Griffon Corp (GFF) 2007 Q1 法說會逐字稿

Hello, everyone, and welcome to the Griffon Corporation's first quarter 2007 earnings call. With us today we have Harvey Blau, Griffon's Chairman and Chief Executive Officer; and Eric Edelstein, Executive Vice President and Chief Financial Officer. [OPERATOR INSTRUCTIONS] This call is being recorded. Your participation implies consent to recording this call. If you do not agree to these terms, simply drop off the line. Thank you. I would now like to turn the call over to Mr. Blau, please go ahead, sir.

Good afternoon, and welcome to the financial overview of our first quarter fiscal 2007 which ended on December 31, 2006. I am Harvey Blau, Chairman of the Board of Griffon Corporation and with me is Griffon's Executive Vice President, Eric Edelstein. I will discuss the overall results of the quarter and then Eric and I will answer questions with respect to operations and financial results.

I would like to point out to the extent that matters to be discussed in this call include forward-looking statements. They involve certain risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements.

Consolidated net sales for the quarter were 434 million, up from 359 million for the first quarter of fiscal 2006. Pre-tax income was 14.4 million compared to 10.8 million last year. Net income was 8.5 million for the quarter compared to 6.8 million. Resulting in diluted earnings per share of $0.27 compared to $0.22 last year.

Telephonics, our electronics information and communications system segment continued at record operating levels and had sales in the quarter of 130 million compared to 53 million last year. Telephonics operating income was 12.9 million compared to 3 million last year. Telephonics radar and communications businesses continues to perform well, expanding program activities, increasing revenue and operating income. The overall outstanding results of Telephonics continues to be driven by the SRC contract and the MH-60 RS multi-mission helicopter program. Today, we announced an additional funding of $23 million with respect to the SRC program and we expect that when all contract releases are definitized, the total contract awards will approximate $330 million, up from 280 million which we previously announced and up from the 150 million originally announced when we got the program from Syracuse research.

We could not be more pleased with how our people at Telephonics have responded to the logistical, manpower, and manufacturing challenges presented by these awards. We expect that shipments under these additional awards will be completed through the remainder of the fiscal year ending September 30, 2007. Our partnership with SRC has been strong and we look forward to additional opportunities to work with them in fiscal 2007 and 2008.

Sales in the garage doors for the quarter were $129 million compared to 143 million last year. Operating income was 4 million compared to the prior year's first quarter of 13.6 million, obviously very disappointing to us, but a clear reflection of what is happening in the marketplace with respect to new construction and the sale and remodeling of existing housing. Revenue and operating income was significantly impacted by the slowdown in the housing market, both new home construction and the resale market. We anticipated a drop off in business with home builders although this is a much smaller part of our business. We did not anticipate the magnitude in the decline in the resale market or the impact it's had on our repair and renovates business. Other factors impacting sales include the recent loss or sharply reduced volume of several mid sized customers.

The revenue decline of approximately 10% represents approximately a 16% decline in unit volume, partly offset by selling price increases and a favorable product mix. The operating income decline approximates the impact on operating income of the unit volume decline. Needless to say, we are concerned about this, both how it is performing compared to the competition and when and how market conditions will improve. Analysis of housing starts and new home sales and resale statistics seems to bear out the decline we have experienced is in line with market trends. Other anecdotal information from major dealers in key markets and large retailers of various building products further supports this conclusion.

Many believe the housing market has or is about to hit the trough. We see signs that this might be the case. In the interim, we are pursuing various programs to improve results, including aggressive promotional and advertising plan, new Internet sales efforts, attractive sales programs, dealer promotions, and judicious cost cutting initiatives. Our service and installation operation had sales in the quarter of 77 million compared to 82 million in the prior year and we had an operating loss of of $893,000 compared to operating income of 2.8 million. The decrease in revenue and profitability are primarily attributable to a decline in results in our Las Vegas and Phoenix markets. Two of the markets that have been called out as being over built. This fall-off is consistent with the decline in the new home construction market and those geographies, results have also been impacted by competitive pressures in Las Vegas that were previously discussed, and operation inefficiencies in certain markets.

In January, we announced the acquisition of Cabinets West, an installer of kitchen cabinets in the Las Vegas market. We look forward to the benefits to be gained by broadening our offering in this market, as well as the positive impact we anticipate this business having on our other cabinet installation businesses.

The management team, both the recent additions to the team and our veterans, continue to look for opportunities to strengthen our position in the market in which we currently serve. By expanding our customer relationships and improving our operating effectiveness. We are taking this opportunity in the down market to try to improve our position in the marketplace and to be in a position that when the market turns around to take advantage of it.

Specialty plastic film sales for the quarter were 104 million compared to 86 million last year, and we had operating income of 4.3 million compared to an operating loss of 1.6 million last year. The results are a substantial improvement over the prior year and there are many initiatives in place that will hopefully continue the improvement. The increase in sales in the first quarter of $18 million was principally due to higher unit volume and higher revenues to cover resin cost increases, partially offset by selling price decreases. The unit volume increase is primarily attributable to businesses with new customers in Europe and to a lesser degree in North America. Some of this new business is still being established as operating efficiencies and profitability levels that are lower than desired. The selling price decreases are primarily with our major customer.

Although we have a significant negative impact on our profitability, the concessions have allowed us to further secure and substantially extend our supply agreement over time with this major customer. Resin prices in the first quarter on average decreased 10% in North America and remain fairly constant in Europe. The favorable resin movement had a substantial impact on operating income for the quarter. Our new elastic product has been successfully launched and we anticipate sales to increase as the year progresses and we also look forward to improved performance as a result of all the work last year finalizing our new facility in Brazil.

Operating cash flow from operations in the quarter was 34 million, and capital expenditures for the quarter were 10 million. Our balance sheet at December 31, remains strong with working capital of 334 million and total indebtedness representing 35% of capital. Towards the end of the quarter we modified our revolving credit facility with a new facility providing more funding at lower interest rates. I think that you will notice that the concept of diversity which we have pushed over the years has worked to the extent that in this quarter, with the downturn so steep in the housing industry and the profit levels being under pressure in the plastic film industry, the Telephonics Company has soared up and has sort of offset some of those declines. We now have to look forward to a turn in the construction business for our business -- our construction businesses to recover. At this time, we would like to take questions.

Thank you. [OPERATOR INSTRUCTIONS] Your first question is coming from Bob Labick of CJS Securities. Please go ahead.

Good afternoon, gentlemen. It's actually Frank Wooten on behalf of Bob Labick. First question I had relates to your garage door division. Could you give us a little bit more information with regards to the level of fixed cost versus variable costs in that division and whether that had some effect on your profitability in the quarter?

I'll take the second part first. It definitely did have an impact. Generally, our gross profit margins for our various products in that division run my where from, and I'll give you a big range, encompass everything, 25% up to 32 to 33. If you want -- even actually higher, 35 to 36. If you want to say the average margins tend to be 32%, in this particular quarter, the impact of the fix not going away clearly equates the lost contribution to be closer to 40%.

Got you. When you look at the films division and you guys talk a little bit about your largest customer and the pricing at that customer, does this have any effect on your long term 8 to 13% margin goals? Do you still think those goals are attainable?

That's a good question. I'm not actually sure at this point. As Harvey had said, on the one hand, we did give up a bit and it does have a significant impact. On the other hand, we've secured our relationship in the short-term in a stronger way and in the longer term for a longer period of time, so if we can take that, I'll call it further solidified base, and build on it with other business, then the answer is no. If we're not able to do that, then what we've given up will have an impact and could lower that range. I think we have to see how we do with the new business we're bringing on, the new product that we're talking about that has been launched, and I personally will take a look at it and see as we go forward if that still is the range that makes sense.

Okay, I'll wait to hear more details on that. And lastly, with regards to installation, you guys about three years ago were achieving somewhere in the vicinity of a 2 to 3% operating margin in that business on similar revenues. What, if anything, is impacting your ability to do that now and going forward?

You need to realize that that is not a singular business, and I suspect you do. First of all, we're operating in three primary markets but in total about eight or nine markets in the United States. Second, we're offering five or six different installation products in those markets, and what I'm really getting at is although the businesses are run synergistically, they tend to be somewhat stand alone in terms of their performance, and so if we historically have been at 2 or 3%, and that sounds right, what we've had in there are businesses that have done much better than that, 7, 8, and 9, and then others that quite honestly haven't been carrying their weight in an interim period of time, losing a certain amount of money, and that weighted average typically historically came at 2 and 3%. This quarter, the margin is obviously zero or negative, and that's because in those higher earning geographies or markets, Phoenix and Las Vegas, we have suffered from the downturn in new home construction and the competition that we mentioned.

Got you, thanks.

Your next question is coming from Rob Longnecker] of Barrington. Please go ahead.

Hi, guys. In films on the quarter can you just talk about which had a bigger impact negatively on margins. Is it the change in your supply agreement with your largest customer or ongoing issues from what you guys had in Europe, the problems you had in Europe in the last couple quarters?

The -- it would be the pricing change with our primary customer would have had more of an impact, but not substantially more, but a little bit more than the inefficiency issue.

Where do you stand on the inefficiency issue?

I was going to say something but I figured you would ask first. We've made progress. As we said three months ago, they were not going to be gone three months later or now, so and hopefully you can appreciate it. It sometimes gets difficult to try to estimate exactly, isolate what the financial impact is because there's a lot going on in multiple plans, but I believe we talked last quarter about the impact being as much as $3 million in the quarter and this quarter it's down from that, not substantially down, maybe 2.5 million, maybe a little bit more than that, but -- and that unto itself might not seem like a lot of progress, but we believe we've put things in place that are starting to work and we're optimistic that by the end of the year, we'll have made some major headway and hopefully not be talking about it anymore.

And the new deal with your large customer, is that, you guys actually have a contract or is it sort of a handshake agreement or?

It's somewhere in between both, and it's not a singular thing, as you -- we're working with that customer and a lot of different geographies and different products, so it's not one piece of paper so to speak. It's something that we're very comfortable with in terms of what it represents.

And can you provide, just jumping over to Telephonics, can you you provide kind of a ballpark of what the SRC revenues were in the quarter?

Yes. The increase in the quarter of 77 million, about 90% of the increase is SRC, and a good percentage of the other part of it is the MH-60 R&F.

Okay and then just jumping over to garage doors. Can you talk a little bit about what kind of results you had in the big boxes?

Off the top of my head, at the moment, I can tell you that they held up better than our dealer business, but at the moment, I'm at a loss for the specific amounts, but it did hold up better.

And what do you guys view -- I mean, there's been obviously talk on the last couple calls that this business is less, and putting aside the new home stuff, the repair and remodel, that it's less cyclical and isn't as exposed to downturns so obviously it sounds like everyone including you guys were taken by surprise by this quarter. Can you just give a little more on your thoughts on it? Is there a fundamental shift happening here? What's your best guess on what's going on?

We were surprised because we had fairly consistently or I should say completely consistently said based on past history we're pretty comfortable that the repair and renovate side was going to hold up nicely and in fact increase and offset the other side of the business. That has not happened. There's a couple of theories out there. One theory is as follows, that -- and this comes from some of the big box retailers who say that a significant amount of their business in the millwork department, that's where our garage doors reside, gets done within a three-month time frame of the resale of the home, three months before or three months after. Obviously the former being someone fixing up to sale and the latter being somebody whose bought and is now fixing up, and since that business, the resale market is off so significantly, consistent, not consistent but along with new home construction, that's part of the pain.

The other part of it are theories such as this is all taking place at a time when the economy generally is strong, and the past housing slowdowns have been coincident with higher unemployment, the thinking being that in the past, fewer people at work, they are more inclined to take what dollars they have available and work on their home. That holds true not so much on the Coast, but quite a bit in the center part of the country, so that's another theory, but it has surprised us and we are concerned.

The history has been that when new home construction stops, people have traditionally fixed up their homes either because they are not going to sell or because they want to sell and for whatever reason that has been reported back to us in the marketplace is that there's been a reluctance by the consumer to put money into his house because he's not sure he's going to get it out and that is because there has been such a downturn in the sale of new homes and it's very difficult to sell new homes if the person hasn't been able to sell the old home, so with the inability to sell the old home, you've killed a new home market and at the same time, people have gotten a little weary about putting money into their homes.

Why this is so, in a time of relative calm interest rates and relatively good unemployment levels, no one really knows, but as you have been seeing in the paper and as we have been reporting to our Board, there has been articles all over the country of the huge glut of unsold homes and that the number and percentage of unsold homes is at a record not seen since the 1980s, and the question really comes down to is, when is this going to turn around? Is it going to take six months? Is it going to take a year? We're very comfortable that the basic industry is solid and stable. The question is timing. When is this going to turn around? And the fact is that a substantial decrease in sales like we had in the first quarter has a direct impact on profits, obviously because you have these fixed costs and because without sales, you just can't make profits so that's where we are.

Okay, one last question and I'll get back in queue. Can you just give some information on how impact -- what impact you guys had on resin -- from resin this quarter in the films business?

Yes. It did have a significant impact. What we try to do when we analyze it or quantify it is use a model that -- and use it consistently so that we're giving I'll say as meaningful information as possible. Where I'm getting at is if you thought about it there's a lot that goes into trying to quantify it, all the different markets we're in, are are you measuring it against resin that we use in production or are you measuring it against purchased resin? Are you using the base of how much resin took place, how much we used in the current quarter or are you using a base of the prior year? We try to do it consistent from quarter to quarter. In this quarter, the impact for resin based on our model is -- was favorable to the tune of 8 to $9 million, and -- of operating income.

Just to make sure I understand that correctly, if resin had stayed the same you actually would have had a loss in the segment there?

No. If resin had been the same in this quarter versus a year ago, the difference in the quarter is 8 to 9 million versus how resin actually behaves.

Because if I remember correctly, last quarter you said it was a benefit of 4 million. Sorry, from the December '05 quarter it -- pardon me, it hurt you by 4 million.

Correct.

So is that saying this quarter it helped you by 4 million roughly?

No. Again, if you look at a year ago, we were then measuring a year ago to the year before quarter, and so you just can't take the net change and say that's what it helped or didn't. Essentially, what we've tried to do is take resin out of the equation for purposes of understanding how we're performing, and so since the natural comparison is this quarter to a year ago, we're saying if you took it out, the difference is 8 to $9 million. That's not the same thing as we would have lost this or that amount.

Okay, thank you.

Thank you. Your next question is coming from [Julian Allen] of [150 LLC]. Please go ahead.

Hi, good afternoon.

Hi.

Do you have an update on the sale, on any corporate finance initiatives and the sale or otherwise of any of the divisions that you can share today?

An update on whether or not we're selling any of the divisions?

Yes.

No. We're always looking and investigating possibilities of buying or selling, but there's nothing current on the horizon at all, and by the way, as I said before, the interesting thing is that you see that if you went back five or six years, people were pushing me very hard to get rid of Telephonics because it was military, it was -- it was very involved, it had highs and lows and this and we resisted and you you can see that we probably were right in holding it and seeing what we're doing today with it. And then I had the same issues with respect to the plastic film business, the last time it had a dip, and then of course we jumped through and we had 40, 50, $60 million years of EBITDA, so we're not hot on selling anything at the present time.

Okay. In terms of plastic films, do you expect that overall the divisions margin performance should improve over time pushing aside resin prices as the operational inefficiencies starts to get addressed or is margin improvement from this point dependent on volume increases as well?

Well, the answer to that is first of all, you must start not by discarding the resin issue because the resin issue is a critical issue and if it goes back into high digits of increases, it's going to affect us and if it stays normal or goes down, it's going to help us. The efficiencies will eventually kick in and we will see positive growth. The issue really comes up to getting new products that we can get better prices for like the elastic film that we're working on now, and there are a whole series of other products that we're working on and developing and trying to introduce to our customers, which -- and I can't go into all of them because some of them are confidential from a business point of view, I don't want other people who are listening to this call knowing what we're doing, but we are making efforts in a whole bunch of ways in plastic film to make us more efficient and more profitable, and we're comfortable that we're going to be able to accomplish that over a period of time.

If you're now leaning, if that's the right word, towards retaining the plastic film division, which I believe the potential or hypothetical sale of that division was going to provide a source of funds for buybacks, has your position, especially with perhaps today's stock price reaction with respect to the attractiveness of buybacks changed at all or do you think you'll still refrain from buybacks pending other potential uses of cash?

No. I think we will be more aggressive in buybacks, especially if we continued to have positive cash flow, and we haven't changed our position with respect to anything. We are looking at every opportunity, everything, we have advisors working with us and we'll see where we go on all of these different divisions. I'm just telling you that from time to time, people have put us under pressure to sell something, we've resisted and it's ended up working to our benefit.

Right.

But I still would like to see us in a position of being able to do a major buyback.

Got it. Okay, thank you.

Your next question comes from Ryan Harkins of Chartwell Investment. Please go ahead.

Hi, guys. I apologize if you've already addressed these issues. I was a little late getting on the call, but first going back to kind of the housing related businesses, the garage door businesses and the installation services business. Given the weakness that you've seen there and clearly, you started seeing signs of that weakness earlier in the quarter, I'm a little surprised about the acquisition that you announced earlier this month. I believe it was a cabinetry business in the Las Vegas market?

Cabinet Installation Company.

Okay.

We bought that in order to prepare ourselves for a turnaround. It was available, there were other people that were interested buying it, it had a long history of profitability. We bought it for several reasons. Number one, we wanted to be able to offer more than one product to a builder in order to have multiple product offerings gives us a much better position to win business by offering cabinets as well as flooring and combining the two together has been very successful for us in other markets.

Okay.

Second, the markets that we have in Phoenix has had, we've had such a big backlog in the installation of these cabinets that we've been a little inefficient in getting the cabinets installed properly and profitably, so this Company has a long history of being able to make installations on a timely basis and profitably, so we felt that they would help us with our Phoenix operation and they are working on that with us now. In addition, in our Atlanta operation, we have introduced the installation of cabinets and again, it has been inefficient because we did not have the expertise that was necessary to be able to install these things without having to make many many calls, and so we felt that a combination of offering more opportunities for us in Vegas plus helping us with existing businesses warranted what I regarded as a relatively small purchase price to bring in expertise and a solid business group that can help us in our business.

Okay, and did I read that you guys paid 30 million for the business?

No, nowhere near that. The business is doing 30 million.

Oh, okay, my apologies. All right. And then the other question I had was with regard to the plastics business. I've heard you refer here over the last few minutes to a new deal with one of your major customers. I just didn't get the details on that. I was wondering if you could--?

We're working with our major customers all the time to provide new and different films that they can incorporate into their products and we're trying to come up with new innovative products that we can sell to others then in the health related industry and we're working on that right now. For example, we have a competitive product to tie back, we're trying to expand that operation and we're working on that right now and making an investment on trying to improve that business. In addition, the unveiling of the stretchable laminate floor, the stretchable films for the cipher is going to be very innovative and very big and we think there are a lot of possibilities there. So there is a lot of things going on in the business and we're start of in transition.

At the same time, on the commodity film, which is basically the back sheet of the cipher we have been under some pressure from our customer but at the same time, we have entered understandings with our customer for a long term contract to provide the product at substantial quantities so we've solidified our position to make sure our machines are running and we've done it and there is -- the quid pro quo was lower prices so it's putting some pressure on us, but at the same time we're able to make money as long as the resin prices stay down.

Okay and there's no pass through arrangement or anything like that with respect to the resins?

There is a pass through arrangement. It's the same pass through arrangement we've always had.

Okay. So I guess it's capped at some--?

The point I'm trying to make is that if resin runs away and you're under pressure on the selling price, you will, until you pass through the increment, have some problems. Right now, in the first quarter, the resin prices were down and even though our selling prices were down, we're still being profitable and we think we can be more profitable as we go forward as long as we come up with some innovative products and as long as resin doesn't get crazy.

What's the lag on the pass through?

Four months.

Four months? Okay thanks. That's helpful. I appreciate it. Thanks a lot.

Thank you your next question is coming from Tom Spiro of Spiro Capital. Please go ahead.

Spiro, Spiro Capital. Good afternoon.

Hi.

On the garage business, are there any plans to downsize it for a lower level of demand over the sort of the medium term?

No.

Are you going to hang in there and see if it turns around?

Absolutely. We're making efforts now to put online a new facility that's going to have a lot of efficiencies and be able to sell the doors at better prices and make more profits, so we're going to continue working on those things. We don't think this is a death knoll for the housing industry. We think this is a downturn that has been expected and the only question is going to be how long it's going to last and we're in a position to work through it.

Thank you, and separately, on the issue of stock repurchases, you guys have pretty consistently been repurchasing shares the last number of quarters, yet out of the shares outstanding of the Company actually don't change much because I gather enough options get exercised each quarter that one offsets the other. Is that process expected to continue quarter by quarter as you go forward?

Well, we're going to continue buying back stock and as the stock gets softer, we're going to escalate the buyback. What you're seeing basically is a lot of exercise of options over the year, over the last couple of years that has increased the number of shares and so as we buy them back we get down to a lower number, but if you take a look at our published reports, you'll see that the number of shares covered by options has come down significantly and we do not intend to basically issue significant large numbers of options any longer.

Thank you very much.

Next question is coming from Mark Anderson of Axial Capital. Please go ahead.

Yes, just a quick question on SRC. Just you stated that the total contract award through the end of the contract or at least through the end of the fourth quarter will be $330 million.

Yes.

Just sort of how far into that contract are you right now and how should we think of the run-off over the next three quarters?

On the 330, through the end of last year, September '06, our revenue was about 140 million, and as Harvey said a little earlier, the difference we expect to come through the rest of this year. And I don't want to get into it by quarter because by quarter it sounds somewhat similar to how the stuff is being shipped and we're not allowed to be talking about shipments and units and things like that, but essentially, the difference between the total award and the 140 is scheduled to happen through the rest of this year.

Okay, and just I was just trying to add up what was mentioned earlier in terms of the percent of the current quarter's revenues that were part of the contract. It's roughly $70 million a good number back of the envelope to use for the SRC contract for Q1?

Yes, that's a decent number.

So I could take the 140 plus the 70 and that gets me to how far through the contract you are?

Yes.

That was my only question, thank you.

We have a follow-up question from Rob Longnecker of Barrington. Please go ahead.

With this new agreement you guys are talking about with your--.

I'm sorry, we can't hear you.

Sorry with this new agreement you guys are talking about in specialty films, is that going to actually lead to an increase in revenue as is on existing contract or is this going to keep them stable where they are right now?

I think that the volume is going to be stable for the year, but I think that the price will be at a lesser number, so that the sale price overall will be lower, even though the number of units are the same. The question then is profitability and that's going to depend on the resin prices and what other products they give us to take the place of some of the modifications in the agreement. The stretchable film is one of them.

Are you guys still comfortable with, it hasn't been talked about in a couple quarters but the kind of of $400 million run rate revenue number for this business?

Sure. That's what we did in the first quarter.

Yes, we think we're going to do the 400 run rate. The question is going to be profitability.

Right.

And so that's going to depend as I said, on what products we're selling in the product mix and the price of resin.

Okay, thank you.

Your next question is coming from [Sahid Zadeeki] of Gabelli & Company. Please go ahead.

Hi, good afternoon, gentlemen. My question, I have a question first I guess with the specialty films. To the extent that you are aware, the price decrease with the major customer was just with you guys only or is it an industry wide thing they are doing?

It's everyone.

Okay, and what is the percentage of the price decrease industry wide?

I don't think we can go into those kind of conversations. It's very difficult for us to talk about that. That's sort of confidential with our customer.

Okay, and then on the electronics segment, once we I guess kind of wind down with the SRC project, which is a significant piece for you guys, what is going to be the revenue source for you? Isn't it fair to assume that your revenue would actually decline looking into 2008, fiscal year and beyond?

Well, I said a little earlier in response to another question that the remainder of the contact for total awards will contribute essentially 190 million to the current year. Harvey talked about and we've said that we're looking forward to more business with SRC, but we clearly don't know how much that will be. We've talked in the past about all of the variables, some of which could make it a lot of business and others that could make it very very minimal, but the bottom line answer to your question is we don't have something in reserve that we're waiting -- that we're working on that unto itself will replace that. We have a continuing ramp up for the MH-60-R which will help top line and bottom line and we have a host of other things in particular in the marine radar area that are all, we hope, going to contribute to the growth, but we can say definitively right now we have a specific plan that will replace all of that.

There also will be some run-off in the SRC business. There will also be some warranties, and there's other programs that we have bid that we expect to be announcing shortly in other areas.

Okay, thank you.

There appear to be no further questions at this time, and I would now like to turn the floor back to Mr. Harvey Blau for any closing comments. Please go ahead, sir.

I want to thank you all for taking the time and effort to listen to this call and those of you who came to the meeting today. You can imagine it's very disappointing for us to have such a fabulous year in electronics and then have it offset by the building industry which came as a surprise, well not a surprise but came as more of a surprise as the amount of downturn there was in the remodeling aspect of the business. We hope to see that sometime during the year, some of this will come back and it will have a more positive effect and we'll keep on working and trying -- and offset this downturn in the building business. And we'll be talking to you the next quarter. Thanks a lot.

Thank you. This concludes today's Griffon Corporation first quarter 2007 earnings call. You may now disconnect your lines at this time, and have a wonderful weekend.