GRIFFON CORP 10-K

Item 8. Financial Statements and Supplementary Data The financial statements of Griffon and its subsidiaries and the report thereon of Grant Thornton LLP (PCAOB ID 248 ) are included herein: ▪ Report of Independent Registered Public Accounting Firm. ▪ Consolidated Balance Sheets at September 30, 2023 and 2022. ▪ Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended September 30, 2023, 2022 and 2021. ▪ Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021. ▪ Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2023, 2022 and 2021. ▪ Notes to Consolidated Financial Statements. ▪ Schedule II – Valuation and Qualifying Account. 46 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Griffon Corporation Opinions on the financial statements and internal control over financial reporting We have audited the accompanying consolidated balance sheets of Griffon Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. Basis for opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 47 Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. CPP Goodwill and Indefinite-Lived Intangible Assets Impairment Testing As described further in notes 1 and 7 to the consolidated financial statements, the Company tests goodwill at the reporting unit level and indefinite-lived intangible assets at least annually for impairment. The Company performed its annual impairment testing of goodwill as of September 30, 2023 for the CPP reporting units and associated indefinite-lived intangible assets. Additionally, due to a decrease in forecasted sales and operating results due to elevated customer inventory levels and reduced customer demand, the Company completed an interim impairment test as of March 31, 2023 for the CPP reporting units and certain associated indefinite-lived intangible assets. The Company performed the interim and annual impairment testing of goodwill by comparing the fair value of the Company’s reporting units to their respective carrying values. The fair value of the CPP reporting units was determined using a combination of the income and market-based valuation approach methodologies, which include the present value of expected future cash flows and the use of market assumptions specific to the reporting unit. The Company used prospective financial information to which discount rates were applied to calculate the fair value. Similarly to goodwill, the Company tested indefinite-lived intangibles for impairment as of March 31, 2023 and September 30, 2023. The Company utilized a relief from royalty method to calculate and compare the fair value of the indefinite-lived intangible assets to their carrying value. As a result of the impairment tests, the Company recorded indefinite-lived intangible asset impairment as of March 31, 2023, and September 30, 2023. We identified the Company’s interim and annual impairment testing of the CPP reporting units’ goodwill and certain indefinite-lived intangible assets as a critical audit matter. The principal considerations for our determination that the interim and annual impairment testing is a critical audit matter are as follows: The determination of the fair value of reporting units and indefinite-lived intangibles require management to make significant estimates and assumptions related to forecasts of future cash flows and discount rates, and specifically for indefinite-lived intangibles, royalty rates. This requires management to evaluate historical results and expectations of future operating performance based on relevant information available to them regarding expectations of industry performance, as well as expectations for entity-specific performance. In addition, determining the discount rate requires management to evaluate the appropriate risk premium based on their judgment of industry and entity-specific risks. Management also used a selection of comparable companies that correspond to each reporting unit to derive a market-based multiple for the CPP reporting units. As disclosed by management, changes in these assumptions could have a significant impact on the fair value of the reporting units and indefinite-lived assets. In turn, auditing these judgments and assumptions requires a high degree of auditor judgment. Our audit procedures related to the quantitative impairment testing included the following: We tested the design and operating effectiveness of controls relating to the impairment testing, including the Company’s ability to develop the estimates utilized in calculating the fair value of the CPP reporting units and certain indefinite-lived intangible assets. Such estimates included prospective financial information, long-term growth rates, discount rates, weighted average cost of capital and specifically for indefinite-lived intangibles, royalty rates. With the assistance of valuation specialists, we evaluated the appropriateness of the valuation methodology utilized and assessed the appropriateness of inputs utilized. We evaluated the qualifications of those responsible for preparing the calculations of fair values. We tested the inputs, significant judgments and estimates utilized in performing the annual and interim impairment tests, which included comparing management’s judgments and estimates to industry and market data. We tested the inputs, significant judgments and estimates, as follows: a) tested prospective financial information and long-term growth rates by comparing to historical trends and industry expectations, performed a sensitivity analysis over growth rates and assessed management’s historical ability to accurately forecast; b) tested discount rates by comparing to historical rates and industry expectations, compared rates to market comparable companies and independently calculated discount rates for comparison to those used by management; c) for indefinite-lived intangibles, tested royalty rates by comparing to comparable licensing agreements; and d) tested weighted average cost of capital by analyzing the implied discount rate and independently calculated a weighted-average discount rate using individual discount rates and compared to the rate utilized by management. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2006. New York, New York November 15, 2023 48 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) At September 30, 2023 At September 30, 2022 CURRENT ASSETS Cash and equivalents $ 102,889 $ 120,184 Accounts receivable, net of allowances of $ 11,264 and $ 12,137 312,432 361,653 Inventories 507,130 669,193 Prepaid and other current assets 57,139 62,453 Assets of discontinued operations 1,001 1,189 Total Current Assets 980,591 1,214,672 PROPERTY, PLANT AND EQUIPMENT, net 279,218 294,561 OPERATING LEASE RIGHT-OF-USE ASSETS 169,942 183,398 GOODWILL 327,864 335,790 INTANGIBLE ASSETS, net 635,243 761,914 OTHER ASSETS 21,731 21,553 ASSETS OF DISCONTINUED OPERATIONS 4,290 4,586 Total Assets $ 2,418,879 $ 2,816,474 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 9,625 $ 12,653 Accounts payable 116,646 194,793 Accrued liabilities 193,098 171,797 Current portion of operating lease liabilities 32,632 31,680 Liabilities of discontinued operations 7,148 12,656 Total Current Liabilities 359,149 423,579 LONG-TERM DEBT, net 1,459,904 1,560,998 LONG-TERM OPERATING LEASE LIABILITIES 147,224 159,414 OTHER LIABILITIES 132,708 190,651 LIABILITIES OF DISCONTINUED OPERATIONS 4,650 4,262 Total Liabilities 2,103,635 2,338,904 COMMITMENTS AND CONTINGENCIES - See Note 16 SHAREHOLDERS’ EQUITY Preferred stock, par value $ 0.25 per share, authorized 3,000 shares, no shares issued — — Common stock, par value $ 0.25 per share, authorized 85,000 shares, issued shares of 84,746 in both 2023 and 2022. 21,187 21,187 Capital in excess of par value 662,680 627,982 Retained earnings 281,516 344,060 Treasury shares, at cost, 31,684 common shares and 27,682 common shares, respectively. ( 577,686 ) ( 420,116 ) Accumulated other comprehensive loss ( 70,010 ) ( 82,738 ) Deferred compensation ( 2,443 ) ( 12,805 ) Total Shareholders’ Equity 315,244 477,570 Total Liabilities and Shareholders’ Equity $ 2,418,879 $ 2,816,474 The accompanying notes to consolidated financial statements are an integral part of these statements. 49 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) Years Ended September 30, 2023 2022 2021 Revenue $ 2,685,183 $ 2,848,488 $ 2,270,626 Cost of goods and services 1,736,362 1,911,602 1,629,513 Gross profit 948,821 936,886 641,113 Selling, general and administrative expenses 642,734 608,926 470,530 Goodwill and intangible asset impairments 109,200 517,027 — Total operating expenses 751,934 1,125,953 470,530 Income (loss) from continuing operations 196,887 ( 189,067 ) 170,583 Other income (expense) Interest expense ( 101,445 ) ( 84,379 ) ( 63,175 ) Interest income 2,094 215 440 Gain on sale of buildings 12,655 — — Debt extinguishment, net ( 437 ) ( 4,529 ) — Other, net 2,928 6,881 2,107 Total other income (expense) ( 84,205 ) ( 81,812 ) ( 60,628 ) Income (loss) before taxes from continuing operations 112,682 ( 270,879 ) 109,955 Provision for income taxes 35,065 16,836 39,653 Income (loss) from continuing operations 77,617 ( 287,715 ) 70,302 Discontinued operations: Income before tax from discontinued operations — 116,345 10,121 Provision for income taxes — 20,188 1,212 Income from discontinued operations — 96,157 8,909 Net income (loss) $ 77,617 $ ( 191,558 ) $ 79,211 Basic earnings (loss) per common share: Income (loss) from continuing operations $ 1.49 $ ( 5.57 ) $ 1.38 Income from discontinued operations — 1.86 0.18 Basic earnings (loss) per common share $ 1.49 $ ( 3.71 ) $ 1.56 Weighted-average shares outstanding 52,111 51,672 50,830 Diluted earnings (loss) per common share: Income (loss) from continuing operations $ 1.42 $ ( 5.57 ) $ 1.32 Income from discontinued operations — 1.86 0.17 Diluted earnings (loss) per common share $ 1.42 $ ( 3.71 ) $ 1.48 Weighted-average shares outstanding 54,612 51,672 53,369 Net income (loss) $ 77,617 $ ( 191,558 ) $ 79,211 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 8,447 ( 37,920 ) 6,433 Pension and other post retirement plans 6,634 1,503 17,796 Gain (loss) on cash flow hedge ( 2,353 ) ( 344 ) 1,886 Total other comprehensive income (loss), net of taxes 12,728 ( 36,761 ) 26,115 Comprehensive income (loss) $ 90,345 $ ( 228,319 ) $ 105,326 The accompanying notes to consolidated financial statements are an integral part of these statements. 50 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS: Net income (loss) $ 77,617 $ ( 191,558 ) $ 79,211 Net income from discontinued operations — ( 96,157 ) ( 8,909 ) Income (loss) from continuing operations $ 77,617 $ ( 287,715 ) $ 70,302 Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations: Depreciation and amortization 65,445 64,658 52,302 Fair value write-up of acquired inventory sold — 5,401 — Stock-based compensation 41,112 33,135 20,088 Goodwill and intangible asset impairments 109,200 517,027 — Asset impairment charges - restructuring 58,932 4,831 6,655 Provision for losses on accounts receivable 1,297 1,416 501 Amortization of deferred financing costs and debt discounts 4,235 3,775 2,640 Debt extinguishment, net 437 4,529 — Deferred income tax provision (benefit) ( 37,795 ) ( 56,706 ) 13,763 (Gain)/ loss on sale/disposal of assets and investments ( 12,960 ) ( 469 ) 231 Change in assets and liabilities, net of assets and liabilities acquired: (Increase) decrease in accounts receivable 50,793 ( 20,662 ) ( 7,002 ) (Increase) decrease in inventories 129,209 ( 106,753 ) ( 154,515 ) (Increase) decrease in prepaid and other assets 621 ( 20,005 ) ( 9,598 ) Increase (decrease) in accounts payable, accrued liabilities and income taxes payable ( 67,843 ) ( 96,372 ) 72,773 Other changes, net 11,465 13,150 1,668 Net cash provided by operating activities - continuing operations 431,765 59,240 69,808 CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS: Acquisition of property, plant and equipment ( 63,604 ) ( 42,488 ) ( 36,951 ) Acquired business, net of cash acquired — ( 851,464 ) ( 2,242 ) Proceeds (payments) from investments — 14,923 ( 17,211 ) Proceeds (payments) from sale of business, net ( 2,568 ) 295,712 — Proceeds from sale of property, plant and equipment 20,961 90 237 Net cash used in investing activities - continuing operations ( 45,211 ) ( 583,227 ) ( 56,167 ) CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS: Dividends paid ( 133,814 ) ( 126,677 ) ( 17,139 ) Purchase of shares for treasury ( 163,970 ) ( 10,886 ) ( 3,357 ) Proceeds from long-term debt 122,558 1,058,909 20,912 Payments of long-term debt ( 221,781 ) ( 511,194 ) ( 27,833 ) Financing costs ( 3,025 ) ( 17,065 ) ( 571 ) Other, net ( 130 ) 258 ( 257 ) Net cash provided by (used) in financing activities - continuing operations ( 400,162 ) 393,345 ( 28,245 ) 51 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by (used in) operating activities ( 2,994 ) 10,198 41,961 Net cash provided by (used in) investing activities — ( 2,627 ) 6,751 Net cash provided by (used in) discontinued operations ( 2,994 ) 7,571 48,712 Effect of exchange rate changes on cash and equivalents ( 693 ) ( 5,398 ) ( 3,544 ) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 17,295 ) ( 128,469 ) 30,564 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 120,184 248,653 218,089 CASH AND EQUIVALENTS AT END OF PERIOD $ 102,889 $ 120,184 $ 248,653 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 99,833 $ 78,274 $ 60,781 Cash paid for taxes 70,937 80,264 41,216 The accompanying notes to consolidated financial statements are an integral part of these statements. 52 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION Total (in thousands) SHARES PAR VALUE SHARES COST Balance at 9/30/2020 83,739 $ 20,935 $ 583,008 $ 607,518 27,610 $ ( 413,493 ) $ ( 72,092 ) $ ( 25,725 ) $ 700,151 Net income — — — 79,211 — — — — 79,211 Dividends — — — ( 16,731 ) — — — — ( 16,731 ) Shares withheld on employee taxes on vested equity awards — — — — 152 ( 3,357 ) — — ( 3,357 ) Amortization of deferred compensation — — — — — — — 2,437 2,437 Equity awards granted, net 636 159 ( 159 ) — — — — — — ESOP allocation of common stock — — 2,922 — — — — — 2,922 Stock-based compensation — — 16,410 — — — — — 16,410 Other comprehensive income, net of tax — — — — — — 26,115 — 26,115 Balance at 9/30/2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 53 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION Total (in thousands) SHARES PAR VALUE SHARES COST Balance at 9/30/2021 84,375 $ 21,094 $ 602,181 $ 669,998 27,762 $ ( 416,850 ) $ ( 45,977 ) $ ( 23,288 ) $ 807,158 Net income (loss) — — — ( 191,558 ) — — — — ( 191,558 ) Dividends — — — ( 134,380 ) — — — — ( 134,380 ) Shares withheld on employee taxes on vested equity awards — — — — 422 ( 10,886 ) — — ( 10,886 ) Amortization of deferred compensation — — — — — — — 10,483 10,483 Equity awards granted, net 371 93 ( 7,713 ) — ( 502 ) 7,620 — — — ESOP allocation of common stock — — 15,729 — — — — — 15,729 Stock-based compensation — — 17,785 — — — — — 17,785 Other comprehensive income, net of tax — — — — — — ( 36,761 ) — ( 36,761 ) Balance at 9/30/2022 84,746 $ 21,187 $ 627,982 $ 344,060 27,682 $ ( 420,116 ) $ ( 82,738 ) $ ( 12,805 ) $ 477,570 Net income (loss) — — — 77,617 — — — — 77,617 Dividends — — — ( 140,161 ) — — — — ( 140,161 ) Shares withheld on employee taxes on vested equity awards — — — — 366 ( 12,990 ) — — ( 12,990 ) Amortization of deferred compensation — — — — — — — 10,362 10,362 Common stock acquired — — — — 4,143 ( 152,279 ) — — ( 152,279 ) Equity awards granted, net — — ( 7,699 ) — ( 507 ) 7,699 — — — ESOP allocation of common stock — — 21,868 — — — — — 21,868 Stock-based compensation — — 20,529 — — — — — 20,529 Other comprehensive income, net of tax — — — — — — 12,728 — 12,728 Balance at 9/30/2023 84,746 21,187 662,680 281,516 31,684 ( 577,686 ) ( 70,010 ) ( 2,443 ) 315,244 The accompanying notes to consolidated financial statements are an integral part of these statements. 54 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unless otherwise indicated, all references to years or year-end refer to Griffon’s fiscal period ending September 30, NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business 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 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. 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. 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 December 17, 2021, Griffon entered into a definitive agreement to acquire Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a contractual purchase price of $ 845,000 and completed the acquisition on January 24, 2022. 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 for $ 330,000 , excluding customary post-closing adjustments, primarily related to working capital. As a result, 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 as held for 55 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) sale in the consolidated balance sheets. All references made to results and information in the Consolidated Financial Statements on Form 10-K are to Griffon's continuing operations unless noted otherwise. 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. Griffon currently 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 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. Consolidation The consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The results of operations of acquired businesses are included from the dates of acquisitions. Earnings per share Due to rounding, the sum of earnings per share may not equal earnings per share of Net income. Discontinued operations For the years ended September 30, 2023, 2022 and 2021, discontinued operations includes the Telephonics business, and the assets and liabilities of discontinued installations business and other discontinued activities which have been segregated from Griffon's continuing operations primarily related to insurance claims, product liability, warranty and environmental reserves. See Note 8, Discontinued Operations. Reclassifications Certain amounts in prior years have been reclassified to conform to the current year presentation. Use of estimates 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 doubtful accounts receivable 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. 56 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Cash and equivalents Griffon considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents primarily consist of overnight commercial paper, highly-rated liquid money market funds backed by U.S. Treasury securities and U.S. Agency securities. Griffon had cash in non-U.S. bank accounts of approximately $ 45,500 and $ 54,200 at September 30, 2023 and 2022, respectively. Substantially all U.S. cash and equivalents are in excess of FDIC insured limits. Griffon regularly evaluates the financial stability of all institutions and funds that hold its cash and equivalents. Fair value of financial instruments The carrying values of cash and cash equivalents, accounts receivable, accounts and notes payable and revolving credit and Term Loan B 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 debt is based upon current market rates. The fair value hierarchy, as outlined in the applicable accounting guidance, establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair values of Griffon’s 2028 Senior Notes and Term Loan B facility approximated $ 882,171 and $ 461,843 , respectively, on September 30, 2023. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with a value of $ 3,671 at September 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 Other current assets on the consolidated balance sheet. Items Measured at Fair Value on a Recurring Basis In the normal course of business, Griffon’s operations are exposed to the effect 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. Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in USD as discussed below. At September 30, 2023 and 2022, Griffon had $ 11,000 and $ 25,000 of Australian dollar contracts at a weighted average rate of $ 1.45 and $ 1.42 , respectively, which qualified for hedge accounting. These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Other comprehensive income (loss) and Prepaid and other current assets, or Accrued liabilities, until settlement (level 2 inputs). Upon settlement, gains and losses were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services. Accumulated Other Comprehensive Income (AOCI) included deferred gains of $ 765 ($ 536 , net of tax) and $ 2,017 ($ 1,412 , net of tax) at September 30, 2023 and 2022, respectively. Upon settlement gains (losses) of $ 3,991 , $ 5,477 and $( 2,204 ) were recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS") during 2023, 2022 and 2021, respectively. All contracts expire in 30 days . At September 30, 2023 and 2022, Griffon had $ 52,000 and $ 74,250 of Chinese Yuan contracts at a weighted average rate of $ 7.00 and $ 6.79 , respectively, which qualified for hedge accounting. These hedges were all deemed effective as cash flow 57 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 (level 2 inputs). Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in COGS. AOCI included deferred losses of $ 1,721 ($ 1,257 , net of tax) and $ 3,179 ($ 2,320 , net of tax) at September 30, 2023 and 2022, respectively. Upon settlement, losses of $ 2,313 and $ 736 were recorded in COGS during 2023 and 2022, respectively. All contracts expire in 10 to 335 days. At September 30, 2023 and 2022, Griffon had $ 3,700 and $ 6,300 , respectively, of Canadian dollar contracts at a weighted average rate of $ 1.36 and $ 1.28 , respectively. These contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting and fair value gains of $ 60 and $ 427 were recorded in Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs), for the years ended September 30, 2023 and 2022, respectively. Realized gains (losses) of $ 336 , $ 247 and $( 381 ) were recorded in Other income during 2023, 2022 and 2021, respectively. All contracts expire in 30 to 357 days . Pension plan assets with a fair value of $ 146,997 at September 30, 2023, are measured and recorded at fair value based upon quoted prices in active markets for identical assets (level 1 inputs), quoted market prices for similar assets (level 2 inputs) and fair value assumptions for unobservable inputs in which little or no market data exists (level 3). The Company accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition in each instance. Non-U.S. currency translation Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates and profit and loss accounts have been translated using weighted average exchange rates during the applicable fiscal year. Adjustments resulting from currency translation are recorded in AOCI as cumulative translation adjustments. The Company recognized cumulative translation gains of $ 8,447 during 2023 and losses of $ 37,920 during 2022. As of September 30, 2023 and 2022, the cumulative foreign currency translation recorded in AOCI was a loss of $ 48,723 and $ 57,170 , respectively. Assets and liabilities of an entity that are denominated in currencies other than that entity’s functional currency are re-measured into the functional currency using period end exchange rates, or historical rates where applicable to certain balances. Gains and losses arising on remeasurements are recorded within the Consolidated Statement of Operations and Comprehensive Income as a component of Other income (expense). Revenue recognition 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. Refer to Note 2 - Revenue for more detail. 58 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Accounts receivable, expected loss allowance for doubtful accounts and concentrations of credit risk Accounts receivable is composed principally of trade accounts receivable, that arise from the sale of goods or services on account, and is stated at historical cost. A substantial portion of Griffon’s trade receivables are from Home Depot, whose financial condition is dependent on the construction and related retail sectors of the economy. As a percentage of consolidated accounts receivable, Home Depot was 13 %. Griffon performs continuing evaluations of the financial condition of its customers, and although Griffon generally does not require collateral, letters of credit may be required from customers in certain circumstances. Trade receivables are recorded at the stated amount, less expected loss allowance for doubtful accounts and, when appropriate, for customer program reserves and cash discounts. The expected loss allowance represents estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency). The expected loss allowance for doubtful accounts includes amounts for certain customers where 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. The provision related to the expected loss allowance for doubtful accounts is recorded in Selling, general and administrative ("SG&A") expenses. The Company writes-off accounts receivable when they are deemed to be uncollectible. Customer program reserves and cash discounts are netted against accounts receivable when it is customer practice to reduce invoices for these amounts. The amounts netted against accounts receivable in 2023 and 2022 were $ 106,166 and $ 80,482 , respectively. All accounts receivable amounts are expected to be collected in less than one year. The Company does not currently have customers or contracts that prescribe specific retainage provisions. Inventories Inventories, stated at the lower of cost (first-in, first-out or average) or net realizable value, include material, labor and manufacturing overhead costs. Griffon’s businesses typically do not require inventory that is susceptible to becoming obsolete or dated. In general, HBP produces residential and commercial sectional garage doors, commercial rolling steel door and grille products, and CPP produces long-handled tools and landscaping products, and storage and organizational products, both in response to orders from customers of retailers and dealers or based on expected orders, as applicable. Long-Lived Assets, Including Intangible Assets Property, plant and equipment includes the historical cost of land, buildings, equipment and significant improvements to existing plant and equipment or, in the case of acquisitions, a fair market value appraisal of such assets completed at the time of acquisition. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When property or equipment is sold or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss is recognized. Depreciation expense, which includes amortization of assets under capital leases, was $ 43,056 , $ 46,443 and $ 42,741 in 2023, 2022 and 2021, respectively, and was calculated on a straight-line basis over the estimated useful lives of the assets. Depreciation included in SG&A expenses was $ 17,598 , $ 16,683 and $ 14,362 in 2023, 2022 and 2021, respectively. The remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. Estimated useful lives for property, plant and equipment are as follows: buildings and building improvements, 25 to 40 years; machinery and equipment, 2 to 15 years; and leasehold improvements, over the term of the lease or life of the improvement, whichever is shorter. Capitalized interest costs included in Property, plant and equipment were $ 1,463 , $ 1,739 and $ 1,592 for the years ended September 30, 2023, 2022 and 2021, respectively. The original cost of fully-depreciated property, plant and equipment remaining in use at September 30, 2023 was approximately $ 208,037 . 59 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Long-lived assets, including customer relationships and software, and tangible assets, primarily property, plant and equipment, are amortized over their expected useful lives, generally eight to 25 years, and involves significant assumptions and estimates. We assess the recoverability of the carrying amount of our long-lived assets, including amortizable intangible assets, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the expectations of undiscounted cash flows attributable to the asset group. If the sum of the expected future undiscounted cash flows are less than the carrying amount of the asset group, a loss would be recognized for the difference between the fair value and the carrying amount. For the fiscal years ended September 30, 2023 and 2022, we tested long-lived intangible and tangible assets for impairment by comparing estimated future undiscounted cash flows of each CPP asset group to the carrying amount of the asset group and determined that an impairment did not exist. No event or indicator of impairment existed for the HBP assets groups. Goodwill and indefinite-lived intangibles Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. We test goodwill and indefinite-lived intangibles for impairment at least annually in the fourth quarter, and more frequently whenever events or circumstances change that would more likely than not reduce the fair value below the carrying amount. Such events or changes in circumstance include significant deterioration in overall economic conditions, changes in the business climate in which our reporting units operate, a decline in our market capitalization, operating performance indicators, when some portion of a reporting unit is disposed of or classified as held for sale, or when a change in the composition of reporting units occurs for other reasons, such as a change in operating segments. To test goodwill and indefinite-lived intangible assets for impairment, we may perform both a qualitative assessment and quantitative assessment. If we elect to perform a qualitative assessment, we consider operating results as well as circumstances impacting the operations or cash flows of the reporting unit or indefinite-lived intangible assets, including macroeconomic conditions, industry and market conditions and reporting unit events and circumstances. For the quantitative test, the assessment is based on both an income-based and market-based valuation approach. If it is determined that an impairment exists, we recognize an impairment loss for the amount by which the carrying amount of the reporting unit or indefinite-lived intangible asset exceeds its estimated fair value. Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a decline in Griffon’s stock price, a change in market conditions, market trends, interest rates or other factors outside of Griffon’s control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of Griffon’s reporting units, which could result in an impairment charge in the future. During the fiscal year ended September 30, 2023, the Company performed a qualitative assessment of the HBP reporting unit goodwill and determined that indicators that the fair value was less than the carrying amount were not present. With respect to CPP's reporting units goodwill, the Company performed a quantitative assessment using both an income based and market based approach, which did not result in an impairment. Additionally, the Company compared the estimated fair values of the CPP indefinite-lived intangibles, using the relief from royalty method, to their carrying amounts. The impairment tests resulted in pre-tax noncash impairment charges of $ 109,200 to the gross carrying amount of our trademarks, of which $ 9,200 was recognized in the fourth quarter and $ 100,000 was recognized in the second quarter. Indicators of impairment were not present for the HBP indefinite-lived intangibles during 2023. For fiscal year ended September 30, 2022, we performed a qualitative assessment of the HBP reporting unit and determined that indicators that the fair value was less than the carrying amount were not present. However, indicators of impairment were present for our CPP reporting units driven by a decrease in comparable company market multiples and an increase in interest rates and the related impact on weighted average cost of capital rates. As such, in connection with the preparation of our financial statements for the fiscal year ended September 30, 2022, we performed a quantitative assessment of the CPP reporting units using both an income-based and market-based approach. The impairment tests resulted in a pre-tax, non-cash goodwill impairment charge of $ 342,027 . Further, we compared the estimated fair values of the CPP indefinite lived intangibles, using the relief from royalty method, to their carrying values which resulted in a pre-tax, non-cash impairment charge of $ 175,000 . . 60 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Leases 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. 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. 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 Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. 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 Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company has lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance). Income taxes We are subject to Federal, state and local income taxes in the U.S. and in various taxing jurisdictions outside the U.S. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns in accordance with applicable accounting guidance for accounting for income taxes, using currently enacted tax rates in effect for the year in which the differences are expected to reverse. We record a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment. The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition of tax positions taken or expected to be taken in a tax return. We record, as needed, a liability for the difference between the benefit recognized for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Interest and penalties recognized on the liability for unrecognized tax benefits is recorded as income tax expense. Research and development costs, shipping and handling costs and advertising costs Research and development costs are charged to SG&A expense as incurred and amounted to approximately $ 18,000 in 2023, $ 16,000 in 2022 and $ 7,000 in 2021. Total shipping and handling costs included in both COGS and SG&A were $ 123,100 in 2023, $ 130,830 in 2022 and $ 113,700 in 2021, of which $ 67,300 in 2023, $ 69,000 in 2022 and $ 58,100 in 2021 were included in SG&A. Advertising costs, which are expensed as incurred in SG&A, was $ 28,000 in 2023, $ 27,000 in 2022 and $ 19,000 in 2021. 61 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Risk, retention and insurance Griffon’s property and casualty insurance programs contain various deductibles that, based on Griffon’s experience, are reasonable and customary for a company of its size and risk profile. Griffon generally maintains deductibles for claims and liabilities related primarily to workers’ compensation, general, product and automobile liability as well as property damage and business interruption losses resulting from certain events. Griffon does not consider any of the deductibles to represent a material risk to Griffon. Griffon accrues for claim exposures that are probable of occurrence and can be reasonably estimated. Insurance is maintained to transfer risk beyond the level of self-retention and provides protection on both an individual claim and annual aggregate basis. Pension benefits Griffon sponsors defined and supplemental benefit pension plans for certain retired employees. Annual amounts relating to these plans are recorded based on actuarial projections, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and turnover rates. Actuarial assumptions used to determine pension liabilities, assets and expense are reviewed annually and modified based on current economic conditions and trends. The expected return on plan assets is determined based on the nature of the plan's investments and expectations for long-term rates of return. The discount rate used to measure obligations is based on a corporate bond spot-rate yield curve that matches projected future benefit payments, with the appropriate spot rate applicable to the timing of the projected future benefit payments. Assumptions used in determining Griffon’s obligations under the defined benefit pension plans are believed to be reasonable, based on experience and advice from independent actuaries; however, differences in actual experience or changes in assumptions may materially impact Griffon’s financial position or results of operations. All of the defined benefit plans are frozen and have ceased accruing benefits. The Company’s non-service cost components of net periodic benefit plan cost was an expense (benefit) of $ 866 , $( 4,256 ) and $( 907 ) during 2023, 2022, and 2021 respectively. Issued but not yet effective accounting pronouncements In October 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-06, Disclosure Improvements: Amendments - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The FASB issued the standard to introduce changes to US GAAP that originate in either SEC Regulation S-X or S-K, which are rules about the form and content of financial reports. The provisions of the standard are contingent when the SEC removes the related disclosure provisions from Regulation S-X and S-K. The company does not expect the provisions of the standard to have a material impact on the Company's financial statements and related disclosures. New Accounting Standards Implemented In October 2021, the 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 was effective for the Company beginning in fiscal 2023. Adoption of this standard did not have an 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. 62 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 2 – 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). A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services. These contracts require judgment in determining the number of performance obligations. For contracts with multiple performance obligations, judgment is required to determine whether performance obligations specified in these contracts are distinct and should be accounted for as separate revenue transactions for recognition purposes. In these types of contracts, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. The transaction price includes variable consideration, such as discounts and volume rebates, when it is probable that a significant reversal of revenue recognized will not occur. Variable consideration is determined using either the expected value or the most likely amount of consideration to be received based on historical experience and the specific facts and circumstances at the time of evaluation. See Note 19 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. 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. A majority of the Company's revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly. Payment terms generally range between 15 to 90 days and vary by the location of the business, the type of products manufactured to be sold and the volume of products sold, among other factors. The Company recognizes revenue from product sales when all factors are met, including when control of a product transfers to the customer upon its shipment, completion of installation, testing, certification or other substantive acceptance required under the contract. Other than standard product warranty provisions, sales arrangements provide for no significant post-shipment obligations on the Company. From time-to-time and for certain customers, rebates and other sales incentives, promotional allowances or discounts are offered, typically related to customer purchase volumes, all of which are fixed or determinable and are classified as a reduction of revenue and recorded at the time of sale. Griffon provides for sales returns and allowances based upon historical returns experience. The Company includes shipping costs billed to customers in revenue and the related shipping costs in either Cost of Goods and Services or Selling, General and Administrative expenses. The majority of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation. Payment terms vary depending on the type and location of the customer and the products or services offered. Generally, the period between the time revenue is recognized and the time payment is due is not significant. Shipping and handling charges are not considered a separate performance obligation. Additionally, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and some excise taxes) are excluded from revenue. 63 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 3 — ACQUISITIONS Griffon continually evaluates potential acquisitions that either 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 Term Loan B facility and a combination of cash on hand and revolver borrowings. Hunter complements and diversifies Griffon's portfolio of leading consumer brands and products. 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 presents consolidated information as if the Company acquired Hunter on October 1, 2020: Proforma For the Year Ended September 30, (unaudited) 2022 2021 Revenue $ 2,938,998 $ 2,624,378 Income (loss) from continuing operations ( 288,062 ) 77,804 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, 2020. • 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. 64 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 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 ) in cash. The final purchase price allocated to goodwill and acquired intangibles was AUD $ 1,038 (approximately $ 784 ) and AUD $ 2,755 (approximately $ 2,082 ), respectively, which was assigned to the CPP segment, and is not deductible for income tax purposes. During the years ended September 30, 2023 and 2021, acquisition related costs were de minimis. During the year ended September 30, 2022, SG&A included acquisition costs of $ 9,303 . 65 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 4 — INVENTORIES The following table details the components of inventory: At September 30, 2023 At September 30, 2022 Raw materials and supplies $ 127,342 $ 173,520 Work in process 12,070 50,963 Finished goods 367,718 444,710 Total $ 507,130 $ 669,193 In connection with the Company's restructuring activities described in Note 10, Restructuring Charges, during the year ended September 30, 2023, CPP recorded an inventory impairment charge of $ 37,100 to adjust to net realizable value. NOTE 5 — PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At September 30, 2023 At September 30, 2022 Land, building and building improvements $ 169,923 $ 159,693 Machinery and equipment 447,972 511,779 Leasehold improvements 33,740 35,489 651,635 706,961 Accumulated depreciation and amortization ( 372,417 ) ( 412,400 ) Total $ 279,218 $ 294,561 Except as described in Note 10, Restructuring Charges, no impairment occurred during the year ended September 30, 2023. NOTE 6 – 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 credit losses. 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 doubtful accounts 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. Credit losses are recorded as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in SG&A expenses. The Company also considers current and expected future economic and market conditions, such as the COVID-19 pandemic, 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 this guidance in all material respects. 66 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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: Beginning Balance, October 1, 2021 $ 8,787 Allowance for credit losses acquired 2,598 Provision for expected credit losses 1,172 Amounts written off charged against the allowance ( 251 ) Other, primarily foreign currency translation ( 169 ) Ending Balance, September 30, 2022 $ 12,137 Provision for expected credit losses 971 Amounts written off charged against the allowance ( 1,186 ) Other, primarily foreign currency translation ( 658 ) Ending Balance, September 30, 2023 $ 11,264 NOTE 7 — GOODWILL AND INTANGIBLES Goodwill at September 30, 2023 and 2022 was $ 327,864 and $ 335,790 , respectively. For the fiscal year ended September 30, 2023, the Company performed a quantitative assessment of the CPP reporting units using both an income-based and market-based approach, which did not result in a goodwill impairment. For the HBP reporting unit, we performed a qualitative assessment and determined that indicators that fair value was less than the carrying amount were not present. For the fiscal year ended September 30, 2022, we performed a qualitative assessment of the HBP reporting unit and determined that indicators that the fair value was less than the carrying amount were not present. However, indicators of impairment were present for our CPP reporting units driven by a decrease in comparable company market multiples and an increase in interest rates and the related impact on weighted average cost of capital rates. As such, in connection with the preparation of our financial statements for the fiscal year ended September 30, 2022, we performed a quantitative assessment of the CPP reporting units using both an income based and market-based valuation approach. The impairment tests resulted in a pre-tax, non-cash goodwill impairment charge of $ 342,027 to the CPP reporting units. The following table provides a summary of the carrying value of goodwill by segment as of September 30, 2023, 2022 and 2021. At September 30, 2021 Goodwill from acquisitions (a) Accumulated Impairment Charges Foreign currency translation adjustments At September 30, 2022 Goodwill from acquisitions (a) Foreign currency translation adjustments At September 30, 2023 Consumer and Professional Products $ 234,895 $ 258,536 $ ( 342,027 ) $ ( 6,867 ) $ 144,537 $ ( 7,926 ) $ — $ 136,611 Home and Building Products 191,253 — — — 191,253 — — 191,253 Total $ 426,148 $ 258,536 $ ( 342,027 ) $ ( 6,867 ) $ 335,790 $ ( 7,926 ) $ — $ 327,864 (a) The change in the CPP segment was due to the acquisitions of Hunter in 2022. During the fiscal year ended September 30, 2023, the Company compared the estimated fair values of its CPP indefinite-lived intangibles to their carrying amounts 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. The Company then compared the estimated fair values of each trademark to their carrying amounts. The impairment tests resulted in pre-tax noncash impairment charges of $ 109,200 to the gross carrying amount of our trademarks, of which $ 9,200 was recognized in the fourth quarter and $ 100,000 was recognized in the second quarter. Indicators of impairment were not present for the HBP indefinite-lived intangibles during 2023. 67 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For the fiscal year ended September 30, 2022, we determined the fair values of CPP's indefinite-lived intangible assets by using the relief from royalty method, as described above. We then compared the estimated fair values to their carrying amounts. The impairment tests resulted in a pre-tax, non-cash impairment charge of $ 175,000 to the gross carrying amount of our CPP trademarks. Indicators of impairment were not present for the HBP indefinite-lived intangibles during 2022. The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset: At September 30, 2023 At September 30, 2022 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 443,164 $ 113,057 23 $ 442,085 $ 91,143 Unpatented technology 15,504 3,815 13 14,326 3,022 Total amortizable intangible assets 458,668 116,872 456,411 94,165 Trademarks 293,447 — 399,668 — Total intangible assets $ 752,115 $ 116,872 $ 856,079 $ 94,165 In 2023, the gross carrying amount of intangible assets was impacted by $ 5,236 related to foreign currency translation. Amortization expense for intangible assets subject to amortization was $ 22,389 , $ 18,215 and $ 9,561 in 2023, 2022 and 2021, respectively. Amortization expense for each of the next five years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2024 - $ 21,354 ; 2025 - $ 21,354 ; 2026 - $ 21,354 ; 2027 - $ 21,354 and 2028 - $ 21,354 ; thereafter - $ 235,026 . NOTE 8 — 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 for $ 330,000 in cash, excluding customary post-closing adjustments, primarily related to working capital. 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. 68 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Defense Electronics (DE or Telephonics) The following amounts related to Telephonics have been segregated from Griffon's continuing operations and are reported as discontinued operations: For the Year Ended September 30, 2022 2021 Revenue $ 161,061 $ 271,060 Cost of goods and services 125,208 232,075 Gross profit 35,853 38,985 Selling, general and administrative expenses 26,423 35,532 Income from discontinued operations 9,430 3,453 Other income (expense) Gain on sale of business 107,517 5,291 Interest income, net 2 117 Other, net ( 604 ) 1,260 Total other income (expense) 106,915 6,668 Income from discontinued operations before tax 116,345 10,121 Provision for income taxes 20,188 1,212 Income from discontinued operations $ 96,157 $ 8,909 Depreciation and amortization was excluded from the current 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 for fiscal 2022 would have been approximately $ 7,442 through the date of disposition on June 27, 2022. 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 Consolidated Balance Sheets: At September 30, 2023 At September 30, 2022 Assets of discontinued operations: Prepaid and other current assets $ 1,001 $ 1,189 Other long-term assets 4,290 4,586 Total assets of discontinued operations $ 5,291 $ 5,775 Liabilities of discontinued operations: Accrued liabilities, current $ 7,148 $ 12,656 Other long-term liabilities 4,650 4,262 Total liabilities of discontinued operations $ 11,798 $ 16,918 Accrued liabilities as of September 30, 2023 and 2022 includes the Company's obligation of $ 4,596 and $ 8,846 in connection with the sale of Telephonics primarily related to certain customary post-closing adjustments, primarily working capital and stay bonuses. At September 30, 2023 and 2022, Griffon’s liabilities for Installations Services and other discontinued operations primarily related to insurance claims, income taxes, product liability, warranty and environmental reserves totaling $ 7,202 and $ 8,072 , respectively. The increase in assets and liabilities for Installations Services and other discontinued operations was primarily associated with insurance claims receivable and payable. 69 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Except for revenue from the Telephonics business, as noted above, there was no reported revenue in 2023, 2022 and 2021 for Installations Services and other discontinued operations. NOTE 9 — ACCRUED LIABILITIES The following table details the components of accrued liabilities: At September 30, 2023 At September 30, 2022 Compensation $ 77,558 $ 77,823 Interest 4,317 6,798 Warranties and rebates 24,294 18,965 Insurance 10,619 10,533 Rent, utilities and freight 6,720 7,571 Income and other taxes 22,954 22,570 Marketing and advertising 7,008 6,682 Restructuring 19,658 650 Other 19,970 20,205 Total $ 193,098 $ 171,797 NOTE 10 – 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 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 included one-time charges of approximately $ 51,869 and capital investments of approximately $ 13,000 , net of future proceeds from the sale of exited facilities. Total cumulative charges of $ 51,869 consisted of cash charges totaling $ 35,691 and non-cash, asset-related charges totaling $ 16,178 ; the cash charges included $ 12,934 for one-time termination benefits and other personnel-related costs and $ 22,757 for facility exit costs. As a result of these transactions, headcount was reduced by approximately 420 . In the year ended September 30, 2023, CPP incurred pre-tax restructuring and related exit costs approximating $ 92,468 . Cash charges totaled $ 33,536 and non-cash, asset-related charges totaled $ 58,932 ; the cash charges included $ 16,772 for one-time termination benefits and other personnel related costs and $ 16,764 for facility exit costs. Non-cash charges included a $ 21,832 70 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) impairment charge related to certain fixed assets at several manufacturing locations and $ 37,100 to adjust inventory to net realizable value. In the year ended September 30, 2022, CPP incurred pre-tax restructuring and related exit costs approximating $ 16,782 . Cash charges totaled $ 11,951 and non-cash, asset-related charges totaled $ 4,831 ; the cash charges included $ 4,124 for one-time termination benefits and other personnel-related costs and $ 7,827 for facility exit costs. Non-cash charges included a $ 3,805 of inventory that have no recoverable value and $ 1,026 primarily related to disposal of fixed assets at several manufacturing locations. In the year ended September 30, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $ 21,418 . Cash charges totaled $ 14,763 and non-cash, asset-related charges totaled $ 6,655 ; the cash charges included $ 3,190 for one-time termination benefits and other personnel-related costs and $ 11,573 for facility and lease exit costs primarily driven by the consolidation of distribution facilities and system optimization. Non-cash charges of $ 6,655 predominantly related to inventory of $ 4,158 that have no recoverable value, and a $ 1,882 impairment charge related to machinery and equipment that have no recoverable value at one of the Company's owned manufacturing locations. A summary of the restructuring and other related charges included in Cost of goods and services and Selling, general and administrative expenses in the Company's Consolidated Statements of Operations were as follows: For the Year Ended September 30, 2023 2022 2021 Cost of goods and services $ 82,028 $ 7,964 $ 7,923 Selling, general and administrative expenses 10,440 8,818 13,495 Total restructuring charges $ 92,468 $ 16,782 $ 21,418 For the Year Ended September 30, 2023 2022 2021 Personnel related costs $ 16,772 $ 4,124 $ 3,190 Facilities, exit costs and other 16,764 7,827 11,573 Non-cash facility and other 58,932 4,831 6,655 Total $ 92,468 $ 16,782 $ 21,418 71 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) The following table summarizes the accrued liabilities of the Company's restructuring actions: Cash Charges Cash Charges Non-Cash Charges Personnel related costs Facilities & Exit Costs Facility and Other Costs Total Accrued liability at September 30, 2020 $ 581 $ 264 $ — $ 845 Charges 3,190 11,573 6,655 21,418 Payments ( 3,353 ) ( 11,573 ) — ( 14,926 ) Non-cash charges (1) — — ( 6,655 ) ( 6,655 ) Accrued liability at September 30, 2021 $ 418 $ 264 $ — $ 682 Charges 4,124 7,827 4,831 16,782 Payments ( 4,156 ) ( 7,827 ) — ( 11,983 ) Non-cash charges (1) — — ( 4,831 ) ( 4,831 ) Accrued liability at September 30, 2022 $ 386 $ 264 $ — $ 650 Charges 16,772 16,764 58,932 92,468 Payments ( 3,051 ) ( 11,477 ) — ( 14,528 ) Non-cash charges (1) — — ( 58,932 ) ( 58,932 ) Accrued liability at September 30, 2023 $ 14,107 $ 5,551 $ — $ 19,658 (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. NOTE 11 – 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 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 the 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 short-term warranty liability was $ 20,781 as of September 30, 2023 and 16,786 as of September 30, 2022. The long-term warranty liability was $ 1,239 at both September 30, 2023 and 2022. Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows: Years Ended September 30, 2023 2022 Balance, beginning of period $ 16,786 $ 7,818 Warranties issued and changes in estimated pre-existing warranties 21,301 19,028 Actual warranty costs incurred ( 17,306 ) ( 16,413 ) Other warranty liabilities assumed from acquisitions — 6,353 Balance, end of period $ 20,781 $ 16,786 72 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) NOTE 12 — LONG-TERM DEBT Debt at September 30, 2023 and 2022 consisted of the following: At September 30, 2023 Outstanding Balance Original Issuer Premium (Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior Notes due 2028 (a) $ 974,775 $ 218 $ ( 8,920 ) $ 966,073 5.75 % Term Loan B due 2029 (b) 463,000 ( 922 ) ( 7,039 ) 455,039 Variable Revolver due 2028 (b) 50,445 — ( 3,606 ) 46,839 Variable Non U.S. lines of credit (d) — — ( 3 ) ( 3 ) Variable Other debt (e) 1,592 — ( 11 ) 1,581 Variable Totals 1,489,812 ( 704 ) ( 19,579 ) 1,469,529 less: Current portion ( 9,625 ) — — ( 9,625 ) Long-term debt $ 1,480,187 $ ( 704 ) $ ( 19,579 ) $ 1,459,904 At September 30, 2022 Outstanding Balance Original Issuer Premium (Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 974,775 $ 266 $ ( 10,939 ) $ 964,102 5.75 % Term Loan B due 2029 (b) 496,000 ( 1,144 ) ( 8,823 ) 486,033 Variable Revolver due 2025 (b) 97,328 — ( 1,227 ) 96,101 Variable Finance lease - real estate (c) 13,091 — — 13,091 Variable Non U.S. lines of credit (d) — — ( 2 ) ( 2 ) Variable Non U.S. term and mortgage loans (d) 12,090 — ( 27 ) 12,063 Variable Other debt (e) 2,276 — ( 13 ) 2,263 Variable Totals 1,595,560 ( 878 ) ( 21,031 ) 1,573,651 less: Current portion ( 12,653 ) — — ( 12,653 ) Long-term debt $ 1,582,907 $ ( 878 ) $ ( 21,031 ) $ 1,560,998 73 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Interest expense consists of the following for 2023, 2022 and 2021. Year Ended September 30, 2023 Effective Interest Rate Cash Interest Amort. Debt (Premium) Discount Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.95 % $ 56,050 $ ( 48 ) $ 2,020 $ 58,022 Term Loan B due 2029 (b) 7.49 % 35,321 172 1,398 36,891 Revolver due 2025 (b) Variable 4,282 — 646 4,928 Finance lease - real estate (c) 5.60 % 680 — — 680 Non U.S. lines of credit (d) Variable 630 — 42 672 Other debt (e) Variable 392 — 2 394 Capitalized interest ( 142 ) — — ( 142 ) Totals $ 97,213 $ 124 $ 4,108 $ 101,445 Year Ended September 30, 2022 Effective Interest Rate Cash Interest Amort. Debt (Premium) Discount Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.95 % $ 57,105 $ ( 48 ) $ 2,056 $ 59,113 Term Loan B due 2029 (b) 4.14 % 18,116 135 1,068 19,319 Revolver due 2025 (b) Variable 3,762 — 491 4,253 Finance lease - real estate (c) 5.60 % 759 — 4 763 Non U.S. lines of credit (d) Variable 17 — 15 32 Non U.S. term and mortgage loans (d) Variable 610 — 53 663 Other debt (e) Variable 544 — 1 545 Capitalized interest ( 309 ) — — ( 309 ) Totals $ 80,604 $ 87 $ 3,688 $ 84,379 Year Ended September 30, 2021 Effective Interest Rate Cash Interest Amort. Debt Premium Amort. Deferred Cost & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.95 % $ 57,500 $ ( 48 ) $ 2,084 $ 59,536 Revolver due 2025 (b) Variable 1,078 — 491 1,569 Finance lease - real estate (c) 5.65 % 875 — 25 900 Non U.S. lines of credit (d) Variable 15 — 15 30 Non U.S. term and mortgage loans (d) Variable 655 — 71 726 Other debt (e) Variable 443 — 2 445 Capitalized interest ( 31 ) — — ( 31 ) Totals $ 60,535 $ ( 48 ) $ 2,688 $ 63,175 74 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Minimum payments under debt agreements for the next five years are as follows: $ 9,625 in 2024, $ 8,153 in 2025, $ 8,026 in 2026, $ 8,005 in 2027, $ 1,033,220 in 2028 and $ 422,783 thereafter. (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 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 September 30, 2023, outstanding 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 an exchange offer. The fair value of the 2028 Senior Notes approximated $ 882,171 on September 30, 2023 based upon quoted market prices (level 1 inputs). At September 30, 2023, $ 8,920 of underwriting fees and other expenses incurred remained to be amortized. (b) On August 1, 2023, Griffon amended and restated its revolving credit agreement (as amended, "Credit Agreement"). The amendment increased the maximum borrowing availability on its revolving credit facility from $ 400,000 to $ 500,000 (the "Revolver") 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 . Additionally, the Revolver includes a multi-currency sub-facility of $ 200,000 . Borrowings under the Revolver may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a Secured Overnight Financing Rate ("SOFR"), Sterling Overnight Index Average ("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 2.00 % ( 7.42 % at September 30, 2023), SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 2.00 % ( 7.22 % at September 30, 2023) and base rate loans accrue interest at prime rate plus a margin of 1.00 % ( 9.50 % at September 30, 2023). At September 30, 2023, under the Credit Agreement, there were $ 50,445 in outstanding borrowings; outstanding standby letters of credit were $ 12,962 ; and $ 436,593 was available, subject to certain loan covenants, for borrowing at that date. On January 24, 2022, Griffon amended and restated its Credit Agreement to provide for a new $ 800,000 Term Loan B facility, due January 24, 2029, in addition to the Revolver, and replaced the London Interbank Offer Rate (LIBOR) with SOFR. 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 % ( 7.79 % as of September 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 secured leverage thresholds starting with the fiscal year ended September 30, 2023; and a final balloon payment due at maturity. At September 30, 2023, Griffon's secured leverage remained below the threshold set forth in the Credit Agreement that would, if exceeded, require Griffon to make an additional payment, and therefore no additional annual principal payment was required. Term Loan B borrowings may generally be repaid without penalty but may not be re-borrowed. During 2023 and 2022, Griffon prepaid $ 25,000 and $ 300,000 , respectively, of the aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance, and recognized a $ 437 and $ 6,296 charge on the prepayment of debt in 2023 and 2022, respectively. The charges were comprised of write-offs of underwriting fees and other expenses of $ 386 and $ 5,575 for 2023 and 2022, respectively, and the original issue discount of $ 51 and $ 721 for 2023 and 2022, respectively. 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. The fair value of the Term Loan B facility approximated $ 461,843 on September 30, 2023 based upon quoted market prices (level 1 inputs). At 75 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) September 30, 2023, $ 7,039 of underwriting fees and other expenses incurred, remained to be amortized. At September 30, 2023, $ 463,000 of the Term Loan B was outstanding. 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. (c) On September 28, 2023, the Company closed on the exercise of its lease purchase option, as permitted under the lease agreement, to acquire ownership of the manufacturing facility located in Ocala, Florida for a cash purchase price of $ 23,207 . The Ocala lease had a maturity date in 2025 and bore interest at a fixed rate of approximately 5.6 %. As a result of exercising the purchase option, the Company no longer has any future lease obligations related to this real estate. During 2022, the financing lease on the Troy, Ohio location expired. The Troy 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 22- Leases for further details. (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 11,117 as of September 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 ( 6.69 % using CDOR and 6.43 % using Bankers Acceptance Rate CDN as of September 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 September 30, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 11,117 as of September 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 ($ 19,188 as of September 30, 2023). 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 ( 5.33 % at September 30, 2023). At September 30, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($ 19,188 as of September 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. In July 2018, the AMES Companies UK Ltd and its subsidiaries (collectively, "Ames UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver, which matured in July 2023. Prior to maturity, on June 30, 2023, AMES UK paid off and cancelled the GBP 14,000 term loan and GBP 4,000 mortgage loan. The payoff amounts were GBP 7,525 ($ 9,543 ) and GBP 2,451 ($ 3,108 ), respectively. Upon maturity in July 2023, the GBP 5,000 revolver had no balance and was not renewed. (e) Other debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. At September 30, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. 76 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 13 – EMPLOYEE BENEFIT PLANS Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $ 10,857 in 2023, $ 11,080 in 2022 and $ 8,576 in 2021. The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $ 1,679 and $ 1,796 as of September 30, 2023 and 2022. The accumulated other comprehensive income (loss) for these plans was $ 420 and $ 399 as of September 30, 2023 and 2022, respectively, and the 2023, 2022 and 2021 benefit expense was $ 67 , $ 47 and $ 35 respectively. It is the Company’s practice to fund these benefits as incurred. Griffon also has qualified and non-qualified defined benefit plans covering certain employees which provide benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss). Griffon is responsible for overseeing the management of the investments of two qualified defined benefit plans and uses the services of an investment manager to manage the plans' assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2023 and 2022. The fair value of various other investments was determined by the plans' trustees using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). A small amount of plan assets are invested in private equity which consist primarily of investments in private companies which are valued using the net asset values provided by the underlying private investment companies as a practical expedient (level 3 inputs). The Clopay AMES Pension Plan, the Hunter Fan Pension Plan and the AMES supplemental executive retirement plan are frozen to new entrants and participants in the plans no longer accrue benefits. The Company’s non-service cost components of net periodic benefit plan cost was an expense (benefit) of $ 866 , $( 4,256 ) and $( 907 ) during 2023, 2022, and 2021 respectively. Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10 % change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon. 77 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Net periodic costs (benefits) were as follows: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2023 2022 2021 2023 2022 2021 Net periodic (benefits) costs: Interest cost $ 6,814 $ 3,448 $ 2,816 $ 488 $ 172 $ 162 Expected return on plan assets ( 10,213 ) ( 11,255 ) ( 10,177 ) — — — Amortization of: Prior service costs — — — — — — Actuarial loss 3,314 2,818 5,776 463 561 516 Total net periodic (benefits) costs $ ( 85 ) $ ( 4,989 ) $ ( 1,585 ) $ 951 $ 733 $ 678 The tax benefits in 2023, 2022 and 2021 for the amortization of pension costs in Other comprehensive income (loss) were $ 793 , $ 710 and $ 1,321 , respectively. The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows: Defined Benefits for the Years Ended September 30, Supplemental Benefits for the Years Ended September 30, 2023 2022 2021 2023 2022 2021 Discount rate 5.17 % 2.63 % 2.30 % 5.02 % 1.94 % 1.69 % Expected return on assets 6.72 % 6.72 % 6.75 % — % — % — % 78 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2023 2022 2023 2022 Change in benefit obligation: Benefit obligation at beginning of fiscal year $ 149,021 $ 170,505 $ 11,922 $ 14,775 Business acquisition — 21,839 — — Interest cost 6,814 3,448 488 172 Benefits paid ( 11,541 ) ( 11,281 ) ( 1,907 ) ( 1,927 ) Actuarial (gain) loss ( 5,070 ) ( 35,490 ) 379 ( 1,098 ) Benefit obligation at end of fiscal year 139,224 149,021 10,882 11,922 Change in plan assets: Fair value of plan assets at beginning of fiscal year 144,091 160,523 — — Business acquisition — 22,288 — — Actual return on plan assets 12,232 ( 27,439 ) — — Company contributions 2,215 — 1,907 1,927 Benefits paid ( 11,541 ) ( 11,281 ) ( 1,907 ) ( 1,927 ) Fair value of plan assets at end of fiscal year 146,997 144,091 — — Projected benefit obligation in excess of plan assets $ 7,773 $ ( 4,930 ) $ ( 10,882 ) $ ( 11,922 ) Amounts recognized in the statement of financial position consist of: Non-Current Assets $ 7,773 $ 1,108 $ — $ — Accrued liabilities — — ( 1,834 ) $ ( 1,866 ) Other liabilities (long-term) — ( 6,038 ) ( 9,048 ) ( 10,056 ) Total Liabilities 7,773 ( 4,930 ) ( 10,882 ) ( 11,922 ) Net actuarial losses 28,279 38,682 5,919 6,003 Prior service cost — — — — Deferred taxes ( 5,939 ) ( 8,123 ) ( 2,873 ) ( 1,261 ) Total Accumulated other comprehensive loss, net of tax 22,340 30,559 3,046 4,742 Net amount recognized at September 30, $ 30,113 $ 25,629 $ ( 7,836 ) $ ( 7,180 ) Accumulated benefit obligations $ 139,224 $ 149,021 $ 10,882 $ 11,922 Information for plans with accumulated benefit obligations in excess of plan assets: ABO $ 139,224 $ 149,021 $ 10,882 $ 11,922 PBO 139,224 149,021 10,882 11,922 Fair value of plan assets 146,997 144,091 — — Actuarial gains as of September 30, 2023 and 2022 were primarily the result of the increase in the discount rate. The weighted-average assumptions used in determining the benefit obligations were as follows: Defined Benefits at September 30, Supplemental Benefits at September 30, 2023 2022 2023 2022 Weighted average discount rate 5.63 % 5.17 % 5.53 % 5.02 % 79 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Estimated future benefit payments to retirees, which reflect expected future service, are as follows: For the years ending September 30, Defined Benefits Supplemental Benefits 2024 $ 12,009 $ 1,853 2025 11,993 1,709 2026 12,021 1,562 2027 12,012 1,413 2028 11,918 1,263 2028 through 2031 56,659 4,231 During 2024, Griffon is not required to and does not expect to contribute to the Defined Benefit plans and expects to contribute $ 1,853 to Supplemental Benefits that will be funded from the general assets of Griffon. The Clopay AMES Pension Plan and the Hunter Fan Pension Plan are covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the Clopay AMES Pension Plan and Hunter Fan Pension Plan as of January 1, 2023 was 96.9 % and 122.1 %, respectively. Since the plans were in excess of the 80 % funding threshold there were no plan restrictions. There are no catch up contributions for either plan expected in 2024. The actual and weighted-average asset allocation for qualified benefit plans were as follows: At September 30, 2023 2022 Target Cash and equivalents 3.3 % 4.3 % — % Equity securities 41.9 % 41.1 % 44.0 % Fixed income 24.8 % 24.6 % 36.0 % Other 30.0 % 30.0 % 20.0 % Total 100.0 % 100.0 % 100.0 % The following is a description of the valuation methodologies used for plan assets measured at fair value: Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2. Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy. Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are classified within Level 1 and Level 2 of the valuation hierarchy. Commingled funds – The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 or 3, as appropriate, of the valuation hierarchy and can be liquidated on demand. Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the net asset values provided by the underlying private investment companies as a practical expedient. These investments are classified within Level 2 of the valuation hierarchy. Fully benefit-responsive investment contracts - The Plan holds fully benefit-responsive investment contracts that are reported at contract value, which is the value of principal and interest under the terms of the annuity contract. 80 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category: At September 30, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 4,889 $ — $ — $ 4,889 Government agency securities 26,824 2,537 — 29,361 Debt instruments 1,253 3,945 — 5,198 Equity securities 61,482 — — 61,482 Commingled funds — 9,022 10,459 19,481 Limited partnerships and hedge fund investments — 21,768 — 21,768 Other Securities 1,834 — — 1,834 Subtotal $ 96,282 $ 37,272 $ 10,459 $ 144,013 Accrued income and plan receivables 285 Fully benefit-responsive investment contract 2,699 Total $ 146,997 At September 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Cash and equivalents $ 6,178 $ — $ — $ 6,178 Government and agency securities 25,932 2,703 — 28,635 Debt instruments 1,326 3,604 — 4,930 Equity securities 59,190 — — 59,190 Commingled funds — 8,088 9,484 17,572 Limited partnerships and hedge fund investments — 22,662 — 22,662 Other Securities 1,845 — — 1,845 Subtotal $ 94,471 $ 37,057 $ 9,484 $ 141,012 Accrued income and plan receivables 265 Fully benefit-responsive investment contract 2,814 Total $ 144,091 81 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The following table represents level 3 significant unobservable inputs for the years ended September 30, 2023 and 2022: Significant Unobservable Inputs (Level 3) As of October 1, 2021 $ 11,286 Purchases, issuances and settlements 150 Gains and losses ( 1,952 ) As of September 30, 2022 9,484 Purchases, issuances and settlements — Gains and losses 975 As of September 30, 2023 $ 10,459 Griffon has an Employee Stock Ownership Plan ("ESOP") that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1 st following completion of one qualifying year of service (as defined in the plan). Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $ 305 for the plan year ended September 30, 2023), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $ 20,583 in 2023, $ 14,325 in 2022 and $ 3,678 in 2021. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2023 and 2022 based on the closing stock price of Griffon’s stock was $ 7,768 and $ 30,247 , respectively. The ESOP shares were as follows: At September 30, 2023 2022 Allocated shares 4,409,113 3,938,384 Unallocated shares 195,827 1,024,642 Total 4,604,940 4,963,026 NOTE 14 – INCOME TAXES Income taxes have been based on the following components of Income before taxes from continuing operations: For the Years Ended September 30, 2023 2022 2021 Domestic $ 106,209 $ ( 247,004 ) $ 55,835 Non-U.S. 6,473 ( 23,875 ) 54,120 $ 112,682 $ ( 270,879 ) $ 109,955 82 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) Provision (benefit) for income taxes on income was comprised of the following from continuing operations: For the Years Ended September 30, 2023 2022 2021 Current $ 72,860 $ 73,542 $ 25,890 Deferred ( 37,795 ) ( 56,706 ) 13,763 Total $ 35,065 $ 16,836 $ 39,653 U.S. Federal $ 23,612 $ ( 5,178 ) $ 14,305 State and local 5,899 14,361 7,117 Non-U.S. 5,554 7,653 18,231 Total provision $ 35,065 $ 16,836 $ 39,653 Differences between the effective income tax rate applied to Income (loss) before taxes from continuing operations and the U.S. Federal statutory income tax rate are presented in the table below. For the fiscal year ended September 30, 2022, the Company reported a pre-tax loss and income tax expense. As a result, unfavorable items to the US Federal statutory income tax rate are presented as negative amounts, while favorable items are presented as positive amounts. For the Years Ended September 30, 2023 2022 2021 U.S. Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State and local taxes, net of Federal benefit ( 0.2 ) % ( 5.3 ) % 4.8 % Non-U.S. taxes - foreign permanent items and taxes 1.4 % ( 1.5 ) % 3.1 % Change in tax contingency reserves ( 0.4 ) % ( 0.1 ) % 0.2 % Impact of foreign rate change on deferred tax balances — % — % 2.8 % Tax Reform-Repatriation of Foreign Earnings and GILTI 0.5 % 0.2 % 0.4 % Change in valuation allowance 3.9 % ( 1.7 ) % 0.4 % Other non-deductible/non-taxable items, net — % ( 0.4 ) % 0.4 % Non-deductible officer's compensation 5.1 % ( 1.9 ) % 4.0 % Research and U.S. foreign tax credits ( 0.9 ) % 0.2 % ( 0.1 ) % Goodwill impairment — % ( 17.1 ) % — % Share based compensation 0.8 % 0.4 % ( 2.0 ) % Other ( 0.1 ) % — % 1.1 % Effective tax rate 31.1 % ( 6.2 ) % 36.1 % 83 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows: At September 30, 2023 2022 Deferred tax assets: Bad debt reserves $ 2,537 $ 2,873 Inventory reserves 11,764 5,005 Deferred compensation (equity compensation and defined benefit plans) 5,929 8,658 Compensation benefits 5,118 4,859 Insurance reserve 2,823 2,660 Restructuring reserve 4,224 — Warranty reserve 6,912 3,402 Lease liabilities 47,077 49,649 Net operating loss 15,459 20,528 Tax credits 5,933 5,933 Research & Development 5,281 — Other reserves and accruals 5,312 5,553 118,369 109,120 Valuation allowance ( 17,992 ) ( 13,490 ) Total deferred tax assets 100,377 95,630 Deferred tax liabilities: Goodwill and intangibles ( 48,859 ) ( 25,484 ) Property, plant and equipment ( 99,637 ) ( 158,074 ) Right-of-use assets ( 44,499 ) ( 47,949 ) Unremitted Foreign Earnings ( 1,894 ) — Other ( 1,179 ) ( 1,224 ) Total deferred tax liabilities ( 196,068 ) ( 232,731 ) Net deferred tax liabilities $ ( 95,691 ) $ ( 137,101 ) The components of the net deferred tax liability, by balance sheet account, were as follows: At September 30, 2023 2022 Other assets $ 617 $ 339 Other liabilities ( 97,440 ) ( 139,417 ) Liabilities of discontinued operations 1,132 1,977 Net deferred liability $ ( 95,691 ) $ ( 137,101 ) In 2023, the net increase in the valuation allowance of $ 4,502 is the result of a determination that certain state and foreign net operating losses will not be realized. In 2022, the increase in the valuation allowance of $ 3,065 is the result of a determination that certain state and foreign net operating losses will not be realized, partially offset by tax rate changes impacting the value of the deferred tax assets and the reversal of a valuation allowance related to certain state credits for the Telephonics business, which was sold on June 27, 2022. Prior to fiscal year 2023, Griffon did not provide deferred U.S. income taxes of undistributed earnings on non-U.S. subsidiaries as such earnings were intended to be reinvested indefinitely. At September 30, 2023 , Griffon has a policy election to indefinitely reinvest the undistributed earnings of certain non-U.S. subsidiaries. As of September 30, 2023, we have approximately $ 117,886 of undistributed earnings of non-U.S. subsidiaries. Of these undistributed earnings, $ 65,018 were previously subjected to U.S. federal income tax. As of September 30, 2023, we recognized a deferred tax liability of $ 1,894 for estimated non-U.S. withholding taxes on the non-U.S. earnings that are not indefinitely reinvested. The Company has not 84 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) provided deferred taxes on any other outside basis differences in its investments in the non-U.S. subsidiaries as these other outside basis differences are currently considered indefinitely reinvested. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. The Company may repatriate non-indefinitely reinvested earnings of its non-U.S. subsidiaries where excess cash has accumulated and the Company determines that it is appropriate and tax efficient. Accordingly, the Company continues to reinvest all other undistributed earnings of its non-U.S. subsidiaries and may be subject to additional non-U.S. withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion in the future. At September 30, 2023, Griffon had no loss carryforwards for U.S. tax purposes and $ 27,585 for non-U.S. tax purposes. At September 30, 2022, Griffon had $ 44,521 loss carryforwards for U.S. tax purposes and $ 8,798 for non-U.S. tax purposes. The U.S loss carryforwards can be carried forward indefinitely but are subject to certain limitations on annual usage. The non-U.S. loss carryforwards expire in varying amounts beginning in 2027 to indefinite carryforward. At September 30, 2023 and 2022, Griffon had state and local loss carryforwards of $ 176,343 and $ 192,134 , respectively, which expire in varying amounts through 2042. At September 30, 2023 and 2022, Griffon had federal tax credit carryforwards of $ 5,933 and $ 5,933 , respectively, which expire in varying amounts through 2035. At September 30, 2023 and 2022, Griffon had no capital loss carryovers for U.S. tax purposes. Capital loss carryovers are available for three-year carryback or five-year carryforward periods. We believe it is more likely than not that the benefit from certain federal, state, and non-U.S. tax attributes will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2023 and 2022 of $ 17,992 and $ 13,490 , respectively, on the deferred tax assets. As it becomes probable that the benefits of these attributes will be realized, the reversal of valuation allowance will be recognized as a reduction of income tax expense. If certain substantial changes in Griffon's ownership occur, there would be an annual limitation on the amount of carryforward(s) that can be utilized. Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia, U.K. and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2017. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2015. Various U.S. state and statutory tax audits are currently underway. The following is a roll forward of unrecognized tax benefits: Balance at September 30, 2021 $ 4,377 Additions based on tax positions related to the current year 172 Additions based on tax positions related to prior years (1) 2,298 Lapse of Statutes ( 39 ) Balance at September 30, 2022 $ 6,808 Additions based on tax positions related to the current year 208 Additions based on tax positions related to prior years 32 Reductions based on tax positions related to prior years ( 16 ) Lapse of Statutes ( 740 ) Settlements — Balance at September 30, 2023 $ 6,292 (1) Relates to unrecognized tax benefits assumed with the acquisition of Hunter. 85 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) If recognized, the amount of potential unrecognized tax benefits that would impact Griffon’s effective tax rate is $ 3,021 . Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2023 and 2022, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was $ 651 and $ 521 , respectively. The Company may experience a decrease of $ 1,679 in unrecognized tax benefits over the next twelve months due to the potential resolution of unrecognized tax benefits involving several taxing jurisdictions accepting previously filed amended returns or lapse of the applicable statute. Griffon cannot reasonably estimate the extent to which other existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction. On August 16, 2022, the U.S. Government enacted the Inflation Reduction Act ("IRA") into law. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax ("CAMT") on “adjusted financial statement income” for applicable corporations and a 1% excise tax on repurchases of stock. The stock buyback excise tax went into effect January 1, 2023 and Griffon records the excise tax on its stock repurchases, net of reissuances, against treasury stock. The CAMT is effective for tax years beginning after December 31, 2022. Based on current levels of income we do not expect to be subject to the CAMT. NOTE 15 – STOCKHOLDERS’ EQUITY AND EQUITY COMPENSATION During 2023, 2022 and 2021, the Company declared and paid, in quarterly increments, cash dividends totaling $ 0.45 per share (two quarterly dividends of $ 0.10 and two quarterly dividends of $ 0.125 ), $ 0.36 per share and $ 0.32 per share, respectively. Furthermore, 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 June 27, 2022, the Board of Directors declared a special cash dividend of $ 2.00 per share, paid on July 20, 2022. 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. Dividends paid on shares in the ESOP were used to offset ESOP loan payments and recorded as a reduction of debt service payments and compensation expense. For all dividends, a dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. At September, 30, 2023, accrued dividends were $ 14,985 . On November 14, 2023, the Board of Directors declared a cash dividend of $ 0.15 per share, payable on December 14, 2023 to shareholders of record as of the close of business on November 28, 2023. On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan (the "Original Incentive Plan") pursuant to which, among other things, awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the Original Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Original Incentive Plan; and on January 30, 2020, shareholders approved Amendment No. 2 to the Original Incentive Plan, pursuant to which 1,700,000 shares were added to the Original Incentive Plan. On February 17, 2022, shareholders approved the Amended and Restated 2016 Equity Incentive Plan (the “Amended Incentive Plan”), which amended and restated the Original Incentive Plan and pursuant to which, among other things, 1,200,000 shares were added to the Original Incentive Plan. Options granted under the Amended Incentive Plan may be either “incentive stock options” or nonqualified stock options, which 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 September 30, 2023, 328,473 shares were 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 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 86 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) period of three to four years , is recognized using the straight-line attribution method and recorded within Selling, general and administrative expenses. The following table summarizes the Company’s compensation expense relating to all stock-based compensation plans: For the Years Ended September 30, 2023 2022 2021 Restricted stock $ 20,529 $ 18,810 $ 16,410 ESOP (1) 20,583 14,325 3,678 Total stock-based compensation $ 41,112 $ 33,135 $ 20,088 ________________________ (1) During the year ended September 30, 2023 and 2022, special dividend ESOP charges included in compensation expense were $ 15,494 and $ 10,538 , respectively. A summary of restricted stock activity, inclusive of restricted stock units, for 2023 is as follows: Shares Weighted Average Grant- Date Fair Value Unvested at September 30, 2022 3,703,567 $ 24.70 Granted 506,649 29.73 Vested ( 961,119 ) 35.60 Forfeited — — Unvested at September 30, 2023 3,249,097 20.40 The fair value of restricted stock which vested during 2023, 2022, and 2021 was $ 34,214 , $ 25,863 and $ 10,627 , respectively. Unrecognized compensation expense related to non-vested shares of restricted stock was $ 23,067 at September 30, 2023 and will be recognized over a weighted average vesting period of 1.6 years. At September 30, 2023, a total of approximately 3,577,570 shares of Griffon’s authorized Common Stock were reserved for issuance in connection with stock compensation plans. During 2023, Griffon granted 466,677 shares of restricted stock and restricted stock units to its employees. This included 249,480 shares of restricted stock and 11,901 restricted stock units granted to forty-four executives and key employees, subject to certain performance conditions, with a vesting period of 36 months with a total fair value of $ 8,385 , or a weighted average fair value of $ 33.61 per share. This also included 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 51,324 to 205,296 , with the target number of shares being 102,648 . The total fair value of these restricted shares using the Monte Carlo Simulation model, assuming achievement of the performance conditions at target, is approximately $ 3,648 , or a weighted average fair value of $ 35.54 per share. Additionally, Griffon granted 39,972 restricted shares 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 year ended September 30, 2023, 494,748 shares granted were issued out of treasury stock. On November 14, 2023, Griffon granted 174,104 shares of restricted stock and restricted stock units to 43 executives and key employees, subject to certain performance conditions, with a vesting period of thirty-six months , with a total fair value of $ 8,225 , or a weighted average fair value of $ 47.24 per share. 87 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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 year ended September 30, 2023, Griffon purchased 4,142,794 shares of common stock under these repurchase programs, for a total of $ 150,772 , or $ 36.39 per share, excluding excise taxes. As of September 30, 2023, $ 107,183 remains under these Board authorized repurchase programs. In connection with the share repurchases, excise taxes totaling $ 1,301 were accrued as of September 30, 2023. On September 5, 2023, Griffon repurchased 400,000 shares of its common stock, par value $ 0.25 per share, beneficially owned by two separately managed accounts of which Voss Capital, LLC is the investment manager (the “Selling Shareholders”), in a private transaction to facilitate redemptions by investors in the Selling Shareholders. The purchase price per share was approximately $ 41.87 , for an aggregate purchase price of $ 16,746 . The Selling Shareholders are affiliates of Voss Capital, LLC. Travis W. Cocke, the Founder, Chief Investment Officer and Managing Member of Voss Capital, LLC, is a member of the Board of Directors of the Company. These shares are included in the total shares purchased in the previous paragraph. Subsequent to September 30, 2023 and through November 14, 2023, Griffon purchased 1,127,062 shares of common stock for a total of $ 44,980 , or $ 39.91 per share under these Board authorized repurchase programs. On November 15, 2023, Griffon announced a $ 200,000 increase to its share repurchase program which on November 15, 2023 had $ 262,203 available given effect to all repurchases through November 14, 2023. During the year ended September 30, 2023, 365,823 shares, with a market value of $ 12,882 , or $ 35.21 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. Furthermore, during 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 16 – COMMITMENTS AND CONTINGENT LIABILITIES Purchase Commitments Purchase obligations are generally for the purchase of goods and services in the ordinary course of business. Griffon uses blanket purchase orders to communicate expected requirements to certain vendors. Purchase obligations reflect those purchase orders where the commitment is considered to be firm. Amounts purchased under such commitments were $ 184,422 , $ 255,661 and $ 235,148 for the years ended September 30, 2023, 2022 and 2021, respectively. Aggregate future minimum purchase obligations at September 30, 2023 are $ 160,539 in 2024 and $ 3,622 in 2025. There were no purchase obligations after 2025. 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 cit 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. 88 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non US currencies in thousands, except per share data) 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. 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. 89 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) NOTE 17 – EARNINGS PER SHARE Basic EPS (and diluted EPS in periods when a loss exists) 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 basic and diluted EPS for 2023, 2022 and 2021: 2023 2022 2021 Common shares outstanding 53,062 57,064 56,613 Unallocated ESOP shares ( 196 ) ( 1,025 ) ( 1,863 ) Non-vested restricted stock ( 3,111 ) ( 3,457 ) ( 3,601 ) Impact of weighted average shares 2,356 ( 910 ) ( 319 ) Weighted average shares outstanding - basic 52,111 51,672 50,830 Incremental shares from stock based compensation 2,501 — 2,539 Weighted average shares outstanding - diluted 54,612 51,672 53,369 Anti-dilutive restricted stock excluded from diluted EPS computation — 2,294 — Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share. NOTE 18 – RELATED PARTIES On September 5, 2023 Griffon entered into a stock purchase agreement to repurchase 400,000 shares of its common stock, par value $ 0.25 per share, beneficially owned by two separately managed accounts of which Voss Capital, LLC is the investment manager (the “Selling Shareholders”), in a private transaction to facilitate redemptions by investors in the Selling Shareholders. The purchase price per share was approximately $ 41.87 , for an aggregate purchase price of $ 16,746 . The Selling Shareholders are affiliates of Voss Capital, LLC. Travis W. Cocke, the Founder, Chief Investment Officer and Managing Member of Voss Capital, LLC, is a member of the Board of Directors of the Company. NOTE 19 — REPORTABLE SEGMENTS Griffon conducts its operations through two reportable segments, as follows: • 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 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. 90 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Information on Griffon’s reportable segments from continuing operations is as follows: For the Years Ended September 30, REVENUE 2023 2022 2021 Home and Building Products $ 1,588,505 $ 1,506,882 $ 1,041,108 Consumer and Professional Products 1,096,678 1,341,606 1,229,518 Total revenue $ 2,685,183 $ 2,848,488 $ 2,270,626 Griffon evaluates performance and allocates resources based on segment adjusted EBITDA and adjusted EBITDA, non GAAP measures, 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 other items that may affect comparability, as applicable, non GAAP measures. 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 adjusted EBITDA to income (loss) before taxes from continuing operations: For the Years Ended September 30, 2023 2022 2021 Segment Adjusted EBITDA: Home and Building Products $ 510,876 $ 412,738 $ 181,015 Consumer and Professional Products 50,343 99,308 115,673 Segment Adjusted EBITDA 561,219 512,046 296,688 Unallocated amounts, excluding depreciation ( 55,887 ) ( 53,888 ) ( 50,278 ) Adjusted EBITDA 505,332 458,158 246,410 Net interest expense ( 99,351 ) ( 84,164 ) ( 62,735 ) Depreciation and amortization ( 65,445 ) ( 64,658 ) ( 52,302 ) Goodwill and intangible impairments ( 109,200 ) ( 517,027 ) — Restructuring charges ( 92,468 ) ( 16,782 ) ( 21,418 ) Debt extinguishment, net ( 437 ) ( 4,529 ) — Acquisition costs — ( 9,303 ) — Strategic review - retention and other ( 20,225 ) ( 9,683 ) — Special dividend ESOP charges ( 15,494 ) ( 10,538 ) — Gain on sale of buildings 12,655 — — Proxy expenses ( 2,685 ) ( 6,952 ) — Fair value step-up of acquired inventory sold — ( 5,401 ) — Income (loss) before taxes from continuing operations $ 112,682 $ ( 270,879 ) $ 109,955 91 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For the Years Ended September 30, DEPRECIATION and AMORTIZATION 2023 2022 2021 Segment: Home and Building Products $ 15,066 $ 16,539 $ 17,370 Consumer and Professional Products 49,811 47,562 34,433 Total segment depreciation and amortization 64,877 64,101 51,803 Corporate 568 557 499 Total consolidated depreciation and amortization $ 65,445 $ 64,658 $ 52,302 CAPITAL EXPENDITURES Segment: Home and Building Products (1) $ 24,065 $ 11,029 $ 8,648 Consumer and Professional Products (2) 39,476 31,279 28,265 Total segment 63,541 42,308 36,913 Corporate (3) 63 180 38 Total consolidated capital expenditures $ 63,604 $ 42,488 $ 36,951 ________________________ (1) During the year ended September 30, 2023, HBP's capital expenditures included approximately $ 6,000 in connection with the purchase of HBP's Mason headquarters. (2) During the year ended September 30, 2023, CPP's capital expenditures included approximately $ 23,207 in connection with the purchase of CPP's Ocala, Florida manufacturing facility. This above table excludes proceeds from the sale of real estate of approximately $ 8,900 . (3) During the year ended September 30, 2023, Corporate's capital expenditures exclude proceeds from the sale of real estate of approximately $ 11,800 . ASSETS At September 30, 2023 At September 30, 2022 Segment assets: Home and Building Products $ 703,661 $ 737,860 Consumer and Professional Products 1,579,588 1,914,529 Total segment assets 2,283,249 2,652,389 Corporate 130,339 158,310 Total continuing assets 2,413,588 2,810,699 Other discontinued operations 5,291 5,775 Consolidated total $ 2,418,879 $ 2,816,474 92 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) 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. For the Years Ended September 30, 2023 2022 2021 Residential repair and remodel 757,088 736,525 516,995 Commercial 700,112 630,066 407,585 Residential new construction 131,305 140,291 116,528 Total Home and Building Products 1,588,505 1,506,882 1,041,108 Residential repair and remodel $ 377,775 $ 392,490 $ 185,896 Retail 267,046 456,735 577,839 Residential new construction 51,093 45,243 50,437 Industrial 78,308 76,430 43,411 International excluding North America 322,456 370,708 371,935 Total Consumer and Professional Products 1,096,678 1,341,606 1,229,518 Total Revenue $ 2,685,183 $ 2,848,488 $ 2,270,626 The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Year Ended September 30, 2023 Revenue by Geographic Area - Destination Home and Building Products Consumer and Professional Products Total United States $ 1,515,479 $ 716,098 $ 2,231,577 Europe 18 51,041 51,059 Canada 62,897 75,477 138,374 Australia — 231,764 231,764 All other countries 10,111 22,298 32,409 Total Revenue $ 1,588,505 $ 1,096,678 $ 2,685,183 For the Year Ended September 30, 2022 Revenue by Geographic Area - Destination Home and Building Products Consumer and Professional Products Total United States $ 1,437,085 $ 858,956 $ 2,296,041 Europe 60 106,471 106,531 Canada 57,916 92,930 150,846 Australia — 258,945 258,945 All other countries 11,821 24,304 36,125 Total Revenue $ 1,506,882 $ 1,341,606 $ 2,848,488 93 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For the Year Ended September 30, 2021 Revenue by Geographic Area - Destination Home and Building Products Consumer and Professional Products Total United States $ 986,925 $ 766,150 $ 1,753,075 Europe 72 123,607 123,679 Canada 44,661 85,676 130,337 Australia — 244,674 244,674 All other countries 9,450 9,411 18,861 Total Revenue $ 1,041,108 $ 1,229,518 $ 2,270,626 As a percentage of segment revenue, HBP sales to The Home Depot approximated 9 %, 7 % and 10 % in 2023, 2022 and 2021, respectively; CPP sales to The Home Depot approximated 15 %, 19 % and 26 % in 2023, 2022 and 2021, respectively. As a percentage of Griffon's consolidated revenue, sales to The Home Depot approximated 12 %, 13 % and 19 % in 2023, 2022 and 2021, respectively. NOTE 20 – OTHER INCOME (EXPENSE) For the year ended September 30, 2023, 2022 and 2021, Other income (expense) from continuing operations of $ 2,928 , $ 6,881 and $ 2,107 , respectively, includes $ 302 , $ 305 and $( 81 ), respectively, of net currency exchange transaction gains (losses) from receivables and payables held in non-functional currencies, $ 469 , $( 225 ) and $ 283 , respectively, of net gains or (losses) on investments, and $( 866 ), $ 4,256 and $ 907 , respectively, of net periodic benefit plan income (expense). Other income (expense) also includes rental income of $ 212 , $ 689 and $ 624 in 2023, 2022 and 2021, respectively. Additionally, it includes royalty income of 2,104 and $ 2,250 for the years ended September 30, 2023 and 2022, respectively. NOTE 21 - OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: Years Ended September 30, 2023 2022 2021 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 8,447 $ — $ 8,447 $ ( 37,920 ) $ — $ ( 37,920 ) $ 6,433 $ — $ 6,433 Pension and other defined benefit plans 8,418 ( 1,784 ) 6,634 1,907 ( 404 ) 1,503 22,583 ( 4,787 ) 17,796 Cash flow hedge ( 3,363 ) 1,010 ( 2,353 ) ( 491 ) 147 ( 344 ) 2,694 ( 808 ) 1,886 Total other comprehensive income (loss) $ 13,502 $ ( 774 ) $ 12,728 $ ( 36,504 ) $ ( 257 ) $ ( 36,761 ) $ 31,710 $ ( 5,595 ) $ 26,115 The components of Accumulated other comprehensive income (loss) are as follows: At September 30, 2023 2022 Foreign currency translation ( 48,723 ) ( 57,170 ) Pension and other defined benefit plans ( 20,665 ) ( 27,299 ) Cash flow hedge ( 622 ) 1,731 Total $ ( 70,010 ) $ ( 82,738 ) 94 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) Total comprehensive income (loss) were as follows: For the Years Ended September 30, 2023 2022 2021 Net income (loss) $ 77,617 $ ( 191,558 ) $ 79,211 Other comprehensive income (loss), net of taxes 12,728 ( 36,761 ) 26,115 Comprehensive income (loss) $ 90,345 $ ( 228,319 ) $ 105,326 Amounts reclassified from accumulated other comprehensive income (loss) to income (loss) were as follows: For the Years Ended September 30, Gain (Loss) 2023 2022 2021 Pension amortization $ ( 3,777 ) $ ( 3,379 ) $ ( 6,292 ) Cash flow hedges 1,678 4,741 ( 2,204 ) Total before tax ( 2,099 ) 1,362 ( 8,496 ) Tax 441 ( 286 ) 1,784 Net of tax $ ( 1,658 ) $ 1,076 $ ( 6,712 ) NOTE 22 — 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 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 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: 95 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) For the Year Ended September 30, 2023 2022 2021 Fixed $ 45,993 $ 44,457 $ 38,362 Variable (a), (b) 10,654 8,615 7,573 Short-term (b) 7,717 7,438 4,210 Total $ 64,364 $ 60,510 $ 50,145 (a) Primarily related to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. Supplemental cash flow information were as follows: For the Year Ended September 30, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 41,533 $ 47,275 $ 43,444 Financing cash flows from finance leases 2,164 2,462 3,815 Total $ 43,697 $ 49,737 $ 47,259 Supplemental Consolidated Balance Sheet information related to leases were as follows: As of September 30, 2023 2022 Operating Leases: Right of use assets: Operating right-of-use assets $ 169,942 $ 183,398 Lease Liabilities: Current portion of operating lease liabilities $ 32,632 $ 31,680 Long-term operating lease liabilities 147,224 159,414 Total operating lease liabilities $ 179,856 $ 191,094 Finance Leases: Right of use assets: Property, plant and equipment, net (1) $ 994 $ 13,696 Lease Liabilities: Notes payable and current portion of long-term debt $ 280 $ 2,065 Long-term debt, net 184 11,995 Total financing lease liabilities $ 464 $ 14,060 (1) For the years ended September 30, 2023 and 2022, finance lease assets are recorded net of accumulated depreciation of $ 6,769 and $ 4,972 , respectively. On September 28, 2023, the Company closed on the exercise of its lease purchase option, as permitted under the lease agreement, to acquire ownership of the manufacturing facility located in Ocala, Florida for a cash purchase price of $ 23,207 . The Ocala lease had a maturity date in 2025 and bore interest at a fixed rate of approximately 5.6 %. As a result of exercising the purchase option, the Company no longer has any future lease obligations related to this real estate. During the year ended September 30, 2022, the financing lease on the Troy, Ohio location expired. The Troy 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. 96 GRIFFON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (US dollars and non-US currencies in thousands, except per share data) The aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2023 are as follows (in thousands): Operating Leases Finance Leases 2024 $ 41,955 $ 297 2025 35,233 123 2026 26,504 65 2027 22,473 4 2028 18,185 — Thereafter 83,456 — Total lease payments 227,806 489 Less: Imputed Interest ( 47,950 ) ( 25 ) Present value of lease liabilities $ 179,856 $ 464 Average lease terms and discount rates were as follows: As of September 30, 2023 2022 Weighted-average remaining lease term (years) Operating Leases 7.9 8.4 Finance Leases 3.3 7.4 Weighted-average discount rate Operating Leases 5.94 % 5.47 % Finance Leases 5.65 % 5.51 % NOTE 23 – SUBSEQUENT EVENTS On November 14, 2023, the Board of Directors declared a cash dividend of $ 0.15 per share, payable on December 14, 2023 to shareholders of record as of the close of business on November 28, 2023. Griffon 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. Subsequent to September 30, 2023 and through November 14, 2023, Griffon purchased 1,127,062 shares of its common stock for a total of $ 44,980 , or $ 39.91 per share under Board authorized share repurchase programs. On November 15, 2023, Griffon announced a $ 200,000 increase to its share repurchase program which on November 15, 2023 had $ 262,203 available given effect to all repurchases through November 14, 2023. On November 15, 2023, Griffon granted 174,104 shares of restricted stock and restricted stock units to 43 executives and key employees, subject to certain performance conditions, with a vesting period of thirty-six months , with a total fair value of $ 8,225 , or a weighted average fair value of $ 47.24 per share. ***** 97 SCHEDULE II GRIFFON CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the Years Ended September 30, 2023, 2022 and 2021 (in thousands) Description Balance at Beginning of Year Additions Reductions Other (1) Balance at End of Year FOR THE YEAR ENDED SEPTEMBER 30, 2023 Allowance for doubtful accounts $ 12,137 $ 971 $ ( 1,186 ) $ ( 658 ) $ 11,264 Inventory valuation (2) $ 22,875 $ 44,570 $ ( 11,692 ) $ ( 16 ) $ 55,737 Deferred tax valuation allowance $ 13,490 $ 4,502 $ — $ — $ 17,992 FOR THE YEAR ENDED SEPTEMBER 30, 2022 Allowance for doubtful accounts $ 8,787 $ 1,172 $ ( 251 ) $ 2,429 $ 12,137 Inventory valuation $ 31,605 $ 4,725 $ ( 14,103 ) $ 648 $ 22,875 Deferred tax valuation allowance $ 10,425 $ 4,330 $ ( 1,265 ) $ — $ 13,490 FOR THE YEAR ENDED SEPTEMBER 30, 2021 Allowance for doubtful accounts $ 8,178 $ 795 $ ( 393 ) $ 207 $ 8,787 Inventory valuation $ 18,903 $ 24,400 $ ( 12,099 ) $ 401 $ 31,605 Deferred tax valuation allowance $ 9,824 $ 601 $ — $ — $ 10,425 ___________________________________________ (1) For the year ended September 30, 2022, Other primarily consists of foreign currency and opening balances of reserves assumed from the Hunter acquisition. See Note 6 for the detail on the Allowance for Doubtful Accounts. (2) In connection with the Company's restructuring activities described in Note 10, Restructuring Charges, during the year ended September 30, 2023, CPP recorded an inventory impairment charge of $ 37,100 to adjust to net realizable value. 98 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.