GRIFFON CORPORATION ANNOUNCES OPERATING RESULTS
FOR THE FIRST QUARTER OF FISCAL 2008
Jericho, New York, February 6, 2008 - Griffon Corporation (NYSE:GFF) today reported operating results for the first quarter of fiscal 2008, ended December 31, 2007. Net sales for the quarter decreased to $341,398,000 from $434,315,000 for the first quarter of fiscal 2007. Income (loss) before income taxes was $(2,393,000) compared to $14,358,000 last year. Net income (loss) was $(1,355,000) in the current quarter compared to $8,465,000 last year. Diluted earnings (loss) per share for the quarter were $(.05) compared to $.27 last year.
The decreases in sales and operating income were attributable to the Installation Services, Garage Doors and the Electronic Information and Communication Systems segments.
The company’s Garage Doors segment finished the quarter with disappointing results that were consistent with the sustained downturn in the housing market. Although we anticipated that weaker residential construction markets would have a continuing effect on Garage Doors’ operating results, we did not anticipate the duration and severity of the impact that weaker housing markets, particularly with respect to resale of existing houses, would have on this segment’s repair and renovate business. We continue to see mixed signals with respect to predicting the bottom of the housing market decline. The segment has been and will continue to focus on significant cost reduction programs including, but not limited to, reductions in force, reducing or eliminating certain sales and marketing programs and consolidating facilities where possible.
A decline in Installation Services’ operating results was anticipated, although not to the extent actually experienced, due to the continuing effect of the weakness in new home construction in the segment’s Las Vegas, Phoenix and Atlanta markets, including the loss of a major customer in Las Vegas. During the second quarter of fiscal 2008, the segment’s management has initiated a restructuring program in its efforts to reduce future operating losses by, among other things, undertaking a reduction in force, consolidation of facilities and optimizing its exit from certain markets. The company expects the restructuring program to result in charges that range between $12 million and $15 million in fiscal 2008.
The decline in sales and operating income of Telephonics Corporation, the company’s wholly-owned Electronic Information and Communication Systems subsidiary, is attributable to the wind down in late fiscal 2007 of substantial contracts with Syracuse Research Corporation (SRC). Excluding the impact of the SRC contracts in the respective first quarter periods, the Electronic Information and Communication Systems segment’s core business sales grew by approximately $9.2 million, or 15%. The segment had received approximately $340 million of funding from SRC for turnkey production of a Counter Improvised Explosive Device over the prior two fiscal years.
Specialty Plastic Films achieved improved results compared to last year’s first quarter. Higher sales and operating profit were favorably affected by improved operational efficiencies and product mix. To a lesser degree, results were favorably impacted by the translation of foreign exchange rates. On average, resin costs in the first quarter increased approximately 30% and 6% in North America and Brazil, respectively, but remained fairly constant in Europe. It is estimated that the effect of resin cost volatility had a negative impact on the segment’s operating results, when compared to the prior-year quarter, of approximately $3-4 million. The segment’s operating results were also unfavorably impacted by lower unit volumes primarily in Europe, resulting from a decline in sales to a certain customer. Specialty Plastic Films’ elastic laminates for the hygiene products market are qualified with the segment’s major customer and business development with other key target customers is in process. We anticipate that volume will ramp up for this product as the year progresses.
Cash flow from operations was $41.2 million for the quarter, which funded capital expenditures of $6.5 million and payments on long-term debt of $13.8 million. Also during the quarter, $.6 million was used to acquire approximately 41,000 shares of the company's common stock under its buyback program. Additional purchases may be made from time to time, depending on market conditions and other factors, at prices deemed appropriate by management.
In December 2007, the company and a subsidiary modified their existing senior secured multicurrency revolving credit facility to revise certain financial covenants in effect for the first quarter of fiscal 2008 ended December 31, 2007. However, the company anticipates that it may not be in compliance with one or both of these quarterly covenants in the future. As a result of such possible non-compliance, and in accordance with applicable accounting standards, the company has reclassified $62.5 million of long-term debt as current debt in the Condensed Consolidated Balance Sheet at December 31, 2007. The company has commenced discussions with its bankers to further amend and/or refinance its Credit Agreement by March 31, 2008.
Griffon Corporation -
| l | is a leading manufacturer and marketer of residential, commercial and industrial garage doors sold to professional installing dealers and major home center retail chains; |
| l | installs and services specialty building products and systems, primarily garage doors, openers, fireplaces and cabinets, for new construction markets through a substantial network of operations located throughout the country; |
| l | is an international leader in the development and production of embossed and laminated specialty plastic films used in the baby diaper, feminine napkin, adult incontinent, surgical and patient care markets; and |
| l | develops and manufactures information and communication systems for government and commercial markets worldwide. |
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: All statements other than statements of historical fact included in this release, including without limitation statements regarding the company’s financial position, business strategy and the plans and objectives of the company’s management for future operations, are forward-looking statements. When used in this release, words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, and similar expressions, as they relate to the company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the company’s management, as well as assumptions made by and information currently available to the company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, business and economic conditions, including, but not limited to, the housing market, results of integrating acquired businesses into existing operations, competitive factors and pricing pressures for resin and steel and capacity and supply constraints. Such statements reflect the views of the company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the company as previously disclosed in the company’s Annual Report on Form 10-K for the year ended September 30, 2007 in response to Item 1A to Part I of Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements. The company does not undertake to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.
| |
OPERATING HIGHLIGHTS | |
(IN THOUSANDS) | |
| | | | | |
PRELIMINARY | | | | | |
| | For the Three Months Ended | |
| | December 31, | |
| | | | | |
| | 2007 | | 2006 | |
| | | | | |
Net sales: | | | | | | | |
Garage Doors | | $ | 111,046 | | $ | 128,640 | |
Installation Services | | | 52,221 | | | 76,935 | |
Specialty Plastic Films | | | 106,398 | | | 103,655 | |
Electronic Information and Communication Systems | | | 75,860 | | | 129,850 | |
Intersegment eliminations | | | (4,127 | ) | | (4,765 | ) |
| | $ | 341,398 | | $ | 434,315 | |
Operating income (loss): | | | | | | | |
Garage Doors | | $ | (1,291 | ) | $ | 4,013 | |
Installation Services | | | (5,727 | ) | | (893 | ) |
Specialty Plastic Films | | | 5,997 | | | 4,338 | |
Electronic Information and Communication Systems | | | 5,483 | | | 12,921 | |
Segment operating income | | | 4,462 | | | 20,379 | |
Unallocated amounts | | | (4,825 | ) | | (3,697 | ) |
Interest and other, net | | | (2,030 | ) | | (2,324 | ) |
Income (loss) before income taxes | | $ | (2,393 | ) | $ | 14,358 | |
GRIFFON CORPORATION AND SUBSIDIARIES | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) | |
| | | | | |
PRELIMINARY | | | | | |
| | FOR THE THREE MONTHS ENDED | |
| | DECEMBER 31, | |
| | 2007 | | 2006 | |
Net sales | | $ | 341,398 | | $ | 434,315 | |
Cost of sales | | | 264,205 | | | 341,111 | |
Gross profit | | | 77,193 | | | 93,204 | |
| | | | | | | |
Selling, general and administrative expenses | | | 78,400 | | | 77,140 | |
Income (loss) from operations | | | (1,207 | ) | | 16,064 | |
| | | | | | | |
Other income (expense): | | | | | | | |
Interest expense | | | (2,915 | ) | | (2,944 | ) |
Interest income | | | 885 | | | 620 | |
Other, net | | | 844 | | | 618 | |
| | | (1,186 | ) | | (1,706 | ) |
Income (loss) before income taxes | | | (2,393 | ) | | 14,358 | |
| | | | | | | |
Provision (benefit) for income taxes | | | (1,038 | ) | | 5,893 | |
| | | | | | | |
Net income (loss) | | $ | (1,355 | ) | $ | 8,465 | |
| | | | | | | |
Basic earnings (loss) per share of common stock: | | $ | (.05 | ) | $ | .28 | |
| | | | | | | |
Diluted earnings (loss) per share of common stock: | | $ | (.05 | ) | $ | .27 | |
Weighted-average number of shares outstanding: | | | | | | | |
Basic | | | 30,051,000 | | | 29,952,000 | |
Diluted | | | 30,051,000 | | | 31,067,000 | |
GRIFFON CORPORATION AND SUBSIDIARIES | |
CONDENSED CONSOLIDATED BALANCE SHEETS | |
(IN THOUSANDS) | |
| | | | | |
PRELIMINARY | | | | | |
| | DECEMBER 31, | | SEPTEMBER 30, | |
| | 2007 | | 2007 | |
ASSETS | | | | | | | |
| | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 69,752 | | $ | 44,747 | |
Accounts receivable, net | | | 171,121 | | | 210,340 | |
Contract costs and recognized income not yet billed | | | 71,133 | | | 77,184 | |
Inventories | | | 165,569 | | | 161,775 | |
Prepaid expenses and other current assets | | | 51,151 | | | 50,889 | |
Total current assets | | | 528,726 | | | 544,935 | |
Property, plant and equipment, at cost less | | | | | | | |
depreciation and amortization | | | 230,173 | | | 233,449 | |
Goodwill | | | 116,917 | | | 114,756 | |
Intangible and other assets | | | 75,028 | | | 66,718 | |
| | $ | 950,844 | | $ | 959,858 | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| | | | | | | |
Current Liabilities: | | | | | | | |
Notes payable and current portion of long-term debt | | $ | 66,834 | | $ | 3,392 | |
Accounts payable | | | 100,388 | | | 105,324 | |
Accrued liabilities | | | 81,743 | | | 79,001 | |
Income taxes | | | 696 | | | 14,153 | |
Total current liabilities | | | 249,661 | | | 201,870 | |
Long-term debt | | | 153,027 | | | 229,438 | |
Other liabilities and deferred credits | | | 80,836 | | | 61,611 | |
Total liabilities and deferred credits | | | 483,524 | | | 492,919 | |
| | | | | | | |
Shareholders' Equity: | | | | | | | |
Preferred stock | | | - | | | - | |
Common stock | | | 10,582 | | | 10,582 | |
Capital in excess of par | | | 180,625 | | | 180,022 | |
Retained earnings | | | 455,141 | | | 461,163 | |
Treasury shares, at cost | | | (213,310 | ) | | (212,731 | ) |
Accumulated other comprehensive income | | | 35,767 | | | 29,522 | |
Deferred compensation | | | (1,485 | ) | | (1,619 | ) |
Shareholders' equity | | | 467,320 | | | 466,939 | |
| | $ | 950,844 | | $ | 959,858 | |
GRIFFON CORPORATION AND SUBSIDIARIES | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |
(IN THOUSANDS) | |
| | | | | |
PRELIMINARY | | For the Three Months Ended | |
| | December 31, | |
| | 2007 | | 2006 | |
| | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income (loss) | | $ | (1,355 | ) | $ | 8,465 | |
Adjustments to reconcile net income (loss) to net cash | | | | | | | |
provided by operating activities: | | | | | | | |
Depreciation and amortization | | | 11,046 | | | 9,301 | |
Stock-based compensation | | | 624 | | | 590 | |
Provision for losses on accounts receivable | | | 876 | | | 382 | |
Deferred income taxes | | | 412 | | | 441 | |
Change in assets and liabilities: | | | | | | | |
Decrease in accounts receivable and contract | | | | | | | |
costs and recognized income not yet billed | | | 45,302 | | | 48,547 | |
Increase in inventories | | | (3,183 | ) | | (4,020 | ) |
Increase in prepaid expenses and other assets | | | (5,448 | ) | | (1,899 | ) |
Decrease in accounts payable, accrued liabilities and income taxes payable | | | (5,540 | ) | | (27,678 | ) |
Other changes, net | | | (1,578 | ) | | (90 | ) |
| | | 42,511 | | | 25,574 | |
Net cash provided by operating activities | | | 41,156 | | | 34,039 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Acquisition of property, plant and equipment | | | (6,540 | ) | | (10,092 | ) |
Acquisition of business | | | (1,750 | ) | | - | |
Decrease in equipment lease deposits | | | 4,332 | | | 500 | |
Funds restricted for capital projects | | | - | | | (4,347 | ) |
Other, net | | | 1,000 | | | - | |
Net cash used in investing activities | | | (2,958 | ) | | (13,939 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Purchase of shares for treasury | | | (579 | ) | | (1,127 | ) |
Proceeds from issuance of long-term debt | | | - | | | 20,891 | |
Payments of long-term debt | | | (13,818 | ) | | (283 | ) |
Increase (decrease) in short-term borrowings | | | 787 | | | (6,044 | ) |
Exercise of stock options | | | - | | | 387 | |
Tax benefit from exercise of stock options | | | - | | | 156 | |
Other, net | | | 177 | | | (1,041 | ) |
Net cash provided by (used in) financing activities | | | (13,433 | ) | | 12,939 | |
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 240 | | | 198 | |
| | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 25,005 | | | 33,237 | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | | 44,747 | | | 22,389 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 69,752 | | $ | 55,626 | |