Griffon Corporation — FY2011 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2011. Dollar figures below are in millions unless stated otherwise. Although the request references Q4, this filing is an annual report; selected fiscal fourth-quarter results are included.
Business context
Griffon is a diversified holding company with three reporting segments: Home & Building Products (HBP), Telephonics, and Clopay Plastic Products (Plastics). HBP includes Ames True Temper (ATT), acquired on September 30, 2010, and Clopay Building Products (CBP). FY2011 includes ATT’s results for the full year; FY2010 does not, so reported year-over-year growth is not directly comparable.
Financial and operating performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $1,830.8 | $1,294.0 |
| Gross profit / margin | $393.5 / 21.5% | $288.3 / 22.3% |
| Operating income | $55.5 | $22.7 |
| Interest expense | $47.8 | $12.3 |
| Loss before tax | $(14.3) | $13.8 |
| Continuing operations income (loss) | $(7.4) | $9.5 |
| Net income (loss) / diluted EPS | $(7.4) / $(0.13) | $9.6 / $0.16 |
| Cash from operations | $35.4 | $83.1 |
| Capital expenditures | $87.6 | $40.5 |
Revenue increased 41% as reported, largely because FY2011 included ATT. On an unaudited pro forma basis, assuming ATT had been acquired October 1, 2009, revenue increased $93.2 million, or about 5%, from FY2010. Gross margin was 22.3% excluding $15.2 million of acquisition-accounting inventory costs in FY2011, versus 25.0% on a comparable pro forma FY2010 basis. Management’s adjusted continuing-operations income was $19.9 million, or $0.34 per share, compared with $18.3 million, or $0.31, in FY2010; these non-GAAP figures exclude specified debt-refinancing, acquisition, restructuring, inventory-accounting and tax items.
Cash from operations fell $47.7 million, principally reflecting working-capital movements, including higher receivables and lower payables and accrued liabilities. Capital expenditures rose substantially, driven especially by Plastics expansion; operating cash flow less capital expenditures was negative $52.2 million.
At September 30, 2011, cash and equivalents were $243.0 million and total debt was $733.1 million, or $490.1 million net of cash. The balance-sheet carrying amount of debt, net of discount, was $713.4 million. The company reported $179.8 million available under its $200 million revolving facility after outstanding letters of credit. Current assets were $899.8 million and current liabilities $314.9 million. Griffon said it was in compliance with debt covenants at year-end.
Segments and changes versus comparable periods
- HBP: Revenue was $839.7 million, including $434.8 million from ATT and $404.9 million from CBP. Segment operating profit was $28.2 million; the segment’s adjusted profit before depreciation, amortization, restructuring, acquisition costs and inventory fair-value charges was $77.1 million. On a pro forma basis, HBP revenue grew 1%, but adjusted segment profit declined from $47.5 million to $28.2 million. ATT revenue was down 2% pro forma, mainly from lower lawn-tool volume; CBP revenue rose 4%.
- Telephonics: Revenue increased 5% to $455.4 million; segment operating profit increased to $40.6 million from $38.6 million. Funded backlog was $417 million, up from $407 million, with about 83% expected to be filled in FY2012.
- Plastics: Revenue increased 14% to $535.7 million, reflecting volume, resin-cost pass-through and foreign-currency translation. Segment operating profit fell 35% to $13.3 million, as start-up costs and elevated scrap during capacity expansions in Germany and Brazil outweighed growth.
Fiscal fourth-quarter revenue was $485.0 million, gross profit was $105.3 million, and continuing-operations and net income were each $3.4 million, or $0.06 per basic and diluted share.
Outlook, risks and unusual items
- Management warned that economic uncertainty and housing-market weakness could continue to pressure HBP, particularly CBP, in FY2012. ATT’s results are seasonal and weather-sensitive; management expected Griffon’s first and fourth fiscal quarters to be lower-revenue quarters after including ATT.
- Plastics was expected to operate below normal efficiency during the first half of FY2012 as expanded facilities ramped up. Telephonics backlog could decline in the first half of FY2012 before returning to historical levels in the second half; timing depends on contract awards and funding.
- On March 17, 2011, Griffon issued $550 million of 7.125% senior notes due 2018, using proceeds to repay subsidiary debt. It also established a five-year $200 million revolving credit facility. The refinancing generated a $26.2 million pretax extinguishment loss.
- FY2011 also included $15.2 million of additional cost of goods sold from acquired inventory fair-value accounting and $7.5 million of restructuring charges. CBP completed its previously announced facility consolidation; cumulative restructuring and exit costs were about $9.0 million, with $10.4 million of related capital expenditures.
- Customer concentration is material: the U.S. Government represented 19% of consolidated revenue, Procter & Gamble 14%, and Home Depot 12%. The filing identifies the loss or reduced orders from major customers as a potential material risk.
- Telephonics was responding to a Department of Defense Inspector General subpoena and providing information; the company reported that no claim had been asserted and it was unaware of material financial exposure. Environmental matters include the Peekskill, New York site, for which the state selected a remedy estimated at approximately $10 million; Griffon did not acknowledge responsibility. Management stated that known legal matters were not expected to have a material adverse effect.
- After year-end, Griffon acquired the Southern Patio pots-and-planters business for approximately $23 million; it had FY2011 revenue exceeding $40 million. In November 2011, Griffon declared a $0.02-per-share dividend and said it intended to pay quarterly dividends, subject to board discretion. A new $50 million share-repurchase authorization had $48.7 million remaining at year-end.
The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. No numeric consolidated FY2012 earnings or revenue guidance is provided in the filing text.
Most important facts for investors to verify
- Assess comparable performance excluding the ATT acquisition and distinguish reported results from management’s non-GAAP adjusted measures.
- Track whether Plastics’ expansion reaches normal operating efficiency and restores segment profitability and margins.
- Evaluate cash conversion, capital-spending needs, net debt, interest burden and compliance with credit-facility covenants.
- Monitor housing-market exposure, weather-sensitive ATT sales and dependence on major customers and U.S. Government contracts.
- Follow the Inspector General inquiry, environmental remediation developments, pension funding requirements and the integration and performance of Southern Patio.