Griffon Corp 10-Q, filed Feb 7, 2024
Griffon Corp (GFF)
10-Q
2024-02-07
For: 2023-12-31
View Original
Added on
April 04, 2026
About this 10-Q
Griffon Corp filed this 10-Q on February 7, 2024, covering the quarter ended December 31, 2023.
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $643.15M
- down 1.0% from $649.38M a year earlier
- Net income
- $42.18M
- down 13.4% from net income of $48.7M a year earlier
- Diluted EPS
- $0.82
- down 6.8% from $0.88 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended December 31, 2023
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 1-06620
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | ||||||||||
| incorporation or organization) | Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(212 ) 957-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares of common stock outstanding at January 31, 2024 was 50,946,212 .
Griffon Corporation and Subsidiaries
Contents
| Page | |||||
Part I – Financial Information
Item 1 – Financial Statements
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| (Unaudited) | |||||||||||
| December 31, 2023 | September 30, 2023 | ||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Assets of discontinued operations | |||||||||||
| Total Current Assets | |||||||||||
| PROPERTY, PLANT AND EQUIPMENT, net | |||||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | |||||||||||
| GOODWILL | |||||||||||
| INTANGIBLE ASSETS, net | |||||||||||
| OTHER ASSETS | |||||||||||
| ASSETS OF DISCONTINUED OPERATIONS | |||||||||||
| Total Assets | $ | $ | |||||||||
| CURRENT LIABILITIES | |||||||||||
| Notes payable and current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Liabilities of discontinued operations | |||||||||||
| Total Current Liabilities | |||||||||||
| LONG-TERM DEBT, net | |||||||||||
| LONG-TERM OPERATING LEASE LIABILITIES | |||||||||||
| OTHER LIABILITIES | |||||||||||
| LIABILITIES OF DISCONTINUED OPERATIONS | |||||||||||
| Total Liabilities | |||||||||||
COMMITMENTS AND CONTINGENCIES - See Note 21 | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
| Total Shareholders’ Equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
1
GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Three Months Ended December 31, 2023 and 2022
(Unaudited)
| COMMON STOCK | CAPITAL IN EXCESS OF PAR VALUE | RETAINED EARNINGS | TREASURY SHARES | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | DEFERRED COMPENSATION | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | SHARES | PAR VALUE | SHARES | COST | TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividend | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld on employee taxes on vested equity awards | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock acquired | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Equity awards granted, net | — | — | ( | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| ESOP allocation of common stock | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| COMMON STOCK | CAPITAL IN EXCESS OF PAR VALUE | RETAINED EARNINGS | TREASURY SHARES | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | DEFERRED COMPENSATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | SHARES | PAR VALUE | SHARES | COST | TOTAL | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld on employee taxes on vested equity awards | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity awards granted, net | — | — | ( | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ESOP allocation of common stock | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
2
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Revenue | $ | $ | |||||||||||||||||||||
| Cost of goods and services | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Gain on sale of building | |||||||||||||||||||||||
| Other, net | |||||||||||||||||||||||
| Total other expense, net | ( | ( | |||||||||||||||||||||
| Income before taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Basic earnings per common share | $ | $ | |||||||||||||||||||||
| Basic weighted-average shares outstanding | |||||||||||||||||||||||
| Diluted earnings per common share | $ | $ | |||||||||||||||||||||
| Diluted weighted-average shares outstanding | |||||||||||||||||||||||
| Dividends paid per common share | $ | $ | |||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive income (loss), net of taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
| Pension and other post retirement plans | |||||||||||||||||||||||
| Change in cash flow hedges | ( | ( | |||||||||||||||||||||
| Total other comprehensive income, net of taxes | |||||||||||||||||||||||
| Comprehensive income, net | $ | $ | |||||||||||||||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
3
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Asset impairment charges - restructuring | |||||||||||
| Provision for losses on accounts receivable | |||||||||||
| Amortization of debt discounts and issuance costs | |||||||||||
| Gain on sale of assets and investments | ( | ( | |||||||||
| Change in assets and liabilities: | |||||||||||
| Decrease in accounts receivable | |||||||||||
| Decrease in inventories | |||||||||||
| (Increase) decrease in prepaid and other assets | ( | ||||||||||
| Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities | ( | ||||||||||
| Other changes, net | |||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of property, plant and equipment | ( | ( | |||||||||
| Payments related to sale of business | ( | ||||||||||
| Proceeds from the sale of property, plant and equipment | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Dividends paid | ( | ( | |||||||||
| Purchase of shares for treasury | ( | ( | |||||||||
| Proceeds from long-term debt | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Financing costs | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three Months Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM DISCONTINUED OPERATIONS: | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Net cash used in discontinued operations | ( | ( | |||||||||
| Effect of exchange rate changes on cash and equivalents | |||||||||||
| NET INCREASE IN CASH AND EQUIVALENTS | |||||||||||
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
| CASH AND EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
About Griffon Corporation
Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities, as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.
The Company was founded in 1959, is a Delaware corporation headquartered in New York, N.Y. and is listed on the New York Stock Exchange (NYSE:GFF).
Griffon conducts its operations through two reportable segments:
•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 Cornell and Cookson brands.
•Consumer and Professional Products (“CPP”) is a leading global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid.
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 fiscal year ended September 30, 2023, 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 businesses 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, 2023 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2023.
The condensed consolidated financial statements include the accounts of Griffon and all subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates may be adjusted due to changes in economic, industry or customer financial conditions, as well as changes in technology or demand. Significant estimates include expected loss allowances for credit losses and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization
6
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.
NOTE 2 – FAIR VALUE MEASUREMENTS
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates.
Applicable accounting guidance establishes a fair value hierarchy requiring the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The accounting guidance establishes three levels of inputs that may be used to measure fair value, as follows:
•Level 1 inputs are measured and recorded at fair value based upon quoted prices in active markets for identical assets.
•Level 2 inputs include inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
•Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
On December 31, 2023, the fair values of Griffon’s 2028 senior notes and Term Loan B facility approximated $945,532 and $462,153 , respectively. Fair values were based upon quoted market prices (level 1 inputs).
Insurance contracts with values of $3,711 at December 31, 2023 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 and $634 is included in other assets on the Consolidated Balance Sheets.
Items Measured at Fair Value on a Recurring Basis
In the normal course of business, Griffon’s operations are exposed to the effects of changes in foreign currency exchange rates related to inventory purchases. To manage these risks, Griffon may enter into various derivative contracts such as foreign currency exchange contracts, including forwards and options. As of December 31, 2023, Griffon entered into several such contracts in order to lock into a foreign currency rate for planned settlements of trade liabilities payable in U.S. dollars.
At December 31, 2023, Griffon had $61,000 of Australian dollar contracts at a weighted average rate of $1.50 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to changes in fair value deferred and recorded in Accumulated other comprehensive income (loss) ("AOCI") and Prepaid and other current assets, or Accrued liabilities, until settlement. Upon settlement, gains and losses are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) in Cost of goods and services ("COGS"). AOCI included deferred losses of $1,425 ($997 , net of tax) at December 31, 2023. Upon settlement, gains of $525 were recorded in COGS during the three months ended December 31, 2023. All contracts expire in 30 to 240 days.
At December 31, 2023, Griffon had $44,000 of Chinese Yuan contracts at a weighted average rate of $7.02 which qualified for hedge accounting (level 2 inputs). These hedges were all deemed effective as cash flow hedges with gains and losses related to
7
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
changes in fair value deferred and recorded in 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 COGS. AOCI included deferred losses of $307 ($224 , net of tax) at December 31, 2023. Upon settlement, losses of $636 were recorded in COGS during the three months ended December 31, 2023. All contracts expire in 3 to 283 days.
NOTE 3 – REVENUE
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting. A contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and with respect to which payment terms are identified and collectability is probable. Once the Company has entered into a contract or purchase order, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized when control of the promised products is transferred to the customer, or services are satisfied under the contract or purchase order, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price).
The Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment.
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, 2023. See Note 12 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.
NOTE 4 – INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out or average cost) or net realizable value.
The following table details the components of inventory:
| At December 31, 2023 | At September 30, 2023 | ||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
8
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
The following table details the components of property, plant and equipment, net:
| At December 31, 2023 | At September 30, 2023 | ||||||||||
| Land, building and building improvements | $ | $ | |||||||||
| Machinery and equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Depreciation expense for property, plant and equipment was $9,267 and $11,489 for the quarters ended December 31, 2023 and 2022, respectively. Depreciation included in Selling, general and administrative ("SG&A") expenses was $3,999 and $4,239 for the quarters ended December 31, 2023 and 2022, respectively. Remaining components of depreciation, attributable to manufacturing operations, are included in Cost of goods and services.
In connection with the expansion of CPP's global sourcing strategy announced on May 3, 2023, certain owned manufacturing locations which ceased operations have met the criteria to be classified as held for sale as of December 31, 2023. The net book value of these properties as of December 31, 2023 totaled $15,010 .
NOTE 6 – CREDIT LOSSES
The Company is exposed to credit losses primarily through sales of products and services. Trade receivables are recorded at their stated amount, less allowances for discounts, credit losses and returns. The Company’s expected loss allowance methodology for trade receivables is primarily based on the aging method of the accounts receivables balances and the financial condition of its customers. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency), discounts related to early payment of accounts receivables by customers and estimates for returns. The allowance for credit losses includes amounts for certain customers in which a risk of default has been specifically identified, as well as an amount for customer defaults, based on a formula, when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. Allowance for discounts and returns are recorded as a reduction of revenue and the provision related to the allowance for credit losses is recorded in SG&A expenses.
The Company also considers current and expected future economic and market conditions when determining any estimate of credit losses. Generally, estimates used to determine the allowance are based on assessment of anticipated payment and all other historical, current and future information that is reasonably available. All accounts receivable amounts are expected to be collected in less than one year.
Based on a review of the Company's policies and procedures across all segments, including the aging of its trade receivables, recent write-off history and other factors related to future macroeconomic conditions, Griffon determined that its method to determine credit losses and the amount of its allowances for bad debts is in accordance with the accounting guidance for credit losses on financial instruments, including trade receivables, in all material respects.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected:
9
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
| Three months ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Beginning Balance, October 1 | $ | $ | ||||||
| Provision for expected credit losses | ||||||||
| Amounts written off charged against the allowance | ( | ( | ||||||
| Other, primarily foreign currency translation | ||||||||
| Ending Balance, December 31 | $ | $ | ||||||
NOTE 7 – GOODWILL AND OTHER INTANGIBLES
Indicators of impairment were not present for any of Griffon's reporting units during the three months ended December 31, 2023. The following table provides a summary of the carrying value of goodwill by segment as of September 30, 2023 and December 31, 2023, as follows:
| Consumer and Professional Products | $ | ||||||||||||||||||||||||||||
| Home and Building Products | |||||||||||||||||||||||||||||
| Total | $ | ||||||||||||||||||||||||||||
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:
| At December 31, 2023 | At September 30, 2023 | ||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Average Life (Years) | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||||||||
| Customer relationships & other | $ | $ | $ | $ | |||||||||||||||||||||||||
| Technology and patents | |||||||||||||||||||||||||||||
| Total amortizable intangible assets | |||||||||||||||||||||||||||||
| Trademarks | — | — | |||||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | |||||||||||||||||||||||||
The gross carrying amount of intangible assets was impacted by $3,518 related to favorable foreign currency translation.
10
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 8 – INCOME TAXES
During the quarter ended December 31, 2023, the Company recognized a tax provision of $17,965 on income before taxes of $60,142 , compared to $19,318 on income before taxes of $68,020 in the prior year quarter. The current year quarter results included strategic review costs - retention and other of $4,658 ($3,500 , net of tax), restructuring charges of $12,400 ($9,213 , net of tax), gain on sale of building of $547 ($406 , net of tax); and discrete and certain other tax provisions, net, that affect comparability of $783 . The prior year quarter results included strategic review - retention and other of $8,232 ($6,222 , net of tax); proxy costs of $1,503 ($1,153 , net of tax); gain on the sale of building $10,852 ($8,323 , net of tax); and discrete and certain other tax benefits, net, that affect comparability of $333 . Excluding these items, the effective tax rates for the quarters ended December 31, 2023 and 2022 were 27.9 % and 29.1 %, respectively.
11
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 9 – LONG-TERM DEBT
| At December 31, 2023 | At September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Outstanding Balance | Original Issuer Premium/(Discount) | Capitalized Fees & Expenses | Balance Sheet | Coupon Interest Rate | Outstanding Balance | Original Issuer Premium/(Discount) | Capitalized Fees & Expenses | Balance Sheet | Coupon Interest Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior notes due 2028 | (a) | $ | $ | ( | $ | % | $ | $ | $ | ( | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loan B due 2029 | (b) | ( | ( | Variable | ( | ( | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revolver due 2025 | (b) | ( | Variable | ( | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non US lines of credit | (d) | Variable | ( | ( | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other long term debt | (e) | ( | Variable | ( | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Totals | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| less: Current portion | ( | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | $ | $ | ( | $ | ( | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective Interest Rate | Cash Interest | Amort. Debt (Premium)/Discount | Amort. Debt Issuance Costs & Other Fees | Total Interest Expense | Effective Interest Rate | Cash Interest | Amort. Debt (Premium)/Discount | Amort. Debt Issuance Costs & Other Fees | Total Interest Expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior notes due 2028 | (a) | % | $ | $ | ( | $ | $ | % | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loan B due 2029 | (b) | % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revolver due 2025 | (b) | Variable | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance lease - real estate | (c) | n/a | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non US lines of credit | (d) | Variable | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other long term debt | (e) | Variable | Variable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capitalized interest | ( | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
12
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
(a) During 2020, Griffon issued, at par, $1,000,000 5.75 % Senior Notes due 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem $1,000,000 5.25 % Senior Notes due 2022. In connection with the issuance and exchange of the 2028 Senior Notes, Griffon capitalized $16,448 of underwriting fees and other expenses incurred, which is being amortized over the term of such notes. During 2022, Griffon purchased $25,225 of 2028 Senior Notes in the open market at a weighted average discount of 91.82 % of par, or $23,161 . As of December 31, 2023, outstanding 2028 Senior Notes due totaled $974,775 ; interest is payable semi-annually on March 1 and September 1.
The 2028 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The 2028 Senior Notes were registered under the Securities Act of 1933, as amended (the "Securities Act") via exchange offer. The fair value of the 2028 Senior Notes approximated $945,532 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $8,415 of underwriting fees and other expenses incurred remained to be amortized.
(b) On August 1, 2023, Griffon amended and restated its Credit Agreement (as amended, "Credit Agreement"). The amendment increased the maximum borrowing availability on its revolving credit facility from $400,000 to $500,000 (the "Revolver") and extended the maturity date of the Revolver from March 22, 2025 to August 1, 2028. In the event the 2028 Senior Notes are not repaid, refinanced, or replaced prior to December 1, 2027, the Revolver will mature on December 1, 2027. The amendment also modified certain other provisions of the Credit Agreement, including increasing the letter of credit sub-facility under the Revolver from $100,000 to $125,000 and increasing the customary accordion feature from a minimum of $375,000 to a minimum of $500,000 . The Revolver also includes a multi-currency sub-facility of $200,000 .
Borrowings under the Revolver may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a Secured Overnight Financing Rate ("SOFR"), Sterling Overnight Index Average ("SONIA") or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Griffon's SOFR loans accrue interest at TERM SOFR plus a credit adjustment spread and a margin of 2.00 % (7.46 % at December 31, 2023); SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 2.00 % (7.22 % at December 31, 2023); and base rate loans accrue interest at prime rate plus a margin of 1.00 % (9.50 % at December 31, 2023).
At December 31, 2023, under the Revolver, there were $21,500 in outstanding borrowings; outstanding standby letters of credit were $12,962 ; and $465,538 was available, subject to certain loan covenants, for borrowing at that date.
On January 24, 2022, Griffon amended and restated its Credit Agreement to provide for a new $800,000 Term Loan B facility, due January 24, 2029, in addition to the Revolver. The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50 %, and a spread of 2.25 % (7.75 % as of December 31, 2023). The Term Loan B was issued at 99.75 % of par value. In connection with this amendment, Griffon capitalized $15,466 of underwriting fees and other expenses incurred, which are being amortized over the term of the loan.
The Term Loan B facility requires nominal quarterly principal payments of $2,000 , potential additional annual principal payments based on a percentage of excess cash flow and certain secured leverage thresholds starting with the fiscal year ending September 30, 2023; and a final balloon payment due at maturity. At September 30, 2023, Griffon's secured leverage remained below the threshold set forth in the Credit Agreement that would, if exceeded, require Griffon to make an additional payment, and therefore no additional annual principal payment was required. Term Loan B borrowings may generally be repaid without penalty but may not be re-borrowed. During 2023 and 2022, Griffon prepaid $25,000 and $300,000 , respectively, aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance. In connection with the prepayment of the Term Loan B, Griffon recognized a charge of $437 and $6,296 on the prepayment of debt in 2023 and 2022, respectively. The charges were comprised of write-offs of underwriting fees and other expenses of $386 and $5,575 for 2023 and 2022, respectively, and the original issue discount of $51 and $721 for 2023 and 2022, respectively. The Term Loan B facility is subject to the same affirmative and negative covenants that apply to the Revolver (as described below), but is not subject to any financial maintenance covenants. Term Loan B borrowings are secured by the same collateral as the Revolver on an equal and ratable basis. The fair value of the Term Loan B facility approximated $462,153 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $6,708 of underwriting fees and other expenses incurred, remained to be amortized. At December 31, 2023, $461,000 of the Term Loan B was outstanding.
13
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
The Revolver has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Both the Revolver and Term Loan B 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.
(c) On September 28, 2023, the Company closed on the exercise of its lease purchase option, as permitted under the lease agreement, to acquire ownership of the manufacturing facility located in Ocala, Florida for a cash purchase price of $23,207 . The Ocala lease had a maturity date in 2025 and bore interest at a fixed rate of approximately 5.6 %. As a result of exercising the purchase option, the Company no longer has any future lease obligations related to this real estate. The remaining lease liability balance relates to finance equipment leases. Refer to Note 20-Leases for further details.
(d) In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($11,363 as of December 31, 2023) revolving credit facility. Effective in December 2023, the facility was amended to replace the Canadian Dollar Offer Rate with the Canadian Overnight Repo Rate Average ("CORRA"). The facility accrues interest at CORRA or the Bankers Acceptance Rate (CDN) plus 1.3 % per annum (6.36 % using CORRA and 6.53 % using Bankers Acceptance Rate CDN as of December 31, 2023). The revolving facility matures in December 2024, but is renewable upon mutual agreement with the lender. Garant is required to maintain a certain minimum equity. At December 31, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($11,363 as of December 31, 2023) available.
During 2022, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 18,375 term loan, AUD 20,000 revolver and AUD 15,000 receivable purchase facility agreement that was entered into in July 2016 and further amended in fiscal 2020. Griffon Australia paid off the term loan in the amount of AUD 9,625 and canceled the AUD 20,000 revolver. In March 2023 the existing receivable purchase facility was renewed and increased from AUD 15,000 to AUD 30,000 . The receivable purchase facility matures in March 2024, but is renewable upon mutual agreement with the lender. The receivable purchase facility accrues interest at BBSY (Bank Bill Swap Rate) plus 1.25 % per annum (5.56 % at December 31, 2023). At December 31, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($20,511 as of December 31, 2023) available. The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level.
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, which matured in July 2023. Prior to maturity, on June 30, 2023, AMES UK paid off and cancelled the GBP 14,000 term loan and GBP 4,000 mortgage loan. The payoff amounts were GBP 7,525 ($9,543 ) and GBP 2,451 ($3,108 ), respectively. Upon maturity in July 2023, the GBP 5,000 revolver had no balance and was not renewed.
(e) Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases.
At December 31, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of all credit and loan agreements.
14
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 10 — SHAREHOLDERS’ EQUITY AND EQUITY COMPENSATION
During the three months ended December 31, 2023, the Company paid a quarterly cash dividend of $0.15 per share. During 2023, the Board of Directors approved two quarterly cash dividends each for $0.10 per share, and two quarterly cash dividends of $0.125 per share, totaling $0.45 . Additionally, on April 19, 2023, the Board of Directors declared a special cash dividend of $2.00 per share, paid on May 19, 2023, to shareholders of record as of the close of business on May 9, 2023. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends. Dividends paid on shares in the ESOP were used to offset ESOP compensation expense. For all dividends, a dividend payable is established for the holders of restricted shares; such dividends will be released upon vesting of the underlying restricted shares.
On February 6, 2024, the Board of Directors declared a quarterly cash dividend of $0.15 per share, payable on March 21, 2024 to shareholders of record as of the close of business on February 29, 2024.
On January 29, 2016, shareholders approved the Griffon Corporation 2016 Equity Incentive Plan (the "Original Incentive Plan") pursuant to which, among other things, 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 Original Incentive Plan pursuant to which, among other things, 1,000,000 shares were added to the Original Incentive Plan; on January 30, 2020, shareholders approved Amendment No. 2 to the Original Incentive Plan, pursuant to which 1,700,000 shares were added to the Original Incentive Plan; and on February 17, 2022, shareholders approved the Amended and Restated 2016 Equity Incentive Plan (the “Amended Incentive Plan”), which amended and restated the Original Incentive Plan and pursuant to which, among other things, 1,200,000 shares were added to the Original Incentive Plan. A proposal to approve an amendment to add 2,600,000 shares to the Amended Incentive Plan (the “Amendment”) is included in Griffon’s Proxy Statement dated January 29, 2024 related to the 2024 Annual Meeting of Shareholders, scheduled to be held on March 20, 2024. If shareholders approve this proposal, 2,600,000 shares will be added to the Amended Incentive Plan as of the date of the 2024 Annual Meeting of Shareholders. Options granted under the Amended 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 Amended Incentive Plan, before giving effect to the Amendment, is 6,250,000 (600,000 of which may be issued as incentive stock options), plus (i) any shares that were reserved for issuance under the Original Incentive Plan as of the effective date of the Original Incentive Plan, and (ii) any shares underlying awards outstanding on such date under the 2011 Incentive Plan that were subsequently canceled or forfeited. As of December 31, 2023, there were 154,369 shares available for grant.
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 or units granted multiplied by the stock price on the date of grant, and for performance shares, including performance units, the likelihood of achieving the performance criteria. The Company recognizes forfeitures as they occur. 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 to four years , is recognized using the straight-line attribution method and recorded within SG&A expenses.
The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:
| For the Three Months Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Restricted stock | $ | $ | |||||||||||||||
| ESOP | |||||||||||||||||
| Total stock-based compensation | $ | $ | |||||||||||||||
During the first quarter of 2024, Griffon granted 174,104 shares of restricted stock and restricted stock units ("RSUs"). This includes 166,272 shares of restricted stock and 7,832 RSUs granted to 43 executives and key employees, subject to certain
15
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
performance conditions, with a vesting period of thirty-six months and a total fair value of $8,225 , or a weighted average fair value of $47.24 per share. During the quarter ended December 31, 2023, 166,272 shares granted were issued out of treasury stock.
On April 19, 2023, the Company's Board of Directors approved a $200,000 increase to Griffon's share repurchase program to $257,955 from the prior unused board authorizations of $57,955 . Also, on November 15, 2023, Griffon announced that the Board of Directors approved an additional increase of $200,000 to its share repurchase authorization. Under the authorized share repurchase program, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, pursuant to an accelerated share repurchase program or issuer tender offer, or in privately negotiated transactions. Share repurchases during the quarter ended December 31, 2023 totaled 1,634,454 shares of common stock, for a total of $69,640 , or an average of $42.61 per share. As of December 31, 2023, $237,543 remains under these Board authorized repurchase programs. During the quarter ended and as of December 31, 2023, $696 and $1,997 , respectively, were accrued for excise taxes for share repurchases.
NOTE 11 – EARNINGS PER SHARE (EPS)
Basic EPS 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 December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Common shares outstanding | |||||||||||||||||||||||
| Unallocated ESOP shares | ( | ( | |||||||||||||||||||||
| Non-vested restricted stock | ( | ( | |||||||||||||||||||||
| Impact of weighted average shares | ( | ||||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Incremental shares from stock-based compensation | |||||||||||||||||||||||
| Weighted average shares outstanding - diluted | |||||||||||||||||||||||
16
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 12 – BUSINESS SEGMENTS
Griffon reports its operations through two reportable segments, as follows:
•Home and Building Products ("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 Cornell and Cookson brands.
•Consumer and Professional Products (“CPP”) is a leading global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid.
Information on Griffon’s reportable segments is as follows:
| For the Three Months Ended December 31, | |||||||||||||||||||||||
| REVENUE | 2023 | 2022 | |||||||||||||||||||||
| Home and Building Products | $ | $ | |||||||||||||||||||||
| Consumer and Professional Products | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
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:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Residential repair and remodel | $ | $ | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||
| Residential new construction | ||||||||||||||||||||||||||
| Total Home and Building Products | ||||||||||||||||||||||||||
| Residential repair and remodel | ||||||||||||||||||||||||||
| Retail | ||||||||||||||||||||||||||
| Residential new construction | ||||||||||||||||||||||||||
| Industrial | ||||||||||||||||||||||||||
| International excluding North America | ||||||||||||||||||||||||||
| Total Consumer and Professional Products | ||||||||||||||||||||||||||
| Total Consolidated Revenue | $ | $ | ||||||||||||||||||||||||
17
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
The following table presents revenue disaggregated by geography based on the location of the Company's customer:
| For the Three Months Ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||
| HBP | CPP | Total | HBP | CPP | Total | ||||||||||||||||||||||||
| United States | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||||||||
| Canada | |||||||||||||||||||||||||||||
| Australia | |||||||||||||||||||||||||||||
| All other countries | |||||||||||||||||||||||||||||
| Consolidated revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Griffon evaluates performance and allocates resources based on segment adjusted EBITDA and adjusted EBITDA, non-GAAP measures, which is defined as income before taxes, excluding interest income and expense, depreciation and amortization, strategic review charges, non-cash impairment charges, restructuring charges, gain/loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable. Segment adjusted EBITDA also excludes unallocated amounts, mainly corporate overhead. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of segment and adjusted EBITDA to income before taxes:
18
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
| For the Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Segment adjusted EBITDA: | ||||||||||||||||||||||||||
| Home and Building Products | $ | $ | ||||||||||||||||||||||||
| Consumer and Professional Products | ( | |||||||||||||||||||||||||
| Segment adjusted EBITDA | ||||||||||||||||||||||||||
| Unallocated amounts, excluding depreciation * | ( | ( | ||||||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||||||||
| Net interest expense | ( | ( | ||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ||||||||||||||||||||||||
| Restructuring charges | ( | |||||||||||||||||||||||||
| Gain on sale of building | ||||||||||||||||||||||||||
| Strategic review - retention and other | ( | ( | ||||||||||||||||||||||||
| Proxy expenses | ( | |||||||||||||||||||||||||
| Income before taxes | $ | $ | ||||||||||||||||||||||||
* Unallocated amounts typically include general corporate expenses not attributable to a reportable segment.
| For the Three Months Ended December 31, | ||||||||||||||||||||||||||
| DEPRECIATION and AMORTIZATION | 2023 | 2022 | ||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||
| Home and Building Products | $ | $ | ||||||||||||||||||||||||
| Consumer and Professional Products | ||||||||||||||||||||||||||
| Total segment depreciation and amortization | ||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||
| Total consolidated depreciation and amortization | $ | $ | ||||||||||||||||||||||||
| CAPITAL EXPENDITURES | ||||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||
| Home and Building Products | $ | $ | ||||||||||||||||||||||||
| Consumer and Professional Products | ||||||||||||||||||||||||||
| Total segment | ||||||||||||||||||||||||||
| Corporate | ||||||||||||||||||||||||||
| Total consolidated capital expenditures | $ | $ | ||||||||||||||||||||||||
19
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
| ASSETS | At December 31, 2023 | At September 30, 2023 | |||||||||
| Segment assets: | |||||||||||
| Home and Building Products | $ | $ | |||||||||
Consumer and Professional Products(1) | |||||||||||
| Total segment assets | |||||||||||
| Corporate | |||||||||||
| Total assets | |||||||||||
| Discontinued operations | |||||||||||
| Consolidated total | $ | $ | |||||||||
(1) In connection with the expansion of CPP's global sourcing strategy, certain owned manufacturing locations which ceased operations have met the criteria to be classified as held for sale as of December 31, 2023. The net book value of these properties as of December 31, 2023 totaled $15,010 .
NOTE 13 – EMPLOYEE BENEFIT PLANS
Defined benefit pension expense (income) included in Other Income (Expense), net was as follows:
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Interest cost | $ | $ | |||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Recognized actuarial loss | |||||||||||||||||||||||
| Net periodic expense | $ | $ | |||||||||||||||||||||
NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. This standard expands disclosures regarding a public entity’s reportable segments and requires additional information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The standard does not change the definition of operating segments. This standard is effective for the Company beginning with our fiscal year 2025, with early adoption permitted. The Company is currently evaluating the potential changes to its reportable segment disclosures and related impact on its business and financial reporting processes and information technology systems. The Company does not expect the adoption of this standard to have an impact on its financial position, results of operations, or cash flows.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosure. The standard requires significant additional disclosures focused on income taxes paid and the rate reconciliation table. Specifically, the amendments in the standard require the Company to disclose disaggregated: (1) income taxes paid by federal, state, and foreign taxes on both an interim and annual basis, (2) pre-tax income between domestic and foreign, and (3) income tax expense by federal, state and foreign tax expense. The standard also requires the Company to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This standard is effective for the Company beginning with our fiscal year 2026, with retrospective application permitted. The Company is currently evaluating the potential changes to its income tax disclosures and related impact on its financial reporting processes
20
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
and information technology systems. The Company does not expect the adoption of this standard to have an impact on its financial position, results of operations, or cash flows.
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.
NOTE 15 – DISCONTINUED OPERATIONS
At December 31, 2023 and September 30, 2023, Griffon’s liabilities for discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves total $8,703 and $11,798 , respectively. The following amounts summarize the total assets and liabilities 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 December 31, 2023 | At September 30, 2023 | ||||||||||
| Assets of discontinued operations: | |||||||||||
| Prepaid and other current assets | $ | $ | |||||||||
| Other long-term assets | |||||||||||
| Total assets of discontinued operations | $ | $ | |||||||||
| Liabilities of discontinued operations: | |||||||||||
| Accrued liabilities, current | $ | $ | |||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities of discontinued operations | $ | $ | |||||||||
There was no reported revenues or costs in the three months ended December 31, 2023 and 2022 for discontinued operations.
NOTE 16 – RESTRUCTURING CHARGES
In response to changing market conditions, Griffon announced in May 2023 that CPP is expanding its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines.
By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace.
The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its facility footprint by approximately 1.2 million square feet, or approximately 15 % of CPP's square footage, and its headcount by approximately 600 . Operations have ceased at Camp Hill and Harrisburg, PA; Fairfield, IA; and four wood mills. The final facility, in Grantsville, MD, is expected to close by March 2024. The closed locations, totaling a net book value of $15,010 , have met the held for sale criteria and have been classified as such on our Balance Sheet as of December 31, 2023.
Implementation of this strategy over the duration of the project will result in charges of $120,000 to $130,000 , including $50,000 to $55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of $3,000 to $5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition.
In the quarter ended December 31, 2023, CPP incurred pre-tax restructuring and related exit costs approximating $12,400 . During the quarter ended December 31, 2023, cash charges totaled $3,918 and non-cash, asset-related charges totaled $8,482 . The cash charges included $1,847 for one-time termination benefits and other personnel-related costs and $2,071 for facility exit costs. Non-cash charges of $8,482 were recorded to adjust inventory to net realizable value.
21
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
A summary of the restructuring and other related charges included in Cost of goods and services and SG&A expenses in the Company's Condensed Consolidated Statements of Operations were as follows:
| For the Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||
| Cost of goods and services | $ | ||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Total restructuring charges | $ | ||||||||||||||||||||||
| For the Three Months Ended December 31, | ||||||||||||||||||||
| 2023 | ||||||||||||||||||||
| Personnel related costs | $ | |||||||||||||||||||
| Facilities, exit costs and other | ||||||||||||||||||||
| Non-cash facility and other | ||||||||||||||||||||
| Total | $ | |||||||||||||||||||
The following tables summarizes the accrued liabilities of the Company's restructuring actions for the three months ended December 31, 2023:
| Cash Charges | Non-Cash | ||||||||||||||||||||||
| Personnel related costs | Facilities & Exit Costs | Facility and Other Costs(1) | Total | ||||||||||||||||||||
| Accrued liability at September 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Restructuring charges | |||||||||||||||||||||||
| Cash payments | ( | ( | ( | ||||||||||||||||||||
| Non-cash charges | ( | ( | |||||||||||||||||||||
| Accrued liability at December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
(1) Non-cash charges in Facility and Other Costs represent non-cash impairment charges to adjust inventory to net realizable value.
NOTE 17 – OTHER INCOME (EXPENSE)
For the quarters ended December 31, 2023 and 2022, Other income (expense) of $632 and $607 , respectively, includes $13 and $67 , respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan expense of $34 and $216 , respectively, and net investment income of $56 and $33 , respectively. Other income (expense) also includes rental income of $0 and $212 and royalty income of $592 and $549 for the three months ended December 31, 2023 and 2022, respectively.
22
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
NOTE 18 – WARRANTY LIABILITY
HBP and CPP offer warranties against product defects for periods generally ranging from to ten years , with limited lifetime warranties on certain door and fan models. Typical warranties require HBP and CPP 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. Warranty costs expected to be incurred in the next 12 months are classified in accrued liabilities. Warranty costs expected to be incurred beyond one year are classified in other long-term liabilities. The current portion of warranty was $15,461 as of December 31, 2023 and $20,781 as of September 30, 2023. The long-term warranty liability was $1,239
Changes in Griffon’s warranty liability in accrued liabilities for the three months ended December 31, 2023 and 2022 were as follows:
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Balance, beginning of period | $ | $ | |||||||||||||||||||||
| Warranties issued and changes in estimated pre-existing warranties | |||||||||||||||||||||||
| Actual warranty costs incurred | ( | ( | |||||||||||||||||||||
| Balance, end of period | $ | $ | |||||||||||||||||||||
NOTE 19 – OTHER COMPREHENSIVE INCOME (LOSS)
The amounts recognized in other comprehensive income (loss) were as follows:
| For the Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | Net of tax | Pre-tax | Tax | Net of tax | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Pension and other defined benefit plans | ( | ( | |||||||||||||||||||||||||||||||||
| Cash flow hedges | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The components of Accumulated other comprehensive income (loss) are as follows:
| At December 31, 2023 | At September 30, 2023 | ||||||||||
| Foreign currency translation adjustments | $ | ( | $ | ( | |||||||
| Pension and other defined benefit plans | ( | ( | |||||||||
| Cash flow hedges | ( | ( | |||||||||
Total | $ | ( | $ | ( | |||||||
23
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
Amounts reclassified from accumulated other comprehensive income (loss) to income were as follows:
| For the Three Months Ended December 31, | |||||||||||||||||||||||
| Gain (Loss) | 2023 | 2022 | |||||||||||||||||||||
| Pension amortization | $ | ( | $ | ( | |||||||||||||||||||
| Cash flow hedges | ( | ||||||||||||||||||||||
| Total gain (loss) before tax | $ | ( | $ | ||||||||||||||||||||
| Tax benefit (expense) | ( | ||||||||||||||||||||||
| Net of tax | $ | ( | $ | ||||||||||||||||||||
NOTE 20 — LEASES
The Company recognizes right-of-use ("ROU") assets and lease liabilities on the balance sheet, with the exception of leases with a term of twelve months or less. 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 leases are immaterial. ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment.
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. Lease payments primarily include rent and insurance costs (lease components). The Company's leases also include non-lease components such as real estate taxes and common-area maintenance costs. The Company elected the practical expedient to account for lease and non-lease components as a single component. In certain of the Company's leases, the non-lease components are variable and in accordance with the standard are therefore excluded from lease payments to determine the ROU asset. 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. 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.
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. Components of operating lease costs are as follows:
| For the Three Months Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Fixed | $ | $ | ||||||||||||
Variable (a), (b) | ||||||||||||||
Short-term (b) | ||||||||||||||
| Total | $ | $ | ||||||||||||
________________
(a) Primarily relates to common-area maintenance and property taxes.
(b) Not recorded on the balance sheet.
24
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
Supplemental cash flow information were as follows:
| For the Three Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Financing cash flows from finance leases | ||||||||
| Total | $ | $ | ||||||
Supplemental Condensed Consolidated Balance Sheet information related to leases were as follows:
| December 31, 2023 | September 30, 2023 | |||||||
| Operating Leases: | ||||||||
| Right of use assets: | ||||||||
| Operating right-of-use assets | $ | $ | ||||||
| Lease Liabilities: | ||||||||
| Current portion of operating lease liabilities | $ | $ | ||||||
| Long-term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance Leases: | ||||||||
| $ | $ | |||||||
| Lease Liabilities: | ||||||||
| $ | $ | |||||||
| Total financing lease liabilities | $ | $ | ||||||
(1) Finance lease assets are recorded net of accumulated depreciation of $1,645 and $6,769 as of December 31, 2023 and September 30, 2023, respectively.
On September 28, 2023, the Company closed on the exercise of its lease purchase option, as permitted under the lease agreement, to acquire ownership of the manufacturing facility located in Ocala, Florida for a cash purchase price of $23,207 . The Ocala lease had a maturity date in 2025 and bore interest at a fixed rate of approximately 5.6 %. As a result of exercising the purchase option, the Company no longer has any future lease obligations related to this real estate. The remaining lease liability balance relates to finance equipment leases.
25
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
The aggregate future maturities of lease payments for operating leases and finance leases as of December 31, 2023 are as follows (in thousands):
| Operating Leases | Finance Leases | |||||||
| 2024(a) | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | $ | $ | ||||||
| Less: Imputed Interest | ( | ( | ||||||
| Present value of lease liabilities | $ | $ | ||||||
(a) Excluding the quarter ended December 31, 2023.
Average lease terms and discount rates at December 31, 2023 were as follows:
| Weighted-average remaining lease term (years): | ||||||||
| Operating leases | ||||||||
| Finance Leases | ||||||||
| Weighted-average discount rate: | ||||||||
| Operating Leases | % | |||||||
| Finance Leases | % | |||||||
NOTE 21 — COMMITMENTS AND CONTINGENCIES
Legal and environmental
Peekskill Site. Lightron Corporation (“Lightron”), a wholly-owned subsidiary of Griffon, once conducted lamp manufacturing and metal finishing operations at a location in the Town of Cortlandt, New York, just outside the city of Peekskill, New York (the “Peekskill Site”) which was owned by ISC Properties, Inc. (“ISCP”), a wholly-owned subsidiary of Griffon, for approximately three years . ISCP sold the Peekskill Site in November 1982.
Based upon studies conducted by ISCP and the New York Department of Environmental Conservation, soils and groundwater beneath the Peekskill Site contain chlorinated solvents and metals. Stream sediments downgradient from the Peekskill Site also contain metals. On May 15, 2019 the United States Environmental Protection Agency ("EPA") added the Peekskill Site to the National Priorities List under CERCLA and has since reached agreement with Lightron and ISCP pursuant to which Lightron and ISCP will perform a Remedial Investigation/Feasibility Study (“RI/FS”). Performance of the RI/FS is expected to be completed in calendar 2024/2025.
Lightron has not engaged in any operations in over three decades. ISCP functioned solely as a real estate holding company and has not held any real property in over three decades. Griffon does not acknowledge any responsibility to perform any investigation or remediation at the Peekskill Site. One of Griffon’s insurers is defending Lightron, ISCP and Griffon subject to a reservation of rights and is paying the costs of the RI/FS.
26
GRIFFON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(US dollars and non US currencies in thousands, except per share data)
(Unaudited)
Memphis, TN site. Hunter Fan Company (“Hunter”) operated headquarters and a production plant in Memphis, TN for over 50 years (the “Memphis Site”). While Hunter completed certain on-site remediation of PCB-contaminated soils, Hunter did not investigate the extent to which PCBs existed beneath the building itself nor determine whether off-site areas had been impacted. Hunter vacated the site approximately twenty years ago, and the on-site buildings have now been demolished.
The State of Tennessee Department of Environment and Conservation (“TDEC”) identified the Memphis site as being potentially contaminated, raising the possibility that site operations could have resulted in soil and groundwater contamination involving volatile organic compounds and metals. In 2021, the TDEC performed a preliminary assessment of the site and recommended to the United States Environmental Protection Agency (“EPA”) that it include the site on the National Priorities List established under CERCLA. The TDEC further recommended that the EPA fund an investigation of potential soil gas contamination in receptors near the site. The TDEC has also indicated that it will proceed with this investigation if the EPA does not act.
It is unknown whether the EPA will add the Memphis Site to the National Priorities List, whether a site investigation will reveal contamination and, if there is contamination, the extent of any such contamination. However, given that certain PCB work was not completed in the past and the TDEC’s stated intent for the EPA to perform an investigation (and the statement by the TDEC that it will perform the investigation if the EPA will not), liability is probable in this matter. There are other potentially responsible parties for this site, including a former owner of Hunter; Hunter has notified such former owner of this matter, which may have certain liability for any required remediation.
If the EPA decides to add this site to the National Priorities List, a Remedial Investigation/Feasibility Study (“RI/FS”) will be required. Hunter expects that the EPA will ask it to perform this work. If Hunter does not reach an agreement with the EPA to perform this work, the EPA will implement the RI/FS on its own. Should the EPA implement the RI/FS or perform further studies and/or subsequently remediate the site without first reaching an agreement with one or more relevant parties, the EPA would likely seek reimbursement from such parties, including Hunter, for the costs incurred.
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.
27
(Unless otherwise indicated, US dollars and non-US currencies are in thousands, except per share data)
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS
Overview
Griffon Corporation (the “Company”, “Griffon”, "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. 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).
Business Strategy
We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products.
Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels and conducting business across multiple countries which we consider our home markets.
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. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions.
Since 2017, we have undertaken a series of transformative transactions. We divested our specialty plastics business in 2018 and our defense electronics (Telephonics) business in 2022 to focus on our core markets and improve our free cash flow conversion. In our Home and Building Products ("HBP") segment, we acquired CornellCookson, Inc. ("CornellCookson") in 2018, which has been integrated into Clopay Corporation ("Clopay"), creating a leading North American manufacturer and marketer of residential garage doors and sectional commercial doors, and rolling steel doors and grille products, under brands that include Clopay, Ideal, Cornell and Cookson. In our Consumer and Professional Products ("CPP") segment, we expanded the scope of our brands through the acquisition of Hunter Fan Company ("Hunter") in January 2022 and ClosetMaid, LLC ("ClosetMaid") in 2018. We established an integrated headquarters for CPP in Orlando, Florida for our portfolio of leading brands that includes AMES, Hunter, True Temper and ClosetMaid.
CPP Global Sourcing Strategy Expansion and Restructuring Charges
In response to changing market conditions, Griffon announced in May 2023 that CPP is expanding its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines.
By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.
The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its facility footprint by approximately 1.2 million square feet, or approximately 15% of CPP's square footage, and its headcount by approximately 600. Operations have ceased at Camp Hill and Harrisburg, PA; Fairfield, IA; and four wood mills. The final facility, in Grantsville, MD, is expected to close by March 2024.
Implementation of this strategy over the duration of the project will result in charges of $120,000 to $130,000, including $50,000 to $55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of $3,000 to $5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are
28
expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition.
Further Information
Griffon posts and makes available, free of charge through its website at www.griffon.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information found on Griffon's website is not part of this or any other report it files with or furnishes to the SEC.
For information regarding revenue, profit and total assets of each segment, see the Business Segments footnote in the Notes to Consolidated Financial Statements.
Reportable Segments:
Griffon conducts its operations through two reportable segments:
•Home and Building Products ("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 Cornell and Cookson brands.
•Consumer and Professional Products (“CPP”) is a leading global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including AMES, since 1774, Hunter, since 1886, True Temper, and ClosetMaid.
29
OVERVIEW
Revenue for the quarter ended December 31, 2023 was $643,153 compared to $649,384 in the prior year quarter, a decrease of 1%. Revenue decreased at CPP by 2%, but remained consistent with the prior year at HBP. Net income was $42,177 or $0.82 per share, compared to $48,702, or $0.88 per share, in the prior year quarter.
The current year quarter results from operations included the following:
– Restructuring charges of $12,400 ($9,213, net of tax, or $0.18 per share);
– Gain on sale of building of $547 ($406, net of tax, or $0.01 per share);
– Strategic review - retention and other of $4,658 ($3,500, net of tax, or $0.07 per share); and
– Discrete and certain other tax provisions, net, of $783 or $0.02 per share.
The prior year quarter results from operations included the following:
– Gain on the sale of building $10,852 ($8,323, net of tax, or $0.15 per share);
– Strategic review - retention and other of $8,232 ($6,222, net of tax, or $0.11 per share);
– Proxy costs of $1,503 ($1,153, net of tax, or $0.02 per share); and
– Discrete and certain other tax benefits, net, of $333 or $0.01 per share.
Excluding these items from the respective periods, net income would have been $55,267, or $1.07 per share in the current year period ended December 31, 2023 compared to $47,421, or $0.86 per share, in the prior year period.
30
Griffon evaluates performance based on adjusted net income and the related adjusted earnings per share, which excludes restructuring charges, non-cash impairment charges, loss from debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of net income from operations to adjusted net income and earnings per share to adjusted earnings per share:
| For the Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 42,177 | $ | 48,702 | ||||||||||||||||||||||||||||||||||||||||
| Adjusting items: | ||||||||||||||||||||||||||||||||||||||||||||
Restructuring charges(1) | 12,400 | — | ||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of building | (547) | (10,852) | ||||||||||||||||||||||||||||||||||||||||||
| Strategic review - retention and other | 4,658 | 8,232 | ||||||||||||||||||||||||||||||||||||||||||
| Proxy expenses | — | 1,503 | ||||||||||||||||||||||||||||||||||||||||||
Tax impact of above items(2) | (4,204) | 169 | ||||||||||||||||||||||||||||||||||||||||||
Discrete and certain other tax provisions (benefits), net(3) | 783 | (333) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted net income | $ | 55,267 | $ | 47,421 | ||||||||||||||||||||||||||||||||||||||||
| Earnings per common share | $ | 0.82 | $ | 0.88 | ||||||||||||||||||||||||||||||||||||||||
| Adjusting items, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||
Restructuring charges(1) | 0.18 | — | ||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of building | (0.01) | (0.15) | ||||||||||||||||||||||||||||||||||||||||||
| Strategic review - retention and other | 0.07 | 0.11 | ||||||||||||||||||||||||||||||||||||||||||
| Proxy expenses | — | 0.02 | ||||||||||||||||||||||||||||||||||||||||||
Discrete and certain other tax provisions (benefits), net(3) | 0.02 | (0.01) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted earnings per common share | $ | 1.07 | $ | 0.86 | ||||||||||||||||||||||||||||||||||||||||
| Diluted weighted-average shares outstanding (in thousands) | 51,467 | 55,298 | ||||||||||||||||||||||||||||||||||||||||||
Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.
(1) For the quarter ended December 31, 2023, restructuring charges relate to the CPP global sourcing expansion, of which $11,646 are included in Cost of goods and services and $754 are included in SG&A.
(2) The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments.
(3) Discrete and certain other tax provisions (benefits) primarily relate to the impact of a rate differential between statutory and annual effective tax rate on items impacting the quarter.
31
RESULTS OF OPERATIONS
Three Months ended December 31, 2023 and 2022
Griffon evaluates performance and allocates resources based on each segment adjusted EBITDA, a non-GAAP measure, which is defined as income before taxes, excluding interest income and expense, depreciation and amortization, unallocated amounts (mainly corporate overhead), strategic review charges, non-cash impairment charges, restructuring charges, and acquisition related expenses, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. See table provided in Note 12 - Business Segments for a reconciliation of adjusted EBITDA to income before taxes.
Home and Building Products
| For the Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Residential | $ | 218,798 | $ | 227,059 | |||||||||||||||||||||||||||||||||||||||||||
| Commercial | 176,993 | 169,514 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 395,791 | $ | 396,573 | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 124,719 | 31.5 | % | $ | 124,145 | 31.3 | % | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 3,633 | $ | 3,846 | |||||||||||||||||||||||||||||||||||||||||||
For the quarter ended December 31, 2023, HBP revenue was consistent with the prior year quarter reflecting improved customer orders, and favorable pricing and mix of 4%, offset by the prior year volume benefit from elevated backlog.
For the quarter ended December 31, 2023, adjusted EBITDA of $124,719 was consistent with the prior year quarter. Adjusted EBITDA reflected reduced material costs and favorable pricing and mix offset by the unfavorable impact of reduced volume, noted above, and increased labor and distribution costs.
For the quarters ended December 31, 2023 and 2022, segment depreciation and amortization decreased $213 compared to the prior year period due to fully depreciated assets.
Consumer and Professional Products
| For the Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 151,172 | $ | 153,667 | |||||||||||||||||||||||||||||||||||||||||||
| Europe | 5,245 | 4,696 | |||||||||||||||||||||||||||||||||||||||||||||
| Canada | 21,028 | 23,116 | |||||||||||||||||||||||||||||||||||||||||||||
| Australia | 64,871 | 66,217 | |||||||||||||||||||||||||||||||||||||||||||||
| All other countries | 5,046 | 5,115 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 247,362 | $ | 252,811 | |||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 5,539 | 2.2 | % | $ | (1,809) | (0.7) | % | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 11,057 | $ | 13,127 | |||||||||||||||||||||||||||||||||||||||||||
For the quarter ended December 31, 2023, revenue decreased $5,449, or 2%, compared to the prior year period primarily due to decreased volume driven by reduced consumer demand in North America.
For the quarter ended December 31, 2023, adjusted EBITDA was $5,539 compared to $(1,809) in the prior year quarter, an increase of $7,348. The variance to the prior year was primarily due to decreased North American production costs, partially offset by the unfavorable impact of the reduced volume, noted above.
For the quarter ended December 31, 2023, segment depreciation and amortization decreased $2,070 compared to the prior year period, primarily related to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with restructuring activities.
32
CPP Global Sourcing Strategy Expansion and Restructuring Charges
In response to changing market conditions, Griffon announced in May 2023 that CPP is expanding its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines.
By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.
The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its U.S. facility footprint by approximately 1.2 million square feet, or 15% of CPP's square footage, and its headcount by approximately 600. Operations have ceased at Camp Hill and Harrisburg, PA; Fairfield, IA; and four wood mills. The final facility, in Grantsville, MD, is expected to close by March 2024.
Implementation of this strategy over the duration of the project will result in charges of $120,000 to $130,000, including $50,000 to $55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of $3,000 to $5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition.
In the quarter ended December 31, 2023, CPP incurred pre-tax restructuring charges of $12,400 consisting of cash charges of $3,918 and non-cash, asset related charges of $8,482 to adjust inventory to net realizable value. The cash charges included $1,847 for one-time termination benefits and other personnel-related costs and $2,071 for facility exit and other related costs. Since inception, cash charges totaled $37,454 and non-cash, asset-related charges totaled $67,414; the cash charges included $18,619 for one-time termination benefits and other personnel-related costs and $18,835 for facility exit and other related costs. Non-cash charges included a $22,018 impairment charge related to certain fixed assets at several manufacturing locations and $45,396 to adjust inventory to net realizable value.
| Cash Charges | Non-Cash Charges | |||||||||||||||||||||||||||||||
| Personnel related costs | Facilities, exit costs and other | Facilities, inventory and other | Total | Capital Investments | ||||||||||||||||||||||||||||
Anticipated Charges(1) | $ | 19,500 | $ | 35,500 | $ | 75,000 | $ | 130,000 | $ | 5,000 | ||||||||||||||||||||||
| Total 2023 restructuring charges | (16,772) | (16,764) | (58,932) | (92,468) | — | |||||||||||||||||||||||||||
| Q1 FY2024 Activity | (1,847) | (2,071) | (8,482) | (12,400) | — | |||||||||||||||||||||||||||
| Total cumulative charges | (18,619) | (18,835) | (67,414) | (104,868) | — | |||||||||||||||||||||||||||
| Estimate to Complete | $ | 881 | $ | 16,665 | $ | 7,586 | $ | 25,132 | $ | 5,000 | ||||||||||||||||||||||
Facility and equipment sales to date | $ | — | $ | — | $ | 547 | $ | 547 | $ | (547) | ||||||||||||||||||||||
(1)The above table represents the upper range of anticipated charges during the duration of the project.
Unallocated
For the quarter ended December 31, 2023, unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling $13,907 compared to $13,776 in the prior year quarter. The increase in the current quarter compared to the prior year periods, primarily relates to increased incentive and equity compensation, medical claims, and travel expenses.
33
Strategic review
During the three months ended December 31, 2023 and 2022, we incurred strategic review expenses of $4,658 ($3,500, net of tax) and $8,232 ($6,222, net of tax), respectively, primarily for retention payments and other associated costs related to the strategic review process that concluded in April 2023.
Proxy expenses
During the three months ended December 31, 2023, we did not incur any non-recurring proxy expenses. During the quarter ended December 31, 2022, non-recurring proxy expenses of $1,503 ($1,153, net of tax) related to a settlement entered into with a shareholder that had submitted a slate of director nominees.
Segment Depreciation and Amortization
For the quarter ended December 31, 2023, segment depreciation and amortization of $14,690 decreased $2,283 compared to $16,973 in the prior year quarter; the decrease primarily relates to fully depreciated assets and the write-down of certain fixed assets at several manufacturing facilities in connection with CPP's restructuring activities.
Other Income (Expense)
For the quarters ended December 31, 2023 and 2022, Other income (expense) of $632 and $607, respectively, includes $13 and $67, respectively, of net currency exchange gains in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan expense of $34 and $216, respectively, and net investment income of $56 and $33, respectively. Other income (expense) also includes rental income of $0 and $212 and royalty income of $592 and $549 for the three months ended December 31, 2023 and 2022, respectively.
Provision for income taxes
During the quarter ended December 31, 2023, the Company recognized a tax provision of $17,965 on income before taxes of $60,142, compared to $19,318 on income before taxes of $68,020 in the prior year quarter. The current year quarter results included strategic review costs - retention and other of $4,658 ($3,500, net of tax), restructuring charges of $12,400 ($9,213, net of tax), gain on sale of building of $547 ($406, net of tax); and discrete and certain other tax provisions, net, that affect comparability of $783. The prior year quarter results included strategic review - retention and other of $8,232 ($6,222, net of tax); proxy costs of $1,503 ($1,153, net of tax); gain on the sale of building $10,852 ($8,323, net of tax); and discrete and certain other tax benefits, net, that affect comparability of $333. Excluding these items, the effective tax rates for the quarters ended December 31, 2023 and 2022 were 27.9% and 29.1%, respectively.
Stock-based compensation
For the quarters ended December 31, 2023 and 2022, stock based compensation expense, which includes expense for both restricted stock grants and the ESOP, totaled $6,417 and $6,742, respectively.
Comprehensive income (loss)
For the quarter ended December 31, 2023, total other comprehensive income, net of taxes, of $10,475 included a gain of $10,238 from foreign currency translation adjustments primarily due to the strengthening of the Euro, British Pound and Australian and Canadian Dollars, all in comparison to the U.S. Dollar; a $532 benefit from pension amortization; and a $295 loss on cash flow hedges.
For the quarter ended December 31, 2022, total other comprehensive income, net of taxes, of $12,219 included a gain of $11,937 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Australian Dollars and British Pound, all in comparison to the US Dollar; a $862 benefit from pension amortization; and a $580 loss on cash flow hedges.
34
DISCONTINUED OPERATIONS
At December 31, 2023 and September 30, 2023, Griffon’s liabilities for discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves totaling $8,703 and $11,798, respectively. Griffon's assets for discontinued operations primarily relates to insurance claims. There was no reported revenues or costs in the three months ended December 31, 2023 and 2022 for discontinued operations.
35
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Management assesses Griffon’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity include cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis.
As of December 31, 2023, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $64,100. Our intent is to permanently reinvest these funds outside the U.S., and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. The Company may repatriate cash from its non-U.S. subsidiaries if the Company determines that it is beneficial to the Company and tax efficient. The Company has accrued a deferred tax liability for withholding taxes on previously taxed earnings and profit (PTEP) which are not considered permanently reinvested. In the event we determine that funds from foreign operations are needed to fund operations in the U.S., we will be required to accrue and pay U.S. taxes to repatriate these funds (unless applicable U.S. taxes have already been paid).
Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and our secured $500,000 revolving credit facility ("Revolver"), which matures in August 2028. During the quarter ended December 31, 2023, the Company generated $146,058 of net cash from operating activities and, as of December 31, 2023, the Company had $465,538 available, subject to certain loan covenants, for borrowing under the Revolver. The Company had cash and cash equivalents of $110,546 at December 31, 2023.
The following table is derived from the Condensed Consolidated Statements of Cash Flows:
| Cash Flows from Operations | For the Three Months Ended December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Net Cash Flows Provided by (Used In): | |||||||||||
| Operating activities | $ | 146,058 | $ | 75,480 | |||||||
| Investing activities | (13,543) | 4,521 | |||||||||
| Financing activities | (123,947) | (78,363) | |||||||||
Cash provided by operating activities for the quarter ended December 31, 2023 was $146,058 compared to $75,480 in the prior year period. The variance was due to increased cash generated from operations at HBP and a decrease in working capital across all businesses, primarily inventory and accounts receivable, and an increase in accounts payable and accrued liabilities.
Cash flows used in investing activities is primarily comprised of capital expenditures and proceeds from the sale of businesses, investments and property, plant and equipment. During the quarter ended December 31, 2023, cash used in investing activities was $13,543 compared to cash provided by investing activities of $4,521 in the prior year period. In the current quarter, cash flows used in investing activities primarily consisted of capital expenditures of $14,330, partially offset by proceeds totaling $787 primarily from the sale of a building. In the prior year quarter, cash flows provided by investing activities consisted of proceeds totaling $11,815, primarily from the sale of a building, partially offset by capital expenditures of $4,726 and a working capital adjustment payment of $2,568 related to the sale of Telephonics.
During the quarter ended December 31, 2023, cash used in financing activities totaled $123,947 compared to $78,363 in the prior year period. Cash used in financing activities in the current period consisted of net repayments of long-term debt of $32,360, primarily related to the Revolver, the purchase of shares of common stock in connection with the board authorized share repurchase program and the purchase of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock totaling $81,449 and the payment of dividends of $9,965. Cash provided by financing activities in the prior year period consisted primarily of net repayments of long-term debt of $57,716, purchases of common stock withheld to satisfy tax obligations in connection with the vesting of restricted stock of $12,735 and the payment of dividends of $7,126 and financing costs of $744.
During the quarter ended December 31, 2023, 221,229 shares, with a market value of $11,604, or $52.45 per share, were withheld to settle employee taxes due upon the vesting of restricted stock, and were added to treasury stock.
36
During the quarter ended December 31, 2023, the Board of Directors approved and paid a quarterly cash dividend of $0.15 per share. The Company currently intends to pay dividends each quarter; however, payment of dividends is determined by the Board of Directors at its discretion based on various factors, and no assurance can be provided as to the payment of future dividends.
During 2023, the Board of Directors approved two quarterly cash dividends of $0.10 per share and two quarterly cash dividends of $0.125 per share, totaling $0.45. Additionally, on April 19, 2023, the Board of Directors declared a special cash dividend of $2.00 per share, paid on May 19, 2023, to shareholders of record as of the close of business on May 9, 2023.
On February 6, 2024, the Board of Directors declared a quarterly cash dividend of $0.15 per share, payable on March 21, 2024 to shareholders of record as of the close of business on February 29, 2024.
On April 19, 2023, the Company's Board of Directors approved a $200,000 increase to Griffon's share repurchase program to $257,955 from the prior unused board authorizations from August 3, 2016 and August 1, 2018 of $57,955. Also, on November 15, 2023, Griffon announced that the Board of Directors approved an additional increase of $200,000 to its share repurchase authorization. Share repurchases during the quarter ended December 31, 2023 totaled 1,634,454 shares of common stock, for a total of $69,640, or an average of $42.61 per share. As of December 31, 2023, $237,543 remained under these Board authorized repurchase programs. During the quarter ended and as of December 31, 2023, $696 and $1,997, respectively, were accrued for excise taxes for share repurchases.
During the quarter ended December 31, 2023 and 2022, cash used in discontinued operations from operating activities of $2,926 and $1,953, respectively, primarily related to the settling of certain liabilities and environmental costs.
| Cash and Equivalents and Debt | December 31, | September 30, | |||||||||
| 2023 | 2023 | ||||||||||
| Cash and equivalents | $ | 110,546 | $ | 102,889 | |||||||
| Notes payables and current portion of long-term debt | 9,274 | 9,625 | |||||||||
| Long-term debt, net of current maturities | 1,430,235 | 1,459,904 | |||||||||
| Debt discount/premium and issuance costs | 19,227 | 20,283 | |||||||||
| Total debt | 1,458,736 | 1,489,812 | |||||||||
| Debt, net of cash and equivalents | $ | 1,348,190 | $ | 1,386,923 | |||||||
During 2020, Griffon issued, at par, $1,000,000 of 5.75% Senior Notes due 2028 (the “2028 Senior Notes”). Proceeds from the 2028 Senior Notes were used to redeem $1,000,000 of 5.25% Senior Notes due 2022. In connection with the issuance and exchange of the 2028 Senior Notes, Griffon capitalized $16,448 of underwriting fees and other expenses incurred, which is being amortized over the term of such notes. During 2022, Griffon purchased $25,225 of 2028 Senior Notes in the open market at a weighted average discount of 91.82% of par, or $23,161. As of December 31, 2023, outstanding 2028 Senior Notes due totaled $974,775; interest is payable semi-annually on March 1 and September 1.
The 2028 Senior Notes are senior unsecured obligations of Griffon guaranteed by certain domestic subsidiaries, and subject to certain covenants, limitations and restrictions. The 2028 Senior Notes were registered under the Securities Act of 1933, as amended (the "Securities Act") via exchange offer. The fair value of the 2028 Senior Notes approximated $945,532 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $8,415 of underwriting fees and other expenses incurred remained to be amortized.
On August 1, 2023, Griffon amended and restated its Credit Agreement (as amended, "Credit Agreement"). The amendment increased the maximum borrowing availability on its revolving credit facility from $400,000 to $500,000 (the "Revolver") and extended the maturity date of the Revolver from March 22, 2025 to August 1, 2028. In the event the 2028 Senior Notes are not repaid, refinanced, or replaced prior to December 1, 2027, the Revolver will mature on December 1, 2027. The amendment also modified certain other provisions of the Credit Agreement, including increasing the letter of credit sub-facility under the Revolver from $100,000 to $125,000 and increasing the customary accordion feature from a minimum of $375,000 to a minimum of $500,000. The Revolver includes a multi-currency sub-facility of $200,000.
Borrowings under the Revolver may be repaid and re-borrowed at any time. Interest is payable on borrowings at either a Secured Overnight Financing Rate ("SOFR"), Sterling Overnight Index Average ("SONIA") or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Griffon's SOFR loans accrue interest at TERM SOFR plus a credit adjustment spread and a margin of 2.00% (7.46% at December 31, 2023), SONIA loans accrue interest at SONIA Base
37
Rate plus a credit adjustment spread and a margin of 2.00% (7.22% at December 31, 2023) and base rate loans accrue interest at prime rate plus a margin of 1.00% (9.50% at December 31, 2023).
At December 31, 2023, under the Revolver, there were $21,500 in outstanding borrowings; outstanding standby letters of credit were $12,962; and $465,538 was available, subject to certain loan covenants, for borrowing at that date.
On January 24, 2022, Griffon amended and restated its Credit Agreement to provide for a new $800,000 Term Loan B facility, due January 24, 2029, in addition to the Revolver. The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a spread of 2.25% (7.75% as of December 31, 2023). The Term Loan B was issued at 99.75% of par value. In connection with this amendment, Griffon capitalized $15,466 of underwriting fees and other expenses incurred, which are being amortized over the term of the loan.
The Term Loan B facility requires nominal quarterly principal payments of $2,000, potential additional annual principal payments based on a percentage of excess cash flow and certain secured leverage thresholds starting with the fiscal year ending September 30, 2023; and a final balloon payment due at maturity. At September 30, 2023, Griffon's secured leverage remained below the threshold set forth in the Credit Agreement that would, if exceeded, require Griffon to make an additional payment, and therefore no additional annual principal payment was required. Term Loan B borrowings may generally be repaid without penalty but may not be re-borrowed. During 2023 and 2022, Griffon prepaid $25,000 and $300,000, respectively, aggregate principal amount of the Term Loan B, which permanently reduced the outstanding balance. In connection with the prepayment of the Term Loan B, Griffon recognized a charge of $437 and $6,296 on the prepayment of debt in 2023 and 2022, respectively. The charges were comprised of write-offs of underwriting fees and other expenses of $386 and $5,575 for 2023 and 2022, respectively, and the original issue discount of $51 and $721 for 2023 and 2022, respectively. The Term Loan B facility is subject to the same affirmative and negative covenants that apply to the Revolver (as described below), but is not subject to any financial maintenance covenants. Term Loan B borrowings are secured by the same collateral as the Revolver on an equal and ratable basis. The fair value of the Term Loan B facility approximated $462,153 on December 31, 2023 based upon quoted market prices (level 1 inputs). At December 31, 2023, $6,708 of underwriting fees and other expenses incurred, remained to be amortized. At December 31, 2023, $461,000 of the Term Loan B was outstanding.
The Revolver has certain financial maintenance tests including a maximum total leverage ratio, a maximum senior secured leverage ratio and a minimum interest coverage ratio, as well as customary affirmative and negative covenants and events of default. The negative covenants place limits on Griffon's ability to, among other things, incur indebtedness, incur liens, and make restricted payments and investments. Both the Revolver and Term Loan B 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.
On September 28, 2023, the Company closed on the exercise of its lease purchase option, as permitted under the lease agreement, to acquire ownership of the manufacturing facility located in Ocala, Florida for a cash purchase price of $23,207. The Ocala lease had a maturity date in 2025 and bore interest at a fixed rate of approximately 5.6%. As a result of exercising the purchase option, the Company no longer has any future lease obligations related to this real estate. The remaining lease liability balance relates to finance equipment leases. Refer to Note 20-Leases for further details.
In November 2012, Garant G.P. (“Garant”), a Griffon wholly owned subsidiary, entered into a CAD 15,000 ($11,363 as of December 31, 2023) revolving credit facility. Effective in December 2023, the facility was amended to replace the Canadian Dollar Offer Rate with the Canadian Overnight Repo Rate Average ("CORRA"). The facility accrues interest at CORRA or the Bankers Acceptance Rate (CDN) plus 1.3% per annum (6.36% using CORRA and 6.53% using Bankers Acceptance Rate CDN as of December 31, 2023). The revolving facility matures in December 2024, but is renewable upon mutual agreement with the lender. Garant is required to maintain a certain minimum equity. At December 31, 2023, there were no outstanding borrowings under the revolving credit facility with CAD 15,000 ($11,363 as of December 31, 2023) available.
During 2022, Griffon Australia Holdings Pty Ltd and its Australian subsidiaries (collectively, "Griffon Australia") amended its AUD 18,375 term loan, AUD 20,000 revolver and AUD 15,000 receivable purchase facility agreement that was entered into in July 2016 and further amended in fiscal 2020. Griffon Australia paid off the term loan in the amount of AUD 9,625 and canceled the AUD 20,000 revolver. In March 2023 the existing receivable purchase facility was renewed and increased from AUD 15,000 to AUD 30,000. The receivable purchase facility matures in March 2024, but is renewable upon mutual agreement with the lender. The receivable purchase facility accrues interest at BBSY (Bank Bill Swap Rate) plus 1.25% per annum (5.56% at December 31, 2023). At December 31, 2023, there was no balance outstanding under the receivable purchase facility with AUD 30,000 ($20,511 as of December 31, 2023) available. The receivable purchase facility is secured by substantially all of the assets of Griffon Australia and its subsidiaries. Griffon Australia is required to maintain a certain minimum equity level.
38
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, which matured in July 2023. Prior to maturity, on June 30, 2023, AMES UK paid off and cancelled the GBP 14,000 term loan and GBP 4,000 mortgage loan. The payoff amounts were GBP 7,525 ($9,543) and GBP 2,451 ($3,108), respectively. Upon maturity in July 2023, the GBP 5,000 revolver had no balance and was not renewed.
Other long-term debt primarily consists of a loan with the Pennsylvania Industrial Development Authority, with the balance consisting of finance leases.
At December 31, 2023, Griffon and its subsidiaries were in compliance with the terms and covenants of its credit and loan agreements. Gross Debt to EBITDA (Leverage), as calculated in accordance with the definition in the Credit Agreement, was 2.5x at December 31, 2023.
Capital Resource Requirements
On May 3, 2023, in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines. By transitioning these product lines to an asset-light structure, CPP’s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures. For additional information, see CPP reportable segments discussion.
Griffon's debt requirements include principal on our outstanding debt, most notably our Senior Notes totaling $974,775 payable in 2028 and related annual interest payments of approximately $56,050, a Term Loan B facility maturing in 2029 with an outstanding balance of $461,000 on December 31, 2023 and Revolver maturing in 2025 with an outstanding balance of $21,500. The Term Loan B accrues interest at the Term SOFR rate plus a credit adjustment spread with a floor of 0.50%, and a current spread of 2.25% (7.75% as of December 31, 2023). Additionally, the Term Loan B facility requires quarterly payments of $2,000 and a balloon payment due at maturity. For the Revolver, interest is payable on borrowings at either a SOFR, SONIA or base rate benchmark rate, plus an applicable margin, which adjusts based on financial performance. Griffon's SOFR loans accrue interest at Term SOFR plus a credit adjustment spread and a margin of 2.00% (7.46% at December 31, 2023); SONIA loans accrue interest at SONIA Base Rate plus a credit adjustment spread and a margin of 2.00% (7.22% at December 31, 2023); and base rate loans accrue interest at prime rate plus a margin of 1.00% (9.50% at December 31, 2023).
Customers
A small number of customers account for, and are expected to continue to account for, a substantial portion of Griffon’s consolidated revenue. For the quarter ended December 31, 2023, our largest customer, The Home Depot, represented 11% of Griffon’s consolidated revenue, 16% of CPP's revenue and 8% of HBP’s revenue.
No other customer exceeded 10% of consolidated revenue. Future operating results will continue to depend substantially on the success of Griffon’s largest customers and our ongoing relationships with them. Orders from these customers are subject to change and may fluctuate materially. The loss of all or a portion of the volume from any one of these customers could have a material adverse impact on Griffon’s liquidity and results of operations.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
Griffon’s Senior Notes are fully and unconditionally guaranteed, jointly and severally by Clopay Corporation, The AMES Companies, Inc., Clopay AMES Holding Corp., ClosetMaid LLC, AMES Hunter Holdings Corporation, Hunter Fan Company, CornellCookson, LLC and Cornell Real Estate Holdings, LLC, all of which are indirectly 100% owned by Griffon. In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act, presented below are summarized financial information of the Parent (Griffon) subsidiaries and the Guarantor subsidiaries as of December 31, 2023 and September 30, 2023 and for the three months ended December 31, 2023 and for the year ended September 30, 2023. All intercompany balances and transactions between subsidiaries under Parent and subsidiaries under the Guarantor have been eliminated. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis. The summarized information excludes financial information of the Non-Guarantors, including earnings from and investments in these entities. The financial information may not necessarily be indicative of the results of operations or financial position of
39
the guarantor companies or non-guarantor companies had they operated as independent entities. The guarantor companies and the non-guarantor companies include the consolidated financial results of their wholly-owned subsidiaries accounted for under the equity method.
The indentures relating to the Senior Notes (the “Indentures”) contain terms providing that, under certain limited circumstances, a guarantor will be released from its obligations to guarantee the Senior Notes. These circumstances include (i) a sale of at least a majority of the stock, or all or substantially all the assets, of the subsidiary guarantor as permitted by the Indentures; (ii) a public equity offering of a subsidiary guarantor that qualifies as a “Minority Business” as defined in the Indentures (generally, a business the EBITDA of which constitutes less than 50% of the segment adjusted EBITDA of the Company for the most recently ended four fiscal quarters), and that meets certain other specified conditions as set forth in the Indentures; (iii) the designation of a guarantor as an “unrestricted subsidiary” as defined in the Indentures, in compliance with the terms of the Indentures; (iv) Griffon exercising its right to defease the Senior Notes, or to otherwise discharge its obligations under the Indentures, in each case in accordance with the terms of the Indentures; and (v) upon obtaining the requisite consent of the holders of the Senior Notes.
Summarized Statements of Operations and Comprehensive Income (Loss)
| For the Three Months Ended | For the Year Ended | ||||||||||||||||
| December 31, 2023 | September 30, 2023 | ||||||||||||||||
| Parent Company | Guarantor Companies | Parent Company | Guarantor Companies | ||||||||||||||
| Net sales | $ | — | $ | 513,340 | $ | — | $ | 2,190,636 | |||||||||
| Gross profit | $ | — | $ | 193,413 | $ | — | $ | 800,477 | |||||||||
| Income (loss) from operations | $ | (8,992) | $ | 83,241 | $ | (42,948) | $ | 228,346 | |||||||||
| Equity in earnings of Guarantor subsidiaries | $ | 52,885 | $ | — | $ | 149,981 | $ | — | |||||||||
| Net income (loss) | $ | (14,220) | $ | 52,885 | $ | (85,770) | $ | 149,981 | |||||||||
Summarized Balance Sheet Information
| As of December 31, 2023 | As of September 30, 2023 | |||||||||||||||||||
| Parent Company | Guarantor Companies | Parent Company | Guarantor Companies | |||||||||||||||||
| Current assets | $ | 34,357 | $ | 681,661 | $ | 51,701 | $ | 707,929 | ||||||||||||
| Non-current assets | 13,479 | 1,302,303 | 13,954 | 1,317,575 | ||||||||||||||||
| Total assets | $ | 47,836 | $ | 1,983,964 | $ | 65,655 | $ | 2,025,504 | ||||||||||||
| Current liabilities | $ | 89,512 | $ | 240,065 | $ | 76,460 | $ | 226,532 | ||||||||||||
| Long-term debt | 1,430,062 | 108 | 1,459,952 | — | ||||||||||||||||
| Other liabilities | (14,455) | 273,790 | (9,994) | 271,985 | ||||||||||||||||
| Total liabilities | $ | 1,505,119 | $ | 513,963 | $ | 1,526,418 | $ | 498,517 | ||||||||||||
CRITICAL ACCOUNTING POLICIES
The preparation of Griffon’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on assets, liabilities, revenue and expenses. These estimates can also affect supplemental information contained in public disclosures of Griffon, including information regarding contingencies, risk and its financial condition. These estimates, assumptions and judgments are evaluated on an ongoing basis and based on historical experience, current conditions and various other assumptions, and form the basis for estimating the carrying values of assets and liabilities, as well as identifying and assessing the accounting treatment for commitments and contingencies. Actual results may materially differ from these estimates. There have been no changes in Griffon’s critical accounting policies from September 30, 2023.
Griffon’s significant accounting policies and procedures are explained in the Management Discussion and Analysis section in the Annual Report on Form 10-K for the year ended September 30, 2023. In the selection of the critical accounting policies, the objective is to properly reflect the financial position and results of operations for each reporting period in a consistent manner that can be understood by the reader of the financial statements. Griffon considers an estimate to be critical if it is subjective
40
and if changes in the estimate using different assumptions would result in a material impact on the financial position or results of operations of Griffon.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issues, from time to time, new financial accounting standards, staff positions and emerging issues task force consensus. See the Notes to Condensed Consolidated Financial Statements for a discussion of these matters.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, especially “Management’s Discussion and Analysis”, contains certain “forward-looking statements” within the meaning of the Securities Act, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the “Company” or “Griffon”) operates and the United States and global economies. Statements in this Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” "achieves", “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon’s ability to achieve expected savings and improved operational results from cost control, restructuring, integration and disposal initiatives (including, in particular, the expanded CPP global outsourcing strategy announced in May 2023); the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets, and to anticipate and meet customer demands for new products and product enhancements and innovations; increases in the cost or lack of availability of raw materials such as steel, resin and wood, components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon’s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events or military conflicts that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including inflation, interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; effects of possible IT system failures, data breaches or cyber-attacks; the impact of COVID-19, or some other future pandemic, on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers and suppliers; Griffon’s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, changes in tax laws. Additional important factors that could cause the statements made in this Quarterly Report on Form 10-Q or the actual results of operations or financial condition of Griffon to differ are discussed under the caption “Item 1A. Risk Factors” and “Special Notes Regarding Forward-Looking Statements” in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2023. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company's Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Griffon’s business activities necessitate the management of various financial and market risks, including those related to changes in interest rates, foreign currency rates and commodity prices.
41
Interest Rates
Griffon’s exposure to market risk for changes in interest rates relates primarily to variable interest rate debt and investments in cash and equivalents.
Griffon's amended and restated Credit Agreement references a benchmark rate with SONIA or SOFR. In addition, certain other of Griffon’s credit facilities have BBSY (Bank Bill Swap Rate) and CORRA (Canadian Overnight Repo Rate Average) ( based variable interest rate. Due to the current and expected level of borrowings under these facilities, a 100 basis point change in SONIA, SOFR, BBSY, or CORRA would not have a material impact on Griffon’s results of operations or liquidity.
Foreign Exchange
Griffon conducts business in various non-US countries, primarily in Canada, Australia, the United Kingdom, Ireland, New Zealand and China; therefore, changes in the value of the currencies of these countries affect Griffon's financial position and cash flows when translated into US Dollars. Griffon has generally accepted the exposure to exchange rate movements relative to its non-US operations. Griffon may, from time to time, hedge its currency risk exposures. A change of 10% or less in the value of all applicable foreign currencies would not have a material effect on Griffon’s financial position and cash flows.
Item 4 - Controls and Procedures
Management's Quarterly Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of Griffon’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), were evaluated as of the end of the period covered by this report. Based on that evaluation, Griffon’s CEO and CFO concluded that Griffon’s disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in the Griffon’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, Griffon’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Griffon believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Griffon’s disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and 15d-15(e), are designed to provide reasonable assurance of achieving their objectives.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 1A Risk Factors
In addition to the other information set forth in this report, carefully consider the factors in Item 1A to Part I in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2023, which could materially affect Griffon’s business, financial condition or future results. The risks described in Griffon’s Annual Report on Form 10-K are not the only risks facing Griffon. Additional risks and uncertainties not currently known to Griffon or that Griffon currently deems to be immaterial also may materially adversely affect Griffon’s business, financial condition and/or operating results.
42
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
(c) ISSUER PURCHASES OF EQUITY SECURITIES
| Period | (a) Total Number of Shares (or Units) Purchased (1) | (b) Average Price Paid Per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||||||||||||
| October 1 - 31, 2023 | 897,617 | $ | 39.48 | 897,617 | ||||||||||||||||||||||
| November 1 - 30, 2023 | 563,089 | (2) | 44.31 | 472,101 | ||||||||||||||||||||||
| December 1 - 31, 2023 | 394,977 | (3) | 52.79 | 264,736 | ||||||||||||||||||||||
| Total | 1,855,683 | $ | 43.78 | 1,634,454 | $ | 237,543 | ||||||||||||||||||||
1.On April 19, 2023, the Company's Board of Directors approved a $200,000 increase to its share repurchase program to $257,955 from the prior unused authorization of $57,955. On November 15, 2023, Griffon announced that the Board of Directors approved an additional increase of $200,000 to its share repurchase authorization. Under the share repurchase program, the Company may, from time to time, purchase shares of its common stock in the open market, including pursuant to a 10b5-1 plan, pursuant to an accelerated share repurchase program or issuer tender offer, or in privately negotiated transactions. As of December 31, 2023, $237,543 remained available for the purchase of common stock under board authorized programs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity."
2.Includes (a) 472,101 shares purchased by the Company in open market purchases pursuant to a stock buyback plan authorized by the Company's Board of Directors; and (b) 90,988 shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock, to satisfy tax-withholding obligations of the holders.
3.Includes (a) 264,736 shares purchased by the Company in open market purchases pursuant to a stock buyback plan authorized by the Company's Board of Directors; and (b) 130,241 shares acquired by the Company from holders of restricted stock upon vesting of the restricted stock, to satisfy tax-withholding obligations of the holders.
Item 3 Defaults Upon Senior Securities
None
Item 4 Mine Safety Disclosures
None
Item 5 Other Information
Rule 10b5-1 Trading Plans
During the fiscal quarter ended December 31, 2023, none of our directors or executive officers adopted terminated
43
| Item 6 | Exhibits | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32 | |||||
| 101.INS | XBRL Instance Document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Document | ||||
| 101.DEF | XBRL Taxonomy Extension Definitions Document | ||||
| 101.LAB | XBRL Taxonomy Extension Labels Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentations Document | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GRIFFON CORPORATION | ||||||||
| /s/ Brian G. Harris | ||||||||
| Brian G. Harris | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| /s/ W. Christopher Durborow | ||||||||
| W. Christopher Durborow | ||||||||
| Vice President and Chief Accounting Officer | ||||||||
| (Principal Accounting Officer) | ||||||||
Date: February 7, 2024
45
Exhibit 31.1
CERTIFICATION
I, Ronald J. Kramer, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 7, 2024
| /s/ Ronald J. Kramer | ||||||||
| Ronald J. Kramer | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION
I, Brian G. Harris, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Griffon Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 7, 2024
| /s/ Brian G. Harris | ||||||||
| Brian G. Harris | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
Exhibit 32
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Kramer, Chief Executive Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended December 31, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.
| /s/ Ronald J. Kramer | ||||||||
| Name: Ronald J. Kramer | ||||||||
| Date: February 7, 2024 | ||||||||
I, Brian G. Harris, Senior Vice President and Chief Financial Officer of Griffon Corporation, hereby certify that the Form 10-Q of Griffon Corporation for the period ended December 31, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Griffon Corporation.
| /s/ Brian G. Harris | ||||||||
| Name: Brian G. Harris | ||||||||
| Date: February 7, 2024 | ||||||||
A signed original of this written statement required by Section 906 has been provided to Griffon Corporation and will be retained by Griffon Corporation and furnished to the Securities and Exchange Commission or its staff upon request.