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Griffon Corporation Announces Third Quarter Results

Posted: August 3, 2016 8:57 pm (UTC)

Griffon Corporation Announces Third Quarter Results

NEW YORK — (BUSINESS WIRE) —

Griffon Corporation (“Griffon” or the “Company”) (NYSE: GFF) today reported results for the fiscal third quarter ended June 30, 2016.

Net income was $7.6 million, or $0.18 per share, compared to $10.9 million, or $0.23 per share, in the prior year quarter. Excluding restructuring charges and discrete tax items, adjusted net income was $11.0 million, or $0.26 per share, compared to $10.6 million or $0.23 per share in the prior year quarter. The impact of foreign currency was not material.

Revenue was $462.2 million, a decrease of 10% from the prior year quarter; excluding the unfavorable impact of foreign currency, revenue decreased 9%. Telephonics Corporation (“Telephonics”), Clopay Plastic Products Company (“PPC”) and Home & Building Products (“HBP”) revenue decreased 20%, 7% and 6%, respectively, over the prior year quarter.

Segment adjusted EBITDA was $57.8 million, increasing 5% 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) and restructuring charges.

Ronald J. Kramer, Chief Executive Officer, commented, “I am pleased with our continued earnings growth. Our operating margin improvement increased EPS during a quarter where weather and customer order patterns unfavorably impacted revenue. The Home & Building Products segment increased adjusted EBITDA 26% to a record $32.1 million. The benefits from our operational efficiencies and cost control initiatives will continue to drive EBITDA margin expansion with increased earnings.”

Segment Operating Results

Home & Building Products

Revenue was $255.6 million, decreasing 6% compared to the prior year quarter; foreign currency was 1% unfavorable. The AMES Companies, Inc. (“AMES”) revenue decreased 13% due to reduced garden tool, wheelbarrow, and pot and planter sales driven by cold and wet spring weather conditions in both Canada and the U.S.; foreign currency was 1% unfavorable. Clopay Building Products Company, Inc. (“CBP”) revenue increased 1%, due to favorable product mix; foreign currency did not have a material impact on CBP revenue.

Segment adjusted EBITDA was $32.1 million, increasing 26% compared to the prior year quarter, driven by operational efficiency improvements and cost control measures at AMES, favorable product mix at CBP and decreased material costs, which more than offset the decline in revenue at AMES; foreign currency was 1% unfavorable.

Telephonics

Revenue was $91.8 million, decreasing 20% from the prior year quarter due to timing of work performed on multi-mode, identification friend or foe, and airborne maritime and ground surveillance radar systems. Revenue for the nine months ended June 30, 2016 increased 1% over the prior year period.

Segment adjusted EBITDA was $12.1 million, decreasing 23% from the prior year quarter and margin decreased 40 basis points to 13.2%, driven by the decrease in revenue noted above and the timing of work performed on research and development initiatives.

Contract backlog was $415 million at June 30, 2016, compared to $442 million at September 30, 2015, with approximately 71% expected to be fulfilled within the next twelve months.

Clopay Plastic Products

Revenue was $114.9 million, decreasing 7% compared to the prior year quarter, due to decreased volume of 3%, driven by reduced North American and European baby care orders, unfavorable mix of 3% and a $1.5 million or 1% unfavorable foreign currency impact. Resin pricing had no material impact on revenue in the quarter; PPC adjusts selling prices based on underlying resin costs on a delayed basis.

Segment adjusted EBITDA was $13.6 million, decreasing 4% from the prior year quarter driven by reduced volume and unfavorable mix, partially offset by decreased SG&A spending. Resin pricing and foreign currency did not have a material impact on EBITDA for the quarter.

During the third quarter of 2016, PPC recorded $5.9 million in restructuring charges, primarily in connection with previously announced headcount reductions at PPC’s Dombuhl, Germany facility, other location headcount reductions and costs related to the shut down of PPC’s Turkey facility. The Dombuhl charges are related to an optimization plan that will drive innovation and enhance our industry leading position in printed breathable backsheet. The facility will be transformed into a state of the art hygiene products facility focused on breathable printed film and siliconized products. In conjunction with this effort, our customer base will be streamlined, and we will dispose of old assets and reduce overhead costs, allowing for gains in efficiencies.

Taxes

In both the quarter and nine months ended June 30, 2016 and 2015, the Company reported pretax income, and recognized tax provisions of 35.4% and 36.2% for the quarter and nine months ended June 30, 2016, respectively, compared to 34.7% and 36.3%, respectively, in the comparable prior year periods.

The quarter and nine months ended June 30, 2016 included $0.8 million and $1.1 million, respectively, of discrete tax benefits. Excluding restructuring and discrete items, the effective tax rates for the quarter and nine months ended June 30, 2016 were 37.5% and 37.9%, respectively, compared to 36.3% and 35.7%, respectively, in the comparable prior year periods.

Balance Sheet and Capital Expenditures

At June 30, 2016, the Company had cash and equivalents of $68.6 million, total debt outstanding of $931.6 million, net of discounts and issuance costs, and $334 million available for borrowing, subject to certain loan covenants, under its revolving credit facility. Capital expenditures were $17.3 million in the current quarter.

On May 18, 2016, in an unregistered offering through a private placement, the Company completed an add-on offering of $125 million principal amount of its 5.25% senior notes due 2022, at 98.76% of par, to the Company’s previously issued $600 million principal amount, at par; outstanding Senior Notes now total $725 million. On July 20, the Senior Notes were exchanged for identical registered Senior Notes. The net proceeds were used to pay down outstanding borrowings on the Revolver.

On July 14, 2016, Griffon announced that it will settle, upon conversion, up to $125 million of the conversion value of its $100 million principal amount of 4% Convertible Subordinated Notes due 2017 in cash, with amounts in excess of $125 million, if any, to be settled in shares of Griffon common stock. At June 30, 2016, the conversion rate was 70.1632 shares per thousand principal amount of notes, which corresponds to a conversion price of $14.25 per share.

Share Repurchases

In July 2015, Griffon’s Board of Directors authorized the repurchase of up to $50 million of Griffon’s outstanding common stock. 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, 2016, Griffon purchased 764,738 shares of common stock under the programs, for a total of $12.3 million or $16.08 per share. At June 30, 2016, $15.7 million remained under existing Board authorizations.

From August 2011 to June 30, 2016, Griffon repurchased 19,465,297 shares of its common stock for a total of $245.4 million or $12.61 per share.

Conference Call Information

The Company will hold a conference call today, August 3, 2016, at 4:30 PM ET.

The call can be accessed by dialing 1-877-604-9665 (U.S. participants) or 1-719-325-4761 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 2864114.

A replay of the call will be available starting on August 3, 2016 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: 2864114. The replay will be available through May 18, 2016.

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.
  • PPC 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.griffon.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) and restructuring charges, 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 June 30,

For the Nine Months
Ended June 30,

REVENUE   2016   2015 2016   2015
Home & Building Products:
AMES $ 122,198 $ 140,614 $ 406,335 $ 432,816
CBP 133,362   131,577   389,657   374,690  
Home & Building Products 255,560 272,191 795,992 807,506
Telephonics 91,767 115,340 306,678 304,685
PPC 114,873   124,163   353,786   401,683  
Total consolidated net sales $ 462,200   $ 511,694   $ 1,456,456   $ 1,513,874  
 
Segment adjusted EBITDA:
Home & Building Products $ 32,082 $ 25,386 $ 88,249 $ 67,186
Telephonics 12,125 15,712 32,913 37,360
PPC 13,588   14,084   37,154   44,399  
Total Segment adjusted EBITDA 57,795 55,182 158,316 148,945
Net interest expense (12,960 ) (12,150 ) (37,320 ) (35,644 )
Segment depreciation and amortization (17,551 ) (17,331 ) (51,518 ) (51,556 )
Unallocated amounts (9,625 ) (9,008 ) (28,632 ) (24,852 )
Restructuring charges (5,900 )   (5,900 )  
Income before taxes $ 11,759   $ 16,693   $ 34,946   $ 36,893  
 

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,
    2016   2015 2016   2015
Home & Building Products
Segment operating profit $ 23,201 $ 16,268 $ 62,170 $ 41,288
Depreciation and amortization 8,881   9,118   26,079   25,898  
Segment adjusted EBITDA 32,082 25,386 88,249 67,186
 
Telephonics
Segment operating profit 9,471 13,284 25,159 29,915
Depreciation and amortization 2,654   2,428   7,754   7,445  
Segment adjusted EBITDA 12,125 15,712 32,913 37,360
 
Clopay Plastic Products
Segment operating profit 1,672 8,299 13,569 26,186
Depreciation and amortization 6,016 5,785 17,685 18,213
Restructuring charges 5,900     5,900    
Segment adjusted EBITDA 13,588 14,084 37,154 44,399
 
All segments:
Income from operations – as reported 24,577 27,914 71,954 72,816
Unallocated amounts 9,625 9,008 28,632 24,852
Other, net 142   929   312   (279 )
Segment operating profit 34,344 37,851 100,898 97,389
Depreciation and amortization 17,551 17,331 51,518 51,556
Restructuring charges 5,900     5,900    
Segment adjusted EBITDA $ 57,795   $ 55,182   $ 158,316   $ 148,945  
 

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,

2016   2015 2016   2015
Revenue $ 462,200 $ 511,694 $ 1,456,456 $ 1,513,874
Cost of goods and services 342,843   388,205   1,106,837   1,158,021  
Gross profit 119,357 123,489 349,619 355,853
Selling, general and administrative expenses 88,880 95,575 271,765 283,037
Restructuring and other related charges 5,900     5,900    
Total operating expenses 94,780 95,575 277,665 283,037
Income from operations 24,577 27,914 71,954 72,816
Other income (expense)
Interest expense (13,039 ) (12,169 ) (37,454 ) (35,935 )
Interest income 79 19 134 291
Other, net 142   929   312   (279 )
Total other expense, net (12,818 ) (11,221 ) (37,008 ) (35,923 )
Income before taxes 11,759 16,693 34,946 36,893
Provision for income taxes 4,163   5,800   12,659   13,407  
Net income $ 7,596   $ 10,893   $ 22,287   $ 23,486  
Basic income per common share $ 0.19   $ 0.25   $ 0.54   $ 0.52  
Weighted-average shares outstanding 40,558   44,025   41,318   45,228  
Diluted income per common share $ 0.18   $ 0.23   $ 0.50   $ 0.50  
Weighted-average shares outstanding 43,280   46,980   44,243   47,285  
Net income $ 7,596 $ 10,893 $ 22,287 $ 23,486
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments 796 4,801 11,130 (41,083 )
Pension and other post retirement plans 386 353 1,158 1,059
Change in cash flow hedges 1,287 209 (1,377 ) 55
Change in available-for-sale securities       (870 )
Total other comprehensive income (loss), net of taxes 2,469   5,363   10,911   (40,839 )
Comprehensive income (loss), net $ 10,065   $ 16,256   $ 33,198   $ (17,353 )
 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
  (Unaudited)
At June 30, 2016
 

At September 30,
2015

CURRENT ASSETS
Cash and equivalents $ 68,616 $ 52,001
Accounts receivable, net of allowances of $7,874 and $5,342 222,768 218,755

Contract costs and recognized income not yet billed, net of progress
payments of $12,890 and $16,467

121,591 103,895
Inventories, net 314,052 325,809
Prepaid and other current assets 63,962 55,086
Assets of discontinued operations 1,301   1,316
Total Current Assets 792,290 756,862
PROPERTY, PLANT AND EQUIPMENT, net 388,149 379,972
GOODWILL 360,255 356,241
INTANGIBLE ASSETS, net 211,681 213,837
OTHER ASSETS 25,219 22,346
ASSETS OF DISCONTINUED OPERATIONS 2,047   2,175
Total Assets $ 1,779,641   $ 1,731,433
 
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 17,776 $ 16,593
Accounts payable 161,379 199,811
Accrued liabilities 109,252 104,997
Liabilities of discontinued operations 1,600   2,229
Total Current Liabilities 290,007 323,630
LONG-TERM DEBT, net 913,838 826,976
OTHER LIABILITIES 153,054 146,923
LIABILITIES OF DISCONTINUED OPERATIONS 2,715   3,379
Total Liabilities 1,359,614 1,300,908
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity 420,027   430,525
Total Liabilities and Shareholders’ Equity $ 1,779,641   $ 1,731,433
 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 
Nine Months Ended June 30,
2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,287 $ 23,486

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization 51,879 51,901
Stock-based compensation 8,432 8,303
Provision for losses on accounts receivable 350 121
Amortization of debt discounts and issuance costs 5,271 4,894
Deferred income taxes 1,249 1,111
Gain on sale of assets and investments (240 ) (317 )
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

(18,437 ) 14,977
(Increase) decrease in inventories 14,632 (36,483 )
(Increase) decrease in prepaid and other assets 1,866 (596 )

Decrease in accounts payable, accrued liabilities and income taxes
payable

(32,827 ) (39,864 )
Other changes, net 3,093   2,053  
Net cash provided by operating activities 57,555 29,586
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (63,247 ) (55,365 )
Acquired businesses, net of cash acquired (4,470 ) (2,225 )
Proceeds from sale of assets 914 275
Investment sales 715   8,891  
Net cash used in investing activities (66,088 ) (48,424 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 371
Dividends paid (6,686 ) (5,807 )
Purchase of shares for treasury (50,771 ) (58,218 )
Proceeds from long-term debt 263,249 121,523
Payments of long-term debt (177,973 ) (80,495 )
Change in short-term borrowings (45 ) (81 )
Financing costs (4,135 ) (592 )
Tax benefit from exercise/vesting of equity awards, net 2,291 345
Other, net (86 ) 206  
Net cash provided by (used in) financing activities 25,844 (22,748 )
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities (1,152 ) (830 )
Net cash used in discontinued operations (1,152 ) (830 )
Effect of exchange rate changes on cash and equivalents 456   (4,034 )
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 16,615 (46,450 )
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 52,001   92,405  
CASH AND EQUIVALENTS AT END OF PERIOD $ 68,616   $ 45,955  
 

Griffon evaluates performance based on Earnings per share and Net income excluding discrete tax items and restructuring charges, 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:

GRIFFON CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

(in thousands, except per share data)

(Unaudited)

   

For the Three Months
Ended June 30,

For the Nine Months
Ended June 30,

2016   2015 2016   2015
Net income $ 7,596 $ 10,893 $ 22,287 $ 23,486
 
Adjusting items, net of tax:
Restructuring charges 4,223 4,223
Discrete tax provisions (benefits) (775 ) (250 ) (1,132 ) 244
 
Adjusted net income $ 11,044   $ 10,643   $ 25,378   $ 23,730
 
Diluted income per common share $ 0.18 $ 0.23 $ 0.50 $ 0.50
 
Adjusting items, net of tax:
Restructuring charges 0.10 0.10
Discrete tax provisions (benefits) (0.02 ) (0.01 ) (0.03 ) 0.01
 
Adjusted earnings per common share $ 0.26   $ 0.23   $ 0.57   $ 0.50
 
Weighted-average shares outstanding (in thousands) 43,280   46,980   44,243   47,285
 

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.

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