GRIFFON CORPORATION BUSINESS
Overview
Griffon Corporation (the "Company", "Griffon", "we" or "us") is a diversified management and holding company that conducts business through wholly-owned subsidiaries. The Company was founded in 1959, is aDelaware corporation headquartered inNew York, N.Y. and is listed on theNew York Stock Exchange (NYSE:GFF). Business Strategy We own and operate, and seek to acquire, businesses in multiple industries and geographic markets. Our objective is to maintain leading positions in the markets we serve by providing innovative, branded products with superior quality and industry-leading service. We place emphasis on our iconic and well-respected brands, which helps to differentiate us and our offerings from our competitors and strengthens our relationship with our customers and those who ultimately use our products. Through operating a diverse portfolio of businesses, we expect to reduce variability caused by external factors such as market cyclicality, seasonality, and weather. We achieve diversity by providing various product offerings and brands through multiple sales and distribution channels and conducting business across multiple countries which we consider our home markets. Griffon's businesses, in particular its CPP operations, are seasonal; for this and other reasons, the financial results of the Company for any interim period are not necessarily indicative of the results for the full year. 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. As long-term investors, having substantial experience in a variety of industries, our intent is to continue the growth and strengthening of our existing businesses, and to diversify further through investments in our businesses and through acquisitions. Over the past five years, we have undertaken a series of transformative transactions. We divested our specialty plastics business in 2018 to focus on our core markets and improve our free cash flow conversion. In our Consumer and Professional Products ("CPP") segment, we expanded the scope of our brands through the acquisition ofHunter Fan Company ("Hunter") onJanuary 24, 2022 andClosetMaid, LLC ("ClosetMaid") in 2018. In our Home and Building Products ("HBP") segment, we acquiredCornellCookson, Inc. ("CornellCookson") in 2018, which has been integrated intoClopay Corporation ("Clopay"), creating a leading North American manufacturer and marketer of residential garage doors and sectional commercial doors, and rolling steel doors and grille products under brands that includeClopay , Ideal, Cornell and Cookson. We established an integrated headquarters for CPP inOrlando, Florida for our portfolio of leading brands that includesAMES ,Hunter , True Temper andClosetMaid . CPP is well positioned to fulfill its ongoing mission of Bringing Brands Together™ with the leading brands in consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. OnSeptember 27, 2021 , we announced we were exploring strategic alternatives for our Defense Electronics ("DE") segment, which consisted of ourTelephonics Corporation ("Telephonics") subsidiary. OnJune 27, 2022 , we completed the sale of Telephonics to TTM Technologies, Inc. (NASDAQ:TTMI) ("TTM") for$330,000 in cash. Griffon classified the results of operations of our Telephonics business as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation in the consolidated balance sheets. Accordingly, all references made to results and information in this Quarterly Report on Form 10-Q are to Griffon's continuing operations, unless noted otherwise. OnMay 16, 2022 , Griffon announced that its Board of Directors initiated a process to review a comprehensive range of strategic alternatives to maximize shareholder value including a sale, merger, divestiture, recapitalization or other strategic transaction, and onApril 20, 2023 , Griffon announced that its Board of Directors, after extensive evaluation and deliberation, determined that the ongoing execution of the Company's strategic plan was the best way to maximize value for shareholders and unanimously decided to conclude its review. OnJanuary 24, 2022 , Griffon acquiredHunter , a market leader in residential ceiling, commercial, and industrial fans, fromMidOcean Partners ("MidOcean") for a contractual purchase price of$845,000 .Hunter , part of our CPP segment, complements and diversifies our portfolio of leading consumer brands and products. We financed the acquisition ofHunter 35 -------------------------------------------------------------------------------- Table of Contents with a new$800,000 seven year Term Loan B facility; we used a combination of cash on hand and revolver borrowings to fund the balance of the purchase price and related acquisition and debt expenditures.
Update on COVID-19 on our Business
As of the date of this filing, government restrictions have been relaxed or eliminated as the health risk of COVID-19 has decreased; however, the effects of COVID-19 continue to linger throughout the global economy and our businesses. Though the severity of COVID-19 has subsided, new variants could interrupt business, cause renewed labor and supply chain disruptions, and negatively impact the global and US economy, which could materially and adversely impact our businesses. CPP Global Sourcing Strategy Expansion and Restructuring Charges OnMay 3, 2023 , in response to changing market conditions, Griffon announced that its CPP segment will expand its global sourcing strategy to include long handled tools, material handling, and wood storage and organization product lines. By transitioning these product lines to an asset-light structure, CPP's operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will be essential to CPP achieving 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures. The global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its facility footprint by approximately 1.2 million square feet, or approximately 15%, and its headcount by approximately 600. The affectedU.S. locations will includeCamp Hill andHarrisburg, Pennsylvania ;Grantsville, Maryland ;Fairfield, Iowa ; and four wood mills. Implementation of this strategy over the duration of the project will result in charges of$120,000 to$130,000 , including$50,000 to$55,000 of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and$70,000 to$75,000 of non-cash charges primarily related to asset write-downs. Capital investment in the range of$3,000 to$5,000 will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition. Other Business Highlights InAugust 2020 Griffon completed the Public Offering of 8,700,000 shares of our common stock for total net proceeds of$178,165 . The Company used a portion of the net proceeds to repay outstanding borrowings under its Credit Agreement. The Company used the remainder of the proceeds for working capital and general corporate purposes. During 2020, Griffon issued, at par,$1,000,000 of 5.75% Senior Notes due in 2028 (the "2028 Senior Notes"). Proceeds from the 2028 Senior Notes were used to redeem the$1,000,000 of 5.25% Senior Notes due 2022. InJanuary 2020 , Griffon amended its credit agreement to increase the total amount available for borrowing from$350,000 to$400,000 , extend its maturity date fromMarch 22, 2021 toMarch 22, 2025 and modify certain other provisions of the facility (the "Credit Agreement"). InNovember 2019 , Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of itsU.S. operations, and onNovember 12, 2020 , Griffon announced that CPP is broadening this strategic initiative to include additional North American facilities, theAMES United Kingdom (U.K. ) andAustralia businesses, and a manufacturing facility inChina . OnApril 28, 2022 , Griffon announced a reduced scope and accelerated timeline for the initiative, which was completed in fiscal 2022. We continue to expect that this initiative will result in annual cash savings of$25,000 . Realization of cash savings began in the first quarter of fiscal 2023. The cost to implement this new business platform, over the duration of the project, included one-time charges of approximately$51,869 and capital investments of approximately$15,000 , net of future proceeds from the sale of exited facilities.
In
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In March 2018 , we announced the combination of the ClosetMaid operations with
those of AMES , which improved operational efficiencies by leveraging the
complementary products, customers, warehousing and distribution, manufacturing,
and sourcing capabilities of the two businesses.
In February 2018 , we closed on the sale of our Clopay Plastics Products
("Plastics") business to Berry Global, Inc. ("Berry"), thus exiting the
specialty plastics industry that the Company had entered when it acquired Clopay
Corporation in 1986. This transaction provided immediate liquidity and improved
Griffon's cash flow given the historically higher capital needs of the Plastics
operations as compared to Griffon's remaining businesses.
In October 2017 , we acquired ClosetMaid from Emerson Electric Co. (NYSE:EMR).
ClosetMaid , founded in 1965, is a leading North American manufacturer and
marketer of wood and wire closet organization, general living storage and wire
garage storage products, and sells to some of the largest home center retail
chains, mass merchandisers, and direct-to-builder professional installers in
North America . We believe that ClosetMaid is the leading brand in its category,
with excellent consumer recognition.
We believe these actions have established a solid foundation for growth in sales, profit, and cash generation and bolster Griffon's platforms for opportunistic strategic acquisitions.
Other Acquisitions and Dispositions
OnDecember 22, 2020 ,AMES acquiredQuatro Design Pty Ltd ("Quatro"), a leading Australian manufacturer and supplier of glass fiber reinforced concrete landscaping products for residential, commercial, and public sector projects for a purchase price of AUD$3,500 (approximately$2,700 ). Quatro contributed approximately$5,000 in revenue in the first twelve months after the acquisition. OnNovember 29, 2019 ,AMES acquiredVatre Group Limited ("Apta"), a leadingU.K. supplier of innovative garden pottery and associated products sold to leadingU.K. andIreland garden centers. This acquisition broadensAMES' product offerings in theU.K. market and increases its in-country operational footprint. OnFebruary 13, 2018 ,AMES acquired Kelkay, a leadingU.K. manufacturer and distributor of decorative outdoor landscaping products sold to garden centers, retailers and grocers in theU.K. andIreland . This acquisition broadenedAMES' product offerings in the market and increased its in-country operational footprint.
In
During fiscal 2017, Griffon also completed a number of other acquisitions to expand and enhanceAMES' global footprint, including the acquisitions of La Hacienda, an outdoor living brand of unique heating and garden décor products in theUnited Kingdom . The acquisition of La Hacienda, together with theFebruary 2018 acquisition of Kelkay andNovember 2020 acquisition of Apta, providesAMES with additional brands and a platform for growth in theU.K. market and access to leading garden centers, retailers, and grocers in theUK andIreland . InAustralia , Griffon acquired Hills Home Living, the iconic brand of clotheslines and home products, from Hills Limited (ASX:HIL) inDecember 2016 , and inSeptember 2017 Griffon acquired Tuscan Path, an Australian provider of pots, planters, pavers, decorative stone, and garden décor products. The Hills, Tuscan Path and December, 2020 Quatro acquisitions broadenedAMES' outdoor living and lawn and garden business, strengtheningAMES' portfolio of brands and its market position inAustralia and New Zealand .
Further Information
Griffon posts and makes available, free of charge through its website at www.griffon.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as well as press releases, as soon as reasonably practicable after such materials are published or filed with or furnished to theSecurities and Exchange Commission (the "SEC"). The information found on Griffon's website is not part of this or any other report it files with or furnishes to theSEC .
For information regarding revenue, profit and total assets of each segment, see the Business Segments footnote in the Notes to Consolidated Financial Statements.
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Reportable Segments:
Griffon conducts its operations through two reportable segments:
•Consumer and Professional Products ("CPP") is a leading North American
manufacturer and a global provider of branded consumer and professional tools;
residential, industrial and commercial fans; home storage and organization
products; and products that enhance indoor and outdoor lifestyles. CPP sells
products globally through a portfolio of leading brands including AMES , since
1774, Hunter , since 1886, True Temper, and ClosetMaid .
•Home and Building Products ("HBP") conducts its operations through Clopay .
Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors
and rolling steel doors in North America . Residential and commercial sectional
garage doors are sold through professional dealers and leading home center
retail chains throughout North America under the brands Clopay , Ideal, and
Holmes . Rolling steel door and grille products designed for commercial,
industrial, institutional, and retail use are sold under the Cornell and Cookson
brands.
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OVERVIEW
Revenue for the quarter endedMarch 31, 2023 was$710,984 compared to$779,617 in the prior year comparable quarter, a decrease of 9%. Revenue decreased at CPP by 24% partially offset by increased revenue at HBP of 8%. Adjusting for the period Griffon did not ownHunter in the prior year quarter, organic revenue decreased 12% to$689,335 .Hunter contributed$21,649 of revenue during the current quarter. Loss from continuing operations was$62,255 or$1.17 per share, compared to income from continuing operations of$58,160 , or$1.09 per share, in the prior year quarter.
The current year quarter results from operations included the following:
- Strategic review - retention and other of$6,190 ($4,658 , net of tax, or$0.08 per share); - Restructuring charges of$78,334 ($58,529 , net of tax, or$1.06 per share); - Intangible asset impairment charges of$100,000 ($74,256 , net of tax, or$1.34 per share); - Proxy costs of$614 ($471 , net of tax, or 0.01 per share); - Discrete and certain other tax benefits, net, of$8,723 or$0.16 per share.
The prior year quarter results from operations included the following:
- Restructuring charges of$4,766 ($3,496 , net of tax, or$0.07 per share); - Acquisition costs of$6,708 ($6,146 , net of tax, or$0.12 per share); and - Proxy costs of$4,661 ($3,591 , net of tax, or$0.07 per share); - Fair value step-up of acquired inventory sold of$2,701 ($2,007 , net of tax, or$0.04 per share); and - Discrete and certain other tax benefits, net, of$683 or$0.01 per share.
Excluding these items from the respective quarterly results, Income from
continuing operations would have been
Revenue for the six months endedMarch 31, 2023 was$1,360,368 compared to$1,371,366 in the prior year period, a decrease of 1%. Decreased revenue of 18% at CPP was partially offset by increased revenue of 17% at HBP. Adjusting for the period Griffon did not ownHunter in the prior year quarter, organic revenue decreased 6% to$1,284,602 .Hunter contributed$75,766 of revenue during the year-to-date period. Loss from continuing operations was$13,553 or$0.26 per share, compared to income from continuing operations of$74,864 , or$1.40 per share, in the prior year period.
The current year-to-date results from operations included the following:
- Strategic review - retention and other of$14,422 ($10,880 , net of tax, or$0.20 per share); - Restructuring charges of$78,334 ($58,529 , net of tax, or$1.06 per share); - Intangible asset impairment charges of$100,000 ($74,256 , net of tax, or$1.34 per share); - Proxy costs of$2,117 ($1,624 , net of tax, or$0.03 per share); - Gain on sale of building of$10,852 ($8,323 , net of tax, or$0.15 per share); and - Discrete and certain other tax benefits, net, of$9,056 or$0.16 per share.
The prior year-to-date results from operations included the following:
- Restructuring charges of$6,482 ($4,826 , net of tax, or$0.09 per share); - Acquisition costs of$9,303 ($8,149 , net of tax, or$0.15 per share); - Proxy costs of$6,952 ($5,359 , net of tax, or$0.10 per share); - Fair value step-up of acquired inventory sold of$2,701 ($2,007 net of tax, or$0.04 per share); and - Discrete and certain other tax benefits, net, of$1,574 or$0.03 per share.
Excluding these items from the respective periods, Income from continuing
operations would have been
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Griffon evaluates performance based on Net income and the related Earnings per
share excluding restructuring charges, non-cash impairment charges, loss from
debt extinguishment, acquisition related expenses and discrete and certain other
tax items, as well as other items that may affect comparability, as applicable.
Griffon believes this information is useful to investors for the same reason.
The following table provides a reconciliation of Income (loss) from continuing
operations to Adjusted income from continuing operations and Earnings (loss) per
share from continuing operations to Adjusted earnings per share from continuing
operations:
For the Three Months Ended March For the Six Months Ended March
31, 31,
2023 2022 2023 2022
(Unaudited)
Income (loss) from continuing operations
Adjusting items: Restructuring charges(1) 78,334 4,766 78,334 6,482 Intangible asset impairment 100,000 - 100,000 - Gain on sale of building - - (10,852) - Acquisition costs - 6,708 - 9,303 Strategic review - retention and other 6,190 - 14,422 - Proxy expenses 614 4,661 2,117 6,952 Fair value step-up of acquired inventory sold(2) - 2,701 - 2,701 Tax impact of above items(3) (47,224) (3,596) (47,055) (5,097) Discrete and certain other tax benefits, net(4) (8,723) (683) (9,056) (1,574)
Adjusted income from continuing operations
Earnings (loss) per common share from continuing operations$ (1.17) $ 1.09 $ (0.26) $ 1.40 Adjusting items, net of tax: Anti-dilutive share impact(5) 0.05 - 0.02 - Restructuring charges(1) 1.06 0.07 1.06 0.09 Intangible asset impairment 1.34 - 1.34 - Gain on sale of building - - (0.15) - Acquisition costs - 0.12 - 0.15 Strategic review - retention and other 0.08 - 0.20 - Proxy expenses 0.01 0.07 0.03 0.10 Fair value step-up of acquired inventory sold - 0.04 - 0.04 Discrete and certain other tax benefits, net(4) (0.16) (0.01) (0.16) (0.03) Adjusted earnings per common share from continuing operations$ 1.21 $
1.36
Weighted-average shares outstanding (in thousands) 53,038 51,668 52,809 51,423 Diluted weighted-average shares outstanding (in thousands)(5) 55,364 53,430 55,334 53,602
Note: Due to rounding, the sum of earnings per common share from continuing operations and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations.
(1) For the quarter and six months endedMarch 31, 2023 , restructuring charges relates to the CPP global sourcing expansion, of which$74,645 is included in Cost of goods and services and$3,689 is included in SG&A. 40 -------------------------------------------------------------------------------- Table of Contents (2) The fair value step-up of acquired inventory sold is included in Cost of goods and services.
(3) The tax impact for the above reconciling adjustments from GAAP to non-GAAP Net income and EPS is determined by comparing the Company's tax provision, including the reconciling adjustments, to the tax provision excluding such adjustments.
(4) Discrete and certain other tax benefits primarily relate to the impact of a rate differential between statutory and annual effective tax rate on items impacting the quarter.
(5) Loss from continuing operations is calculated using basic shares on the face
of the income statement. Per share impact of using diluted shares represents the
impact of converting from the basic shares used in calculating earnings per
share from the Loss from continuing operations to the diluted shares used in
calculating earnings per share from the adjusted income from continuing
operations.
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RESULTS OF OPERATIONS
Three and Six months ended
Griffon evaluates performance and allocates resources based on each segment's
operating results before interest income and expense, income taxes, depreciation
and amortization, unallocated amounts (primarily corporate overhead),
restructuring charges, loss on debt extinguishment and acquisition related
expenses, as well as other items that may affect comparability, as applicable
("Adjusted EBITDA", a non-GAAP measure). Griffon believes this information is
useful to investors for the same reason. See table provided in Note 13 -
Business Segments for a reconciliation of Segment Adjusted EBITDA to Income
before taxes from continuing operations.
Consumer and Professional Products
For the Three Months Ended March 31, For the Six Months Ended March 31,
2023 2022 2023 2022
United States $ 212,385 $ 264,747 $ 366,052 $ 429,646
Europe 19,070 46,783 23,766 65,113
Canada 21,570 31,029 44,686 53,657
Australia 56,585 62,188 122,802 136,537
All other countries 4,715 6,265 9,830 9,232
Total Revenue $ 314,325 $ 411,012 $ 567,136 $ 694,185
Adjusted EBITDA 19,635 6.2 % 47,844 11.6 % $ 17,826 3.1 % $ 64,058 9.2 %
Depreciation and
amortization 13,303 11,791 $ 26,430 $ 20,397
For the quarter ended March 31, 2023 , revenue decreased $96,687 , or 24%,
compared to the prior year period due to a 29% reduction in volume across all
channels and geographies driven by reduced consumer demand, customer supplier
diversification in the U.S. and elevated customer inventory levels, coupled with
an unfavorable foreign exchange impact of 2%. These items were partially offset
by $21,649 of Hunter revenue, or 5%, for the portion of the current quarter in
which Hunter was not owned by Griffon in the prior year quarter, as well as
price and mix of 2%. Hunter contributed $76,209 in the current quarter compared
to $70,849 in the prior year comparable period.
For the quarter ended March 31, 2023 , Adjusted EBITDA of $19,635 compared to
Adjusted EBITDA of $47,844 in the prior year quarter. The variance to prior year
was primarily due to the unfavorable impact of the reduced volume noted above,
and its related impact on manufacturing and overhead absorption, and increased
material costs in Australia and Canada . This was partially offset by $3,251 from
the Hunter acquisition for the portion of the current quarter in which Hunter
was not owned by Griffon in the prior year quarter and reduced discretionary
spending. EBITDA reflected an unfavorable foreign exchange impact of 1%. Hunter
contributed $12,231 in the current quarter compared to $14,339 in the prior year
comparable period.
For the six months ended March 31, 2023 , revenue decreased $127,049 , or 18%,
compared to the prior year period due to a 31% reduction in volume across all
channels and geographies driven by reduced customer demand, elevated customer
inventory levels, primarily in North America , the impact of customer supplier
diversification in the U.S. , and an unfavorable foreign exchange impact of 2%.
These items were partially offset by $75,766 of Hunter revenue, or 11%, for the
portion of the current quarter in which Hunter was not owned by Griffon in the
prior year quarter, as well as price and mix of 4%. Hunter contributed $130,326
during the six months ended March 31, 2023 compared to $70,849 in the prior year
comparable period.
For the six months ended March 31, 2023 , Adjusted EBITDA decreased 72% to
$17,826 compared to $64,058 in the prior year period. Excluding the Hunter
contribution of $7,679 , EBITDA of $10,147 decreased 84% primarily due to the
unfavorable impact of the reduced volume noted above and its related impact on
manufacturing and overhead absorption, and increased material costs in
Australia , partially offset by reduced discretionary spending. EBITDA reflected
an unfavorable foreign exchange impact of 2%. Hunter contributed $16,659 during
the six months ended March 31, 2023 compared to $14,339 in the prior year
comparable period.
For the quarter and six months ended March 31, 2023 , segment depreciation and
amortization increased $1,512 and $6,033 , respectively, compared to the prior
year comparable periods, due to the Hunter assets acquired and new assets placed
in service.
On
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ceiling, commercial, and industrial fans for a contractual purchase price of
$845,000 . Hunter adds to Griffon's CPP segment, complementing and diversifying
our portfolio of leading consumer brands and products.
CPP Global Sourcing Strategy Expansion and Restructuring Charges
On May 3, 2023 , in response to changing market conditions, Griffon announced
that its CPP segment will expand its global sourcing strategy to include long
handled tools, material handling, and wood storage and organization product
lines.
By transitioning these product lines to an asset-light structure, CPP's
operations will be better positioned to serve customers with a more flexible and
cost-effective sourcing model that leverages supplier relationships around the
world, while improving its competitive positioning in a post-pandemic
marketplace. These actions will be essential to CPP achieving 15% EBITDA
margins, while enhancing free cash flow through improved working capital and
significantly lower capital expenditures.
The global sourcing strategy expansion is expected to be complete by the end of
calendar 2024. Over that period, CPP expects to reduce its U.S. facility
footprint by approximately 1.2 million square feet, or 30%, and its headcount by
approximately 600. The affected U.S. locations will include Camp Hill and
Harrisburg, PA ; Grantsville, MD ; Fairfield, IA ; and four wood mills.
Implementation of this strategy over the duration of the project will result in
charges of $120,000 to $130,000 , including $50,000 to $55,000 of cash charges
for employee retention and severance, operational transition, and facility and
lease exit costs, and $70,000 to $75,000 of non-cash charges primarily related
to asset write-downs. Capital investment in the range of $3,000 to $5,000 will
also be required. These costs exclude cash proceeds from the sale of real estate
and equipment, which are expected to largely offset the cash charges, and also
exclude inefficiencies due to duplicative labor costs and absorption impacts
during transition.
In both the quarter and six months ended March 31, 2023 , CPP incurred pre-tax
restructuring and related exit costs approximating $78,334 . During the six
months ended March 31, 2023 , cash charges totaled $19,216 and non-cash,
asset-related charges totaled $59,118 ; the cash charges included $8,050 for
one-time termination benefits and other personnel-related costs and $11,166 for
facility exit and other related costs. Non-cash charges included a $22,018
impairment charge related to certain fixed assets at several manufacturing
locations and $37,100 to adjust inventory to net realizable value.
Cash Charges Non-Cash Charges
Facilities,
Personnel Facilities, exit inventory and Capital
related costs costs and other other Total Investments
Anticipated Charges(1) 19,500 35,500 75,000 130,000 5,000
Q2 FY2023 Activity (8,050) (11,166) (59,118) (78,334) -
Estimate to Complete $ 11,450 $ 24,334 $ 15,882 $ 51,666 $ 5,000
________________________
(1)The above table represents the upper range of anticipated charges during the
duration of the project.
Home and Building Products
For the Three Months Ended March 31, For the Six Months Ended March 31,
2023 2022 2023 2022
Residential $ 220,416 $ 211,229 $ 447,475 $ 389,016
Commercial 176,243 157,376 345,757 288,165
Total Revenue $ 396,659 $ 368,605 $ 793,232 $ 677,181
Adjusted EBITDA 131,871 33.2 % 104,474 28.3 % $ 256,016 32.3 % $ 160,771 23.7 % Depreciation and amortization 3,811 4,324$ 7,657 $ 8,662 For the quarter endedMarch 31, 2023 , HBP revenue increased$28,054 , or 8%, compared to the prior year period due to favorable pricing and mix of 14% driven by both residential and commercial. Total volume decreased 6% due to decreased residential volume, partially offset by increased commercial volume. 43 -------------------------------------------------------------------------------- Table of Contents For the quarter endedMarch 31, 2023 , Adjusted EBITDA increased 26% to$131,871 compared to$104,474 in the prior year period. Adjusted EBITDA benefited from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs. For the six months endedMarch 31, 2023 , revenue increased$116,051 or 17%, compared to the prior year period due to favorable mix and pricing of 17% driven by both residential and commercial. Total volume was in line with the prior year period with increased commercial volume offset by decreased residential volume. For the six months endedMarch 31, 2023 , Adjusted EBITDA increased 59% to$256,016 compared to$160,771 in the prior year period. The favorable variance resulted from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs. For the quarter and six months endedMarch 31, 2023 , segment depreciation and amortization decreased$513 and$1,005 , respectively, compared to the prior year comparable periods, due to fully depreciated assets.
Unallocated
For the quarter endedMarch 31, 2023 , unallocated amounts, excluding depreciation, consisted primarily of corporate overhead costs totaling$14,630 compared to$13,056 in the prior year quarter; for the six months endedMarch 31, 2023 , unallocated amounts totaled$28,406 compared to$26,319 in the prior year period. The increase in both the current quarter and six month periods, compared to their respective comparable prior year periods, primarily relates to increased incentive and equity compensation, medical claims, and travel expenses.
Proxy expenses
During the three and six months endedMarch 31, 2023 , we incurred$614 ($471 , net of tax) and$2,117 ($1,624 , net of tax) of proxy expenses (including legal and advisory fees) in SG&A, respectively. During the quarter and six months endedMarch 31, 2023 , proxy expenses related to a settlement entered into with a shareholder that had submitted a slate of director nominees. During the three and six months endedMarch 31, 2022 , we incurred$4,661 and$6,952 , respectively, of proxy expenses (including legal and advisory fees) in unallocated amounts as a result of a proxy contest initiated by a shareholder which was completed at the shareholder meeting onFebruary 17, 2022 .
Segment Depreciation and Amortization
Segment depreciation and amortization increased$999 and$5,028 for the quarter and six months endedMarch 31, 2023 , respectively, compared to the comparable prior year periods, primarily due to depreciation and amortization on new assets placed in service. Other Income (Expense) For the quarters endedMarch 31, 2023 and 2022, Other income (expense) of$293 and$1,369 , respectively, includes$164 and ($168 ), respectively, of net currency exchange gains (losses) in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income (expense) of$(217) and$1,079 , respectively, and$73 and$(203) , respectively, of net investment income. Other income (expense) also includes rental income of$0 and$156 for the three months endedMarch 31, 2023 and 2022, respectively. Additionally, it includes royalty income of$476 and 616 for the three months endedMarch 31, 2023 and 2022, respectively. For the six months endedMarch 31, 2023 and 2022, Other income (expense) of$900 and$2,444 , respectively, includes$98 and$(562) , respectively, of net currency exchange losses in connection with the translation of receivables and payables denominated in currencies other than the functional currencies of Griffon and its subsidiaries, net periodic benefit plan income of$(433) and$2,027 , respectively, as well as$107 and$171 , respectively, of net investment income (loss). Other income (expense) also includes rental income of$212 in both of the six months endedMarch 31, 2023 and 2022. Additionally, it includes royalty income of$1,025 and$616 for the six months endedMarch 31, 2023 and 2022, respectively. 44 -------------------------------------------------------------------------------- Table of Contents Provision for income taxes During the quarter endedMarch 31, 2023 , the Company recognized a tax benefit of$27,904 on loss before taxes from continuing operations of$90,159 , compared to a tax provision of$24,638 on income before taxes from continuing operations of$82,798 in the comparable prior year quarter. The current year quarter results included strategic review costs (retention and other) of$6,190 ($4,658 , net of tax), restructuring charges of$78,334 ($58,529 , net of tax), intangible asset impairment charges of$100,000 ($74,256 , net of tax), proxy costs of$614 ($471 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of$8,723 . The prior year quarter results included restructuring charges of$4,766 ($3,496 , net of tax), acquisition costs of$6,708 ($6,146 , net of tax), proxy costs of$4,661 ($3,591 , net of tax), fair value step-up of acquired inventory sold of$2,701 ($2,007 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of$683 . Excluding these items, the effective tax rates for the quarters endedMarch 31, 2023 and 2022 were 29.5% and 28.5%, respectively. During the six months endedMarch 31, 2023 , the Company recognized a tax benefit of$8,586 on loss before taxes of$22,139 , compared to a tax provision of$31,851 on income before taxes of$106,715 in the comparable prior year period. The six months endedMarch 31, 2023 included a gain on the sale of a building of$10,852 ($8,323 , net of tax), strategic review costs (retention and other) of$14,422 ($10,880 , net of tax), restructuring charges of$78,334 ($58,529 , net of tax), intangible asset impairment charges of$100,000 ($74,256 , net of tax), proxy expenses of$2,117 ($1,624 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of$9,056 . The six months endedMarch 31, 2022 included restructuring charges of$6,482 ($4,826 , net of tax), acquisition costs of$9,303 ($8,149 , net of tax), proxy costs of$6,952 ($5,359 , net of tax), fair value step-up of acquired inventory sold of$2,701 ($2,007 , net of tax) and discrete and certain other tax benefits, net, that affect comparability of$1,574 . Excluding these items, the effective tax rates for the six months endedMarch 31, 2023 and 2022 were 29.4% and 29.1%, respectively.
Stock-based compensation
For the quarters endedMarch 31, 2023 and 2022, stock based compensation expense, which includes expenses for both restricted stock grants and the ESOP, totaled$6,593 and$5,092 , respectively. For the six months endedMarch 31, 2023 and 2022, stock based compensation expense totaled$13,335 and$9,959 , respectively.
Comprehensive income (loss)
For the quarter endedMarch 31, 2023 , total other comprehensive loss, net of taxes, of$2,613 included a gain of$334 from foreign currency translation adjustments primarily due to the strengthening of the Euro and British Pound, partially offset by the weakening of Australian Dollars, all in comparison to theU.S. Dollar; a$746 benefit from pension amortization; and a$1,533 a gain on cash flow hedges. For the quarter endedMarch 31, 2022 , total other comprehensive income (loss), net of taxes, of$4,949 included a gain of$6,049 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian Dollar and British Pound, offset by the weakening of the Australian Dollar, all in comparison to the US Dollar; a$140 benefit from pension amortization; and a$1,240 loss on cash flow hedges. For the six months endedMarch 31, 2023 , total other comprehensive loss, net of taxes, of$14,832 included a gain of$12,271 from foreign currency translation adjustments primarily due to the strengthening of the Euro, Canadian and Australian Dollars and British Pound, all in comparison to the US Dollar; a$1,608 benefit from pension amortization of actuarial losses; and a$953 gain on cash flow hedges. For the six months endedMarch 31, 2022 , total other comprehensive income, net of taxes, of$2,198 included a gain of$3,730 from foreign currency translation adjustments primarily due to the strengthening of the Canadian and Australian Dollars, offset by the weakening of the Euro and the British Pound, all in comparison to the US Dollar; a$808 benefit from pension amortization of actuarial losses; and a$2,340 loss on cash flow hedges. 45 --------------------------------------------------------------------------------
Table of Contents DISCONTINUED OPERATIONS Defense Electronics OnSeptember 27, 2021 , Griffon announced it was exploring strategic alternatives for its Defense Electronics segment, which consisted ofTelephonics Corporation ("Telephonics"), and onJune 27, 2022 , Griffon completed the sale of Telephonics to TTM for$330,000 . Griffon classified the results of operations of the Telephonics business as a discontinued operation in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operation in the consolidated balance sheets. Accordingly, all references made to results and information in this Quarterly Report on Form 10-Q are to Griffon's continuing operations unless noted otherwise. AtMarch 31, 2023 andSeptember 30, 2022 , Griffon's discontinued assets and liabilities includes the Company's obligation of$4,587 and$8,846 , respectively, in connection with the sale of Telephonics primarily related to certain customary post-closing adjustments, primarily working capital and stay bonuses. AtMarch 31, 2023 andSeptember 30, 2022 , Griffon's liabilities for Installations Services and other discontinued operations primarily relate to insurance claims, income taxes, product liability, warranty and environmental reserves totaling$8,593 and$8,072 , respectively. 46 -------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Management assesses Griffon's liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity include cash flows from operating activities, capital expenditures, acquisitions, dispositions, bank lines of credit and the ability to attract long-term capital under satisfactory terms. Griffon believes it has sufficient liquidity available to invest in existing businesses and strategic acquisitions while managing its capital structure on both a short-term and long-term basis. As ofMarch 31, 2023 , the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was$71,300 . Our intent is to permanently reinvest these funds outside theU.S. , and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event we determine that funds from foreign operations are needed to fund operations in theU.S. , we will be required to accrue and payU.S. taxes to repatriate these funds (unless applicableU.S. taxes have already been paid). Griffon's primary sources of liquidity are cash flows generated from operations, cash on hand and ourJanuary 2025 five-year secured$400,000 revolving credit facility ("Credit Facility"). AtMarch 31, 2023 ,$356,313 of revolver capacity was available, subject to certain loan covenants, for borrowing under the Credit Agreement and we had cash and cash equivalents of$175,592 .
The following table is derived from the Condensed Consolidated Statements of Cash Flows:
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