca brands) 356,000 N/A Definite-lived intangibles (Customer relationships) 260,000 20 Total goodwill and intangible assets $ 866,711 During the quarter and nine months ended June 30, 2023, there were no acquisition costs. During the nine months ended June 30, 2022, the Company incurred acquisition costs of $ 9,303 . During the three months ended June 30, 2022, no acquisition costs were incurred. 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 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 June 30, 2023 At September 30, 2022 Raw materials and supplies $ 160,071 $ 173,520 Work in process 34,572 50,963 Finished goods 360,315 444,710 Total $ 554,958 $ 669,193 In connection with the Company's restructuring activities described in Note 17, Restructuring Charges, during the nine months ended June 30, 2023, CPP recorded an inventory impairment charge of $ 37,100 to adjust to net realizable value. NOTE 6 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At June 30, 2023 At September 30, 2022 Land, building and building improvements $ 159,689 $ 159,693 Machinery and equipment 439,989 511,779 Leasehold improvements 36,290 35,489 635,968 706,961 Accumulated depreciation and amortization ( 373,345 ) ( 412,400 ) Total $ 262,623 $ 294,561 Depreciation and amortization expense for property, plant and equipment was $ 10,000 and $ 12,173 for the quarters ended June 30, 2023 and 2022, respectively, and $ 33,090 and $ 34,650 for the nine months ended June 30, 2023 and 2022, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 4,404 and $ 4,578 for the quarters ended June 30, 2023 and 2022, respectively, and $ 13,289 and $ 12,234 for the nine months ended June 30, 2023 and 2022, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. Except as described in Note 17, Restructuring Charges, no event or indicator of impairment occurred during the three and nine months ended June 30, 2023 which would require additional impairment testing of property, plant and equipment. 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 7 – CREDIT LOSSES The Company is exposed to credit losses primarily through sales of products and services. Trade receivables are recorded at their stated amount, less allowances for discounts, 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: Nine months ended June 30, 2023 2022 Beginning Balance, October 1 $ 12,137 $ 8,787 Allowance for credit losses acquired — 2,599 Provision for expected credit losses 2,732 2,430 Amounts written off charged against the allowance ( 1,916 ) ( 159 ) Other, primarily foreign currency translation ( 437 ) ( 116 ) Ending Balance, June 30 $ 12,516 $ 13,541 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – GOODWILL AND OTHER INTANGIBLES Indicators of impairment were not present for any of Griffon's reporting units during the three months ended June 30, 2023. During the three months ended March 31, 2023, indicators of goodwill impairment were present for our CPP reporting units driven by a decrease in year-to-date and forecasted sales and operating results due to elevated customer inventory levels and reduced consumer demand. As such, in connection with the preparation of our financial statements for the second quarter ended March 31, 2023, we performed a quantitative assessment of the CPP reporting units goodwill using both an income based and market-based valuation approach. The impairment test performed during the second quarter ended March 31, 2023 did not result in a goodwill impairment. Indicators of impairment were not present for the HBP reporting unit during the second quarter ended March 31, 2023. The following table provides a summary of the carrying value of goodwill by segment as of September 30, 2022 and June 30, 2023, as follows: At September 30, 2022 Hunter Acquisition (1) At June 30, 2023 Consumer and Professional Products $ 144,537 $ ( 7,926 ) $ 136,611 Home and Building Products 191,253 — 191,253 Total $ 335,790 $ ( 7,926 ) $ 327,864 (1) The decrease is due to the final allocation of the purchase price for the Hunter acquisition primarily related to deferred taxes. In connection with the preparation of our financial statements for the second quarter ended March 31, 2023, indicators of impairment were present for our CPP indefinite-lived intangible assets. As such, we determined the fair values of the indefinite-lived intangible assets by using a relief from royalty method, which estimates the value of a trademark by discounting to present value the hypothetical royalty payments that are saved by owning the asset rather than licensing it. We compared the estimated fair values to their carrying amounts. The impairment test resulted in a pre-tax, non-cash impairment charge of $ 100,000 ($ 74,256 , net of tax) to the gross carrying amount of our trademarks. Indicators of impairment were not present for any of Griffon's indefinite-lived intangible assets during the three months ended June 30, 2023. The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At June 30, 2023 At September 30, 2022 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 444,602 $ 108,510 23 $ 442,085 $ 91,143 Technology and patents 15,178 3,595 13 14,326 3,022 Total amortizable intangible assets 459,780 112,105 456,411 94,165 Trademarks 303,421 — 399,668 — Total intangible assets $ 763,201 $ 112,105 $ 856,079 $ 94,165 The gross carrying amount of intangible assets was impacted by $ 7,122 related to favorable foreign currency translation. Amortization expense for intangible assets was $ 5,669 and $ 5,514 for the quarters ended June 30, 2023 and 2022, respectively, and $ 16,946 and $ 12,371 for the nine months ended June 30, 2023 and 2022, 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 - $ 4,839 ; 2024 - $ 21,305 ; 2025 - $ 21,305 ; 2026 - $ 21,305 ; 2027 - $ 21,305 ; 2028 - $ 21,305 ; thereafter $ 236,311 . 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 9 – INCOME TAXES During the quarter ended June 30, 2023, the Company recognized a tax provision of $ 29,248 on income before taxes from continuing operations of $ 78,453 , compared to a tax provision of $ 23,268 on income before taxes from continuing operations of $ 76,050 in the prior year quarter. The current year quarter results included strategic review costs (retention and other) of $ 5,812 ($ 4,378 , net of tax), restructuring charges of $ 3,862 ($ 2,831 , net of tax), special dividend Employee Stock Ownership Plan ("ESOP") charges of $ 9,042 ($ 6,936 , net of tax), proxy costs of $ 568 ($ 435 , net of tax) and discrete and certain other tax provisions, net, that affect comparability of $ 6,519 . The prior year quarter results included restructuring charges of $ 5,909 ($ 4,359 , net of tax), fair value step-up of acquired inventory sold of $ 2,700 ($ 2,005 , net of tax), strategic review - retention and other of $ 3,220 ($ 2,416 , net of tax), debt extinguishment, net, of $ 5,287 ($ 4,022 , net of tax), and discrete and certain other tax provisions, net, that affect comparability of $ 913 . Excluding these items, the effective tax rates for the quarters ended June 30, 2023 and 2022 were 28.1 % and 28.6 %, respectively. During the nine months ended June 30, 2023, the Company recognized a tax provision of $ 20,662 on income before taxes from continuing operations of $ 56,314 , compared to a tax provision of $ 55,119 on income before taxes from continuing operations of $ 182,765 in the prior year period. The nine months ended June 30, 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 $ 20,234 ($ 15,258 , net of tax), restructuring charges of $ 82,196 ($ 61,360 , net of tax), special dividend ESOP charges of $ 9,042 ($ 6,936 , net of tax), intangible asset impairment charges of $ 100,000 ($ 74,256 , net of tax), proxy expenses of $ 2,685 ($ 2,059 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of $ 2,537 . The nine months ended June 30, 2022 included restructuring charges of $ 12,391 ($ 9,185 , net of tax), acquisition costs of $ 9,303 ($ 8,149 , net of tax), proxy costs of $ 6,952 ($ 5,359 , net of tax), fair value step-up of acquired inventory sold of $ 5,401 ($ 4,012 , net of tax), strategic review - retention and other of $ 3,220 ($ 2,416 , net of tax), debt extinguishment, net, of $ 5,287 ($ 4,022 , net of tax), and discrete and certain other tax benefits, net, that affect comparability of $ 661 . Excluding these items, the effective tax rates for the nine months ended June 30, 2023 and 2022 were both 28.9 %. 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 10 – LONG-TERM DEBT At June 30, 2023 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 $ 230 ( 9,425 ) $ 965,580 5.75 % $ 974,775 $ 266 $ ( 10,939 ) $ 964,102 5.75 % Term Loan B due 2029 (b) 490,000 ( 1,016 ) ( 7,769 ) 481,215 Variable 496,000 ( 1,144 ) ( 8,823 ) 486,033 Variable Revolver due 2025 (b) 86,705 — ( 859 ) 85,846 Variable 97,328 — ( 1,227 ) 96,101 Variable Finance lease - real estate (c) 12,056 — — 12,056 Variable 13,091 — — 13,091 Variable Non US lines of credit (d) — — ( 7 ) ( 7 ) Variable — — ( 2 ) ( 2 ) Variable Non US term loans (d) — — — — Variable 12,090 — ( 27 ) 12,063 Variable Other long term debt (e) 1,783 — ( 15 ) 1,768 Variable 2,276 — ( 13 ) 2,263 Variable Totals 1,565,319 ( 786 ) ( 18,075 ) 1,546,458 1,595,560 ( 878 ) ( 21,031 ) 1,573,651 less: Current portion ( 10,043 ) — — ( 10,043 ) ( 12,653 ) — — ( 12,653 ) Long-term debt $ 1,555,276 $ ( 786 ) $ ( 18,075 ) $ 1,536,415 $ 1,582,907 $ ( 878 ) $ ( 21,031 ) $ 1,560,998 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 14,013 $ ( 12 ) $ 505 $ 14,506 6.0 % $ 14,340 $ ( 12 ) $ 516 $ 14,844 Term Loan B due 2029 (b) 7.8 % 9,208 43 351 9,602 3.9 % 7,129 61 485 7,675 Revolver due 2025 (b) Variable 905 — 123 1,028 Variable 1,056 — 123 1,179 Finance lease - real estate (c) 5.6 % 168 — — 168 5.6 % 187 — — 187 Non US lines of credit (d) Variable 259 — 12 271 Variable 4 — 5 9 Non US term loans (d) Variable — — — — Variable 141 — 9 150 Other long term debt (e) Variable 104 — — 104 Variable 54 — — 54 Capitalized interest ( 38 ) — — ( 38 ) ( 76 ) — — ( 76 ) Totals $ 24,619 $ 31 $ 991 $ 25,641 $ 22,835 $ 49 $ 1,138 $ 24,022 Nine Months Ended June 30, 2023 Nine Months Ended June 30, 2022 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 6.0 % $ 42,037 $ ( 36 ) $ 1,515 $ 43,516 6.0 % $ 43,090 $ ( 36 ) $ 1,552 $ 44,606 Term Loan B due 2029 (b) 7.3 % 25,753 129 1,054 26,936 3.7 % 11,896 91 717 12,704 Revolver due 2025 (b) Variable 2,922 — 368 3,290 Variable 2,307 — 368 2,675 Finance lease - real estate (c) 5.6 % 520 — — 520 5.6 % 577 — 4 581 Non US lines of credit (d) Variable 619 — 37 656 Variable 14 — 12 26 Non US term loans (d) Variable — — — — Variable 492 — 44 536 Other long term debt (e) Variable 298 — 1 299 Variable 212 — 1 213 Capitalized interest ( 49 ) — — ( 49 ) ( 230 ) — — ( 230 ) Totals $ 72,100 $ 93 $ 2,975 $ 75,168 $ 58,358 $ 55 $ 2,698 $ 61,111 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (a) During 2020, Griffon issued, at par, $ 1,000,000 of 5.75 % Senior Notes due 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 June 30, 2023, 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 $ 904,104 on June 30, 2023 based upon quoted market prices (level 1 inputs). At June 30, 2023, $ 9,425 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 spread of 2.25 % ( 7.64 % as of June 30, 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 , 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 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 $ 487,550 on June 30, 2023 based upon quoted market prices (level 1 inputs). At June 30, 2023, $ 7,769 of underwriting fees and other expenses incurred, remained to be amortized. At June 30, 2023 the Revolver's maximum borrowing availability was $ 400,000 with a maturity date of March 22, 2025. The Revolver included a letter of credit sub-facility with a limit of $ 100,000 and a multi-currency sub-facility with a limit of $ 200,000 . The Revolver and Term Loan B contained a customary accordion feature that permitted us to request, subject to each lender's consent, an incremental amount that can be borrowed by up to the greater of $ 375,000 and an amount based on the senior secured leverage ratio. On August 1, 2023, Griffon amended its Credit Agreement. The amendment increased the maximum borrowing availability on the Revolver from $ 400,000 to $ 500,000 and extended the maturity date of the Revolver from March 22, 2025 to August 1, 2028. In the event the 2028 Senior Notes are not repaid, refinanced, or replaced prior to December 1, 2027, the Revolver will mature on December 1, 2027. The amendment also modified certain other provisions of the Credit Agreement, including increasing the letter of credit sub-facility from $ 100,000 to $ 125,000 and increasing the customary accordion feature from a minimum of $ 375,000 to a minimum of $ 500,000 . A more detailed description of the amended Credit Agreement can be found in Part II, Item 5 of this Quarterly Report on Form 10-Q. 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 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) financial performance. Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 1.50 % ( 6.75 % at June 30, 2023), SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 1.50 % ( 6.46 % at June 30, 2023) and base rate loans accrue interest at prime rate plus a margin of 0.50 % ( 8.75 % at June 30, 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. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Both the Revolver and Term Loan B borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At June 30, 2023, there was $ 86,705 of outstanding borrowings under the Revolver; outstanding standby letters of credit were $ 12,802 ; and $ 300,493 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 a five-year renewal option. At June 30, 2023, $ 12,056 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 ($ 11,334 as of June 30, 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 ( 6.57 % using CDOR and 6.32 % using Bankers Acceptance Rate CDN as of June 30, 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 June 30, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 11,334 as of June 30, 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. 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 ( 5.39 % at June 30, 2023). At June 30, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($ 19,878 as of June 30, 2023) 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. On June 30, 2023, The AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") paid off and cancelled the GBP 14,000 term loan and GBP 4,000 mortgage loan that were entered into in July 2018 and further amended in January 2022 and that were maturing in July 2023. The payoff amounts were GBP 7,525 ($ 9,543 ) and GBP 2,451 ($ 3,108 ), for the term loan and mortgage loan, respectively. In July 2018, The AMES UK entered into a GBP 5,000 revolving facility that accrues interest at the Bank of England Base Rate plus 3.25 % ( 8.25 % as of June 30, 2023) and expires in July 2023. The revolver had no outstanding balance as of June 30, 2023. The revolver is secured by substantially all the assets of AMES UK and its subsidiaries, and subjects Ames UK 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. 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) At June 30, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. NOTE 11 — SHAREHOLDERS’ EQUITY AND EQUITY COMPENSATION During the nine months ended June 30, 2023, the Company paid three quarterly cash dividends consisting of two cash dividends of $ 0.10 per share and one cash dividend of $ 0.125 per share. Additionally, on April 19, 2023, the Board of Directors declared a special cash dividend of $ 2.00 per share, paid on May 19, 2023, to shareholders of record as of the close of business on May 9, 2023. On August 1, 2023, the Board of Directors declared a quarterly cash dividend of $ 0.125 per share, payable on September 14, 2023 to shareholders of record as of the close of business on August 23, 2023. 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 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 June 30, 2023, there were 328,473 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 June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Restricted stock $ 5,106 $ 5,130 $ 15,940 $ 13,334 ESOP 10,146 889 12,647 2,644 Total stock-based compensation $ 15,252 $ 6,019 $ 28,587 $ 15,978 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 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 weighted average fair value of $ 34.63 per share. During the second quarter of 2023, Griffon granted 39,972 shares of restricted stock to the non-employee directors of Griffon with a vesting period of one year and a fair value of $ 1,211 , or a weighted average fair value of $ 30.29 per share. During the third quarter of 2023, there were no shares of restricted stock or RSU's granted. During the nine months ended June 30, 2023, 494,748 shares granted were issued out of treasury stock. On April 19, 2023, the Company's Board of Directors approved a $ 200,000 increase to Griffon's share repurchase program to $ 257,955 from the prior unused authorization of $ 57,955 . Under the authorized share repurchase program, 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. During the quarter and nine months ended June 30, 2023, Griffon purchased 2,541,932 shares of common stock under these repurchase programs, for a total of $ 85,361 , or $ 33.58 per share, excluding excise taxes. As of June 30, 2023, $ 172,594 remains under these Board authorized repurchase programs. In connection with the share repurchases, excise taxes totaling $ 647 were accrued as of June 30, 2023. During the three months ended June 30, 2023, there were no shares withheld to settle employee taxes due upon the vesting of restricted stock. During the nine months ended June 30, 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 nine months ended June 30, 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. 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 June 30, Nine Months Ended June 30, 2023 2022 2023 2022 Common shares outstanding 54,663 57,064 54,663 57,064 Unallocated ESOP shares ( 565 ) ( 1,396 ) ( 565 ) ( 1,396 ) Non-vested restricted stock ( 3,113 ) ( 3,565 ) ( 3,113 ) ( 3,565 ) Impact of weighted average shares 1,319 ( 369 ) 1,655 ( 576 ) Weighted average shares outstanding - basic 52,304 51,734 52,640 51,527 Incremental shares from stock-based compensation 2,298 2,180 2,447 2,177 Weighted average shares outstanding - diluted 54,602 53,914 55,087 53,704 Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share. 21 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 13 – BUSINESS SEGMENTS Griffon reports its operations through two reportable segments, as follows: • 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. • 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. Information on Griffon’s reportable segments from continuing operations is as follows: For the Three Months Ended June 30, For the Nine Months Ended June 30, REVENUE 2023 2022 2023 2022 Home and Building Products $ 401,142 $ 405,545 $ 1,194,374 $ 1,082,726 Consumer and Professional Products 282,288 362,634 849,424 1,056,819 Total revenue $ 683,430 $ 768,179 $ 2,043,798 $ 2,139,545 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 June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Residential repair and remodel $ 186,554 $ 194,526 $ 562,433 $ 511,988 Commercial 179,054 167,173 524,811 455,338 Residential new construction 35,534 43,846 107,130 115,400 Total Home and Building Products 401,142 405,545 1,194,374 1,082,726 Residential repair and remodel 107,276 139,126 292,385 292,516 Retail 63,560 99,284 229,960 382,202 Residential new construction 12,600 11,387 36,785 33,733 Industrial 22,204 24,748 58,380 57,122 International excluding North America 76,648 88,089 231,914 291,246 Total Consumer and Professional Products 282,288 362,634 849,424 1,056,819 Total Consolidated Revenue $ 683,430 $ 768,179 $ 2,043,798 $ 2,139,545 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended June 30, 2023 2022 HBP CPP Total HBP CPP Total United States $ 382,295 $ 195,132 $ 577,427 $ 384,265 $ 248,068 $ 632,333 Europe — 19,792 19,792 7 31,113 31,120 Canada 16,576 12,955 29,531 15,683 19,592 35,275 Australia — 49,548 49,548 — 55,142 55,142 All other countries 2,271 4,861 7,132 5,590 8,719 14,309 Consolidated revenue $ 401,142 $ 282,288 $ 683,430 $ 405,545 $ 362,634 $ 768,179 For the Nine Months Ended June 30, 2023 2022 HBP CPP Total HBP CPP Total United States $ 1,139,936 $ 561,184 $ 1,701,120 $ 1,031,650 $ 677,714 $ 1,709,364 Europe 16 43,558 43,574 51 96,226 96,277 Canada 47,337 57,641 104,978 41,574 73,249 114,823 Australia — 172,350 172,350 — 191,679 191,679 All other countries 7,085 14,691 21,776 9,451 17,951 27,402 Consolidated revenue $ 1,194,374 $ 849,424 $ 2,043,798 $ 1,082,726 $ 1,056,819 $ 2,139,545 Griffon evaluates performance and allocates resources based on segment adjusted EBITDA and adjusted EBITDA, non-GAAP measures, which is defined as income before taxes from continuing operations, excluding interest income and expense, depreciation and amortization, strategic review charges, non-cash impairment charges, restructuring charges, gain/loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable. Segment adjusted EBITDA also excludes unallocated amounts, mainly corporate overhead. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of segment and adjusted EBITDA to income before taxes from continuing 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) For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Segment adjusted EBITDA: Home and Building Products $ 134,330 $ 119,847 $ 390,346 $ 280,618 Consumer and Professional Products 18,265 28,373 36,091 92,431 Segment adjusted EBITDA 152,595 148,220 426,437 373,049 Unallocated amounts, excluding depreciation * ( 13,982 ) ( 13,405 ) ( 42,388 ) ( 39,724 ) Adjusted EBITDA 138,613 134,815 384,049 333,325 Net interest expense ( 25,207 ) ( 23,961 ) ( 74,394 ) ( 60,985 ) Depreciation and amortization ( 15,669 ) ( 17,688 ) ( 50,036 ) ( 47,021 ) Debt extinguishment, net — ( 5,287 ) — ( 5,287 ) Gain on sale of building — — 10,852 — Strategic review - retention and other ( 5,812 ) ( 3,220 ) ( 20,234 ) ( 3,220 ) Proxy expenses ( 568 ) — ( 2,685 ) ( 6,952 ) Acquisition costs — — — ( 9,303 ) Restructuring charges ( 3,862 ) ( 5,909 ) ( 82,196 ) ( 12,391 ) Intangible asset impairment — — ( 100,000 ) — Special dividend ESOP charges ( 9,042 ) — ( 9,042 ) — Fair value step-up of acquired inventory sold — ( 2,700 ) — ( 5,401 ) Income before taxes from continuing operations $ 78,453 $ 76,050 $ 56,314 $ 182,765 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. For the Three Months Ended June 30, For the Nine Months Ended June 30, DEPRECIATION and AMORTIZATION 2023 2022 2023 2022 Segment: Home and Building Products $ 3,868 $ 4,116 $ 11,525 $ 12,778 Consumer and Professional Products 11,661 13,434 38,091 33,831 Total segment depreciation and amortization 15,529 17,550 49,616 46,609 Corporate 140 138 420 412 Total consolidated depreciation and amortization $ 15,669 $ 17,688 $ 50,036 $ 47,021 CAPITAL EXPENDITURES Segment: Home and Building Products $ 4,620 $ 2,891 $ 10,293 $ 8,643 Consumer and Professional Products 3,726 8,558 9,858 24,742 Total segment 8,346 11,449 20,151 33,385 Corporate — 37 32 131 Total consolidated capital expenditures $ 8,346 $ 11,486 $ 20,183 $ 33,516 24 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 June 30, 2023 At September 30, 2022 Segment assets: Home and Building Products $ 702,328 $ 737,860 Consumer and Professional Products 1,674,453 1,914,529 Total segment assets 2,376,781 2,652,389 Corporate 189,309 158,310 Total continuing assets 2,566,090 2,810,699 Discontinued operations 5,125 5,775 Consolidated total $ 2,571,215 $ 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 June 30, Nine Months Ended June 30, 2023 2022 2023 2022 Interest cost $ 1,826 $ 943 $ 5,477 $ 2,650 Expected return on plan assets ( 2,553 ) ( 2,905 ) ( 7,660 ) ( 8,329 ) Amortization: Recognized actuarial loss 944 844 2,833 2,534 Net periodic expense (income) $ 217 $ ( 1,118 ) $ 650 $ ( 3,145 ) 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. 25 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. 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 June 30, 2022 For the Nine Months Ended June 30, 2022 Revenue $ 50,795 $ 161,061 Cost of goods and services 39,059 125,208 Gross profit 11,736 35,853 Selling, general and administrative expenses 6,114 26,423 Income from discontinued operations 5,622 9,430 Other income (expense): Interest income, net — 2 Gain on sale of business 108,949 108,949 Other, net ( 1,114 ) ( 604 ) Total other income (expense) 107,835 108,347 Income from discontinued operations before taxes $ 113,457 $ 117,777 Provision for income taxes 25,952 20,149 Income from discontinued operations $ 87,505 $ 97,628 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 $ 2,342 and $ 7,442 for the quarter and nine months ended June 30, 2022, respectively. 26 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following amounts 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 June 30, 2023 At September 30, 2022 Assets of discontinued operations: Prepaid and other current assets $ 984 $ 1,189 Other long-term assets 4,141 4,586 Total assets of discontinued operations $ 5,125 $ 5,775 Liabilities of discontinued operations: Accrued liabilities, current $ 7,260 $ 12,656 Other long-term liabilities 5,650 4,262 Total liabilities of discontinued operations $ 12,910 $ 16,918 At June 30, 2023 and September 30, 2022, Griffon's discontinued assets and liabilities includes the Company's obligation of $ 4,553 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 June 30, 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 total $ 8,357 and $ 8,072 , respectively. There was no reported revenue in the nine ended June 30, 2023 and 2022 for Installations Services and other discontinued operations. NOTE 17 – 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. 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, PA; Grantsville, MD; Fairfield, IA; 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. In the quarter and nine months ended June 30, 2023, CPP incurred pre-tax restructuring and related exit costs approximating $ 3,862 and $ 82,196 , respectively. During the nine months ended June 30, 2023, cash charges totaled $ 23,078 and non-cash, asset-related charges totaled $ 59,118 ; the cash charges included $ 10,284 for one-time termination benefits and other personnel-related costs and $ 12,794 for facility exit 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. 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 , 27 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 and nine months ended June 30, 2022, CPP incurred pre-tax restructuring and related exit costs approximating $ 5,909 and $ 12,391 , respectively. During the nine months ended June 30, 2022, cash charges totaled $ 9,897 and non-cash, asset-related charges totaled $ 2,494 ; the cash charges included $ 3,751 for one-time termination benefits and other personnel-related costs and $ 6,146 for facility exit costs. Non-cash charges included a $ 1,766 impairment charge related to certain fixed assets at several manufacturing locations and $ 728 of inventory that has no recoverable value. A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Cost of goods and services $ 1,777 $ 2,441 $ 76,422 $ 5,218 Selling, general and administrative expenses 2,085 3,468 5,774 7,173 Total restructuring charges $ 3,862 $ 5,909 $ 82,196 $ 12,391 For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Personnel related costs $ 2,234 $ 1,613 $ 10,284 $ 3,751 Facilities, exit costs and other 1,628 3,857 12,794 6,146 Non-cash facility and other — 439 59,118 2,494 Total $ 3,862 $ 5,909 $ 82,196 $ 12,391 28 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 tables summarizes the accrued liabilities of the Company's restructuring actions for the nine months ended June 30, 2023 and 2022: 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 Q2 Restructuring charges 1,878 1,122 1,766 4,766 Q2 Cash payments ( 1,883 ) ( 1,122 ) — ( 3,005 ) Q2 Non-cash charges — — ( 1,766 ) ( 1,766 ) Accrued liability at March 31, 2022 $ 398 $ 264 $ — $ 662 Q3 Restructuring charges 1,613 3,857 439 5,909 Q3 Cash payments ( 1,619 ) ( 3,857 ) — ( 5,476 ) Q3 Non-cash charges — — ( 439 ) ( 439 ) Accrued liability at June 30, 2022 $ 392 $ 264 $ — $ 656 ___________________ (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 Non-Cash Personnel related costs Facilities & Exit Costs Facility and Other Costs (2) 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 Q2 Restructuring charges 8,050 11,166 59,118 78,334 Q2 Cash payments ( 244 ) ( 1,883 ) — ( 2,127 ) Q2 Non-cash charges — — ( 59,118 ) ( 59,118 ) Accrued liability at March 31, 2023 $ 8,118 $ 9,454 $ — $ 17,572 Q3 Restructuring charges 2,234 1,628 — 3,862 Q3 Cash payments ( 579 ) ( 4,245 ) — ( 4,824 ) Accrued liability at June 30, 2023 $ 9,773 $ 6,837 $ — $ 16,610 ___________________ (2) Non-cash charges in Facility and Other Costs represent the non-cash impairment charges related to certain fixed assets at several manufacturing sights and to adjust inventory to net realizable value. 29 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 18 – OTHER INCOME (EXPENSE) For the quarters ended June 30, 2023 and 2022, Other income (expense) of $ 1,475 and $ 2,084 , respectively, includes $ 590 and $ 265 , respectively, of net currency exchange gains 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 $ 1,118 , respectively, and $ 336 and $( 91 ), respectively, of net investment income (loss). Other income (expense) also includes rental income of $ 0 and $ 156 for the three months ended June 30, 2023 and 2022, respectively. Additionally, it includes royalty income of $ 438 and $ 828 for the three months ended June 30, 2023 and 2022, respectively. For the nine months ended June 30, 2023 and 2022, Other income (expense) of $ 2,375 and $ 4,528 , respectively, includes $ 492 and $( 297 ), 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 (loss) of $( 650 ) and $ 3,145 , respectively, as well as $ 444 and $( 328 ), respectively, of net investment income (loss). Other income (expense) also includes rental income of $ 212 and $ 468 in the nine months ended June 30, 2023 and 2022, as well as royalty income of $ 1,463 and $ 1,444 for the nine months ended June 30, 2023 and 2022, respectively. 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. Warranty costs expected to be incurred in the next 12 months are classified in accrued liabilities. Warranty costs expected to be incurred beyond one year are classified in other long-term liabilities. The current portion of warranty was $ 21,698 as of June 30, 2023 and $ 16,786 as of September 30, 2022. The long-term warranty liability was $ 1,240 at both June 30, 2023 and September 30, 2022. Changes in Griffon’s warranty liability for the three and nine months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Nine Months Ended June 30, 2023 2022 2023 2022 Balance, beginning of period $ 21,341 $ 19,197 $ 18,026 $ 7,818 Warranties issued and changes in estimated pre-existing warranties 4,999 5,119 16,079 14,368 Actual warranty costs incurred ( 3,402 ) ( 4,937 ) ( 11,167 ) ( 10,399 ) Other warranty liabilities assumed from acquisitions — — — 7,592 Balance, end of period $ 22,938 $ 19,379 $ 22,938 $ 19,379 30 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 20 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended June 30, 2023 2022 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 2,309 $ — $ 2,309 $ ( 17,823 ) $ — $ ( 17,823 ) Pension and other defined benefit plans 943 ( 196 ) 747 1,511 ( 315 ) 1,196 Cash flow hedges ( 3,916 ) 1,175 ( 2,741 ) 3,500 ( 1,050 ) 2,450 Total other comprehensive income (loss) $ ( 664 ) $ 979 $ 315 $ ( 12,812 ) $ ( 1,365 ) $ ( 14,177 ) For the Nine Months Ended June 30, 2023 2022 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 14,580 $ — $ 14,580 $ ( 14,093 ) $ — $ ( 14,093 ) Pension and other defined benefit plans 2,972 ( 617 ) 2,355 2,534 ( 530 ) 2,004 Cash flow hedges ( 2,555 ) 767 ( 1,788 ) 158 ( 48 ) 110 Total other comprehensive income (loss) $ 14,997 $ 150 $ 15,147 $ ( 11,401 ) $ ( 578 ) $ ( 11,979 ) The components of Accumulated other comprehensive income (loss) are as follows: At June 30, 2023 At September 30, 2022 Foreign currency translation adjustments $ ( 42,590 ) $ ( 57,170 ) Pension and other defined benefit plans ( 24,944 ) ( 27,299 ) Change in Cash flow hedges ( 57 ) 1,731 $ ( 67,591 ) $ ( 82,738 ) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended June 30, For the Nine Months Ended June 30, Gain (Loss) 2023 2022 2023 2022 Pension amortization $ ( 944 ) $ ( 844 ) $ ( 2,833 ) $ ( 2,534 ) Cash flow hedges 641 716 1,654 3,633 Total gain (loss) $ ( 303 ) $ ( 128 ) $ ( 1,179 ) $ 1,099 Tax benefit (expense) 64 27 248 ( 230 ) Total $ ( 239 ) $ ( 101 ) $ ( 931 ) $ 869 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 31 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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 June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Fixed $ 11,512 $ 13,021 $ 34,179 $ 32,674 Variable (a), (b) 2,067 2,742 8,085 6,278 Short-term (b) 2,201 1,741 6,249 4,576 Total $ 15,780 $ 17,504 $ 48,513 $ 43,528 (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. Supplemental cash flow information were as follows: For the Nine Months Ended June 30, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 30,163 $ 34,759 Financing cash flows from finance leases 1,673 1,936 Total $ 31,836 $ 36,695 32 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: June 30, 2023 September 30, 2022 Operating Leases: Right of use assets: Operating right-of-use assets $ 174,187 $ 183,398 Lease Liabilities: Current portion of operating lease liabilities $ 29,637 $ 31,680 Long-term operating lease liabilities 154,608 159,414 Total operating lease liabilities $ 184,245 $ 191,094 Finance Leases: Property, plant and equipment, net (1) $ 12,340 $ 13,696 Lease Liabilities: Notes payable and current portion of long-term debt $ 1,824 $ 2,065 Long-term debt, net 10,841 11,995 Total financing lease liabilities $ 12,665 $ 14,060 (1) Finance lease assets are recorded net of accumulated depreciation of $ 6,528 and $ 4,972 as of June 30, 2023 and September 30, 2022, respectively. 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 a five-year renewal option. At June 30, 2023, $ 12,056 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 June 30, 2023 are as follows (in thousands): Operating Leases Finance Leases 2023 (a) $ 10,405 $ 660 2024 38,331 2,380 2025 35,672 2,199 2026 26,718 2,140 2027 22,103 2,078 2028 17,905 2,074 Thereafter 83,454 3,628 Total lease payments $ 234,588 $ 15,159 Less: Imputed Interest ( 50,343 ) ( 2,494 ) Present value of lease liabilities $ 184,245 $ 12,665 (a) Excluding the nine months ended June 30, 2023. 33 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Average lease terms and discount rates at June 30, 2023 were as follows: Weighted-average remaining lease term (years): Operating leases 8.1 Finance Leases 6.8 Weighted-average discount rate: Operating Leases 5.84 % Finance Leases 5.56 % 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 from the 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 pursuant to which Lightron and ISCP will perform a Remedial Investigation/Feasibility Study (“RI/FS”). Performance of the RI/FS is expected to be completed in calendar 2024. 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 it include the site 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 any 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. 34 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) If the EPA decides to add this site to the National Priorities List, a Remedial Investigation/Feasibility Study (“RI/FS”) will be required. Hunter expects that 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 reimbursement from such parties, including Hunter, for the costs incurred. General legal Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows. 35 Table of Contents (Unless otherwise indicated, US dollars and non-US currencies are in thousands, except per share data)