Griffon Corporation Announces Third Quarter Results

NEW YORK--()--Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the fiscal third quarter ended June 30, 2015.

Revenue totaled $511.7 million, increasing 1% from the prior year quarter; excluding the impact of foreign currency, revenue increased 5%. Telephonics Corporation ("Telephonics") and Home & Building Products (“HBP”) revenue increased 13% and 7%, respectively, over the prior year quarter, while Clopay Plastic Products Company, Inc. (“Plastics”) revenue decreased 16%.

Segment adjusted EBITDA totaled $55.2 million, increasing 11% from the prior year quarter; the impact of foreign currency was not material. 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 and acquisition-related expenses.

Net income totaled $10.9 million, or $0.23 per share, compared to $14.5 million, or $0.29 per share, in the prior year quarter. Current quarter results included discrete tax benefits of $0.3 million. The prior year quarter included acquisition costs of $1.6 million ($1.0 million, net of tax or $0.02 per shares), restructuring costs of $0.4 million ($0.2 million, net of tax, or $0.00 per share), impact of debt extinguishment on full year effective tax rate of $(4.4) million or $(0.09) per share and discrete tax benefits of $1.9 million, or $0.04 per share. Excluding these items from both periods, current quarter adjusted net income was $10.6 million, or $0.23 per share, compared to $9.5 million, or $0.19 per share, in the prior year quarter. The impact of foreign currency was not material.

Ronald J. Kramer, Chief Executive Officer, commented, “We are pleased to report another quarter of adjusted EPS growth. As we realize the full benefit of our strategic initiatives, we anticipate gaining momentum into our fiscal year end and are optimistic about 2016.”

Segment Operating Results

Home & Building Products

Revenue totaled $272.2 million, increasing 7% compared to the prior year quarter, reflecting a 3% contribution from the Cyclone acquisition, partially offset by a 2% unfavorable foreign currency impact. The AMES Companies, Inc. (“AMES”) revenue increased 6% due to the inclusion of Cyclone results contributing 6% and increased wheelbarrow sales; foreign currency was 4% unfavorable. Clopay Building Products Company, Inc. ("CBP") revenue increased 8%, primarily due to increased volume contributing 5% with the balance primarily due to product mix; foreign currency was 1% unfavorable.

Segment adjusted EBITDA was $25.4 million, increasing 30% compared to the prior year quarter, driven by AMES operational efficiency improvements and cost control measures, a contribution from AMES acquisitions of 10%, and increased volume and favorable mix at CBP; foreign currency was 4% unfavorable.

HBP recognized $0.4 million in restructuring and related exit costs for the quarter ended June 30, 2014; such charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the AMES U.S. plant consolidation initiative undertaken in January 2013 and completed at the end of the 2015 first quarter. There were no such charges in the current year. Management continues to estimate that AMES' initiative will result in annualized cash savings exceeding $10.0 million; realization of expected savings began in the 2015 second quarter.

Telephonics

Revenue totaled $115.3 million, increasing 13% from the prior year quarter, primarily due to timing of work performed on the Radar System Division Multi-Mode ASW product, partially offset by the timing of awards and work performed on Secure Digital Intercommunications products in Communications and Surveillance Systems.

Segment adjusted EBITDA was $15.7 million, increasing 4% from the prior year quarter, primarily due to the increased revenue and reduced operating expenses, offset by the impact of unfavorable program mix.

Contract backlog totaled $439 million at June 30, 2015, compared to $494 million at September 30, 2014, with approximately 79% expected to be fulfilled within the next twelve months.

Plastic Products

Revenue totaled $124.2 million, decreasing 16% compared to the prior year quarter, reflecting an unfavorable foreign currency impact of 9%, a 5% decrease in volume and a 2% unfavorable impact from the pass through of resin costs in customer selling prices. Plastics adjusts selling prices based on underlying resin costs on a delayed basis.

Segment adjusted EBITDA was $14.1million, decreasing 6% from the prior year quarter due to the change in the impact of resin pricing pass through of 9% and reduced volume, partially offset by favorable mix. The favorable impact of foreign currency was 5%.

Taxes

In both the quarter and nine months ended June 30, 2015, the Company reported pretax income compared to pretax income in the prior year quarter and a pretax loss in the prior year nine-month period. The Company recognized tax provisions of 34.7% and 36.3% for the quarter and nine months ended June 30, 2015, respectively, compared to benefits of 12.2% and 38.0%, respectively, in the comparable prior year periods.

The current quarter and nine months ended June 30, 2015 included a $0.3 million discrete benefit and $0.2 million discrete provision, respectively. The comparable prior year periods included benefits of $1.9 million and $1.5 million, respectively. In both years, the discrete items arose primarily from the filing of returns, conclusion of tax audits in various jurisdictions and the impact of enacted tax law changes. Excluding discrete items, and for the prior year also excluding the impact from debt extinguishment, the effective tax rates for the quarter and nine months ended June 30, 2015 were 36.3% and 35.7%, respectively, compared to 36.6% and 36.7%, respectively, in the comparable prior year periods.

Balance Sheet and Capital Expenditures

At June 30, 2015, the Company had cash and equivalents of $46.0 million, total debt outstanding of $840.5 million, net of discounts and deferred costs, and $168 million available for borrowing under its revolving credit facility. Capital expenditures were $16 million in the current quarter.

Share Repurchases

On May 1, 2014, Griffon’s Board of Directors authorized the repurchase of up to $50 million of Griffon’s outstanding common stock; on March 20, 2015, an additional $50 million was authorized. Under these programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the quarter ended June 30, 2015, Griffon purchased 1,234,214 shares of common stock under the programs, for a total of $20.6 million or $16.71 per share. At June 30, 2015, $31.7 million remains under existing Board authorizations.

From August 2011 to June 30, 2015, Griffon repurchased 15,279,761 shares of its common stock for a total of $179.3 million or $11.74 per share.

Conference Call Information

The Company will hold a conference call today, July 30, 2015, at 4:30 PM ET.

The call can be accessed by dialing 1-888-206-4916 (U.S. participants) or 1-913-312-0698 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 3009566.

A replay of the call will be available starting on July 30, 2015 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: 3009566. The replay will be available through August 13, 2015.

Forward-looking Statements

“Safe Harbor” Statements under the Private Securities Litigation Reform Act of 1995: All statements related to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which 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 Griffon'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 Griffon’s Telephonics Corporation supplies products, including as a result of continuing budgetary cuts resulting from sequestration and other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost of raw materials such as resin, wood and steel; changes in customer demand or loss of a material customer at one of Griffon's operating companies; 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 Griffon’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 and environmental matters; 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. Griffon 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 reportable segments:

  • Home & Building Products consists of two companies, AMES and CBP:
    • AMES is a global provider of non-powered landscaping products for homeowners and professionals.
    • CBP is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional dealers and major home center retail chains.
  • Telephonics designs, develops and manufactures high-technology integrated information, communication and sensor system solutions for military and commercial markets worldwide.
  • Plastics 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 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 (loss) before taxes:

GRIFFON CORPORATION AND SUBSIDIARIES

OPERATING HIGHLIGHTS

(in thousands)

(Unaudited)

   
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
REVENUE   2015   2014 2015   2014
Home & Building Products:
AMES $ 140,614 $ 132,179 $ 432,816 $ 389,492
CBP 131,577   121,814   374,690   334,494  
Home & Building Products 272,191 253,993 807,506 723,986
Telephonics 115,340 102,446 304,685 302,656
Plastics 124,163   148,600   401,683   439,542  
Total consolidated net sales $ 511,694   $ 505,039   $ 1,513,874   $ 1,466,184  
 
Segment adjusted EBITDA:
Home & Building Products $ 25,386 $ 19,596 $ 67,186 $ 55,787
Telephonics 15,712 15,087 37,360 40,018
Plastics 14,084   14,922   44,399   43,881  
Total Segment adjusted EBITDA 55,182 49,605 148,945 139,686
Net interest expense (12,150 ) (11,541 ) (35,644 ) (37,003 )
Segment depreciation and amortization (17,331 ) (16,691 ) (51,556 ) (49,723 )
Unallocated amounts (9,008 ) (6,521 ) (24,852 ) (22,895 )
Loss from debt extinguishment, net (38,890 )
Restructuring charges (358 ) (1,892 )
Acquisition costs   (1,600 )   (2,398 )
Income (loss) before taxes $ 16,693   $ 12,894   $ 36,893   $ (13,115 )
 

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,
    2015   2014 2015   2014
Home & Building Products
Segment operating profit $ 16,268 $ 9,747 $ 41,288 $ 27,958
Depreciation and amortization 9,118 7,891 25,898 23,539
Restructuring charges 358 1,892
Acquisition costs   1,600     2,398  
Segment adjusted EBITDA 25,386 19,596 67,186 55,787
 
Telephonics
Segment operating profit 13,284 13,134 29,915 34,463
Depreciation and amortization 2,428   1,953   7,445   5,555  
Segment adjusted EBITDA 15,712 15,087 37,360 40,018
 
Clopay Plastic Products
Segment operating profit 8,299 8,075 26,186 23,252
Depreciation and amortization 5,785   6,847   18,213   20,629  
Segment adjusted EBITDA 14,084 14,922 44,399 43,881
 
All segments:
Income from operations - as reported 27,914 21,814 72,816 58,468
Unallocated amounts 9,008 6,521 24,852 22,895
Other, net 929   2,621   (279 ) 4,310  
Segment operating profit 37,851 30,956 97,389 85,673
Depreciation and amortization 17,331 16,691 51,556 49,723
Restructuring charges 358 1,892
Acquisition costs   1,600     2,398  
Segment adjusted EBITDA $ 55,182   $ 49,605   $ 148,945   $ 139,686  
 

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 Nine Months Ended
June 30, June 30,
2015   2014 2015   2014
Revenue $ 511,694 $ 505,039 $ 1,513,874 $ 1,466,184
Cost of goods and services 388,205   386,732   1,158,021   1,132,387  
Gross profit 123,489 118,307 355,853 333,797
 
Selling, general and administrative expenses 95,575 96,135 283,037 273,437
Restructuring and other related charges   358     1,892  
Total operating expenses 95,575 96,493 283,037 275,329
 
Income from operations 27,914 21,814 72,816 58,468
 
Other income (expense)
Interest expense (12,169 ) (11,661 ) (35,935 ) (37,184 )
Interest income 19 120 291 181
Loss from debt extinguishment, net (38,890 )
Other, net 929   2,621   (279 ) 4,310  
Total other expense, net (11,221 ) (8,920 ) (35,923 ) (71,583 )
 
Income (loss) before taxes 16,693 12,894 36,893 (13,115 )
Provision (benefit) for income taxes 5,800   (1,570 ) 13,407   (4,990 )
Net income (loss) $ 10,893   $ 14,464   $ 23,486   $ (8,125 )
 
Basic income (loss) per common share $ 0.25   $ 0.30   $ 0.52   $ (0.16 )
Weighted-average shares outstanding 44,025   48,370   45,228   50,038  
 
Diluted income (loss) per common share $ 0.23   $ 0.29   $ 0.50   $ (0.16 )
Weighted-average shares outstanding 46,980   49,836   47,285   50,038  
 
Net income (loss) $ 10,893 $ 14,464 $ 23,486 $ (8,125 )
 
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments 4,801 2,809 (41,083 ) 896
Pension and other post retirement plans 353 317 1,059 1,732
Gain on cash flow hedge 209 55
Change in available-for-sale securities     (870 )  
 
Total other comprehensive income (loss), net of taxes 5,363   3,126   (40,839 ) 2,628  
Comprehensive income (loss), net $ 16,256   $ 17,590   $ (17,353 ) $ (5,497 )
 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

   
(Unaudited) At September 30,
At June 30, 2015 2014
CURRENT ASSETS
Cash and equivalents $ 45,955 $ 92,405
Accounts receivable, net of allowances of $6,411 and $7,336 240,189 258,436
Contract costs and recognized income not yet billed, net of progress payments of $16,834 and $16,985 104,011 109,930
Inventories, net 318,193 290,135
Prepaid and other current assets 46,747 62,569
Assets of discontinued operations 1,625   1,624  
Total Current Assets 756,720 815,099
PROPERTY, PLANT AND EQUIPMENT, net 366,364 370,565
GOODWILL 362,745 375,294
INTANGIBLE ASSETS, net 219,653 233,623
OTHER ASSETS 14,139 13,302
ASSETS OF DISCONTINUED OPERATIONS 2,131   2,126  
Total Assets $ 1,721,752   $ 1,810,009  
 
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 11,771 $ 7,886
Accounts payable 175,569 218,703
Accrued liabilities 99,029 104,740
Liabilities of discontinued operations 2,392   3,282  
Total Current Liabilities 288,761 334,611
 
LONG-TERM DEBT, net 828,699 791,301
OTHER LIABILITIES 138,800 148,240
LIABILITIES OF DISCONTINUED OPERATIONS 3,244   3,830  
Total Liabilities 1,259,504 1,277,982
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity 462,248   532,027  
Total Liabilities and Shareholders’ Equity $ 1,721,752   $ 1,810,009  
 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 
Nine Months Ended June 30,
2015   2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 23,486 $ (8,125 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 51,901 50,027
Stock-based compensation 8,303 8,133
Asset impairment charges - restructuring 191
Provision for losses on accounts receivable 121 420
Amortization of debt discounts and issuance costs 4,894 4,789
Loss from debt extinguishment, net 38,890
Deferred income taxes 1,111 (314 )
(Gain) loss on sale/disposal of assets and investments (317 ) 78
Change in assets and liabilities, net of assets and liabilities acquired:
Decrease in accounts receivable and contract costs and recognized income not yet billed 14,977 7,443
Increase in inventories (36,483 ) (33,195 )
Increase in prepaid and other assets (596 ) (3,439 )
Decrease in accounts payable, accrued liabilities and income taxes payable (39,864 ) (15,754 )
Other changes, net 2,053   712  

Net cash provided by operating activities

29,586 49,856
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (55,365 ) (54,859 )
Acquired businesses, net of cash acquired (2,225 ) (62,306 )
Proceeds from sale of assets 275 491
Investment sales (purchases) 8,891   (8,402 )
Net cash used in investing activities (48,424 ) (125,076 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 371 584
Dividends paid (5,807 ) (4,841 )
Purchase of shares for treasury (58,218 ) (72,518 )
Proceeds from long-term debt 121,523 682,913
Payments of long-term debt (80,495 ) (602,134 )
Change in short-term borrowings (81 ) 3,138
Financing costs (592 ) (10,928 )
Purchase of ESOP shares (10,000 )
Tax benefit from exercise/vesting of equity awards, net 345 273
Other, net 206   194  
Net cash used in financing activities (22,748 ) (13,319 )
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities (830 ) (1,018 )
Net cash used in discontinued operations (830 ) (1,018 )
Effect of exchange rate changes on cash and equivalents (4,034 ) (1,136 )
NET DECREASE IN CASH AND EQUIVALENTS (46,450 ) (90,693 )
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 92,405   178,130  
CASH AND EQUIVALENTS AT END OF PERIOD $ 45,955   $ 87,437  
 

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

GRIFFON CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME

(in thousands, except per share data)

(Unaudited)

   
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
2015   2014 2015   2014
Net income (loss) $ 10,893 $ 14,464 $ 23,486 $ (8,125 )
 
Adjusting items, net of tax:
Loss from debt extinguishment, net 24,964
Restructuring charges 222 1,173
Acquisition costs 992 1,487
Extinguishment impact on period tax rate (a) (4,357 ) 1,491
Discrete tax provisions (benefits) (250 ) (1,860 ) 244   (1,540 )
 
Adjusted net income $ 10,643   $ 9,461   $ 23,730   $ 19,450  
 
Diluted income (loss) per common share $ 0.23 $ 0.29 0.50 $ (0.16 )
 
Adjusting items, net of tax:
Loss from debt extinguishment, net 0.50
Restructuring charges 0.02
Acquisition costs 0.02 0.03
Extinguishment impact on period tax rate (a) (0.09 ) 0.03
Discrete tax provisions (benefits) (0.01 ) (0.04 ) 0.01 (0.03 )
 
Adjusted earnings per common share $ 0.23   $ 0.19   0.50   $ 0.39  
 
Weighted-average shares outstanding (in thousands) 46,980   49,836   47,285   50,038  
 

a) In the prior year quarter ended June 30, 2014, the impact of debt extinguishment on the full year effective tax rate was estimated to be a benefit of $4,357 or $0.09 per share, and for the nine months ended June 30, 2014, a provision of $1,491 or $0.03 per share.

Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.

Contacts

Company Contact:
Griffon Corporation
Douglas J. Wetmore, 212-957-5000
EVP & Chief Financial Officer
or
Investor Relations Contact:
ICR Inc.
Michael Callahan, 203-682-8311
Senior Vice President

Release Summary

Griffon Corporation Announces Third Quarter Results

Contacts

Company Contact:
Griffon Corporation
Douglas J. Wetmore, 212-957-5000
EVP & Chief Financial Officer
or
Investor Relations Contact:
ICR Inc.
Michael Callahan, 203-682-8311
Senior Vice President