What changed in this filing

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Item 1A. Risk Factors

2024-11-13 compared with 2023-11-16 · 53 added, 68 removed, 278 unchanged (30% of the section changed)

14 unchanged sentences

Purchases of many HBP and CPP products are discretionary for consumers who are generally more willing to purchase products during periods in which favorable macroeconomic conditions prevail.

These conditions

could make it more difficult to obtain additional credit on favorable terms for investments in current businesses or for acquisitions, or could render financing unavailable;

These conditions could make it more difficult to obtain additional credit on favorable terms for investments in current businesses or for acquisitions, or could render financing unavailable;

in addition, while we do not have any near term debt maturities, if these conditions persist, we may have difficulty refinancing our debt when it comes due.

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Inflation rates, particularly in the United States, increased to historic levels in 2022.

Although, according to the U.S.

Department of Labor, the annual inflation rate for the United States decreased to 3.7% for the twelve months ended September 30, 2023, high inflation or increases in inflation may result in decreased demand for Griffon’s operating company’s products and services and increased operating costs and expenses, including for labor, raw materials and supplies.

In addition, the United States Federal Reserve has raised, and may continue to raise, interest rates in response to concerns about inflation.

According to the U.S.

Department of Labor, the annual inflation rate for the United States decreased to 3.7% for the twelve months ended September 30, 2023, and it further decreased to 3.5% for the twelve months ended September 30, 2024.

Although the past two fiscal years reflected a decrease in inflation rates since 2022, future increases in inflation may result in decreased demand for Griffon’s operating company’s products and services and increased operating costs and expenses, including for labor, raw materials and supplies.

Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks, which may result in economic recession.

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Griffon’s operating results will also depend on successfully developing relationships with additional key customers.

Griffon cannot assure that its largest customers will be retained or that additional key customers will be recruited.

Griffon cannot ensure that its largest customers will be retained or that additional key customers will be recruited.

Also, both HBP and CPP extend credit to its customers, which exposes it to credit risk.

The largest customer accounted for approximately 7%, 19% and 13% of the net accounts receivable of HBP, CPP and Griffon as of September 30, 2023, respectively.

Our largest customer accounted for approximately 8%, 16% and 12% of the net accounts receivable of HBP, CPP and Griffon as of September 30, 2024, respectively.

If this customer were to become insolvent or otherwise unable to pay its debts, the financial condition, results of operations and cash flows of HBP, CPP and Griffon could be adversely affected.

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Such events may impact the ability of HBP and CPP to fill orders, which could have a material adverse effect on customer relationships.

In May 2023, in response to changing market conditions, Griffon announced that CPP will expand its global sourcing strategy.

This will increase CPP’s reliance on third-party suppliers and therefore is likely to increase CPP’s exposure to the risks relating to the use of third-party suppliers.

Griffon announced in May 2023 that CPP was expanding its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines for the U.S.

This has increased CPP’s reliance on third-party suppliers and, therefore, CPP’s exposure to the risks relating to the use of third-party suppliers.

See the risk below titled “The expansion of CPP’s global sourcing strategy may not achieve its intended results.”

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Certain raw materials used by CPP may be sourced from China and therefore may have their prices and availability impacted by tariffs imposed on trade between the United States and China.

As it executes its expanded sourcing strategy and

closes numerous U.S.

facilities, CPP may increase its reliance on suppliers in China, which could further impact pricing and tariffs.

Through the expanded sourcing strategy and the

closure of U.S.

facilities, CPP has increased the reliance on suppliers in China, which could further the impact of tariffs.

CPP is taking steps to develop multiple suppliers outside of China to allow for supply chain sourcing pivot, as needed, in an effort to minimize this risk.

The sourcing of CPP finished goods, components and raw materials from China are generally subject to supply agreements with Chinese companies.

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at various times since March 2018, represents a continuing risk to CPP revenue and operating performance.

The tariffs currently apply to approximately 66% of U.S.

imports from China, or more than $330 billion of trade.

Section 301 of the Trade Act of 1974 requires that the duties must terminate after four years unless one or more domestic beneficiaries of the tariffs requests their continuation.

In September 2022, the United States Trade Representative (USTR) announced that it had received such requests and would therefore continue the tariffs pending a comprehensive review of their necessity.

As of September 30, 2023 the four-year review remains ongoing.

In September the USTR announced an extension of certain exclusions from the tariffs through December 31, 2023 to allow the USTR to complete its review.

It remains unknown whether the USTR will continue the Section 301 tariffs upon completion of its review.

imports from China exceeded $425 billion in 2023, the majority of which were subject to the Section 301 tariffs.

In May 2024, the United States Trade Representative (USTR) completed a mandatory four-year review of the tariffs under Section 301 of the Trade Act of 1974.

In addition to continuing the tariffs rather than allowing them to terminate under the Trade Act, the USTR announced additional tariffs on a number of products, to be implemented over the two-year period 2024-2026.

These changes are expected to have a limited impact on current CPP products;

however, the increases may complicate efforts to expand CPP's product portfolio under its new global sourcing strategy.

In addition to tariffs, an increased global focus on forced labor in supply chains has the potential to impact our business operations.

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Importers whose shipments are detained by CBP under the UFLPA can rebut the presumption with “clear and convincing evidence” that the products were not produced with forced labor.

This requires that the importer submit detailed information regarding every supplier and sub-supplier, as well as all components and raw materials, relating to the goods being detained, and detention costs accrue during the pendency of CBP’s evaluation.

This requires that the importer submit detailed information regarding every supplier and sub-supplier, and all components and raw materials, relating to the manufacturing and transportation of goods being detained.

Detention costs accrue during the pendency of CBP's evaluation.

From October 1, 2023 through September 30, 2024, more than 4,200 shipments to U.S importers, valued at approximately $1.7 billion, were targeted by CBP for further inspection.

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however, CBP takes a broad approach when targeting shipments it believes may have originated from the Uyghur region based on product definitions, tariff codes and supplier names that lead them to suspect the goods come from the Uyghur region.

Additionally, the Forced Labor Enforcement Task Force has determined that certain industry sectors (including apparel, cotton and cotton products, and silica-based products) have an inherently higher risk of forced labor, such that CBP may detain goods suspected of being manufactured with materials originating from Xinjiang, regardless of their declared country of origin.

As a result, CPP shipments may be targeted for detention in which case they become subject to the rebuttable presumption that they were sourced from the Uyghur region even though they are not imported directly from China or are otherwise demonstrably outside the scope of the UFLPA.

Additionally, the Forced Labor Enforcement Task Force has determined that certain industry sectors (including apparel, cotton and cotton products, silica-based products, PVC and aluminum products), and countries of origin outside of China (including Vietnam and Thailand) have an inherently higher risk of forced labor, such that CBP may detain goods within these sectors suspected of being manufactured with materials originating from Xinjiang, or coming from a country identified as higher risk.

As a result, CPP shipments may be targeted for detention in which case they become subject to the rebuttable presumption that they were sourced from the Uyghur region or another high-risk country, even though they are not imported directly from China or are otherwise demonstrably outside the scope of the UFLPA.

In view of the increased enforcement of forced labor initiatives, we are continuing to update our compliance measures and work with our supply base to validate their supply chains, from raw materials through components to finished goods, to ensure our goods are not made using forced labor.

We cannot be certain that our products will not be targeted or that our shipments will not be detained, which may impact our operating performance.

Forced labor enforcement initiatives are also targeting imports from other countries besides China, and we will continue to monitor the products and countries subject to increased scrutiny for potential impacts to our operations.

The continuing political and economic conflicts between U.S.

and China have resulted in, and may continue to result in retaliatory actions from, both countries, and it is unknown whether current US-China relations over Taiwan, including the signature of the US-Taiwan Initiative on 21 st Century Trade signed in May 2023, will impact the ongoing trade dispute with China.

We cannot predict what new retaliatory policies and regulations may be implemented by the Chinese government in response to the U.S./Taiwan engagement, and any such policies and regulations or other responses may adversely affect our business operations in China.

HBP and CPP operations are also subject to the effects of international trade agreements and regulations such as the United States-Mexico-Canada Agreement (USMCA), and the activities and regulations of the World Trade Organization.

Although these trade agreements generally have positive effects on trade liberalization, sourcing flexibility and the cost of goods by

reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also adversely affect HBP and CPP.

HBP and CPP operations are also subject to the effects of international trade agreements and regulations such as the United States-Mexico-Canada Agreement (USMCA), which will undergo a mandatory six-year review in 2026, and the activities and regulations of the World Trade Organization.

Although these trade agreements generally have positive effects on trade

liberalization, sourcing flexibility and the cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also adversely affect HBP and CPP.

For example, trade agreements can result in setting quotas on products that may be imported from a particular country into key markets including the U.S., Canada, Australia and the U.K., or may make it easier for other companies to compete by eliminating restrictions on products from countries in which HBP and CPP competitors source products.

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The expansion of CPP’s global sourcing strategy may not achieve its intended results.

On May 3, 2023, in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines.

This expansion of CPP’s global sourcing strategy will increase Griffon’s exposure to certain other risks to which it is subject, including those related to the procurement of products from third party suppliers, many of whom are located in China and other non U.S.

Griffon announced in May 2023 that CPP was expanding its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines for the U.S.

This expansion of CPP’s global sourcing strategy has increased Griffon’s exposure to certain other risks to which it is subject, including those related to the procurement of products from third party suppliers, many of whom are located in China and other non-U.S.

jurisdictions.

Griffon will also be subject to unique risks associated with the implementation of CPP’s expanded global sourcing strategy, including potential negative effects relating to the closing of domestic manufacturing facilities and the related termination of employees.

There is a risk that CPP’s ability to provide products to its customers will be disrupted as CPP increases its reliance on third party suppliers and expands its distribution system for products manufactured by third parties.

CPP may also not realize the proceeds it expects from the sale of facilities that will no longer be used by CPP.

CPP is also in the process of selling various U.S.

facilities at which CPP formerly conducted operations, and may not realize the proceeds it expects from the sale of these facilities.

CPP’s expanded global sourcing strategy may also increase its exposure to cybersecurity risks, as discussed in the below risk factor titled “Griffon’s operations and reputation may be adversely impacted if our information technology (IT) systems, or the IT systems of third parties with whom we do business, fail to perform adequately or if we or such third parties are the subject of a data breach or cyber-attack."

CPP’s expanded global sourcing strategy is designed to better position CPP to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, which is in turn expected to improve CPP’s competitive positioning and financial performance.

There is no guarantee that the restructuring will achieve these intended results.

The COVID-19 outbreak, or any other future pandemic, could adversely impact our results of operations.

On May 11, 2023, the U.S.

Department of Health and Human Services declared the end of the Public Health Emergency for COVID-19;

however, the effects of COVID-19 continue to linger throughout the global economy and our businesses.

Though the severity of COVID-19 has subsided, new variants or any other future pandemic could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses.

During the height of COVID-19 our supply chain experienced certain disruptions which, together with other factors such as a shortage of labor, resulted in longer delivery lead times and restricted manufacturing capacity for certain of our products.

While our supply chain appears to generally be stable at this time, should a resurgence of COVID-19 occur, our supply chain could again be negatively impacted;

for example, certain of our suppliers could be required by government authorities to temporarily cease operations or might be limited in their production capacity.

If as a result of a resurgence of COVID-19 or the outbreak of a new pandemic, governments take protective actions, it may have a material adverse impact on Griffon’s businesses and operating results for the reasons described above.

The adoption of an asset-light business model for these U.S.

products has positioned CPP to better serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, which is in turn expected to improve CPP’s competitive positioning and financial performance.

There is no guarantee that these intended results will be achieved.

This initiative was successfully completed as of September 30, 2024, ahead of the previously announced date of December 31, 2024.

As a result of this global sourcing expansion initiative, manufacturing operations have concluded at four manufacturing sites and four wood mills, resulting in a total its facility footprint reduction of approximately 1.2 million square feet, or approximately 15% of CPP's square footage, and a headcount reduction of approximately 600.

A future pandemic could adversely impact our results of operations.

If a future pandemic or similar outbreak, such as something similar to COVID-19, occurs and governments take protective actions, it may have a material adverse impact on Griffon’s businesses and operating results for the reasons described above.

In such event, the extent and duration of any impact on our businesses would be difficult to predict.

To the extent such resurgence or new outbreak adversely affects our businesses, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks factors such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness, as described in more detail below.

To the extent a new outbreak adversely affects our businesses, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks factors such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness, as described in more detail below.

Griffon’s businesses are subject to seasonal variations and the impact of uncertain weather patterns.

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Demand for lawn and garden products is influenced by weather, particularly weekend weather during the peak gardening season.

AMES' sales volumes could be adversely affected by certain weather patterns such as unseasonably cool or warm temperatures, hurricanes, water shortages or floods.

AMES' sales volumes could be adversely affected by certain weather patterns such as unseasonably cool or warm

temperatures, hurricanes, water shortages or floods.

In addition, lack of snow or lower than average snowfall during the winter season may result in reduced sales of certain AMES' products such as snow shovels and other snow tools.

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In addition, any renegotiation or renewal of labor agreements could result in higher wages or benefits paid to unionized employees, which could increase operating costs and as a result have a material adverse effect on profitability.

As a result of the expansion of CPP’s global sourcing strategy, CPP is closing a number of its U.S.

facilities, some of which employ union workers;

accordingly, the number of Griffon employees that belong to a union will decrease.

Griffon’s operations and reputation may be adversely impacted if our information technology (IT) systems, or the IT systems of third parties with whom we do business, fail to perform adequately or if we or such third parties are the subject of a data breach or cyber-attack.

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Griffon may be unable to implement its acquisition growth strategy, which may result in added expenses without a commensurate increase in revenue and income, and divert management’s attention.

Making strategic acquisitions is a significant part of Griffon’s growth plans.

Making strategic acquisitions is a part of Griffon’s growth plans.

The ability to successfully complete acquisitions depends on identifying and acquiring, on acceptable terms, companies that either complement or enhance currently held businesses or expand Griffon into new profitable businesses, and, for certain acquisitions, obtaining financing on acceptable terms.

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Further, there is a risk that acquisitions will not be properly integrated into Griffon’s existing structure.

Griffon closed the acquisition of Hunter Fan, its largest acquisition ever, in January 2022;

the integration of Hunter Fan with CPP is ongoing.

In the past, Griffon has consummated a group of acquisitions within a short time period, which could occur again;

In the past, Griffon has consummated a group of acquisitions within a

short time period, which could occur again;

the risks relating to integration of an acquisition may be exacerbated when numerous acquisitions are consummated in a short time period.

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Each of Griffon's businesses faces risks related to the disruption of its primary manufacturing facilities.

The manufacturing facilities for each of Griffon's businesses are concentrated in just a few locations, and in the case of CPP, some of these locations are abroad in low-cost locations.

Any of Griffon's manufacturing facilities are subject to disruption for a variety of reasons, such as natural or man-made disasters, pandemics, terrorist activities, disruptions of information technology resources, and utility interruptions.

The manufacturing facilities for each of Griffon's businesses are concentrated in just a few locations, and in the case of CPP, include third-party manufacturing facilities, some of which are abroad in low-cost locations.

Any of Griffon's manufacturing facilities, including those of Griffon's third-party suppliers, are subject to disruption for a variety of reasons, such as natural or man-made disasters, pandemics, terrorist activities, disruptions of information technology resources, and utility interruptions.

Such disruptions may cause delays in shipping products, which could result in the loss of business or customer trust, adversely affecting Griffon’s businesses and operating results.

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If goodwill or indefinite-lived intangible assets were to become impaired, the results of operations could be materially and adversely affected.

For the fiscal year ended September 30, 2023, we also recorded a non-cash, pre-tax indefinite-lived intangible assets impairment of $109,200.

For the fiscal year ended September 30, 2022, we recorded a non-cash, pre-tax indefinite-lived intangible asset impairment of $175,000 and a non-cash, pre-tax goodwill impairment of $342,027.

These non-cash impairments resulted in an aggregate decrease of $1.49 and $8.43 in our earnings per share for the fiscal year ended September 30, 2023 and 2022, respectively.

Should we have to record additional impairment charges in the future, it could similarly have a significant negative impact on our earnings per share for the year in which any such impairment charge is recorded.

During the fiscal year ended September 30, 2024, Griffon performed annual impairment testing of its goodwill and indefinite-lived intangible assets.

The assessments did not result in any impairments to goodwill and indefinite-lived intangible assets.

For the fiscal year ended September 30, 2023, we recorded a non-cash, pre-tax indefinite-lived intangible assets impairment of $109,200, which resulted in an aggregate decrease of $1.49 in our earnings per share for the year ended September 30, 2023.

Should we have to record any impairment charges in the future, it could have a significant negative impact on our earnings per share for the year in which any such impairment charge is recorded.

If Griffon's subcontractors or suppliers fail to perform their obligations, Griffon's performance and ability to win future business could be harmed.

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Griffon and its companies conduct operations in Canada, Australasia, the U.K., and China, and sell their products in many countries around the world.

Sales of products through non-U.S.

Sales of products by non-U.S.

subsidiaries accounted for approximately 16% of consolidated revenue for the year ended September 30, 2024.

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Any such infringement (or alleged infringement) may have a material adverse effect on Griffon’s business, results of operations and financial condition.

For example, in the past, a supplier may not be able to develop an alternative design that

meets Griffon’s needs at a comparable cost or at all, and the supply of certain products or components to Griffon may be interrupted.

For example, in the past, a supplier may not be able to develop an alternative design that meets Griffon’s needs at a comparable cost or at all, and the supply of certain products or components to Griffon may be interrupted.

Griffon is exposed to product liability and warranty claims.

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Griffon’s effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in any valuation allowance for deferred tax assets or the amendment or enactment of tax laws.

Further changes in the tax laws could arise as a result of the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”).

In December 2022, the European Union (“EU”) member states reached an agreement to implement the minimum tax component (“Pillar Two”) of the OECD’s tax reform initiative.

The directive is expected to be enacted into the national law of the EU member states by December 31, 2023.

If similar directives under Pillar Two are adopted by taxing authorities in other countries in which we do business, such changes could materially increase the amount of taxes we pay and therefore materially decrease our results of operations and cash flows.

Further changes in the tax laws could arise as a result of the base erosion and profit shifting project ("Pillar Two") undertaken by the Organization for Economic Co-operation and Development (“OECD”).

If the provisions of Pillar Two are adopted by taxing authorities in countries in which we do business, such changes could increase the amount of taxes we pay and therefore decrease our results of operations and cash flows.

The amount of income taxes paid is subject to audits by U.S.

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Similar to the activist shareholder campaign initiated in 2021, activist shareholders may from time to time attempt to effect changes in our strategic direction and seek changes regarding Griffon’s corporate governance or structure.

Our Board of Directors and management team strive to maintain constructive, ongoing communications with all shareholders who wish to speak with us, including activist shareholders, and welcomes their views and opinions with the goal of working together

constructively to enhance value for all shareholders.

However, activist campaigns that contest, or conflict with, our strategic direction could have an adverse effect on us because:

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Activist campaigns may also cause significant fluctuations in our stock price based on temporary or speculative market perceptions, or other factors that do not necessarily reflect the fundamental underlying value of our businesses.

Unresolved Staff Comments

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-K

Item 1A. Risk Factors