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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to
 
Commission File Number: 1-06620
 
GRIFFON CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware11-1893410
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
  
712 Fifth Ave, 18th FloorNew YorkNew York10019
(Address of principal executive offices)(Zip Code)
 
(212) 957-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.25 par value GFF New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No

The number of shares of common stock outstanding at March 31, 2021 was 56,683,519.



Griffon Corporation and Subsidiaries
 
Contents
 
Page


Table of Contents
Part I – Financial Information
Item 1 – Financial Statements
 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 March 31,
2021
September 30,
2020
CURRENT ASSETS  
Cash and equivalents$175,564 $218,089 
Accounts receivable, net of allowances of $9,594 and $8,505
399,193 340,546 
Contract assets, net of progress payments of $20,449 and $24,175
75,000 84,426 
Inventories484,753 413,825 
Prepaid and other current assets55,705 46,897 
Assets of discontinued operations1,525 2,091 
Total Current Assets1,191,740 1,105,874 
PROPERTY, PLANT AND EQUIPMENT, net341,005 343,964 
OPERATING LEASE RIGHT-OF-USE ASSETS154,929 161,627 
GOODWILL446,365 442,643 
INTANGIBLE ASSETS, net357,506 355,028 
OTHER ASSETS27,440 32,897 
ASSETS OF DISCONTINUED OPERATIONS5,295 6,406 
Total Assets$2,524,280 $2,448,439 
CURRENT LIABILITIES  
Notes payable and current portion of long-term debt$14,913 $9,922 
Accounts payable257,286 232,107 
Accrued liabilities151,091 163,994 
Current portion of operating lease liabilities30,685 31,848 
Liabilities of discontinued operations4,600 3,797 
Total Current Liabilities458,575 441,668 
LONG-TERM DEBT, net1,043,859 1,037,042 
LONG-TERM OPERATING LEASE LIABILITIES128,714 136,054 
OTHER LIABILITIES122,286 126,510 
LIABILITIES OF DISCONTINUED OPERATIONS6,415 7,014 
Total Liabilities1,759,849 1,748,288 
COMMITMENTS AND CONTINGENCIES - See Note 22
SHAREHOLDERS’ EQUITY  
Total Shareholders’ Equity764,431 700,151 
Total Liabilities and Shareholders’ Equity$2,524,280 $2,448,439 

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

1

Table of Contents
GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Three and Six Months Ended March 31, 2021
(Unaudited) 

 COMMON STOCKCAPITAL IN
EXCESS OF
PAR VALUE
RETAINED
EARNINGS
TREASURY SHARESACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
DEFERRED
COMPENSATION
 
(in thousands)SHARESPAR VALUESHARESCOSTTOTAL
Balance at September 30, 202083,739 $20,935 $583,008 $607,518 27,610 $(413,493)$(72,092)$(25,725)$700,151 
Net income— — — 29,500 — — — — 29,500 
Dividend— — — (4,469)— — — — (4,469)
Shares withheld on employee taxes on vested equity awards— — — — 133 (2,909)— — (2,909)
Amortization of deferred compensation— — — — — — — 609 609 
Equity awards granted, net494 123 (123)— — — — —  
ESOP allocation of common stock— — 596 — — — — — 596 
Stock-based compensation— — 3,428 — — — — — 3,428 
Other comprehensive income, net of tax— — — — — — 13,141 — 13,141 
Balance at December 31, 202084,233 $21,058 $586,909 $632,549 27,743 $(416,402)$(58,951)$(25,116)740,047 
Net income— — — 17,112 — — — — 17,112 
Dividend— — — (3,217)— — — — (3,217)
Amortization of deferred compensation— — — — — — — 609 609 
Equity awards granted, net194 48 (48)— — — — —  
ESOP allocation of common stock— — 756 — — — — — 756 
Stock-based compensation— — 4,349 — — — — — 4,349 
Other comprehensive income, net of tax— — — — — — 4,775 — 4,775 
Balance at March 31, 202184,427 $21,106 $591,966 $646,444 27,743 $(416,402)$(54,176)$(24,507)$764,431 



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











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GRIFFON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Three and Six Months Ended March 31, 2020
(Unaudited) 

 COMMON STOCKCAPITAL IN
EXCESS OF
PAR VALUE
RETAINED
EARNINGS
TREASURY SHARESACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
DEFERRED
COMPENSATION
 
(in thousands)SHARESPAR VALUESHARESCOSTTOTAL
Balance at September 30, 201982,775 $20,694 $519,017 $568,516 35,969 $(536,308)$(65,916)$(28,240)$477,763 
Net income— — — 10,612 — — — — 10,612 
Dividend— — — (3,392)— — — — (3,392)
Shares withheld on employee taxes on vested equity awards— — — — 80 (1,758)— — (1,758)
Amortization of deferred compensation— — — — — — — 629 629 
Equity awards granted, net182 45 (45)— — — — —  
ESOP allocation of common stock— — 609 — — — — — 609 
Stock-based compensation— — 3,150 — — — — — 3,150 
Stock-based consideration— — 239 — — — — — 239 
Other comprehensive income, net of tax— — — — — — 6,841 — 6,841 
Balance at December 31, 201982,957 $20,739 $522,970 $575,736 36,049 $(538,066)$(59,075)$(27,611)$494,693 
Net income — — — 895 — — — — 895 
Dividend— — — (3,422)— — — — (3,422)
Shares withheld on employee taxes on vested equity awards— — — — 261 (5,721)— — (5,721)
Amortization of deferred compensation— — — — — — — 629 629 
Equity awards granted, net784 196 (196)— — — — —  
ESOP allocation of common stock— — 435 — — — — — 435 
Stock-based compensation— — 3,662 — — — — — 3,662 
Stock-based consideration— — 117 — — — — — 117 
Other comprehensive income, net of tax— — — — — — (14,834)— (14,834)
Balance at March 31, 202083,741 $20,935 $526,988 $573,209 36,310 $(543,787)$(73,909)$(26,982)$476,454 


The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited) 
 Three Months Ended March 31,Six Months Ended March 31,
 2021202020212020
Revenue$634,832 $566,350 $1,244,123 $1,114,788 
Cost of goods and services464,516 414,318 903,635 812,835 
Gross profit170,316 152,032 340,488 301,953 
Selling, general and administrative expenses126,827 126,467 248,384 244,265 
Income from operations43,489 25,565 92,104 57,688 
Other income (expense)    
Interest expense(15,831)(16,871)(31,521)(33,082)
Interest income304 310 349 571 
Gain (adjustment) on sale of business(949) 5,291  
Loss from debt extinguishment, net (6,690) (6,690)
Other, net847 615 806 1,393 
Total other expense, net(15,629)(22,636)(25,075)(37,808)
Income before taxes 27,860 2,929 67,029 19,880 
Provision for income taxes10,748 2,034 20,417 8,373 
Net income $17,112 $895 $46,612 $11,507 
Basic earnings per common share$0.34 $0.02 $0.92 $0.28 
Basic weighted-average shares outstanding50,838 41,565 50,717 41,369 
Diluted earnings per common share$0.32 $0.02 $0.88 $0.26 
Diluted weighted-average shares outstanding53,264 43,734 53,211 43,826 
Dividends paid per common share$0.08 $0.075 $0.16 $0.15 
Net income $17,112 $895 $46,612 $11,507 
Other comprehensive income (loss), net of taxes:    
Foreign currency translation adjustments1,739 (16,471)13,862 (10,001)
Pension and other post retirement plans1,245 669 2,951 1,341 
Change in cash flow hedges1,791 968 1,103 667 
Total other comprehensive income (loss), net of taxes4,775 (14,834)17,916 (7,993)
Comprehensive income, net$21,887 $(13,939)$64,528 $3,514 
 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$46,612 $11,507 
Adjustments to reconcile net income to net cash used in operating activities:  
Depreciation and amortization31,149 31,544 
Stock-based compensation9,501 8,302 
Asset impairment charges - restructuring8,291 4,692 
Provision for losses on accounts receivable194 596 
Amortization of debt discounts and issuance costs1,349 2,267 
Loss from debt extinguishment, net 6,690 
Deferred income taxes2,334 408 
Loss (gain) on sale of assets and investments151 (274)
Gain on sale of business(5,291) 
Change in assets and liabilities, net of assets and liabilities acquired:  
Increase in accounts receivable and contract assets, net(47,146)(61,815)
Increase in inventories(74,186)(21,262)
(Increase) decrease in prepaid and other assets271 (6,005)
Increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities(1,470)(38,053)
Other changes, net2,400 560 
Net cash used in operating activities (25,841)(60,843)
CASH FLOWS FROM INVESTING ACTIVITIES:  
Acquisition of property, plant and equipment(23,986)(22,519)
Acquired businesses, net of cash acquired(2,242)(10,531)
Proceeds from sale of business, net14,725  
Investment purchases(2,138) 
Proceeds from the sale of property, plant and equipment82 290 
Other, net27  
Net cash used in investing activities(13,532)(32,760)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Dividends paid(8,678)(7,349)
Purchase of shares for treasury(2,909)(7,479)
Proceeds from long-term debt14,029 1,061,343 
Payments of long-term debt(7,573)(939,071)
Financing costs(571)(13,176)
Other, net(214)83 
Net cash provided by (used in) financing activities (5,916)94,351 
    
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.






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GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended March 31,
 20212020
CASH FLOWS FROM DISCONTINUED OPERATIONS:  
Net cash used in operating activities(1,512)(1,994)
Net cash provided by investing activities2,749  
Net cash provided by (used in) discontinued operations1,237 (1,994)
Effect of exchange rate changes on cash and equivalents1,527 (2,107)
NET DECREASE IN CASH AND EQUIVALENTS(42,525)(3,353)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD218,089 72,377 
CASH AND EQUIVALENTS AT END OF PERIOD$175,564 $69,024 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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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 currently conducts its operations through three reportable segments:

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

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

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


In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world. The impact from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, with disruptions to the business of our customers and suppliers, which could impact our business and consolidated results of operations and financial condition in the future. While we have not incurred significant disruptions to our manufacturing or to our supply chain thus far from the COVID-19 outbreak, we are unable to accurately predict the impact COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.


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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)

Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. As such, they should be read together with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020, which provides a more complete explanation of Griffon’s accounting policies, financial position, operating results, business, properties and other matters. In the opinion of management, these financial statements reflect all adjustments considered necessary for a fair statement of interim results. Griffon’s CPP operations are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year.
 
The condensed consolidated balance sheet information at September 30, 2020 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020.
 
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 allowances for doubtful accounts receivable and returns, net realizable value of inventories, restructuring reserves, valuation of goodwill and intangible assets, sales, profits and loss recognition for performance obligations satisfied over time, assumptions associated with pension benefit obligations and income or expenses, useful lives associated with depreciation and amortization of intangible and fixed assets, warranty reserves, sales incentive accruals, assumption associated with stock based compensation valuation, income taxes and tax valuation reserves, environmental reserves, legal reserves, insurance reserves, the valuation of assets and liabilities of discontinued operations, assumptions associated with valuation of acquired assets and assumed liabilities of acquired companies and the accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions Griffon may undertake in the future. Actual results may ultimately differ from these estimates.

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

NOTE 2 – FAIR VALUE MEASUREMENTS
 
The carrying values of cash and equivalents, accounts receivable, accounts and notes payable, and revolving credit and variable interest rate debt approximate fair value due to either the short-term nature of such instruments or the fact that the interest rate of the revolving credit and variable rate debt is based upon current market rates.

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

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

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.

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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)

Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
The fair values of Griffon’s 2028 senior notes approximated $1,060,000 on March 31, 2021. Fair values were based upon quoted market prices (level 1 inputs).
 
Insurance contracts with values of $3,821 at March 31, 2021 are measured and recorded at fair value based upon quoted prices in active markets for similar assets (level 2 inputs) and are included in Prepaid and other current assets on the Consolidated Balance Sheets.
 
Items Measured at Fair Value on a Recurring Basis

At March 31, 2021, trading securities, measured at fair value based on quoted prices in active markets for similar assets (level 2 inputs), with a fair value of $2,088 ($1,000 cost basis), were included in Prepaid and other current assets on the Consolidated Balance Sheets. Realized and unrealized gains and losses on trading securities are included in Other income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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

At March 31, 2021, Griffon had $61,000 of Australian dollar contracts at a weighted average rate of $1.29 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 $831 ($582, net of tax) at March 31, 2021. Upon settlement, losses of $1,741 and $2,399 were recorded in COGS during the three and six months ended March 31, 2021, respectively. All contracts expire in 30 to 180 days.

At March 31, 2021, Griffon had $7,935 of Canadian dollar contracts at a weighted average rate of $1.30. The contracts, which protect Canadian operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and six months ended March 31, 2021, fair value gains of $520 and $244, respectively, were recorded to Other liabilities and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $102 and $161 were recorded in Other income during the three and six months ended March 31, 2021, respectively, for all settled contracts. All contracts expire in 29 to 450 days.

At March 31, 2021, Griffon had $5,200 of British Pound dollar contracts at a weighted average rate of $0.75. The contracts, which protect United Kingdom operations from currency fluctuations for US dollar based purchases, do not qualify for hedge accounting. For the three and six months ended March 31, 2021, fair value gains of $386 and $141, respectively, were recorded to Other assets and to Other income for the outstanding contracts, based on similar contract values (level 2 inputs). Realized losses of $211 and $281 were recorded in Other income during the three and six months ended March 31, 2021, respectively. All contracts expire in 6 to 104 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
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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)

the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price).

Approximately 86% of the Company’s performance obligations are recognized at a point in time related to the manufacture and sale of a broad range of products and components primarily within the CPP and HBP Segments, and revenue is recognized when title, and risk and rewards of ownership, have transferred to the customer, which is generally upon shipment.

Approximately 14% of the Company’s performance obligations are recognized over time and relate to prime or subcontractors from contract awards with the U.S. Government, as well as foreign governments and other commercial customers within our DE Segment. Revenue recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period. We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion (cost-to-cost method) is an appropriate measure of progress towards satisfaction of performance obligations recognized over time, as it most accurately depicts the progress of our work and transfer of control to our customers.

Accounting for the sales and profits on performance obligations for which progress is measured using the cost-to-cost method relies on the substantial use of estimates; these projections may be revised throughout the life of a contract. Adjustments to estimates for a contract's estimated costs at completion and estimated profit or loss are often required as experience is gained, more information is obtained (even though the scope of work required under the contract may or may not change) and contract modifications occur. The impact of such adjustments to estimates is made on a cumulative basis in the period when such information has become known. For the three and six months ended March 31, 2021, income from operations included net unfavorable catch up adjustments approximating $1,423 and $3,220, respectively. For the three and six months ended March 31, 2020, income from operations included net unfavorable catch up adjustments of $2,188 and $422, respectively. Gross profit is impacted by a variety of factors, including the mix of products, systems and services, production efficiencies, price competition and general economic conditions.

For contracts in which anticipated total costs exceed the total expected revenue, an estimated loss is recognized in the period when identifiable. A provision for the entire amount of the estimated loss is recorded on a cumulative basis, and is recorded as a reduction to gross margin on the Consolidated Statements of Operations and Comprehensive Income (Loss). These provisions had an immaterial impact on Griffon's Consolidated Financial Statements. The estimated remaining costs to complete loss contracts as of March 31, 2021 and September 30, 2020 were approximately $8,500 and $10,800, respectively.

For a complete explanation of Griffon’s revenue accounting policies, this note should be read in conjunction with Griffon’s Annual Report on Form 10-K for the year ended September 30, 2020. See Note 13 - Business Segments for revenue from contracts with customers disaggregated by end markets, segments and geographic location.
Transaction Price Allocated to the Remaining Performance Obligations
On March 31, 2021, we had $353,870 of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 65% of our remaining performance obligations as revenue within one year, with the balance to be completed thereafter.
Backlog represents the dollar value of funded orders for which work has not been performed. Backlog generally increases with bookings, and converts into revenue as we incur costs related to contractual commitments or the shipment of product. Given the nature of our business and a larger dependency on international customers, our bookings, and therefore our backlog, is impacted by the longer maturation cycles resulting in delays in the timing and amounts of such awards, which are subject to numerous factors, including fiscal constraints placed on customer budgets; political uncertainty; the timing of customer negotiations; and the timing of governmental approvals.
Contract Balances

Contract assets were $75,000 as of March 31, 2021 compared to $84,426 as of September 30, 2020. The $9,426 net decrease in our contract assets balance was primarily due to the timing of billings and work performed in Surveillance programs and decrease associated with the sale of Systems Engineering Group, Inc. ("SEG"). Contract assets primarily relate to the Company's right to consideration for work completed but not billed at the reporting date and are recorded in Contract costs and recognized income not yet billed, net of progress payments in the Consolidated Balance Sheets. Contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract costs and recognized income not yet billed
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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)

consists of amounts accounted for under the percentage of completion method of accounting, and represent recoverable costs and accrued profit that cannot yet be invoiced under the terms of certain long-term contracts. Amounts will be invoiced when applicable contract terms, such as the achievement of specified milestones or product delivery, are met. At March 31, 2021 and September 30, 2020, approximately $7,700 and $7,500, respectively, of contract costs and recognized income not yet billed were expected to be collected after one year.

Contract liabilities were $22,964 as of March 31, 2021 compared to $24,386 as of September 30, 2020. The $1,422 decrease in the contract liabilities balance was primarily due to recognition of revenue in Naval & Cyber systems, partially offset by billings in Surveillance and Communications programs. Contract liabilities relate to advance consideration received from customers for which revenue has not been recognized. The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as current on the Consolidated Balance Sheets based on the timing of when the Company expects to recognize revenue. Current contract liabilities are recorded in Accounts payable on the Consolidated Balance Sheets. Contract liabilities are reduced when the associated revenue from the contract is recognized.

NOTE 4 – ACQUISITIONS AND DISPOSITIONS

Acquisitions

Griffon accounts for acquisitions under the acquisition method, in which assets acquired and liabilities assumed are recorded at fair value as of the date of acquisition using a method substantially similar to the goodwill impairment test methodology (level 3 inputs). The operating results of the acquired companies are included in Griffon’s consolidated financial statements from the date of acquisition; in each instance, Griffon is in the process of finalizing the initial purchase price allocation unless otherwise noted.

On December 22, 2020, AMES acquired Quatro Design Pty Ltd (“Quatro”), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a purchase price of AUD $3,500 (approximately $2,700) in cash. The purchase price is subject to additional contingent consideration of approximately AUD $1,000 (approximately $760) based on Quatro exceeding certain EBITDA performance targets in the first year. The preliminary acquired intangibles and goodwill allocated to this acquisition was AUD $2,755 (approximately $2,082) and AUD $1,648 (approximately $1,246), respectively, which was assigned to the CPP segment, and is not deductible for income tax purposes.

On November 29, 2019, AMES acquired 100% of the outstanding stock of Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10,500 (GBP 8,750), inclusive of a post-closing working capital adjustment, net of cash acquired. This acquisition broadens AMES' product offerings in the UK market and increases its in-country operational footprint. The excess of the purchase price over the fair value of the net tangible and intangible assets was recorded as goodwill and is deductible for tax purposes. The purchase price allocation was finalized and allocated to goodwill of GBP 3,449, acquired intangible assets of GBP 3,454, inventory of GBP 2,914, accounts receivable and other assets of GBP 2,492 and accounts payable and other accrued liabilities of GBP 3,765, which was assigned to the CPP segment.

During the three and six months ended March 31, 2021, acquisition costs were de minimis. During both the three and six months ended March 31, 2020, the Company incurred acquisition costs of $2,960.

Dispositions

On December 18, 2020, Defense Electronics completed the sale of its SEG business for $15,000. SEG provides sophisticated, highly technical engineering and analytical support to the Missile Defense Agency and various U.S. military commands. SEG had sales of approximately $7,000 for the first fiscal quarter ended December 31, 2020 and $31,000 for the fiscal year ended September 30, 2020. DE recorded a pre-tax gain of $5,291 ($5,251, net of tax, or $0.10 per share) related to the divestiture of SEG. The sale does not represent a strategic shift that will have a major effect on operations and financial results.


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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 5 – INVENTORIES
 
Inventories are stated at the lower of cost (first-in, first-out or average cost) or market.
 
The following table details the components of inventory:
At March 31, 2021At September 30, 2020
Raw materials and supplies$155,720 $146,351 
Work in process86,299 83,697 
Finished goods242,734 183,777 
Total$484,753