Griffon Corporation Announces Operating Results for the Second Quarter of Fiscal 2008

JERICHO, N.Y., May. 08 /PRNewswire/ --

JERICHO, N.Y., May 8 /PRNewswire-FirstCall/ -- Griffon Corporation today reported operating results for the second quarter of fiscal 2008, ended March 31, 2008.

Net sales for the second quarter of fiscal 2008 were $320.3 million, compared to $369.1 million in the second quarter of fiscal 2007. Loss from continuing operations was $12.8 million, or $.42 per diluted share, for the quarter compared to income from continuing operations of $838,000, or $.03 per diluted share, last year. Loss from discontinued operations was $8.6 million, or $.29 per diluted share, compared to $583,000, or $.02 per diluted share, last year. Net loss for the quarter was $21.4 million, or $.71 per diluted share, compared to net income of $255,000, or $.01 per diluted share, last year.

Certain operating units in the Installation Services segment were closed during the second quarter and the related assets are in the process of being disposed of. Results of operations related to the closed operating units of the Installation Services segment from the beginning of each fiscal period presented through the respective dates of asset disposition have been reflected as discontinued operations in the condensed consolidated income statements. Net sales of these operating units were $8.4 million and $18.2 million for the three months ended March 31, 2008 and 2007, respectively, and $21.3 million and $39.6 million for the six months ended March 31, 2008 and 2007, respectively.

Earlier today, the company's Board of Directors approved a plan to exit all operating activities of the Installation Services segment in 2008. As a result, the company presently estimates aggregate exit costs, including operating and intangible asset write-offs, to range between $30 million and $40 million for the remainder of 2008, of which $25 million to $35 million is estimated to be non-cash.

During the second quarter of fiscal 2008, the company's Installation Services and Garage Doors segments incurred charges resulting from restructuring activities of approximately $2.3 million and $.7 million, respectively.

Telephonics Results

For the quarter ended March 31, 2008, Telephonics generated sales of $98.4 million, a 20.8% decrease from the second quarter of fiscal 2007.

The operating results declined as anticipated as a result of 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 second quarter periods, core business sales grew by approximately $8.2 million, or 11%.

Clopay Garage Doors Results

For the quarter ended March 31, 2008, the company's Garage Door segment generated sales of $83.8 million, a 20.3% decrease from the second quarter of fiscal 2007.

The company's Garage Doors segment finished the quarter with results that were consistent with the sustained downturn in the housing market and were further impacted by the seasonal nature of the business. We believe that our market was further adversely impacted by weakness in the consumer credit markets. The segment's management 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.

Specialty Plastic Films Results

For the quarter ended March 31, 2008, the company's Specialty Plastic Films segment generated sales of $114.7 million, a 15.0% increase from the second quarter of fiscal 2007.

Specialty Plastic Films achieved higher sales resulting primarily from a favorable product mix and the impact of foreign exchange. However, operating income was unfavorably affected by lower unit volumes and higher resin costs. On average, resin costs in the second quarter increased approximately 31%, 14% and 9% in North America, Germany and Brazil, respectively, compared to last year. 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 $5-$6 million.

Installation Services Results

For the quarter ended March 31, 2008, the company's Installation Services segment generated sales of $26.0 million, a 41.0% decrease from the second quarter of fiscal 2007.

The decline in Installation Services' sales and operating results was greater than anticipated due to the continuing effect of the weakness in new home construction.

Balance Sheet and Capital Expenditures

The company's total cash balances at the end of the second quarter of fiscal 2008 were $39.4 million. Total debt outstanding at the end of the quarter was $206.6 million, including $130 million of convertible notes. Capital expenditures during the second quarter of fiscal 2008 were $5.5 million.

As previously announced, on March 31, 2008, Telephonics Corporation, a wholly-owned subsidiary of the company, entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to provide Telephonics with a five-year, revolving credit facility of $100 million. Commitments under the Credit Agreement may be increased by up to an additional $50 million under certain circumstances. Proceeds of a $50 million draw under this facility, together with internal cash of the company, were used to repay $62.5 million of outstanding debt under the company's Amended and Restated Credit Agreement, dated as of December 20, 2006, as amended, among the company, Telephonics, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, at which time such Amended and Restated Credit Agreement was terminated.

The company expects to enter into a senior secured credit facility for its other principal wholly-owned subsidiary, Clopay Corporation, in the third quarter.

Conference Call Information

The company will hold a conference call to discuss its results today, May 8, 2008, at 4:30 PM. EDT. The conference call can be accessed by dialing 1-800-322-9079 for US callers or 1-973-582-2717 for international callers. Callers should ask to be connected to Griffon Corporation's second quarter earnings teleconference and provide the conference ID number 43965215. A replay of the call will be available one hour following the call and can be accessed by dialing 1-800-642-1687 conference code: 43965215. The replay will be available until 5:00 PM EDT on May 22, 2008.

Forward-looking Statements

"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, financial market and economic conditions, including, but not limited to, the credit market, the housing market, results of integrating acquired businesses into existing operations, the results of the company's restructuring and disposal efforts, 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.

About Griffon Corporation

Griffon Corporation, headquartered in Jericho, New York, is a diversified holding company consisting of four distinct business segments: Electronic Information and Communication Systems, through Telephonics Corporation; Garage Doors, through Clopay Building Products Company; Specialty Plastic Films, through Clopay Plastic Products Company; and Installation Services, through Clopay Service Company. Telephonics Corporation develops and manufactures information and communication systems for government and commercial markets worldwide. Clopay Building Products Company is a leading manufacturer and marketer of residential garage doors to professional installing dealers and major home center retail chains. Clopay Plastic Products 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 markets. Clopay Service Company installs and services specialty building products and systems through a substantial network of operations located throughout the country. For more information on the company and its operating subsidiaries, please see the company's website at www.griffoncorp.com.

Contact: Patrick L. Alesia Chief Financial Officer (516) 938-5544 GRIFFON CORPORATION AND SUBSIDIARIES OPERATING HIGHLIGHTS (Unaudited) (IN THOUSANDS) For the Three Months For the Six Months Ended Ended March 31, March 31, PRELIMINARY 2008 2007 2008 2007 Net Sales: Electronic Information and Communication Systems $98,397 $124,164 $174,257 $254,014 Garage Doors 83,846 105,256 194,892 233,895 Specialty Plastic Films 114,675 99,730 221,073 203,385 Installation Services 25,998 44,044 65,315 99,653 Intersegment eliminations (2,569) (4,054) (6,696) (8,819) $320,347 $369,140 $648,841 $782,128 Operating Income (Loss): Electronic Information and Communication Systems $7,139 $12,430 $12,622 $25,351 Garage Doors (8,575) (4,564) (9,742) (543) Specialty Plastic Films 5,200 4,934 10,406 9,279 Installation Services (8,849) (4,131) (12,284) (4,796) Segment operating income (loss) (5,085) 8,669 1,002 29,291 Unallocated amounts (5,509) (4,968) (10,335) (8,665) Interest and other, net (2,687) (2,300) (4,721) (4,624) Income (loss) from continuing operations before income taxes $(13,281) $1,401 $(14,054) $16,002 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) FOR THE THREE MONTHS ENDED PRELIMINARY MARCH 31, 2008 2007 Net sales $320,347 $369,140 Cost of sales 256,783 292,296 Gross profit 63,564 76,844 Selling, general and administrative expenses 71,968 73,712 Restructuring costs 2,992 - Income (loss) from operations (11,396) 3,132 Other income (expense): Interest expense (3,286) (3,052) Interest income 599 752 Other, net 802 569 (1,885) (1,731) Income (loss) from continuing operations before income taxes (13,281) 1,401 Provision (benefit) for income taxes (522) 563 Income (loss) from continuing operations before discontinued operations (12,759) 838 Discontinued operations (net of taxes): Loss from operation of discontinued operations (net of tax benefit of $2,800 for the three months ended March 31, 2008 and $121 for the three months ended March 31, 2007) (8,611) (583) Net income (loss) $(21,370) $255 Basic earnings (loss) per share of common stock: Continuing operations $(.42) $.03 Discontinued operations (.29) (.02) $(.71) $.01 Diluted earnings (loss) per share of common stock: Continuing operations $(.42) $.03 Discontinued operations (.29) (.02) $(.71) $.01 Weighted-average number of shares outstanding: Basic 30,057 29,948 Diluted 30,057 31,166 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) FOR THE SIX MONTHS ENDED PRELIMINARY MARCH 31, 2008 2007 Net sales $648,841 $782,128 Cost of sales 511,201 617,317 Gross profit 137,640 164,811 Selling, general and administrative expenses 143,895 145,368 Restructuring costs 4,683 - Income (loss) from operations (10,938) 19,443 Other income (expense): Interest expense (6,201) (5,996) Interest income 1,480 1,372 Other, net 1,605 1,183 (3,116) (3,441) Income (loss) from continuing operations before income taxes (14,054) 16,002 Provision (benefit) for income taxes (553) 6,434 Income from continuing operations before discontinued operations (13,501) 9,568 Discontinued operations (net of taxes): Loss from operation of discontinued operations (net of tax benefit of $3,807 for the six months ended March 31, 2008 and $99 for the six months ended March 31, 2007) (9,224) (848) Net income (loss) $(22,725) $8,720 Basic earnings (loss) per share of common stock: Continuing operations $(.45) $.32 Discontinued operations (.31) (.03) $(.76) $.29 Diluted earnings (loss) per share of common stock: Continuing operations $(.45) $.31 Discontinued operations (.31) (.03) $(.76) $.28 Weighted-average number of shares outstanding: Basic 30,054 29,950 Diluted 30,054 31,117 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) PRELIMINARY MARCH 31, SEPTEMBER 30, 2008 2007 ASSETS Current Assets: Cash and cash equivalents $39,401 $44,747 Accounts receivable, net 177,353 199,834 Contract costs and recognized income not yet billed 73,327 77,184 Inventories 163,695 154,565 Assets of discontinued operations 6,532 19,212 Prepaid expenses and other current assets 54,457 49,884 Total current assets 514,765 545,426 Property, plant and equipment, at cost net of depreciation and amortization 232,492 233,078 Costs in excess of fair value of net assets of businesses acquired, net 120,912 114,756 Intangible and other assets 74,934 66,598 $943,103 $959,858 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable and current portion of long-term debt $3,987 $3,392 Accounts payable 115,732 103,833 Accrued liabilities 76,952 77,628 Income taxes 510 14,153 Liabilities of discontinued operations 4,211 2,919 Total current liabilities 201,392 201,925 Long-term debt 202,612 229,438 Other liabilities and deferred credits 76,451 61,556 Shareholders' equity 462,648 466,939 $943,103 $959,858 GRIFFON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) For the Six Months Ended PRELIMINARY March 31, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(22,725) $8,720 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 22,033 19,765 Write-off of unamortized deferred finance costs 495 - Stock-based compensation 1,194 1,303 Provision for losses on accounts receivable 5,480 734 Deferred income taxes 707 706 Change in assets and liabilities: Decrease in accounts receivable and contract costs and recognized income not yet billed 32,123 32,828 Increase in inventories (2,433) (6,658) Increase in prepaid expenses and other assets (8,624) (1,217) Decrease in accounts payable, accrued liabilities and income taxes payable 86 (36,989) Other changes, net 551 155 51,612 10,627 Net cash provided by operating activities 28,887 19,347 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (12,050) (19,477) Acquired businesses (1,750) (17,167) Proceeds from sale of investments 1,000 - (Increase) decrease in equipment lease deposits 4,024 (1,473) Funds restricted for capital projects - (4,421) Net cash used in investing activities (8,776) (42,538) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of shares for treasury (579) (2,300) Proceeds from issuance of long-term debt 50,000 42,891 Payments of long-term debt (76,716) (482) Increase (decrease) in short-term borrowings 377 (5,625) Exercise of stock options - 1,111 Tax benefit from exercise of stock options - 278 Other, net 480 (1,238) Net cash provided by (used in) financing activities (26,438) 34,635 Effect of exchange rate changes on cash and cash equivalents 981 541 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,346) 11,985 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,747 22,389 CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,401 $34,374