Griffon Corp (GFF) 2012 Q3 法說會逐字稿

Good day, and welcome to the Griffon Corporation Third Quarter 2012 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Doug Wetmore, Griffon's CFO.

Please go ahead.

Thank you, Shivon, and 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 certain matters that I want to bring to your attention.

First, I'll mention again that our call today is being recorded and will be available for playback.

Details regarding that playback are provided in our press release issued earlier today and details are also available on our website.

Secondly, during our 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 the factors that could cause the 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 that we discuss in our filings with the Securities and Exchange Commission.

And finally, some of today's prepared remarks will adjust for those items that affect comparability between reporting periods.

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

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

Thanks, Doug.

Good afternoon, everyone.

This was a very good quarter for us.

We're performing well in what continues to be a challenging environment for each of our businesses and we're very pleased with our results.

Consolidated revenues increased by 5% to $480 million and compares to the prior year quarter.

Our consolidated segment adjusted EBITDA was $51.8 million, 27% higher than the prior year quarter.

Adjusted earnings per share in the quarter were $0.13 per share, versus the comparable adjusted EPS of $0.05 in the prior year quarter, a 160% increase.

I'd like to take you through each of our operating segments in greater detail so that you can better understand the direction in which each is heading and why we are confident about their long-term prospects.

Let's start with Telephonics.

Telephonics continues to perform extremely well despite the challenging environment for defense companies.

Revenue in the quarter declined modestly compared to the prior year quarter; however, core revenue, excluding sales associated with the CREW 3.1 program, for which we're a contract manufacturer, grew 1%.

Telephonics displayed superior profitability performance with EBITDA up 31% to $15.9 million and margin of 15.7%, up 400 basis points over last year.

Telephonics has been operating at historically high margins throughout the year, enabled in part by cost reduction and reorganization activities undertaken in the latter stages of fiscal 2011 and in the first quarter of this year.

Telephonics has also benefited from a favorable mix of products, most notably the LAMPS MMR, as well as continued focus on manufacturing efficiencies.

Telephonics is operating in a business environment with strong commercial market opportunity and many of our defense programs, which are mission-critical, give us a degree of insulation from the broader defense budget environment.

Our experience suggests that demand and funding for intelligence, surveillance and reconnaissance equipment remain strong relative to other areas of defense.

We expect continued growth in airborne ISR equipment and should see the benefit from both the continued upgrade and recapitalization of existing platforms as well as growth from selected new platforms with secure funding, including Fire Scout.

Telephonics is also benefitting from the strong cycle in commercial aerospace, where we believe it's in the early stages and will last for quite some time.

Specifically, we believe our weather and our air traffic radar systems are well positioned for this trend.

With respect to the air traffic management business, Telephonics recently gained new pieces of ATM business in Xian, China and in South Korea.

We're maintaining our leadership position in our categories and our feedback from our customers continues to be very positive.

Longer-term, we remain very confident that our continued investment in research and development will further extend our leadership position and we're excited for the continued development of a number of key category initiatives and product families.

Importantly, we've signed the agreement with Mahindra regarding our joint venture in India, and formation will follow a final regulatory step.

As we have stated in the past, the JV will license technology from Telephonics for use on a wide range of products that have both defense and civil applications.

The joint venture will provide the Indian ministry of defense and the Indian civil aviation sector with radar and surveillance systems, Identification Friend or Foe devices, and communication systems.

The JV also intends to provide systems for air traffic management services, homeland security, and other emerging surveillance requirements.

With all of these and other initiatives, we believe Telephonics will steadily grow and enhance its market leadership.

Let's go to Clopay Plastics.

It continues to maintain its top-line momentum, achieving volume growth of 12% during the quarter.

Moreover, Plastic's operating performance also continues to improve, benefitting from the initiatives undertaken to address the manufacturing efficiencies we've been experiencing with our capacity expansion in both Germany and Brazil.

However, the headwinds from the tougher business environment in Europe and in Brazil, both of which we addressed in the last quarter, as well as the impact of somewhat higher resin costs continue to at least partially offset the impacts of operating improvements being achieved in these locations.

In general, however, customer demand remains robust despite the difficult environment and our expanded capacity has made us a strong competitor, enabling us to service and sustain our increased market share.

The increased manufacturing capacity is a scalable opportunity and we believe that ultimately we can return to our historical operating margins and run this business at an EBITDA margin exceeding 10%.

New management put in place at Plastics earlier this year, led by Alan Koblin, continues to drive improvement in all aspects of our business and operations, and we're excited about the opportunities ahead for this Company.

Our Home and Building Products business, revenues grew 11% in comparison to the prior year quarter due primarily to higher volumes in our doors business and the inclusion of Southern Patio in the current quarter operating results.

Southern Patio, acquired in October 2011, is a great example of the tuck-in acquisitions around our existing businesses.

Top-line growth drove a corresponding improvement in profitability with segment-adjusted EBITDA in the quarter increasing $3.3 million to $25.8 million.

Weather continues to play a role in this segment's operating results, most notably the Ames business.

As I mentioned in our last call, we began the quarter with record sales for April, driven by an early spring, but that pace slowed as the quarter progressed as hot weather and drought conditions in many parts of the country impacted lawn and garden sales.

Notwithstanding the weather, which is obviously out of our control, we continue to focus on building on the core strengths of Ames -- a strong brand, innovation, customer service, and broadening our product portfolio, both organically and through additional bolt-on acquisitions.

Clopay Building Products performed well in what continues to be a difficult housing market.

Door revenue increased due to a combination of better volume and favorable market mix.

In short, we're pleased with its performance and the progress we've made over the past several quarters and continue to look forward to a better environment to leverage our leadership position this business.

As housing recovers, we expect Home and Building Products to significantly improve both its revenues and its profitability.

Talk about a few corporate issues.

As we execute the strategy and improve our operations for each of our segments, we expect to generate significant cash flow.

We'll continue to utilize this in several ways to ensure that we're providing value to our shareholders.

Our first priority remains funding our organic growth, but we believe that our excess cash flow can be used for other initiatives.

Our businesses are well positioned and we continue to have excellent liquidity.

We're confident that we can make investments for organic growth, pursue additional acquisitions, and return direct value to our shareholders via our quarterly dividends and share repurchases.

We remain committed to driving value to our stockholders through a full range of opportunities.

Earlier today, the board declared a quarterly cash dividend of $0.02 per share, payable on September 25 to shareholders of record as of the close of October 28, 2012.

During the quarter, under our buyback program, we also purchased 417,667 shares of stock at an average price of $7.95.

Through June 30, 2012, we've purchased 866,446 shares of common stock at roughly $8.06.

At June 30, 2012, there were approximately 43 million remaining under our existing buyback authorization.

With respect to additional strategic acquisitions, we have the capacity, the infrastructure, and skill set to identify and complete transactions.

Our preference remains tuck-in acquisitions for our existing businesses, but we also continue to evaluate significantly larger transactions that would further diversify our portfolio of companies.

The pieces we've already put in place form an excellent foundation.

As we look out at the next few years, we believe conservatively, even in a difficult economic environment, we can sustain an organic revenue growth rate of at least 5%, achieve consolidated EBITDA margins of 10%, and generate compounded earnings growth better than 12%.

Again, this is strictly from organic growth.

Doug will now take you through the quarterly financials in more detail and then we'll open it up for your questions.

Doug?

Thanks, Ron.

Consolidated revenue totaled $480 million in the quarter, increasing 5% in comparison to the prior year quarter.

Home and Building Products revenue increased 11%, while Plastics revenue increased 3%.

Telephonics revenue declined 2%.

As has been the case for the last several quarters, Telephonics revenue, associated with the CREW 3.1 production, impacts reported growth in what we consider to be our core business.

Excluding sales associated with CREW 3.1 from both the current and the prior year quarter, revenue growth in Telephonics' core business was 1% and year-to-date growth is up 5% in that core business.

Telephonics' profitability increased significantly in the quarter.

Third quarter segment-adjusted EBITDA for Telephonics was $15.9 million, increasing $3.8 million, or 31%, compared to the prior year quarter.

Segment EBITDA margin increased 400 basis points compared to the prior year quarter.

Telephonics' improved profitability has been a function of product mix and manufacturing efficiencies, partially offset by slightly higher SG&A expense in the quarter mainly related to the timing of proposal activities.

Telephonics has also benefitted from the prior year voluntary early retirement plan that was undertaken at the fourth quarter of last year and other restructuring and reorganization activities undertaken earlier this year.

Importantly, the improvements to Telephonics' cost structure are not only contributing to current profitability growth, but also making the business more cost competitive in bidding on future business opportunities.

The backlog declined to $422 million at June 30, 2012, from $434 million at March 31, 2012.

We're still in line with expectations and we're confident in the near-term.

For reference, backlog at September 30, 2011 was $417 million and $442 million at June 30, 2011.

Turning to Plastics, third quarter revenue was $142 million, representing an increase of $4.4 million, or 3%, compared to the prior year quarter.

Revenue growth was driven by 12% higher volume, mostly in North America and Europe, pass-through of higher resin costs in adjusted customer selling prices contributed 1%, and the growth, again, driven by the volume, was partially offset by an 8% unfavorable impact arising on translation of European and Brazilian results into the stronger US dollar.

The euro/dollar exchange rate in the quarter was down about 11% compared to the prior year quarter, while the Brazilian real was down about 19% versus the prior year quarter.

We continued to see sequential improvement in Plastics' operating results, with EBITDA increasing $4.1 million compared to the prior year quarter, representing an improvement of some 67% compared to the year-ago quarter.

Because of the lag in the pass-through of resin costs increases in customer selling prices, rising resin costs in the quarter negatively impacted reported EBITDA.

Excluding the unfavorable resin impact from the quarter, EBITDA would have increased 87% over the prior year third quarter.

By region, North America is running near full capacity and the near-term visibility is strong.

Europe, which accounts for approximately 45% of our Plastics business, is not surprising a little more challenging as is the economic situation in Brazil.

Though there remains significant room for continuing improvement, we're both pleased and confident that we're taking the right course of action and are capable of fully capturing the long-term opportunities for the business.

As we mentioned, we're benefitting from improvements in operations in the newly expanded locations and we expect it to continue in the fourth quarter of this fiscal year as well into fiscal 2013 and we'll continue to update you on these undertakings as progress is made.

Home and Building Products revenue increased $23 million, or 11%, compared to the prior year quarter and this segment outperformed last year's third quarter with revenue of $237 million versus $214 million.

Ames True Temper had revenues of $130 million, versus $114 million last year, an increase of 14%, mainly from the inclusion of Southern Patio, which, as Ron mentioned, was acquired in October 2011.

Clopay Building Products had revenue of $107 million, representing an increase of 7%, driven mostly by volume as well as benefitting somewhat from a more favorable product mix.

Segment-adjusted EBITDA in the 2012 quarter increased 15%, or $3.3 million, on net revenue growth mainly due to higher volume, favorable mix, improved operating efficiencies, and the inclusion of Southern Patio's operating profit in the current period results, partially offset by somewhat higher material costs.

On a consolidated basis, gross profit in the third quarter was $116 million, representing a margin of 24%, compared with 21.8% in the prior year period.

Telephonics and Plastics drove the margin improvement.

Consolidated selling, general and admin expenses were $87 million in the quarter, compared to $84 million last year.

In both the current and prior year quarters, such expenses represented approximately 18% of consolidated revenue.

The increase in operating expenses in absolute value terms is primarily the result of the inclusion of Southern Patio in the current quarter's results.

Overall, we continue to exercise tight cost control across all of our businesses.

Earnings per share in the quarter were $0.16, compared to $0.08 in the prior year quarter.

The third quarter of 2012 included a discrete tax benefit of $0.03 per share, though adjusted EPS was $0.13 per share, compared to prior year adjusted earnings per share of $0.05.

There's a reconciliation of reported EPS to adjusted EPS accompanying our press release.

The tax rate for the current quarter was a provision of just under 40%, compared to a benefit of 81.3% in the prior year quarter.

The current quarter's rate reflects the benefit from the release of previously established reserves on completion of tax audits in varying tax jurisdictions.

And excluding discrete items, the current quarter's tax rate was just over 50%, and that rate reflects the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of restricted stock as well as the impact of tax reserves and a change in geographic earnings mix.

Excluding discrete items, the prior year's rate was 77.7%, which reflected the combined effects of a nominal pre-tax income in the quarter with a full year of pre-tax loss for 2011 as well as fluctuations in the full year expected effective tax rate driven by changes in earnings mix between domestic and non-domestic operations.

For the full year of fiscal 2012, excluding discrete items, we expect the effective tax rate to continue to be in the 52% to 54% range.

Capital spending in the quarter was about $17 million and we continue to expect full year 2012 cap spending to be in the range of $65 million to $70 million.

Depreciation and amortization in the quarter was about $17 million.

Depreciation should approximately $59 million for full year fiscal 2012 and amortization of $8 million for the full year.

At the end of the quarter, we had $172 million in cash and total debt outstanding of $703 million, resulting in a net debt position of $531 million.

As is typically the case, the final quarter of our fiscal year is a strong cash generating quarter for us, and we're looking forward to that.

About $180 million of our $200 million revolving line of credit is available for borrowings.

Letters of credit issued account for the utilized portion as there is no actual draw under the line of credit.

And updating our expectations for 2012, we continue to expect consolidated revenue to be in the range of $1.9 billion to $2 billion, with Home and Building Products revenue increasing in the low single digits, Telephonics' core business, excluding the CREW 3.1, to be in the low to mid single digit rate of growth, and Plastics at a mid to high single digit rate of growth.

As is always the case, Plastics' guidance is the most susceptible to variation due to a combination of resin pricing as well as foreign currency translation.

We're maintaining our segment-adjusted EBITDA estimate providing in our last call of approximately $170 million.

And corporate and other expenses are expected to increase somewhat from reduced levels in 2011 and be pretty much in line with actuals reported for fiscal 2010 -- right around $27 million.

And as we've said in the past, corporate includes all equity compensation for the Company, which will range between $9 million and $10 million for fiscal 2012.

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

Although we're pleased with the overall performance in the quarter, we believe there is significant incremental earnings power for the Company as the economy improves.

We're well positioned for today's business environment for what is likely to be continued uncertainty regarding the overall economy.

Telephonics is poised to grow, Plastics will continue to improve, and the Home and Building Products business will benefit from a recovery in housing.

We see excellent growth opportunities both in our existing businesses and through strategic acquisitions, particularly with the smaller tuck-ins that can meaningfully boost near-term profitability.

As the global economy improves, we expect to see our profitability expand.

All of our businesses are growing and we believe they will continue to outperform their competition.

We have ample resources to invest in these businesses to support their growth and we remain excited about their prospects.

We've built a strong business with talented management in each of our businesses to take us forward and continue to create value for our shareholders.

With that, operator, we're happy to open up for some questions.

Thank you.

(Operator Instructions).

And we will take our first question from Arnold Ursaner with CJS Securities.

Hi.

Good afternoon, Ron.

Good afternoon, Doug.

My question relates to your Telephonics EBITDA margin, which was extraordinarily good at 15.7%.

Was there any one-time in there, or how should we think about it on a go-forward basis?

And then I have a specific follow-up on that one.

Sure.

No one-time [laying] in that.

Doug, you want to talk about some of the specifics?

Yes.

As I mentioned, and actually Ron mentioned in his comments, you'll recall if you look back, we had an early retirement program there last year, which took out a lot of cost.

And then, we took a restructuring charge for that in the fourth quarter of fiscal 2011.

The heads that took advantage of that retirement program have not been replaced, so they've kept their costs down and will continue to benefit from the cost avoidance through the fourth quarter of this year.

And we get a little bit of mix as well.

And, as I mentioned, there was very limited sales activity for CREW 3.1 in the third quarter, which, as you know, we're a contract manufacturer with fairly low contract manufacturing margin associated with that.

So it's really our core business that we're benefitting from.

And with the manufacturing efficiencies that they've achieved, notably in the LAMPS MMR program drove the profitability, and it's positioning us well for also bidding for business in the future.

But we've said for the last several quarters -- just to be clear -- that we know that we're not going to be able to sustain the current high level of profitability in perpetuity.

We know that will tail off somewhat over time.

Yes.

I'd just like to add that Joe Battaglia has done an outstanding job of positioning the business, managing it, and all of the issues related to defense have been building.

And we've talked about it over the last year, that cost cutting that we've been doing was in anticipation of what we expected to be a more difficult environment, so it's obviously very satisfying to see our results improving as we've managed the business.

And the backlog of our mix of business continues to improve and the outlook continues to be quite strong, particularly as we move on to some of these initiatives like the Fire Scout.

Okay.

My second question, if I could, you had provided -- or announced a pretty sizable contract award for the AN/APS-153 radar for the Navy.

Can you talk about the retrofit opportunity and the potential size that could be?

Are you talking about the release we talked about during our last call?

The one in April, yes.

Yes.

That contract didn't contemplate any of the retrofit of the existing systems that are in place already.

So that's just additional new radars that will be ordered over the course of the next -- that contract runs until sometime in 2017, so roughly five years.

But it gives us visibility for our business at a time where there's generally uncertainty.

And while no one's going to be immune from the potential for sequestration, we feel like our business is as well positioned in terms of intelligence, surveillance and reconnaissance as it can be.

Okay.

Thank you very much.

I'll jump back in queue.

Thanks.

Thanks, Arnie.

Our next question is from Philip Volpicelli with Deutsche Bank.

Good afternoon, Ron and Doug.

This is [Shawn Radek] sitting in for Phil.

My first question revolves around the Plastics business.

You guys have obviously shown good improvement.

When do you expect to be done with some of these manufacturing inefficiencies that you had there.

I know you've stated a couple of times, and if you could just provide an update on that.

And then also, my second question will be about resin costs -- what the lag is on resin costs, how they've been trending, and how you kind of expect to deal with them going forward.

Thank you.

I would answer it by saying that we continue to meet our customer demands.

Our top-line has been growing and we continue to make improvements.

North America is doing exceptionally well, Germany is continuing to improve, and Brazil has made progress.

We expect it to continue in the fourth quarter and we think well into the next fiscal year to get to our targeted EBITDA margin.

Month-over-month, quarter-over-quarter, we are very satisfied that we're getting things worked out and that we're on the path -- and I clearly understand that this has taken longer, but these are big, complicated processes that we've been working through.

We think we made the right capital decisions around supporting the growth of our capital -- support of our capital into the Plastic business.

Our capital requirements are behind us as we go into next fiscal year, so our free cash flow from that business starts to improve.

We like the way the management team has positioned it to grow.

And month-over-month, quarter-over-quarter, we hope to be able to continue to see that trend continue.

So we're generally pleased.

In terms of resin pricing, the lag on it tends to be three months contractually.

It varies by customer between one and three months.

But if the customer is always on one month, they're always on one month.

If they're on three months, they're always on three months.

It's not like it's an elastic band that goes back and forth.

But did you have a -- Shawn, what was your specific question on resin pricing?

I think that's helpful.

I'm curious to see what direction you think this is going in with your contracts, if you guys think you'll be able to fully offset it walking into the fourth quarter, if you think it will be a little bit of a headwind going forward.

It seems -- the prices seem to have peaked sometime during this quarter -- the most [PF] -- sometime during the most recent quarter completed and they've actually begun to trend downwards a little bit.

So we would expect our material costs to decline somewhat in the fourth quarter and the adjustment -- the corresponding adjustments in the customers' selling prices will lag that.

So that's the period of time when you actually get a little bit of margin expansion when resin cost is declining because the adjustment to customers' selling prices lags your adjustment to your cost of materials.

Right.

Okay, thank you.

That's very helpful.

Just really quickly, do you think -- just back to the first question, do you think that this will continue to be a headwind into 2014 in terms of the manufacturing efficiencies?

Or do you think by then you'll hopefully be able to get to the 10% margin that [you're shooting for]?

Shawn, I think that's a very good question and I wish we could have a more precise answer for you.

I think we're making a lot of progress, as both Ron and I mentioned in our comments, in terms of the operating efficiencies.

And I think some of the challenges that are impacting those operations are also some of the macroeconomic factors that are affecting Europe and Latin America, most notably Brazil, where the operations are, where the economies have slowed down and so forth.

And I think if nothing else that forces our customers to more tightly manage their working capital, which obviously has a knock-on effect on us.

But our expectation is from an operating perspective, that we will achieve -- get back to a normalized level of operating efficiency during the course of fiscal 2013.

Okay, thank you very much for the color, guys.

Good quarter.

Thank you.

(Operator Instructions).

We will take our next question from Marty Pollack with NWQ Investment Management.

Yes, hi.

Excellent results.

Thanks, Marty.

I'm wondering if you could talk -- yes.

I wonder if you could just perhaps give us a little bit more transparency on the Building Products side?

Will you guys give the sales number on True Temper as well as the garage door?

But can you provide a little bit more of a sense of how both units were performing, even if you're not able to describe the numbers directly, but just some sense of what they've both done?

I appreciate that.

Sure.

Let's start at the --

Top.

-- at the top line.

We were $130 million for Ames True Temper versus $114 million in the prior year.

Right.

And for Clopay, we were $106 million versus $100 million in the prior year.

So the way I would characterize it to you is that we had clearly seen improvement.

Part of the year-over-year comparison for Ames is helped by the Southern Patio acquisition, which we're pleased with.

It gets us stronger in our pots and planters part of that business.

But the general commentary is that we haven't been expecting a recovery in either the broader consumer economy or in the housing markets, and our businesses were positioned for that.

They're doing well in what's a muddle economic environment.

And we think these businesses over time do substantially better.

From the door side of it, the repair and remodel business has been what's carried it and the mix has shifted away from new home construction substantially.

As housing starts recover, we expect Clopay to do better.

The big story there from an efficiency standpoint is the consolidation that we get over the prior two years.

We're seeing the benefit of that.

And margins in that business are far less than what we expect them to be going into a recovery, but they're certainly adequate and as well as you can be doing.

We believe that we have maintained or increased our market share in all of the products that we're in in Home and Building Products.

That continues to be our strategy going forward, is that we're going to defend our number one position in everything from shovels to wheelbarrows to garage doors.

And there will be a recovery in the United States, and when there is we expect significant top-line growth in both the Ames business and the Clopay business and significantly improved profitability.

If I may also just ask you, with regard to the impact of the drought on any of your markets, are you seeing any impact there as well?

Yes.

I mentioned it a little bit in my comments as --

I'm sorry, I did not hear it.

No, no, no, that's fine.

It was the -- but remember, we started off the quarter with very strong sales in April; we mentioned that on our last call, and we attributed that to the -- really an early and very solid lawn and garden season.

But about half of the country is in various stages of drought right now and that has affected point of sale; and as a result of that, it's affected our sale to our end distribution channels.

A lot of people in these conditions are not working on their lawn, they're not planting new lawns or bushes or trees or anything like that because it's very difficult to keep those plantings alive with such limited rainfall.

So that has affected us.

We can't quantify it precisely, but we certainly know it's there because we see it in the very weak point of sale from lawn and garden.

And the one other comment that I'd make for the nine months is that remember that on the Ames side of our business we lost the winter in our last quarter, and thereby the profitability from that.

So in any kind of normalized winter adjustment to our operating result, we're actually quite pleased with where Ames is.

And we think it's more bad luck than anything more system related to the economy.

And over time there will be good winters, there will be bad winters.

Last year, we had a terrible spring.

This year we had an extended spring.

We like the business long-term.

We think that it's a cash generator and we continue to view this as, combined with our door business, as giving us significant upside potential with very, very limited or no downside.

Thank you.

I appreciate it.

We'll take our next question from [Fred Knight] with [Dallas] Capital Management.

Good afternoon.

Your net debt to adjusted EBITDA, it looks like it's running about three times.

Can you give us a little color on what leverage you're currently comfortable with and what kind of allocation of funding you would use for major acquisitions going forward?

We're comfortable where we are today.

We believe one of our strategic advantages is having access to low cost debt, which is -- comes from having modest leverage, and the three times level has been where we've been.

We don't have a debt maturity for five years and we have a recovery in front of us.

We're performing well.

We're generating cash.

We'll continue to build up cash on our balance sheet.

And if there's opportunities there, we clearly have the ability to pull the trigger.

We have $200 million of undrawn revolver.

But we kind of like where our balance sheet is today, and at the moment we continue to look at using our cash flow to fund tuck-in acquisitions and not looking to go out and do anything more dramatic in terms of our balance sheet.

But the potential is there, and if the opportunity presented itself we wouldn't hesitate to do it.

Thank you.

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

Good afternoon.

A couple of questions.

First one, within the Clopay and ATT businesses, could you quantify how much was the Southern Patio acquisition, contribution from that?

Zahid, we've said all along it was about a $40 million revenue business.

And to break that down any further, we've committed to not doing that at this point in time.

It certainly was an element that contributed to the Home and Building Products EBITDA growth this quarter.

Okay.

As a follow-up on that, was the ATT business, excluding Southern Patio, was that a positive number for the revenue growth?

The revenue growth, it was -- but it was pretty much flattish.

It was up just slightly if memory serves, I think.

Yes, that's right.

As we said before, look, we're pleased with the top-line in the ATT business, very pleased with the contribution from Southern Patio.

I wish we could find more transactions like it that we can do.

It's just they come along and they're hard to predict, but when they're available we're going to continue to look to do it.

Okay.

Assuming that it was flattish, the ATT business, that would imply $60 million, roughly, for Southern Patio, which seems a little high number, if the full year is $40 million for Southern Patio.

There is a great deal of seasonality in the Southern Patio business.

Okay.

Okay.

That's what I thought.

That's your number, not our number, just to --

Right, right, right.

Okay, that's makes sense.

And then, another question on the JV in India that you're working on.

Anything that you can quantify in terms of timing or the dollar value of that JV?

Zahid, that is a very good question and we certainly anticipated that.

It's probably a little too early to give a precise timeframe for when the JV will have its first transaction.

As we mentioned, there's one final regulatory approval, which is a check-the-box type of thing.

We don't expect any delays.

And quantifying it, remember, we will be a minority owner, so we won't be consolidating this.

There will be no top-line benefit to Griffon Corporation as a result of the JV, although we will have equity accounting for our percentage ownership interest and Telephonics will benefit significantly from the technical feed that come from the joint venture, licensing Telephonics technology.

Right.

We don't expect it to be meaningful into our revenue stream until 2013 at a minimum, and then will be a start-up at that level.

The longer-term positive for it is that it's license income that's high margin to Telephonics and it's a directional diversification and an expansion with a fantastic high quality company in India and we couldn't be happier about being involved with that.

But this is a long-term -- and it's not in our backlog.

It won't be -- we don't expect it to be backlogged for certainly in 2012 and until the second half of 2013.

And I think the other thing that's very important to us is that there's, relatively speaking, very low capital deployed on Telephonics right now or to participate in the joint venture.

So from a return for capital deployed, it's going to be fairly significant to us.

So it significantly improves the long-term outlook for Telephonics.

Okay.

Thank you so much.

Thank you.

And at this time we have no further questions in the queue.

I'll turn the conference back over to Mr. Ron Kramer.

Okay.

I appreciate you all participating.

Excellent quarter.

We've got a lot of work ahead of us and we look forward to speaking to you in November.

Thank you very much.

Ladies and gentlemen, this does conclude today's conference.

We appreciate your participation.