EMPLOYEE BENEFIT PLANS

12 Months Ended

Sep. 30, 2022

Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $11,080 in 2022, $8,576 in 2021 and $6,855 in 2020.

The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $1,796 and $1,678 as of September 30, 2022 and 2021. The accumulated other comprehensive income (loss) for these plans was $399 and ($118) as of September 30, 2022 and 2021, respectively, and the 2022 and 2021 benefit expense was $47 and $35, respectively. It is the Company’s practice to fund these benefits as incurred.

Griffon also has qualified and non-qualified defined benefit plans covering certain employees which provide benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Griffon is responsible for overseeing the management of the investments of two qualified defined benefit plan and uses the services of an investment manager to manage the plans' assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2022 and 2021. The fair value of various other investments was determined by the plans' trustees using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). A small amount of plan assets are invested in private equity which consist primarily of investments in private companies which are valued using the net asset values provided by the underlying private investment companies as a practical expedient (level 3 inputs).

The Clopay AMES Pension Plan, the Hunter Fan Pension Plan and the AMES supplemental executive retirement plan are frozen to new entrants and participants in the plans no longer accrue benefits.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $4,256, $907 and $1,559 during 2022, 2021, and 2020 respectively.

Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The

plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10% change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon.

Net periodic costs (benefits) were as follows:


	Defined Benefits for the Years Ended September 30,						Supplemental Benefits for the Years Ended September 30,
	2022		2021		2020		2022		2021		2020
Net periodic (benefits) costs:

Interest cost	$	3,448	$	2,816	$	4,267	$	172	$	162	$	335
Expected return on plan assets	(11,255)		(10,177)		(10,343)		—		—		—

Amortization of:
Prior service costs	—		—		—		—		—		14
Actuarial loss	2,818		5,776		3,769		561		516		399
Total net periodic (benefits) costs	$	(4,989)	$	(1,585)	$	(2,307)	$	733	$	678	$	748

The tax benefits in 2022, 2021 and 2020 for the amortization of pension costs in Other comprehensive income (loss) were $280, $270 and $878, respectively.

The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows:


	Defined Benefits for the Years Ended September 30,						Supplemental Benefits for the Years Ended September 30,
	2022		2021		2020		2022		2021		2020
Discount rate	2.63	%	2.30	%	2.92	%	1.94	%	1.69	%	2.64	%

Expected return on assets	6.72	%	6.75	%	7.00	%	—	%	—	%	—	%

Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows:


	Defined Benefits at September 30,				Supplemental Benefits at September 30,
	2022		2021		2022		2021
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	170,505	$	183,003	$	14,775	$	16,070

Business acquisition	21,839		—		—		—
Interest cost	3,448		2,816		172		162

Benefits paid	(11,281)		(10,743)		(1,927)		(1,936)



Actuarial (gain) loss	(35,490)		(4,571)		(1,098)		479

Benefit obligation at end of fiscal year	149,021		170,505		11,922		14,775
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	160,523		147,145		—		—
Business acquisition	22,288		—		—		—
Actual return on plan assets	(27,439)		23,199		—		—

Company contributions	—		922		1,927		1,936

Benefits paid	(11,281)		(10,743)		(1,927)		(1,936)


Fair value of plan assets at end of fiscal year	144,091		160,523		—		—
Projected benefit obligation in excess of plan assets	$	(4,930)	$	(9,982)	$	(11,922)	$	(14,775)
Amounts recognized in the statement of financial position consist of:
Accrued liabilities	$	—	$	—	$	(1,866)	$	(1,884)
Other liabilities (long-term)	(4,930)		(9,982)		(10,056)		(12,891)
Total Liabilities	(4,930)		(9,982)		(11,922)		(14,775)
Net actuarial losses	32,176		38,296		6,003		7,662
Prior service cost	—		—		—		—
Deferred taxes	(6,757)		(8,042)		(1,261)		(1,609)
Total Accumulated other comprehensive loss, net of tax	25,419		30,254		4,742		6,053
Net amount recognized at September 30,	$	20,489	$	20,272	$	(7,180)	$	(8,722)
Accumulated benefit obligations	$	149,021	$	170,505	$	11,922	$	14,775
Information for plans with accumulated benefit obligations in excess of plan assets:
ABO	$	149,021	$	170,505	$	11,922	$	14,775
PBO	149,021		170,505		11,922		14,775
Fair value of plan assets	144,091		160,523		—		—

Actuarial gains as of September 30, 2022 were primarily the result of the increase in the discount rate. Actuarial gains as of September 30, 2021 were primarily the result of the actual return on assets versus the expected return on assets. Actuarial gains also resulted from the increase in the discount rate and the change in the mortality assumption for valuing the Projected Benefit Obligation.

The weighted-average assumptions used in determining the benefit obligations were as follows:


	Defined Benefits at September 30,				Supplemental Benefits at September 30,
	2022		2021		2022		2021
Weighted average discount rate	5.17	%	2.58	%	5.02	%	1.94	%

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:


For the years ending September 30,	Defined Benefits		Supplemental Benefits
2023	$	3,494	$	1,866
2024	3,573		1,736
2025	3,646		1,601
2026	3,722		1,464
2027	3,770		1,325
2028 through 2031	18,990		4,600

During 2023, Griffon expects to contribute $300 to the Defined Benefit plan and $1,866 to Supplemental Benefits that will be funded from the general assets of Griffon.

The Clopay AMES Pension Plan and the Hunter Fan Pension Plan are covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the Clopay AMES Pension Plan and Hunter Fan Pension Plan as of January 1, 2022 was 105.0% and 129.2%, respectively. Since the plans were in excess of the 80% funding threshold there were no plan restrictions. There are no catch up contributions for either plan expected in 2023.

The actual and weighted-average asset allocation for qualified benefit plans were as follows:


	At September 30,
	2022		2021		Target
Cash and equivalents	4.3	%	1.2	%	—	%
Equity securities	41.1	%	52.5	%	63.0	%
Fixed income	24.6	%	26.9	%	37.0	%
Other	30.0	%	19.4	%	—	%
Total	100.0	%	100.0	%	100.0	%

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2.

Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy.

Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are classified within Level 1 and Level 2 of the valuation hierarchy.

Commingled funds – The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 or 3, as appropriate, of the valuation hierarchy and can be liquidated on demand.

Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the net asset values provided by the underlying private investment companies as a practical expedient. These investments are classified within Level 2 of the valuation hierarchy.

Fully benefit-responsive investment contracts - The Plan holds fully benefit-responsive investment contracts that are reported at contract value, which is the value of principal and interest under the terms of the annuity contract.

The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category:


At September 30, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	6,178	$	—	$	—	$	6,178

Government agency securities	25,932		2,703		—		28,635
Debt instruments	1,326		3,604		—		4,930
Equity securities	59,190		—		—		59,190
Commingled funds	—		8,088		9,484		17,572
Limited partnerships and hedge fund investments	—		22,662		—		22,662
Other Securities	1,845		—		—		1,845
Subtotal	$	94,471	$	37,057	$	9,484	$	141,012
Accrued income and plan receivables							265
Fully benefit-responsive investment contract							2,814
Total							$	144,091


At September 30, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	1,867	$	—	$	—	$	1,867
Government and agency securities	32,217		4,608		—		36,825

Debt instruments	1,063		2,706		—		3,769
Equity securities	84,129		—		—		84,129
Commingled funds	—		—		11,286		11,286

Limited partnerships and hedge fund investments	—		19,823		—		19,823
Other Securities	2,379		160		—		2,539
Subtotal	$	121,655	$	27,297	$	11,286	$	160,238
Accrued income and plan receivables							285
Total							$	160,523

The following table represents level 3 significant unobservable inputs for the years ended September 30, 2022 and 2021:


	Significant Unobservable Inputs (Level 3)

As of October 1, 2021	$	9,362

Gains and losses	1,924
As of September 30, 2021	11,286
Purchases, issuances and settlements	150
Gains and losses	(1,952)
As of September 30, 2022	$	9,484

Griffon has an Employee Stock Ownership Plan ("ESOP") that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1st following completion of one qualifying year of service (as defined in the plan). Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $295 for the plan year ended September 30, 2022), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $14,325 in 2022, $3,678 in 2021 and $2,878 in 2020. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2022 and 2021 based on the closing stock price of Griffon’s stock was $30,247 and $45,834, respectively. The ESOP shares were as follows:


	At September 30,
	2022	2021
Allocated shares	3,938,384	3,311,660
Unallocated shares	1,024,642	1,863,181
Total	4,963,026	5,174,841