Griffon Corporation Announces Second Quarter Results

NEW YORK

Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the fiscal second quarter ended March 31, 2015.

Revenue totaled $500.0 million, decreasing 2% from the prior year quarter; excluding the impact of foreign currency, revenue increased 2%, primarily due to the contribution from acquisitions. Home & Building Products (“HBP”) revenue increased 5% over the prior year quarter, while Clopay Plastics (“Plastics”) and Telephonics revenue decreased 9% and 5%, respectively.

Segment adjusted EBITDA totaled $44.7 million, decreasing 3% from the prior year quarter; excluding the impact of foreign currency, segment adjusted EBITDA increased 3%, primarily due to the contribution from acquisitions. 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 $5.1 million, or $0.11 per share, compared to a net loss of $25.8 million, or $0.53 per share, in the prior year quarter. Current quarter results included discrete tax provisions of $0.2 million. The prior year quarter included a charge related to debt extinguishment of $38.9 million ($25.0 million, net of tax or $0.51 per share), restructuring costs of $0.7 million ($0.4 million, net of tax, or $0.01 per share), benefit of debt extinguishment on full year effective tax rate of $5.8 million or $0.12 per share and discrete tax provisions of $0.6 million, or $0.01 per share. Excluding these items from both periods, current quarter adjusted net income was $5.3 million, or $0.11 per share, compared to $6.0 million, or $0.12 per share, in the prior year quarter. Excluding the unfavorable impact of foreign currency, current quarter net income would have been $6.6 million, a 10% increase over the prior year quarter, or $0.14 per share.

Ronald J. Kramer, Chief Executive Officer, commented, “We are very pleased with our solid performance this quarter, despite the impact of foreign currency on our results, and are confident in our ability to meet our 2015 financial targets. Our businesses are poised for continued growth in earnings through the execution of our strategic initiatives. We are optimistic about our prospects to continue to generate attractive returns for our shareholders.”

Segment Operating Results

Home & Building Products

Revenue totaled $263.6 million, increasing 5% compared to the prior year quarter, reflecting a 6% contribution from the Cyclone acquisition, partially offset by a 1% unfavorable foreign currency impact. The AMES Companies, Inc. (“AMES”) revenue decreased 1% due to reduced sales of snow tools, and reduced sales of lawn tools and North American pots and planters due to a late spring, partially offset by the inclusion of Cyclone results contributing 8%; foreign currency was 2% unfavorable. Clopay Building Products (“CBP”) revenue increased 15%, primarily due to increased volume contributing 10% with the balance primarily due to product mix; foreign currency was 1% unfavorable.

Segment adjusted EBITDA was $17.3 million, increasing 1% compared to the prior year quarter, reflecting a 9% contribution from the Cyclone acquisition, favorable mix and increased volume at CBP, partially offset by the impact of reduced sales at AMES and a 5% unfavorable foreign currency impact.

HBP recognized $0.7 million in restructuring and related exit costs for the quarter ended March 31, 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 current quarter.

Telephonics

Revenue totaled $98.7 million, decreasing 5% from the prior year quarter, primarily due to the timing of awards and work performed on Communications and Surveillance Systems, specifically Communication Open System Architecture and Secure Digital Intercommunications product sales, partially offset by the timing of work performed on the Multi-Mode ASW radar.

Segment adjusted EBITDA was $11.6 million, decreasing 7% from the prior year quarter, primarily due to reduced revenue.

Contract backlog totaled $482 million at March 31, 2015, compared to $494 million at September 30, 2014, with approximately 73% expected to be fulfilled within the next twelve months.

Plastic Products

Revenue totaled $137.7 million, decreasing 9% compared to the prior year quarter, reflecting an unfavorable foreign currency impact of 7% and a 4% unfavorable mix impact, partially offset by the benefit of increased volume contributing 2%. Resin had no material impact on revenue in the quarter. Plastics adjusts selling prices based on underlying resin costs on a delayed basis.

Segment adjusted EBITDA was $15.8 million, decreasing 3% from the prior year quarter, with the impact of the revenue decrease and unfavorable mix more than offset by the change in the impact of resin pricing pass through of 27% and the benefit from improved operations. The unfavorable foreign currency impact was 12%.

Taxes

In both the quarter and six months ended March 31, 2015, the Company reported pretax income compared to losses in the prior year respective periods. The Company recognized tax provisions of 37.5% and 37.7% for the quarter and six months ended March 31, 2015, respectively, compared to benefits of 16.1% and 13.2%, respectively, in the comparable prior year periods.

The current quarter and six months include $0.2 million and $0.5 million, respectively, of provisions 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 periods included provisions of $0.6 million and $0.3 million, respectively, from discrete items resulting primarily from the conclusion of tax audits in certain jurisdictions and the impact of enacted tax law changes. Excluding discrete items, the effective tax rates for the quarter and six months ended March 31, 2015 were 35.7% and 35.2%, respectively, compared to benefit rates of 18.1% and 14.4% in the comparable prior year periods, respectively.

Balance Sheet and Capital Expenditures

At March 31, 2015, the Company had cash and equivalents of $42.6 million, total debt outstanding of $867.5 million, net of discounts and deferred costs, and $134 million available for borrowing under its revolving credit facility. Capital expenditures were $21 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 March 31, 2015, Griffon purchased 1,581,200 shares of common stock under the May 1, 2014 program, for a total of $24.2 million or $15.31 per share. At March 31, 2015, $52.4 million remains under existing Board authorizations.

From August 2011 to March 31, 2015, Griffon repurchased 14,045,547 shares of its common stock for a total of $158.7 million or $11.30 per share.

Conference Call Information

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

The call can be accessed by dialing 1-888-596-2569 (U.S. participants) or 1-913-312-0380 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 1672773.

A replay of the call will be available starting on April 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: 1672773. The replay will be available through May 14, 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 (loss) 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 (loss) to adjusted net income and earnings per share to Adjusted earnings per share:

Griffon Corporation
Douglas J. Wetmore, 212-957-5000
EVP & Chief Financial Officer
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