Griffon Corporation Announces Fourth Quarter and Annual Results

Griffon Corporation (NYSE: GFF) today reported financial results for the fourth quarter and year ended September 30, 2010.

For 2010, revenue totaled $1.3 billion, increasing 8% in comparison to 2009; revenue growth was driven by strong increases at Telephonics and Plastics, partially offset by weakness in Clopay Building Products ("CBP”), as had been anticipated. Net income in 2010 was $9.6 million ($0.16 per share) compared to $18.7 million ($0.32 per share) in 2009. Full year segment adjusted EBITDA totaled $108.3 million, increasing 19% compared to 2009; segment adjusted EBITDA is defined as income from continuing operations, excluding corporate overhead, interest, taxes, depreciation and amortization, restructuring charges, acquisition-related costs and the benefit (loss) of debt extinguishment.

Fourth quarter 2010 revenue totaled $348 million, increasing 6% compared to $328 million reported in 2009. The net loss for the quarter was $1.7 million ($0.03 per share) compared to net income of $11.9 million ($0.20 per share) in the prior year. Segment adjusted EBITDA declined 13% to $30.4 million, compared to $34.9 million in the prior year quarter; the decline was mainly in CBP, discussed in more detail below.

The Company reported 2010 income from continuing operations of $9.5 million ($0.16 per share) compared to $17.9 million ($0.30 per share) in the prior year. The 2010 results were reduced by $9.8 million ($7.7 million net of tax, or $0.13 per share) of Ames True Temper ("ATT”) acquisition costs and $5.3 million ($3.4 million net of tax, or $0.06 per share) of restructuring and non-recurring debt financing costs. The prior year result included $4.5 million ($2.9 million net of tax, or $0.05 per share) of gains from extinguishment of debt, partially offset by restructuring costs of $1.2 million ($0.8 million net of tax, or $0.01 per share). Excluding these items from both years, 2010 income from continuing operations would have been $20.6 million ($0.34 per share) compared to $15.8 million ($0.27 per share) in 2009.

The Company reported a loss from continuing operation for the 2010 fourth quarter of $1.7 million ($0.03 per share) compared to a profit of $11.8 million ($0.20 per share) in 2009. The 2010 quarter included $7.7 million net of tax ($0.13 per share) of acquisition costs as well as $1.6 million ($1.0 million net of tax, or $0.02 per share) of restructuring and non-recurring debt financing costs; the 2009 quarter included restructuring costs of $1.2 million ($0.8 million net of tax, or $0.01 per share). Excluding these items in both periods, fourth quarter 2010 income from continuing operations would have been $7.0 million ($0.12 per share) compared to $12.6 million ($0.21 per share) in 2009.

Ron Kramer, Chief Executive Officer, commented, "We are very pleased with the financial, operational and strategic progress made over the course of 2010. The ATT acquisition, which we expect to be highly accretive in 2011 and beyond, is the next step in the growth of Griffon. ATT, combined with the progress we’ve made in Telephonics, Plastics and CBP, positions us to create superior value for our shareholders.”

Mr. Kramer continued, "Our approach to managing our portfolio of companies with a common strategic and financial platform will enable us to accelerate growth and capture incremental profitability in each business. We look forward to the year ahead.”

Acquisition of Ames True Temper:

On September 30, 2010, Griffon acquired ATT, a global provider of non-powered lawn and garden tools, wheelbarrows and other outdoor products to the retail and professional markets; ATT’s results of operations are not included in Griffon’s 2010 operating results. For a reconciliation of pro forma financial information contained herein to the applicable GAAP measures, see Exhibit 99.3 to the Form 8-K/A (Amendment No. 2) filed today, November 16, 2010.

Giving effect to the acquisition as though it had taken place October 1, 2008, pro forma revenue for 2010 totaled $1.74 billion compared to 2009 revenue of $1.66 billion. On the same pro forma basis, 2010 segment adjusted EBITDA totaled $180.6 million compared to $153.3 million in 2009. Pro forma income from continuing operations for 2010 was $30.1 million ($0.50 per share) compared to $24.9 million ($0.42 per share) in 2009.

Pro-forma 2010 fourth quarter revenue totaled $429 million compared to $420 million in the 2009 quarter. On the same pro forma basis, fourth quarter segment adjusted EBITDA was $41.0 million compared to $46.6 million in 2009. Pro forma income from continuing operations in the fourth quarter 2010 was $3.1 million ($0.05 per share) compared to $10.2 million ($0.17 per share) in the 2009 quarter.

Segment Operating Results

Telephonics

Revenue totaled $435 million in 2010, an increase of $47 million or 12%, compared to the prior year, primarily due to awards related to various radar programs and the CREW 3.1 contract.

Fourth quarter 2010 revenue totaled $114 million, a decrease of $2 million or 2%, compared to the prior year quarter, primarily due to timing of radar program orders, the completion of significant communications programs, and a slowdown in CREW 3.1 shipments, which were substantial in the prior year quarter.

Segment operating profit for 2010 totaled $38.6 million, an increase of $3.7 million or 11%, compared to the prior year, primarily due to the revenue increase. Segment operating margin remained consistent with prior year due to the strong sales performance and favorable program mix, partially offset by higher SG&A expenses. The SG&A increase resulted from higher research and development and marketing related expenses in connection with business development initiatives to sustain future revenue growth, as well as additional administrative expenses to support the current level of operations.

Segment operating profit of $11.2 million for the quarter was essentially flat with the prior year.

Contract backlog totaled $407 million at September 30, 2010 compared to $393 million at September 30, 2009, with approximately 73% expected to be filled in 2011.

Building Products

Revenue totaled $389 million in 2010, a decrease of $4 million or 1%, compared to the prior year, driven mainly by the effects of the weak construction market, particularly in the commercial building segment.

Fourth quarter 2010 revenue totaled $103 million, a decrease of $3.5 million or 3%, compared to the prior year quarter, due to the same factors noted above.

Segment operating profit for 2010 totaled $5.0 million, an increase of $16.3 million, compared to a prior year loss of $11.3 million. The operating performance was driven by improved plant efficiencies and lower operating costs. The plant consolidation initiative is on track to be completed during the second quarter of fiscal 2011.

The fourth quarter 2010 segment operating result was a loss of $0.6 million compared to the prior year quarter profit of $4.3 million, primarily due to lower volume which impacted absorption of fixed plant costs, and higher input costs, mainly steel.

Going forward, results from ATT will be included with CBP in a newly established Home & Building Products segment. Pro forma 2010 revenue for this segment was $833 million; pro forma 2010 segment operating income was $58.8 million.

Plastic Products

Revenue totaled $470 million in 2010, an increase of $57 million or 14%, compared to the prior year, driven primarily by higher volume in all regions and the positive impact from foreign currency translation.

Fourth quarter 2010 revenue totaled $130 million, an increase of $25 million or 24%, compared to the prior year quarter, primarily due to higher volume from expanded programs with existing customers as well as higher customer selling prices due to resin. By contractual agreement, Plastics adjusts customer selling prices based on underlying resin costs, on a delayed basis.

Segment operating profit for 2010 totaled $20.5 million, a decrease of $3.6 million or 15%, compared to the prior year. The benefit of the improved volume in the third and fourth quarters was offset by slower business trends in the first half of the year and by the negative impact of higher resin costs.

Fourth quarter 2010 segment operating profit totaled $8.3 million, an increase of $1.2 million or 16%, compared to the prior year quarter primarily due to higher volume across all regions.

Unallocated Expenses

For 2010, unallocated expenses were $37.2 million compared to $21.0 million in the prior year. The increase reflects costs incurred in connection with evaluating various acquisition opportunities, including $9.8 million of costs related to the successful completion of the ATT acquisition, as well as higher compensation and related expenses.

Fourth quarter 2010 unallocated expenses were $15.1 million compared to $5.5 million in the prior year, with the increase attributable to the costs incurred in connection with the ATT acquisition.

Balance Sheet and Capital Expenditures

The Company noted that its consolidated balance sheet at September 30, 2010 reflects the ATT acquisition. At that date, cash and equivalents totaled $170 million and total debt outstanding was $525 million. Capital expenditures in the fourth quarter were $14 million and were $40 million for the full year 2010. Griffon currently expects that capital spending in 2011 will approximate $50 - $60 million.

Adoption of New Accounting Standards

The Company noted that, on October 1, 2009, it adopted the new accounting standard which requires the liability and equity components of convertible debt instruments to be separately accounted for using the Company’s nonconvertible debt rate. Adoption of this standard must be applied retrospectively, and as a result, the prior year’s fourth quarter income from continuing operations and net income were each reduced by $0.5 million and the related earnings per share by $0.01.

Conference Call Information

The Company will hold a conference call today, November 16, 2010, at 4:30 PM ET.

The call can be accessed by dialing 1-877-407-4018 (U.S. participants) or 1-201-689-8471 (International participants). Callers should ask to be connected to Griffon Corporation’s teleconference.

A replay of the call will be available starting on November 16, 2010 at 7:30 PM ET by dialing 1-877-870-51763 (U.S.) or 1-858-384-5517 (International), and entering the conference ID number: 360761. The replay account number is 3055 with access code 354605. The replay will be available through November 30, 2010.

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, including the acquisition of Ames True Temper; 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; the government reduces military spending on projects supplied by Telephonics Corporation; increases in cost of raw materials such as resin and steel; changes in customer demand; political events that could impact the worldwide economy; a downgrade in the Company’s credit ratings; international economic conditions including interest rate and currency exchange fluctuations; the relative mix of products and services which impacts 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; protection and validity of patent and other intellectual property rights; the cyclical nature of the business of certain Griffon 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, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company 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 (the "Company” or "Griffon”), 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. Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital to further diversify itself.

Griffon currently conducts its operations through Telephonics Corporation ("Telephonics”), Clopay Building Products ("CBP”), Clopay Plastic Products Company ("Plastics”) and Ames True Temper ("ATT”). CBP and ATT comprise the Home & Building Products operating segment.

• Telephonics designs, develops and manufactures high-technology, integrated information, communication and sensor system solutions for use in military and commercial markets worldwide.
• Home & Building Products is a leading manufacturer and marketer of residential, commercial and industrial garage doors to professional installing dealers and major home center retail chains, as well as a global provider of non-powered landscaping products that make work easier for homeowners and professionals.
• Plastics 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 applications.

For more information on Griffon and its operating subsidiaries, please see the Company’s website at www.griffoncorp.com.

The following is a reconciliation of operating income, which is a GAAP measure of Griffon’s operating results, to segment operating income and segment adjusted EBITDA. Management believes that the presentation of segment operating income, segment EBITDA and segment adjusted EBITDA is appropriate to provide additional information about the Company’s reportable segments. Segment operating income and segment adjusted EBITDA are not presentations made in accordance with GAAP, are not measures of financial performance or condition, liquidity or profitability of the Company, and should not be considered as an alternative to (1) net income, operating income or any other performance measures determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, segment operating income and segment adjusted EBITDA are not intended to be measures of cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, capital expenditures and debt service requirements.