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Operator
Greetings and welcome to the Griffon Corporation second quarter earnings call.
At this time all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation.
(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.
It is now my pleasure to introduce your host, Mr.
Doug Wetmore, Chief Financial Officer for Griffon Corporation.
Thank you, Mr.
Wetmore.
You may begin.
Doug Wetmore - CFO
Thank you, Scott.
Good afternoon, everyone.
With me on the call is Ron Kramer, our Chief Executive Officer.
Before we get into the details of the call there are a couple of matters I want to bring to your attention.
First, the call is being recorded and will be available for playback and information regarding the playback is included in our press release issued earlier today.
During the call we may make forward-looking statements about the Company's performance.
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.
For additional information concerning factors that could cause actual results to differ materially from those discussed in our forward-looking statements, please refer to the cautionary statement and risk factors contained in today's press release and in Griffon's various filings with the SEC.
In addition, some of today's prepared remarks will exclude those items that affect comparability.
These items are laid out in our non-GAAP reconciliation included in our press release.
And finally, as we previously discussed, effective October 1, 2009, the Company adopted the new accounting standard regarding accounting for convertible debt.
This standard clarified the accounting disclosure for such debt instruments including separate accounting for the liability and equity components of the debt.
It also requires us to reflect our non-convertible debt borrowing rate when interest cost is recognized on the convertible instruments.
The standard was implemented retrospectively, and prior-period financial results were adjusted to reflect the adoption.
All that was reflected in an 8-K that we filed in February providing full details regarding the impact of adoption on prior reported results.
In our comments today, all comparisons made with prior reporting periods will be with reference to the results adjusted to reflect adoption of this standard.
I'll now turn the call over to Ron.
Ron Kramer - CEO
Good afternoon.
We had a terrific quarter, which reflects the continuation of several very positive operating trends in our businesses.
First, Telephonics, our defense electronics and communication business, continued with strong performance across all its business lines.
We fully expect Telephonics to continue to deliver excellent top-line performance.
Our building products business continue to show strong, steady improvement as a result of its ongoing restructuring activity, augmented by what we believe to be signs of improvement in demand for residential home-building products.
Third, our plastics business has grown sharply and captured significant market share in a challenging environment, and we believe that the plastics business is poised to continue both its growth and improving profitability.
Our consolidated financial performance reflects the overall improvement in all of our businesses.
In this quarter versus the year-ago, net sales grew 14%, gross profit grew 28% with a 250-basis-point margin increase, mainly enabled by cross-savings initiatives and improved capacity utilization.
Segment adjusted EBITDA in the quarter was $23 million compared to $13 million in the prior year, and expense remain very much under control, notwithstanding a few million dollars in costs incurred pursuing acquisition opportunities.
We showed income from continuing operations of $2 million compared to a $2 million loss in the same quarter of last year.
Our financial position remains strong.
Cash with $348 million and a net cash position of $122 million.
We've become significantly more active with respect to pursuing acquisitions.
And while we've not yet secured the right transaction, we've identified a number of specific targets to continue to deeply work on and pursue.
We believe that there's an opportunity for both large tuck-ins that would carry significantly scale and integration benefits as well as compelling cost-of-capital-driven acquisitions where we're more agnostic with respect to industry.
In the meanwhile, we're very pleased with the progress of our operating businesses.
Doug will take you through the results, but I'd like to provide a little color on each of them.
First, I continue to be extremely pleased with how Telephonics is performing.
The strong performance this quarter was driven by strength in a number of its programs, most significant contributor being the CREW program.
Work on this is for highly effective IED jamming system, which continues to be deployed with our forces in Iraq and Afghanistan, and we also continue to position Telephonics for what we consider to be a large opportunity for commercial, and particularly in air traffic management.
We recently announced the opening of the new facility for our electronic systems division to support demonstration and training for next generation air traffic systems, incorporating leading edge development and testing capabilities that advance our technologies.
We've also made a key hire, adding the Vice President of Business Development for air traffic management to further support our strategy in this area.
We remain particularly focused on the Far East in general, and China in particular.
Company's long history of involvement in China positions us well for what we believe is a very significant infrastructure development opportunity throughout the entire region.
Telephonics posted 20% growth in revenue during the quarter and maintained a double-digit growth rate and operating income while investing in both capacity [extension] and identify future business opportunities.
Finally, after the close of the current quarter, we received official notification that we'd been selected by Northrop Grumman, with the Navy's concurrence, as the supplier for an important radar subsystem on the Firescout Unmanned Helicopter program.
While we will not likely see revenue from this program for a few quarters, this is a material, significant, new and long-term program for Telephonics.
Taking everything into account, we continue to expect Telephonics to continue to perform at a very high level.
Our building products business has also demonstrated consistent improvement and poised to perform well.
Revenue for the quarter increased $3 million.
Profitability was greatly improved, and we reduced our operating loss by $8 million versus the year-ago period.
This is also seasonally the worst quarter of the year for this business.
We've reduced our cost base significantly.
Continue to be on plan with respect to consolidating our manufacturing facilities, which we anticipate completing in early calendar 2011.
We are seeing some improvement in the residential market on a large dealer base, which generally serves the contractor market, showed another consecutive quarter of growth.
Buildings products is also seeing a shift to higher-price energy efficient doors.
Margins have improved for both us and for our customers.
Building products is well positioned to benefit from the modest rebound in housing that's current and the eventual recovery.
This is a business that, you know, we think has done a really terrific job of managing, you know, through the difficult cycle and is incredibly well positioned for any real top-line growth in the industry.
Our plastics business, despite the pressures on unfavorable resin pricing, is performing very well.
Plastics revenue in the second quarter was up over 15%.
Margin pressure, primarily due to the lagging, passing on higher resin costs to our customers caused an 8% contraction and segment-adjusted EBITDA to $10.9 million versus $11.8 million in the prior-year quarter, while plastics profitability improved markedly from Quarter 1.
And we predicted-- as we predicted in our last call.
We're making significant market share gains in a number of product categories with existing customers and through winning major new customers.
We have been successful in growing our market share in Europe, which is a strong business with increasingly diversified customer base, positioning the business to improve performance.
In the domestic market we've been operating well and set a volume production record in the month of March.
While we're expecting the pressure from resin pricing to continue for the next couple of quarters, the business is on very solid ground and is making the most of the opportunities in front of it.
I'll reserve some additional comments for closing, but I'd like to now turn the call back to Doug to review the businesses in some additional detail.
Doug?
Doug Wetmore - CFO
Thanks, Ron.
For the quarter ending March 31, 2010, net sales were $314 million, increasing 14% from the $276 million reported in the last year second quarter, and each of our segments contributed to that increase.
Consolidated gross margin, the second quarter, increased to 22% from 19.5% in a prior-year quarter.
That 2009 result was somewhat low due, in part, to significant weakness in the building products business.
The margin improvement resulting from manufacturing efficiencies in each of the businesses, partially offset by the impact of low or average selling prices or building prices and by the impact of higher resin prices in plastics.
Operating expenses for the quarter were $65.3 million or 20.8% of sales, compared to the year-ago total of $55.5 million or 20.1% of sales.
The increase was due to significant increase in capability enhance for Telephonics as they position for growth, as well as addition corporate expenses, primarily related to our acquisition initiatives, as Ron mentioned.
Income from operations in the second quarter of 2010 was $3.8 million compared to the year-ago loss of $1.6 million.
Net interest expense during the second quarter was $3.5 million, down from $3.6 million in the prior-year quarter.
And I note that unlike last quarter, the second quarter of this fiscal year reflects the full interest impact from the $100 million of convertible notes we issued in December 2009.
We recorded a tax benefit in the quarter as a result of favorable closure of certain tax audits and release of the related reserves of previous-established reserves.
Excluding these one-time items, I now expect the full year effective tax rate to be in the range of 25% to 30%.
Income from continuing operations for the second quarter of 2010 was $2 million or $0.03 per diluted share, compared to a loss of $2.1 million or $0.04 per diluted share last year.
Turning to our individual segments, Telephonics revenue rose 20% to $116 million.
The increase was broad based with higher sales in electronic systems, radar and communications divisions, although the largest contribution came from the CREW contract.
Telephonics operating profit for the quarter was $10.6 million, an increase of 29% versus the prior year.
The profit was growth-- was driven by the revenue growth.
But as Ron mentioned, we also increased spending on both R&D and bid and proposal costs to execute on near and intermediate term growth opportunities.
Building products revenue for the second quarter totaled $82 million, up 4% versus the prior year's quarter.
To put that in context, we're still a little bit below the second quarter from 2008, so it's more of a rebound from last year's particularly depressed lows.
The increase was driven by improved residential demand, offset somewhat by continued weakness in the commercial construction market.
As Ron mentioned, we're increasingly comfortable with the expectation that the resident business will continue to improve.
The second quarter operating loss in building products was $3.7 million, versus the year-ago loss of $11.8 million.
The improved operating performance was driven by the increased volume, leading to improved capacity utilization and operating efficiencies, as well as to-- continuing to benefit from costs taken out of the business over the last year.
Plastics generated second quarter revenue of $116 million, up 15.3% from the second quarter of 2009.
The improvement was generated by good market share increases in Europe as well as by continued strong demand in the United States and Brazil.
We had significant new customer whims and introduced several new products, which we believe will result in sustainable growth.
Resin has continued to have a significant impact on operating results compared to the prior-year quarter.
Remember, fluctuations in resin costs are passed through our customers on a lag.
We believe the unfavorable impact of resin will persist into the third and fourth quarters of this year, but its impact will not be as significant as it was in the first and second quarters.
Plastic operating profit for the quarter was $5.1 million versus $6.6 million in the year-ago quarter, with the decline driven primarily by the impact of the resin costs.
Pressure on margins that [hadn't] resulted from under-absorption of fixed manufacturing costs in Europe in the first quarter was alleviated by the volume increase achieved in the second quarter.
Now turning briefly to the balance sheet, at quarter end we had $348 million of cash with outstanding debt, excluding debt discounts, of $226 million, so a net cash position of $122 million.
And we continue to have undrawn borrowing capacity of over $100 million at our subsidiaries.
From a working capital perspective, we're pleased that inventories declined somewhat.
Receivables increased by remain very current, and payables also increased slightly, up about $2.2 million versus the prior year.
Overall, we continue to believe that we can make further working capital improvements over time.
Finally, for the full year, we continue to expect a high single to low double-digit revenue growth rate at Telephonics.
The second quarter was obviously much stronger than this, and our assumption may prove conservative, but we don't have quite enough visibility about certain contracts to adjust those expectations at this point in time.
We continue to expect relatively flat revenue for building products for the full year.
And plastics has improved somewhat from earlier in the year, and we now expect plastics revenue to increase in the mid to high single digits for the full year 2010.
With that, I'll turn the call back over to Ron.
Ron Kramer - CEO
Thanks, Doug.
I'd just like to, you know, say that we're very pleased about the operating performance that you see this quarter.
We've built on the momentum we experienced at the beginning of our fiscal year, and we continue to look for more progress as the year goes on.
Firescout is a big win for Telephonics and can produce significant revenue for us over the life of the program.
Building products is benefiting from the streamlining and rightsizing our cost structure and is well positioned to benefit from an improving housing market.
Finally, our plastics business has ramped up its competitive posture, and we're winning good levels of market share in the tough environment.
Very pleased with the progress we've made in plastics compared to where we were at the end of our first quarter.
We continue to be vigilant, aggressive with our strategic capital deployment initiative, and we know that identifying and executing the right acquisitions has the potential to unlock significant value for our shareholders.
I'm also pleased to announce that we've hired Seth Kaplan, who comes to us from Hexcel, as our new General Counsel, further rounding out and solidifying our executive team.
Seth will be joining us later this month.
With that I guess we're ready to take your questions.
Thank you all for listening.
Operator
Thank you.
We will now be conducting a question-and-answer session.
(OPERATOR INSTRUCTIONS) Our first question is coming from the line of Arnie Ursaner with CJS Securities.
Your line is now open.
You may proceed with your question.
Arnie Ursaner - Analyst
Hi.
Good afternoon.
It's Arnie backing up for Bob.
Ron Kramer - CEO
Hi, Arnie.
Arnie Ursaner - Analyst
Well, when you talk about Firescout you used words like material, significant, two or three times.
So can we perhaps try to pin you down on how you think this could impact Griffon.
Ron Kramer - CEO
Sure.
Arnie Ursaner - Analyst
And give us some sense of potential revenue opportunity and how this may play out over the next 18, 24 months?
Ron Kramer - CEO
As I said, we don't expect o see significant revenue from it for a few quarters.
We think that, you know, it's a minimum of $100 million of business that will, you know, solidify in orders and in backlog as we go out in that 18 to 24 month period.
More importantly, it opens up both new customers, you know, and new foreign jurisdictions for us to be able to look at doing business.
It obviously solidifies, you know, what's already an excellent relationship with Northrop Grumman, and it's something that, you know, has been in the pipeline, as these programs tend to be very long development lives.
It's a-- you know, it really, you know, is a tribute to Joe Battaglia and his team.
They've worked on this for, you know, for an exceptional amount of time and effort and a competitive process.
We believe, and we've said it all along that, you know, Telephonics has, from a technology standpoint, a terrific position and a terrific technology platform to grow from.
Firescout is, you know, one of the programs that are in that development pipeline, but it's a-- you know, something that both the Navy has signed off on, and we think it has other applications in the unmanned aerial vehicle market that will happen with other branches of the service and in other places around the world.
So we're actually quite optimistic that beyond just the initial Firescout program that the potential here is significant.
Doug Wetmore - CFO
Just to supplement one thing that Ron said there.
You know, we disclosed in our press release that the order backlog is $433 million at March 31st.
That does not include a penny associated with the Firescout because we are not yet at that phase, which is why we say this will be at least another couple of quarters before we see any significant amount of revenue associated with the win.
Arnie Ursaner - Analyst
Okay.
Staying on Telephonics for another moment, do you have a quick breakdown of military versus commercial as a percent of revenues?
And are there any major programs entering a runoff phase or about to end?
Doug Wetmore - CFO
Well, it's-- that's a very good question.
The CREW program that we've been benefiting from, you know, which is-- has kind of jumped up savings.
If there are no additional orders, other than those we already haven't booked, we would it to tail off in the fourth quarter of this fiscal year.
Not in a manner unlike what we had with the other contract a couple of years ago for IED jammers for the troop transport.
The-- I think it was Syracuse Research Corp at that point in time.
So there's always something that is cycling off, but you're never quite certain because it is very conceivable that we could get additional orders for that product.
The other-- the material, you know, US arm-- the US Government and so forth, you know, we've looked at it a number of different ways.
There's always a little bit of uncertainty as we're selling to prime contractors, whether it's moving on to an arm of the US Government or perhaps an international sale, it's sometimes unclear.
But the military or Coast Guard was probably north of 70% to 75% of the business historically.
That may fluctuate year to year, but that's probably a pretty good number to use as a long-term average.
Arnie Ursaner - Analyst
One or two more mechanical questions.
If I can't then I'll jump back in queue.
For your SG&A were there any fees for deals that you were pursuing and chose not to and took one-time expense related to those fees?
Doug Wetmore - CFO
Sure.
I wouldn't characterize them as one-time expense because, as we've said, and I'll say it, you know, it's a good segue, you know, we're in four businesses.
In addition to the three operating businesses, our fourth is, you know, looking for acquisition opportunities, and that is going to be an ongoing process in this quarter.
I believe we expensed $1.5 million of deal-related things.
You know, we're very active.
Continue to be very active.
And those expenses will be ongoing, and hopefully the offer-- the acquisition opportunities that'll flow from them will be significant.
Arnie Ursaner - Analyst
Okay.
Doug Wetmore - CFO
We've got a balance sheet capable of buying businesses significant in size relative to what our market cap with the Company represents.
And we've been active in that process, both in businesses that are complementary to our existing companies, as well as outside of that.
And we hope to continue to do that.
And all of those costs in the quarter, 99% of those costs, were in connection-- incurred a connection with deals that will not proceed.
Arnie Ursaner - Analyst
Okay.
My final question on behalf of Bob.
Plastics, you highlighted you are definitely seeing market share gains.
You talk about expanding relationships with existing customers and talk about a number of new customers.
Can you give us a little better feel for the types of programs or types of customers?
I think you mentioned Europe.
And are these away from the more traditional diaper type market opportunity you've been focused on?
Doug Wetmore - CFO
There's still-- you know, the diaper business is the biggest portion of our plastics business.
It's historically averaged about 60% to 65%, and fem care is the second largest with about 20%.
And then you get down to some fairly small pieces.
So obviously they-- when we're looking at volume, the biggest opportunity to gain additional volume is in the diaper business.
But having said that, also fem care is very attractive.
Some of the big wins and pick-up in business was really spread across, but the biggest portion of that win was in diaper-related business.
Arnie Ursaner - Analyst
I'll jump back in queue.
Thank you very much.
Operator
Thank you.
Our next question is coming from the line of Mr.
Zahid Siddique with Gabelli & Company.
Your line is now open.
You may proceed with your question.
Zahid Siddique - Analyst
Hi.
Good afternoon.
Ron Kramer - CEO
Hi, Zahid.
Zahid Siddique - Analyst
A couple of questions.
First on the resin prices, what's the average price that you're seeing out there?
Ron Kramer - CEO
Well, I know looking at the chemical data that's published, the average price right now is in the range of, like, $90 to $93.
You know, there's a mix, but that's the published price.
Zahid Siddique - Analyst
And you expect that to stabilize over the next couple of quarters?
Ron Kramer - CEO
I'm sorry.
There was some guy talking.
Doug Wetmore - CFO
There was somebody else that seemed to have been on the same line, Zahid.
Could you repeat that
Zahid Siddique - Analyst
Sure.
On the resin you expect the prices to stabilize at the $0.90 level, or do you think-- do you expect them to continue to increase?
Ron Kramer - CEO
No, I think-- you know, obviously if you're looking at the future and it's predictive, Management expects that we'll probably continue to see some upward price pressure.
It probably won't be as steep as we've seen over the last couple of quarters, so the pace of the increase will diminish.
And it's our understanding that there-- over the course of either the end of our third fiscal quarter or early on in the fourth fiscal quarter that some additional manufacturing capacity is going to be coming online, which will have a tendency, all things being equal, of placing some downward price pressure on resin or at least introducing a period of price stability.
Zahid Siddique - Analyst
Okay.
And then on the garage doors, I think about a month ago you were in the news with regards to looking at some window company.
And I wanted to get any updates on that.
Ron Kramer - CEO
Yes.
We-- you know, we're actively pursuing a bankrupt entity, which we decided not to purchase.
And should-- as I said, we're very active, looking at both complementary and additive acquisitions to Griffon.
You know, in that case, that was, you know, a transaction of about $450 million.
We've got capacity.
We've looked at deals from, you know, $450 million up to $1 billion, well within the sweet spot of our existing financing capability.
So, you know, we're disciplined, and we're patient, and we're trying to do things that we think are going to move the needle for Griffon.
The, you know, reality is, is that the debt capital markets have become, you know, incredibly bland in--you know, in the last several months.
So while we've positioned our Company, you know, over the last two years to be capable of buying, you know, assets, there's, you know, an enormous amount of private equity money getting put out into investments.
And there's a very active leverage loan we'll market.
So these are all highly competitive positions that, you know, we find ourselves in.
And, you know, we're going to continue to look to expand our companies.
But, you know, it's a very crowded, private market out there.
Zahid Siddique - Analyst
Okay.
And just a last question on the garage doors.
For the remaining two quarters what kind of operating income should we look at or expect on a run-rate basis maybe?
Ron Kramer - CEO
We, you know, don't give guidance.
What we've said, you know, is that our garage door business has, you know, come through what we're certain is the worst part of the recession and storm in the housing markets and we have made money through that entire period.
Our best quarters in our fiscal year historically are ahead of us.
And in our worst quarter we've, you know, managed to run this business on a smaller overhead base, on a smaller level of top line and still maintain profitability.
It only gets better for the balance of our fiscal year.
Doug Wetmore - CFO
And I think if I could just amplify, without giving guidance, there's two things to consider.
First and foremost is, you know, the mega plan, which is really the consolidation of the facilities, is still on schedule.
We're probably about 70% complete.
But we're not seeing those savings as yet.
Those are really savings that will roll in in 2011 and 2012.
And the reason we're not seeing those savings yet is that we still have three plants that are operating, and you really don't get the savings of a plant consolidation until you've padlocked the door of the closed because you still have security, insurance, utility costs and so forth.
And each of the plants that's intended to be closed is still actually operating at this point in time.
So that's some insight into the future.
I think the building products group did an excellent job of taking costs out of the business at a-- in a very difficult time, and those actions were taken over the course of fiscal 2009 and were anniversarying some of the benefit of those savings as we progressed through fiscal 2010.
And the amounts that we anniversary will diminish in the third and fourth quarters of the year, so it-- the-- you know, if you look at the revenue, we didn't increase any revenue expectations for building products and on a year-to-date basis.
They're basically flat.
They're still actually down about $6 million.
So don't annualize the profits that we've earned to date in adjusting your models because that would be overly optimistic at this point in time.
Zahid Siddique - Analyst
Okay.
Thank you so much.
Operator
Thank you.
(OPERATOR INSTRUCTIONS) Our next question comes from the line of Mr.
Marty Pollock with NWQ Investments.
Your line is now open.
You may proceed with your question.
Marty Pollock - Analyst
Yes.
Hi.
Some really nice numbers.
If I may just-- as I look at Telephonics, you know, we've got strong year-over-year growth.
The level of revenues that we're seeing in this quarter, sequentially should we be seeing that type of number to continue, effectively keep on that very strong year-to-year growth going?
Doug Wetmore - CFO
Well, Marty, as I mentioned in response to an earlier question, the CREW contract, which has contributed significantly to the growth, although it's not been the only element to the growth.
Unless we see additional orders come in from those we currently have in the log, we would expect that to decline somewhat in the fourth quarter.
And that's why we've said that-- in my comments that we continue to expect Telephonics to grow top line in the high single to low double digits for the full year because of the uncertainty over do we do-- do we get additional orders for CREW.
You can say that's probably a little bit conservative based on what they've done to date, but I think it's probably still appropriate at this point in time.
And remember, also in that regard, we had a very significant surge in the fourth quarter of fiscal 2009.
Again, some of it was crew related, so the comp gets very difficult in that fourth quarter.
Marty Pollock - Analyst
Oh, I see.
I think I must have been off.
I had another call stop me, and I may have missed those comments.
Thank you for clarifying.
Secondly, if I may, building products' December revenues near $100 million, when you look at the quarterly-- seasonal quarterly impact and possibly even the restock that might be taking place, I'm just wondering as we look at March-- I'm sorry, the June and September quarters, should they be stronger than the December quarter?
I mean, historically is that pattern better for June and September?
Ron Kramer - CEO
Look, you know, we're optimistic.
There are a couple things that I'd say.
First, April continues to be strong, exceeding both our prior year and our budget, so that's as much visibility as I think we have is that the business feels like it's bottomed, and, you know, we were prepared for the worst.
And, you know, any stability, let alone any growth in housing, we think we're well positioned.
The other thing that, you know, I'd say that is, you know, really a big win for building products, you know, for the balance of this year and hopefully going forward for many years is we were named as the exclusive supplier to (inaudible), which is, you know, a significant competitive victory for the team.
Steve Lynch has done, you know, a terrific job of managing that business, and that's, you know, something that, you know, we think can add significantly to our growth.
And was, you know, (inaudible) an unexpected but very pleasant surprise.
Marty Pollock - Analyst
I see.
Doug Wetmore - CFO
Marty, to put it in context to the second quarter, Ron mentioned it as our smallest quarter of the year in a revenue perspective.
Typically the second quarter represents somewhere about between 20% and 22% of the annual revenue.
So, but I think there's a couple things that justify some-- caution may be too conservative of a word, but still figuring out the impact of the exploration of the housing credit and how that impacts the market.
Ron Kramer - CEO
Right.
And it remains to be seen whether it gets extended.
It should be, but we'll see whether that, you know, resonates.
Doug Wetmore - CFO
So there's a number of balls up in the air that I think speak more to caution rather than excessive optimism at this point in time.
Marty Pollock - Analyst
Thank you.
Operator
Thank you.
Our next question is coming from the line of Mr.
Tom Spiro with Spiro Capital.
Your line is now open.
You may proceed with your question.
Tom Spiro - Analyst
Yes.
Tom Spiro of Spiro Capital.
Good afternoon.
Ron Kramer - CEO
Hi.
Doug Wetmore - CFO
Hi, Tom.
Tom Spiro - Analyst
Hello.
Just a couple of questions on the strategic acquisition program.
Ron, is your preference one big deal or several smaller ones?
Ron Kramer - CEO
Yes.
I wish that it was as easy.
We look at a lot of things, Tom.
You know, the preference is to do good deals.
I'll take them in whatever shape we can get them.
But, you know, having said that, to move the needle, our preference is to look for something bigger than smaller.
And, you know, there has been a lot of activity in this year, you know, 2010.
You know, really driven in our minds by the-- you know, the significant increase in availability in leverage finance again.
The part that we're optimistic about is that there's, you know, an enormous amount of flow coming out of private equity hands.
And there's, you know, clearly capital gains, tax increase and potentially carried interest tax increases, which, you know, may drive, you know, a-- more transactions to look for a buyer.
And, you know, we're in the flow with lots of different businesses in lots of industries.
And the preference, again, would be to look at something bigger than smaller.
Tom Spiro - Analyst
You mentioned earlier in the call that there was some discussions with respect to a company in bankruptcy, so I'm inferring from that that turnarounds are projects we would take a look at.
Ron Kramer - CEO
You know, look, the premise is value, and, you know, we've built up a Management team at corporate that is disciplined, is thorough and works quite well with our existing operating businesses in evaluating opportunities.
We would-- you know, the bankruptcy cycle has not yielded the incredible, you know, opportunities that we would have thought would have happened a year ago.
And the amend and extend and the opening of the capital markets has given lots of companies the chance to repair their balance sheets.
And as a result, the ability to buy great assets through the bankruptcy process, you know, for someone like us who is not a strategic corporate debt insider is remote.
And so we're really, you know, more focused on our divisions of existing public companies that are non-core, private equity portfolio companies that effectively go from private to public through us.
And then what I would characterize as just general opportunities, things that come across our attention as value.
And then, of course, from our existing businesses there's an ongoing business development flow of opportunities, both large and small, that we continue to evaluate.
Tom Spiro - Analyst
When we look at acquisitions away from our existing lines of business, and here I'm not trying to be argumentative, just trying to understand, what do we bring to the table besides money?
Ron Kramer - CEO
You know, we think we bring a discipline in making an investment and, you know, having the ability, as I think we've proven what we've done in positioning and refining the businesses that Griffon already owned in terms of both the building products, plastics and, you know, as we continue to look at shaping the development plan for Telephonics.
So, you know, your point, which, you know, is that the-- that money alone, that there's plenty of it and there are plenty of buyers out there, both corporate and private equity, and, you know, our ability to source opportunities.
And, you know, we've seen many businesses that-- you know, that we like.
We've also seen some processes that we don't like.
And, you know, that, you know, auctions are never, you know, an easy way to buy anything.
And by definition you've overpaid when you when.
So it's-- you know, it's an ongoing, you know, trying to participate, find something original or find a transaction that's, you know, somewhat off the beaten path.
Tom Spiro - Analyst
Well, thanks much and good luck.
Ron Kramer - CEO
Thank you.
Doug Wetmore - CFO
Thank you.
Operator
Thank you.
At this time there are no further questions.
I would like to turn the call back over to Management for any closing comments.
Ron Kramer - CEO
Appreciate you all listening and we continue to work at building the Company.
You know, they're volatile times, and while the economy, you know, has not repaired all of its issues, you know, we think Griffon is incredibly well positioned to take advantage of the global markets and to be able to put our balance sheet to work.
So appreciate it, and we'll speak to you next quarter.
Doug Wetmore - CFO
Thank you very much.
Operator
Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time.
Thank you very much for your participation.