AP NEWS

Griffon Corporation Announces Annual and Fourth Quarter Results

November 14, 2018

NEW YORK--(BUSINESS WIRE)--Nov 14, 2018--Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the fourth quarter and fiscal year ended September 30, 2018.

For the full year 2018, revenue from continuing operations totaled $2.0 billion, increasing 30% from the prior year revenue of $1.5 billion.

For the full year 2018, Income from continuing operations totaled $33.3 million, or $0.78 per share, compared to $17.8 million, or $0.41 per share, in the prior year. Current year results included acquisition costs of $7.6 million ($5.0 million, net of tax, or $0.12 per share), special dividend ESOP charges of $3.2 million ($2.1 million, net tax, or $0.05), secondary equity offering costs of $1.2 million ($0.8 million, net tax, or $0.02), cost of life insurance benefit of $2.6 million ($0.2 million, net tax, or $0.01); and discrete and certain other tax benefits, net, that affect comparability of $9.4 million or $0.22 per share. Prior year results included acquisition costs of $9.6 million ($6.1 million net of tax, or $0.14 per share), Telephonics contract settlement charges of $5.1 million ($3.3 million, net of tax, or $0.08 per share) and discrete and certain other tax benefits, net, that affect comparability of $8.3 million or $0.19 per share. Excluding these items, current year adjusted income from continuing operations was $32.1 million, or $0.76 per share compared to $19.0 million, or $0.44 per share, in the prior year.

For the full year 2018, Segment adjusted EBITDA from continuing operations totaled $213 million, increasing 24% from the prior year of $173 million. 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, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”, a non-GAAP measure).

Fourth quarter revenue from continuing operations of $546 million increased 27% compared to the prior year quarter revenue of $431 million.

Fourth quarter Income from continuing operations totaled $1.0 million, or $0.02 per share, compared to $4.3 million, or $0.10 per share, in the prior year quarter. Current year quarter results included discrete and certain other tax provisions, net, that affect comparability of $14.7 million or $0.35 per share. Prior year quarter results included acquisition costs of $9.6 million ($6.1 million net of tax, or $0.14 per share), Telephonics contract settlement charge of $5.1 million ($3.3 million, net of tax, or $0.08 per share) and discrete and certain other tax benefits, net, that affect comparability of $1.8 million or $0.04 per share. Excluding these items, current year Adjusted income from continuing operations was $15.7 million, or $0.38 per share compared to $12.0 million, or $0.28 per share, in the prior year quarter, a 36% increase.

Fourth quarter Segment adjusted EBITDA from continuing operations totaled $67 million, increasing 26% from the prior year quarter of $54 million.

Ronald J. Kramer, Chairman and Chief Executive Officer, commented “2018 was a transformational year for Griffon. We have significantly grown through the acquisitions of ClosetMaid, Kelkay and CornellCookson, and unlocked value through the divestiture of our Plastics business. These strategic changes position us to continue to increase operating margins and free cash flow, improve our overall financial performance and reduce debt. We are committed to long-term value creation for our shareholders and believe that Griffon has never been in a better strategic position.”

Segment Operating Results

Home & Building Products

Revenue in 2018 totaled $1.7 billion, increasing 48% from the prior year. The AMES Companies, Inc. (“AMES”) revenue increased 75%, primarily due to the acquisition of La Hacienda, Tuscan Path, ClosetMaid (“CM”), Harper and Kelkay, and improved North American sales, partially offset by unfavorable weather patterns occurring throughout the year. Clopay Building Products Company, Inc. (“CBP”) revenue increased 23% from the prior year period, primarily due to the acquisition of CornellCookson (“CC”) and favorable mix, pricing, and increased volume. Organic growth for the year was 7%. CM and CC revenue was $311.6 million and $66.7 million, respectively, for fiscal 2018.

Segment adjusted EBITDA for 2018 was $177 million, increasing 40% compared to the prior year. The increase was primarily due to the benefit from increased revenue, partially offset by increased steel and resin costs, and tariffs.

Revenue in the current quarter totaling $444 million increased 55% from the prior year quarter. AMES revenue increased 72% compared to the prior year quarter, due to the acquisitions of Tuscan Path, CM, Harper and Kelkay, partially offset by decreased revenue at AMES US. CBP revenue increased 41%, due to the acquisition of CC and favorable mix, pricing, and increased volume. Organic growth for the quarter was 4%. CM and CC revenue was $78.0 million and $50.5 million, respectively, in the quarter.

Fourth quarter Segment adjusted EBITDA was $48 million, increasing 41% from the prior year quarter due to the benefit of increased sales, partially offset by increased steel and resin costs, and tariffs.

Defense Electronics

Revenue in 2018 totaled $326 million, decreasing 21% compared to the prior year, as expected, due to decreased maritime surveillance radar and electronic countermeasure systems revenue.

Segment adjusted EBITDA for 2018 was $36 million, compared to $46 million in the prior year primarily due to the decreased revenue noted above and the impact of revised estimates to complete remaining performance obligations on certain airborne intercommunications systems.

Revenue in the current quarter totaled $101 million, decreasing 29% from the prior year quarter, as expected, primarily due to decreased maritime surveillance radar and electronic counter measure systems revenue.

Fourth quarter Segment adjusted EBITDA of $19 million was consistent with the prior year quarter primarily due to improved product mix.

Contract backlog totaled $345 million at September 30, 2018, compared to $351 million at September 30, 2017, with approximately 69% expected to be fulfilled within the next twelve months .

Taxes

The Company reported pretax income from continuing operations for the years ended September 30, 2018 and 2017 and recognized a tax provision of 1.6% compared to a tax benefit of 6.5%, respectively. The 2018 and 2017 tax rates included $9.4 million and $8.3 million, respectively, of net discrete tax benefits and certain other items that affect comparability. Excluding these items, the effective tax rates for the years ended September 30, 2018 and 2017 were 33.8% and 39.7%, respectively.

Balance Sheet and Capital Expenditures

At September 30, 2018, the Company had cash and equivalents of $70 million, total debt outstanding of $1.1 billion, net of discounts and deferred costs, and $310 million available for borrowing under its revolving credit facility. Capital expenditures from continuing operations, net of equipment sales were $49.5 million.

Share Repurchases

In each of August 2016 and August 2018, 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 2018, Griffon purchased an aggregate of 2,088,739 shares of common stock for a total of $41.1 million or $19.68 per share; there were no repurchases during the fourth quarter. At September 30, 2018, $58.3 million remained under existing Board authorizations.

Conference Call Information

The Company will hold a conference call today, November 14, 2018, at 4:30 PM ET.

The call can be accessed by dialing 1-877-407-0792 (U.S. participants) or 1-201-689-8263 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 13684455. Participants are encouraged to dial-in at least 10 minutes before the scheduled start time.

A replay of the call will be available starting on Wednesday, November 14, 2018 at 7:30 PM ET by dialing 1-844-512-2921 (U.S.) or 1-412-317-6671 (International), and entering the conference ID number: 13684455. The replay will be available through Wednesday, November 28, 2018 at 11:59 PM ET.

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; Griffon’s ability to achieve expected savings from cost control, restructuring, 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 defense budget cuts or other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost or lack of availabiliy of raw materials such as resin, wood and steel, components or purchased finished goods, including the impact from tariffs; 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 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 impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory 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 of Griffon’s operating companies; and possible terrorist threats and actions and their impact on the global economy; Griffon’s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, the Tax Cuts and Jobs Act of 2017. 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 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 two reportable segments:

HBP segment consists of two companies, AMES and CBP:

AMES, founded in 1774, is the leading U.S. manufacturer and a global provider of branded consumer and professional tools, landscaping products, and outdoor lifestyle solutions. In 2018, we acquired ClosetMaid, a leader in wood and wire closet organization, general living storage and wire garage storage products for homeowners and professionals.

CBP, since 1964, is a leading manufacturer and marketer of residential and commercial garage doors and sells to professional dealers and some of the largest home center retail chains in North America. In 2018, we acquired CornellCookson, a leading U.S. manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional, and retail use.

Defense Electronics segment consists of Telephonics Corporation (“Telephonics”), founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

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 from continuing operations before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Segment adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors.

The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations:

The following is a reconciliation of each segment’s operating results to Segment adjusted EBITDA:

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