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Griffon Corporation Announces Third Quarter ResultsNEW YORK --(Business Wire)-- Griffon Corporation ("Griffon" or the "Company") (NYSE:GFF) today reported results for the fiscal third quarter ended June 30, 2014. Revenue totaled $505 million, decreasing 1% from the prior year quarter. Home & Building Products ("HBP") and Clopay Plastics ("Plastics") revenue increased 6% and 7%, respectively, over the prior year quarter, while Telephonics revenue decreased 21%. Segment adjusted EBITDA totaled $49.6 million, an increase of 6% over the prior year quarter of $46.8 million. 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 income totaled $14.5 million, or $0.29 per share, compared to $3.6 million, or $0.06 per share, in the prior year quarter. Current quarter results included acquisition costs of $1.6 million ($1.0 million, net of tax or $0.02 per share), restructuring costs of $0.4 million ($0.2 million, net of tax or $0.00 per share), impact of debt extinguishment on full year effective tax rate of $(4.4) million or $(0.09) per share and discrete tax benefits of $1.9 million or $0.04 per share. The prior year quarter included restructuring costs of $1.6 million ($1.0 million, net of tax or $0.02 per share) and discrete tax benefits of $1.5 million or $0.03 per share. Excluding these items from both periods, current quarter adjusted net income was $9.5 million, or $0.19 per share, compared to $3.1 million, or $0.06 per share, in the prior year quarter. Ronald J. Kramer, Chief Executive Officer, commented, "We are pleased that our efficiency efforts have enabled us to deliver strong earnings this quarter. We are confident that our strategy will result in further growth in both revenue and profitability as the global economic recovery accelerates." Segment Operating Results Home & Building Products Revenue totaled $254 million, increasing 6% compared to the prior year quarter. The Ames Companies' ("Ames") revenue increased 3% compared to the prior year quarter primarily due to the inclusion of operating results of Northcote and the Australian Garden and Tools division of Illinois Tool Works, Inc. ("Cyclone") from their respective acquisition dates in December 2013 and May 2014, partially offset by decreased North American lawn and hose reel sales due to cold and wet weather conditions. Clopay Building Products ("CBP") revenue increased 8%, primarily due to increased volume and favorable product mix. Segment adjusted EBITDA was $19.6 million, decreasing 9% compared to the prior year quarter. The decrease was primarily from unfavorable sales mix and manufacturing inefficiencies along with increased distribution and freight costs at Ames and, for both Ames and CBP, the unfavorable impact of foreign currency translation of a weaker Canadian dollar, partially offset by the benefit of increased volume and favorable product mix at CBP. Ames continued to experience manufacturing inefficiencies in connection with its plant consolidation initiative, which are expected to continue until the initiative is complete. EBITDA contributions from Northcote and Cyclone were not significant in the quarter. On May 21, 2014, Ames acquired Cyclone for approximately $40.0 million, including a $4 million working capital adjustment. Cyclone offers a full range of quality garden and hand tool products sold under various leading brand names including Cyclone®, Nylex® and Trojan®, designed to meet the requirements of both the Do-it-Yourself and professional trade segments. Cyclone is expected to generate approximately $65.0 million of annualized revenue. Selling, General and Administrative expenses in the current quarter included $1.6 million of acquisition costs. Telephonics Revenue totaled $102 million, decreasing 21% from the prior year quarter. The 2013 quarter included $20.0 million of electronic warfare program ("ICREW") revenue where Telephonics served as a contract manufacturer; there was no such revenue in the current quarter. Excluding revenue from these programs, current quarter revenue decreased 7% from the 2013 quarter, primarily due to reduced airborne and wireless intercommunication systems sales. Segment adjusted EBITDA was $15.1 million, increasing 15% from the prior year quarter. The increase in comparison to the prior year was attributable to the benefit of favorable program mix, the effect of which more than offset the impact of the ICREW revenue decline, as well as lower expenditures associated with research and development ("R&D") activities and proposal efforts. Contract backlog totaled $457 million at June 30, 2014 compared to $444 million at September 30, 2013, with approximately 67% expected to be fulfilled within the next twelve months. Plastic Products Revenue totaled $149 million, increasing 7% compared to the prior year quarter. The increase reflected the benefit of increased volume (5%), the pass through of increased resin costs in customer selling prices (3%) and favorable foreign exchange translation (1%), partially offset by the impact of unfavorable product mix (2%). Plastics adjusts selling prices based on underlying resin costs on a delayed basis. Segment adjusted EBITDA was $14.9 million, increasing 23% from the prior year quarter, driven by increased volume and continued operating efficiency improvements. Resin had no material impact on EBITDA for the quarter. Taxes The Company reported pretax income for the current quarter and a pretax loss for the nine months ended June 30, 2014, compared to pretax income for the quarter and nine months ended June 30, 2013. The Company recognized tax benefits of 12.2% and 38.0% for the quarter and nine months ended June 30, 2014, respectively, compared to provisions of 54.0% and 53.6%, respectively, in the comparable prior year periods. The current and prior year tax 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, which are material relative to the level of pretax result and the impact of discrete items reported. The current quarter and nine months ended June 30, 2014 include $1.9 million and $1.5 million, respectively, of benefits from discrete items. The comparable prior year periods included benefits of $1.5 million and $1.9 million, respectively. In both years, the discrete items resulted primarily from the conclusion of tax audits resulting in the release of previously established reserves for uncertain tax positions, filing of tax returns in various jurisdictions, and the impact of tax law changes enacted, including, in 2013, the benefit of the retroactive extension of the federal R&D credit signed into law January 2, 2013. Excluding discrete items, the effective tax rates for the quarter and nine months ended June 30, 2014 were a provision of 27.0% and benefit of 26.3%, respectively, compared to provisions of 73.1% and 79.4% in the comparable prior year periods, respectively. Restructuring In January 2013, Ames 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. Ames 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. Ames expects $20 million in capital expenditures in connection with this initiative and, to date, has incurred $7.9 million and $15.7 million in restructuring costs and capital expenditures, respectively. In the third quarter of 2014 and 2013, HBP recognized $0.4 million and $0.9 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 Ames plant consolidation initiatives. The 2013 period also included charges related to a CBP plant consolidation. In February 2013, Plastics undertook a restructuring project, primarily in Europe, to exit low margin business and to eliminate approximately 80 positions, resulting in restructuring charges of $4.8 million, primarily related to one-time termination benefits and other personnel costs. The project was completed in 2013. Balance Sheet and Capital Expenditures At June 30, 2014, the Company had cash and equivalents of $87 million, total debt outstanding of $809 million, net of discounts, and $180 million available for borrowing under its revolving credit facility. Capital expenditures were $20.0 million in the current quarter. Stock Repurchases In the third quarter of 2014, Griffon purchased 750,000 shares of common stock under Board authorized programs, for a total of $8.8 million, or $11.71 per share. Since the resumption of share repurchases in 2011, through June 30, 2014, Griffon has repurchased 10.9 million shares of common stock, for a total of $115 million, or $10.60 per share, inclusive of the $50 million repurchase from an affiliate of Goldman Sachs in December 2013. At June 30, 2014, $45.7 million remained available for repurchases of common stock under Board authorized share purchase programs. Conference Call Information The Company will hold a conference call today, July 30, 2014, at 4:30 PM ET. The call can be accessed by dialing 1-888-708-5710 (U.S. participants) or 1-913-312-0402 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference. A replay of the call will be available starting on July 30, 2014 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: 1158367. The replay will be available through August 13, 2014. 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 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; 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:
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 EBTIDA 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 (loss) per share and Net income (loss) 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 Net income (loss) to adjusted net income and earnings (loss) per share to Adjusted earnings per share:
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