Griffon Corp (GFF) 2011 Q1 法說會逐字稿

Greetings and welcome to the Griffon Corporation firs quarter 2011 financial results conference 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).

It is now my pleasure to introduce your host, Doug Wetmore, Chief Financial Officer of Griffon Corporation.

Thank you, you may begin.

Thank you, Joe.

Good afternoon, everyone.

With me on the call is Ron Kramer, our Chief Executive Officer.

Before we get into the details, there are a couple of matters I want to bring to your attention.

First, our call is being recorded and will be available for playback, and details regarding the playback are provided in our press release issued earlier today and on our website.

Secondly, during this call, we will 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 from those discussed, you should refer to the cautionary statement contained in today's press release, as well as the risk factors we discuss in our various filings with the SEC.

Finally, some of today's prepared remarks will exclude those items that affect comparability between reporting periods.

These items are laid out in our non-GAAP reconciliation, which is included in our press release.

Now, I'll turn the call over to Ron.

Good afternoon.

I'm very pleased to report we've begun the year with a strong first quarter.

I would like to run through some of the financial highlights first, and then I'll give you a little color on each of the businesses.

Our operating remarks include Ames True Temper for the first time.

We acquired Ames on September 30th, 2010, and report their results along with those of our Clopay Door business and our home and building products segment.

Consolidated revenues for the quarter grew by 36% to $414 million, driven by the addition of Ames and augmented by our other businesses.

On a pro-forma basis, as if we had owned Ames True Temper for all periods being discussed, revenues grew 5%, driven by 4% growth in home and building products, and 16% revenue growth in plastics.

Segment-adjusted EBITDA totaled $40 million, compared to $25 million reported in the prior year, and was consistent with the $40 million level in the prior-year quarter on the pro forma basis.

Our normalized earnings-per-share rose by 44% to $0.11 versus $0.7 last year, and our balance sheet, with $138 million of cash and $400 million of net debt, remains strong.

We are pleased with our financial performance, and as we look at the individual segments, you'll see that each saw a dramatic increase in profitability.

Importantly, there is a good opportunity for each of them to get even stronger.

Each of our businesses is in a position and has a plan to capture opportunities in their respective markets.

This is particularly true for the home and building products segment.

With respect to our doors business, while residential customers continue to be under pressure, we are encouraged that we continue to make progress in all aspects of our door business.

In the meantime, we are continuing to make this business more efficient.

Our plant consolidation project is on track to be completed in the second quarter, and is expected to produce annual cost savings of $10 million, which we will begin to realize in the second half of this fiscal year.

While there are signs that we are at or near the low point in the housing cycle, this business is now well-positioned to perform at continued low levels of revenue and remain profitable.

We think we can grow our business without a solid recover, and when the recovery ultimately does come, we'll be prepared for a sharp increase in both revenue and profitability.

The other piece of the home and building product segment is, of course, Ames True Temper.

Ames' business continued to grow during the quarter versus last year on strong sales of snow tools and wheelbarrows, two of its key categories.

We're expecting relatively light integration process over the next few quarters.

We're confident that the infrastructure of the business is well-contemplated in that the business itself is on a solid footing.

We believe that Ames is one area where tuck-in acquisitions make sense, and we have expanded our acquisition-search activities, and have identified and begun to approach some smaller but promising targets for further evaluation.

Telephonics performed well.

While first quarter revenue was slightly below last year, mainly due to an anticipated reduced rate of production for the C17 program, revenue was in line with our expectations.

We achieved a solid increase in order backlog in the quarter, which stands at $424 million, up 13% versus December, 2009.

Telephonics' profitability improved sharply in the first quarter as a result of a combination of favorable sales mix and a reduction in SG&A which is partly a function of timing on a contract activity, and partly due to lower R&D expense in the quarter, compared to the prior year.

Our core business in intelligence, surveillance and recognition is benefiting from a higher priority for funding than many other budget categories.

This is reflected by the strength in our electronic systems business.

Our radar products continue to set the standard for the marketplace, and we're seeing good forward-contract activity on a number of key programs from both military and homeland security customers, as well as commercial customers.

We're confident Telephonics is well-positioned for another strong year.

Our plastic business also performed well during the first quarter, revenues increasing 16% versus last year.

We think this business will grow stronger as the year progresses.

We have gained share in an environment that is seeing inventory draw-downs.

We have improved our margin even in an environment where resin pricing continues to impact profitability.

I'm pleased to note that we grew our segment EBITDA in plastics at nearly 4 times the rate of our sales.

Our efficiency levels improved with our volume, particularly in Europe, and our economies of scale have enabled us to mitigate the negative impact of resin cost rising.

We have effectively captured new customers, and launched new products, and our competitive position is as strong as it has been in this business.

We are expecting it to accelerate as the year progresses.

I will now turn it over to Doug to go through the details of our financial performance and come back after he is done.

Thanks, Ron.

As we noted in our press release, we have reached $0.11 per share of normalized earnings against last year's adjusted level of $0.07 per share.

Consolidated gross margin in the first quarter decreased to 21.2% of sales versus 23% of sales last year.

I have to point out that without $11.4 million of cost -- excuse me, without $11.4 million of cost from the sale of inventory, recorded at fair value for the Ames acquisition, gross margin improved to 23.9% of sales.

The improvement in margin was mainly a function of product mix, due to the inclusion of the Ames business, which operates at a higher-than-average margin.

We expect to have an additional $4 million of similar inventory costs in our second quarter, meaning the cost of accounting for the acquisition -- acquisition-inventory accounting, and that will complete -- the $4 million in the second quarter will complete the recognition of such inventory costs, accounting for the $15 million I mentioned in our full-year 2010 call last November.

Selling, general and administrative expenses for the quarter were $80 million, or 19.4% of sales, versus $62 million last year, or 20.3% of sales.

The positive shift, as a percentage of revenue, was due both to the impact of the Ames acquisition, as well as some efficiency gained in the plastics business on significantly higher volumes in the Telephonics SG&A spending that Ron previously mentioned.

Income from operations in the quarter was $6.0 million versus $7.3 million last year.

However, adding back the $11.4 million of cost of inventory that I just mentioned and removing restructuring cost from both years, normalized income from operations totaled $18.8 million versus $8.3 million in the prior-year quarter, representing growth of 126%.

Net interest expense during the quarter rose by $8.2 million as a result of the debt incurred in acquiring the Ames business.

Also in the quarter we recorded an income tax benefit of $1.4 million relating to the loss from continuing operations.

I note that included in our results are $0.02 worth of restructuring expenses compared to $0.01 in last year's quarter.

Both periods -- both quarters, this year and last year, included $0.01 of discreet tax benefits.

Now, with respect to our segments, home and building products revenue totaled $198 million, double the year-ago level of $100 million, reflecting the contribution from the Ames True Temper business, as well as growth in our door business.

On a pro forma business, as though we had owned Ames True Temper for all periods being discussed, segment revenue increased 4$, which was ahead of our expectations for the quarter, with near-equal contribution of growth from both tools and doors, and that growth was driven mainly by volume growth.

First quarter segment-adjusted EBITDA was $17.5 million, an increase of 67% versus last year's $10.5 million, driven mainly by the inclusion of the Ames results.

The result was just below our expectations for the quarter.

On a pro forma basis, segment-adjusted EBITDA decreased about 30% compared to the prior-year quarter.

The decline was driven by a combination of higher input costs at both Ames and Clopay Doors, as well as a decline in Ames True Temper receipts under the Byrd Amendment.

Byrd Amendment receipts represent anti-dumping compensation from the US Government, and such decline was expected as the period of such compensation is essentially complete.

Also, in evaluating the first-quarter results, it's important to remember that our door business had a significantly profitable first quarter of fiscal year 2010, when it earned nearly $10 million of EBITDA compared to a full-year fiscal 2010 result of just under $20 million of EBITDA.

Turning to Telephonics, revenue in the first quarter was $98.3 million, a decline of 5% versus last year's $103.6 million.

The reduction is due primarily to the expected reduction of deliveries under the C-17 program, as well as the transition of the Automatic Radar Periscope Detection and Discrimination Program from development phase to production phase.

Backlog, as Ron mentioned, was up 13% versus the prior year to $424 million, of which about 70% will be realized in the next 12 months.

Segment-adjusted EBITDA at Telephonics increased 44% to $12.4 million versus last year's $8.6 million.

The result was ahead of our plan.

At the time we released full-year 2010 earnings, we commented on the excellent momentum plastics had going into 2011, with both deepened relationships with existing customers and new customer wins, and first-quarter results support our confidence.

Plastics generated first-quarter revenue of just under $118 million, an increase of 16% versus last year's $102 million, driven by volume growth in all geographic regions, and the benefit of a passthrough of higher resin costs in customer selling prices.

Segment-adjusted EBITDA in the quarter was up 64% to $9.8 million, versus $6 million last year.

The year-over-year profit improvement resulted mainly from volume growth, most notably in Europe, relative to the prior-year quarter.

Based on the current quarter's results, and looking at our -- at the full-year guidance that we provided in November, right now we're looking at the home-and-building product segment to grow topline in the low single digits.

Telephonics is expected to grow in the mid single digits.

We had contemplated the decline in the C-17 program in our guidance before, and we expect plastics to grow in the high single digits, and the only caveat you have with that is that, obviously, plastics revenues will fluctuate with cost-of-resin.

With that, I'll turn the call back over to Ron.

Thanks, Doug.

While there's clearly no lift in the broader economy, we think our businesses have gotten the year off to a terrific start.

Each of the companies in our portfolio is well-positioned for the stagnant market conditions, and we continue to believe that the economic headwinds that we're experiencing are going to be there for a while, and in spite of that, we see our businesses performing at levels that give us a great deal of comfort about what the future outlook for this Company can be.

The Ames acquisition is working.

We're very pleased with the progress we've made, and we believe that each of our businesses has a long-term future that looks extremely good.

We have significant, sustainable competitive advantages.

Our infrastructure footprints continue to be refined, the improvements in the building product segments will start to show as we finish off the mega-plant transition, which finalizes in this second quarter, and we have built the management team that are independent and running the operating businesses, and at the corporate level, we have the right skillset to help each of our portfolio companies with their strategic development, our balance sheet remains strong, we continue to focus on our risk-management and our access to strategic capital in order to enable us to deliver superior returns.

We still think that there are opportunities for us to grow.

Acquisitions are still very much in our focus, and with that, we'd like to throw open the call to your questions.

Thank you.

We will now be conducting a question-and-answer session.

(Operator Instructions).

Our first question is from Bob Labick with CJS Securities.

Please go ahead with your question.

Good afternoon.

Hi, Bob.

Hi.

Why not start with Ames?

So, obviously, as you said, it's off to a good start.

Could you tell us about the initial integration, what have you learned new about it that you may not have seen before you got it in, and how has that shaped your thinking about the growth opportunities there and maybe synergies or shared best-practices, and what do you see going forward in the next couple of quarters?

Sure.

First, the most important thing, which Doug touched on in the financial review was the comparison from Clopay's first quarter last year, which was an exceptionally good quarter, tax-driven buying going on in the home market, and low commodity costs, so as we've said, the Ames business, which is combined with Clopay from a reporting segment purpose, doesn't truly reflect what we see as the continuation of Ames' business plan, which is operating as we expected at the time of the acquisition, and as I think we've pointed out in prior calls that Clopay's first quarter of last year was not to be annualized, nor was it proven out over the balance of 2010.

We still look at 2011, that Clopay is doing well, has the potential to succeed.

Its levels of profitability that it achieved in 2010 and that the Ames business, as evidenced in this quarter, is off to a very good start.

What we've learned in the process is that as the overall housing markets stabilize and as the overall economy improves, we're optimistic that Ames can grow its topline.

I think both those comments are things that we look forward to happening in the balance of the year and into the future, but the variabilities of weather, we get the benefit because of our snow business, but the pattern of the snow, there's an enormous amount of snow in the US, for those of you who followed the snow in Canada, where we're dominant, there's very little snow in Canada.

So, the mix of the business is continually shifting, but the pattern is positive and, as an acquisition, it has been working.

We have always intended to run the companies on a standalone basis.

They have found synergies which we have identified on best-practices on purchasing, on insurance, and we're optimistic some of those will start to flow through as the year progresses.

Okay, great, and you touched on it, obviously, the commodity environment has changed a little bit.

Can you just discuss what opportunities you've had and what package you can do to combat the rising seal and if there is any pricing you can take, or where you see offsetting those increases?

Bob, Ron just alluded to the fact that we do see some opportunities for synergies in the sourcing area, particularly, between building products, but also plastics and Ames, and we hope that we can leverage some of that to mitigate the effect of some rising commodity prices such as in steel and in resin.

I think at the same point in time, you have to selectively work on passing through price increases as and when appropriate, and oftentimes those are involving negotiation with customers, and there have been price increases passed through.

It remains to be seen whether we'll have to do additional price increases in the future if steel continues to rise notably.

Nothing has changed in terms of passing through the cost of increasing or, for that matter, decreasing resin cost to plastics customers, that's unchanged, so don't interpret my comments to somehow be changing the environment for plastics.

Okay, great, and then jumping over to films there, I think there's a part of the regular CapEx cycle, you have some CapEx there, certainly this year.

How much of your CapEx, currently, is the regular, ongoing maintenance?

Are there plans for growth CapEx in films, and are there other, international, new-market opportunities for films to grow in over the next coming years?

I think we have mentioned on the earlier calls that we always talk about the CapEx being lumpy, most notably in building products and plastics, and this is a year where we are, in fact, undertaking a couple of initiatives to drive future growth in plastics.

I would say that roughly the overall CapEx in the first quarter, somewhere between 55% and 60% of that was in plastics, and that's the first tip of -- or the first portion of the spending was some initiatives that we have underway.

Those are in the United States, they are also in other countries around the world in which we operate, and they are all targeted at meeting existing customer demands and allowing us to meet known future demands from customers.

Great.

So, very little of it this year is what you would characterize as "maintenance CapEx." A lot of it is new initiatives or increasing capacity.

We see the potential to grow that business by the CapEx that we have been spending and we think that as the year progresses, there's the potential to see that in both new-customer as well as expansion with existing customers.

Okay, great, and then you have a lot on your plate as well on Telephonics, with the bidding environment out there and then some new wins like Fire Scout that you have.

Could you just lay out the milestones that you have over the next 12 months or so for investors to focus on in Telephonics?

I think the broader milestone for Telephonics is, their backlog is growing in spite of what's a challenged defense budget, which says something about their core radar technology and the ability for them, as a maritime provider, particularly helicopter-driven programs, to continue to play an important role both domestically and internationally, so while the environment may not be giving us any lift, Telephonics is very well-positioned on legacy platforms, and that the core of its business, in terms of its radar and its communication, is going to continue to have a position with primes.

We think the business is very well-run and very well-positioned to be able to grow, and there's not going to be a remarkable topline growth, it's just going to be the continuation of the trend of seeing a consistent high single-digit growth and the ability for us to continue to build backlog.

Just to clarify, mid single-digit.

Mid single-digit.

I'm being more optimistic.

Okay, great.

I'll let others have questions.

Thank you very much.

Thank you, Bob.

Our next question is from Zahid Siddique with Gabelli & Company.

Please go ahead with your question.

Hi, good afternoon.

A couple of questions.

First, you talked about home and building products business.

The fact that revenue is increasing, which we think is great news.

What I wanted to find out is, in terms of the EBITDA, you talked about $17.5 million in total EBITDA.

How much was the EBITDA within the (inaudible) segment, or part of the total segment?

You know, we've put those together in one segment, and really we can't justify reporting that as a single segment if we break out the profitability, but if you look at last year's results for Clopay Doors standalone, it was fairly significant.

It was just under $10 million, and we've talked about that declining overall.

We don't quantify that amount, but it was a non-insubstantial decline getting back to a more normalized level.

Was it at least profitable?

Yes, definitely.

And we've said Ames is tracking to their plan.

Yes, we're basically just slightly behind the EBITDA plan for the first quarter of this year, according to our internal budgets.

Okay.

Great.

And then I remember last time when you were on the call, you talked about the ATT acquisition, the Ames True Temper, and if I recall, you paid about 7.5 times or 7, 7.5 times trailing EBITDA.

In that calculation, in that EBITDA number, did you exclude the Byrd payments, the dumping-related payments, or was that part of the EBITDA?

No, we did not adjust for that on the -- we knew that they were going to decline because of the Byrd Amendment compensation was known to be tailing off either this fiscal year or next fiscal year, but it was in that -- it was in the numbers, and we did not adjust for that in terms of discussing, nor did we adjust for them in calculating our pro forma and in how we arrived at saying that the acquisition would be accretive trailing twelve months of June 30th versus trailing twelve months of Griffon reported standalone.

And what is the timing and the size of the incoming payments?

The payments always come in in the fourth calendar quarter of the year, historically, for Ames.

In the past, it was several million dollars, and it declined to less than a million this year.

That's a timing issue, but either way, it's a run-off, and it's non-recurring.

I go back to -- so, even with all the noise and the numbers and the inventory expense which could be confusing to someone who doesn't understand purchase accounting, but we continue, Ames is performing for the quarter as expected.

Okay, one last question, also with regards to the ATT acquisition.

How did you adjust the purchase price with regard to the pension dynamics of ATT?

I believe ATT had about $60 million underfunded.

Similarly, how did you go about adjusting that in your purchase price?

You assume the liability, and it's just -- you bring their balances in, you fair-value the assets, so you get a valuation of what that pension liability was on the day of close, and that's disclosed -- it's an element of the overall pension liability for a qualified defined-benefit plan that's in our footnotes to our 10-K.

But if there were no pension liability, would you have paid a higher EBITDA?

We're dealing with a theoretical.

We took into account the pension liability fully in arriving at the purchase price.

Okay, you did.

Okay, thank you.

Yes.

The next question is from Bill Jones with Singular Research.

Please go ahead.

Hi, guys.

Hey, Bill.

I want to ask you -- you talked a little bit about passing on higher costs with price increases, and I think on the last call, you mentioned a price increase in the door segment that would be implemented to benefit the Q1 versus Q4.

Maybe you could talk a little bit about the ability of passing on higher prices in the new Ames business, as well?

In the Ames business, it's very rare to pass through a price increase mid-season.

The time for negotiating price increases with customers is during the course of line reviews, which take place anywhere from six to nine months before the season in which the tool is in the retail location.

So, right now, Ames is working on price increases for, let's just say, this time a year from now.

It would be very rare that you would have an interim price increase.

So, their focus at the present time is to leverage their sourcing as best they can, doing constant make-buy analyses, which is something that they have done very well for the past several years, and sourcing as effectively as they can and taking advantage of opportunities where they do, in fact, have an opening to pass through price increase.

But from the Ames perspective, you shouldn't contemplate interim price increases in terms of driving revenue growth.

Okay, and then in the Telephonics business, there was a pretty significant increase in the backlogging, and I thought maybe you could add some color there.

It's across a number of different programs.

The one good thing is, there's no one individual program.

The bad thing is, there's no one individual program.

But Telephonics has historically had this order backlog that spans a number of different programs, and as Ron mentioned in his comments, we continue to be very successful in terms of not only winning new business, which is in various stages, but also continuing to serve under existing platforms, and it doesn't contemplate -- there's nothing in the order book for things such as the Fire Scout, because as we said in the last call, we don't expect that to be a fiscal 2011 item, that's more like a fiscal 2012, and we would not have anything in the backlog yet for that.

Great, great, that's helpful.

And then on the last call, you guys mentioned a pretty significant project that you were bidding on.

I believe it was in Hong Kong, in an air tower.

Maybe you can give us an update on that?

Sure.

We were notified yesterday that we were unsuccessful in that bid, which is disappointing, but not something that was in our outlook for the year, and doesn't change our broader strategy of pursuing other opportunities in China.

We have been successful at selling 20 ACC and Super-ACCs in the China market over the last 25 years.

We continue to believe that there is enormous infrastructure and that we'll be able to compete for those non-gateway city opportunities, but in this case, the incumbent was the unsuccessful winner, and while we haven't gotten all the details, it was at a price that we wouldn't have made money on the contract.

So, we're disappointed, but life goes on.

I think the important thing to stress is, there was nothing in our expectations for 2011 or beyond for the Hong Kong contract, so it does not have any impact on our guidance for the year.

Okay, right.

I had understood that would be potential upside.

Okay, I think that answers my questions.

Thank you, guys.

The next question is from Mason Stark with Ballast Capital Management.

Please go ahead with your question.

Hi.

Good afternoon.

Hi.

You mentioned that the Telephonics SG&A was down partly due to a contract timing.

Could you flesh that out a little bit?

It was more along the lines that the revenue was down in terms of contract timing, but the expense, really, we have a favorable comparison versus the first quarter and actually the second quarter of last year.

We had fairly high levels of bid-related costs and R&D related costs associated with air traffic management, as the Hong Kong proposal that Ron just mentioned, and now those costs have been incurred, and so we have a favorable comparison.

We had no comparable costs in the current quarter.

Okay, so you know what I'm probably going to ask next.

Should I be extrapolating that out a little bit?

I mean, usually, on a fiscal-year basis, your EBITDA margin in Telephonics is somewhere just north of 12.5% -- excuse me, 10.5%.

Should I be expecting that to bump up a little bit over the course of this year?

No, as I just mentioned, the first and second quarters will have favorable comparison versus the prior year.

I think the history of Telephonics has proven out that they basically stay in a fairly tight range of between 10% and 11% depending upon product mix, so I think at this point in time it might be a bit premature to just strictly extrapolate that.

Understood.

Thanks, gentlemen.

The next question is from [Tom O'Shea] with Capitol Hill.

Please go ahead.

Apologies if you already said this, but I think you mentioned you were going to be slightly below your expectations for EBITDA, and on the November call you said you would be in excess of 190 for the fiscal year, which is pro forma 181.

Is that still what you're looking for?

We said that home and building products was slightly below expectations for the current quarter, and by a fairly nominal amount, but I actually said that Telephonics exceeded our expectations for the quarter, and basically plastics was pretty much in line with it.

Plastics is the one that has the greatest degree of variability because of resin costs, so in an individual quarter, that's the hardest one to predict.

Okay, so are you reiterating the 190?

[crosstalk]

In segment-adjusted EBITDA, so that's before corporate expenditures.

How big is corporate, do you think, for the year?

In the range of 25 or so.

It depends on if there's a deal or a potential deal, because corporate absorbs the due-diligence and related transaction costs.

I'm new to the name.

Is Telephonics very seasonal?

No, that deals with military and government contracting, so you might have a little bit of seasonality just because of the government's fiscal year where sometimes spending is either deferred or accelerated, but the most seasonal business is the Ames business -- well, the Ames business and the garage door business.

The Ames business, typically about 20% of their year is in this quarter that was just completed.

The garage door business, the second fiscal quarter, so, January to March is its smallest quarter, and that's because not a lot of people are putting in garage doors during the coldest months of the year.

Plastics has very little, if any seasonality.

Thank you.

Thank you.

(Operator Instructions).

Next question is from Claude Joubert with RBC Dominion.

Please go ahead with your question.

Hello, gentlemen.

A question I would like to ask you is, how do you manage the significant currency volatility?

Well, a lot of the transactions are locally denominated, and so the European -- the international operations is mainly in the plastics business, so you just manage it by a lot of your costs are in the local currency, euro in the case of Germany.

Brazil mainly operates in the Brazilian market, so you have some natural hedges.

In the defense business, you have a little bit of sales outside the United States, but typically those would be dollar-denominated contracts.

So, we try to manage our business from a currency perspective by just managing our local currency costs and local currency invoice pricing.

Okay, thank you.

A follow-up question would be, how do you view construction and renovating activities in your international markets?

Our door business is mainly in the United States, with some in Canada, but the product is not necessarily amenable to shipping in other markets.

Ames, still, in their business, currently it's about 6% outside of North America.

Which we view as a major growth opportunity in both Mexico and in Australia from the acquisition that we did at the end of their last fiscal year with [Westmix].

Australia, as you know, has gotten some terrible weather recently.

When there's bad weather there's a cleanup that follows.

That's in any of the jurisdictions that we're in, and Ames is a company that's going to be able to continue to grow its business internationally because of its global sourcing capability and we continue to look at that as being a growth driver for the future.

Won't happen overnight, but, as Doug said, that 6% number is up from 1%, and we continue to believe that as we invest and build this company, that we're going to be able to diversify its mix internationally.

Some of the acquisition candidates that Ron alluded to during his discussion of Ames, a fairly significant number of those are international.

Okay.

I understand you have a nine month cycle to retool on your new product, and that sort of fits your pricing cycle.

How do you look at the economic activity and the opportunity to retool in terms of the risk factor?

In the individual businesses, the management that are closest to the coal face, as it were, and closest to the circumstances are working with us in terms of formulating overall risk-assessment and where to be aggressive, where to hedge our bets a bit either in terms of buying safety stocks, as an example, or being somewhat more cautious in terms of credit control.

We're running businesses, and we've got really good management in place in each of the businesses, that are very familiar with the risk factors that are native to their businesses, and we work with them in terms of addressing those risks, whether that's pricing, costing, geographic risk, capital risk, there's a number of different risks that any business faces.

Thank you very much.

There are no further questions in queue.

I would like to turn the call back over to management for closing remarks.

Okay, we would like to thank you for joining us, we're off to a good start, and we're very optimistic about what the balance of the year is going to hold for us, and we'll be speaking to you after our next quarter.

Thank you.

Thank you.

This concludes the teleconference.

You may disconnect your lines.

Thank you for your participation.