Griffon Corporation Announces Second Quarter Results
Griffon Corporation Announces Second Quarter Results
Second quarter revenue totaled $489 million, increasing 1% compared to the prior year quarter. Telephonics and Home and Building Products ("HBP") revenue increased 7% and 1%, respectively while Clopay Plastics ("Plastics") revenue decreased 2%, all in comparison to the prior year quarter.
Segment adjusted EBITDA totaled $45.4 million, increasing 13% compared to $40.4 million in the prior year quarter. Segment adjusted EBITDA is defined as net income (loss), 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 loss totaled $0.8 million, or $0.02 per share, compared to net income of $2.0 million, or $0.04 per share, in the prior year quarter. Current quarter results included restructuring costs of $9.3 million ($5.8 million, net of tax, or $0.10 per share) and a discrete tax benefit of $0.3 million, or $0.01 per share. Current quarter adjusted net income was $4.7 million, or $0.08 per share, compared to $2.0 million, or $0.04 per share, in the prior year quarter.
Ronald J. Kramer, Chief Executive Officer, commented, "We are pleased with our performance this quarter which reflects the continued improvement in our businesses. We expect to deliver enhanced operating performance as the global economy recovers."
Segment Operating Results
Second quarter revenue totaled $121.6 million, increasing 7% compared to the prior year quarter. The current and prior year quarters included $13.2 million and $13.6 million, respectively, of revenue related to electronic warfare programs where Telephonics serves as a contract manufacturer; excluding revenue from these programs, current quarter revenue increased 8% from the prior year quarter primarily due to work performed on Multi-mode Surveillance Radar Solutions contracts.
Second quarter segment adjusted EBITDA was $15.5 million, increasing 1% from the prior year quarter, mainly driven by lower expenditures associated with the timing of research and development ("R&D") initiatives and proposal efforts, partially offset by the impact of program mix.
Contract backlog totaled a record $477 million at March 31, 2013 compared to $451 million and $434 million at September 30, 2012 and March 31, 2012, respectively, with approximately 71% expected to be filled within the next twelve months.
Second quarter revenue totaled $141 million, decreasing 2% compared to the prior year quarter. The decrease reflected lower volume (5%), a portion of which was attributable to Plastics exiting certain low margin products, and the unfavorable impact of foreign exchange translation (2%), partially offset by favorable mix (3%) and the pass through of higher resin costs in customer selling prices (2%). Plastics adjusts selling prices, based on underlying resin costs, on a delayed basis.
Second quarter segment adjusted EBITDA was $12.4 million, increasing 35% from the prior year quarter, mainly driven by product mix and continued efficiency improvements, partially offset by a $0.5 million unfavorable impact of higher resin costs which had not yet been reflected in increased selling prices.
Home & Building Products
Second quarter revenue totaled $226 million, increasing 1% compared to the prior year quarter. Ames True Temper's ("ATT") revenue increased 2% over the prior year quarter. Clopay Building Products ("CBP") revenue decreased 2%, mainly due to lower volume partially offset by the benefit of favorable mix.
Second quarter segment adjusted EBITDA was $17.6 million, increasing 11% compared to the prior year quarter, primarily due to favorable mix and improved manufacturing efficiencies at CBP as well as reduced warehouse and distribution costs, and other cost control initiatives at ATT.
Griffon's current quarter effective tax rate was a benefit of 65.7% on the pre-tax loss, compared to a tax rate of 57.4% 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, all of which are material relative to the level of pretax result. The current quarter benefited $0.3 million primarily from the retroactively extended R&D credit signed into law January 2, 2013. There were no material discrete items in the prior year quarter.
In January 2013, ATT announced its intention to close certain 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 incurring pre-tax restructuring and related exit costs approximating $8.0 million, comprised of cash charges of $4.0 million and non-cash, 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. ATT expects $20 million in capital expenditures in connection with this initiative and, to date, has incurred $4.7 million and $6.3 million in restructuring costs and capital expenditures, respectively.
During the current quarter, BPC completed the consolidation of its Auburn, Washington facility into its Russia, Ohio facility.
During the current quarter, HBP recognized $4.6 million in restructuring costs related to one-time termination benefits and other personnel costs, facility costs and asset impairment charges related to the ATT and BPC plant consolidation initiatives.
In February 2013, Plastics announced a restructuring project, primarily in Europe, with plans to exit low margin business and eliminate approximately 80 positions, resulting in restructuring charges of $4.8 million in the current quarter, primarily for one-time termination benefits and other personnel costs.
On March 28, 2013, Griffon amended and increased the amount available under its five-year Revolving Credit Facility from $200 million to $225 million and extended its maturity to March 28, 2018. At March 31, 2013, there were approximately $23 million of outstanding standby letters of credit and no outstanding borrowings.
At March 31, 2013, the Company had cash and equivalents of $117 million, total debt outstanding of $698 million, net of discounts, and $202 million available for borrowing under its revolving credit facility.
During the second quarter, the Company purchased 0.9 million shares of its common stock under an authorized stock repurchase plan, for $10.3 million. At March 31, 2013, the Company had a remaining authorization of $20.7 million. In addition to repurchases under the authorized program, 0.4 million shares, with a market value of $4.5 million, were withheld to settle employee taxes due upon the vesting of restricted stock.
Conference Call Information
The Company will hold a conference call today, May 7, 2013, at 4:30 PM ET.
The call can be accessed by dialing 1-888-437-9366 (U.S. participants) or 1-719-325-2250 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference.
A replay of the call will be available starting on May 7, 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: 9255210. The replay will be available through May 21, 2013.
"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 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 (loss) before taxes:
|GRIFFON CORPORATION AND SUBSIDIARIES|
For the Three Months Ended
For the Six Months Ended
|Home & Building Products:|
|Home & Building Products||225,736||224,590||415,912||434,976|
|Total consolidated net sales||$||488,743||$||482,431||$||912,492||$||933,462|
|Segment adjusted EBITDA:|
|Home & Building Products||$||17,555||$||15,853||$||34,794||$||33,603|
|Total Segment adjusted EBITDA||45,412||40,353||88,334||81,971|
|Net interest expense||(12,909||)||(12,919||)||(25,988||)||(25,919||)|
|Segment depreciation and amortization||(17,572||)||(16,222||)||(34,828||)||(31,640||)|
|Loss on pension settlement||-||-||(2,142||)||-|
|Income (loss) before taxes||$||(2,385||)||$||4,759||$||(635||)||$||9,652|
The following is a reconciliation of each segment's operating results to Segment adjusted EBITDA:
|GRIFFON CORPORATION AND SUBSIDIARIES|
|RECONCILIATION OF NON-GAAP MEASURES|
|BY REPORTABLE SEGMENT|
|Three months ended March 31,||Six Months Ended March 31,|
|Home & Building Products|
|Segment operating profit||$||3,835||$||8,096||$||11,106||$||17,930|
|Depreciation and amortization||9,157||7,757||18,017||15,222|
|Segment adjusted EBITDA||17,555||15,853||34,794||33,603|
|Segment operating profit||13,753||13,543||28,398||26,056|
|Depreciation and amortization||1,752||1,793||3,471||3,446|
|Segment adjusted EBITDA||15,505||15,336||31,869||31,024|
|Clopay Plastic Products|
|Segment operating profit||916||2,492||3,558||4,372|
|Depreciation and amortization||6,663||6,672||13,340||12,972|
|Segment adjusted EBITDA||12,352||9,164||21,671||17,344|
|Income from operations - as reported||10,102||16,649||24,445||34,495|
|Loss on pension settlement||-||-||2,142||-|
|Segment operating profit||18,504||24,131||43,062||48,358|
|Depreciation and amortization||17,572||16,222||34,828||31,640|
|Segment adjusted EBITDA||$||45,412||$||40,353||$||88,334||$||81,971|
|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)|
|Three Months Ended March 31,||Six Months Ended March 31,|
|Cost of goods and services||383,246||379,630||709,325||727,953|
|Selling, general and administrative expenses||86,059||86,152||168,278||169,219|
|Restructuring and other related charges||9,336||-||10,444||1,795|
|Total operating expenses||95,395||86,152||178,722||171,014|
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