Griffon Corporation Announces First Quarter Results

  Griffon Corporation Announces First Quarter Results

Business Wire

NEW YORK -- January 30, 2013

Griffon Corporation (“Griffon” or the “Company”) (NYSE: GFF) today reported
results for the fiscal first quarter ended December 31, 2012.

Ron Kramer, Chief Executive Officer, commented, “Our first quarter results
reflect the continued improvement in our operations as the global economy
slowly recovers. Telephonics’ strong performance benefited from manufacturing
efficiencies and favorable product mix. Clopay Plastics (“Plastics”) continued
its ongoing improvement from initiatives undertaken to address manufacturing
inefficiencies arising from our capacity expansions in Germany and Brazil.
Home and Building Products (“HBP”) benefited from enhanced profitability from
Clopay Building Products (“CBP”), while Ames True Temper (“ATT”) suffered from
a lack of snow and resultant lower snow tool revenue.”

First quarter revenue totaled $424 million, decreasing 6% compared to the
prior year quarter. Plastics revenue increased 1%, while HBP and Telephonics
revenue decreased 10% and 8%, respectively, compared to the prior year
quarter.

Segment adjusted EBITDA totaled $42.9 million, increasing 3% compared to $41.6
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 $0.6 million, or $0.01 per share, compared to $2.5 million,
or $0.04 per share, in the prior year quarter. Current quarter results
included restructuring of $1.1 million ($0.7 million, net of tax, or $0.01 per
share) and a loss on pension settlement of $2.1 million ($1.4 million, net of
tax, or $0.02 per share). The prior year quarter results included
restructuring and acquisition costs of $2.0 million ($1.3 million, net of tax,
or $0.02 per share). Current quarter adjusted net income was $2.6 million, or
$0.05 per share, compared to $3.8 million, or $0.07 per share, in the prior
year quarter.

Ames True Temper Plant Consolidation Initiative

ATT will close certain of its manufacturing facilities, and consolidate
affected 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 it will incur pre-tax restructuring and related exit costs of
$8.0 million, comprised of cash charges of $4.0 million and 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. The Company
expects $20.0 million in capital expenditures in connection with this
initiative.

HBP recognized $1.1 million and $0.3 million in restructuring and other
related charges in the current and prior year quarters, respectively, related
primarily to one-time termination benefits and other personnel costs; current
year charges relate primarily to ATT’s plant consolidation initiative.

Mr. Kramer continued, “The strategic initiative at ATT builds upon the core
strength of its brands. We expect to achieve higher long-term profitability
through our plant consolidation. The focus in our businesses is upon
operational execution. Each of our businesses is poised for growth and
improved profitability as the economic recovery accelerates. We remain
committed to increasing shareholder value through organic growth, a
disciplined approach to capital investment, and our ongoing evaluation of
strategic acquisitions.”

Segment Operating Results

Telephonics

First quarter revenue totaled $96.0 million, decreasing 8% compared to the
prior year quarter. The prior year quarter included $5.9 million of revenue
related to the Counter Remote Control Improvised Explosive Device Electronic
Warfare 3.1 (“CREW 3.1”) program where Telephonics serves as a contract
manufacturer; there was no CREW 3.1 revenue in the current quarter. Excluding
CREW 3.1, current quarter revenue decreased 3% from the prior year quarter
primarily due to lower shipments of Advanced Radar Surveillance Systems
(“ARSS”), partially offset by increases in Romeo Radar and Secure Digital
Intercommunications (“SDI”) revenue.

First quarter segment adjusted EBITDA was $16.4 million, increasing 4% from
the prior year quarter, mainly driven by improved gross profit from favorable
program mix and manufacturing efficiencies. Telephonics profitability also
benefited from cost reductions previously implemented. In 2012 and 2011,
Telephonics recognized $3.8 and $3.0, respectively, of restructuring charges
in connection with two discrete voluntary early retirement plans and other
costs related to changes in organizational structure and facilities; such
charges were primarily personnel-related, reducing headcount by 185 employees
over the two-year period. In the prior year first quarter, Telephonics
recognized $1.5 million of restructuring and other related charges, primarily
for one-time termination benefits and other personnel costs.

Contract backlog totaled a record $467 million at December 31, 2012 compared
to $451 million at September 30, 2012, and $380 at December 31, 2011, with
approximately 70% expected to be filled within the next twelve months.

Plastic Products

First quarter revenue totaled $137.5 million, increasing 1% compared to the
prior year quarter; a volume increase of 7% was partially offset by a 4%
unfavorable impact of translation of European and Brazilian local currency
revenue into a stronger U.S. dollar, and a 2% unfavorable mix impact. The
current quarter revenue impact from fluctuations in resin costs was not
material; Plastics adjusts selling prices, based on underlying resin costs, on
a delayed basis.

First quarter segment adjusted EBITDA was $9.3 million, increasing 14% from
the prior year quarter, mainly driven by improved volume and continued
efficiency improvements made on past capital initiatives, partially offset by
a $4.8 million unfavorable impact of higher resin costs.

Home & Building Products

First quarter revenue totaled $190.2 million, decreasing 10% compared to the
prior year quarter. ATT revenue decreased 22% due to lack of snow and
resultant reduced sales of snow tools. Retail customers continue to hold high
levels of snow tool inventory carried over from last year, further affecting
snow tool sales. CBP revenue increased 1%, mainly due to favorable mix.

First quarter segment adjusted EBITDA was $17.2 million, decreasing 3%
compared to the prior year quarter, primarily due to lower snow tool revenue.
The impact of snow was partially offset by reduced ATT warehouse and
distribution costs, other cost control initiatives and an increase of $0.9
million in Byrd Amendment receipts (anti-dumping compensation from the U.S.
government); favorable product mix and manufacturing efficiencies at CBP also
contributed to segment adjusted EBITDA.

Taxes

Griffon’s current quarter effective tax rate was 68.1% compared to 49.2% in
the prior year quarter. In both years, the effective rates 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. There were no
material discrete items in the current or prior year quarters.

Pension Settlement

Current quarter selling, general and administrative expenses included a $2.1
million, non-cash, pension settlement loss resulting from the lump-sum buyout
of certain participant balances in the Company’s defined benefit plan. The
buyouts, funded by the pension plan, reduced the Company’s net pension
liability by $3.5 million.

Balance Sheet

At December 30, 2012, the Company had cash and equivalents of $150 million,
total debt outstanding of $699 million, net of discounts, and $179 million
available for borrowing under its revolving credit facility.

Stock Repurchases

During the first quarter, the Company purchased 0.7 million shares of its
common stock under an authorized stock repurchase plan, for $7.3 million. At
December 31, 2012, the Company had a remaining authorization of $31.0 million.

Conference Call Information

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

The call can be accessed by dialing 1-888-334-3032 (U.S. participants) or
1-719-325-2462 (International participants). Callers should ask to be
connected to the Griffon Corporation teleconference.

A replay of the call will be available starting on January 30, 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: 4105191. The replay will be available
through February 13, 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 (the “Griffon” or “Company”), 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 December 31,
                                      2012                   2011
REVENUE
      Home & Building Products:
      ATT                             $    77,309            $   98,741
      CBP                                 112,867             111,647   
      Home & Building Products             190,176               210,388
      Telephonics                          96,050                104,513
      Plastics                            137,523             136,130   
Total consolidated net sales          $    423,749          $   451,031   
                                                             
Segment adjusted EBITDA:
      Home & Building Products        $    17,239            $   17,750
      Telephonics                          16,364                15,690
      Plastics                            9,319               8,180     
Total Segment adjusted EBITDA              42,922                41,620
Net interest expense                       (13,079   )           (13,000   )
Segment depreciation and                   (17,256   )           (15,418   )
amortization
Unallocated amounts                        (7,587    )           (6,335    )
Restructuring charges                      (1,108    )           (1,795    )
Acquisition costs                          -                     (178      )
Loss on pension settlement                (2,142    )          -         
Income before taxes                   $    1,750            $   4,894     
                                                             
Unallocated amounts typically include general corporate expenses not
attributable to a reportable segment.

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 December 31,
                                         2012               2011
                                                            
Home & Building Products
  Segment operating profit               $    7,271         $   9,834
       Depreciation and amortization          8,860             7,465
       Restructuring charges                  1,108             273
       Acquisition costs                     -                178
  Segment adjusted EBITDA                     17,239            17,750
                                                            
Telephonics
  Segment operating profit                    14,645            12,515
       Depreciation and amortization          1,719             1,653
       Restructuring charges                 -                1,522
  Segment adjusted EBITDA                     16,364            15,690
                                                            
Clopay Plastic Products
  Segment operating profit                    2,642             1,880
       Depreciation and amortization         6,677            6,300
  Segment adjusted EBITDA                     9,319             8,180
                                                            
All segments:
  Income from operations - as reported        14,343            17,847
       Unallocated amounts                    7,587             6,335
       Loss on pension settlement             2,142             -
       Other, net                            486              47
  Segment operating profit                    24,558            24,229
       Depreciation and amortization          17,256            15,418
       Restructuring charges                  1,108             1,795
       Acquisition costs                     -                178
  Segment adjusted EBITDA                $    42,922        $   41,620

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
                                                          
                                                               
                                             Three Months Ended December 31,
                                             2012              2011
Revenue                                      $  423,749        $  451,031
Cost of goods and services                     326,079         348,323  
Gross profit                                    97,670            102,708
                                                               
Selling, general and administrative expenses    82,219            83,066
Restructuring and other related charges        1,108           1,795    
Total operating expenses                       83,327          84,861   
                                                               
Income from operations                          14,343            17,847
                                                               
Other income (expense)
Interest expense                                (13,107  )        (13,063  )
Interest income                                 28                63
Other, net                                     486             47       
Total other income (expense)                   (12,593  )       (12,953  )
                                                               
Income before taxes                             1,750             4,894
Provision for income taxes                     1,192           2,407    
Net income                                   $  558           $  2,487    
                                                               
Basic earnings per common share              $  0.01          $  0.04     
                                                               
Weighted-average shares outstanding            55,153          56,025   
                                                               
                                                               
Diluted earnings per common share            $  0.01          $  0.04     
                                                               
Weighted-average shares outstanding            57,265          57,082   

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                                                          
                                            (Unaudited)
                                            At December 31,   At September 30,
                                            2012              2012
                                                              
CURRENT ASSETS
  Cash and equivalents                      $   150,065       $    209,654
  Accounts receivable, net of allowances of     237,305            239,857
  $5,573 and $5,433
  Contract costs and recognized income not
  yet billed, net of progress payments of       74,579             70,777
  $2,075 and $3,748
  Inventories, net                              268,109            257,868
  Prepaid and other current assets              53,582             47,472
  Assets of discontinued operations            571               587
  Total Current Assets                         784,211           826,215
PROPERTY, PLANT AND EQUIPMENT, net              357,419            356,879
GOODWILL                                        359,294            358,372
INTANGIBLE ASSETS, net                          228,574            230,473
OTHER ASSETS                                    28,550             31,317
ASSETS OF DISCONTINUED OPERATIONS              2,798             2,936
  Total Assets                              $   1,760,846     $    1,806,192
                                                            
CURRENT LIABILITIES
                                                                  
  Notes payable and current portion of      $   19,081        $    17,703
  long-term debt
  Accounts payable                              132,799            141,704
  Accrued liabilities                           80,886             110,337
  Liabilities of discontinued operations       2,084             3,639
  Total Current Liabilities                    234,850           273,383
LONG-TERM DEBT, net of debt discount of         679,538            681,907
$15,797 and $16,607
OTHER LIABILITIES                               186,860            193,107
LIABILITIES OF DISCONTINUED OPERATIONS         3,395             3,643
  Liabilities of discontinued operations
                                               1,104,643        1,152,040
  
COMMITMENTS AND CONTINGENCIES
                                                              
SHAREHOLDERS' EQUITY
  Total Shareholders' Equity                   656,203           654,152
  Total Liabilities and Shareholders'
  Equity                                    $   1,760,846     $    1,806,192

  

GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
                                                            
                                               Three Months Ended December 31,
                                               2012              2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                     $  558            $  2,487
                                                                 
Adjustments to reconcile net income to
net cash used in operating activities:
                                                                 
Depreciation and amortization                     17,357            15,515
Stock-based compensation                          2,960             2,257
Provision for losses on accounts receivable       206               569
Amortization/write-off of deferred financing      1,539             1,505
costs and debt discounts
Deferred income taxes                             458               (141     )
Gain on sale/disposal of assets                   (733     )        (44      )
Change in assets and liabilities, net of
assets and liabilities acquired:
   (Increase) decrease in accounts receivable
   and contract costs and recognized income       (529     )        8,067
   not yet billed
   Increase in inventories                        (9,800   )        (30,318  )
   Decrease in prepaid and other assets           3,625             4
   Decrease in accounts payable, accrued
   liabilities and income taxes payable           (50,165  )        (14,582  )
   Other changes, net                            2,022           838      
   Net cash used in operating activities          (32,502  )        (13,843  )
                                                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property, plant and             (17,288  )        (19,892  )
   equipment
   Acquired business, net of cash acquired        -                 (22,432  )
   Proceeds from sale of assets                  1,055           61       
   Net cash used in investing activities          (16,233  )        (42,263  )
                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid                                 (1,464   )        (1,184   )
   Purchase of shares for treasury                (7,336   )        (2,351   )
   Proceeds from issuance of long-term debt       303               -
   Payments of long-term debt                     (4,062   )        (6,826   )
   Change in short-term borrowings                1,643             -
   Financing costs                                -                 (4       )
   Tax effect from exercise/vesting of equity     150               834
   awards, net
   Other, net                                    184             (14      )
   Net cash used in financing activities          (10,582  )        (9,545   )
                                                                 
CASH FLOWS FROM DISCONTINUED OPERATIONS:
   Net cash used in operating activities         (463     )       (277     )
   Net cash used in discontinued operations       (463     )        (277     )
                                                                 
Effect of exchange rate changes on cash and      191             257      
equivalents
                                                                 
NET DECREASE IN CASH AND EQUIVALENTS              (59,589  )        (65,671  )
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD      209,654         243,029  
CASH AND EQUIVALENTS AT END OF PERIOD          $  150,065       $  177,358  

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 December 31,
                                       2012                    2011
                                                                
Net income                             $    558                 $    2,487
                                                                
Adjusting items, net of tax:
     Restructuring and related              720                      1,167
     Acquisition costs                      -                        116
     Loss on pension settlement             1,392                    -
     Discrete tax benefits                 (55       )             -
                                                                
Adjusted net income                    $    2,615              $    3,770
                                                                
Earnings per common share              $    0.01                $    0.04
                                                                
Adjusting items, net of tax:
     Restructuring                          0.01                     0.02
     Acquisition costs                      -                        0.00
     Loss on pension settlement             0.02                     -
     Discrete tax benefits                  (0.00     )              -
                                                                
Adjusted earnings per share            $    0.05               $    0.07
                                                                
Weighted-average shares outstanding        57,265                 57,082
(in thousands)

Contact:

Griffon Corporation
Douglas J. Wetmore
Chief Financial Officer
212-957-5000
712 Fifth Avenue, 18^th Floor
New York, NY 10019
or
Investor Relations:
ICR Inc.
Anthony Gerstein
Senior Vice President, 646-277-1242
 
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