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 March 31, 2022

☐ 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 March 31, 2022 was 57,032,073.

Griffon Corporation and Subsidiaries

Contents

	Page
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2022 (unaudited) and September 30, 2021	1
Condensed Consolidated Statement of Shareholders’ Equity for the Three and Six Months Ended March 31, 2022 and 2021 (unaudited)	2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2022 and 2021 (unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and 2021 (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3 - Quantitative and Qualitative Disclosures about Market Risk	52
Item 4 - Controls & Procedures	53
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings	53
Item 1A – Risk Factors	53
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3 – Defaults Upon Senior Securities	54
Item 4 – Mine Safety Disclosures	54
Item 5 – Other Information	54
Item 6 – Exhibits	55
Signatures	56

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	(Unaudited)
	March 31, 2022		September 30, 2021
CURRENT ASSETS
Cash and equivalents	$	122,293	$	248,653
Accounts receivable, net of allowances of $13,500 and $8,787	512,449		294,804
Inventories	687,011		472,794
Prepaid and other current assets	62,975		76,009
Assets of discontinued operations held for sale	264,861		273,414
Assets of discontinued operations	497		605
Total Current Assets	1,650,086		1,366,279
PROPERTY, PLANT AND EQUIPMENT, net	304,169		292,622
OPERATING LEASE RIGHT-OF-USE ASSETS	149,587		144,598
GOODWILL	707,523		426,148
INTANGIBLE ASSETS, net	949,730		350,025
OTHER ASSETS	22,734		21,589
ASSETS OF DISCONTINUED OPERATIONS	3,194		3,424
Total Assets	$	3,787,023	$	2,604,685
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	25,110	$	12,486
Accounts payable	227,085		260,140
Accrued liabilities	222,334		145,101
Current portion of operating lease liabilities	32,210		29,881
Liabilities of discontinued operations held for sale	73,218		80,748
Liabilities of discontinued operations	3,312		3,280
Total Current Liabilities	583,269		531,636
LONG-TERM DEBT, net	1,941,725		1,033,197
LONG-TERM OPERATING LEASE LIABILITIES	122,488		119,315
OTHER LIABILITIES	251,921		109,585
LIABILITIES OF DISCONTINUED OPERATIONS	4,406		3,794
Total Liabilities	2,903,809		1,797,527
COMMITMENTS AND CONTINGENCIES - See Note 22
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	883,214		807,158
Total Liabilities and Shareholders’ Equity	$	3,787,023	$	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 and Six Months Ended March 31, 2022 and 2021

(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
Net income	—	—		—		65,689		—	—		—		—		65,689
Dividend	—	—		—		(5,352)		—	—		—		—		(5,352)
Amortization of deferred compensation	—	—		—		—		—	—		—		591		591
Equity awards granted, net	258	65		(7,195)		—		(470)	7,130		—		—		—
ESOP allocation of common stock	—	—		638		—		—	—		—		—		638
Stock-based compensation	—	—		4,314		—		—	—		—		—		4,314
Other comprehensive income, net of tax	—	—		—		—		—	—		4,949		—		4,949
Balance at March 31, 2022	84,746	$	21,187	$	603,624	$	744,894	27,714	$	(420,606)	$	(43,779)	$	(22,106)	$	883,214

2

	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
Net income	—	—		—		17,112		—	—		—		—		17,112
Dividend	—	—		—		(3,217)		—	—		—		—		(3,217)
Amortization of deferred compensation	—	—		—		—		—	—		—		609		609
Equity awards granted, net	194	48		(48)		—		—	—		—		—		—
ESOP allocation of common stock	—	—		756		—		—	—		—		—		756
Stock-based compensation	—	—		4,349		—		—	—		—		—		4,349
Other comprehensive income, net of tax	—	—		—		—		—	—		4,775		—		4,775
Balance at March 31, 2021	84,427	$	21,106	$	591,966	$	646,444	27,743	$	(416,402)	$	(54,176)	$	(24,507)	$	764,431

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

3

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(Unaudited) 

	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Revenue	$	779,617	$	574,682	$	1,371,366	$	1,116,205
Cost of goods and services	518,974		413,476		944,881		790,863
Gross profit	260,643		161,206		426,485		325,342
Selling, general and administrative expenses	157,838		117,559		285,190		229,268
Income from operations	102,805		43,647		141,295		96,074
Other income (expense)
Interest expense	(21,408)		(15,831)		(37,089)		(31,521)
Interest income	32		304		65		348
Other, net	1,675		1,081		3,056		1,438
Total other expense, net	(19,701)		(14,446)		(33,968)		(29,735)
Income before taxes from continuing operations	83,104		29,201		107,327		66,339
Provision for income taxes	24,533		11,082		31,851		22,790
Income from continuing operations	$	58,571	$	18,119	$	75,476	$	43,549
Discontinued operations:
Income (loss) from operations of discontinued operations	694		(1,341)		3,708		690
Provision (benefit) for income taxes	(6,424)		(334)		(5,803)		(2,373)
Income (loss) from discontinued operations	7,118		(1,007)		9,511		3,063
Net income	$	65,689	$	17,112	$	84,987	$	46,612
Basic earnings per common share:
Income from continuing operations	$	1.13	$	0.36	$	1.47	$	0.86
Income (loss) from discontinued operations	0.14		(0.02)		0.18		0.06
Basic earnings per common share	$	1.27	$	0.34	$	1.65	$	0.92
Basic weighted-average shares outstanding	51,668		50,838		51,423		50,717
Diluted earnings per common share:
Income from continuing operations	$	1.10	$	0.34	$	1.41	$	0.82
Income (loss) from discontinued operations	0.13		(0.02)		0.18		0.06
Diluted earnings per common share	$	1.23	$	0.32	$	1.59	$	0.88
Diluted weighted-average shares outstanding	53,430		53,264		53,602		53,211
Dividends paid per common share	$	0.09	$	0.08	$	0.18	$	0.16
Net income	$	65,689	$	17,112	$	84,987	$	46,612
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	6,049		1,739		3,730		13,862
Pension and other post retirement plans	140		1,245		808		2,951
Change in cash flow hedges	(1,240)		1,791		(2,340)		1,103
Total other comprehensive income, net of taxes	4,949		4,775		2,198		17,916
Comprehensive income, net	$	70,638	$	21,887	$	87,185	$	64,528

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)

	Six Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	84,987	$	46,612
Net income from discontinued operations	(9,511)		(3,063)
Adjustments to reconcile net income to net cash used in operating activities of continuing operations:
Depreciation and amortization	29,333		25,739
Stock-based compensation	9,959		9,501
Asset impairment charges - restructuring	806		2,690
Provision for losses on accounts receivable	578		194
Amortization of debt discounts and issuance costs	1,566		1,349
Fair value step-up of acquired inventory sold	2,701		—
Deferred income taxes	2,883		2,215
(Gain) loss on sale of assets and investments	(118)		151
Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable	(177,347)		(65,398)
Increase in inventories	(106,534)		(74,661)
(Increase) decrease in prepaid and other assets	6,063		(842)
Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities	(18,524)		8,702
Other changes, net	525		2,400
Net cash used in operating activities - continuing operations	(172,633)		(44,411)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(22,030)		(17,835)
Acquired businesses, net of cash acquired	(851,464)		(2,242)
Proceeds (payments) from investments	14,923		(2,138)
Proceeds from the sale of property, plant and equipment	32		82
Other, net	—		27
Net cash used in investing activities - continuing operations	(858,539)		(22,106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(10,091)		(8,678)
Purchase of shares for treasury	(10,886)		(2,909)
Proceeds from long-term debt	975,291		14,029
Payments of long-term debt	(37,906)		(7,573)
Financing costs	(16,457)		(571)
Other, net	(27)		(214)
Net cash provided by ( used) in financing activities - continuing operations	899,924		(5,916)

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

5

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended March 31,
	2022		2021
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by operating activities	9,846		17,058
Net cash provided by (used in) investing activities	(1,445)		11,323
Net cash provided by discontinued operations	8,401		28,381
Effect of exchange rate changes on cash and equivalents	(3,513)		1,527
NET DECREASE IN CASH AND EQUIVALENTS	(126,360)		(42,525)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	248,653		218,089
CASH AND EQUIVALENTS AT END OF PERIOD	$	122,293	$	175,564

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

6

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 September 27, 2021, Griffon announced it is exploring strategic alternatives for its Defense Electronics ("DE") segment, which consists of its Telephonics subsidiary, and on April 18, 2022, Griffon entered into a definitive agreement to sell Telephonics to TTM Technologies, Inc. ("TTM") for $330,000 in cash. The transaction is expected to close within the second calendar quarter of 2022. 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 noted otherwise. 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.

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 contractual purchase price of approximately $845,000, subject to customary post-closing adjustments. Hunter, which is part of Griffon's Consumer and Professional Products segment, complements and diversifies our portfolio of leading consumer brands and products. The acquisition of Hunter was primarily financed with a new $800,000 seven year Term Loan B facility; a combination of cash on hand and revolving credit facility borrowings was used to fund the balance of the purchase price and related acquisition and debt expenditures.

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

7

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

the risk to our employees of contracting COVID-19. In the United States, we manufacture a substantial majority of the 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:

8

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

•Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets.

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

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

On March 31, 2022, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $945,000 and $792,000, respectively. Fair values were based upon quoted market prices (level 1 inputs).

Insurance contracts with values of $4,053 at March 31, 2022 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 March 31, 2022, 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 $995 ($1,000 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 March 31, 2022, 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 March 31, 2022, Griffon had $46,500 of Australian dollar contracts at a weighted average rate of $1.35 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $773 ($541, net of tax) at March 31, 2022. Upon settlement, gains of $730 and $2,263 were recorded in COGS during the three and six months ended March 31, 2022, respectively. All contracts expire in 29 to 180 days.

At March 31, 2022, Griffon had 48,600 of Chinese Yuan contracts at a weighted average rate of $6.52 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 $1,140 ($832, net of tax) at March 31, 2022. Upon settlement, gains of $654 were recorded in COGS during the six months ended March 31, 2022. All contracts expire in 7 to 308 days.

At March 31, 2022, Griffon had $6,950 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 and six months ended March 31, 2022, fair value (losses) gains of $(136) and $2, respectively, were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $16 and $2 were recorded in Other income during the three and six months ended March 31, 2022, respectively for all settled contracts. All contracts expire in 1 to 380 days.

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 3 – REVENUE

The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price).

The 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 contractual purchase price of $845,000, subject to customary post-closing adjustments. The acquisition was primarily financed with a new $800,000 seven year Term Loan B facility; a combination of cash on hand and revolver borrowings was used to fund the balance of the purchase price and related acquisition and debt expenditures. Hunter complements and diversifies Griffon's portfolio of leading consumer brands and products. The goodwill recognized was $279,658, which was assigned to the CPP segment, and is not expected to be deductible for income tax purposes. The final purchase price allocation, which is expected to be completed in the first quarter of fiscal 2023, will be based on final appraisals and other analysis of fair values of acquired assets and liabilities. The following unaudited proforma summary from continuing operations presents consolidated information as if the Company acquired Hunter on October 1, 2020:

	Proforma For the Three Months Ended March 31, (unaudited)				Proforma For the Six Months Ended March 31, (unaudited)
	2022		2021		2022		2021
Revenue	$	791,038	$	673,597	$	1,461,877	$	1,277,382
Income from continuing operations	55,151		24,419		75,125		50,514

10

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Griffon did not include any material, nonrecurring proforma adjustments directly attributable to the business combination in the proforma revenue and earnings. These proforma amounts have been compiled by adding the historical results from continuing operations of Griffon, restated for classifying the results of operations of the Telephonics Corporate business as a discontinued operation, to the historical results of Hunter after applying Griffon’s accounting policies and the following proforma adjustments:

•Additional depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant, and equipment, and intangible assets had been applied from October 1, 2021.

•Additional interest and related expenses from the new $800,000 seven year Term Loan B facility that Griffon used to acquire Hunter Fan.

•The consequential tax effects of the above adjustments using a 21.9% tax rate for the year ended September 30, 2021.

The calculation of the preliminary purchase price allocation is as follows:

Accounts receivable (1) $