Griffon Corporation Announces Third Quarter Results

Business Wire

NEW YORK--(BUSINESS WIRE)--

Griffon Corporation (“Griffon” or the “Company”) (GFF) today reported results for the fiscal third quarter ended June 30, 2013.

Third quarter revenue totaled $510 million, increasing 6% compared to the prior year quarter. Telephonics and Home and Building Products (“HBP”) revenue increased 29% and 1%, respectively while Clopay Plastics (“Plastics”) revenue decreased 2%, all in comparison to the prior year quarter.

Segment adjusted EBITDA totaled $46.8 million compared to $51.8 million in the prior year quarter. Segment adjusted EBITDA is defined as net income, excluding interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses, and gains (losses) from pension settlement and debt extinguishment, as applicable.

Net income totaled $3.6 million, or $0.06 per share, compared to $9.0 million, or $0.16 per share, in the prior year quarter. Current quarter results included restructuring costs of $1.6 million ($1.0 million, net of tax, or $0.02 per share) and a discrete tax benefit of $1.5 million, or $0.03 per share. The prior year quarter included a discrete tax benefit of $1.6 million or $0.03 per share. Excluding these items from both periods, current quarter adjusted net income was $3.1 million, or $0.06 per share, compared to $7.4 million, or $0.13 per share, in the prior year quarter.

Ronald J. Kramer, Chief Executive Officer, commented, “We are performing well in what continues to be a challenging environment. Our performance was in-line with our expectations for the quarter and consistent with the outlook for the year. We expect to deliver enhanced operating performance as the global economy continues to recover.”

Segment Operating Results

Telephonics

Third quarter revenue totaled $130 million, increasing 29% compared to the prior year quarter. The current and prior year quarters included $20.0 million and $2.7 million, respectively, of revenue related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs, current quarter revenue increased 12% from the prior year quarter primarily due to work performed on Multi-mode Surveillance Radar contracts.

Third quarter segment adjusted EBITDA was $13.1 million, decreasing 17% from the prior year quarter, mainly driven by product mix, partially offset by lower expenditures associated with the timing of research and development (“R&D”) initiatives and proposal efforts. The prior year quarter benefitted from higher gross profit and favorable manufacturing efficiencies, both of which were primarily due to an increased level of Light Airborne Multi-purpose Systems Multi Mode Radar deliveries.

Contract backlog totaled $440 million at June 30, 2013 compared to $451 million and $422 million at September 30, 2012 and June 30, 2012, respectively, with approximately 67% expected to be filled within the next twelve months.

Plastic Products

Third quarter revenue totaled $139 million, decreasing 2% compared to the prior year quarter. The decrease reflected lower volume (5%), a portion of which was attributable to Plastics exiting certain low margin products, partially offset by favorable mix (2%) and the pass through of higher resin costs in customer selling prices (1%). The impact of currency in the quarter was not significant.

Third quarter segment adjusted EBITDA was $12.2 million, increasing 20% from the prior year quarter, driven by product mix, continued efficiency improvements and a $0.5 million favorable resin benefit.

Home & Building Products

Third quarter revenue totaled $241 million, increasing 1% compared to the prior year quarter. Ames True Temper’s (“ATT”) revenue decreased 2% in comparison to the prior year quarter due to lower demand for lawn and garden tools, driven by cold and wet weather conditions in North America. Clopay Building Products (“CBP”) revenue increased 5%, mainly due to improved volume and favorable mix.

Third quarter segment adjusted EBITDA was $21.5 million, decreasing 17% compared to the prior year quarter. The decline resulted primarily from lower ATT revenue, which also affected absorption of manufacturing expenses, partially offset by higher volume and favorable mix at CBP. ATT also had manufacturing inefficiencies in connection with its plant consolidation initiative. These inefficiencies are expected to continue until the initiative is complete in 2014.

Taxes

The effective tax rates for the quarters ended June 30, 2013 and 2012 were 54.0% and 39.7%, respectively. The rates include discrete benefits in the current and prior year quarter of $1.5 million and $1.6 million respectively, primarily resulting from release of previously established reserves for uncertain tax positions on conclusion of tax audits, and benefits arising on the filing of tax returns in various jurisdictions.

Excluding discrete items, the effective tax rates for the quarters ended June 30, 2013 and 2012 were 73.1% and 50.5%, respectively. Rates in both periods reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and changes in earnings mix between domestic and non-domestic operations, all of which are material relative to the level of pretax result.

Restructuring

In January 2013, ATT announced its intention to close certain manufacturing facilities, and consolidate operations primarily into its Camp Hill and Carlisle, PA locations. The actions, to be completed by the end of fiscal 2014, will improve manufacturing and distribution efficiencies, allow for in-sourcing of certain production currently performed by third party suppliers, and improve material flow and absorption of fixed costs. Management estimates that, upon completion, these actions will result in annual cash savings exceeding $10 million, based on current operating levels.

ATT anticipates incurring pre-tax restructuring and related exit costs approximating $8.0 million, comprised of cash charges of $4.0 million and non-cash, asset-related charges of $4.0 million. The cash charges will include $3.0 million for personnel-related costs and $1.0 million for facility exit costs. ATT expects $20 million in capital expenditures in connection with this initiative and, to date, has incurred $5.4 million and $8.4 million in restructuring costs and capital expenditures, respectively.

During the current quarter, HBP recognized $0.9 million in restructuring costs primarily related to one-time termination benefits and other personnel costs, and facility costs related to the ATT plant consolidation initiative.

In February 2013, Plastics announced a restructuring project, primarily in Europe, to exit low margin business and eliminate approximately 80 positions, resulting in restructuring charges of $4.8 million in the second quarter of this year, primarily for one-time termination benefits and other personnel costs. The project is substantially complete.

During the current quarter, Telephonics recognized $0.8 million in restructuring costs in connection with the termination of a facility lease. The facility was vacated as a result of the headcount reductions and changes in organizational structure Telephonics undertook in the past two years.

Balance Sheet

At June 30, 2013, the Company had cash and equivalents of $126 million, total debt outstanding of $692 million, net of discounts, and $199 million available for borrowing, subject to certain loan covenants, under its revolving credit facility.

Stock Repurchases

During the third quarter, the Company purchased 0.3 million shares of its common stock under an authorized stock repurchase plan, for $3.0 million. At June 30, 2013, the Company had a remaining authorization of $17.7 million.

Conference Call Information

The Company will hold a conference call today, August 6, 2013, at 4:30 PM ET.

The call can be accessed by dialing 1-800-500-0177 (U.S. participants) or 1-719-325-2250 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference.

A replay of the call will be available starting on August 6, 2013 at 7:30 PM ET by dialing 1-877-870-5176 (U.S.) or 1-858-384-5517 (International), and entering the conference ID number: 9362205. The replay will be available through August 20, 2013.

Forward-looking Statements

“Safe Harbor” Statements under the Private Securities Litigation Reform Act of 1995: All statements related to, among other things, income, earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon Corporation (the “Company” or “Griffon”) operates and the United States and global economies that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; the Company’s ability to achieve expected savings from cost control, integration and disposal initiatives; the ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which Telephonics Corporation supplies products, including as a result of sequestration which is currently scheduled to take effect in March 2013; increases in the cost of raw materials such as resin and steel; changes in customer demand; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in the Company’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which could impact margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation; unfavorable results of government agency contract audits of Telephonics Corporation; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain Griffon’s operating companies; and possible terrorist threats and actions and their impact on the global economy. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company’s Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About Griffon Corporation

Griffon Corporation 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.

Griffon currently conducts its operations through three segments:

  • Home & Building Products consists of two companies, Ames True Temper, Inc. (“ATT”) and Clopay Building Products Company, Inc. (“CBP”):
    • ATT is a global provider of non-powered landscaping products that make work easier for homeowners and professionals.
    • CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains.
  • Telephonics Corporation designs, develops and manufactures high-technology, integrated information, communication and sensor system solutions for use in military and commercial markets worldwide.
  • Clopay Plastic Products Company, Inc. is an international leader in the development and production of embossed, laminated and printed specialty plastic films used in a variety of hygienic, health-care and industrial applications.

For more information on Griffon and its operating subsidiaries, please see the Company’s website at www.griffoncorp.com.

Griffon evaluates performance and allocates resources based on each segment’s operating results before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, acquisition-related expenses, and gains (losses) from pension settlement and debt extinguishment, as applicable (“Segment adjusted EBITDA”). Griffon believes this information is useful to investors.

The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes:

GRIFFON CORPORATION AND SUBSIDIARIES
OPERATING HIGHLIGHTS
(in thousands)
(Unaudited)
               
For the Three Months Ended For the Nine Months Ended
June 30, June 30,

REVENUE

  2013     2012     2013     2012  
Home & Building Products:
ATT $ 128,332 $ 130,311 $ 341,878 $ 362,374
CBP   112,285     106,910     314,651     309,825  
Home & Building Products 240,617 237,221 656,529 672,199
Telephonics 129,997 101,116 347,678 319,621
Plastics   139,212     141,909     418,111     421,889  
Total consolidated net sales $ 509,826   $ 480,246   $ 1,422,318   $ 1,413,709  
 
 
Segment adjusted EBITDA:
Home & Building Products $ 21,478 $ 25,831 $ 56,272 $ 59,434
Telephonics 13,146 15,886 45,015 46,912
Plastics   12,161     10,117     33,832     27,462  
Total Segment adjusted EBITDA 46,785 51,834 135,119 133,808
Net interest expense (13,137 ) (12,855 ) (39,125 ) (38,775 )
Segment depreciation and amortization (17,639 ) (16,733 ) (52,467 ) (48,373 )
Unallocated amounts (6,573 ) (7,253 ) (22,140 ) (20,041 )
Restructuring charges (1,604 ) - (12,048 ) (1,795 )
Acquisition costs - - - (178 )
Loss on pension settlement   -     -     (2,142 )   -  
Income before taxes $ 7,832   $ 14,993   $ 7,197   $ 24,646  
 
 

The following is a reconciliation of each segment’s operating results to Segment adjusted EBITDA:

GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
BY REPORTABLE SEGMENT
(in thousands)
(Unaudited)
               
Three months ended June 30, Nine Months Ended June 30,
2013   2012   2013 2012
 
Home & Building Products
Segment operating profit $ 11,549 $ 17,482 $ 22,655 $ 35,412
Depreciation and amortization 9,075 8,349 27,092 23,571
Restructuring charges 854 - 6,525 273
Acquisition costs   -   -     -   178
Segment adjusted EBITDA 21,478 25,831 56,272 59,434
 
Telephonics
Segment operating profit 10,592 14,113 38,990 40,171
Depreciation and amortization 1,804 1,773 5,275 5,219
Restructuring charges   750   -     750   1,522
Segment adjusted EBITDA 13,146 15,886 45,015 46,912
 
Clopay Plastic Products
Segment operating profit 5,401 3,506 8,959 7,879
Depreciation and amortization 6,760 6,611 20,100 19,583
Restructuring charges   -   -     4,773   -
Segment adjusted EBITDA 12,161 10,117 33,832 27,462
 
All segments:
Income from operations - as reported 20,362 28,202 44,807 62,698
Unallocated amounts 6,573 7,253 22,140 20,041
Other, net 607 (354 ) 1,515 723
Loss on pension settlement   -   -     2,142   -
Segment operating profit 27,542 35,101 70,604 83,462
Depreciation and amortization 17,639 16,733 52,467 48,373
Restructuring charges 1,604 - 12,048 1,795
Acquisition costs   -   -     -   178
Segment adjusted EBITDA $ 46,785 $ 51,834   $ 135,119 $ 133,808

 

Unallocated amounts typically include general corporate expenses not attributable to any reportable segment.

 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)
(in thousands, except per share data)
(Unaudited)
               
Three Months Ended June 30, Nine Months Ended June 30,
  2013     2012     2013     2012  
Revenue $ 509,826 $ 480,246 $ 1,422,318 $ 1,413,709
Cost of goods and services   401,515     364,601     1,110,840     1,092,555  
Gross profit 108,311 115,645 311,478 321,154
 
Selling, general and administrative expenses 86,345 87,443 254,623 256,661
Restructuring and other related charges   1,604     -     12,048     1,795  
Total operating expenses 87,949 87,443 266,671 258,456
 
Income from operations 20,362 28,202 44,807 62,698
 
Other income (expense)
Interest expense (13,279 ) (12,932 ) (39,446 ) (39,000 )
Interest income 142 77 321 225
Other, net   607     (354 )   1,515     723  
Total other income (expense)   (12,530 )   (13,209 )   (37,610 )   (38,052 )
 
Income before taxes 7,832 14,993 7,197 24,646
Provision for income taxes   4,229     5,945     3,855     11,083  
Net income $ 3,603   $ 9,048   $ 3,342   $ 13,563  
 
Basic earnings per common share $ 0.07   $ 0.16   $ 0.06   $ 0.24  
Weighted-average shares outstanding   54,265     56,034     54,588     56,032  
 
 
Diluted earnings per common share $ 0.06   $ 0.16   $ 0.06   $ 0.24  
Weighted-average shares outstanding   56,204     57,495     56,735     57,311  
 
 
Net income $ 3,603 $ 9,048 $ 3,342 $ 13,563
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (7,884 ) (18,527 ) (10,805 ) (13,479 )
Pension amortization 490 523 4,839 1,562
Gain on cash flow hedge   (158 )   -     13     -  
Total other comprehensive income (loss), net of taxes   (7,552 )   (18,004 )   (5,953 )   (11,917 )
Comprehensive income (loss) $ (3,949 ) $ (8,956 ) $ (2,611 ) $ 1,646  
 
       
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
At June 30, At September 30,
2013 2012
 
CURRENT ASSETS
Cash and equivalents $ 126,104 $ 209,654
Accounts receivable, net of allowances of $5,525 and $5,433 271,743 239,857

Contract costs and recognized income not yet billed, net of progress payments of $4,062 and $3,748

117,273 70,777
Inventories, net 219,329 257,868
Prepaid and other current assets 58,711 47,472
Assets of discontinued operations   554   587
Total Current Assets 793,714 826,215
PROPERTY, PLANT AND EQUIPMENT, net 348,440 356,879
GOODWILL 356,375 358,372
INTANGIBLE ASSETS, net 221,783 230,473
OTHER ASSETS 25,668 31,317
ASSETS OF DISCONTINUED OPERATIONS   2,646   2,936
Total Assets $ 1,748,626 $ 1,806,192
 
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 13,384 $ 17,703
Accounts payable 144,438 141,704
Accrued liabilities 94,213 110,337
Liabilities of discontinued operations   1,690   3,639
Total Current Liabilities 253,725 273,383
LONG-TERM DEBT, net of debt discount of $14,116 and $16,607 678,307 681,907
OTHER LIABILITIES 181,589 193,107
LIABILITIES OF DISCONTINUED OPERATIONS   2,631   3,643
Total Liabilities 1,116,252 1,152,040
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Total Shareholders' Equity   632,374   654,152
Total Liabilities and Shareholders' Equity $ 1,748,626 $ 1,806,192
 
   
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
     
Nine Months Ended June 30,
  2013     2012  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,342 $ 13,563
 

Adjustments to reconcile net income to

net cash provided by operating activities:
 
Depreciation and amortization 52,787 48,668
Stock-based compensation 9,327 7,599
Fixed asset impairment charges - restructuring 3,122 -
Provision for losses on accounts receivable 824 532
Amortization/write-off of deferred financing costs and debt discounts 4,651 4,497
Deferred income taxes (897 ) (1,185 )
(Gain) loss on sale/disposal of assets (788 ) 59
Change in assets and liabilities, net of assets and liabilities acquired:

(Increase) decrease in accounts receivable and contract costs and recognized income not yet billed

(81,381 ) 10,601
(Increase) decrease in inventories 36,588 (4,171 )
(Increase) decrease in prepaid and other assets 2,890 (3,970 )

Decrease in accounts payable, accrued liabilities and income taxes payable

(28,767 ) (49,574 )
Other changes, net   856     3,728  
Net cash provided by operating activities 2,554 30,347
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (45,886 ) (57,695 )
Acquired business, net of cash acquired - (22,432 )
Proceeds from sale of assets   1,326     281  
Net cash used in investing activities (44,560 ) (79,846 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,384 ) (3,564 )
Purchase of shares for treasury (25,689 ) (5,670 )
Proceeds from issuance of long-term debt 303 4,000
Payments of long-term debt (12,842 ) (14,563 )
Change in short-term borrowings 2,408 (1,262 )
Financing costs (759 ) (97 )
Tax effect from exercise/vesting of equity awards, net 150 834
Other, net   261     67  

Net cash used in financing activities

(40,552 ) (20,255 )
 
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities   (486 )   (1,690 )
Net cash used in discontinued operations (486 ) (1,690 )
 
Effect of exchange rate changes on cash and equivalents   (506 )   327  
 
NET DECREASE IN CASH AND EQUIVALENTS (83,550 ) (71,117 )
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD   209,654     243,029  
CASH AND EQUIVALENTS AT END OF PERIOD $ 126,104   $ 171,912  
 

Griffon evaluates performance based on Earnings per share and Net income excluding restructuring charges, acquisition-related expenses, gains (losses) from pension settlement and debt extinguishment, and discrete tax items, as applicable. Griffon believes this information is useful to investors. The following table provides a reconciliation of Earnings per share and Net income to Adjusted earnings per share and Adjusted net income:

   
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF INCOME TO ADJUSTED INCOME
(in thousands, except per share data)
(Unaudited)
           
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
  2013     2012     2013     2012  
 
Net income $ 3,603 $ 9,048 $ 3,342 $ 13,563
 
Adjusting items, net of tax:
Restructuring and related 994 - 7,502 1,167
Acquisition costs - - - 116
Loss on pension settlement - - 1,392 -
Discrete tax benefits   (1,495 )   (1,626 )   (1,859 )   (1,626 )
 
Adjusted net income $ 3,102   $ 7,422   $ 10,377   $ 13,220  
 
Earnings per common share $ 0.06 $ 0.16 $ 0.06 $ 0.24
 
Adjusting items, net of tax:
Restructuring 0.02 - 0.13 0.02
Acquisition costs - - - 0.00
Loss on pension settlement - - 0.02 -
Discrete tax benefits (0.03 ) (0.03 ) (0.03 ) (0.03 )
 
Adjusted earnings per share $ 0.06   $ 0.13   $ 0.18   $ 0.23  
 
Weighted-average shares outstanding   56,204     57,495     56,735     57,311  
 

Contact:
Griffon Corporation
Douglas J. Wetmore
212-957-5000
Chief Financial Officer
or
Investor Relations:
ICR Inc.
Anthony Gerstein
646-277-1242
Senior Vice President

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