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LEASES

12 Months Ended

Sep. 30, 2020

In February 2016, the FASB issued an Accounting Standards Update (ASU 2016-02) related to the accounting and financial statement presentation for leases. This new guidance requires a lessee to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet, with an election to exempt leases with a term of twelve months or less. The Company adopted the requirements of the new standard as of October 1, 2019 and applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we have recognized ROU assets of $163,552 and lease liabilities of $163,676 associated with our operating leases. The standard had no material impact to retained earnings or on our Consolidated Statements of Income or Consolidated Statements of Cash Flows. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification. We also elected a practical expedient to determine the reasonably certain lease term.

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. In connection with the Company's restructuring activities, during the year ended September 30, 2020, a $1,968 impairment charge was recorded related to a facility’s operating lease as well as $671 and of leasehold improvements made to the leased facility that have no recoverable value. See Note 9, Restructuring Charges.

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

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



	For the Year Ended September 30, 2020
Fixed ^(a)	$	38,554
Variable^{(a), (b)}	7,822
Short-term^(b)	5,606
Total	$	51,982

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

(b) Not recorded on the balance sheet.

Fixed rent expense for all operating leases totaled approximately $37,068 and $35,726 in 2019 and 2018, respectively.

Supplemental cash flow information were as follows:



	For the Year Ended September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	48,141
Financing cash flows from finance leases	4,122
Total	$	52,263

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



	At September 30, 2020
Operating Leases:
Right of use assets:
Operating right-of-use assets	$	161,627

Lease Liabilities:
Current portion of operating lease liabilities	$	31,848
Long-term operating lease liabilities	136,054
Total operating lease liabilities	$	167,902

Finance Leases:
Right of use assets:
Property, plant and equipment, net⁽¹⁾	$	18,774

Lease Liabilities:
Notes payable and current portion of long-term debt	$	3,352
Long-term debt, net	15,339
Total financing lease liabilities	$	18,691

(1) Finance lease assets are recorded net of accumulated depreciation of $2,383.

Two Griffon subsidiaries have finance leases outstanding for real estate located in Troy, Ohio and Ocala, Florida. The leases mature in 2021 and 2025, respectively, and bear interest at fixed rates of approximately 5.0% and 5.6%, respectively. The Troy, Ohio lease is secured by a mortgage on the real estate and is guaranteed by Griffon. The Ocala, Florida lease contains two five-year renewal options. As of September 30, 2020 and 2019, $17,188 and $4,333, respectively, was outstanding, net of issuance costs. The remaining lease liability balance relates to finance equipment leases.

Finance leases included in the consolidated balance sheet at September 30, 2019, under Property, plant and equipment, net totaled $6,546. In 2019 and 2018, Depreciation expense was $3,967, and $3,514, respectively.

The aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2020 are as follows (in thousands):



	Operating Leases			Finance Leases
2021	$	38,411		$	4,282
2022	33,286			2,695
2023	25,599			2,375
2024	19,057			2,119
2025	16,334			2,074
2026	71,903			9,850
Total lease payments	204,590			23,395
Less: Imputed Interest	(36,688		)	(4,704		)
Present value of lease liabilities	$	167,902		$	18,691

Average lease terms and discount rates were as follows:



	September 30, 2020
Weighted-average remaining lease term (years)
Operating Leases	8.3
Finance Leases	8.5

Weighted-average discount rate
Operating Leases	4.38	%
Finance Leases	5.51	%

LEASES



	For the Year Ended September 30, 2020
Fixed ^(a)	$	38,554
Variable^{(a), (b)}	7,822
Short-term^(b)	5,606
Total	$	51,982