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About Griffon Corporation

 

Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF).

Griffon currently conducts its operations through three reportable segments:

•

Consumer and Professional Products ("CPP") conducts its operations through The AMES Companies, Inc. ("AMES"). Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, 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.

•	Defense Electronics ("DE") conducts its operations through Telephonics Corporation ("Telephonics"), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

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 in turn is likely to impact our business and consolidated results of operations and financial condition in the future. While we have not incurred significant disruptions to our manufacturing or to our supply chain thus far from the COVID-19 outbreak, we 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.

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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, 2019 , 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, 2019 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2019 .

 

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 US GAAP 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 allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, percentage of completion method of accounting, pension assumptions, useful lives associated with depreciation and amortization of fixed and intangible assets, warranty reserves, sales incentive accruals, stock based compensation assumptions, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves and the valuation of assets and liabilities of discontinued operations, acquisition assumptions used 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.

 

The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates.

Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows:

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

•

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

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

 

The fair values of Griffon’s 2022 and 2028 senior notes approximated $ 139,500 and $ 799,000 , respectively, on March 31, 2020 . Fair values were based upon quoted market prices (level 1 inputs).

 

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Insurance contracts with values of $ 3,382 at March 31, 2020 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, 2020 , trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $ 2,605 ( $ 2,236 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading 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, 2020 , 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 US dollars.

At March 31, 2020 , Griffon had $ 8,000 of Australian dollar contracts at a weighted average rate of $ 1.63 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 $ 849 ( $ 552 , net of tax) at March 31, 2020 and gains of $ 1,050 and $ 994 were recorded in COGS during the three and six months ended March 31, 2020 , respectively, for all settled contracts. All contracts expire in 30 to 90 days.

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. 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 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).

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when each performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the product being sold to the customer. To a lesser extent, some contracts include multiple performance obligations such as a product, the related installation, and extended warranty services. These contracts require judgment in determining the number of performance obligations.

Over 80 % of the Company’s performance obligations are recognized at a point in time that relates to the manufacture and sale of a broad range of products and components within the CPP and HBP segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer. A majority of CPP and HBP segment revenue is short cycle in nature with shipments occurring within one year from order and does not include a material long-term financing component, implicitly or explicitly. Less than 20 % of the Company’s performance obligations are recognized over time or under the percentage-of-completion method; these relate to prime or subcontractors from contract awards with the U.S. Government, as well as foreign governments and other commercial customers within our DE segment. These contracts are typically long-term in nature, usually greater than one year and do not include a material long-term financing component, either implicitly or explicitly. Revenue and profits from such contracts are recognized under the percentage-of-completion (over time) method of accounting. Revenue and profits on fixed-price contracts that contain engineering as well as production requirements are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (cost-to-cost method).

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Sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss are often required as experience is gained, more information is obtained (even though the scope of work required under the contract may or may not change) and contract modifications occur. The impact of such adjustments to estimates is made on a cumulative basis in the period when such information has become known. For the three and six months ended March 31, 2020 , income from operations included net unfavorable catch up adjustments approximating $ 2,224 and $ 5,243 , respectively. Gross profit is impacted by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an appropriate measure of progress towards satisfaction of performance obligations, as it most accurately depicts the progress of our work and transfer of control to our customers. For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a cumulative basis, and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). The provision had an immaterial impact on Griffon's Consolidated Financial Statements. The estimated remaining costs to complete loss contracts as of March 31, 2020 and September 30, 2019 were approximately $ 8,560 and $ 9,790 , respectively.

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, 2019 . See Note 12 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.

Transaction Price Allocated to the Remaining Performance Obligations

On March 31, 2020 , we had $ 331,740 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 73 % of our remaining performance obligations as revenue within one year, with the balance to be completed thereafter.

Backlog represents the dollar value of funded orders for which work has not been performed. Backlog generally increases with bookings, and converts into revenue as we incur costs related to contractual commitments or the shipment of product. Given the nature of our business and a larger dependency on international customers, our bookings, and therefore our backlog, is impacted by the longer maturation cycles resulting in delays in the timing and amounts of such awards, which are subject to numerous factors, including fiscal constraints placed on customer budgets; political uncertainty; the timing of customer negotiations; and the timing of governmental approvals.

Contract Balances

Contract assets were $ 94,495 as of March 31, 2020 compared to $ 105,111 as of September 30, 2019. The $ 10,616 decrease in our contract assets balance was primarily due to the timing of billings and work performed on various radar and surveillance programs. Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract costs and recognized income not yet billed, net of progress payments in the Consolidated Balance Sheets. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract costs and recognized income not yet billed consists of amounts accounted for under the percentage of completion method of accounting, recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met. At March 31, 2020 and September 30, 2019, approximately $ 12,612 and $ 13,100 , respectively, of contract costs and recognized income not yet billed were expected to be collected after one year. As of March 31, 2020 , Contract costs and recognized income not yet billed included approximately $ 1,570 of reserves for contract risk. As of September 30, 2019, Contract costs and recognized income not yet billed included no reserves for contract risk.

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Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies 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 November 29, 2019, AMES acquired  100 % of the outstanding stock of Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $ 10,500 (GBP 8,750 ), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint. The purchase price was primarily allocated to goodwill of GBP 2,418 , acquired intangible assets of GBP 3,454 , inventory of GBP 2,914 , accounts receivable and other assets of GBP 2,492 and accounts payable and other accrued liabilities of GBP 2,734 .

During both the three and six months ended March 31, 2020 , the Company incurred acquisition costs of $ 2,960 . The Company did no t incur acquisition costs in the three and six months ended March 31, 2019.

 

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

 

The following table details the components of inventory:

	At March 31, 2020				At September 30, 2019
Raw materials and supplies	$	122,576			$	121,791
Work in process	99,730				93,830
Finished goods	239,813				226,500
Total	$	462,119			$	442,121

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

	At March 31, 2020				At September 30, 2019
Land, building and building improvements	$	156,393			$	133,036
Machinery and equipment	577,573				580,698
Leasehold improvements	51,012				49,808
	784,978				763,542
Accumulated depreciation and amortization	( 449,158		)		( 426,216		)
Total	$	335,820			$	337,326

Depreciation and amortization expense for property, plant and equipment was $ 13,316 and $ 12,980 for the quarters ended March 31, 2020 and 2019 , respectively, and $ 26,748 and $ 25,647 for the six months ended March 31, 2020 and 2019, respectively. Depreciation included in SG&A expenses was $ 4,910 and $ 4,761 for the quarters ended March 31, 2020 and 2019, respectively, and $ 9,861 and $ 9,442 for the six months ended March 31, 2020 and 2019, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.

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The following table provides changes in the carrying value of goodwill by segment during the six months ended March 31, 2020 :

	At September 30, 2019				Goodwill from acquisitions				Other adjustments including currency translations				At March 31, 2020
Consumer and Professional Products	$	227,269			$	3,125			$	( 3,410	)		$	226,984
Home and Building Products	191,253				—				—				191,253
Defense Electronics	18,545				—				—				18,545
Total	$	437,067			$	3,125			$	( 3,410	)		$	436,782

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

	At March 31, 2020										At September 30, 2019
	Gross Carrying Amount				Accumulated Amortization				Average Life (Years)		Gross Carrying Amount				Accumulated Amortization
Customer relationships & other	$	182,035			$	60,935			23		$	183,515			$	57,783
Technology and patents	19,076				7,715				13		19,167				7,329
Total amortizable intangible assets	201,111				68,650						202,682				65,112
Trademarks	221,282				—						219,069				—
Total intangible assets	$	422,393			$	68,650					$	421,751			$	65,112

 

Amortization expense for intangible assets was $ 2,403 and $ 2,512 for the quarters ended March 31, 2020 and 2019, respectively, and $ 4,796 and $ 4,930 for the six months ended March 31, 2020 and 2019. Amortization expense for the remainder of 2020 and the next five fiscal years and thereafter, based on current intangible balances and classifications, is estimated as follows: 2020 - $ 4,797 ; 2021 - $ 9,387 ; 2022 - $ 9,387 ; 2023 - $ 9,234 ; 2024 - $ 9,208 ; 2025 - $ 9,208 ; thereafter $ 81,240 .

 

Griffon performs its annual goodwill impairment testing in the fourth quarter of each year. The 2019 impairment testing resulted in all three reporting units having fair values substantially in excess of their carrying values. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. Given the general deterioration in economic and market conditions surrounding the COVID-19 pandemic, the Company considered the impact that the COVID-19 pandemic may have on its near and long-term forecasts and completed an interim impairment test. The company determined that there is no impairment to either its goodwill or indefinite-lived intangible assets at March 31, 2020 .

During the quarter ended March 31, 2020 , the Company recognized a tax provision of $ 2,034 on income before taxes from continuing operations of $ 2,929 , compared to a tax provision of $ 3,194 on income before taxes from continuing operations of $ 9,684 in the comparable prior year quarter. The current year quarter included restructuring charges of $ 3,104 ( $ 3,005 , net of tax), acquisition costs of $ 2,960 ( $ 2,321 , net of tax), loss from debt extinguishment of $ 6,690 ( $ 5,245 , net of tax) and net discrete tax and certain other tax benefits, net of $ 1,413 , that affect comparability. The prior year quarter included net discrete tax and certain other tax benefits of $ 97 that affect comparability. Excluding these items, the effective tax rates for the quarters ended March 31, 2020 and 2019 were 35.9 % and 34.0 % , respectively.

During the six months ended March 31, 2020 , the Company recognized a tax provision of $ 8,373 on Income before taxes from continuing operations of $ 19,880 , compared to a tax provision of $ 8,406 on Income before taxes from continuing operations of $ 23,649 in the comparable prior year period. The six month period ended March 31, 2020 included restructuring charges of $ 9,538 ( $ 7,153 , net of tax), acquisition costs of $ 2,960 ( $ 2,321 , net of tax), loss from debt extinguishment of $ 6,690 ( $ 5,245 , net of tax) and net discrete tax benefits of $ 580 . The six month period ended March 31, 2019 included net discrete tax provisions of $ 370 . Excluding these items, the effective tax rates for the six months ended March 31, 2020 and 2019 were 34.4 % and 34.0 % , respectively.

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In response to the COVID-19 outbreak, legislation concerning taxes was passed in March 2020. While we are still assessing the impact of the legislation, we do not expect there to be a material impact to our consolidated financial statements at this time.

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		At March 31, 2020																			At September 30, 2019
		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)	$	850,000			$	—			( 12,854		)		$	837,146			5.75	%		$	—			$	—			$	—			$	—			—	%
Senior notes due 2022	(a)	150,000				104				( 1,098		)		149,006				5.25	%		1,000,000				867				( 9,175		)		991,692				5.25	%
Revolver due 2025	(b)	183,548				—				( 2,678		)		180,870				Variable			50,000				—				( 1,243		)		48,757				Variable
Capital lease - real estate	(d)	12,406				—				( 42		)		12,364				5.00	%		4,388				—				( 55		)		4,333				5.00	%
Non US lines of credit	(e)	9,532				—				( 97		)		9,435				Variable			17,576				—				( 45		)		17,531				Variable
Non US term loans	(e)	33,462				—				( 122		)		33,340				Variable			36,977				—				( 188		)		36,789				Variable
Other long term debt	(f)	3,552				—				( 17		)		3,535				Variable			5,190				—				( 18		)		5,172				Variable
Totals		1,242,500				104				( 16,908		)		1,225,696							1,114,131				867				( 10,724		)		1,104,274
less: Current portion		( 9,470		)		—				—				( 9,470		)					( 10,525		)		—				—				( 10,525		)
Long-term debt		$	1,233,030			$	104			$	( 16,908	)		$	1,216,226						$	1,103,606			$	867			$	( 10,724	)		$	1,093,749

		Three Months Ended March 31, 2020																			Three Months Ended March 31, 2019
		Effective Interest Rate (1)			Cash Interest				Amort. Debt Discount				Amort. Debt Issuance Costs & Other Fees				Total Interest Expense				Effective Interest Rate  (1)			Cash Interest				Amort. Debt Premium				Amort. Debt Issuance Costs & Other Fees				Total Interest Expense
Senior notes due 2028	(a)	6.0	%		$	5,566			$	—			$	135			$	5,701			n/a			$	—			$	—			$	—			$	—
Senior notes due 2022	(a)	5.7	%		8,040				45				628				8,713				5.7	%		13,125				66				951				14,142
Revolver due 2025	(b)	Variable			1,819				—				165				1,984				Variable			1,631				—				400				2,031
ESOP Loans	(c)	n/a			—				—				—				—				7.2	%		449				—				155				604
Capital lease - real estate	(d)	6.1	%		52				—				7				59				5.6	%		101				—				6				107
Non US lines of credit	(e)	Variable			3				—				8				11				Variable			4				—				4				8
Non US term loans	(e)	Variable			292				—				7				299				Variable			449				—				26				475
Other long term debt	(f)	Variable			132				—				—				132				Variable			147				—				3				150
Capitalized interest					( 28		)		—				—				( 28		)					—				—				—				—
Totals					$	15,876			$	45			$	950			$	16,871						$	15,906			$	66			$	1,545			$	17,517

(1) n/a = not applicable

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		Six Months Ended March 31, 2020																			Six Months Ended March 31, 2019
		Effective Interest Rate (1)			Cash Interest				Amort. Debt Discount				Amort. Debt Issuance Costs & Other Fees				Total Interest Expense				Effective Interest Rate (1)			Cash Interest				Amort. Debt Premium				Amort. Debt Issuance Costs & Other Fees				Total Interest Expense
Senior notes due 2028	(a)	6.0	%		$	5,566			$	—			$	135			$	5,701			—	%		$	—			$	—			$	—			$	—
Senior notes due 2022	(a)	5.6	%		21,165				112				1,579				22,856				5.7	%		26,250				134				1,902				28,286
Revolver due 2021	(b)	Variable			3,201				—				397				3,598				Variable			2,564				—				541				3,105
ESOP Loans	(c)	n/a			—				—				—				—				6.6	%		937				—				186				1,123
Capital lease - real estate	(d)	6.0	%		113				—				13				126				5.5	%		216				—				12				228
Non US lines of credit	(e)	Variable			7				—				12				19				Variable			11				—				8				19
Non US term loans	(e)	Variable			564				—				19				583				Variable			897				—				53				950
Other long term debt	(f)	Variable			292				—				—				292				Variable			329				—				6				335
Capitalized interest					( 93		)		—				—				( 93		)					—				—				—				—
Totals					$	30,815			$	112			$	2,155			$	33,082						$	31,204			$	134			$	2,708			$	34,046

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(a)

On February 19, 2020, in an unregistered offering through a private placement under Rule 144A and Regulation S, Griffon issued, at par, $ 850,000 of 5.75 % Senior Notes due 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem 85 % of the $ 1,000,000 of 5.25 % Senior Notes due 2022 (the “2022 Senior Notes" and, collectively with the 2028 Senior Notes, the "Senior Notes"). Following the sale and issuance of the 2028 Notes transaction, $ 150,000 aggregate principal amount of the 2022 Notes remained outstanding. As of March 31, 2020 , outstanding Senior Notes due totaled $ 1,000,000 ; interest is payable semi-annually on March 1 and September 1.

The Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. On April 22, 2020, Griffon exchanged substantially all of the 2028 Senior Notes for substantially identical 2028 Senior Notes registered under the Securities Act of 1933 (the "Securities Act") via an exchange offer. The remaining 2022 Senior Notes outstanding are registered under the Securities Act, having been issued pursuant to similar prior exchange offers. The fair value of the 2022 and 2028 Senior Notes approximated $ 139,500 and $ 799,000 , respectively, on March 31, 2020 based upon quoted market prices (level 1 inputs).

In connection with these transactions, Griffon capitalized $ 12,989 of underwriting fees and other expenses incurred related to the issuance and exchange of the 2028 Senior Notes. Furthermore, 85 % of the obligations associated with the 2022 Senior Notes were discharged leaving remaining fees of $ 1,145 . At March 31, 2020 , a combined total amount of $ 13,952 remained to be amortized. Remaining capitalized fees for the 2022 Senior Notes and all capitalized fees for the 2028 Senior Notes will amortize over the term of each respective note. Additionally, Griffon recognized a $ 6,690 loss on the early extinguishment of debt on 85 % of the 5.25 % $ 1,000,000 senior notes due 2022, comprised primarily of the write-off of $ 5,873 of remaining deferred financing fees, $ 607 of tender offer net premium expense and $ 210 of redemption interest expense.

(b)

On January 30, 2020, Griffon amended its revolving credit facility (as amended, the "Credit Agreement") to increase the maximum borrowing availability from $ 350,000 to $ 400,000 and extend its maturity date from March 22, 2021 to March 22, 2025, except that if the 2022 Senior Notes are not repaid, refinanced or replaced prior to December 1, 2021, then the Credit Agreement will mature on December 1, 2021. The amended agreement also modified certain other provisions of the facility. The facility includes a letter of credit sub-facility with a limit of  $ 100,000  (increased from $ 50,000 ); a multi-currency sub-facility of  $ 200,000 (increased from $ 100,000 ); and contains a customary accordion feature that permits us to request, subject to each lender's consent, an increase in the maximum aggregate amount that can be borrowed by up to an additional $ 100,000 (increased from $ 50,000 ).

Borrowings under the Credit Agreement may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a LIBOR or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Current margins are 1.00 % for base rate loans and 2.00 % for LIBOR loans. The Credit Agreement has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants, and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Borrowings under the Credit Agreement are guaranteed by Griffon’s material domestic subsidiaries and are secured, on a first priority basis, by substantially all domestic assets of the Company and the guarantors, and a pledge of not greater than 65 % of the equity interest in Griffon’s material, first-tier foreign subsidiaries. At March 31, 2020 , there were $ 183,548 of outstanding borrowings under the Credit Agreement; outstanding standby letters of credit were $ 21,390 ; and $ 195,062 was available, subject to certain loan covenants, for borrowing at that date.

(c)

In August 2016 and as amended on June 30, 2017, Griffon’s ESOP entered into a Term Loan with a bank (the "ESOP Agreement"). The Term Loan interest rate was LIBOR plus 3.00 % . The Term Loan required quarterly principal payments of $ 569 with a balloon payment due at maturity. The Term Loan was secured by shares purchased with the proceeds of the loan and with a lien on a specific amount of Griffon assets (which ranked pari passu with the lien granted on such assets under the Credit Agreement) and was guaranteed by Griffon. On March 13, 2019, the ESOP Term Loan was refinanced with an internal loan from Griffon which was funded with cash and a draw under its Credit Agreement. The internal loan interest rate is fixed at 2.91 % , matures in June 2033 and requires quarterly payments of principal, currently $ 635 , and interest. The internal loan is secured by shares purchased with the proceeds of the loan. The amount outstanding on the internal loan at March 31, 2020 was $ 31,148 .

  

(d)

Two Griffon subsidiaries have finance leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in 2021 and 2025 , respectively, and bear interest at fixed rates of approximately 5.0 % and 2.9 % , respectively. The Troy, Ohio lease is secured by a mortgage on the real estate and is guaranteed by Griffon. The Ocala, Florida lease contains one five -year renewal option. At March 31, 2020 , $ 12,364 was outstanding, net of issuance costs.

 

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(e)

In November 2012, Garant G.P. (“Garant”) entered into a CAD 15,000 ( $ 10,628 as of March 31, 2020 ) revolving credit facility.  The facility accrues interest at LIBOR (USD) or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum ( 2.29 % LIBOR USD and 2.30 % Bankers Acceptance Rate CDN as of March 31, 2020 ). The revolving facility matures in October 2022. Garant is required to maintain a certain minimum equity.  At March 31, 2020 , there were no borrowings under the revolving credit facility with CAD 15,000 ( $ 10,628 as of March 31, 2020 ) available for borrowing.

In July 2016 and as amended in March 2019, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") entered into an AUD 29,625 term loan, AUD 20,000 revolver and AUD 10,000 receivable purchase facility agreement. The term loan requires quarterly principal payments of AUD 1,250 plus interest with a balloon payment of AUD 13,375 due upon maturity in March 2022, and accrues interest at Bank Bill Swap Bid Rate “BBSY” plus 1.90 % per annum ( 2.39 % at March 31, 2020 ). As of March 31, 2020 , the term loan had an outstanding balance of AUD 23,375 ( $ 14,378 as of March 31, 2020 ). The revolving facility and receivable purchase facility mature in March 2022, but are renewable upon mutual agreement with the lender. The revolving facility and receivable purchase facility accrue interest at BBSY plus 1.8 % and 1.25 % , respectively, per annum ( 2.20 % and 1.65 % , respectively, at March 31, 2020 ). At March 31, 2020 , there were no borrowings under the revolver and the receivable purchase facilities had an outstanding balance of AUD 10,000 ( $ 6,151 as of March 31, 2020 ). The revolver, receivable purchase facility and the term loan are all secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level and is subject to a maximum leverage ratio and a minimum fixed charges cover ratio.

In July 2018, the AMES Companies UK Ltd and its subsidiaries (collectively, "AMES UK") entered into a GBP 14,000 term loan, GBP 4,000 mortgage loan and GBP 5,000 revolver. The term loan and mortgage loan require quarterly principal payments of GBP 350 and GBP 83 plus interest, respectively, and have balloon payments due upon maturity, July 2023, of GBP 7,000 and GBP 2,333 , respectively. The Term Loan and Mortgage Loans accrue interest at the GBP LIBOR Rate plus 2.25 % and 1.8 % , respectively ( 2.49 % and 2.04 % at March 31, 2020 , respectively). The revolving facility matures in June 2020, but is renewable upon mutual agreement with the lender, and accrues interest at the Bank of England Base Rate plus 1.5 % ( 1.60 % as of March 31, 2020 ). As of March 31, 2020 , the revolver had an outstanding balance of GBP 2,728 ( $ 3,381 as of March 31, 2020 ) while the term and mortgage loan balances amounted to GBP 15,398 ( $ 19,084 as of March 31, 2020). The revolver and the term loan are both secured by substantially all of the assets of AMES UK and its subsidiaries. AMES UK is subject to a maximum leverage ratio and a minimum fixed charges cover ratio. An invoice discounting arrangement was canceled and replaced by the above loan facilities.

(f)	Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of capital leases.

At March 31, 2020 , Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.

 

During the second quarter of 2020, the Company paid a quarterly cash dividend of $ 0.075 per share in each quarter, totaling $ 0.15 per share for the six months ended March 31, 2020. During 2019, the Company paid a quarterly cash dividend of $ 0.0725 per share, totaling $ 0.29 per share for the year. A dividend payable was established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares.

In March 2019, the ESOP Term Loan was refinanced with a loan from Griffon which was funded with cash and a draw on its credit facility; dividends paid on allocated shares in the ESOP are allocated to participant accounts in the form of additional shares.

On April 27, 2020, the Board of Directors declared a quarterly cash dividend of $ 0.075 per share, payable on June 18, 2020 to shareholders of record as of the close of business on May 21, 2020.

Compensation expense for restricted stock and restricted stock units is recognized ratably over the required service period based on the fair value of the grant, calculated as the number of shares granted multiplied by the stock price on the date of grant and, for performance shares, the likelihood of achieving the performance criteria. Compensation expense for restricted stock granted to two senior executives is calculated as the maximum number of shares granted, upon achieving certain performance criteria, multiplied by the stock price as valued by a Monte Carlo Simulation Model. Compensation cost related to stock-based awards with graded vesting, generally over a period of three to four years, is recognized using the straight-line attribution method and recorded within SG&A expenses.

 

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On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan ("Incentive Plan") under which awards of performance shares, performance units, stock options, stock appreciation rights, restricted shares, restricted stock units, deferred shares and other stock-based awards may be granted. On January 31, 2018, shareholders approved Amendment No. 1 to the Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Incentive Plan; and on January 30, 2020, shareholders approved Amendment No. 2 to the Incentive Plan, pursuant to which 1,700,000 shares were added to the Incentive Plan. Options granted under the Incentive Plan may be either “incentive stock options” or nonqualified stock options, generally expire ten years after the date of grant and are granted at an exercise price of not less than 100% of the fair market value at the date of grant. The maximum number of shares of common stock available for award under the Incentive Plan is 5,050,000 ( 600,000 of which may be issued as incentive stock options), plus (i) any shares reserved for issuance under the 2011 Equity Incentive Plan as of the effective date of the Incentive Plan, and (ii) any shares underlying awards outstanding on such effective date under the 2011 Incentive Plan that are canceled or forfeited. As of March 31, 2020 , there were 1,057,505 shares available for grant.

All grants outstanding under former equity plans will continue under their terms; no additional awards will be granted under such plans.

During the first quarter of 2020, Griffon granted 216,523 shares of restricted stock and restricted stock units, subject to certain performance conditions, with vesting periods of three years , with a total fair value of $ 4,705 , or a weighted average fair value of $ 21.73 per share.

During the second quarter of 2020, Griffon granted 804,674 shares of restricted stock. This included 99,772 shares of restricted stock to seven executives, subject to certain performance conditions, with vesting period of 34 months , with a total fair value of $ 2,200 , or weighted average fair value of $ 22.05 per share. Griffon also granted 44,902 restricted shares to the non-employee directors of Griffon with a vesting period of three years and a fair value of $ 990 , or a weighted average fair value of $ 22.05 per share. This also included 660,000 shares of restricted stock granted to two senior executives with a vesting period of four years and a two year post-vesting holding period, subject to the achievement of certain absolute and relative performance conditions relating to the price of Griffon's common stock. So long as the minimum performance condition is attained, the amount of shares that can vest will range from 480,000 to 660,000 . The total fair value of these restricted shares using the Monte Carlo Simulation model is approximately $ 9,534 , or a weighted average fair value of $ 14.45 per share.

The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:

	For the Three Months Ended March 31,							For the Six Months Ended March 31,
	2020			2019				2020			2019
Restricted stock	$	3,662		$	3,422			$	6,812		$	6,355
ESOP	658			492				1,490			1,145
Total stock based compensation	$	4,320		$	3,914			$	8,302		$	7,500

On each of August 3, 2016 and August 1, 2018, Griffon’s Board of Directors authorized the repurchase of up to $ 50,000 of Griffon’s outstanding common stock. Under this share repurchase program, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter and six months ended March 31, 2020 , Griffon did not purchase any shares of common stock under these repurchase programs. As of March 31, 2020 , an aggregate of $ 57,955 remains under Griffon's Board authorized repurchase programs.

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Basic EPS (and diluted EPS in periods when a loss exists) was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding plus additional common shares that could be issued in connection with stock based compensation.

 

The following table is a reconciliation of the share amounts (in thousands) used in computing earnings per share:

	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
Common shares outstanding	47,431			46,800			47,431			46,800
Unallocated ESOP shares	( 2,159	)		( 2,409	)		( 2,159	)		( 2,409	)
Non-vested restricted stock	( 3,562	)		( 3,427	)		( 3,562	)		( 3,427	)
Impact on weighted average shares	( 145	)		( 15	)		( 341	)		( 115	)
Weighted average shares outstanding - basic	41,565			40,949			41,369			40,849
Incremental shares from stock based compensation	2,169			1,883			2,457			1,527
Weighted average shares outstanding - diluted	43,734			42,832			43,826			42,376

In fiscal 2019, Griffon modified its reportable segment structure to provide investors with improved visibility after a series of portfolio repositioning actions which included the divestiture of the Plastics business, the acquisition of ClosetMaid and its subsequent integration into AMES, and the acquisition of CornellCookson by Clopay. The prior year amounts have been recast to reflect the recent change in Griffon's reporting segment structure. Griffon now reports its operations through three reportable segments from continuing operations, as follows:

•	CPP conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid.

•

HBP conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America.  Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand.

•	DE conducts its operations through Telephonics, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

Information on Griffon’s reportable segments from continuing operations is as follows:

	For the Three Months Ended March 31,								For the Six Months Ended March 31,
REVENUE	2020				2019				2020				2019
Consumer and Professional Products	$	274,912			$	287,732			$	515,988			$	504,206
Home and Building Products	209,829				186,799				451,210				410,094
Defense Electronics	81,609				75,102				147,590				145,855
Total consolidated net sales	$	566,350			$	549,633			$	1,114,788			$	1,060,155

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Disaggregation of Revenue

Revenue from contracts with customers is disaggregated by end markets, segments and geographic location, as it more accurately depicts the nature and amount of the Company’s revenue. The following table presents revenue disaggregated by end market and segment:

	For the Three Months Ended March 31,							For the Six Months Ended March 31,
	2020				2019			2020				2019
Residential repair and remodel	$	40,505			$	38,441		$	75,595			$	65,599
Retail	144,904				162,576			264,524				275,941
Residential new construction	14,884				13,545			29,857				27,817
Industrial	10,535				11,416			21,158				21,174
International excluding North America	64,084				61,754			124,854				113,675
Total Consumer and Professional Products	274,912				287,732			515,988				504,206
Residential repair and remodel	100,808				90,271			222,805				203,638
Commercial construction	86,300				76,181			178,187				160,557
Residential new construction	22,721				20,347			50,218				45,899
Total Home and Building Products	209,829				186,799			451,210				410,094
U.S. Government	53,623				46,376			96,324				91,936
International	25,021				23,129			43,554				45,228
Commercial	2,965				5,597			7,712				8,691
Total Defense Electronics	81,609				75,102			147,590				145,855
Total Consolidated Revenue	$	566,350			$	549,633		$	1,114,788			$	1,060,155

The following table presents revenue disaggregated by geography based on the location of the Company's customer:

	For the Three Months Ended March 31, 2020													For the Six Months Ended March 31, 2020
REVENUE BY GEOGRAPHIC AREA - DESTINATION	CPP			HBP			Defense Electronics			Total				CPP			HBP			Defense Electronics			Total
United States	$	191,412		$	199,060		$	55,071		$	445,543			$	351,570		$	426,010		$	101,214		$	878,794
Europe	24,737			5			9,880			34,622				31,342			28			15,865			47,235
Canada	17,515			7,867			4,209			29,591				35,296			19,120			6,783			61,199
Australia	39,032			—			189			39,221				93,260			—			795			94,055
All other countries	2,216			2,897			12,260			17,373				4,520			6,052			22,933			33,505
Consolidated revenue	$	274,912		$	209,829		$	81,609		$	566,350			$	515,988		$	451,210		$	147,590		$	1,114,788

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	For the Three Months Ended March 31, 2019													For the Six Months Ended March 31, 2019
REVENUE BY GEOGRAPHIC AREA - DESTINATION	CPP			HBP			Defense Electronics			Total				CPP			HBP			Defense Electronics			Total
United States	$	204,445		$	175,945		$	51,179		$	431,569			$	347,361		$	385,772		$	99,474		$	832,607
Europe	20,343			29			8,490			28,862				28,208			46			18,801			47,055
Canada	18,845			6,984			3,058			28,887				38,210			17,965			5,687			61,862
Australia	41,749			266			979			42,994				85,788			450			1,588			87,826
All other countries	2,350			3,575			11,396			17,321				4,639			5,861			20,305			30,805
Consolidated revenue	$	287,732		$	186,799		$	75,102		$	549,633			$	504,206		$	410,094		$	145,855		$	1,060,155

Griffon evaluates performance and allocates resources based on each segment's operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations:

	For the Three Months Ended March 31,								For the Six Months Ended March 31,
	2020				2019				2020				2019
Segment adjusted EBITDA:
Consumer and Professional Products	$	25,027			$	28,616			$	46,953			$	49,181
Home and Building Products	30,635				20,137				71,336				51,432
Defense Electronics	4,248				4,936				8,723				9,721
Segment adjusted EBITDA	59,910				53,689				127,012				110,334
Unallocated amounts, excluding depreciation	( 11,947		)		( 11,208		)		( 23,889		)		( 22,472		)
Adjusted EBITDA	47,963				42,481				103,123				87,862
Net interest expense	( 16,561		)		( 17,305		)		( 32,511		)		( 33,636		)
Depreciation and amortization	( 15,719		)		( 15,492		)		( 31,544		)		( 30,577		)
Loss from debt extinguishment	( 6,690		)		—				( 6,690		)		—
Restructuring charges	( 3,104		)		—				( 9,538		)		—
Acquisition costs	( 2,960		)		—				( 2,960		)		—
Income before taxes from continuing operations	$	2,929			$	9,684			$	19,880			$	23,649

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Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.

	For the Three Months Ended March 31,								For the Six Months Ended March 31,
DEPRECIATION and AMORTIZATION	2020				2019				2020				2019
Segment:
Consumer and Professional Products	$	8,222			$	8,184			$	16,453			$	15,990
Home and Building Products	4,668				4,548				9,468				9,057
Defense Electronics	2,676				2,621				5,320				5,257
Total segment depreciation and amortization	15,566				15,353				31,241				30,304
Corporate	153				139				303				273
Total consolidated depreciation and amortization	$	15,719			$	15,492			$	31,544			$	30,577
CAPITAL EXPENDITURES
Segment:
Consumer and Professional Products	$	3,800			$	3,806			$	7,532			$	8,140
Home and Building Products	3,556				2,524				11,495				5,335
Defense Electronics	1,921				2,499				3,210				3,733
Total segment	9,277				8,829				22,237				17,208
Corporate	70				192				282				210
Total consolidated capital expenditures	$	9,347			$	9,021			$	22,519			$	17,418

ASSETS	At March 31, 2020				At September 30, 2019
Segment assets:
Consumer and Professional Products	$	1,279,376			$	1,070,510
Home and Building Products	592,011				571,216
Defense Electronics	348,081				347,575
Total segment assets	2,219,468				1,989,301
Corporate	96,085				82,429
Total continuing assets	2,315,553				2,071,730
Assets of discontinued operations	3,194				3,209
Consolidated total	$	2,318,747			$	2,074,939

Defined benefit pension expense (income) included in Other Income (Expense), net was as follows:

	Three Months Ended March 31,								Six Months Ended March 31,
	2020				2019				2020				2019
Interest cost	$	1,151			$	1,571			$	2,302			$	3,141
Expected return on plan assets	( 2,586		)		( 2,583		)		( 5,172		)		( 5,166		)
Amortization:
Prior service cost	4				3				8				7
Recognized actuarial loss	1,042				222				2,084				444
Net periodic expense (income)	$	( 389	)		$	( 787	)		$	( 778	)		$	( 1,574	)

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In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. During 2019, the Company developed a project plan to guide the implementation of this guidance. The Company completed this plan including surveying the Company’s businesses, assessing the Company’s portfolio of leases and compiling a central repository of active leases. The Company also implemented a lease accounting software solution to support the new reporting requirements and established a future lease process to keep the lease accounting portfolio up to date. The Company evaluated key policy elections and considerations under the standard and completed an internal policy as well as training to address the new standard requirements. The Company has elected the package of practical expedients and will not apply the recognition requirements to short-term leases. The Company adopted the requirements of the new standard as of October 1, 2019 and applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we have recognized right-of-use assets of $ 163,552 and lease liabilities of $ 163,676 associated with our operating leases. The standard had no material impact to retained earnings or on our Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows.

In May 2017, the FASB issued guidance to address the situation when a company modifies the terms of a stock compensation award previously granted to an employee. This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. The new guidance was effective for the Company beginning in fiscal 2019; however, the Company adopted this guidance as of October 1, 2018 and it did not have a material impact on the Company's financial condition, results of operations and related disclosures.

In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires companies to retrospectively present the service cost component of net periodic benefit cost for pension and retiree medical plans along with other compensation costs in operating income and present the other components of net periodic benefit cost below operating income in the income statement. The guidance also allows only the service cost component of net periodic benefit cost to be eligible for capitalization within inventory or fixed assets on a prospective basis. This guidance was effective for fiscal years beginning after December 15, 2017. The Company adopted the requirements of the standard as of October 1, 2018 on a retrospective basis reclassifying the other components of the net periodic benefit costs from Selling, general and administrative expenses to a non-service expense within Other (income) expense, net. This guidance did not have a material impact on the Company's results of operations. See Note 11 - Employee Benefit Plans for further information on the implementation of this guidance.

In January 2017, the FASB issued guidance that simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those periods and is effective for the Company beginning October 1, 2020. The Company does not expect this guidance to have a material impact on the Company's financial condition, results of operations or related disclosures.

In August 2016, the FASB issued guidance on the Statement of Cash Flows Classification of certain cash receipts and cash payments (a consensus of the FASB Emerging Issues Task Force). This guidance addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance was effective for the Company beginning in fiscal 2019. The Company adopted the requirements of the standard in the first quarter of 2019 and it did not have a material impact on the Company's financial condition, results of operations and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenue guidance is referred to as “ASC 606”. The core principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On October 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts. Results for reporting periods beginning October 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605, Revenue Recognition. Under the modified retrospective method, the Company recognized the cumulative effect of initially applying this accounting standard as an adjustment to the opening balance in retained

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earnings of approximately $ 5,673 as of October 1, 2018. The impact to beginning retained earnings primarily related to certain contracts in the Defense Electronics Segment containing provisions for radar and communication products that have an alternative use and/or no right to payment. The adoption of ASC 606 did not have a material impact on the Company’s Consolidated Condensed Financial Statements as of and for the year ended September 30, 2019. See Note 2 - Revenue for additional disclosures required by ASC 606.

In February 2018, the FASB issued guidance that allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from accumulated other comprehensive income to retained earnings. This guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted, and is effective for the Company in fiscal 2020. Upon adoption of this guidance as of October 1, 2019, based on our evaluation, we elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

Issued but not yet effective accounting pronouncements

In March 2020, the FASB issued guidance relating to accounting for the discontinuation of the LIBOR rate. This guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This guidance is applicable to contract modifications that replace a reference LIBOR rate affected by reference rate reform. The amendments may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications of these arrangements.

 

In December 2019, the FASB issued guidance on simplifying the accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. Our effective date for adoption of this ASU is our fiscal year beginning October 1, 2021 with early adoption permitted. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures. 

In April 2019, the FASB issued guidance relating to accounting for credit losses on financial instruments, including trade receivables and derivatives and hedging. This guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, and will be effective for the Company beginning in 2020. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures. 

In August 2018, the FASB issued guidance which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. This guidance expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted, and will be effective for the Company beginning in 2021. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

In August 2018, the FASB issued guidance to clarify disclosure requirements related to defined benefit pension and other post-retirement plans. The guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and will be effective for the Company beginning in 2022. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements and the related disclosures.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements, and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

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On November 16, 2017, Griffon announced it entered into a definitive agreement to sell Clopay Plastics Products ("Plastics") and on February 6, 2018, completed the sale to Berry for $ 465,000 , net of certain post-closing adjustments. During the second quarter of 2019, Griffon recorded an $ 11,000 charge ( $ 7,646 , net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $ 465,000 Plastics divestiture and included an additional reserve for a legacy environmental matter. During the third quarter of 2019, $ 9,500 of this charge was paid.

In 2008, as a result of the downturn in the residential housing market, Griffon exited substantially all operating activities of its Installation Services segment which sold, installed and serviced garage doors and openers, fireplaces, floor coverings, cabinetry

and a range of related building products, primarily for the new residential housing market. Griffon substantially concluded its remaining disposal activities in 2009.

Installation Services operating results have been reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) for all periods presented; Installation Services is excluded from segment reporting. There was no Installation Services revenue or income for the three and six months ended March 31, 2020 and 2019.

 

In 2017, Griffon recorded $ 5,700 of reserves in discontinued operations related to historical environmental remediation efforts and to increase the reserve for homeowner association (HOA) claims related to the Clopay Services Corporation discontinued operations in 2008.

The following amounts summarize the total assets and liabilities of Plastics and Installation Services and other discontinued activities which have been segregated from Griffon’s continuing operations, and are reported as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets:

	At March 31, 2020				At September 30, 2019
Assets of discontinued operations:
Prepaid and other current assets	$	321			$	321
Other long-term assets	2,873				2,888
Total assets of discontinued operations	$	3,194			$	3,209
Liabilities of discontinued operations:
Accrued liabilities, current	$	2,450			$	4,333
Other long-term liabilities	3,154				3,331
Total liabilities of discontinued operations	$	5,604			$	7,664

In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations.

This initiative includes three key development areas. First, multiple independent information systems will be unified into a single data and analytics platform which will serve the whole CPP U.S. enterprise. Second, certain CPP U.S. operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth.

The expected costs to implement this new business platform, over the three-year duration of the project, will include approximately $ 35,000 of one-time charges and approximately $ 40,000 in capital investments. The one-time charges are comprised of $ 16,000 of cash charges, which includes $ 12,000 personnel-related costs such as training, severance, and duplicate personnel costs and $ 4,000 of facility and lease exit costs. The remaining $ 19,000 of charges are non-cash and are primarily related to asset write-downs.

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In the quarter and six months ended March 31, 2020, CPP incurred pre-tax restructuring and related exit costs approximating $ 3,104 and $ 9,538 , respectively. For the six month period ended March 31, 2020, the cash charges are comprised of $ 4,846 and non-cash, asset-related charges of $ 4,692 ; the cash charges included $ 3,792 for one-time termination benefits and other personnel-related costs and $ 1,054 for facility exit costs. Non-cash charges included a $ 1,968 impairment charge related to a facility’s operating lease as well as $ 671 of leasehold improvements made to the leased facility and $ 304 of inventory that have no recoverable value, and a $ 1,749 impairment charge related to machinery and equipment that have no recoverable value at one of the Company's owned manufacturing locations. As a result of these transactions, headcount was reduced by 148 .

A summary of the restructuring and other related charges included in Cost of goods and services and Selling, general and administrative expenses in the Company's Condensed Consolidated Statements of Operations were as follows:

	For the Three Months Ended March 31, 2020				For the Six Months Ended March 31, 2020
Cost of goods and services	$	1,353			$	4,076
Selling, general and administrative expenses	1,751				5,462
Total restructuring charges	$	3,104			$	9,538

	For the Three Months Ended March 31, 2020			For the Six Months Ended March 31, 2020
Personnel related costs	$	1,658		$	3,792
Facilities, exit costs and other	914			1,054
Non-cash facility and other	532			4,692
Total	$	3,104		$	9,538

The following table summarizes the accrued liabilities of the Company's restructuring actions:

	Cash Charges								Non-Cash
	Personnel related costs				Facilities & Exit Costs				Facility and Other Costs				Total
Accrued liability at September 30, 2019	$	—			$	—			$	—			$	—
Q1 restructuring charges	2,134				140				4,160				6,434
Cash payments	( 621		)		( 140		)		—				( 761		)
Non-cash charges (1)	—				—				( 4,160		)		( 4,160		)
Accrued liability at December 31, 2019	$	1,513			$	—			$	—			$	1,513
Q2 restructuring charges	1,658				914				532				3,104
Cash payments	( 1,041		)		( 914		)		—				( 1,955		)
Non-cash charges (1)	—				—				( 532		)		( 532		)
Accrued liability at March 31, 2020	$	2,130			$	—			$	—			$	2,130
(1) Non-cash charges in Facility and Other Costs primarily represent the non-cash write-off of certain long-lived assets in connection with certain facility closures.

 

For the quarters ended March 31, 2020 and 2019 , Other income (expense) includes $ 745 and ($ 118 ) , respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of $ 389 and $ 787 , respectively, as well as $( 230 ) and $ 108 , respectively, of net investment (loss) income.

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DE offers warranties against product defects for periods generally ranging from one to two years, depending on the specific product and terms of the customer purchase agreement. HBP also offers warranties against product defects for periods generally ranging from one to ten years, with limited lifetime warranties on certain door models. Typical warranties require CPP, HBP and DE to repair or replace the defective products during the warranty period at no cost to the customer. At the time revenue is recognized, Griffon records a liability for warranty costs, estimated based on historical experience, and periodically assesses its warranty obligations and adjusts the liability as necessary. CPP offers an express limited warranty for a period of ninety days on all products from the date of original purchase unless otherwise stated on the product or packaging from the date of original purchase.

Changes in Griffon’s warranty liability, included in Accrued liabilities, were as follows:

	Three Months Ended March 31,								Six Months Ended March 31,
	2020				2019				2020				2019
Balance, beginning of period	$	7,344			$	9,041			$	7,894			$	8,174
Warranties issued and changes in estimated pre-existing warranties	4,862				4,700				8,227				8,761
Actual warranty costs incurred	( 4,417		)		( 5,730		)		( 8,332		)		( 8,924		)
Balance, end of period	$	7,789			$	8,011			$	7,789			$	8,011

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The amounts recognized in other comprehensive income (loss) were as follows:

 

	Three Months Ended March 31, 2020												Three Months Ended March 31, 2019
	Pre-tax				Tax				Net of tax				Pre-tax				Tax				Net of tax
Foreign currency translation adjustments	$	( 16,471	)		$	—			$	( 16,471	)		$	2,885			$	—			$	2,885
Pension and other defined benefit plans	847				( 178		)		669				201				( 17		)		184
Cash flow hedges	1,383				( 415		)		968				( 264		)		75				( 189		)
Total other comprehensive income (loss)	$	( 14,241	)		$	( 593	)		$	( 14,834	)		$	2,822			$	58			$	2,880

	Six Months Ended March 31, 2020												Six Months Ended March 31, 2019
	Pre-tax				Tax				Net of tax				Pre-tax				Tax				Net of tax
Foreign currency translation adjustments	$	( 10,001	)		$	—			$	( 10,001	)		$	( 2,851	)		$	—			$	( 2,851	)
Pension and other defined benefit plans	1,694				( 353		)		1,341				472				( 104		)		368
Cash flow hedges	953				( 286		)		667				( 107		)		20				( 87		)
Total other comprehensive income (loss)	$	( 7,354	)		$	( 639	)		$	( 7,993	)		$	( 2,486	)		$	( 84	)		$	( 2,570	)

The components of Accumulated other comprehensive income (loss) are as follows:

	At March 31, 2020				At September 30, 2019
Foreign currency translation adjustments	$	( 41,285	)		$	( 31,284	)
Pension and other defined benefit plans	( 33,473		)		( 34,814		)
Change in Cash flow hedges	849				182
	$	( 73,909	)		$	( 65,916	)

Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows:

	For the Three Months Ended March 31,								For the Six Months Ended March 31,
Gain (Loss)	2020				2019				2020				2019
Pension amortization	$	( 1,046	)		$	( 225	)		$	( 2,092	)		$	( 451	)
Cash flow hedges	1,050				310				994				992
Total gain (loss)	$	4			$	85			( 1,098		)		541
Tax benefit (expense)	( 1		)		( 18		)		231				( 114		)
Total	$	3			$	67			$	( 867	)		$	427

In February 2016, the FASB issued an Accounting Standards Update (ASU 2016-02) related to the accounting and financial statement presentation for leases. This new guidance requires a lessee to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet, with an election to exempt leases with a term of twelve months or less. The Company adopted the requirements of the new standard as of October 1, 2019 and applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we have recognized ROU assets of $ 163,552 and lease liabilities of $ 163,676 associated with our operating leases. The standard had no material impact to retained earnings or on our Condensed Consolidated Statements of Income or Condensed Consolidated Statements of Cash Flows.

The Company determines if an arrangement is a lease at inception. The ROU assets and short and long-term liabilities associated with our Operating leases are shown as separate line items on our Condensed Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance

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leases are immaterial. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment. In connection with the Company's restructuring activities, during the six months ended March 31, 2020, a $ 1,968 impairment charge was recorded related to a facility’s operating lease as well as $ 671 and of leasehold improvements made to the leased facility that have no recoverable value. See Note 16, Restructuring Charges.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. For leases existing as of October 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification. We also elected a practical expedient to determine the reasonably certain lease term.

For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less (a "Short-term" lease), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred. The Company has lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance). Components of operating lease costs are as follows:

	For the Three Months Ended March 31, 2020			For the Six Months Ended March 31, 2020
Fixed	$	9,187		$	18,739
Variable (a), (b)	1,823			3,576
Short-term (b)	1,393			2,823
Total*	$	12,403		$	25,138

(a) Primarily related to common-area maintenance and property taxes.

(b) Not recorded on the balance sheet.

Supplemental cash flow information were as follows:

		For the Six Months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	21,582
Financing cash flows from finance leases		1,940
Total		$	23,522

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Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows:

	At March 31, 2020
Operating Leases:
Right of use assets:
Operating right-of-use assets	$	156,258
Lease Liabilities:
Current portion of operating lease liabilities	$	28,047
Long-term operating lease liabilities	133,498
Total operating lease liabilities	$	161,545
Finance Leases:
Property, plant and equipment, net (1)	$	14,059
Lease Liabilities:
Notes payable and current portion of long-term debt	$	4,014
Long-term debt, net	10,074
Total financing lease liabilities	$	14,088

(1) Finance lease assets are recorded net of accumulated depreciation of $ 1,946 .

The aggregate future maturities of lease payments for operating leases and finance leases as of March 31, 2020 are as follows (in thousands):

	Operating Leases			Finance Leases
2020 (a)	$	17,505		$	2,452
2021	33,312			4,164
2022	28,570			2,607
2023	22,261			2,315
2024	16,467			2,074
2025	14,334			1,383
Thereafter	72,614			—
Total lease payments	205,063			14,995
Less: Imputed Interest	( 43,518		)	( 907		)
Present value of lease liabilities	$	161,545		$	14,088

(a) Excluding the six months ended March 31, 2020

The aggregate minimum lease payments for operating leases, as calculated prior to the adoption of ASU 2016-02, were as follows:

	At September 30, 2019
2020	$	35,176
2021	30,730
2022	26,119
2023	20,008
2024	14,198
Thereafter	78,105
Total	$	204,336

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Average lease terms and discount rates were as follows:

		At March 31, 2020
Weighted-average remaining lease term (years)
Operating leases		8.8
Finance Leases		2.1
Weighted-average discount rate
Operating Leases		4.10	%
Finance Leases		5.50	%

 

Legal and environmental

Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted operations at a location in Peekskill in the Town of Cortlandt, New York (the “Peekskill Site”) owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon. ISCP sold the Peekskill Site in November 1982.

Subsequently, ISCP was advised by the Department of Environmental Conservation of New York State ("DEC") that random sampling at the Peekskill Site and in a creek near the Peekskill Site indicated concentrations of solvents and other chemicals common to Lightron’s prior plating operations. In 1996, ISCP entered into a consent order with the DEC (the “Consent Order”), pursuant to which ISCP was required to perform a remedial investigation and prepare a feasibility study (the “Feasibility Study”). After completing the initial remedial investigation, ISCP conducted, over the next several years, supplemental remedial investigations, including soil vapor investigations, as required by the Consent Order.

In April 2009, the DEC advised ISCP that both the DEC and the New York State Department of Health had reviewed and accepted an August 2007 Remedial Investigation Report and an Additional Data Collection Summary Report dated January 30, 2009. ISCP submitted to the DEC a draft Feasibility Study which was accepted and approved by the DEC in February 2011. ISCP satisfied its obligations under the Consent Order when DEC approved the Remedial Investigation and Feasibility Study for the Peekskill Site. In June, 2011 the DEC issued a Remedial Action Plan for the Peekskill Site that set forth the specific remedies selected and responded to public comments.  The approximate cost of the remedy proposed by DEC in its Remedial Action Plan was approximately $ 10,000 .

 

Following issuance of the Remedial Action Plan, the DEC implemented a portion of its plan, and also performed additional investigation for the presence of metals in soils and sediments downstream from the Peekskill Site. During this investigation chromium was found to be present in sediments further downstream of the Peekskill site than previously detected.

In August 2018, the DEC sent a letter to the United States Environmental Protection Agency (the “EPA”), in which the DEC requested that the Peekskill Site be nominated by the EPA for inclusion on the National Priorities List (the “NPL”).  Based on DEC’s request and on an analysis by a consultant retained by the EPA, on May 15, 2019 the EPA added the Peekskill Site to the NPL under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and is now performing a Remedial Investigation/Feasibility Study. The EPA estimates that it will select a remedy in 2022.

The EPA has announced that it is performing its own remedial investigation/feasibility study of the site. It is uncertain what subsequent action the EPA will take. The EPA may, on its own or through the use of consultants, perform further studies of the site and/or subsequently remediate the site, and in such event, would likely seek reimbursement for the costs incurred from potentially responsible parties (“PRPs”). Alternatively, the EPA could enter into negotiations with the PRPs to request that the PRPs perform further studies and/or remediate the site.

Griffon does not acknowledge any responsibility to perform any remediation at the Peekskill Site.

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Improper Advertisement Claim involving Union Tools ® Products.   Beginning in December 2004, a customer of AMES had been named in various litigation matters relating to certain Union Tools products. The plaintiffs in those litigation matters asserted causes of action against the customer of AMES for improper advertisement to end consumers. The allegations suggested that advertisements led the consumers to believe that Union Tools’ hand tools were wholly manufactured within boundaries of the United States.  The complaints asserted various causes of action against the customer of AMES under federal and state law, including common law fraud. At some point, the customer may seek indemnity (including recovery of its legal fees and costs) against AMES for an unspecified amount. Presently, AMES cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against AMES.

Union Fork and Hoe, Frankfort, NY site. The former Union Fork and Hoe property in Frankfort, NY was acquired by AMES in 2006 as part of a larger acquisition, and has historic site contamination involving chlorinated solvents, petroleum hydrocarbons and metals. AMES has entered into an Order on Consent with the New York State Department of Environmental Conservation. While the Order is without admission or finding of liability or acknowledgment that there has been a release of hazardous substances at the site, AMES is required to perform a remedial investigation and to recommend a remediation option. At the conclusion of the remediation phase to the satisfaction of the DEC, the DEC will issue a Certificate of Completion. AMES has performed significant investigative and remedial activities over the last few years under work plans approved by the DEC and is currently implementing a Remedial Action Work Plan for the site property that was approved by the DEC; the work required by such Remedial Action Work Plan is expected to be completed by summer 2020. The DEC has also requested that AMES develop a work plan to investigate certain areas immediately adjacent to the former Union Fork and Hoe site. AMES has a number of defenses to liability in this matter, including its rights under a previous Consent Judgment entered into between the DEC and a predecessor of AMES relating to the site.

U.S. Government investigations and claims

Defense contracts and subcontracts, including Griffon’s contracts and subcontracts, are subject to audit and review by various agencies and instrumentalities of the United States government, including among others, the Defense Contract Audit Agency, the Defense Criminal Investigative Service, and the Department of Justice which has responsibility for asserting claims on behalf of the U.S. Government.

In general, departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of Griffon, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on Telephonics because of its reliance on government contracts.

General legal

Griffon is subject to various laws and regulations relating to the protection of the environment and is a party to legal proceedings arising in the ordinary course of business. Management believes, based on facts presently known to it, that the resolution of the matters above and such other matters will not have a material adverse effect on Griffon’s consolidated financial position, results of operations or cash flows.

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Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, Telephonics Corporation, The AMES Companies, Inc., ATT Southern LLC, Clopay Ames Holding Corp., ClosetMaid LLC, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100 % owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are condensed consolidating financial information as of March 31, 2020 and September 30, 2019 and for the three months ended March 31, 2020 and 2019 . The financial information may not necessarily be indicative of the results of operations or financial position of the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.

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CONDENSED CONSOLIDATING BALANCE SHEETS

At March 31, 2020

 

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
CURRENT ASSETS
Cash and equivalents	$	9,252			$	18,977			$	40,795			$	—			$	69,024
Accounts receivable, net of allowances	—				283,929				206,456				( 155,352		)		335,033
Contract costs and recognized income not yet billed, net of progress payments	—				91,998				2,497				—				94,495
Inventories, net	—				391,934				70,756				( 571		)		462,119
Prepaid and other current assets	11,482				23,468				5,149				2,624				42,723
Assets of discontinued operations	—				—				321				—				321
Total Current Assets	20,734				810,306				325,974				( 153,299		)		1,003,715
PROPERTY, PLANT AND EQUIPMENT, net	1,295				290,685				43,840				—				335,820
OPERATING LEASE RIGHT-OF-USE ASSETS	10,060				127,133				19,065				—				156,258
GOODWILL	—				375,734				61,048				—				436,782
INTANGIBLE ASSETS, net	93				220,796				132,854				—				353,743
INTERCOMPANY RECEIVABLE	67,266				928,899				148,568				( 1,144,733		)		—
EQUITY INVESTMENTS IN SUBSIDIARIES	1,658,792				745,746				3,109,559				( 5,514,097		)		—
OTHER ASSETS	8,695				37,669				( 2,446		)		( 14,362		)		29,556
ASSETS OF DISCONTINUED OPERATIONS	—				—				2,873				—				2,873
Total Assets	$	1,766,935			$	3,536,968			$	3,841,335			$	( 6,826,491	)		$	2,318,747
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	—			$	3,474			$	5,996			$	—			$	9,470
Accounts payable and accrued liabilities	28,873				412,118				58,903				( 152,741		)		347,153
Current portion of operating lease liabilities	1,830				22,068				4,149				—				28,047
Liabilities of discontinued operations	—				—				2,450				—				2,450
Total Current Liabilities	30,703				437,660				71,498				( 152,741		)		387,120
LONG-TERM DEBT, net	1,167,023				10,642				38,561				—				1,216,226
LONG-TERM OPERATING LEASE LIABILITIES	9,353				108,872				15,273				—				133,498
INTERCOMPANY PAYABLES	63,230				563,964				536,815				( 1,164,009		)		—
OTHER LIABILITIES	20,172				77,292				12,650				( 7,819		)		102,295
LIABILITIES OF DISCONTINUED OPERATIONS	—				—				3,154				—				3,154
Total Liabilities	1,290,481				1,198,430				677,951				( 1,324,569		)		1,842,293
SHAREHOLDERS’ EQUITY	476,454				2,338,538				3,163,384				( 5,501,922		)		476,454
Total Liabilities and Shareholders’ Equity	$	1,766,935			$	3,536,968			$	3,841,335			$	( 6,826,491	)		$	2,318,747

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CONDENSED CONSOLIDATING BALANCE SHEETS

At September 30, 2019

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
CURRENT ASSETS
Cash and equivalents	$	1,649			$	25,217			$	45,511			$	—			$	72,377
Accounts receivable, net of allowances	—				227,069				38,580				( 1,199		)		264,450
Contract costs and recognized income not yet billed, net of progress payments	—				104,109				1,002				—				105,111
Inventories, net	—				372,839				69,540				( 258		)		442,121
Prepaid and other current assets	8,238				25,754				6,951				( 144		)		40,799
Assets of discontinued operations	—				—				321				—				321
Total Current Assets	9,887				754,988				161,905				( 1,601		)		925,179
PROPERTY, PLANT AND EQUIPMENT, net	1,184				289,282				46,860				—				337,326
GOODWILL	—				375,734				61,333				—				437,067
INTANGIBLE ASSETS, net	93				224,275				132,271				—				356,639
INTERCOMPANY RECEIVABLE	5,834				864,884				75,684				( 946,402		)		—
EQUITY INVESTMENTS IN SUBSIDIARIES	1,628,031				581,438				3,233,038				( 5,442,507		)		—
OTHER ASSETS	8,182				24,635				( 2,352		)		( 14,625		)		15,840
ASSETS OF DISCONTINUED OPERATIONS	—				—				2,888				—				2,888
Total Assets	$	1,653,211			$	3,115,236			$	3,711,627			$	( 6,405,135	)		$	2,074,939
CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	—			$	3,075			$	7,450			$	—			$	10,525
Accounts payable and accrued liabilities	41,796				266,411				68,390				( 1,356		)		375,241
Liabilities of discontinued operations	—				—				4,333				—				4,333
Total Current Liabilities	41,796				269,486				80,173				( 1,356		)		390,099
LONG-TERM DEBT, net	1,040,449				3,119				50,181				—				1,093,749
INTERCOMPANY PAYABLES	71,634				457,265				444,557				( 973,456		)		—
OTHER LIABILITIES	21,569				81,582				15,017				( 8,171		)		109,997
LIABILITIES OF DISCONTINUED OPERATIONS	—				—				3,331				—				3,331
Total Liabilities	1,175,448				811,452				593,259				( 982,983		)		1,597,176
SHAREHOLDERS’ EQUITY	477,763				2,303,784				3,118,368				( 5,422,152		)		477,763
Total Liabilities and Shareholders’ Equity	$	1,653,211			$	3,115,236			$	3,711,627			$	( 6,405,135	)		$	2,074,939

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2020

 

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
Revenue	$	—			$	462,500			$	113,926			$	( 10,076	)		$	566,350
Cost of goods and services	—				345,626				79,112				( 10,420		)		414,318
Gross profit	—				116,874				34,814				344				152,032
Selling, general and administrative expenses	7,922				91,338				27,300				( 93		)		126,467
Income (loss) from operations	( 7,922		)		25,536				7,514				437				25,565
Other income (expense)
Interest income (expense), net	( 6,880		)		( 9,706		)		25				—				( 16,561		)
Loss from debt extinguishment, net	( 6,690		)		—				—				—				( 6,690		)
Other, net	( 418		)		( 2,667		)		4,141				( 441		)		615
Total other income (expense)	( 13,988		)		( 12,373		)		4,166				( 441		)		( 22,636		)
Income (loss) before taxes	( 21,910		)		13,163				11,680				( 4		)		2,929
Provision (benefit) for income taxes	( 9,427		)		6,078				5,387				( 4		)		2,034
Income (loss) before equity in net income of subsidiaries	( 12,483		)		7,085				6,293				—				895
Equity in net income (loss) of subsidiaries	13,378				6,341				7,085				( 26,804		)		—
Net Income (loss)	$	895			$	13,426			$	13,378			$	( 26,804	)		$	895
Comprehensive income (loss)	$	( 13,939	)		$	8,028			$	18,776			$	( 26,804	)		$	( 13,939	)

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2019

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
Revenue	$	—			$	462,739			$	94,285			$	( 7,391	)		$	549,633
Cost of goods and services	—				354,382				65,516				( 7,769		)		412,129
Gross profit	—				108,357				28,769				378				137,504
Selling, general and administrative expenses	5,249				84,813				21,409				312				111,783
Income (loss) from operations	( 5,249		)		23,544				7,360				66				25,721
Other income (expense)
Interest income (expense), net	( 7,328		)		( 9,128		)		( 849		)		—				( 17,305		)
Other, net	( 473		)		1,129				676				( 64		)		1,268
Total other income (expense)	( 7,801		)		( 7,999		)		( 173		)		( 64		)		( 16,037		)
Income (loss) before taxes	( 13,050		)		15,545				7,187				2				9,684
Provision (benefit) for income taxes	( 4,242		)		5,292				2,142				2				3,194
Income (loss) before equity in net income of subsidiaries	( 8,808		)		10,253				5,045				—				6,490
Equity in net income (loss) of subsidiaries	7,652				11,646				10,253				( 29,551		)		—
Income (loss) from continuing operations	( 1,156		)		21,899				15,298				( 29,551		)		6,490
Income (loss) from operation of discontinued businesses	—				—				( 11,000		)		—				( 11,000		)
Provision (benefit) from income taxes	—				—				( 3,354		)		—				( 3,354		)
Income (loss) from discontinued operations	—				—				( 7,646		)		—				( 7,646		)
Net Income (loss)	$	( 1,156	)		$	21,899			$	7,652			$	( 29,551	)		$	( 1,156	)
Comprehensive income (loss)	$	1,724			$	5,448			$	8,736			$	( 14,184	)		$	1,724

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2020

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	11,507			$	32,202			$	32,034			$	( 64,236	)		$	11,507
Net cash provided by (used in) operating activities:	( 92,042		)		26,593				4,606				—				( 60,843		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	( 282		)		( 19,982		)		( 2,255		)		—				( 22,519		)
Acquired businesses, net of cash acquired	—				—				( 10,531		)		—				( 10,531		)
Proceeds from sale of assets	—				292				( 2		)		—				290
Net cash provided by (used in) investing activities	( 282		)		( 19,690		)		( 12,788		)		—				( 32,760		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury	( 7,479		)		—				—				—				( 7,479		)
Proceeds from long-term debt	1,054,636				—				6,707				—				1,061,343
Payments of long-term debt	( 921,904		)		( 1,752		)		( 15,415		)		—				( 939,071		)
Financing costs	( 13,176		)		—				—				—				( 13,176		)
Dividends paid	( 7,349		)		—				—				—				( 7,349		)
Other, net	( 4,801		)		( 10,839		)		15,723				—				83
Net cash provided by (used in) financing activities	99,927				( 12,591		)		7,015				—				94,351
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used) in discontinued operations	—				—				( 1,994		)		—				( 1,994		)
Effect of exchange rate changes on cash and equivalents	—				( 552		)		( 1,555		)		—				( 2,107		)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	7,603				( 6,240		)		( 4,716		)		—				( 3,353		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	1,649				25,217				45,511				—				72,377
CASH AND EQUIVALENTS AT END OF PERIOD	$	9,252			$	18,977			$	40,795			$	—			$	69,024

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2019

 

($ in thousands)	Parent Company				Guarantor Companies				Non-Guarantor Companies				Elimination				Consolidation
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	7,597			$	38,703			$	24,499			$	( 63,202	)		$	7,597
Net (income) loss from discontinued operations	—				—				7,646				—				7,646
Net cash provided by (used in) operating activities:	( 77,881		)		24,130				( 1,255		)		—				( 55,006		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	( 210		)		( 14,071		)		( 3,137		)		—				( 17,418		)
Acquired businesses, net of cash acquired	( 9,219		)		—				—				—				( 9,219		)
Investment purchases	( 149		)		—				—				—				( 149		)
Insurance payments	( 10,604		)		—				—				—				( 10,604		)
Proceeds from sale of assets	—				36				26				—				62
Net cash provided by (used in) investing activities	( 20,182		)		( 14,035		)		( 3,111		)		—				( 37,328		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury	( 1,478		)		—				—				—				( 1,478		)
Proceeds from long-term debt	130,484				76				12,541				—				143,101
Payments of long-term debt	( 32,419		)		( 1,724		)		( 14,026		)		—				( 48,169		)
Contingent consideration for acquired businesses	—				—				( 1,686		)		—				( 1,686		)
Financing costs	( 945		)		—				—				—				( 945		)
Dividends paid	( 6,847		)		—				—				—				( 6,847		)
Other, net	( 1,641		)		7,150				( 5,426		)		—				83
Net cash provided by (used in) financing activities	87,154				5,502				( 8,597		)		—				84,059
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) discontinued operations	—				—				( 3,438		)		—				( 3,438		)
Effect of exchange rate changes on cash and equivalents	—				( 92		)		26				—				( 66		)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	( 10,909		)		15,505				( 16,375		)		—				( 11,779		)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	15,976				16,353				37,429				—				69,758
CASH AND EQUIVALENTS AT END OF PERIOD	$	5,067			$	31,858			$	21,054			$	—			$	57,979

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•	CPP conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid.

•

HBP conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America.  Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand.

•	DE conducts its operations through Telephonics Corporation, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

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•	The United States Government and its agencies, through either prime or subcontractor relationships, represented 9% of Griffon’s consolidated revenue and 65% of Telephonics’ revenue.

•	The Home Depot represented 17% of Griffon’s consolidated revenue, 26% of CPP's revenue and 13% of HBP’s revenue.

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1.	Shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock, to satisfy tax-withholding obligations of the holders.

2.

On each of August 3, 2016 and August 1, 2018, the Company’s Board of Directors authorized the repurchase of up to $50,000 of Griffon common stock; as of March 31, 2020, an aggregate of $57,955 remained available for the purchase of Griffon common stock under these repurchase programs. Amount consists of shares purchased by the Company in open market purchases pursuant to such Board authorized stock repurchase program .

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