What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2024-02-07 · 184 added, 119 removed, 283 unchanged (52% of the section changed)

23 unchanged sentences

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;

By that time, 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.

Manufacturing operations have ceased at all affected sites:

Camp Hill and Harrisburg, PA;

Fairfield, IA;

and four wood mills.

The final facility, in Grantsville, MD, is expected to close by March 2024.

Grantsville, MD 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.

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CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid.

Revenue for the quarter ended December 31, 2023 was $643,153 compared to $649,384 in the prior year quarter, a decrease of 1%.

Revenue decreased at CPP by 2%, but remained consistent with the prior year at HBP.

Net income was $42,177 or $0.82 per share, compared to $48,702, or $0.88 per share, in the prior year quarter.

Revenue for the quarter ended March 31, 2024 was $672,880 compared to $710,984 in the prior year quarter, a decrease of 5%, driven by decreased revenue of 1% and 11% at HBP and CPP, respectively.

Net income was $64,143 or $1.28 per share, compared to a net loss of $62,255, or $1.17 per share, in the prior year quarter.

The current year quarter results from operations included the following:

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– Strategic review - retention and other of $2,676 ($1,997, net of tax, or $0.04 per share);

– Discrete and certain other tax provisions, net, of $783 or $0.02 per share.

– Discrete and certain other tax benefits, net, of $390 or $0.01 per share.

The prior year quarter results from operations included the following:

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

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

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

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

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

Excluding these items from the respective quarterly results, net income would have been $67,510, or $1.35 per share in the current year quarter ended March 31, 2024 compared to $66,936, or $1.21 per share, in the prior year quarter.

Revenue for the six months ended March 31, 2024 was $1,316,033 compared to $1,360,368 in the prior year period, a decrease of 3% driven by decreased revenue of 1% and 7% at HBP and CPP, respectively.

Net income was $106,320 or $2.10 per share, compared to a net loss of $13,553, or $0.26 per share, in the prior year period.

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

– Restructuring charges of $14,801 ($10,982, net of tax, or $0.22 per share);

– Strategic review - retention and other of $7,334 ($5,497, net of tax, or $0.11 per share);

– Gain on sale of building of $558 ($415, net of tax, or $0.01 per share);

– Discrete and certain other tax provisions, net, of $393 or $0.01 per share.

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

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

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

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

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

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

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

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

Excluding these items from the respective periods, net income would have been $55,267, or $1.07 per share in the current year period ended December 31, 2023 compared to $47,421, or $0.86 per share, in the prior year period.

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

Excluding these items from the respective periods, net income would have been $122,777, or $2.42 per share in the current year period ended March 31, 2024 compared to $114,357, or $2.07 per share, in the prior year period.

Griffon evaluates performance based on adjusted net income (loss) and the related adjusted earnings (loss) per share, which excludes restructuring charges, non-cash impairment charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable, non-GAAP measures.

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

The following table provides a reconciliation of net income from operations to adjusted net income and earnings per share to adjusted earnings per share:

For the Three Months Ended December 31,

Net income $ 42,177 $ 48,702

The following table provides a reconciliation of net income (loss) from operations to adjusted net income and earnings (loss) per share to adjusted earnings per share:

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

2024 2023 2024 2023

Net income (loss) $ 64,143 $ (62,255) $ 106,320 $ (13,553)

Adjusting items:

Restructuring charges (1)

2,401 78,334 14,801 78,334

Intangible asset impairment — 100,000 — 100,000

Gain on sale of building (11) — (558) (10,852)

2 unchanged sentences

Tax impact of above items (2)

(1,309) (47,224) (5,513) (47,055)

Discrete and certain other tax provisions (benefits), net (3)

(390) (8,723) 393 (9,056)

Adjusted net income $ 67,510 $ 66,936 $ 122,777 $ 114,357

Earnings per common share $ 0.82 $ 0.88

Earnings (loss) per common share $ 1.28 $ (1.17) $ 2.10 $ (0.26)

Adjusting items, net of tax:

Anti-dilutive share impact (4)

— 0.05 — 0.02

Restructuring charges (1)

0.04 1.06 0.22 1.06

Intangible asset impairment — 1.34 — 1.34

Gain on sale of building — — (0.01) (0.15)

2 unchanged sentences

Discrete and certain other tax provisions (benefits), net (3)

(0.01) (0.16) 0.01 (0.16)

Adjusted earnings per common share $ 1.35 $ 1.21 $ 2.42 $ 2.07

Weighted-average shares outstanding (in thousands) 47,946 53,038 48,365 52,809

Diluted weighted-average shares outstanding (in thousands) 49,931 55,364 50,714 55,334

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

(1) For the quarter ended December 31, 2023, restructuring charges relate to the CPP global sourcing expansion, of which $11,646 are included in Cost of goods and services and $754 are included in SG&A.

(1) For the three months ended March 31, 2024 and 2023, restructuring charges relate to the CPP global sourcing expansion, of which $1,334 and $74,645, respectively, is included in Cost of goods and services and $1,067 and $3,689, respectively, is included in SG&A.

For the six months ended March 31, 2024 and 2023, restructuring charges relate to the CPP global sourcing expansion, of which $12,980 and $74,645, respectively, are included in Cost of goods and services and $1,821 and $3,689, respectively, are included in SG&A.

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

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

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

(4) In the three and six months ended March 31, 2023, Earnings (loss) per common share is calculated using basic shares on the face of the income statement.

The anti-dilutive share impact represents the impact of converting from basic shares to diluted shares used in calculating Earnings (loss) per common share.

RESULTS OF OPERATIONS

Three Months ended December 31, 2023 and 2022

Griffon evaluates performance and allocates resources based on each segment adjusted EBITDA, a non-GAAP measure, which is defined as income before taxes, excluding interest income and expense, depreciation and amortization, unallocated amounts (mainly corporate overhead), strategic review charges, non-cash impairment charges, restructuring charges, and acquisition related expenses, as well as other items that may affect comparability, as applicable.

Three and Six Months ended March 31, 2024 and 2023

Griffon evaluates performance and allocates resources based on each segment adjusted EBITDA, a non-GAAP measure, which is defined as income (loss) before taxes, excluding interest income and expense, depreciation and amortization, unallocated amounts (mainly corporate overhead), strategic review charges, non-cash impairment charges, restructuring charges, and acquisition related expenses, as well as other items that may affect comparability, as applicable.

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

See table provided in Note 12 - Business Segments for a reconciliation of adjusted EBITDA to income before taxes.

See table provided in Note 12 - Business Segments for a reconciliation of adjusted EBITDA to income (loss) before taxes.

Home and Building Products

For the Three Months Ended December 31,

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

2024 2023 2024 2023

Residential $ 221,322 $ 220,416 $ 440,120 $ 447,475

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Depreciation and amortization $ 3,772 $ 3,811 $ 7,405 $ 7,657

For the quarter ended December 31, 2023, HBP revenue was consistent with the prior year quarter reflecting improved customer orders, and favorable pricing and mix of 4%, offset by the prior year volume benefit from elevated backlog.

For the quarter ended December 31, 2023, adjusted EBITDA of $124,719 was consistent with the prior year quarter.

Adjusted EBITDA reflected reduced material costs and favorable pricing and mix offset by the unfavorable impact of reduced volume, noted above, and increased labor and distribution costs.

For the quarters ended December 31, 2023 and 2022, segment depreciation and amortization decreased $213 compared to the prior year period due to fully depreciated assets.

For the quarter ended March 31, 2024, HBP revenue decreased $4,597 or 1% from the prior year quarter due to unfavorable product mix of 2%, partially offset by a 1% increase in volume.

Increased residential volume in the quarter was partially offset by decreased commercial volume.

For the quarter ended March 31, 2024, adjusted EBITDA of $128,924 decreased $2,947 or 2%, compared to $131,871 in the prior year quarter.

The unfavorable variance to the prior year resulted from the decreased revenue noted above, and increased labor and distribution costs, partially offset by reduced material costs.

For the six months ended March 31, 2024, revenue decreased $5,379 or 1%, compared to the prior year period, driven by decreased volume of 3% reflecting decreased commercial volume, partially offset by increased residential volume and favorable product mix of 2%.

For the six months ended March 31, 2024, adjusted EBITDA of $253,643 decreased $2,373, or 1%, compared to $256,016 in the prior year period.

The unfavorable variance resulted from the decreased revenue noted above, and increased labor and distribution costs, partially offset by reduced material costs.

For the quarter ended March 31, 2024, segment depreciation and amortization remained consistent with the prior year quarter.

For the six months ended March 31, 2024, segment depreciation and amortization decreased $252 compared to the prior year period due to fully depreciated assets.

Consumer and Professional Products

For the Three Months Ended December 31,

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

2024 2023 2024 2023

United States $ 183,142 $ 212,385 $ 334,314 $ 366,052

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Depreciation and amortization $ 11,171 $ 13,303 $ 22,228 $ 26,430

For the quarter ended December 31, 2023, revenue decreased $5,449, or 2%, compared to the prior year period primarily due to decreased volume driven by reduced consumer demand in North America.

For the quarter ended December 31, 2023, adjusted EBITDA was $5,539 compared to $(1,809) in the prior year quarter, an increase of $7,348.

The variance to the prior year was primarily due to decreased North American production costs, partially offset by the unfavorable impact of the reduced volume, noted above.

For the quarter ended December 31, 2023, segment depreciation and amortization decreased $2,070 compared to the prior year period, primarily related to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with restructuring activities.

For the quarter ended March 31, 2024, revenue decreased $33,507, or 11%, compared to the prior year quarter primarily due to decreased volume driven by reduced consumer demand in North America and the U.K., partially offset by increased volume in Australia.

For the quarter ended March 31, 2024, adjusted EBITDA of $20,121 increased $486 or 2% compared to $19,635 in the prior year quarter.

The variance to the prior year was primarily due to improved North American production costs and decreased discretionary spending, partially offset by the unfavorable impact of the reduced volume noted above.

For the six months ended March 31, 2024, revenue decreased $38,956, or 7%, compared to the prior year period primarily due to decreased volume driven by reduced consumer demand in North America and the U.K., partially offset by increased volume in Australia and elevated customer inventory levels.

For the six months ended March 31, 2024, adjusted EBITDA of $25,660 increased $7,834 or 44% compared to $17,826 in the prior year period.

The variance to the prior year was primarily due to improved margins in Australia and reduced North American production costs, as well as decreased discretionary spending, partially offset by the unfavorable impact of the reduced volume noted above.

For the quarter and six months ended March 31, 2024, segment depreciation and amortization decreased $2,132 and $4,202, respectively, compared to the prior year period, primarily related to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with restructuring activities.

CPP Global Sourcing Strategy Expansion and Restructuring Charges

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

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

By that time, CPP expects to have reduced its U.S.

facility footprint by approximately 1.2 million square feet, or 15% of CPP's square footage, and its headcount by approximately 600.

Operations have ceased at Camp Hill and Harrisburg, PA;

Manufacturing operations have ceased at all affected sites:

Camp Hill and Harrisburg, PA;

Fairfield, IA;

Grantsville, MD;

and four wood mills.

The final facility, in Grantsville, MD, is expected to close by March 2024.

1 unchanged sentence

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 charges of $12,400 consisting of cash charges of $3,918 and non-cash, asset related charges of $8,482 to adjust inventory to net realizable value.

In the six months ended March 31, 2024, CPP incurred pre-tax restructuring charges of $14,801 consisting of cash charges of $6,319 and non-cash, asset related charges of $8,482 to adjust inventory to net realizable value.

The cash charges included $2,329 for one-time termination benefits and other personnel-related costs and $3,990 for facility exit and other related costs.

8 unchanged sentences

Q1 FY2024 Activity (1,847) (2,071) (8,482) (12,400) —

Q2 FY2024 Activity (482) (1,919) — (2,401) $ —

Total 2024 restructuring charges (2,329) (3,990) (8,482) (14,801) —

Total cumulative charges (19,101) (20,754) (67,414) (107,269) —

Estimate to Complete $ 399 $ 14,746 $ 7,586 $ 22,731 $ 5,000

Facility and equipment sales to date

Facility and equipment sales to date (gain / cash proceeds)

$ — $ — $ 1,065 $ 1,065 $ 1,192

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

For the quarter ended December 31, 2023, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $13,907 compared to $13,776 in the prior year quarter.

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

For the quarter ended March 31, 2024, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $14,814 compared to $14,630 in the prior year quarter;

for the six months ended March 31, 2024, unallocated amounts totaled $28,721 compared to $28,406 in the prior year period.

The increase in both the current quarter and six month periods, compared to their respective comparable prior year periods, primarily relates to increases in Employee Stock Ownership Plan (ESOP) expenses driven by the increase in Griffon's share price, partially offset by a decrease in other compensation related expenses.

Strategic review

During the three months ended December 31, 2023 and 2022, we incurred strategic review expenses of $4,658 ($3,500, net of tax) and $8,232 ($6,222, net of tax), respectively, primarily for retention payments and other associated costs related to the strategic review process that concluded in April 2023.

During the three months ended March 31, 2024 and 2023, we incurred strategic review expenses of $2,676 ($1,997, net of tax) and $6,190 ($4,658, net of tax), respectively, and during the six months ended March 31, 2024 and 2023, we incurred strategic review expenses of $7,334 ($5,497, net of tax) and $14,422 ($10,880, net of tax), respectively, primarily for retention payments and other associated costs related to the strategic review process that concluded in April 2023.

Proxy expenses

During the three months ended December 31, 2023, we did not incur any non-recurring proxy expenses.

During the quarter ended December 31, 2022, non-recurring proxy expenses of $1,503 ($1,153, net of tax) related to a settlement entered into with a shareholder that had submitted a slate of director nominees.

During the three and six months ended March 31, 2024, we did not incur any non-recurring proxy expenses.

During the three and six months ended March 31, 2023, non-recurring proxy expenses of $614 ($471, net of tax) and $2,117 ($1,624, net of tax), respectively, were recorded in SG&A, and related to a settlement entered into with a shareholder that had submitted a slate of director nominees.

Segment Depreciation and Amortization

For the quarter ended December 31, 2023, segment depreciation and amortization of $14,690 decreased $2,283 compared to $16,973 in the prior year quarter;

the decrease primarily relates to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities.

For the three months ended March 31, 2024, segment depreciation and amortization of $14,943 decreased $2,171 compared to $17,114 in the prior year quarter, and for the six months ended March 31, 2024, segment depreciation and amortization of $29,633 decreased $4,454 compared to $34,087 in the prior year period.

The decrease in both the three and six months ended March 31, 2024, primarily relates to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities.

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.

For the quarters ended March 31, 2024 and 2023, Other income (expense) of $626 and $293, respectively, includes $179 and ($164), respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan expense of $35 and $217, respectively, and net investment income of $29 and $74, respectively.

Other income (expense) also includes royalty income of $509 and $476 for the three months ended March 31, 2024 and 2023, respectively.

For the six months ended March 31, 2024 and 2023, Other income (expense) of $1,258 and $900, respectively, includes $191 and $(98), respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan expense of $69 and $433, respectively, as well as $85 and $107, respectively, of net investment income (loss).

Other income (expense) also includes rental income of $0 and $212 in the six months ended March 31, 2024 and 2023, as well as royalty income of $1,100 and $1,025 for the six months ended March 31, 2024 and 2023, respectively.

Provision for 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.

During the quarter ended March 31, 2024, the Company recognized a tax provision of $24,430 on income before taxes of $88,573, compared to a tax benefit of $27,904 on a loss before taxes of $90,159 in the prior year quarter.

The current year quarter results included strategic review costs - retention and other of $2,676 ($1,997, net of tax), restructuring charges of $2,401 ($1,769, net of tax), gain on sale of building of $11 ($9, net of tax);

and discrete and certain other tax provisions, net, that affect comparability of $783.

and discrete and certain other tax benefits, net, that affect comparability of $390.

The prior year quarter results included strategic review - retention and other of $6,190 ($4,658, 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);

restructuring charges of $78,334 ($58,529, net of tax);

intangible asset impairment charges of $100,000 ($74,256, net of tax);

proxy expenses of $614 ($471, net of tax);

and discrete and certain other tax benefits, net, that affect comparability of $8,723.

Excluding these items, the effective tax rates for the quarters ended December 31, 2023 and 2022 were 27.9% and 29.1%, respectively.

Excluding these items, the effective tax rates for the quarters ended March 31, 2024 and 2023 were 27.9% and 29.5%, respectively.

During the six months ended March 31, 2024, the Company recognized a tax provision of $42,395 on income before taxes of $148,715, compared to a tax benefit of $8,586 on a loss before taxes of $22,139 in the comparable prior year period.

The six month period ended March 31, 2024 included restructuring charges of $14,801 ($10,982, net of tax);

strategic review - retention and other of $7,334 ($5,497, net of tax);

gain on sale of building of $558 ($415, net of tax);

and discrete and certain other tax provisions, net, that affect comparability of $393.

The six month period ended March 31, 2023 included restructuring charges of $78,334 ($58,529, net of tax);

Strategic review - retention and other of $14,422 ($10,880, net of tax);

gain on the sale of building $10,852 ($8,323, net of tax);

intangible asset impairment charges of $100,000 ($74,256, net of tax);

proxy expenses of $2,117 ($1,624, net of tax);

and discrete tax and certain other tax benefits, net, that affect comparability of $9,056.

Excluding these items, the effective tax rates for the six months ended March 31, 2024 and 2023 were 27.9% and 29.4%, respectively.

Stock-based compensation

For the quarters ended December 31, 2023 and 2022, stock based compensation expense, which includes expense for both restricted stock grants and the ESOP, totaled $6,417 and $6,742, respectively.

For the quarters ended March 31, 2024 and 2023, stock based compensation expense, which includes expense for both restricted stock grants and the ESOP, totaled $6,257 and $6,593, respectively.

For the six months ended March 31, 2024 and 2023, stock based compensation expense totaled $12,674 and $13,335, respectively.

Comprehensive income (loss)

For the quarter ended December 31, 2023, total other comprehensive income, net of taxes, of $10,475 included a gain of $10,238 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound and Australian and Canadian Dollars, all in comparison to the U.S.

For the quarter ended March 31, 2024, total other comprehensive loss, net of taxes, of $4,896 included a loss of $7,199 from foreign currency translation adjustments primarily due to the weakening of the Euro, British Pound and Australian and Canadian Dollars, all in comparison to the U.S.

partially offset by a $531 benefit from pension amortization and a $1,772 gain on cash flow hedges.

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

a $746 benefit from pension amortization;

and a $295 loss on cash flow hedges.

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

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

For the six months ended March 31, 2024, total other comprehensive income, net of taxes, of $5,579 included a gain of $3,039 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound and Australian Dollars partially offset by the weakening of Canadian Dollars, all in comparison to the US Dollar;

a $1,063 benefit from pension amortization ;

and a $580 loss on cash flow hedges.

and a $1,477 gain on cash flow hedges.

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

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

and a $953 gain on cash flow hedges.

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 totaling $8,703 and $11,798, respectively.

Griffon's assets for discontinued operations primarily relates to insurance claims.

There was no reported revenues or costs in the three months ended December 31, 2023 and 2022 for discontinued operations.

At March 31, 2024 and September 30, 2023, Griffon’s liabilities for discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves totaling $7,994 and $11,798, respectively.

Griffon's assets for discontinued operations primarily relate to insurance claims.

There was no reported revenues or costs in the three and six months ended March 31, 2024 and 2023 for discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

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

As of December 31, 2023, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $64,100.

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

The Company may repatriate cash from its non-U.S.

subsidiaries if the Company determines that it is beneficial to the Company and tax efficient.

As of March 31, 2024, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $69,900.

Funds held outside the U.S.

may be subject to foreign withholding taxes if repatriated to the U.S.

Funds held outside the U.S.

are typically used for foreign operating needs or reinvested to fund expansion of existing non-U.S.

The Company has accrued a deferred tax liability for withholding taxes on previously taxed earnings and profit (PTEP) which are not considered permanently reinvested.

In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S.

taxes to repatriate these funds (unless applicable U.S.

taxes have already been paid).

Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our secured $500,000 revolving credit facility ("Revolver"), which matures in August 2028.

During the quarter ended December 31, 2023, the Company generated $146,058 of net cash from operating activities and, as of December 31, 2023, the Company had $465,538 available, subject to certain loan covenants, for borrowing under the Revolver.

The Company had cash and cash equivalents of $110,546 at December 31, 2023.

During the six months ended March 31, 2024, the Company generated $185,860 of net cash from operating activities and, as of March 31, 2024, the Company had $317,538 available, subject to certain loan covenants, for borrowing under the Revolver.

The Company had cash and cash equivalents of $123,030 at March 31, 2024.

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

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

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

Net Cash Flows Provided by (Used In):

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Financing activities (132,043) (99,631)

Cash provided by operating activities for the quarter ended December 31, 2023 was $146,058 compared to $75,480 in the prior year period.

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

Cash flows provided by operating activities for the six months ended March 31, 2024 was $185,860 compared to $161,636 in the prior year period.

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

Cash flows used in investing activities is primarily comprised of capital expenditures and proceeds from the sale of businesses, investments and property, plant and equipment.

During the quarter ended December 31, 2023, cash used in investing activities was $13,543 compared to cash provided by investing activities of $4,521 in the prior year period.

In the current quarter, cash flows used in investing activities primarily consisted of capital expenditures of $14,330, partially offset by proceeds totaling $787 primarily from the sale of a building.

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

During the quarter ended December 31, 2023, cash used in financing activities totaled $123,947 compared to $78,363 in the prior year period.

Cash used in financing activities in the current period consisted of net repayments of long-term debt of $32,360, primarily related to the Revolver, the purchase of shares of common stock in connection with the board authorized share repurchase program and the purchase of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock totaling $81,449 and the payment of dividends of $9,965.

Cash provided by financing activities in the prior year period consisted primarily of net repayments of long-term debt of $57,716, purchases of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock of $12,735 and the payment of dividends of $7,126 and financing costs of $744.

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.

During the quarter ended December 31, 2023, the Board of Directors approved and paid a quarterly cash dividend of $0.15 per share.

During the six months ended March 31, 2024, cash flows used in investing activities was $32,017 compared to $2,571 in the prior year period.

Cash flows used in investing activities in the current period primarily consisted of capital expenditures of $33,289, partially offset by proceeds totaling $1,272 primarily from the sale of a building.

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

During the six months ended March 31, 2024, cash used in financing activities totaled $132,043 compared to $99,631 in the prior year period.

Cash flows used in financing activities in the current period consisted of the purchase of shares of common stock in connection with the board authorized share repurchase program and the purchase of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock totaling $222,421 and the payment of dividends of $21,676, partially offset by net proceeds of long-term debt of $112,316, primarily related to the Revolver.

Cash flows used in financing activities in the prior year period consisted primarily of net repayments of long-term debt of $73,691, purchases of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock of $12,989 and the payment of dividends of $12,824.

During the six months ended March 31, 2024, 595,929 shares, with a market value of $34,326, or $57.60 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock.

During the six months ended March 31, 2024, the Board of Directors approved and paid two quarterly cash dividends of $0.15 per share.

The Company currently intends to pay dividends each quarter;

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

On 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 May 7, 2024, the Board of Directors declared a quarterly cash dividend of $0.15 per share, payable on June 20, 2024 to shareholders of record as of the close of business on May 29, 2024.

On April 19, 2023, the Company's Board of Directors approved a $200,000 increase to Griffon's share repurchase program to $257,955 from the prior unused board authorizations from August 3, 2016 and August 1, 2018 of $57,955.

Also, on November 15, 2023, Griffon announced that the Board of Directors approved an additional increase of $200,000 to its share repurchase authorization.

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 remained 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 and 2022, cash used in discontinued operations from operating activities of $2,926 and $1,953, respectively, primarily related to the settling of certain liabilities and environmental costs.

Cash and Equivalents and Debt December 31, September 30,

Share repurchases during the six months ended March 31, 2024 totaled 3,437,878 shares of common stock, for a total of $187,024, or an average of $54.40 per share.

This includes the repurchase of 1,500,000 shares repurchased by the Company on February 20, 2024 pursuant to a stock purchase and cooperation agreement executed by the Company and Voss Value Master Fund, L.P., Voss Value-Oriented Special Situations Fund, L.P and four separately managed accounts of which Voss Capital, LLC is the investment manager, in a private transaction.

The purchase price per share was $65.50, for an aggregate purchase price of $98,250.

As of March 31, 2024, $120,158 remained under these Board authorized repurchase programs.

During the six months ended and as of March 31, 2024, $1,411 and $2,712, respectively, were accrued for excise taxes for share repurchases.

During the six months ended March 31, 2024 and 2023, cash used in discontinued operations from operating activities of $3,273 and $2,598, respectively, primarily related to the settling of certain liabilities and environmental costs.

Cash and Equivalents and Debt March 31, September 30,

Cash and equivalents $ 123,030 $ 102,889

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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;

As of March 31, 2024, outstanding 2028 Senior Notes due totaled $974,775;

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

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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.

The fair value of the 2028 Senior Notes approximated $950,406 on March 31, 2024 based upon quoted market prices (level 1 inputs).

At March 31, 2024, $7,910 of underwriting fees and other expenses incurred remained to be amortized.

On August 1, 2023, Griffon amended and restated its Credit Agreement (as amended, "Credit Agreement").

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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 includes a multi-currency sub-facility of $200,000.

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;

Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 2.00% (7.43% at March 31, 2024);

SONIA loans accrue interest at SONIA Base Rate

plus a credit adjustment spread and a margin of 2.00% (7.22% at March 31, 2024);

and base rate loans accrue interest at prime rate plus a margin of 1.00% (9.50% at March 31, 2024).

At March 31, 2024, under the Revolver, there were $169,500 in outstanding borrowings;

outstanding standby letters of credit were $12,962;

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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 accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a spread of 2.25% (7.70% as of March 31, 2024).

The Term Loan B was issued at 99.75% of par value.

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Term Loan B borrowings are secured by the same collateral as the Revolver on an equal and ratable basis.

The fair value of the Term Loan B facility approximated $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.

The fair value of the Term Loan B facility approximated $459,574 on March 31, 2024 based upon quoted market prices (level 1 inputs).

At March 31, 2024, $6,378 of underwriting fees and other expenses incurred remained to be amortized.

At March 31, 2024, $459,000 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.

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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.

(“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 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 facility accrues interest at CORRA or the Canadian Bankers Acceptance Rate plus 1.3% per annum (6.30% using CORRA and 6.35% using the Canadian Bankers Acceptance Rate as of March 31, 2024).

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.

At March 31, 2024, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($11,039 as of March 31, 2024) available.

During 2023, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 15,000 receivable purchase facility to AUD 30,000.

The receivable purchase facility was renewed in 2024 and now matures in March 2025, 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 (5.55% at March 31, 2024).

At March 31, 2024, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($19,575 as of March 31, 2024) available.

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

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Upon maturity in July 2023, the GBP 5,000 revolver had no balance and was not renewed.

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 its credit and loan agreements.

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

In February 2024, Griffon repaid in full a loan with the Pennsylvania Industrial Development Authority.

The balance in other long-term debt consists primarily of finance leases.

At March 31, 2024, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements.

Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.8x at March 31, 2024.

Capital Resource Requirements

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For additional information, see CPP reportable segments discussion.

Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $56,050, a Term Loan B facility maturing in 2029 with an outstanding balance of $461,000 on December 31, 2023 and Revolver maturing in 2025 with an outstanding balance of $21,500.

The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a current spread of 2.25% (7.75% as of December 31, 2023).

Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $56,050, a Term Loan B facility maturing in 2029 with an outstanding balance of $459,000 on March 31, 2024 and Revolver maturing in 2028 with an outstanding balance of $169,500.

The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a current spread of 2.25% (7.70% as of March 31, 2024).

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

For the Revolver, interest is payable on borrowings at either a SOFR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance.

Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 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).

Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 2.00% (7.43% at March 31, 2024);

SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 2.00% (7.22% at March 31, 2024);

and base rate loans accrue interest at prime rate plus a margin of 1.00% (9.50% at March 31, 2024).

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

For the quarter ended December 31, 2023, our largest customer, The Home Depot, represented 11% of Griffon’s consolidated revenue, 16% of CPP's revenue and 8% of HBP’s revenue.

For the six months ended March 31, 2024, our largest customer, The Home Depot, represented 11% of Griffon’s consolidated revenue, 14% of CPP's revenue and 8% of HBP’s revenue.

No other customer exceeded 10% of consolidated revenue.

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

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

In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of March 31, 2024 and September 30, 2023 and for the three and six months ended March 31, 2024 and for the year ended September 30, 2023.

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

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

The financial information may not necessarily be indicative of the results of operations or financial position of

the guarantor companies or non-guarantor companies had they operated as independent entities.

The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.

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

The guarantor companies and the non-

guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.

The indentures relating to the Senior Notes (the “Indentures”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes.

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Summarized Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended For the Year Ended

December 31, 2023 September 30, 2023

For the Six Months Ended For the Year Ended

March 31, 2024 September 30, 2023

Parent Company Guarantor Companies Parent Company Guarantor Companies

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Summarized Balance Sheet Information

As of December 31, 2023 As of September 30, 2023

As of March 31, 2024 As of September 30, 2023

Parent Company Guarantor Companies Parent Company Guarantor Companies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis