Griffon : Announces First Quarter Results

Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the fiscal first quarter ended December 31, 2014.

Revenue totaled $502 million, increasing 11% from the prior year quarter reflecting 7% organic growth and a 6% contribution from acquisitions, partially offset by a 2% unfavorable impact from foreign currency translation. Home & Building Products (“HBP”) and Clopay Plastics (“Plastics”) revenue increased 24% and 1%, respectively, over the prior year quarter, while Telephonics revenue decreased 6%.

Segment adjusted EBITDA totaled $49.1 million, increasing 11% over the prior year quarter reflecting a 10% contribution from acquisitions and 5% organic growth, partially offset by a 4% unfavorable impact from foreign currency translation. 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 $7.5 million, or $0.16 per share, compared to $3.2 million, or $0.06 per share, in the prior year quarter. Current quarter results included discrete tax provisions of $0.3 million or $0.01 per share. The prior year quarter included restructuring costs of $0.8 million ($0.5 million, net of tax, or $0.01 per share), acquisition costs of $0.8 million ($0.5 million, net of tax, or $0.01 per share) and discrete tax benefits of $0.3 million, or $0.01 per share. Excluding these items, current quarter adjusted net income from continuing operations was $7.8 million, or $0.16 per share, compared to $4.0 million, or $0.07 per share, in the prior year quarter.

Ronald J. Kramer, Chief Executive Officer, commented, “We are pleased with our strong performance this quarter. Our first quarter results reflect the impact of the strategic efficiency initiatives implemented over the past year driving significant EPS growth. We are optimistic that our profitability this year will gain momentum through improved operations and strong demand for our products."

Segment Operating Results

Home & Building Products

Revenue totaled $272 million, increasing 24% compared to the prior year quarter reflecting 14% organic growth and a 12% contribution from acquisitions, partially offset by a 2% unfavorable impact from foreign currency translation. The AMES Companies, Inc. (“AMES”) revenue increased 38% compared to the prior year quarter primarily due to the inclusion of operating results of Northcote and Cyclone (+27%), and improved U.S. and Canadian snow tool sales (+6%), with the balance primarily due to improved North American pots and planters sales; currency translation was 3% unfavorable. Clopay Building Products ("CBP") revenue increased 14%, primarily due to increased volume (+9%) with the balance due to favorable product mix; currency translation was 1% unfavorable.

Segment adjusted EBITDA was $24.5 million, increasing 28% compared to the prior year quarter reflecting a 22% contribution from acquisitions and 12% organic growth, partially offset by a 6% unfavorable impact from foreign currency translation. In both periods, AMES experienced manufacturing inefficiencies in connection with its U.S. plant consolidation initiative undertaken in January 2013; this initiative was completed at the end of the current quarter. Management continues to estimate that these actions will result in annualized cash savings exceeding $10.0 million, based on current operating levels; savings will begin to be realized in the second quarter of fiscal 2015.

HBP recognized $0.8 million in restructuring and related exit costs for the quarter ended December 31, 2013; such charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the AMES initiative. There were no such charges in the current quarter.

Telephonics

Revenue totaled $90.7 million, decreasing 6% from the prior year quarter, primarily due to the timing of work performed on Multi-Mode Radars.

Segment adjusted EBITDA was $10.0 million, decreasing 19% from the prior year quarter, primarily attributable to reduced revenue and product mix.

Contract backlog totaled $496 million at December 31, 2014, compared to $494 million at September 30, 2014, with approximately 69% expected to be fulfilled within the next twelve months.

Plastic Products

Revenue totaled $139.8 million increasing 1%, compared to the prior year quarter reflecting increased volume (+3%) and the pass through of increased resin costs in customer selling prices (+2%); currency translation was 4% unfavorable. Plastics adjusts selling prices based on underlying resin costs on a delayed basis.

Segment adjusted EBITDA was $14.6 million, increasing 14% from the prior year quarter mainly due to a change in the impact of resin pricing pass through (+15%), partially offset by the impact of unfavorable foreign exchange (-5%) with the quarter also benefiting from improved operations and increased volume.

Taxes

The effective tax rate for the quarter ended December 31, 2014 was 37.8% compared to 32.4% in the comparable prior year quarter. The current and prior year tax rates reflect the impact of permanent differences not deductible in determining taxable income, changes in earnings mix between domestic and non-domestic operations, and tax reserves.

The quarter ended December 31, 2014 included a net tax provision of $0.3 million for discrete items resulting primarily from the provision for taxes on repatriation of foreign earnings, partially offset by the benefit of the retroactive extension of the federal R&D credit signed into law December 19, 2014, and release of a valuation allowance. The comparable prior year quarter included $0.3 million of benefits from discrete items 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 rate for the quarter ended December 31, 2014 was 34.9% compared to 38.4% in the comparable prior year quarter.

Balance Sheet and Capital Expenditures

At December 31, 2014, the Company had cash and equivalents of $47 million, total debt outstanding of $809 million, net of discounts, and $181 million available for borrowing under its revolving credit facility. Capital expenditures were $19 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. Under this program, the Company may purchase shares, depending upon market conditions, in open market, including pursuant to a 10b5-1 plan, or privately negotiated transactions. During the quarter ended December 31, 2014, Griffon purchased 1,025,041 shares of common stock under this program, for a total of $12.3 million or $11.99 per share. At December 31, 2014, $26.6 million remains under the current Board authorization.

Since August 2011, through December 31, 2014, Griffon has repurchased 12,464,347 shares of its common stock for a total of $134.5 million or $10.79 per share.

Conference Call Information

The Company will hold a conference call today, January 29, 2015, at 4:30 PM ET.

The call can be accessed by dialing 1-888-710-3981 (U.S. participants) or 1-913-312-1413 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 6835860.

A replay of the call will be available starting on January 29, 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: 6835860. The replay will be available through February 12, 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 sequestration at such time as the budgetary cuts mandated by sequestration begin to take effect; 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, The AMES Companies, Inc. and Clopay Building Products Company, Inc.:
  • AMES 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 and acquisition-related expenses, 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:

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

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

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