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Griffon Corp. Posts First Quarter Results

February 4, 2014

Griffon Corp. on January 30 reported results for the fiscal first quarter ended December 31, 2013 . In a release on January 30 , the Company noted that revenue totaled $453 million , increasing 7 percent over the prior year quarter. Home and Building Products ("HBP") and Clopay Plastics ("Plastics") revenue increased 15 percent and 1 percent, respectively, over the prior year quarter, while Telephonics revenue was in-line with the prior year. Segment adjusted EBITDA totaled $44.2 million , increasing 3 percent compared to $42.9 million reported 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 $3.2 million , or $0.06 per share, compared to $0.6 million , or $0.01 per share, in the prior year quarter. Current quarter results 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. The prior year quarter included restructuring costs of $1.1 million ( $0.7 million , net of tax, or $0.01 per share), a loss on pension settlement of $2.1 million ( $1.4 million , net of tax, or $0.02 per share) and discrete tax benefits of $0.1 million or $0.00 per share. Excluding these items from both periods, current quarter adjusted net income was $4.0 million , or $0.07 per share, compared to $2.6 million , or $0.05 per share, in the prior year quarter. Ronald J. Kramer , Chief Executive Officer, commented, "This is an excellent start to the year. Our results reflect continued improvement in our operating performance. Each of our businesses is well positioned for enhanced growth and profitability as the economic recovery accelerates. During the quarter, we strengthened our HBP segment with the acquisition of Northcote Pottery ("Northcote"), a leading brand in the Australian outdoor planter and decor market. We also completed the repurchase of $50 million of our common stock. Both transactions are immediately accretive, and demonstrate our commitment to increasing shareholder value while maintaining a disciplined approach to capital allocation." Segment Operating Results Home & Building Products Revenue totaled $218 million , increasing 15 percent compared to the prior year quarter. Ames True Temper ("ATT") revenue increased 25 percent compared to the prior year quarter primarily due to improved U.S. and Canada snow tool sales. Clopay Building Products ("CBP") revenue increased 8 percent, primarily due to improved volume. Segment adjusted EBITDA was $19.1 million , increasing 11 percent compared to the prior year quarter, primarily as a result of improved volume at ATT and CBP. Partially offsetting the volume benefit, ATT continued to experience manufacturing inefficiencies in connection with its plant consolidation initiative, which are expected to continue until the initiative is completed. The prior year quarter also benefitted from $1.0 million in Byrd Amendment receipts (anti-dumping compensation from the U.S. government); current quarter Byrd Amendment receipts were not significant. On December 31, 2013 , ATT acquired Northcote, a brand in the Australian outdoor planter and decor market, for approximately $24 million . The acquisition of Northcote complements Southern Patio, acquired in 2011, and adds to ATT's existing lawn and garden operations in Australia . Northcote is expected to generate approximately $28 million of annualized revenue. Griffon incurred $0.8 million of acquisition costs related to this transaction in the first quarter of 2014. Telephonics Revenue totaled $96 million , comparable with the prior year quarter. This quarter benefitted from increased international radar program sales, offset by reduced MH-60 Romeo radar sales. Segment adjusted EBITDA was $12.4 million , decreasing 24 percent from the prior year quarter, as expected. The prior year quarter benefitted from a combination of favorable program mix and manufacturing efficiencies. Contract backlog totaled $416 million at December 31, 2013 compared to $444 million at September 30, 2013 , with approximately 68 percent expected to be fulfilled within the next twelve months. Plastic Products Revenue totaled $139 million , increasing 1 percent compared to the prior year quarter. The increase reflected the benefit of favorable mix (3 percent), the pass through of higher resin costs in customer selling prices (2 percent) and favorable foreign exchange translation (1 percent), partially offset by the impact of lower volume (5 percent), a portion of which was attributable to Plastics exiting certain low margin products in the second half of fiscal 2013. Plastics adjusts customer selling prices, based on underlying resin costs, on a delayed basis. Segment adjusted EBITDA was $12.7 million , increasing 37 percent from the prior year quarter, driven by efficiency improvements and a $0.6 million favorable resin benefit, partially offset by the impact of the reduced volume. Taxes The effective tax rate for the quarter ended December 31, 2013 was 32.4 percent compared to 68.1 percent in the prior year quarter. The rates include discrete benefits in the current and prior year quarter of $0.3 million and $0.1 million , respectively, primarily resulting from the release of previously established reserves for uncertain tax positions on conclusion of certain 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, 2013 was 38.4 percent compared to 71.3 percent in the prior year quarter. Rates in both quarters reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock, tax reserves and of changes in earnings mix between domestic and non-domestic operations, all of which are material relative to the level of pretax result; the impact of the permanent differences diminished in the current quarter primarily as a result of the improved pretax result. Restructuring 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 intended actions, to be completed by the end of calendar 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 . Cash charges will include $2.5 million for personnel-related costs and $1.5 million for facility exit costs. ATT expects $20 million in capital expenditures in connection with this initiative and, to date, has incurred $7.2 million and $14.4 million in restructuring costs and capital expenditures, respectively. In the first quarter of 2014 and 2013, HBP recognized $0.8 million and $1.1 million , respectively, in restructuring and other related exit costs; such charges primarily related to one-time termination benefits, facility and other personnel costs, and asset impairment charges related to the ATT plant consolidation initiatives. Balance Sheet and Capital Expenditures At December 31, 2013 , the Company had cash and equivalents of $95 million , total debt outstanding of $733 million , net of discounts, and $180 million available for borrowing, subject to certain loan covenants, under its revolving credit facility. Capital expenditures were $17.9 million in the current quarter. Stock Repurchases On December 10, 2013 , Griffon repurchased 4,444,444 shares of its common stock for $50 million from an affiliate of Goldman Sachs . The repurchase was effected in a private transaction at a per share price of $11.25 , an approximate 9.2 percent discount to the stock's closing price on November 12, 2013 , the day before announcement of the transaction. The transaction was exclusive of the Companys current $50 million authorized share repurchase program, of which $11.2 million remains as of December 31, 2013 . Griffon Corp. is a diversified management and holding company. More Information: www.griffoncorp.com ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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