GRIFFON CORP 10-Q

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS Overview Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). Business Strategy We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products. Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels and conducting business across multiple countries which we consider our home markets. Griffon’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. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions. Over the past five years, we have undertaken a series of transformative transactions. We divested our specialty plastics business in 2018 to focus on our core markets and improve our free cash flow conversion. In our Home and Building Products ("HBP") segment, we acquired CornellCookson, Inc. ("CornellCookson") in 2018, which has been integrated into Clopay Corporation ("Clopay"), creating a leading North American manufacturer and marketer of residential garage doors and sectional commercial doors, and rolling steel doors and grille products under brands that include Clopay, Ideal, Cornell and Cookson. In our Consumer and Professional Products ("CPP") segment, we expanded the scope of our brands through the acquisition of Hunter Fan Company ("Hunter") on January 24, 2022 and ClosetMaid, LLC ("ClosetMaid") in 2018. We established an integrated headquarters for CPP in Orlando, Florida for our portfolio of leading brands that includes AMES, Hunter, True Temper and ClosetMaid. CPP is well positioned to fulfill its ongoing mission of Bringing Brands Together™ with the leading brands in consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. On September 27, 2021, we announced we were exploring strategic alternatives for our Defense Electronics ("DE") segment, which consisted of our Telephonics Corporation ("Telephonics") subsidiary. On June 27, 2022, we completed the sale of Telephonics to TTM Technologies, Inc. (NASDAQ:TTMI) ("TTM") for $330,000 in cash. Griffon classified the results of operations of our Telephonics business 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 the discontinued operation in the consolidated balance sheets. Accordingly, all references made to results and information in this Quarterly Report on Form 10-Q are to Griffon's continuing operations, unless noted otherwise. On May 16, 2022, Griffon announced that its Board of Directors initiated a process to review a comprehensive range of strategic alternatives to maximize shareholder value including a sale, merger, divestiture, recapitalization or other strategic transaction, and on April 20, 2023, Griffon announced that its Board of Directors, after extensive evaluation and deliberation, determined that the ongoing execution of the Company’s strategic plan was the best way to maximize value for shareholders and unanimously decided to conclude its review. On January 24, 2022, Griffon acquired Hunter, a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a contractual purchase price of $845,000. Hunter, part of our CPP segment, complements and diversifies our portfolio of leading consumer brands and products. We financed the acquisition of Hunter 36 Table of Contents 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. 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. 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. CPP Global Sourcing Strategy Expansion and Restructuring Charges On May 3, 2023, in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines. By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures. The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its facility footprint by approximately 1.2 million square feet, or approximately 15%, and its headcount by approximately 600. The affected U.S. locations will include Camp Hill and Harrisburg, Pennsylvania; Grantsville, Maryland; Fairfield, Iowa; and four wood mills. Implementation of this strategy over the duration of the project will result in charges of $120,000 to $130,000, including $50,000 to $55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of $3,000 to $5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition. Other Business Highlights In August 2020 Griffon completed the Public Offering of 8,700,000 shares of our common stock for total net proceeds of $178,165. The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement. The Company used the remainder of the proceeds for working capital and general corporate purposes. During 2020, Griffon issued, at par, $1,000,000 of 5.75% Senior Notes due in 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem the $1,000,000 of 5.25% Senior Notes due 2022. In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, the AMES United Kingdom (U.K.) and Australia businesses, and a manufacturing facility in China. On April 28, 2022, Griffon announced a reduced scope and accelerated timeline for the initiative, which was completed in fiscal 2022. We continue to expect that this initiative will result in annual cash savings of $25,000. Realization of cash savings began in the first quarter of fiscal 2023. The cost to implement this new business platform, over the duration of the project, included one-time charges of approximately $51,869 and capital investments of approximately $15,000, net of future proceeds from the sale of exited facilities. In June 2018, Clopay acquired CornellCookson, a leading provider of rolling steel service doors, fire doors, and grilles. This transaction strengthened Clopay's strategic portfolio with a line of commercial rolling steel door products to complement Clopay's sectional door offerings in the commercial sector, and expanded the Clopay network of professional dealers focused on the commercial market. 37 Table of Contents In March 2018, we announced the combination of the ClosetMaid operations with those of AMES, which improved operational efficiencies by leveraging the complementary products, customers, warehousing and distribution, manufacturing, and sourcing capabilities of the two businesses. In February 2018, we closed on the sale of our Clopay Plastics Products ("Plastics") business to Berry Global, Inc. ("Berry"), thus exiting the specialty plastics industry that the Company had entered when it acquired Clopay Corporation in 1986. This transaction provided immediate liquidity and improved Griffon's cash flow given the historically higher capital needs of the Plastics operations as compared to Griffon’s remaining businesses. In October 2017, we acquired ClosetMaid from Emerson Electric Co. (NYSE:EMR). ClosetMaid, founded in 1965, is a leading North American manufacturer and marketer of wood and wire closet organization, general living storage and wire garage storage products, and sells to some of the largest home center retail chains, mass merchandisers, and direct-to-builder professional installers in North America. We believe that ClosetMaid is the leading brand in its category, with excellent consumer recognition. We believe these actions have established a solid foundation for growth in sales, profit, and cash generation and bolster Griffon’s platforms for opportunistic strategic acquisitions. Other Acquisitions and Dispositions On December 22, 2020, AMES acquired Quatro Design Pty Ltd (“Quatro”), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a purchase price of AUD $3,500 (approximately $2,700). Quatro contributed approximately $5,000 in revenue in the first twelve months after the acquisition. On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading U.K. supplier of innovative garden pottery and associated products sold to leading U.K. and Ireland garden centers. This acquisition broadens AMES' product offerings in the U.K. market and increases its in-country operational footprint. On February 13, 2018, AMES acquired Kelkay, a leading U.K. manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in the U.K. and Ireland. This acquisition broadened AMES' product offerings in the market and increased its in-country operational footprint. In November 2017, Griffon acquired Harper Brush Works, a leading U.S. manufacturer of cleaning products for professional, home, and industrial use, from Horizon Global (NYSE:HZN). This acquisition expanded the AMES line of long-handle tools in North America to include brooms, brushes, and other cleaning products. During fiscal 2017, Griffon also completed a number of other acquisitions to expand and enhance AMES' global footprint, including the acquisitions of La Hacienda, an outdoor living brand of unique heating and garden décor products in the United Kingdom. The acquisition of La Hacienda, together with the February 2018 acquisition of Kelkay and November 2020 acquisition of Apta, provides AMES with additional brands and a platform for growth in the U.K. market and access to leading garden centers, retailers, and grocers in the UK and Ireland. In Australia, Griffon acquired Hills Home Living, the iconic brand of clotheslines and home products, from Hills Limited (ASX:HIL) in December 2016, and in September 2017 Griffon acquired Tuscan Path, an Australian provider of pots, planters, pavers, decorative stone, and garden décor products. The Hills, Tuscan Path and December, 2020 Quatro acquisitions broadened AMES' outdoor living and lawn and garden business, strengthening AMES’ portfolio of brands and its market position in Australia and New Zealand. Further Information Griffon posts and makes available, free of charge through its website at www.griffon.com , its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on Griffon's website is not part of this or any other report it files with or furnishes to the SEC. For information regarding revenue, profit and total assets of each segment, see the Business Segments footnote in the Notes to Consolidated Financial Statements. 38 Table of Contents Reportable Segments: Griffon conducts its operations through two reportable segments: • 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. 39 Table of Contents OVERVIEW Revenue for the quarter ended June 30, 2023 was $683,430 compared to $768,179 in the prior year quarter, a decrease of 11%. Revenue decreased at CPP and HBP by 22% and 1%, respectively. Income from continuing operations was $49,205 or $0.90 per share, compared to $52,782, or $0.98 per share, in the prior year quarter. The current year quarter results from operations included the following: – Strategic review - retention and other of $5,812 ($4,378, net of tax, or $0.08 per share); – Restructuring charges of $3,862 ($2,831, net of tax, or $0.05 per share) – Special dividend Employee Stock Ownership Plan ("ESOP") charges of $9,042 ($6,936, net of tax, or $0.13 per share); – Proxy costs of $568 ($435, net of tax, or 0.01 per share); – Discrete and certain other tax provisions, net, of $6,519 or $0.12 per share. The prior year quarter results from operations included the following: – Restructuring charges of $5,909 ($4,359, net of tax, or $0.08 per share); – Fair value step-up of acquired inventory sold of $2,700 ($2,005 , net of tax, or $0.04 per share); – Strategic review - retention and other of $3,220 ($2,416, net of tax, or $0.04 per share); – Debt extinguishment, net, of $5,287 ($4,022, net of tax, or $0.07 per share); and – Discrete and certain other tax provisions, net, of $913 or $0.02 per share. Excluding these items from the respective quarterly results, Income from continuing operations would have been $70,304, or $1.29 per share, in the current year quarter compared to $66,497, or $1.23 per share in the prior year quarter. Revenue for the nine months ended June 30, 2023 was $2,043,798 compared to $2,139,545 in the prior year period, a decrease of 4% driven by decreased revenue of 20% at CPP, partially offset by increased revenue of 10% at HBP. Adjusting for the period Griffon did not own Hunter in the prior year quarter, organic revenue decreased 8% to $1,968,032. Hunter contributed $75,766 of incremental revenue during the year-to-date period. Income from continuing operations was $35,652 or $0.65 per share, compared to $127,646, or $2.38 per share, in the prior year period. The current year-to-date results from operations included the following: – Strategic review - retention and other of $20,234 ($15,258, net of tax, or $0.28 per share); – Restructuring charges of $82,196 ($61,360, net of tax, or $1.11 per share); – Intangible asset impairment charges of $100,000 ($74,256, net of tax, or $1.35 per share); – Special dividend ESOP charges of $9,042 ($6,936, net of tax, or $0.13 per share); – Proxy costs of $2,685 ($2,059, net of tax, or $0.04 per share); – Gain on sale of building of $10,852 ($8,323, net of tax, or $0.15 per share); and – Discrete and certain other tax benefits, net, of $2,537 or $0.05 per share. The prior year-to-date results from operations included the following: – Restructuring charges of $12,391 ($9,185, net of tax, or $0.17 per share); – Acquisition costs of $9,303 ($8,149, net of tax, or $0.15 per share); – Proxy costs of $6,952 ($5,359, net of tax, or $0.10 per share); – Fair value step-up of acquired inventory sold of $5,401 ($4,012 net of tax, or $0.07 per share); and – Strategic review - retention and other of $3,220 ($2,416, net of tax, or $0.04 per share); – Debt extinguishment, net, of $5,287 ($4,022, net of tax, or $0.07 per share); – Discrete and certain other tax benefits, net, of $661 or $0.01 per share. Excluding these items from the respective periods, Income from continuing operations would have been $184,661, or $3.35 per share in the current year period ended June 30, 2023 compared to $160,128, or $2.98 per share, in the prior year period. 40 Table of Contents Griffon evaluates performance based on adjusted income from continuing operations and the related adjusted earnings per share, which excludes restructuring charges, non-cash impairment charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of income from continuing operations to adjusted income from continuing operations and earnings per share from continuing operations to adjusted earnings per share from continuing operations: For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 (Unaudited) Income from continuing operations $ 49,205 $ 52,782 $ 35,652 $ 127,646 Adjusting items: Restructuring charges (1) 3,862 5,909 82,196 12,391 Intangible asset impairment — — 100,000 — Gain on sale of building — — (10,852) — Debt extinguishment, net — 5,287 — 5,287 Acquisition costs — — — 9,303 Special dividend ESOP charges 9,042 — 9,042 — Strategic review - retention and other 5,812 3,220 20,234 3,220 Proxy expenses 568 — 2,685 6,952 Fair value step-up of acquired inventory sold (2) — 2,700 — 5,401 Tax impact of above items (3) (4,704) (4,314) (51,759) (9,411) Discrete and certain other tax provisions (benefits), net (4) 6,519 913 (2,537) (661) Adjusted income from continuing operations $ 70,304 $ 66,497 $ 184,661 $ 160,128 Earnings per common share from continuing operations $ 0.90 $ 0.98 $ 0.65 $ 2.38 Adjusting items, net of tax: Restructuring charges (1) 0.05 0.08 1.11 0.17 Intangible asset impairment — — 1.35 — Gain on sale of building — — (0.15) — Debt extinguishment, net — 0.07 — 0.07 Acquisition costs — — — 0.15 Special dividend ESOP charges 0.13 — 0.13 — Strategic review - retention and other 0.08 0.04 0.28 0.04 Proxy expenses 0.01 — 0.04 0.10 Fair value step-up of acquired inventory sold — 0.04 — 0.07 Discrete and certain other tax provisions (benefits), net (4) 0.12 0.02 (0.05) (0.01) Adjusted earnings per common share from continuing operations $ 1.29 $ 1.23 $ 3.35 $ 2.98 Diluted weighted-average shares outstanding (in thousands) 54,602 53,914 55,087 53,704 Note: Due to rounding, the sum of earnings per common share from continuing operations and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations. 41 Table of Contents (1) For the quarter and nine months ended June 30, 2023, restructuring charges relate to the CPP global sourcing expansion, of which $1,777 and $76,422, respectively, are included in Cost of goods and services and $2,085 and $5,774, respectively, are included in SG&A. (2) The fair value step-up of acquired inventory sold is included in Cost of goods and services. (3) The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments. (4) Discrete and certain other tax provisions (benefits) primarily relate to the impact of a rate differential between statutory and annual effective tax rate on items impacting the quarter. 42 Table of Contents RESULTS OF OPERATIONS Three and Nine Months ended June 30, 2023 and 2022 Griffon evaluates performance and allocates resources based on each segment adjusted EBITDA, a non-GAAP measure, which is defined as income before taxes from continuing operations, excluding interest income and expense, depreciation and amortization, unallocated amounts (mainly corporate overhead), strategic review charges, non-cash impairment charges, restructuring charges, and acquisition related expenses, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. See table provided in Note 13 - Business Segments for a reconciliation of adjusted EBITDA to income before taxes from continuing operations. Home and Building Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 Residential $ 222,088 $ 238,372 $ 669,563 $ 627,388 Commercial 179,054 167,173 524,811 455,338 Total Revenue $ 401,142 $ 405,545 $ 1,194,374 $ 1,082,726 Adjusted EBITDA $ 134,330 33.5 % $ 119,847 29.6 % $ 390,346 32.7 % $ 280,618 25.9 % Depreciation and amortization $ 3,868 $ 4,116 $ 11,525 $ 12,778 For the quarter ended June 30, 2023, HBP revenue declined $4,403, or 1%, compared to the prior year period due to decreased volume of 5% driven by reduced residential volume partially offset by increased commercial volume, and favorable pricing and mix of 4% driven by both residential and commercial. For the quarter ended June 30, 2023, adjusted EBITDA increased 12% to $134,330 compared to $119,847 in the prior year period. Adjusted EBITDA benefited from reduced material costs, partially offset by reduced revenue noted above and increased labor, advertising and marketing costs. For the nine months ended June 30, 2023, revenue increased $111,648 or 10%, compared to the prior year period due to favorable mix and pricing of 12% driven by both residential and commercial, partially offset by decreased volume of 2% driven by a decline in residential volume. For the nine months ended June 30, 2023, adjusted EBITDA increased 39% to $390,346 compared to $280,618 in the prior year period. The favorable variance resulted from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs. For the quarter and nine months ended June 30, 2023, segment depreciation and amortization decreased $248 and $1,253, respectively, compared to the prior year periods, due to fully depreciated assets. 43 Table of Contents Consumer and Professional Products For the Three Months Ended June 30, For the Nine Months Ended June 30, 2023 2022 2023 2022 United States $ 195,132 $ 248,068 $ 561,184 $ 677,714 Europe 19,792 31,113 43,558 96,226 Canada 12,955 19,592 57,641 73,249 Australia 49,548 55,142 172,350 191,679 All other countries 4,861 8,719 14,691 17,951 Total Revenue $ 282,288 $ 362,634 $ 849,424 $ 1,056,819 Adjusted EBITDA 18,265 6.5 % 28,373 7.8 % 36,091 4.2 % 92,431 8.7 % Depreciation and amortization $ 11,661 $ 13,434 $ 38,091 $ 33,831 For the quarter ended June 30, 2023, revenue decreased $80,346, or 22%, compared to the prior year period primarily due to a 22% reduction in volume across all channels and geographies driven by reduced consumer demand and elevated customer inventory levels, and customer supplier diversification in the U.S. In addition, unfavorable foreign exchange of 1% was offset by favorable price and mix of 1%. Hunter contributed $87,779 in the current quarter compared to $105,774 in the prior year period. For the quarter ended June 30, 2023, adjusted EBITDA was $18,265 compared to adjusted EBITDA of $28,373 in the prior year quarter. The variance to prior year was primarily due to the unfavorable impact of the reduced volume noted above, and its related impact on manufacturing and overhead absorption, partially offset by reduced discretionary spending. EBITDA reflected an unfavorable foreign exchange impact of 1%. Hunter contributed $25,087 in the current quarter compared to $16,792 in the prior year period. For the nine months ended June 30, 2023, revenue decreased $207,395, or 20%, compared to the prior year period due to a 28% reduction in volume across all channels and geographies driven by reduced customer demand, elevated customer inventory levels, primarily in the U.S., the impact of customer supplier diversification in the U.S., and an unfavorable foreign exchange impact of 2%. These items were partially offset by $75,766 of Hunter revenue, or 7%, for the portion of the comparable nine month period in which Hunter was not owned by Griffon in the prior year, as well as price and mix of 3%, primarily in Canada and Australia. Hunter contributed $218,105 during the nine months ended June 30, 2023 compared to $176,623 in the prior year period. For the nine months ended June 30, 2023, adjusted EBITDA decreased 61% to $36,091 compared to $92,431 in the prior year period primarily due to the unfavorable impact of the reduced volume noted above and its related impact on manufacturing and overhead absorption, partially offset by reduced discretionary spending and $7,679 of Hunter EBITDA for the portion of the comparable nine month period in which Hunter was not owned by Griffon in the prior year. EBITDA reflected an unfavorable foreign exchange impact of 2%. Hunter contributed $41,746 during the nine months ended June 30, 2023 compared to $31,131 in the prior year period. For the quarter ended June 30, 2023, segment depreciation and amortization decreased $1,773 compared to the prior year period, primarily related to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with restructuring activities. For the nine months ended June 30, 2023, segment depreciation and amortization increased $4,260 compared to the prior year period, primarily relate to depreciation and amortization on assets placed in service, including a full period of Hunter assets, partially offset by fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities. On January 24, 2022, Griffon completed the acquisition of Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans for a contractual purchase price of $845,000. Hunter adds to Griffon's CPP segment, complementing and diversifying our portfolio of leading consumer brands and products. CPP Global Sourcing Strategy Expansion and Restructuring Charges 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. 44 Table of Contents By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures. The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its U.S. facility footprint by approximately 1.2 million square feet, or 30%, and its headcount by approximately 600. The affected U.S. locations will include Camp Hill and Harrisburg, PA; Grantsville, MD; Fairfield, IA; and four wood mills. 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 and other related costs. Non-cash charges included a $22,018 impairment charge related to certain fixed assets at several manufacturing locations and $37,100 to adjust inventory to net realizable value. Cash Charges Non-Cash Charges Personnel related costs Facilities, exit costs and other Facilities, inventory and other Total Capital Investments Anticipated Charges (1) $ 19,500 $ 35,500 $ 75,000 $ 130,000 $ 5,000 Q2 FY2023 Activity (8,050) (11,166) (59,118) (78,334) — Q3 FY2023 Activity (2,234) (1,628) — (3,862) — Total 2023 restructuring charges (10,284) (12,794) (59,118) (82,196) — Estimate to Complete $ 9,216 $ 22,706 $ 15,882 $ 47,804 $ 5,000 ________________________ (1)The above table represents the upper range of anticipated charges during the duration of the project. Unallocated For the quarter ended June 30, 2023, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $13,982 compared to $13,405 in the prior year quarter; for the nine months ended June 30, 2023, unallocated amounts totaled $42,388 compared to $39,724 in the prior year period. The increase in both the current quarter and nine month periods, compared to their respective prior year periods, primarily relates to increased incentive and equity compensation, medical claims, and travel expenses. Proxy expenses During the three and nine months ended June 30, 2023, we incurred $568 ($435, net of tax) and $2,685 ($2,059, net of tax) of proxy expenses (including legal and advisory fees) in SG&A, respectively. During the quarter and nine months ended June 30, 2023, proxy expenses related to a settlement entered into with a shareholder that had submitted a slate of director nominees. During nine months ended June 30, 2022, we incurred $6,952 of proxy expenses (including legal and advisory fees) in unallocated amounts as a result of a proxy contest initiated by a shareholder which was completed at the shareholder meeting on February 17, 2022. In the three months ended June 30, 2022, we did not incur any proxy expenses. 45 Table of Contents Segment Depreciation and Amortization Segment depreciation and amortization decreased $2,021 and increased $3,007 for the quarter and nine months ended June 30, 2023, respectively, compared to the prior year periods. The decrease in the current quarter ended June 30, 2023 primarily relates to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities. The increase for the nine months ended June 30, 2023 primarily relate to depreciation and amortization on assets placed in service, including a full period of Hunter assets, partially offset by fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities. 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. Provision for 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 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%. Stock-based compensation For the quarters ended June 30, 2023 and 2022, stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled $15,252 and $6,019, respectively. For the nine months ended June 30, 2023 and 2022, stock based compensation expense totaled $28,587 and $15,978, respectively. 46 Table of Contents Comprehensive income (loss) For the quarter ended June 30, 2023, total other comprehensive income, net of taxes, of $315 included a gain of $2,309 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound and Canadian Dollar, all in comparison to the U.S. Dollar; a $747 benefit from pension amortization; and a $2,741 loss on cash flow hedges. For the quarter ended June 30, 2022, total other comprehensive loss, net of taxes, of $14,177 included a loss of $17,823 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a $1,196 benefit from pension amortization; and a $2,450 gain on cash flow hedges. For the nine months ended June 30, 2023, total other comprehensive income, net of taxes, of $15,147 included a gain of $14,580 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a $2,355 benefit from pension amortization of actuarial losses; and a $1,788 loss on cash flow hedges. For the nine months ended June 30, 2022, total other comprehensive loss, net of taxes, of $11,979 included a loss of $14,093 from foreign currency translation adjustments primarily due to the weakening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a $2,004 benefit from pension amortization of actuarial losses; and a $110 gain on cash flow hedges. DISCONTINUED OPERATIONS On September 27, 2021, Griffon announced it was exploring strategic alternatives for its Defense Electronics segment, which consisted of Telephonics Corporation ("Telephonics"), and on June 27, 2022, Griffon completed the sale of Telephonics to TTM for $330,000. Griffon classified the results of operations of the Telephonics business as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation 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. 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 totaling $8,357 and $8,072, respectively. 47 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity include cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis. As of June 30, 2023, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $88,300. Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S. taxes to repatriate these funds (unless applicable U.S. taxes have already been paid). Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our January 2025 five-year secured $400,000 revolving credit facility ("Revolver"). At June 30, 2023, $300,493 of revolver capacity was available, subject to certain loan covenants, for borrowing under the Credit Agreement and we had cash and cash equivalents of $151,790. The following table is derived from the Condensed Consolidated Statements of Cash Flows: Cash Flows from Operations For the Nine Months Ended June 30, 2023 2022 Net Cash Flows Provided by (Used In): Operating activities $ 309,003 $ (65,001) Investing activities (10,911) (574,256) Financing activities (262,560) 513,762 Cash provided by operating activities from continuing operations for the nine months ended June 30, 2023 was $309,003 compared to cash used in continuing operations of $65,001 in the prior year period. The variance was due to increased cash generated from operations at HBP and a decrease in working capital across all businesses, primarily inventory and accounts receivable. Cash flows used in investing activities from continuing operations is primarily comprised of capital expenditures and business acquisitions as well as proceeds from the sale of businesses, investments and property, plant and equipment. During the nine months ended June 30, 2023, cash used in investing activities from continuing operations was $10,911 compared to $574,256 in the prior year period. In the current quarter, cash flows used in investing activities from continuing operations primarily consisted of a working capital adjustment payment of $2,568 related to the sale of Telephonics and capital expenditures of $20,183, partially offset by proceeds totaling $11,840 from the sale of a building. In the prior year quarter, cash flows used in investing activities from continuing operations primarily consisted of a $851,464 payment to acquire Hunter on January 24, 2022 and capital expenditures of $33,516, partially offset by proceeds from the sale of Telephonics on June 27, 2022 totaling $295,712 and proceeds from the sale of investments totaling $14,923. During the nine months ended June 30, 2023, cash used in financing activities from continuing operations totaled $262,560 compared to cash provided by financing activities from continuing operations of $513,762 in the prior year period. Cash used in financing activities from continuing operations in the current period consisted of net repayments of long-term debt of $36,686, primarily related to the Revolver and the payoff of AMES UK loans, the purchase of treasury shares in connection with the board authorized share repurchase board program and to satisfy vesting of restricted stock totaling $98,350 and the payment of dividends of $127,372. Cash provided by financing activities from continuing operations in the prior year period consisted primarily of net proceeds from long-term debt of $556,431, partially offset by financing costs of $17,065, purchases of treasury shares to satisfy vesting of restricted stock of $10,886 and the payment of dividends of $14,906. During the prior year comparable period Griffon prepaid $300,000 aggregate principal amount of its Term Loan B and recognized a $6,296 charge related to the write-off of capitalized debt issuance costs. Furthermore, during the prior year period, Griffon purchased $15,225 of its 2028 Senior Notes in the open market at a weighted average discount of 92.19% of par and recognized a net gain of $1,009 on the early extinguishment. 48 Table of Contents 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. During the nine months ended June 30, 2023, the Board of Directors approved and paid two quarterly cash dividends of $0.10 per share each and one quarterly 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. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. On 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 declared and paid regular cash dividends totaling $0.36 per share, or $0.09 per share each quarter. Additionally, on June 27, 2022, the Board of Directors declared a special dividend of $2.00 per share, paid on July 20, 2022 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 board authorizations from August 3, 2016 and August 1, 2018 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 both 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 was accrued as of June 30, 2023. During the nine months ended June 30, 2023, cash used in discontinued operations from operating activities of $2,799 primarily related to the settling of certain liabilities and environmental costs associated with DE and the former Installations Services businesses. During the nine months ended June 30, 2022, cash provided by discontinued operations from operating activities of $26,889 primarily related to DE operations and the settling of certain liabilities and environmental costs associated with the former Installations Services business. During the nine months ended June 30, 2022, Cash used by discontinued operations from investing activities of $2,627 related to DE operations capital expenditures. Cash and Equivalents and Debt June 30, September 30, 2023 2022 Cash and equivalents $ 151,790 $ 120,184 Notes payables and current portion of long-term debt 10,043 12,653 Long-term debt, net of current maturities 1,536,415 1,560,998 Debt discount/premium and issuance costs 18,861 21,909 Total debt 1,565,319 1,595,560 Debt, net of cash and equivalents $ 1,413,529 $ 1,475,376 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. 49 Table of Contents 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 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 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 or 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. During 2022, Griffon replaced the Revolver GBP LIBOR benchmark rate with a Sterling Overnight Index Average ("SONIA"). Borrowings under the Revolver may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a SOFR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 1.50% (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 were $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. 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. 50 Table of Contents 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. Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. At June 30, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.6x at June 30, 2023. Capital Resource Requirements On May 3, 2023, in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines. By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures. For additional information, see CPP reportable segments discussion. Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $57,246, a Term Loan B facility maturing in 2029 with an outstanding balance of $490,000 on June 30, 2023 and Revolver maturing in 2025 with an outstanding balance of $86,705. The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a current spread of 2.25% (7.64% as of June 30, 2023). Additionally, the Term Loan B facility requires quarterly payments of $2,000 and a balloon payment due at maturity. For the Revolver, interest is payable on borrowings at either a SOFR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 1.50% (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). 51 Table of Contents Customers A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the nine months ended June 30, 2023, our largest customer, The Home Depot, represented 12% of Griffon’s consolidated revenue, 16% of CPP's revenue and 9% of HBP’s revenue. No other customer exceeded 10% of consolidated revenue. Future operating results will continue to depend substantially on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of the volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and results of operations. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, The AMES Companies, Inc., Clopay AMES Holding Corp., ClosetMaid LLC, AMES Hunter Holdings Corporation, Hunter Fan Company, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of June 30, 2023 and September 30, 2022 and for the nine months ended June 30, 2023 and for the year ended September 30, 2022. All intercompany balances and transactions between subsidiaries under Parent and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities. The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method. The indentures relating to the Senior Notes (the “Indentures”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indentures; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indentures (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indentures; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indentures, in compliance with the terms of the Indentures; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indentures, in each case in accordance with the terms of the Indentures; and (v) upon obtaining the requisite consent of the holders of the Senior Notes. 52 Table of Contents Summarized Statements of Operations and Comprehensive Income (Loss) For the Nine Months Ended For the Year Ended June 30, 2023 September 30, 2022 Parent Company Guarantor Companies Parent Company Guarantor Companies Net sales $ — $ 1,699,854 $ — $ 2,301,215 Gross profit $ — $ 586,790 $ — $ 752,982 Income (loss) from operations $ (30,357) $ 132,770 $ (43,492) $ (127,982) Equity in earnings of Guarantor subsidiaries $ 68,115 $ — $ (184,618) $ — Net income (loss) $ (48,192) $ 68,115 $ (74,423) $ (184,618) Summarized Balance Sheet Information For the Nine Months Ended For the Year Ended June 30, 2023 September 30, 2022 Parent Company Guarantor Companies Parent Company Guarantor Companies Current assets $ 65,834 $ 797,034 $ 49,238 $ 915,329 Non-current assets 12,112 1,303,079 15,571 1,393,864 Total assets $ 77,946 $ 2,100,113 $ 64,809 $ 2,309,193 Current liabilities $ 70,340 $ 234,890 $ 78,635 $ 275,165 Long-term debt 1,524,641 11,690 1,538,235 12,886 Other liabilities 4,106 287,781 4,331 322,224 Total liabilities $ 1,599,087 $ 534,361 $ 1,621,201 $ 610,275 CRITICAL ACCOUNTING POLICIES The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2022. Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2022. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon. RECENT ACCOUNTING PRONOUNCEMENTS The FASB issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the “Company” or 53 Table of Contents “Griffon”) operates and the United States and global economies. Statements in this Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings and improved operational results from cost control, restructuring, integration and disposal initiatives (including, in particular, the expanded CPP outsourcing strategy announced in May 2023; the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities); increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets, and to anticipate and meet customer demands for new products and product enhancements and innovations; increases in the cost or lack of availability of raw materials such as resin, wood and steel, components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including inflation, interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; effects of possible IT system failures, data breaches or cyber-attacks; the impact of COVID-19, or some other future pandemic, on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers and suppliers; Griffon’s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, changes in tax laws. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2022. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company's Securities and Exchange Commission filings.