LEASES

12 Months Ended

Sep. 30, 2022

Leases [Abstract]

LEASES

LEASES

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 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. 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 10, 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,
	2022		2021		2020
Fixed (a)	$	44,457	$	38,362	$	36,155
Variable (a), (b)	8,615		7,573		7,178
Short-term (b)	7,438		4,210		5,470
Total	$	60,510	$	50,145	$	48,803

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

(b) Not recorded on the balance sheet.

Supplemental cash flow information were as follows:

	For the Year Ended September 30,
	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	47,275	$	43,444	$	48,141
Financing cash flows from finance leases	2,462		3,815		4,122
Total	$	49,737	$	47,259	$	52,263

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

	As of September 30,
	2022		2021
Operating Leases:
Right of use assets:
Operating right-of-use assets	$	183,398	$	144,598
Lease Liabilities:
Current portion of operating lease liabilities	$	31,680	$	29,881
Long-term operating lease liabilities	159,414		119,315
Total operating lease liabilities	$	191,094	$	149,196
Finance Leases:
Right of use assets:
Property, plant and equipment, net(1)	$	13,696	$	16,466
Lease Liabilities:
Notes payable and current portion of long-term debt	$	2,065	$	2,347
Long-term debt, net	11,995		14,120
Total financing lease liabilities	$	14,060	$	16,467

(1) For the years ended September 30, 2022 and 2021, finance lease assets are recorded net of accumulated depreciation of $4,972 and $6,136, respectively.

Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025 and bears interest at a fixed rate of approximately 5.6%. The Ocala, Florida lease contains two five-year renewal options. At September 30, 2022, $13,091 was outstanding. During the year ended September 30, 2022, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0%, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buyout option in November 2021. The remaining lease liability balance relates to finance equipment leases.

The aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2022 are as follows (in thousands):

	Operating Leases		Finance Leases
2023	$	40,998	$	2,774
2024	33,985		2,290
2025	31,356		2,129
2026	22,734		2,106
2027	18,597		2,074
Thereafter	96,938		5,702
Total lease payments	244,608		17,075
Less: Imputed Interest	(53,514)		(3,015)
Present value of lease liabilities	$	191,094	$	14,060

Average lease terms and discount rates were as follows:

	As of September 30,
	2022		2021
Weighted-average remaining lease term (years)
Operating Leases	8.4		8.0
Finance Leases	7.4		8.1
Weighted-average discount rate
Operating Leases	5.47	%	4.48	%
Finance Leases	5.51	%	5.48	%

LEASES

LEASES

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 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. 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 10, 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,
	2022		2021		2020
Fixed (a)	$	44,457	$	38,362	$	36,155
Variable (a), (b)	8,615		7,573		7,178
Short-term (b)	7,438		4,210		5,470
Total	$	60,510	$	50,145	$	48,803

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

(b) Not recorded on the balance sheet.

Supplemental cash flow information were as follows:

	For the Year Ended September 30,
	2022		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	47,275	$	43,444	$	48,141
Financing cash flows from finance leases	2,462		3,815		4,122
Total	$	49,737	$	47,259	$	52,263

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

	As of September 30,
	2022		2021
Operating Leases:
Right of use assets:
Operating right-of-use assets	$	183,398	$	144,598
Lease Liabilities:
Current portion of operating lease liabilities	$	31,680	$	29,881
Long-term operating lease liabilities	159,414		119,315
Total operating lease liabilities	$	191,094	$	149,196
Finance Leases:
Right of use assets:
Property, plant and equipment, net(1)	$	13,696	$	16,466
Lease Liabilities:
Notes payable and current portion of long-term debt	$	2,065	$	2,347
Long-term debt, net	11,995		14,120
Total financing lease liabilities	$	14,060	$	16,467

(1) For the years ended September 30, 2022 and 2021, finance lease assets are recorded net of accumulated depreciation of $4,972 and $6,136, respectively.

Griffon has one finance lease outstanding for real estate located in Ocala, Florida. The lease matures in 2025 and bears interest at a fixed rate of approximately 5.6%. The Ocala, Florida lease contains two five-year renewal options. At September 30, 2022, $13,091 was outstanding. During the year ended September 30, 2022, the financing lease on the Troy, Ohio location expired. The lease bore interest at a rate of approximately 5.0%, was secured by a mortgage on the real estate, which was guaranteed by Griffon, and had a one dollar buyout at the end of the lease. Griffon exercised the one dollar buyout option in November 2021. The remaining lease liability balance relates to finance equipment leases.

The aggregate future maturities of lease payments for operating leases and finance leases as of September 30, 2022 are as follows (in thousands):

	Operating Leases		Finance Leases
2023	$	40,998	$	2,774
2024	33,985		2,290
2025	31,356		2,129
2026	22,734		2,106
2027	18,597		2,074
Thereafter	96,938		5,702
Total lease payments	244,608		17,075
Less: Imputed Interest	(53,514)		(3,015)
Present value of lease liabilities	$	191,094	$	14,060

Average lease terms and discount rates were as follows:

	As of September 30,
	2022		2021
Weighted-average remaining lease term (years)
Operating Leases	8.4		8.0
Finance Leases	7.4		8.1
Weighted-average discount rate
Operating Leases	5.47	%	4.48	%
Finance Leases	5.51	%	5.48	%