Griffon Corp (GFF) 2011 Q2 法說會逐字稿

Greetings and welcome to the Griffon Corporation second-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.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr.

Doug Wetmore.

Thank you, Mr.

Wetmore.

You may begin.

Thank you, Raya.

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's 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 which we issued earlier today, and they're also available on our website.

Secondly, during this call, we will make certain 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.

For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in today's press release, as well as the risk factors which we discuss in our filings with the Securities and Exchange Commission.

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.

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

Thanks.

Good afternoon, everyone.

Let's start with, I'm very pleased with the performance of each of our businesses.

They're demonstrating an ability to grow, produce cash, and build their level of profitability even in the midst of a very tough environment.

We're also very pleased to have completed a refinancing of our debt.

Strong balance sheet, continued access to capital -- we're in an excellent position to both invest in and operate our existing businesses, as well as continue to pursue acquisition-related growth opportunities, always with a focus on building long-term value for our shareholders.

I'd like to run through some of the financial highlights first and then provide a little color on each of our operating segments.

Revenues in the quarter grew by 52% to $476.0 million, driven principally by the inclusion of Ames True Temper and our home and building products businesses.

On a pro forma basis, as ATT was purchased on October 1, 2009, revenue increased 4% in comparison to prior year's results.

Segment adjusted EBITDA, again driven by home and building products, increased 87% to $44.0 million.

Pro forma segment adjusted EBITDA on the prior year quarter totaled $45.6 million.

Earnings per share, excluding our refinancing charge, grew to $0.10 per share versus $0.02 in last year's second quarter.

We completed a senior notes offering for $550.0 million and closed the quarter with over $200.0 million in cash, $200.0 million in undrawn borrowing capacity.

I'd like to talk about the challenging environment we've been operating in and how we've positioned our businesses to succeed.

The residential and commercial construction market, while showing signs of stabilization, is still at depressed levels.

Despite this, our Clopay Doors business is operating well, and we have successfully completed the plant consolidation project that we first announced in May of 2009.

Given that Doors can operate profitably in the current environment, we are exceptionally well positioned to perform better with any improvement in building starts or renovations.

Equally, Ames True Temper, with its great brands, is operating well right now.

But as with Doors, Ames is impacted by the weakness in the residential and commercial construction markets.

Moreover, the weather has been uncooperative with inclimate weather impacting home and garden sales at many of our largest customers.

Turning to Telephonics, the environment for defense spending is also obviously challenging on a global basis.

That having been said, Telephonics operates in a niche market for highly-engineered products in the intelligence, surveillance, and reconnaissance markets.

This is one of the bright spots in the defense environment, and Telephonics is a leader in their categories.

We continue to think that they have a very bright future.

Telephonics has excellent opportunities for a variety of radar and electronic systems.

This is true both domestically and internationally and in both defense and commercial aerospace businesses.

Finally, the environment for specialty plastics has seen higher resin prices, which are contractually recovered through selling prices on a delayed basis.

Our plastics business has risen to the challenge, and, again, their highly-engineered product mix has enabled them to deliver excellent value to the market and to capture a significant share, growing both revenue and operating profitability.

The first part of our business model is to own and operate strong businesses, provide them requisite access to strategic and working capital, and to help them grow and prosper.

The second part of our model is to use the cash we generate and our access to capital markets, to build out our portfolio businesses to continue to create value for our shareholders.

We've been successful in both respects and, most importantly, we've improved our position to continue to do so.

We're very pleased with the outcome of our senior notes offering which was heavily oversubscribed.

This deal simplified and strengthened our capital structure and provides us with the flexibility to continue to identify and execute value-adding acquisitions, while at the same time lowering our average borrowing costs, extending our maturities.

With the refinancing completed, we're focused on continuing our disciplined search for other complementary businesses to add to our portfolio.

We continue to look at strategic bolt-on acquisitions.

We also continue to evaluate larger opportunities that are unrelated to our three operating segments, but which are strong businesses in their own right and which as part of Griffon would build both immediate and long-term value.

I'd like now to turn it over to Doug and discuss the details of our financial results.

Thank you, Ron.

I'll start with touching on the income statement for the quarter.

As Ron mentioned, consolidated revenue increased by 52% to $476.0 million.

With respect to our segments, home and building products increased by 183% to $232.0 million from the $82.0 million reported last year.

The bulk of this growth was driven by the acquisition of Ames.

On a pro forma basis, as though Ames was included in the prior year results, segment revenue increased 3% versus the prior year quarter, mainly driven by volume growth in both Ames and the Door business.

Plastics revenue grew 13% to $130.0 million from the prior year quarter.

This increase was driven mainly by a combination of improved volume and favorable mix, accounting for a majority of the increase, with the balance of the revenue growth being substantially due to price increases arising on the pass-through of increased resin cost.

Foreign exchange was favorable, about 1% for the quarter.

Telephonics revenue declined 2% to $114.0 million from the prior year quarter, primarily as a result of the impact of the Automatic Radar Periscope and Detection or ARPDD contract, which is currently transitioning from the development phase to production, as well as, as we noted in the first quarter, the reduced rate of C-17 production.

These decreases were nearly offset by increased ground surveillance radar-related revenue.

I'd also note that the backlog at Telephonics increased to $441.0 million from $407.0 million at the end of our prior fiscal year and $424.0 million at December 31st, 2010.

Consolidated gross profit in the second quarter was $101.0 million, a margin of 21.2% compared to a margin of 22% in the same quarter last year.

The current quarter margin included $3.8 million of costs related to the sale of inventory recorded at fair value in connection with the acquisition accounting for Ames True Temper.

Excluding this inventory cost, the current quarter margin was 22%, consistent with the prior quarter.

We have now fully amortized that acquisition accounting for inventory, so that will not be affecting us in Q3 and Q4.

Consolidated selling, general, and administrative expenses, excluding restructuring charges, in the quarter were $84.0 million, or 17.7% of revenue, compared to 20.4% of revenue reported in the prior year quarter.

The improvement, as a percentage of revenue, was due both to the impact of the Ames acquisition as well as some efficiencies gained in the Plastics business on significantly higher volumes and somewhat lower SG&A expense at Telephonics.

The prior year quarter also included unallocated expenses approximating $1.5 million, that we incurred in connection with evaluating various acquisition opportunities.

And there were no comparable expenses in the current quarter.

With respect to the operating profitability of our segments, consolidated segment-adjusted EBITDA in the quarter grew by 87% to $43.8 million, although it declined in comparison to the prior year pro forma results of $45.6 million.

By segment, Home and Building Products segment adjusted EBITDA amounted to 19.6% compared to the breakeven level reported in the prior-year quarter.

On a pro forma basis, EBITDA was $22.3 million in the year-ago quarter.

The current quarter declined in EBITDA compared to the prior-year pro forma, was driven mainly by higher input costs, most notably steel and resin, further aggravated by increased freight driven by rising fuel costs.

As we stated in our prior-quarter's call, we passed through price increases in our door business earlier in the year.

However, Ames is realistically only able to pass through price increases in the course of the annual line or business reviews; and, accordingly, Ames is currently feeling the impact of the rise in input cause somewhat more than the door business.

Plastic segment-adjusted EBITDA totaled $11.2 million versus $10.9 million in the prior-year period with the improvement driven by revenue gains.

However, the EBITDA margin declined about 80 basis points compared to the year-ago quarter.

The lower margin is the result of increased resin costs not yet reflected in higher customer selling prices.

Remember, Plastics suggest customer selling price based on underlying resin costs on a delayed basis.

In helping to maintain profitability, Plastics has also done a very good job of cost control and improving plant efficiencies year to date.

Telephonics achieved segment-adjusted EBITDA of $12.9 million, an increase of 4% versus the prior year level of 12.4%, notwithstanding the revenue decline.

And the increase in profitability was the result of a favorable program mix and lower SG&A costs, mainly due to the prior-year quarter having somewhat higher expense due to the timing of proposal-activity-related expenditures.

As you noted in our press release, there were significant other expenses during the quarter which affected our GAAP results.

In addition to the increased interest expense associated with the Ames transaction, we incurred a $26.0 million charge in connection with refinancing our debt.

As Ron mentioned, this deal simplified our capital structure and also, with respect to the revolving credit facility that we now have in place, we have approximately $200.0 million of undrawn borrowing capacity.

Excluding the debt extinguishment charge, restructuring charges, inventory costs related to the acquisition of Ames True Temper, and discrete tax items, our adjusted operating income was approximately $6.1 million versus the year-ago level of approximately $1.4 million.

And a reconciliation as to how these amounts are determined, accompanies our press release.

Earnings per share in the quarter, again, on the same adjusted basis, were $0.10 per share versus $0.02 a year ago.

On a GAAP basis, we reported a per share loss for the quarter of $0.24 versus the year-ago profit of $0.03.

With respect to our balance sheet, we ended the quarter with $208.0 million in cash and long-term debt of $667.0 million.

As we continue to look out for the balance of 2011, we continue to expect consolidated revenue, including a full year contribution from Ames, to be in the range of $1.8 million to $1.9 million.

Compared to the 2010 pro forma, we expect Home and Building Products revenue to grow in the mid-single digits.

Telephonics is also expected to produce a mid-single-digit rate of growth, while we expect Plastics to continue to grow at a high single-digit rate.

In the case of Plastics, revenue will fluctuate, dependent upon resin prices, as well as currency.

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

Thanks, Doug.

Look, I think we're in an excellent position to continue to grow our businesses, both organically and through acquisition.

We're achieving operating profitability and significant cash flow in a difficult business environment.

The headwinds of commodity costs have been at us.

I believe that Griffon's uniquely positioned.

We have an executive management team that understands how to create value through strategic development.

We have an operational management team that knows how to run their individual businesses, and we have a capital structure that supports our acquisition plan.

While there's noise in our numbers due to the acquisition-related costs and our financing activity, our quarter financial performance is strong, and it will accelerate as the economy continues to improve.

We're very confident about the future of our company.

With that, I think we'll turn it to the operator to take questions.

We will now be conducting a question and answer session.

(Operator instructions.) Zahid Siddique with Gabelli & Company.

Please proceed with your question.

Good afternoon.

How are you guys?

Good.

A couple of questions.

The first one is on the building products.

What was the revenue growth for ATT and for garage doors, and what was the EBITDA for the respective units?

Zahid, we've made the commitment that we will comment on the EBITDA for the Home and Building Products segment in combination.

So I'd like to continue observing that, if you'll bear with us.

I'm just flipping through my notes here, one second, in terms of the growth for -- I want to say Ames True Temper was a growth of 2% versus the prior-year quarter, and building prod- --the garage door business was between 4% and 5%.

Okay.

And was the garage door at least profitable?

Yes.

Oh, yes.

Sure.

Remember, the second fiscal quarter of the year for garage doors historically has been the lowest profit quarter, because it is the lowest revenue quarter.

You'll note last year we broke even, and we thought that was a very successful result.

But they've done a very good job in terms of getting the sales growth and operating leverage.

So garage door business by itself was profitable on an EBITDA basis for the quarter.

What about on an operating basis, was that also positive?

No.

Okay.

Then on resin, what are the resin prices that you are seeing currently, and what's your view of the next few quarters?

What would be the impact to the films business?

Well, I was just looking at the statistics a short while ago.

Resin, right now, based on the published indices, is at the highest level that it's been in the 6 years that I have on the graph.

And it's fairly significantly over the peak that it achieved in the June-July timeframe in 2008, about 10% to 12% above that.

I wish I was smart enough to forecast what the resin prices would be, because I might be a wealthier man than I am right now.

But I think with everything else, with commodity pressures going up, notwithstanding the drop in oil today, we have to operate under the assumption that resin prices will continue to rise at least somewhat over the next couple of months.

And beyond that, it's very difficult to forecast.

I think the one very positive thing we do have is the automatic mechanisms to pass through the cost increases to our customers.

So even though it is on a lag basis and does impact our operating margin, we do have the contractual ability to pass through those price increases automatically.

This is Ron.

The only comment I'd make on that is what I think you should take away from this quarter in terms of the strength of our underlying Home and Building Products segment is that even with commodity costs, higher freight, sluggish home and building products demand and a weather pattern that no one's ever seen before, we're still operating very close to the levels of profitability that we budgeted.

Sure.

Thank you so much.

Joe Galzerano with Muzinich.

Good afternoon.

Hi, Joe.

Two questions for you.

The first, if you could just help us go through kind of the seasonality, especially in the second half of the year for the Home and Building Products.

And then second question is, it looks like your working capital was a use of about $100.0 million for the first half of the year.

Can you give us some indication of how that will wind down over the second half?

Let me speak to your second questions, first, Joe.

Again, this is Doug.

First of all, there's a lot of noise in the numbers when you compare them to our September 30th balance sheet.

And one of the reasons for that was there were a number of transaction-related costs that were accrued at September 30th and then were paid in the week subsequent to the end of the year.

The second element that is impacting our comparison to the balance sheet at September 30th is that Ames right now -- and actually I should say in the December, January, February timeframe -- is really in a working capital build mode, because the lawn and garden business is the biggest part of their business, and the spring is the biggest part of the lawn and garden business.

Ames right now is actually just at the inflection point of building inventory and now converting that working capital to cash.

If you recall some of the discussions we had at marketing the debt in the road show, on a normalized basis, ignoring the transaction costs and so forth, the acquisition of Ames really had the benefit of smoothing out some of the working capital needs that we had, because it was counter-cyclical to the garage door business.

So I think if you look a year from now, 2012, you'll see a much more normalized pattern of working capital fluctuation.

Okay, thank you.

In terms of the seasonality of the business -- I'm sorry, we're getting a little bit of an echo on our phone line -- clearly, first of all, the Ames True Temper business, the second fiscal quarter and the third fiscal quarter are their biggest quarters of the year, and if you look at the history of the Clopay Doors, the third and fourth fiscal quarters -- so the quarter that we just began, and our fourth quarter -- are the biggest quarters for Doors.

So the Home and Building Products segment, not surprisingly, is very much dependent now with Ames on the second, third, and fourth fiscal quarters of the year.

The balance of our business between Plastics and defense, there is very little seasonality in the business.

Perfect.

Thank you.

Bill Jones of Singular Research.

Please proceed with your question.

Hi, Bill.

Hi, guys.

I wanted to ask you, I noticed a comment in the press release on capital expenditures were $24.0 million in the quarter, and I was wondering if you could give some color on that.

That was a little more than I had modeled.

You know, we have talked in the past about some of the undertakings that we have made specifically with the plastics business.

And most notably in Europe and in Brazil, the bulk of those expenditures are being driven by the initiatives that we've undertaken there.

Those are directly in response to new business wins that we've gained and the market share that we picked up, most notably in Brazil.

You'll find in our 10-Q that'll be filed -- I guess available to the readers tomorrow -- that we expect CapEx spending for the full year to be in the range of $60.0 million to $70.0 million dollars.

And, again, that is being very much driven by Plastics initiatives as well as, to a lesser extent some garage door initiatives.

And I think you've heard us talk about it in the past, the fact that Ames is very low capital intensive is one of the things that attracted us to that.

So that's not one of the key drivers.

And Telephonics, I think, at this point in time is pretty much on a normalized CapEx initiative.

We have no major projects there nor anticipate it for the balance of this year.

Yes.

And these are all new projects that we believe are, you know, high returns, so that will be seen in future periods.

But the spending for those new customers wins has started.

We referenced that on our last call.

In our business, the CapEx in our business is always lumpy, if you'll forgive that expression.

We'll have several years where our CapEx will be below depreciation, and then will be one or two years above depreciation.

But if you look at CapEx over any four or five year, the CapEx very much dovetails with the depreciation during that period of time.

Okay.

Thank you.

That's helpful.

And then I was going to ask you -- there was a press release today about a new win in the Telephonics segment.

This was not previously announced, was it?

I think actually it was.

It was, and then it was challenged by competitors.

So it was not awarded to start work until the challenge expired.

The protest.

And the protest -- thank you -- was unsuccessful for the challengers.

Thereby, our contract is affirmed and moving forward, and we're quite excited about what this may mean for us in the future, of being able to sell off these mobile surveillance systems.

This is the start of rolling out a solution on the Southern border of the United States.

It's a $14.0 million initial order, I believe, against a $45.0 million contract.

That's a drop in the bucket of what it could become, and we're very happy that we're moving forward with it.

Great.

Thank you.

And one last thing.

There's a mention in the release that you are obviously looking -- evaluating a range of transactions both within and outside of the current businesses.

Maybe you could just refresh -- remind us, particularly if you look outside of the current businesses, what the kind of criterion is that -- or what types of businesses you may look for.

Thank you.

Look, the aperture is wide and the -- let's start with, we think that the operating environment that we're in with the businesses that we already own and the strategic plan that we have is going to achieve value creation.

So we don't need to do anything.

What we're looking for is outstanding management and outstanding cash flow.

So if there is a common denominator to what we're able to look at, you know, among our own businesses, is that over time this collection of [disparate] businesses are tied together by a theme of they produce cash.

And part of what we look at from corporate is how to enhance the businesses that we're already in by doing tuck-in acquisitions.

And what you're seeing is an organic growth of our businesses based on opportunities that we think that we've been able to identify and execute on, particularly in the plastics side of the business, to be able to grow it.

So when we look at what we're going to do outside of those three core segments that we're in today, it's really opportunistic and it's really a function of management and cash flow.

Great.

Thank you, guys.

I think that was helpful.

(Operator instructions.) Marty Pollack with NWQ Investment Management.

Please proceed with your questions.

If I may, just focusing back on the Home and Building Products segment, just looking at the consecutive improvement, [certainly] the top line from the fourth quarter, up almost, I think, 15%.

Of course, you're saying ATT is more seasonally strong.

I'm just wondering because of the -- what you describe as more cost pressures, are you getting a net pricing or not -- were unable to get that pricing this segment?

And it does look like the incremental margin for that segment is about around 6%, 7% on a sequential basis.

Is that the reason, because of the cost pressures here?

Marty, the door business was successful in passing through the price increases.

And I know that they're constantly monitoring where steel is right now as well as, as you can imagine, the cost of freight.

And with oil or gasoline and diesel at $4.00 a gallon, that can be a significant expense for us.

So they have to be constantly evaluating the timing and necessity for any follow-up price increases.

As I mentioned in my comments, Ames is very rarely in a position where they can do a mid-year price increase.

My understanding is it's been one time in recent memory and that was 2005 when, if you'll recall, everything was inflating at a very rapid rate.

So typically, the time for passing through price increases is in conjunction with line reviews or the business reviews.

While they take place throughout the year, the bulk of those would be in the second half of the calendar year.

And Ames management at that point in time has to take some positions or views in terms of where the underlying raw material costs are and then price based on their target margins.

So it's a little bit of art and a little bit of science, but very rarely -- there is no current plans, as best I understand, for passing through a mid-year price increase at this point in time on that business.

But it sounds like you're indicating if you didn't get the pricing here, and clearly you had the volume, some improvement in volume, but at this point (inaudible - multiple speakers)

Well, the volume certainly helps from an absorption standpoint.

No question about that.

Okay.

But essentially, what we should be looking for is the improvement on the net pricing dynamic to bring those margins -- to get more respectable, let's say, contribution margin the next few quarters?

Well, we're going to -- yes.

Obviously, the constant drive is to improve the profit, yes.

Yes.

Okay.

Thanks.

Alastair McKeever with Guggenheim Partners.

Please proceed with your question.

Hi there, guys.

Hi, Alastair.

Most of my questions have been answered, so I've just got one housekeeping item left.

What's outstanding on the ABL as of 3-31 and what's the pro forma liquidity?

There's nothing outstanding.

You'll see in our Q that's filed tomorrow that ABL was actually terminated.

And we also eliminated the Telephonics revolver, and we put in place a Griffon top level $200.0 million revolver.

And the only thing outstanding under that is about $20.0 million of letters of credit which serve to reduce availability.

So there's $0 outstanding under the revolver.

The only debt we have right now is the $550.0 million of the notes we just issued mid March, a $100.0 million of the convertible debt -- notes that were issued in late 2009, and then some mortgages on properties and so forth which accounts for the difference.

As I mentioned, the total debt is $667.0 million, and the conferred notes is $650.0 million, the conferred notes and the notes we issued in March.

Great.

Many thanks.

That's all I had.

Thank you.

(Operator instructors.) Arnie Ursaner with CJS Securities.

Please proceed with your question.

Good afternoon.

A couple of questions, if I can.

You mentioned some capacity spending or CapEx spending.

Are these more for capacity adds or productivity adds or both?

It's really a combination, Arnie.

It's directly in relation to some new business that we won, most notably in Europe.

So it is expanding capacity, but at the same point in time, the CapEx that we're undertaking is improving our efficiency and streamlining the existing assets somewhat.

So it's really a win-win situation, not only for the business we won with the new customer, but also to greatly facilitate -- better servicing our existing business.

And what segment is the new customer in, please?

Plastics.

And on the Ames piece, you mentioned it's almost impossible to get a mid-year price increase.

When you look at the annual -- I'm going to ask the question first of margin by segment, but specifically, I want to try to focus on Ames.

How much of a margin hit do you believe it will have this year, given the higher raw material costs and your inability to pass them on?

Well, it varies because it depends on mix, and also since they source some from China, you do get a currency impact on the raw materials.

But I would expect that Ames' EBITDA margin will probably decline 150 to 200 basis points from what they achieved last year when they enjoyed some lower cost materials.

But overall, remember that the Ames acquisition was very positive when we put it in with our combined -- and make the combined Home and Building Products.

That's realistically a 10% to 12% EBITDA margin business, and if we get a certain amount of growth, we should see some substantial margin expansion there.

Okay.

And then Telephonics, the decline seems to be related more to the timing of the -- and I won't even attempt to pronounce it.

ARPPD, A-R-P-P-D.

Okay.

Regarding that program, you mentioned it's going from development to production.

Can you walk us through the revenue contribution it may have had this quarter and maybe what you expect 4 to 6 quarters from now as it moves more into full production?

Well, the revenue contribution in the current quarter was almost nonexistent.

It was actually -- the decline was, there was an element of it in the fiscal 2010 quarter.

And, remember, developments such as this under government contracts, vendors such as Telephonics, it gets a certain amount of revenue associated with the development to determine whether the concept has viability.

And we delivered prototypes, and those prototypes were tested and were very successful, and they will now be moved into production.

We have not quantified the benefit of that moving forward, and I think it might be a bit premature to do so at the present time.

Okay.

But we do know that it is moving into production and will be revenue realized in following quarters, probably not until fiscal 2012.

Got it.

And in the backlog you have in Telephonics of $441.0 million, are there any sizeable or noteworthy contracts that run off during the course of this year?

No.

Other than sometimes you have some contracts which are one-off and then they -- or, one-annual, and they get renewed.

And then you also have some IDIQ, the indefinite delivery indefinite quantity contracts, which are kind of hard to quantify, simply because you have indefinite delivery and indefinite quantity, but nothing of individual significance.

And I've mentioned that the funded backlog has now reached sequentially another all-time high for the business.

And, Doug, as you remember, does not include the fire scout program, which doesn't go into production until 2012.

So we think the backlog -- and I'll just make a comment that we look at a lot of different assets, acquisition-wise, in the defense space, where there's no shortage of acquisition activity.

And we've yet to find a business as good as the business we already own.

And certainly on a value basis we think the organic growth building off of our existing products and backlog is a much superior alternative to paying what looks like more than 10 to 12 times EBITDA for lesser quality backlogs of businesses.

You gave pretty specific revenue guidance on year-over-year growth rates.

Could you comment on your expectation for margin in the three segments, please?

We prefer not to, although if you think long term -- and quite frankly, I gave a range of growth.

But you know, long term -- and we've said this in past calls -- the defense business is a 10% to 11% EBITDA business.

The Plastics business, it's a little bit below 10% right now because of the pressure of resin.

But with the growth that we're getting in a normalized period where, let's say, resin prices were stable, this really should also be a 10% to 11% business.

And the Home and Building Products right now on a combined basis, Ames and True Temper, you're really looking at, again, a 10% EBITDA business.

So notwithstanding the end markets being very different, each of those businesses at the EBITDA margin are very comparable overall, and we're looking --

Oh, I'll correct Doug on one comment.

The Ames business is higher than a 10% margin.

Oh, yes.

But the Home and Building Products combined is a --

And then, just, if you go back and I'll just reference our historical level of profitability in the door business was a 5% EBITDA margin business.

So we were running approximately last year $400 million at $20.0 million of EBITDA.

So we continue to believe that our Home and Building Product segment together is very powerful.

-- we started an $850-odd million top line, and a blended basis at the bottom of the Home and Building Products cycle, we think we have a very, very strong amount of operating leverage and margin coming out of this cycle.

Okay.

One final question on Plastics.

Obviously, your contracts do adjust on what I'm going to call a normal basis in a few months, but we're in a pretty abnormal place right now on resin.

Do you have the ability to use terms like force majeure or is there any ability to recover extraordinarily high resin costs?

Well, our ability is built into -- embedded in the contracts themselves.

The pricing that we pass through is based on the indices that I mentioned earlier in my comments.

So no matter what the contractual arrangement with the customer is, we have the ability to pass that through on a lag basis.

And you know, the other side of that is we also pass through price decreases if and when resin ever heads the other direction, but that will also be on a lag basis.

Look, we're in this business for the long term.

Procter and Gamble continues to be a significant customer, and we continue to grow with them, and we continue to diversify away from them.

So part of the plan here has been using our balance sheet strength to identify opportunities to be able to grow both the top line and, as a result of that incremental capacity, improve our profitability.

You know, resin is always going to move around.

We've been able to generate cash, and we'll continue to look at doing that in the future.

Your diaper customers recently announced fairly sizeable price increases.

Is any of that working its way back to you?

Hopefully.

Yes, but remember we've been passing through price increases to them in months past --

Right.

-- that they have not -- and I believe some of those customers that were addressed in the Wall Street Journal article, for an example, probably held off passing through price increases when we were passing through our cost increases to them.

And at some point in time they just had to take the action to pass through the costs to the end consumer.

Okay.

Ron, see you in Chicago in late May.

Thank you.

Okay.

Thanks, Arnie.

Thank you.

Mr.

Kramer, there are no further questions at this time.

I would like to turn the floor back over to you for closing comments.

Okay.

Thank you all for participating, and we look forward to speaking to you after our next quarter.

This concludes today's teleconference.

You may disconnect your lines at this time, and thank you for your participation.