GRIFFON CORP 10-Q

Item 1 – Financial Statements GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) December 31, 2023 September 30, 2023 CURRENT ASSETS Cash and equivalents $ 110,546 $ 102,889 Accounts receivable, net of allowances of $ 11,985 and $ 11,264 299,594 312,432 Inventories 478,609 507,130 Prepaid and other current assets 57,863 57,139 Assets held for sale 15,010 — Assets of discontinued operations 984 1,001 Total Current Assets 962,606 980,591 PROPERTY, PLANT AND EQUIPMENT, net 269,129 279,218 OPERATING LEASE RIGHT-OF-USE ASSETS 176,100 169,942 GOODWILL 327,864 327,864 INTANGIBLE ASSETS, net 632,111 635,243 OTHER ASSETS 21,365 21,731 ASSETS OF DISCONTINUED OPERATIONS 4,138 4,290 Total Assets $ 2,393,313 $ 2,418,879 CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 9,274 $ 9,625 Accounts payable 154,018 116,646 Accrued liabilities 190,096 193,098 Current portion of operating lease liabilities 34,075 32,632 Liabilities of discontinued operations 4,216 7,148 Total Current Liabilities 391,679 359,149 LONG-TERM DEBT, net 1,430,235 1,459,904 LONG-TERM OPERATING LEASE LIABILITIES 152,343 147,224 OTHER LIABILITIES 129,547 132,708 LIABILITIES OF DISCONTINUED OPERATIONS 4,487 4,650 Total Liabilities 2,108,291 2,103,635 COMMITMENTS AND CONTINGENCIES - See Note 21 SHAREHOLDERS’ EQUITY Total Shareholders’ Equity 285,022 315,244 Total Liabilities and Shareholders’ Equity $ 2,393,313 $ 2,418,879 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 1 Table of Contents GRIFFON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the Three Months Ended December 31, 2023 and 2022 (Unaudited) COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2023 84,746 $ 21,187 $ 662,680 $ 281,516 31,684 $ ( 577,686 ) $ ( 70,010 ) $ ( 2,443 ) $ 315,244 Net income — — — 42,177 — — — — 42,177 Dividend — — — ( 7,825 ) — — — — ( 7,825 ) Shares withheld on employee taxes on vested equity awards — — — — 221 ( 11,604 ) — — ( 11,604 ) Amortization of deferred compensation — — — — — — — 520 520 Common stock acquired — — — — 1,634 ( 70,543 ) — — ( 70,543 ) Equity awards granted, net — — ( 3,383 ) — ( 180 ) 3,383 — — — ESOP allocation of common stock — — 1,550 — — — — — 1,550 Stock-based compensation — — 5,028 — — — — — 5,028 Other comprehensive income, net of tax — — — — — — 10,475 — 10,475 Balance at December 31, 2023 84,746 $ 21,187 $ 665,875 $ 315,868 33,359 $ ( 656,450 ) $ ( 59,535 ) $ ( 1,923 ) $ 285,022 COMMON STOCK CAPITAL IN EXCESS OF PAR VALUE RETAINED EARNINGS TREASURY SHARES ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) DEFERRED COMPENSATION (in thousands) SHARES PAR VALUE SHARES COST TOTAL Balance at September 30, 2022 84,746 $ 21,187 $ 627,982 $ 344,060 27,682 $ ( 420,116 ) $ ( 82,738 ) $ ( 12,805 ) $ 477,570 Net income — — — 48,702 — — — — 48,702 Dividend — — — ( 6,145 ) — — — — ( 6,145 ) Shares withheld on employee taxes on vested equity awards — — — — 345 ( 12,734 ) — — ( 12,734 ) Amortization of deferred compensation — — — — — — — 571 571 Equity awards granted, net — — ( 7,082 ) — ( 467 ) 7,082 — — — ESOP allocation of common stock — — 1,127 — — — — — 1,127 Stock-based compensation — — 5,538 — — — — — 5,538 Other comprehensive income, net of tax — — — — — — 12,219 — 12,219 Balance at December 31, 2022 84,746 $ 21,187 $ 627,565 $ 386,617 27,560 $ ( 425,768 ) $ ( 70,519 ) $ ( 12,234 ) $ 526,848 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three Months Ended December 31, 2023 2022 Revenue $ 643,153 $ 649,384 Cost of goods and services 406,512 415,559 Gross profit 236,641 233,825 Selling, general and administrative expenses 152,803 152,720 Income from operations 83,838 81,105 Other income (expense) Interest expense ( 25,299 ) ( 24,648 ) Interest income 424 104 Gain on sale of building 547 10,852 Other, net 632 607 Total other expense, net ( 23,696 ) ( 13,085 ) Income before taxes 60,142 68,020 Provision for income taxes 17,965 19,318 Net income $ 42,177 $ 48,702 Basic earnings per common share $ 0.86 $ 0.93 Basic weighted-average shares outstanding 48,784 52,579 Diluted earnings per common share $ 0.82 $ 0.88 Diluted weighted-average shares outstanding 51,467 55,298 Dividends paid per common share $ 0.15 $ 0.10 Net income $ 42,177 $ 48,702 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments 10,238 11,937 Pension and other post retirement plans 532 862 Change in cash flow hedges ( 295 ) ( 580 ) Total other comprehensive income, net of taxes 10,475 12,219 Comprehensive income, net $ 52,652 $ 60,921 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 42,177 $ 48,702 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,823 17,113 Stock-based compensation 6,417 6,742 Asset impairment charges - restructuring 8,482 — Provision for losses on accounts receivable 562 482 Amortization of debt discounts and issuance costs 1,056 1,023 Gain on sale of assets and investments ( 550 ) ( 10,923 ) Change in assets and liabilities: Decrease in accounts receivable 14,491 13,689 Decrease in inventories 24,623 22,931 (Increase) decrease in prepaid and other assets ( 3,631 ) 100 Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities 36,491 ( 26,333 ) Other changes, net 1,117 1,954 Net cash provided by operating activities 146,058 75,480 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ( 14,330 ) ( 4,726 ) Payments related to sale of business — ( 2,568 ) Proceeds from the sale of property, plant and equipment 787 11,815 Net cash provided by (used in) investing activities ( 13,543 ) 4,521 CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ( 9,965 ) ( 7,126 ) Purchase of shares for treasury ( 81,449 ) ( 12,735 ) Proceeds from long-term debt 31,500 29,823 Payments of long-term debt ( 63,860 ) ( 87,539 ) Financing costs ( 114 ) ( 744 ) Other, net ( 59 ) ( 42 ) Net cash used in financing activities ( 123,947 ) ( 78,363 ) The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended December 31, 2023 2022 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash used in operating activities ( 2,926 ) ( 1,953 ) Net cash used in discontinued operations ( 2,926 ) ( 1,953 ) Effect of exchange rate changes on cash and equivalents 2,015 689 NET INCREASE IN CASH AND EQUIVALENTS 7,657 374 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 102,889 120,184 CASH AND EQUIVALENTS AT END OF PERIOD $ 110,546 $ 120,558 The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 5 Table of Contents GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30) NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About Griffon Corporation Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities, as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital. The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF). Griffon conducts its operations through two reportable segments: • Home and Building Products ("HBP") conducts its operations through Clopay Corporation ("Clopay"). Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands. • Consumer and Professional Products (“CPP”) is a leading 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. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business, properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s businesses are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet information at September 30, 2023 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2023. The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include expected loss allowances for credit losses and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization 6 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. NOTE 2 – FAIR VALUE MEASUREMENTS The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates. Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets. • Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities. • Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. On December 31, 2023, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $ 945,532 and $ 462,153 , respectively. Fair values were based upon quoted market prices (level 1 inputs). Insurance contracts with values of $ 3,711 at December 31, 2023 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets and $ 634 is included in other assets on the Consolidated Balance Sheets. Items Measured at Fair Value on a Recurring Basis In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates related to inventory purchases. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of December 31, 2023, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade liabilities payable in U.S. dollars. At December 31, 2023, Griffon had $ 61,000 of Australian dollar contracts at a weighted average rate of $ 1.50 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $ 1,425 ($ 997 , net of tax) at December 31, 2023. Upon settlement, gains of $ 525 were recorded in COGS during the three months ended December 31, 2023. All contracts expire in 30 to 240 days. At December 31, 2023, Griffon had $ 44,000 of Chinese Yuan contracts at a weighted average rate of $ 7.02 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to 7 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) changes in fair value deferred and recorded in AOCI and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in COGS. AOCI included deferred losses of $ 307 ($ 224 , net of tax) at December 31, 2023. Upon settlement, losses of $ 636 were recorded in COGS during the three months ended December 31, 2023. All contracts expire in 3 to 283 days. At December 31, 2023, Griffon had $ 6,580 of Canadian dollar contracts at a weighted average rate of $ 1.35 . The contracts, which protect Canadian operations from currency fluctuations for U.S. dollar based purchases, do not qualify for hedge accounting. For the three months ended December 31, 2023, fair value losses of $ 103 were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $ 24 were recorded in Other income during the three months ended December 31, 2023 for all settled contracts. All contracts expire in 30 to 267 days. NOTE 3 – REVENUE The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). The Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment. For a complete explanation of Griffon’s revenue accounting policies, this note should be read in conjunction with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2023. See Note 12 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location. NOTE 4 – INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or average cost) or net realizable value. The following table details the components of inventory: At December 31, 2023 At September 30, 2023 Raw materials and supplies $ 102,757 $ 127,342 Work in process 18,474 12,070 Finished goods 357,378 367,718 Total $ 478,609 $ 507,130 In connection with the Company's restructuring activities described in Note 16, Restructuring Charges, during the quarter ended December 31, 2023, CPP recorded an inventory impairment charge of $ 8,482 to adjust to net realizable value. 8 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 5 – PROPERTY, PLANT AND EQUIPMENT The following table details the components of property, plant and equipment, net: At December 31, 2023 At September 30, 2023 Land, building and building improvements $ 145,321 $ 169,923 Machinery and equipment 456,968 447,972 Leasehold improvements 34,043 33,740 636,332 651,635 Accumulated depreciation ( 367,203 ) ( 372,417 ) Total $ 269,129 $ 279,218 Depreciation expense for property, plant and equipment was $ 9,267 and $ 11,489 for the quarters ended December 31, 2023 and 2022, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $ 3,999 and $ 4,239 for the quarters ended December 31, 2023 and 2022, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services. In connection with the expansion of CPP's global sourcing strategy announced on May 3, 2023, certain owned manufacturing locations which ceased operations have met the criteria to be classified as held for sale as of December 31, 2023. The net book value of these properties as of December 31, 2023 totaled $ 15,010 . Except as described in Note 16, Restructuring Charges, no event or indicator of impairment occurred during the three months ended December 31, 2023 which would require additional impairment testing of property, plant and equipment. 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 discounts, credit losses and returns. The Company’s expected loss allowance methodology for trade receivables is primarily based on the aging method of the accounts receivables balances and the financial condition of its customers. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for credit losses includes amounts for certain customers in which a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for credit losses is recorded in SG&A expenses. The Company also considers current and expected future economic and market conditions when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year. Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with the accounting guidance for credit losses on financial instruments, including trade receivables, in all material respects. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected: 9 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Three months ended December 31, 2023 2022 Beginning Balance, October 1 $ 11,264 $ 12,137 Provision for expected credit losses 1,030 1,457 Amounts written off charged against the allowance ( 351 ) ( 48 ) Other, primarily foreign currency translation 42 90 Ending Balance, December 31 $ 11,985 $ 13,636 NOTE 7 – GOODWILL AND OTHER INTANGIBLES Indicators of impairment were not present for any of Griffon's reporting units during the three months ended December 31, 2023. The following table provides a summary of the carrying value of goodwill by segment as of September 30, 2023 and December 31, 2023, as follows: Consumer and Professional Products $ 136,611 Home and Building Products 191,253 Total $ 327,864 The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets: At December 31, 2023 At September 30, 2023 Gross Carrying Amount Accumulated Amortization Average Life (Years) Gross Carrying Amount Accumulated Amortization Customer relationships & other $ 449,373 $ 119,571 23 $ 443,164 $ 113,057 Technology and patents 15,734 3,951 13 15,504 3,815 Total amortizable intangible assets 465,107 123,522 458,668 116,872 Trademarks 290,526 — 293,447 — Total intangible assets $ 755,633 $ 123,522 $ 752,115 $ 116,872 The gross carrying amount of intangible assets was impacted by $ 3,518 related to favorable foreign currency translation. Amortization expense for intangible assets was $ 5,556 and $ 5,624 for the quarters ended December 31, 2023 and 2022, respectively. Amortization expense for the remainder of 2024 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: remaining in 2024 - $ 15,798 ; 2025 - $ 21,354 ; 2026 - $ 21,354 ; 2027 - $ 21,354 ; 2028 - $ 21,354 ; 2029 - $ 21,354 ; thereafter $ 219,017 . 10 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 8 – INCOME TAXES During the quarter ended December 31, 2023, the Company recognized a tax provision of $ 17,965 on income before taxes of $ 60,142 , compared to $ 19,318 on income before taxes of $ 68,020 in the prior year quarter. The current year quarter results included strategic review costs - retention and other of $ 4,658 ($ 3,500 , net of tax), restructuring charges of $ 12,400 ($ 9,213 , net of tax), gain on sale of building of $ 547 ($ 406 , net of tax); and discrete and certain other tax provisions, net, that affect comparability of $ 783 . The prior year quarter results included strategic review - retention and other of $ 8,232 ($ 6,222 , net of tax); proxy costs of $ 1,503 ($ 1,153 , net of tax); gain on the sale of building $ 10,852 ($ 8,323 , net of tax); and discrete and certain other tax benefits, net, that affect comparability of $ 333 . Excluding these items, the effective tax rates for the quarters ended December 31, 2023 and 2022 were 27.9 % and 29.1 %, respectively. 11 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 9 – LONG-TERM DEBT At December 31, 2023 At September 30, 2023 Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Outstanding Balance Original Issuer Premium/(Discount) Capitalized Fees & Expenses Balance Sheet Coupon Interest Rate Senior notes due 2028 (a) $ 974,775 $ 206 ( 8,415 ) $ 966,566 5.75 % $ 974,775 $ 218 $ ( 8,920 ) $ 966,073 5.75 % Term Loan B due 2029 (b) 461,000 ( 880 ) ( 6,708 ) 453,412 Variable 463,000 ( 922 ) ( 7,039 ) 455,039 Variable Revolver due 2025 (b) 21,500 — ( 3,419 ) 18,081 Variable 50,445 — ( 3,606 ) 46,839 Variable Non US lines of credit (d) — — — — Variable — — ( 3 ) ( 3 ) Variable Other long term debt (e) 1,461 — ( 11 ) 1,450 Variable 1,592 — ( 11 ) 1,581 Variable Totals 1,458,736 ( 674 ) ( 18,553 ) 1,439,509 1,489,812 ( 704 ) ( 19,579 ) 1,469,529 less: Current portion ( 9,274 ) — — ( 9,274 ) ( 9,625 ) — — ( 9,625 ) Long-term debt $ 1,449,462 $ ( 674 ) $ ( 18,553 ) $ 1,430,235 $ 1,480,187 $ ( 704 ) $ ( 19,579 ) $ 1,459,904 Three Months Ended December 31, 2023 Three Months Ended December 31, 2022 Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Effective Interest Rate Cash Interest Amort. Debt (Premium)/Discount Amort. Debt Issuance Costs & Other Fees Total Interest Expense Senior notes due 2028 (a) 5.9 % $ 14,012 $ ( 12 ) $ 505 $ 14,505 5.9 % $ 14,012 $ ( 12 ) $ 505 $ 14,505 Term Loan B due 2029 (b) 7.8 % 9,217 43 330 9,590 6.6 % 7,808 43 351 8,202 Revolver due 2025 (b) Variable 908 — 186 1,094 Variable 1,344 — 123 1,467 Finance lease - real estate (c) n/a — — — — 5.6 % 178 — — 178 Non US lines of credit (d) Variable — — 4 4 Variable 155 — 13 168 Other long term debt (e) Variable 302 — — 302 Variable 130 — — 130 Capitalized interest ( 196 ) — — ( 196 ) ( 2 ) — — ( 2 ) Totals $ 24,243 $ 31 $ 1,025 $ 25,299 $ 23,625 $ 31 $ 992 $ 24,648 12 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) (a) During 2020, Griffon issued, at par, $ 1,000,000 of 5.75 % Senior Notes due 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem $ 1,000,000 of 5.25 % Senior Notes due 2022. In connection with the issuance and exchange of the 2028 Senior Notes, Griffon capitalized $ 16,448 of underwriting fees and other expenses incurred, which is being amortized over the term of such notes. During 2022, Griffon purchased $ 25,225 of 2028 Senior Notes in the open market at a weighted average discount of 91.82 % of par, or $ 23,161 . As of December 31, 2023, outstanding 2028 Senior Notes due totaled $ 974,775 ; interest is payable semi-annually on March 1 and September 1. The 2028 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The 2028 Senior Notes were registered under the Securities Act of 1933, as amended (the "Securities Act") via exchange offer. The fair value of the 2028 Senior Notes approximated $ 945,532 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $ 8,415 of underwriting fees and other expenses incurred remained to be amortized. (b) On August 1, 2023, Griffon amended and restated its 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 under the Revolver from $ 100,000 to $ 125,000 and increasing the customary accordion feature from a minimum of $ 375,000 to a minimum of $ 500,000 . The Revolver also 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 % ( 7.46 % at December 31, 2023); SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 2.00 % ( 7.22 % at December 31, 2023); and base rate loans accrue interest at prime rate plus a margin of 1.00 % ( 9.50 % at December 31, 2023). At December 31, 2023, under the Revolver, there were $ 21,500 in outstanding borrowings; outstanding standby letters of credit were $ 12,962 ; and $ 465,538 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. 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 % ( 7.75 % as of December 31, 2023). The Term Loan B was issued at 99.75 % of par value. In connection with this amendment, Griffon capitalized $ 15,466 of underwriting fees and other expenses incurred, which are being amortized over the term of the loan. The Term Loan B facility requires nominal quarterly principal payments of $ 2,000 , potential additional annual principal payments based on a percentage of excess cash flow and certain secured leverage thresholds starting with the fiscal year ending September 30, 2023; and a final balloon payment due at maturity. 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, aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance. In connection with the prepayment of the Term Loan B, Griffon recognized a charge of $ 437 and $ 6,296 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 (as described below), but is not subject to any financial maintenance covenants. Term Loan B borrowings are secured by the same collateral as the Revolver on an equal and ratable basis. The fair value of the Term Loan B facility approximated $ 462,153 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $ 6,708 of underwriting fees and other expenses incurred, remained to be amortized. At December 31, 2023, $ 461,000 of the Term Loan B was outstanding. 13 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. The remaining lease liability balance relates to finance equipment leases. Refer to Note 20-Leases for further details. (d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($ 11,363 as of December 31, 2023) revolving credit facility. Effective in December 2023, the facility was amended to replace the Canadian Dollar Offer Rate with the Canadian Overnight Repo Rate Average ("CORRA"). The facility accrues interest at CORRA or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 6.36 % using CORRA and 6.53 % using Bankers Acceptance Rate CDN as of December 31, 2023). The revolving facility matures in December 2024, but is renewable upon mutual agreement with the lender. Garant is required to maintain a certain minimum equity. At December 31, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($ 11,363 as of December 31, 2023) available. During 2022, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 18,375 term loan, AUD 20,000 revolver and AUD 15,000 receivable purchase facility agreement that was entered into in July 2016 and further amended in fiscal 2020. Griffon Australia paid off the term loan in the amount of AUD 9,625 and canceled the AUD 20,000 revolver. In March 2023 the existing receivable purchase facility was renewed and increased from AUD 15,000 to AUD 30,000 . The receivable purchase facility matures in March 2024, but is renewable upon mutual agreement with the lender. The receivable purchase facility accrues interest at BBSY (Bank Bill Swap Rate) plus 1.25 % per annum ( 5.56 % at December 31, 2023). At December 31, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($ 20,511 as of December 31, 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 long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases. At December 31, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements. 14 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 10 — SHAREHOLDERS’ EQUITY AND EQUITY COMPENSATION During the three months ended December 31, 2023, the Company paid a quarterly cash dividend of $ 0.15 per share. During 2023, the Board of Directors approved two quarterly cash dividends each for $ 0.10 per share, and two quarterly cash dividends of $ 0.125 per share, totaling $ 0.45 . Additionally, on April 19, 2023, the Board of Directors declared a special cash dividend of $ 2.00 per share, paid on May 19, 2023, to shareholders of record as of the close of business on May 9, 2023. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. Dividends paid on shares in the ESOP were used to offset ESOP compensation expense. For all dividends, a dividend payable is established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares. On February 6, 2024, the Board of Directors declared a quarterly cash dividend of $ 0.15 per share, payable on March 21, 2024 to shareholders of record as of the close of business on February 29, 2024. 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; 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; and 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. A proposal to approve an amendment to add 2,600,000 shares to the Amended Incentive Plan (the “Amendment”) is included in Griffon’s Proxy Statement dated January 29, 2024 related to the 2024 Annual Meeting of Shareholders, scheduled to be held on March 20, 2024. If shareholders approve this proposal, 2,600,000 shares will be added to the Amended Incentive Plan as of the date of the 2024 Annual Meeting of Shareholders. Options granted under the Amended Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100 % of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Amended Incentive Plan, before giving effect to the Amendment, is 6,250,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares that were reserved for issuance under the Original Incentive Plan as of the effective date of the Original Incentive Plan, and (ii) any shares underlying awards outstanding on such date under the 2011 Incentive Plan that were subsequently canceled or forfeited. As of December 31, 2023, there were 154,369 shares available for grant. Compensation expense for restricted stock and restricted stock units is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares or units granted multiplied by the stock price on the date of grant, and for performance shares, including performance units, the likelihood of achieving the performance criteria. The Company recognizes forfeitures as they occur. Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years , is recognized using the straight-line attribution method and recorded within SG&A expenses. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans: For the Three Months Ended December 31, 2023 2022 Restricted stock $ 5,028 $ 5,538 ESOP 1,389 1,204 Total stock-based compensation $ 6,417 $ 6,742 During the first quarter of 2024, Griffon granted 174,104 shares of restricted stock and restricted stock units ("RSUs"). This includes 166,272 shares of restricted stock and 7,832 RSUs granted to 43 executives and key employees, subject to certain 15 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) performance conditions, with a vesting period of thirty-six months and a total fair value of $ 8,225 , or a weighted average fair value of $ 47.24 per share. During the quarter ended December 31, 2023, 166,272 shares granted were issued out of treasury stock. On April 19, 2023, the Company's Board of Directors approved a $ 200,000 increase to Griffon's share repurchase program to $ 257,955 from the prior unused board authorizations of $ 57,955 . Also, on November 15, 2023, Griffon announced that the Board of Directors approved an additional increase of $ 200,000 to its share repurchase authorization. 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. Share repurchases during the quarter ended December 31, 2023 totaled 1,634,454 shares of common stock, for a total of $ 69,640 , or an average of $ 42.61 per share. As of December 31, 2023, $ 237,543 remains under these Board authorized repurchase programs. During the quarter ended and as of December 31, 2023, $ 696 and $ 1,997 , respectively, were accrued for excise taxes for share repurchases. During the quarter ended December 31, 2023, 221,229 shares, with a market value of $ 11,604 , or $ 52.45 per share were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock. NOTE 11 – EARNINGS PER SHARE (EPS) Basic EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock-based compensation. The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share: Three Months Ended December 31, 2023 2022 Common shares outstanding 51,386 57,186 Unallocated ESOP shares ( 154 ) ( 979 ) Non-vested restricted stock ( 2,783 ) ( 3,230 ) Impact of weighted average shares 335 ( 398 ) Weighted average shares outstanding - basic 48,784 52,579 Incremental shares from stock-based compensation 2,683 2,719 Weighted average shares outstanding - diluted 51,467 55,298 Shares of the ESOP that have been allocated to employee accounts are treated as outstanding in determining earnings per share. 16 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 12 – BUSINESS SEGMENTS Griffon reports its operations through two reportable segments, as follows: • Home and Building Products ("HBP") conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands. • Consumer and Professional Products (“CPP”) is a leading global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid. Information on Griffon’s reportable segments is as follows: For the Three Months Ended December 31, REVENUE 2023 2022 Home and Building Products $ 395,791 $ 396,573 Consumer and Professional Products 247,362 252,811 Total revenue $ 643,153 $ 649,384 Disaggregation of Revenue Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. The following table presents revenue disaggregated by end market and segment: Three Months Ended December 31, 2023 2022 Residential repair and remodel $ 186,541 $ 190,730 Commercial 176,993 169,514 Residential new construction 32,257 36,329 Total Home and Building Products 395,791 396,573 Residential repair and remodel 76,064 81,706 Retail 69,278 68,497 Residential new construction 14,005 12,487 Industrial 14,777 17,093 International excluding North America 73,238 73,028 Total Consumer and Professional Products 247,362 252,811 Total Consolidated Revenue $ 643,153 $ 649,384 17 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The following table presents revenue disaggregated by geography based on the location of the Company's customer: For the Three Months Ended December 31, 2023 2022 HBP CPP Total HBP CPP Total United States $ 379,628 $ 151,172 $ 530,800 $ 379,300 $ 153,667 $ 532,967 Europe 108 5,245 5,353 16 4,696 4,712 Canada 14,768 21,028 35,796 15,355 23,116 38,471 Australia — 64,871 64,871 — 66,217 66,217 All other countries 1,287 5,046 6,333 1,902 5,115 7,017 Consolidated revenue $ 395,791 $ 247,362 $ 643,153 $ 396,573 $ 252,811 $ 649,384 Griffon evaluates performance and allocates resources based on segment adjusted EBITDA and adjusted EBITDA, non-GAAP measures, which is defined as income before taxes, excluding interest income and expense, depreciation and amortization, strategic review charges, non-cash impairment charges, restructuring charges, gain/loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable. Segment adjusted EBITDA also excludes unallocated amounts, mainly corporate overhead. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of segment and adjusted EBITDA to income before taxes: 18 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) For the Three Months Ended December 31, 2023 2022 Segment adjusted EBITDA: Home and Building Products $ 124,719 $ 124,145 Consumer and Professional Products 5,539 ( 1,809 ) Segment adjusted EBITDA 130,258 122,336 Unallocated amounts, excluding depreciation * ( 13,907 ) ( 13,776 ) Adjusted EBITDA 116,351 108,560 Net interest expense ( 24,875 ) ( 24,544 ) Depreciation and amortization ( 14,823 ) ( 17,113 ) Restructuring charges ( 12,400 ) — Gain on sale of building 547 10,852 Strategic review - retention and other ( 4,658 ) ( 8,232 ) Proxy expenses — ( 1,503 ) Income before taxes $ 60,142 $ 68,020 * Unallocated amounts typically include general corporate expenses not attributable to a reportable segment. For the Three Months Ended December 31, DEPRECIATION and AMORTIZATION 2023 2022 Segment: Home and Building Products $ 3,633 $ 3,846 Consumer and Professional Products 11,057 13,127 Total segment depreciation and amortization 14,690 16,973 Corporate 133 140 Total consolidated depreciation and amortization $ 14,823 $ 17,113 CAPITAL EXPENDITURES Segment: Home and Building Products $ 10,508 $ 2,068 Consumer and Professional Products 3,749 2,658 Total segment 14,257 4,726 Corporate 73 — Total consolidated capital expenditures $ 14,330 $ 4,726 19 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) ASSETS At December 31, 2023 At September 30, 2023 Segment assets: Home and Building Products $ 694,151 $ 703,661 Consumer and Professional Products (1) 1,573,506 1,579,588 Total segment assets 2,267,657 2,283,249 Corporate 120,534 130,339 Total assets 2,388,191 2,413,588 Discontinued operations 5,122 5,291 Consolidated total $ 2,393,313 $ 2,418,879 ___________________ (1) In connection with the expansion of CPP's global sourcing strategy, certain owned manufacturing locations which ceased operations have met the criteria to be classified as held for sale as of December 31, 2023. The net book value of these properties as of December 31, 2023 totaled $ 15,010 . NOTE 13 – EMPLOYEE BENEFIT PLANS Defined benefit pension expense (income) included in Other Income (Expense), net was as follows: Three Months Ended December 31, 2023 2022 Interest cost $ 1,888 $ 1,825 Expected return on plan assets ( 2,543 ) ( 2,553 ) Amortization: Recognized actuarial loss 689 944 Net periodic expense $ 34 $ 216 NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. This standard expands disclosures regarding a public entity’s reportable segments and requires additional information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The standard does not change the definition of operating segments. This standard is effective for the Company beginning with our fiscal year 2025, with early adoption permitted. The Company is currently evaluating the potential changes to its reportable segment disclosures and related impact on its business and financial reporting processes and information technology systems. The Company does not expect the adoption of this standard to have an impact on its financial position, results of operations, or cash flows. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosure. The standard requires significant additional disclosures focused on income taxes paid and the rate reconciliation table. Specifically, the amendments in the standard require the Company to disclose disaggregated: (1) income taxes paid by federal, state, and foreign taxes on both an interim and annual basis, (2) pre-tax income between domestic and foreign, and (3) income tax expense by federal, state and foreign tax expense. The standard also requires the Company to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This standard is effective for the Company beginning with our fiscal year 2026, with retrospective application permitted. The Company is currently evaluating the potential changes to its income tax disclosures and related impact on its financial reporting processes 20 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) and information technology systems. The Company does not expect the adoption of this standard to have an impact on its financial position, results of operations, or cash flows. 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. NOTE 15 – DISCONTINUED OPERATIONS At December 31, 2023 and September 30, 2023, Griffon’s liabilities for discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves total $ 8,703 and $ 11,798 , respectively. The following amounts summarize the total assets and liabilities which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets: At December 31, 2023 At September 30, 2023 Assets of discontinued operations: Prepaid and other current assets $ 984 $ 1,001 Other long-term assets 4,138 4,290 Total assets of discontinued operations $ 5,122 $ 5,291 Liabilities of discontinued operations: Accrued liabilities, current $ 4,216 $ 7,148 Other long-term liabilities 4,487 4,650 Total liabilities of discontinued operations $ 8,703 $ 11,798 There was no reported revenues or costs in the three months ended December 31, 2023 and 2022 for discontinued operations. NOTE 16 – RESTRUCTURING CHARGES In response to changing market conditions, Griffon announced in May 2023 that CPP is expanding 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 % of CPP's square footage, and its headcount by approximately 600 . Operations have ceased at Camp Hill and Harrisburg, PA; Fairfield, IA; and four wood mills. The final facility, in Grantsville, MD, is expected to close by March 2024. The closed locations, totaling a net book value of $ 15,010 , have met the held for sale criteria and have been classified as such on our Balance Sheet as of December 31, 2023. Implementation of this strategy over the duration of the project will result in charges of $ 120,000 to $ 130,000 , including $ 50,000 to $ 55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $ 70,000 to $ 75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of $ 3,000 to $ 5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition. In the quarter ended December 31, 2023, CPP incurred pre-tax restructuring and related exit costs approximating $ 12,400 . During the quarter ended December 31, 2023, cash charges totaled $ 3,918 and non-cash, asset-related charges totaled $ 8,482 . The cash charges included $ 1,847 for one-time termination benefits and other personnel-related costs and $ 2,071 for facility exit costs. Non-cash charges of $ 8,482 were recorded to adjust inventory to net realizable value. 21 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows: For the Three Months Ended December 31, 2023 Cost of goods and services $ 11,646 Selling, general and administrative expenses 754 Total restructuring charges $ 12,400 For the Three Months Ended December 31, 2023 Personnel related costs $ 1,847 Facilities, exit costs and other 2,071 Non-cash facility and other 8,482 Total $ 12,400 The following tables summarizes the accrued liabilities of the Company's restructuring actions for the three months ended December 31, 2023: Cash Charges Non-Cash Personnel related costs Facilities & Exit Costs Facility and Other Costs (1) Total Accrued liability at September 30, 2023 $ 14,107 $ 5,551 $ — $ 19,658 Restructuring charges 1,847 2,071 8,482 12,400 Cash payments ( 7,215 ) ( 3,362 ) — ( 10,577 ) Non-cash charges — — ( 8,482 ) ( 8,482 ) Accrued liability at December 31, 2023 $ 8,739 $ 4,260 $ — $ 12,999 ___________________ (1) Non-cash charges in Facility and Other Costs represent non-cash impairment charges to adjust inventory to net realizable value. NOTE 17 – OTHER INCOME (EXPENSE) For the quarters ended December 31, 2023 and 2022, Other income (expense) of $ 632 and $ 607 , respectively, includes $ 13 and $ 67 , respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan expense of $ 34 and $ 216 , respectively, and net investment income of $ 56 and $ 33 , respectively. Other income (expense) also includes rental income of $ 0 and $ 212 and royalty income of $ 592 and $ 549 for the three months ended December 31, 2023 and 2022, respectively. 22 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) NOTE 18 – WARRANTY LIABILITY HBP and CPP offer warranties against product defects for periods generally ranging from one to ten years , with limited lifetime warranties on certain door and fan models. Typical warranties require HBP and CPP to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. CPP offers an express limited warranty for a period of ninety days on all products from the date of original purchase unless otherwise stated on the product or packaging from the date of original purchase. Warranty costs expected to be incurred in the next 12 months are classified in accrued liabilities. Warranty costs expected to be incurred beyond one year are classified in other long-term liabilities. The current portion of warranty was $ 15,461 as of December 31, 2023 and $ 20,781 as of September 30, 2023. The long-term warranty liability was $ 1,239 at both December 31, 2023 and September 30, 2023. Changes in Griffon’s warranty liability in accrued liabilities for the three months ended December 31, 2023 and 2022 were as follows: Three Months Ended December 31, 2023 2022 Balance, beginning of period $ 20,781 $ 16,786 Warranties issued and changes in estimated pre-existing warranties 940 4,667 Actual warranty costs incurred ( 6,260 ) ( 3,754 ) Balance, end of period $ 15,461 $ 17,699 NOTE 19 – OTHER COMPREHENSIVE INCOME (LOSS) The amounts recognized in other comprehensive income (loss) were as follows: For the Three Months Ended December 31, 2023 2022 Pre-tax Tax Net of tax Pre-tax Tax Net of tax Foreign currency translation adjustments $ 10,238 $ — $ 10,238 $ 11,937 $ — $ 11,937 Pension and other defined benefit plans 673 ( 141 ) 532 1,088 ( 226 ) 862 Cash flow hedges ( 421 ) 126 ( 295 ) ( 829 ) 249 ( 580 ) Total other comprehensive income (loss) $ 10,490 $ ( 15 ) $ 10,475 $ 12,196 $ 23 $ 12,219 The components of Accumulated other comprehensive income (loss) are as follows: At December 31, 2023 At September 30, 2023 Foreign currency translation adjustments $ ( 38,485 ) $ ( 48,723 ) Pension and other defined benefit plans ( 20,133 ) ( 20,665 ) Cash flow hedges ( 917 ) ( 622 ) Total $ ( 59,535 ) $ ( 70,010 ) 23 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows: For the Three Months Ended December 31, Gain (Loss) 2023 2022 Pension amortization $ ( 689 ) $ ( 944 ) Cash flow hedges ( 111 ) 1,004 Total gain (loss) before tax $ ( 800 ) $ 60 Tax benefit (expense) 168 ( 13 ) Net of tax $ ( 632 ) $ 47 NOTE 20 — LEASES The Company recognizes right-of-use ("ROU") assets and lease liabilities on the balance sheet, with the exception of leases with a term of twelve months or less. The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our Operating leases are shown as separate line items on our Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments primarily include rent and insurance costs (lease components). The Company's leases also include non-lease components such as real estate taxes and common-area maintenance costs. The Company elected the practical expedient to account for lease and non-lease components as a single component. In certain of the Company's leases, the non-lease components are variable and in accordance with the standard are therefore excluded from lease payments to determine the ROU asset. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. Components of operating lease costs are as follows: For the Three Months Ended December 31, 2023 2022 Fixed $ 11,574 $ 11,294 Variable (a), (b) 2,474 2,772 Short-term (b) 1,581 2,204 Total $ 15,629 $ 16,270 ________________ (a) Primarily relates to common-area maintenance and property taxes. (b) Not recorded on the balance sheet. 24 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) Supplemental cash flow information were as follows: For the Three Months Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,072 $ 9,623 Financing cash flows from finance leases 114 744 Total $ 11,186 $ 10,367 Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows: December 31, 2023 September 30, 2023 Operating Leases: Right of use assets: Operating right-of-use assets $ 176,100 $ 169,942 Lease Liabilities: Current portion of operating lease liabilities $ 34,075 $ 32,632 Long-term operating lease liabilities 152,343 147,224 Total operating lease liabilities $ 186,418 $ 179,856 Finance Leases: Property, plant and equipment, net (1) $ 899 $ 994 Lease Liabilities: Notes payable and current portion of long-term debt $ 209 $ 280 Long-term debt, net 153 184 Total financing lease liabilities $ 362 $ 464 (1) Finance lease assets are recorded net of accumulated depreciation of $ 1,645 and $ 6,769 as of December 31, 2023 and September 30, 2023, 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. The remaining lease liability balance relates to finance equipment leases. 25 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) The aggregate future maturities of lease payments for operating leases and finance leases as of December 31, 2023 are as follows (in thousands): Operating Leases Finance Leases 2024(a) $ 34,061 $ 187 2025 39,247 125 2026 30,446 66 2027 25,633 4 2028 20,788 — 2029 16,317 — Thereafter 69,128 — Total lease payments $ 235,620 $ 382 Less: Imputed Interest ( 49,202 ) ( 20 ) Present value of lease liabilities $ 186,418 $ 362 (a) Excluding the quarter ended December 31, 2023. Average lease terms and discount rates at December 31, 2023 were as follows: Weighted-average remaining lease term (years): Operating leases 7.6 Finance Leases 3.3 Weighted-average discount rate: Operating Leases 6.11 % Finance Leases 5.83 % NOTE 21 — COMMITMENTS AND CONTINGENCIES Legal and environmental Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted lamp manufacturing and metal finishing operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) which was owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon, for approximately three years . ISCP sold the Peekskill Site in November 1982. Based upon studies conducted by ISCP and the New York Department of Environmental Conservation, soils and groundwater beneath the Peekskill Site contain chlorinated solvents and metals. Stream sediments downgradient from the Peekskill Site also contain metals. On May 15, 2019 the United States Environmental Protection Agency ("EPA") added the Peekskill Site to the National Priorities List under CERCLA and has since reached agreement with Lightron and ISCP pursuant to which Lightron and ISCP will perform a Remedial Investigation/Feasibility Study (“RI/FS”). Performance of the RI/FS is expected to be completed in calendar 2024/2025. 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. 26 GRIFFON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (US dollars and non US currencies in thousands, except per share data) (Unaudited) 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. 27 Table of Contents (Unless otherwise indicated, US dollars and non-US currencies are in thousands, except per share data)