SEC Filing | Griffon Corporation

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gff-20230331

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, 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

GRIFFON CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			11-1893410
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

712 Fifth Ave, 18th Floor	New York	New York	10019
(Address of principal executive offices)			(Zip Code)

(212) 957-5000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.25 par value

GFF

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares of common stock outstanding at April 28, 2023 was 57,205,230.

Griffon Corporation and Subsidiaries

Contents


			Page
PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

Condensed Consolidated Balance Sheets at March 31, 202 3 (unaudited) and September 30, 2022			1

Condensed Consolidated Statement of Shareholders’ Equity for the Three and Six Months Ended March 31, 202 3 and 202 2 (unaudited)			2

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 202 3 and 202 2 (unaudited)			4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 202 3 and 202 2 (unaudited)			5

Notes to Condensed Consolidated Financial Statements (unaudited)			7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3 - Quantitative and Qualitative Disclosures about Market Risk			52

Item 4 - Controls & Procedures			53

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			53

Item 1A – Risk Factors			53

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			54

Item 3 – Defaults Upon Senior Securities			54

Item 4 – Mine Safety Disclosures			54

Item 5 – Other Information			55

Item 6 – Exhibits			55

Signatures			56

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	(Unaudited)
	March 31, 2023		September 30, 2022
CURRENT ASSETS
Cash and equivalents	$	175,592	$	120,184
Accounts receivable, net of allowances of $13,255 and $12,137	386,119		361,653

Inventories	574,086		669,193
Prepaid and other current assets	77,769		62,453

Assets of discontinued operations	1,004		1,189
Total Current Assets	1,214,570		1,214,672
PROPERTY, PLANT AND EQUIPMENT, net	262,394		294,561
OPERATING LEASE RIGHT-OF-USE ASSETS	175,095		183,398
GOODWILL	327,864		335,790
INTANGIBLE ASSETS, net	655,911		761,914
OTHER ASSETS	20,134		21,553
ASSETS OF DISCONTINUED OPERATIONS	4,188		4,586
Total Assets	$	2,660,156	$	2,816,474

CURRENT LIABILITIES
Notes payable and current portion of long-term debt	$	15,720	$	12,653
Accounts payable	159,198		194,793
Accrued liabilities	169,386		171,797
Current portion of operating lease liabilities	29,889		31,680

Liabilities of discontinued operations	7,460		12,656
Total Current Liabilities	381,653		423,579
LONG-TERM DEBT, net	1,491,564		1,560,998
LONG-TERM OPERATING LEASE LIABILITIES	155,018		159,414
OTHER LIABILITIES	157,890		190,651
LIABILITIES OF DISCONTINUED OPERATIONS	5,720		4,262
Total Liabilities	2,191,845		2,338,904
COMMITMENTS AND CONTINGENCIES - See Note 22
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity	468,311		477,570
Total Liabilities and Shareholders’ Equity	$	2,660,156	$	2,816,474

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

Table of Contents

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three and Six Months Ended March 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, 2022	84,746	$	21,187	$	627,982	$	344,060	27,682	$	(420,116)	$	(82,738)	$	(12,805)	$	477,570
Net income	—	—		—		48,702		—	—		—		—		48,702

Dividend	—	—		—		(6,145)		—	—		—		—		(6,145)
Shares withheld on employee taxes on vested equity awards	—	—		—		—		345	(12,734)		—		—		(12,734)
Amortization of deferred compensation	—	—		—		—		—	—		—		571		571


Equity awards granted, net	—	—		(7,082)		—		(467)	7,082		—		—		—



ESOP allocation of common stock	—	—		1,127		—		—	—		—		—		1,127
Stock-based compensation	—	—		5,538		—		—	—		—		—		5,538

Other comprehensive income, net of tax	—	—		—		—		—	—		12,219		—		12,219
Balance at December 31, 2022	84,746	$	21,187	$	627,565	$	386,617	27,560	$	(425,768)	$	(70,519)	$	(12,234)	$	526,848
Net loss	—	—		—		(62,255)		—	—		—		—		(62,255)

Dividend	—	—		—		(5,714)		—	—		—		—		(5,714)
Shares withheld on employee taxes on vested equity awards	—	—		—		—		21	(254)		—		—		(254)
Amortization of deferred compensation	—	—		—		—		—	—		—		570		570


Equity awards granted, net	—	—		(617)		—		(40)	617		—		—		—



ESOP allocation of common stock	—	—		1,207		—		—	—		—		—		1,207
Stock-based compensation	—	—		5,296		—		—	—		—		—		5,296

Other comprehensive income, net of tax	—	—		—		—		—	—		2,613		—		2,613
Balance at March 31, 2023	84,746	$	21,187	$	633,451	$	318,648	27,541	$	(425,405)	$	(67,906)	$	(11,664)	$	468,311

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

Table of Contents

GRIFFON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three and Six Months Ended March 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, 2021	84,375	$	21,094	$	602,181	$	669,998	27,762	$	(416,850)	$	(45,977)	$	(23,288)	$	807,158
Net income	—	—		—		19,298		—	—		—		—		19,298

Dividend	—	—		—		(4,739)		—	—		—		—		(4,739)
Shares withheld on employee taxes on vested equity awards	—	—		—		—		422	(10,886)		—		—		(10,886)
Amortization of deferred compensation	—	—		—		—		—	—		—		591		591


Equity awards granted, net	113	28		(28)		—		—	—		—		—		—



ESOP allocation of common stock	—	—		848		—		—	—		—		—		848
Stock-based compensation	—	—		2,866		—		—	—		—		—		2,866

Other comprehensive income, net of tax	—	—		—		—		—	—		(2,751)		—		(2,751)
Balance at December 31, 2021	84,488	$	21,122	$	605,867	$	684,557	28,184	$	(427,736)	$	(48,728)	$	(22,697)	$	812,385
Net income	—	—		—		65,689		—	—		—		—		65,689

Dividend	—	—		—		(5,352)		—	—		—		—		(5,352)

Amortization of deferred compensation	—	—		—		—		—	—		—		591		591


Equity awards granted, net	258	65		(7,195)		—		(470)	7,130		—		—		—



ESOP allocation of common stock	—	—		638		—		—	—		—		—		638
Stock-based compensation	—	—		4,314		—		—	—		—		—		4,314

Other comprehensive income, net of tax	—	—		—		—		—	—		4,949		—		4,949
Balance at March 31, 2022	84,746	$	21,187	$	603,624	$	744,894	27,714	$	(420,606)	$	(43,779)	$	(22,106)	$	883,214

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

Table of Contents

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,
	2023		2022		2023		2022
Revenue	$	710,984	$	779,617	$	1,360,368	$	1,371,366
Cost of goods and services	516,492		518,974		932,051		944,881
Gross profit	194,492		260,643		428,317		426,485

Selling, general and administrative expenses	160,301		157,838		313,021		285,190
Intangible asset impairment	100,000		—		100,000		—
Total operating expenses	260,301		157,838		413,021		285,190

Income (loss) from operations	(65,809)		102,805		15,296		141,295

Other income (expense)
Interest expense	(24,879)		(21,408)		(49,527)		(37,089)
Interest income	236		32		340		65
Gain on sale of building	—		—		10,852		—

Other, net	293		1,369		900		2,444
Total other expense, net	(24,350)		(20,007)		(37,435)		(34,580)

Income (loss) before taxes from continuing operations	(90,159)		82,798		(22,139)		106,715
Provision (benefit) for income taxes	(27,904)		24,638		(8,586)		31,851
Income (loss) from continuing operations	$	(62,255)	$	58,160	$	(13,553)	$	74,864

Discontinued operations:
Income from operations of discontinued operations	—		1,000		—		4,320
Provision (benefit) for income taxes	—		(6,529)		—		(5,803)
Income from discontinued operations	—		7,529		—		10,123
Net income (loss)	$	(62,255)	$	65,689	$	(13,553)	$	84,987

Basic earnings per common share:
Income (loss) from continuing operations	$	(1.17)	$	1.13	$	(0.26)	$	1.46
Income from discontinued operations	—		0.15		—		0.20
Basic earnings (loss) per common share	$	(1.17)	$	1.27	$	(0.26)	$	1.65

Basic weighted-average shares outstanding	53,038		51,668		52,809		51,423

Diluted earnings per common share:
Income (loss) from continuing operations	$	(1.17)	$	1.09	$	(0.26)	$	1.40
Income from discontinued operations	—		0.14		—		0.19
Diluted earnings (loss) per common share	$	(1.17)	$	1.23	$	(0.26)	$	1.59

Diluted weighted-average shares outstanding	53,038		53,430		52,809		53,602

Dividends paid per common share	$	0.10	$	0.09	$	0.20	$	0.18

Net income (loss)	$	(62,255)	$	65,689	$	(13,553)	$	84,987
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	334		6,049		12,271		3,730
Pension and other post retirement plans	746		140		1,608		808
Change in cash flow hedges	1,533		(1,240)		953		(2,340)

Total other comprehensive income (loss), net of taxes	2,613		4,949		14,832		2,198
Comprehensive income (loss), net	$	(59,642)	$	70,638	$	1,279	$	87,185

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Six Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(13,553)	$	84,987
Net income from discontinued operations	—		(10,123)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities of continuing operations:

Depreciation and amortization	34,367		29,333
Stock-based compensation	13,335		9,959
Intangible asset impairments	100,000		—
Asset impairment charges - restructuring	59,118		806
Provision for losses on accounts receivable	343		578
Amortization of debt discounts and issuance costs	2,045		1,566

Fair value step-up of acquired inventory sold	—		2,701
Deferred income tax provision (benefit)	(25,744)		2,883
Gain on sale of assets and investments	(10,852)		(118)

Change in assets and liabilities, net of assets and liabilities acquired:
Increase in accounts receivable	(19,431)		(177,347)
(Increase) decrease in inventories	64,582		(106,534)
Increase in prepaid and other assets	3,451		6,063
Decrease in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities	(51,409)		(18,652)
Other changes, net	5,384		525
Net cash provided by (used in) operating activities - continuing operations	161,636		(173,373)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment	(11,837)		(22,030)
Acquired businesses, net of cash acquired	—		(851,464)


Payments related to sale of Telephonics	(2,568)		—
Proceeds from investments	—		14,923
Proceeds from the sale of property, plant and equipment	11,834		32

Net cash used in investing activities - continuing operations	(2,571)		(858,539)

CASH FLOWS FROM FINANCING ACTIVITIES:

Dividends paid	(12,824)		(10,091)
Purchase of shares for treasury	(12,989)		(10,886)
Proceeds from long-term debt	45,419		975,291
Payments of long-term debt	(119,110)		(37,906)


Financing costs	—		(16,457)


Other, net	(127)		(27)
Net cash provided by ( used in) financing activities - continuing operations	(99,631)		899,924

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Six Months Ended March 31,
	2023		2022















































CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities	(2,598)		10,586
Net cash used in investing activities	—		(1,445)


Net cash provided by (used in) discontinued operations	(2,598)		9,141

Effect of exchange rate changes on cash and equivalents	(1,428)		(3,513)

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	55,408		(126,360)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD	120,184		248,653
CASH AND EQUIVALENTS AT END OF PERIOD	$	175,592	$	122,293

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

Table of Contents

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

(Unless otherwise indicated, references to years or year-end refer to Griffon’s fiscal period ending September 30)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

About Griffon Corporation

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

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

On June 27, 2022, we completed the sale of our Defense Electronics segment which consisted of our Telephonics subsidiary for $330,000 in cash. As a result, the results of operations of our Telephonics business is classified as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation in the consolidated balance sheets. Accordingly, all references made to results and information in this Quarterly Report on Form 10-Q are to Griffon's continuing operations, unless noted otherwise.

On May 16, 2022, Griffon announced that its Board of Directors initiated a process to review a comprehensive range of strategic alternatives to maximize shareholder value including a sale, merger, divestiture, recapitalization or other strategic transaction, and on April 20, 2023, Griffon announced that its Board of Directors, after extensive evaluation and deliberation, determined that the ongoing execution of the Company’s strategic plan was the best way to maximize value for shareholders and unanimously decided to conclude its review.

On January 24, 2022, Griffon acquired Hunter Fan Company (“Hunter”), a market leader in residential ceiling, commercial, and industrial fans, from MidOcean Partners (“MidOcean”) for a contractual purchase price of approximately $845,000. Hunter, which is part of Griffon's Consumer and Professional Products segment, complements and diversifies our portfolio of leading consumer brands and products. We financed the acquisition of Hunter with a new $800,000 seven year Term Loan B facility; we used a combination of cash on hand and revolving credit facility borrowings to fund the balance of the purchase price and related acquisition and debt expenditures.

Griffon conducts its operations through two reportable segments:

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

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

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Update on COVID-19 on our Business

As of the date of this filing, government restrictions have been relaxed or eliminated as the health risk of COVID-19 has decreased; however, the effects of COVID-19 continue to linger throughout the global economy and our businesses. Though the severity of COVID-19 has subsided, new variants could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses. See information provided in Part 1, Item 1A, “Risk Factors” our Form 10-K filed on November 18, 2022.

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, 2022, 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, in particular its 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, 2022 was derived from the audited financial statements included in Griffon’s Annual Report on Form 10-K for the year ended September 30, 2022.

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

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

NOTE 2 – FAIR VALUE MEASUREMENTS

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

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

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

GRIFFON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

•Level 2 inputs inc