UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended December 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 1-06620

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter) 

Delaware			11-1893410
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)
712 Fifth Ave, 18th Floor	New York	New York	10019
(Address of principal executive offices)			(Zip Code)

(212) 957-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.25 par value	GFF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of common stock outstanding at December 31, 2021 was 56,303,873.

Griffon Corporation and Subsidiaries

Contents

	Page
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2021 (unaudited) and September 30, 2021	1
Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended December 31, 2021 and 2020 (unaudited)	2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended December 31, 2021 and 2020 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2021 and 2020 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	47
Item 4 - Controls & Procedures	48
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings	48
Item 1A – Risk Factors	48
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3 – Defaults Upon Senior Securities	49
Item 4 – Mine Safety Disclosures	49
Item 5 – Other Information	49
Item 6 – Exhibits	50
Signatures	51

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	(Unaudited)
	December 31, 2021		September 30, 2021
CURRENT ASSETS
Cash and equivalents	$	151,220	$	248,653
Accounts receivable, net of allowances of $9,787 and $8,787	334,040		294,804
Inventories	531,182		472,794
Prepaid and other current assets	75,862		76,009
Assets of discontinued operations held for sale	261,514		273,414
Assets of discontinued operations	583		605
Total Current Assets	1,354,401		1,366,279
PROPERTY, PLANT AND EQUIPMENT, net	290,552		292,622
OPERATING LEASE RIGHT-OF-USE ASSETS	141,406		144,598
GOODWILL	426,683		426,148
INTANGIBLE ASSETS, net	346,802		350,025
OTHER ASSETS	19,524		21,589
ASSETS OF DISCONTINUED OPERATIONS	3,375		3,424
Total Assets	$	2,582,743	$	2,604,685
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	15,675	$	12,486
Accounts payable	243,611		260,140
Accrued liabilities	147,269		145,101
Current portion of operating lease liabilities	28,932		29,881
Liabilities of discontinued operations held for sale	74,256		80,748
Liabilities of discontinued operations	3,095		3,280
Total Current Liabilities	512,838		531,636
LONG-TERM DEBT, net	1,037,755		1,033,197
LONG-TERM OPERATING LEASE LIABILITIES	117,189		119,315
OTHER LIABILITIES	98,836		109,585
LIABILITIES OF DISCONTINUED OPERATIONS	3,740		3,794
Total Liabilities	1,770,358		1,797,527
COMMITMENTS AND CONTINGENCIES - See Note 22
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	812,385		807,158
Total Liabilities and Shareholders’ Equity	$	2,582,743	$	2,604,685

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

1

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three Months Ended December 31, 2021 and 2020

(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, 2021	84,375	$	21,094	$	602,181	$	669,998	27,762	$	(416,850)	$	(45,977)	$	(23,288)	$	807,158
Net income	—	—		—		19,298		—	—		—		—		19,298
Dividend	—	—		—		(4,739)		—	—		—		—		(4,739)
Shares withheld on employee taxes on vested equity awards	—	—		—		—		422	(10,886)		—		—		(10,886)
Amortization of deferred compensation	—	—		—		—		—	—		—		591		591
Equity awards granted, net	113	28		(28)		—		—	—		—		—		—
ESOP allocation of common stock	—	—		848		—		—	—		—		—		848
Stock-based compensation	—	—		2,866		—		—	—		—		—		2,866
Other comprehensive income, net of tax	—	—		—		—		—	—		(2,751)		—		(2,751)
Balance at December 31, 2021	84,488	$	21,122	$	605,867	$	684,557	28,184	$	(427,736)	$	(48,728)	$	(22,697)	$	812,385

	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, 2020	83,739	$	20,935	$	583,008	$	607,518	27,610	$	(413,493)	$	(72,092)	$	(25,725)	$	700,151
Net income	—	—		—		29,500		—	—		—		—		29,500
Dividend	—	—		—		(4,469)		—	—		—		—		(4,469)
Shares withheld on employee taxes on vested equity awards	—	—		—		—		133	(2,909)		—		—		(2,909)
Amortization of deferred compensation	—	—		—		—		—	—		—		609		609
Equity awards granted, net	494	123		(123)		—		—	—		—		—		—
ESOP allocation of common stock	—	—		596		—		—	—		—		—		596
Stock-based compensation	—	—		3,428		—		—	—		—		—		3,428
Other comprehensive income, net of tax	—	—		—		—		—	—		13,141		—		13,141
Balance at December 31, 2020	84,233	$	21,058	$	586,909	$	632,549	27,743	$	(416,402)	$	(58,951)	$	(25,116)	740,047

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

2

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,
	2021		2020
Revenue	$	591,749	$	541,523
Cost of goods and services	425,907		377,387
Gross profit	165,842		164,136
Selling, general and administrative expenses	127,352		111,709
Income from operations	38,490		52,427
Other income (expense)
Interest expense	(15,681)		(15,690)
Interest income	33		44
Other, net	1,381		357
Total other expense, net	(14,267)		(15,289)
Income before taxes from continuing operations	24,223		37,138
Provision for income taxes	7,318		11,708
Income from continuing operations	$	16,905	$	25,430
Discontinued operations:
Income from operations of discontinued operations	3,014		2,031
Provision (benefit) for income taxes	621		(2,039)
Income from discontinued operations	2,393		4,070
Net income	$	19,298	$	29,500
Basic earnings per common share:
Income from continuing operations	$	0.33	$	0.50
Income from discontinued operations	0.05		0.08
Basic earnings per common share	$	0.38	$	0.58
Basic weighted-average shares outstanding	51,178		50,596
Diluted earnings per common share:
Income from continuing operations	$	0.31	$	0.48
Income from discontinued operations	0.04		0.08
Diluted earnings per common share	$	0.36	$	0.55
Diluted weighted-average shares outstanding	53,753		53,192
Dividends paid per common share	$	0.09	$	0.08
Net income	$	19,298	$	29,500
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	(2,319)		12,123
Pension and other post retirement plans	668		1,706
Change in cash flow hedges	(1,100)		(688)
Total other comprehensive income, net of taxes	(2,751)		13,141
Comprehensive income, net	$	16,547	$	42,641

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

3

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended December 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,298	$	29,500
Net income from discontinued operations	(2,393)		(4,070)
Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations:
Depreciation and amortization	13,081		12,590
Stock-based compensation	4,867		4,208
Asset impairment charges - restructuring	289		193
Provision for losses on accounts receivable	352		93
Amortization of debt discounts and issuance costs	654		680
Deferred income taxes	2,883		321
(Gain) loss on sale of assets and investments	(154)		174
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable	(53,132)		(40)
Increase in inventories	(59,478)		(32,791)
(Increase) decrease in prepaid and other assets	329		(4,901)
Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities	(12,204)		5,074
Other changes, net	662		1,284
Net cash provided by (used in) operating activities - continuing operations	(84,946)		12,315
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(10,573)		(9,022)
Acquired businesses, net of cash acquired	—		(2,242)
Proceeds from sale of investments	575		—
Proceeds from the sale of property, plant and equipment	29		53
Other, net	—		26
Net cash used in investing activities - continuing operations	(9,969)		(11,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(5,260)		(4,422)
Purchase of shares for treasury	(10,886)		(2,909)
Proceeds from long-term debt	10,815		40,791
Payments of long-term debt	(2,500)		(42,120)
Financing costs	(753)		(569)
Other, net	(28)		(68)
Net cash used in financing activities - continuing operations	(8,612)		(9,297)

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

4

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended December 31,
	2021		2020
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by operating activities	7,857		7,762
Net cash provided by (used in) investing activities	(853)		14,900
Net cash provided by discontinued operations	7,004		22,662
Effect of exchange rate changes on cash and equivalents	(910)		1,223
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(97,433)		15,718
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	248,653		218,089
CASH AND EQUIVALENTS AT END OF PERIOD	$	151,220	$	233,807

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

5

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).

On January 24, 2022, Griffon acquired Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a purchase price of approximately $845,000, subject to customary post-closing adjustments. Hunter will be part of Griffon's Consumer and Professional Products segment as it complements and diversifies our portfolio of leading consumer brands and products. The acquisition of Hunter was financed with a new $800,000 seven year Term Loan B facility; and a combination of cash on hand and revolver borrowings under Griffon's revolving credit facility ("Credit Agreement") was used to fund the balance of the purchase price and related acquisition and debt expenditures.

On September 27, 2021, Griffon announced it is exploring strategic alternatives for its Defense Electronics (DE) segment, which consists of its subsidiary Telephonics Corporation ("Telephonics"), including a sale. As a result, Griffon classified the results of operations of the Telephonics business as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation as held for sale in the consolidated balance sheets. Accordingly, all references made to results and information in this Quarterly Report on Form 10-Q are to Griffon's continuing operations, unless specifically noted. Telephonics is recognized globally as a leading provider of highly sophisticated intelligence, surveillance and communications solutions that are deployed across a wide range of land, sea and air applications. Telephonics designs, develops, manufactures and provides logistical support and lifecycle sustainment services to defense, aerospace and commercial customers worldwide.

Griffon now conducts its operations through two reportable segments:

•Consumer and Professional Products (“CPP”) is a leading North American manufacturer and a global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid.

•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 CornellCookson brand.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world. The impact from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, with disruptions to the business of our customers and suppliers, which has impacted, and could continue to impact, our business and consolidated results of operations and financial condition. As of the date of this filing, all of Griffon's facilities are fully operational. We have implemented a variety of new policies and procedures, including additional cleaning, social distancing, staggered shifts and prohibiting or significantly restricting on-site visitors, to minimize the risk to our employees of contracting COVID-19. In the United States, we manufacture a substantial majority of the

6

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

products that we sell. While this helps mitigate the effects of global supplier and transportation disruptions, we are still impacted and are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

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 year ended September 30, 2021, 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 CPP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year.

The condensed consolidated balance sheet information at September 30, 2021 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2021.

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 doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.

Certain amounts in the prior year have been reclassified to conform to current year presentation.

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.

7

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

•Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

•Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair values of Griffon’s 2028 senior notes approximated $1,037,500 on December 31, 2021. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with values of $4,000 at December 31, 2021 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 on the Consolidated Balance Sheets.

Items Measured at Fair Value on a Recurring Basis

At December 31, 2021, marketable debt and equity securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $15,442 ($15,050 cost basis) were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on marketable debt and equity securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of December 31, 2021, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade and inter-company liabilities payable in U.S. dollars.

At December 31, 2021, Griffon had $21,000 of Australian dollar contracts at a weighted average rate of $1.34 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 gains of $688 ($481, net of tax) at December 31, 2021. Upon settlement, gains of $1,533 were recorded in COGS during the three months ended December 31, 2021. All contracts expire in 30 to 90 days.

At December 31, 2021, Griffon had $6,675 of Canadian dollar contracts at a weighted average rate of $1.25. 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, 2021, fair value (losses) gains of $134 were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized gains of $14 were recorded in Other income during the three months ended December 31, 2021 for all settled contracts. All contracts expire in 30 to 270 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).

8

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(US dollars and non US currencies in thousands, except per share data)

(Unaudited)

The majority of 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 primarily within the CPP and HBP Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment.

Within our discontinued operation, Defense Electronics, performance obligations are recognized over time and relate to prime or subcontractors from contract awards with the U.S. Government, as well as foreign governments and other commercial customers. Revenue recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers.

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, 2021. See Note 13 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.

NOTE 4 – ACQUISITIONS

Griffon continually evaluates potential acquisitions that strategically fit within its portfolio or expand its portfolio into new product lines or adjacent markets. Griffon has completed a number of acquisitions that have been accounted for as business combinations, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition and have resulted in the recognition of goodwill . The operating results of the business acquisitions are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation unless otherwise noted.

On January 24, 2022, Griffon completed the acquisition of Hunter, a market leader in residential ceiling, commercial, and industrial fans, for a purchase price of approximately $845,000, subject to customary post-closing adjustments. Hunter will be part of Griffon's CPP segment as it complements and diversifies our portfolio of leading consumer brands and products. As a result of the timing of this acquisition, all information required by the accounting guidance for business combinations, including certain pro forma information, is not disclosed. We will provide preliminary purchase price allocation information as well as other required disclosures in our Quarterly Report on Form 10-Q for the quarter ending March 31, 2022.

On December 22, 2020, AMES acquired Quatro Design Pty Ltd (“Quatro”), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a net purchase price of AUD $3,500 (approximately $2,700) in cash. The final purchase price allocated to goodwill and acquired intangibles was AUD $1,038 (approximately $784) and AUD $2,755 (approximately $2,082), respectively, which was assigned to the CPP segment, and is not deductible for income tax purposes.

During the three months ended December 31, 2021, the Company incurred acquisition costs of $2,595. During the three months ended December 31, 2020, acquisition costs were de minimis.

9

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 – INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out or average cost) or market.

The following table details the components of inventory:

	At December 31, 2021		At September 30, 2021
Raw materials and supplies	$	151,292	$	133,684
Work in process	46,679		48,531
Finished goods	333,211		290,579
Total	$	531,182	$	472,794

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

The following table details the components of property, plant and equipment, net:

	At December 31, 2021		At September 30, 2021
Land, building and building improvements	$	163,841	$	164,486
Machinery and equipment	525,928		520,110
Leasehold improvements	40,111		39,913
	729,880		724,509
Accumulated depreciation and amortization	(439,328)		(431,887)
Total	$	290,552	$	292,622

Depreciation and amortization expense for property, plant and equipment was $10,694 and $10,238 for the quarters ended December 31, 2021 and 2020, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $3,400 and $3,262 for the quarters ended December 31, 2021 and 2020. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

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 7 – CREDIT LOSSES

Effective October 1, 2020, the Company adopted accounting guidance related to accounting for credit losses on financial instruments, including trade receivables (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments). The guidance requires companies to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance.

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, doubtful accounts 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 doubtful accounts includes amounts for certain customers in which a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for doubtful accounts is recorded in SG&A expenses.

The Company also considers current and expected future economic and market conditions, such as the COVID-19 pandemic, when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year.

Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with this guidance in all material respects.

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:

	2021		2020
Beginning Balance, October 1	$	8,787	$	8,178
Provision for expected credit losses	1,039		499
Amounts written off charged against the allowance	(4)		(42)
Other, primarily foreign currency translation	(35)		64
Ending Balance, December 31	$	9,787	$	8,699

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 8 – GOODWILL AND OTHER INTANGIBLES

The following table provides changes in the carrying value of goodwill by segment during the quarter ended December 31, 2021:

	At September 30, 2021		Foreign  currency translations adjustments		At December 31, 2021
Consumer and Professional Products	$	234,895	$	535	$	235,430
Home and Building Products	191,253		—		191,253
Total	$	426,148	$	535	$	426,683

The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:

	At December 31, 2021					At September 30, 2021
	Gross Carrying Amount		Accumulated Amortization		Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Customer relationships & other	$	187,409	$	77,939	23	$	187,732	$	75,794
Technology and patents	13,429		2,569		13	13,429		2,439
Total amortizable intangible assets	200,838		80,508			201,161		78,233
Trademarks	226,472		—			227,097		—
Total intangible assets	$	427,310	$	80,508		$	428,258	$	78,233

The gross carrying amount of intangible assets was impacted by approximately $800 related to foreign currency translation.

Amortization expense for intangible assets was $2,387 and $2,352 for the quarters ended December 31, 2021 and 2020, respectively. Amortization expense for the remainder of 2022 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2022 - $7,348; 2023 - $9,600; 2024 - $9,600; 2025 - $9,600; 2026 - $9,600; 2027 - $9,600; thereafter $64,982.

During the three months ended December 31, 2021, the Company determined that there were no triggering events and, as a result, there was no impairment to either its goodwill or indefinite-lived intangible assets at December 31, 2021.

NOTE 9 – INCOME TAXES

During the quarter ended December 31, 2021, the Company recognized a tax provision of $7,318 on income before taxes from continuing operations of $24,223, compared to a tax provision of $11,708 on income before taxes from continuing operations of $37,138 in the comparable prior year quarter. The current year quarter results included restructuring charges of $1,716 ($1,330, net of tax), acquisition costs of $2,595 ($2,003, net of tax), proxy contest costs of $2,291 ($1,768, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $881. The prior year quarter results included restructuring charges of $3,079 ($2,301, net of tax) and discrete and certain other tax benefits, net, that affect comparability of $1,048. Excluding these items, the effective tax rates for the quarters ended December 31, 2021 and 2020 were 31.5% and 33.7%, respectively.

12

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 – LONG-TERM DEBT

		At December 31, 2021										At September 30, 2021
		Outstanding Balance		Original Issuer Premium		Capitalized Fees & Expenses		Balance Sheet		Coupon Interest Rate		Outstanding Balance		Original Issuer Premium		Capitalized Fees & Expenses		Balance Sheet		Coupon Interest Rate
Senior notes due 2028	(a)	$	1,000,000	$	302	(12,775)		$	987,527	5.75	%	$	1,000,000	$	315	$	(13,293)	$	987,022	5.75	%
Revolver due 2025	(b)	19,859		—		(1,595)		18,264		Variable		13,483		—		(1,718)		11,765		Variable
Finance lease - real estate	(c)	14,083		—		—		14,083		Variable		14,594		—		(4)		14,590		Variable
Non US lines of credit	(d)	6,533		—		(13)		6,520		Variable		3,012		—		(17)		2,995		Variable
Non US term loans	(d)	23,761		—		(71)		23,690		Variable		25,684		—		(91)		25,593		Variable
Other long term debt	(e)	3,360		—		(14)		3,346		Variable		3,733		—		(15)		3,718		Variable
Totals		1,067,596		302		(14,468)		1,053,430				1,060,506		315		(15,138)		1,045,683
less: Current portion		(15,675)		—		—		(15,675)				(12,486)		—		—		(12,486)
Long-term debt		$	1,051,921	$	302	$	(14,468)	$	1,037,755			$	1,048,020	$	315	$	(15,138)	$	1,033,197

		Three Months Ended December 31, 2021										Three Months Ended December 31, 2020
		Effective Interest Rate		Cash Interest		Amort. Debt Premium		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense		Effective Interest Rate		Cash Interest		Amort. Debt Premium		Amort. Debt Issuance Costs & Other Fees		Total Interest Expense
Senior notes due 2028	(a)	5.9	%	$	14,375	$	(12)	$	518	$	14,881	5.9	%	$	14,375	$	—	$	530	$	14,905
Revolver due 2025	(b)	Variable		261		—		122		383		Variable		129		—		123		252
Finance lease - real estate	(c)	5.6	%	198		—		4		202		4.8	%	232