Griffon Corp (GFF) 2014 Q4 法說會逐字稿

Good day and welcome to the Griffon Corporation fourth-quarter and full-year 2014 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Doug Wetmore, CFO. Please go ahead, sir.

Thank you, Matt. Good afternoon, everyone. Ron Kramer, our Chief Executive Officer, is with me on the call. There are certain matters I want to bring to your attention before we get into the details of the call. First, as Matt mentioned, our call is being recorded and will be available for playback, the details of which are in the press release issued earlier today, and are also available on our website. Second, during our call, we may make certain forward-looking statement about the Company's performance. Such statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For information concerning those factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statement in today's press release as well as the risk factors discussed in our various filings with the Securities and Exchange Commission. Finally, some of today's prepared remarks will adjust for those items that affect comparability between reporting periods. Those items are laid out in the non-GAAP reconciliations included in our press release. Now, I'll turn the call over to Ron.

Good afternoon. We finished 2014 strongly and expect more growth in 2015. Our revenues were up 6.4% to $2 billion, the highest revenue in Griffon's history. Topline results were driven by organic growth in all segments and the benefit of AMES's acquisition of Cyclone and Northcote during the year. 2014 segment adjusted EBITDA totaled $191 million, an increase of 5.3% year over year. Our normalized EPS was up 76% to $0.51 per share, compared to $0.29 per share in the prior year. Overall, we were very pleased with these results which reflect steady improvement in each of our operating segments. Our strategies implemented over the past few years are starting to reflect the earnings power of our businesses.

I'll comment on each of the operating segments and then Doug will take you through the financial results in a bit more detail. Starting with home and building products, for the full year, our revenue totaled $979 million, an increase of 15% compared to the prior year. AMES revenue increased 20% compared to prior year, reflecting both the improved pots and planter sales in the US increased snow tool sales throughout North America. Two acquisitions, Northcote acquired in December, 2013, and Cyclone, acquired in May, 2014, accounted about half of AMES sales increase for the year.

Our doors revenue increased 9% in 2014, reflecting strong 7% volume growth augmented by favorable product mix. For the full year, home and building products segment, EBITDA increased 10% to $77.2 million, primarily due to increased volume in favorable mix in doors and the contributions from the acquisitions of Northcote and Cyclone. These improvements were partially offset by the increased AMES distribution and freight costs incurred as we complete the final stages of AMES plant consolidation initiative.

We continue to believe we're in the multi-year housing recovery with new residential construction and repair and remodel levels in the United States improving. This view has been supported by the continued sequential improvement in our door volume through October and so far into November. Our recovery bodes well for both our doors and our tools businesses. As housing recovers relatively small increments of additional revenue will carry significant improvement and profitability for the home and building products segment.

Telephonics had a very difficult comparison with the last years record performance, and we're very pleased with how Telephonics closed 2014. It's revenue totaled $419 million, which was a decrease of 8% from the prior year, but the prior year included $33 million of electronic warfare program revenue, in which Telephonics served as contract manufacturer for which there was no revenue in this current year. So Telephonics core revenue was essentially flat to last year. Segment adjusted EBITDA for 2014 was $57.5 million, decreasing 9% from the prior year record. The decline was mainly attributable to the absence of electronic warfare revenue which reduced gross profit, product mix, and some increased operating costs.

Notwithstanding the election results this past week, there remains a lot of uncertainty regarding the federal defense budget. We're hopeful that the environment improves with the new Congress. We've consistently stated that we consider Telephonics and the core programs it participates in to be well-positioned in an uncertain environment. Moreover, Telephonics continues to take steps to reduce its cost base in uncertain times.

In the current year, Telephonics eliminated 80 positions, recognized $4.2 million of restructuring costs in connection with the closure of its operations in Sweden, voluntary early retirement plan, and a reduction in force aimed at improving efficiency by combining functions and responsibilities. Our experience suggests that demand and funding for programs in intelligence, surveillance and reconnaissance remain reasonably well-funded, relative to other areas of the defense business, Telephonics finished the operating year with a strong order book. Our funded backlog ended the year at a record of $494 million versus $444 million at September 30, 2013.

Turning to plastics, revenue totaled $593 million for 2014, increasing 5% compared to the prior year with the increase reflecting a combination of favorable product mix, increased volume as well as the pass-through of increased resin costs and our customer selling prices. Plastics 2014 segment adjusted EBITDA was $56.3 million, increasing 17% from the prior-year level, mainly driven by the improvements in both volume and mix and continued efficiency improvements. This was an excellent performance on a 5% topline increase. Plastics team has done an outstanding job over the past three years and we look forward to many more years of success with them.

Our expanded capacity has made us a stronger global competitor and is enabling us to service and sustain our industry leadership position. We've made tremendous progress improving operations and servicing our customers and our goal is to continue to improve our margin beyond this historical standard.

Turning to corporate, as I noted before, our adjusted earnings per share growth this year was driven primarily by revenue and operating profit improvement at our segment level. These improvements were coupled with several corporate actions taken during the year. First, we completed a refinancing of the Company's debt that decreases interest expense by nearly $8 million annually. Moreover, in so doing, we extended the maturity of the debt through 2022 giving us stable, low-cost financing for an extended period of time.

Second, we continue to increase shareholder value through share repurchases. Since 2011, through the end of our fiscal year, September 30, 2014, Griffon's repurchased 11.4 million shares of its common stock for $122 million. At September 30, 2014, we had a remaining repurchase authorization of $38.9 million. Earlier today, our Board declared a regular quarterly cash dividend of $0.04 per share payable on December 23 shareholders of record at the close on December 3. This dividend represents a 33% increase in our quarterly dividend per share and it reflects our strong belief in the bright future prospects for our Company.

The acquisitions we made this year of Northcote and Cyclone have further strengthened AMES leadership position in lawn and garden tools. With these additions and the coming conclusion of AMES plant consolidation initiative this current quarter, AMES will be well-positioned to provide excellent customer service and improving profitability. Equally, we've invested in plastics, doors, and Telephonics, all to position the businesses for growth and continued improve profitability.

Overall, I'm very pleased to say we're successfully executing our strategy of steady improvement in each of our operating businesses and each one of them is poised for further growth and success.

Doug will now take you through the quarter in a bit more detail and then make a few closing remarks and open it up for your questions. Doug?

Thank you, Ron. Consolidated revenue for the quarter totaled $526 million, an increase of $77 million or 17% compared to the prior year quarter, and revenue increased in each of our operating segments. Home and building products with quarterly revenue totaling $255 million lead our fourth-quarter growth, with a 29% increase compared to the $198 million reported in the prior-year quarter. AMES quarterly revenue increased 47%. Inclusion of operating results of Northcote and Cyclone accounted for a 35% increase with the balance of the growth attributable to increased snow tool sales in advance of the coming winter season.

Door revenue increased 17% in the quarter, primarily due to a 12% increase volume do with the balance attributable to favorable product mix. Doors had a great fourth quarter and as Ron previously mentioned, order activity for doors continue to be very strong through October and through the first ten days of November. EBITDA margin for home and building products was 8.4% of sales compared to 7% of sales in the prior year quarter. Fourth-quarter segment adjusted EBITDA totaled $21.4 million, increasing 55% compared to the prior-year quarter. Inclusion of operating results of Northcote and Cyclone, both based in Australia, accounted for 35% of the increase in EBITDA as these businesses move into the important spring and summer season in the southern hemisphere.

Balance of the profit improvement was driven by increased volume at AMES and by both the volume increase and favorable product mix in the doors business. Partially offsetting the volume benefit, EBITDA was unfavorably impacted by 3% on translation of Canadian dollar results into the stronger US dollar. Also, and as Ron mentioned, in the fourth quarter AMES continued to experience various manufacturing inefficiencies as we work through the final stages of the plant consolidation initiative. AMES also continue to experience higher levels of distribution and freight costs as we strive to minimize customer service disruption during this consolidation process.

Having said that, we continue to be on track for completion of this initiative at AMES and expect margin improvement to commence in calendar 2015 as the reorganization initiatives begin to come to a close. We continue to expect annual cash savings exceeding $10 million per year beginning in calendar 2015, based on current operating levels. In 2014, home and building products recognize $1.9 million in restructuring and related costs, mainly related to one-time termination benefits facility and other personnel costs as well as asset impairment charges related to the AMES initiative.

Turning to Telephonics, fourth-quarter revenue was $116 million, an increase of 10% from $105.7 million reported in the prior-year quarter. That improvement year over year was driven by increased sales of Romeo Radar products. Segment adjusted EBITDA for Telephonics was $17.5 million, or 15% of sales, in the quarter compared to $18.2 million, or 17.2% of sales in the prior-year quarter. The reduced profitability in the quarter was due to a combination of a change in mix against the year-ago period as well as variances in expenditures for research and development and bid and proposal activities. The 2013 fourth-quarter benefited from very low levels of R&D and bid and proposal costs.

Telephonics EBITDA margin for the full year was 13.7% of sales, compared to 13.9% in the prior year. Again, as Ron mentioned, in the quarter Telephonics recognize $4.2 million in restructuring costs in connection with the closure of Sweden operations; a voluntary early retirement plan; and a reduction in force; both of which took place on Long Island, all targeted at improving efficiency by combining functions and responsibilities. The end result of which was the elimination of 80 positions. Telephonics finished the year with a record backlog of $494 million and approximately 65% of that is expected to be fulfilled in the next 12 months.

For the fourth quarter, plastics revenue grew 6% to $154 million against $145 million in the prior-year period. Quarterly revenue reflected a 5% increase in volume and a 2% pass-through of higher resin costs, partially offset by unfavorable product mix. Regionally, sales growth resulted from increased volumes in both North America and Brazil, which was partially offset by volume weakness in Europe. Fourth-quarter segment adjusted EBITDA decreased to $12.4 million, or 8.1% of sales, from $14.3 million or 9.8% of sales in the prior-year quarter. That EBITDA decrease in the quarter resulted from a combination of the product mix I just mentioned, unfavorable exchange rates, partially offset by the benefits of improved volume and ongoing efficiency initiatives.

R&D expenditures for plastics in the quarter also increased measurably over the prior-year quarter, mainly due to the timing of expenditures. Resin had no significant impact on profitability in the quarter. For the full year, plastics segment EBITDA margin increased 100 basis points to 9.5%, or $56.3 million from $48.1 million in the prior year and we continue to target full year margins in excess of 10% moving forward.

Now, moving on to the consolidated income statement, consolidated gross profit was $125.6 million, representing a margin of 23.9% which evidences a 30 basis point improvement over the prior-year quarter. Consolidated selling general and administrative expenses were $101.7 million, or approximately 19.3% of sales, versus 19.1% in the prior year. SG&A expense in the current quarter included $800,000 of acquisition costs related to the Cyclone acquisition. Net income from continuing operations was $7.9 million, or $0.16 per diluted share, compared to $3.4 million, or $0.06 per diluted share, in the 2013 quarter. Current quarter results included the restructuring costs, $2.6 million after-tax representing $0.05 per share.

There was the impact of debt extinguishment on our full-year effective tax rate of about $1.5 million, or $0.03 per share; the acquisition costs I just mentioned, which represents about $0.01 per share after-tax and discrete tax benefits of $3.1 million or $0.06 per share. The prior-year quarter had $1.2 million of restructuring costs representing $800,000 after-tax or $0.01 per share and discrete tax benefits of $1.5 million or $0.03 per share. Excluding these items, current quarter adjusted income from continuing operations was $6.4 million, or $0.13 per share, compared to $5.7 million, or $0.10 per share in the prior year quarter, a 30% increase. As I mentioned before the reconciliation of GAAP results and EPS to the adjusted results is included in our press release.

In terms of income taxes, there was a lot of noise during the course of the current year primarily as a result of the debt refinancing. We reported a pretax loss for the year ended September 30, 2014 compared to pretax income in the prior year period. In 2014 we had a benefit of 96.9% compared to a provision of 52.6% in 2013. Now let me try to make a little bit of sense of that. First of all, we had the net discrete benefits of $4.6 million this year and $325,000 last year. Those results from the release of established tax reserves for uncertain tax positions on conclusion of audits, the filing of tax returns in various taxing jurisdictions, and tax basis review and adjustment for the impact of tax law changes enacted during 2014.

The 2013 benefit, also reflected net benefits resulting from various tax planning initiatives undertaken in prior years and the retroactive extension of the federal R&D credit that was signed into law January 2, 2013. Excluding all those discrete items, the 2014 rate would have been a benefit of 15.1% and the 2013 rate would've been a provision of 54.9%. Now we've dealt with a couple of other permanent differences for the past few years. They're not deductible in determining taxable income, mainly limited deductibility restricted stock, tax reserves, and changes in earnings mix between domestic and non-domestic operations. All of which are material relative to the level of pretax results.

Excluding all the discrete items and the impact of the debt refinancing on our full-year results, the effective tax rate for 2014 approximated 38%, consistent with our prior guidance. In terms of our expected tax rate in 2015, I currently expect the rate to range between 36% and 38%, excluding any discrete period adjustments. Geographic earnings mix will impact the rate somewhat and the rate may also vary significantly in the event of any legislative action with respect to the US federal corporate tax rate.

Capital spending in the current quarter was $22 million. For the full year spending was $77 million. That's somewhat higher than our previously communicated expectations. The increase in spending in the last quarter of the year is more reflective of timing of expenditures. There were no new projects undertaken in the quarter that had not been contemplated in our previous guidance. Looking forward, we estimate total capital spending in 2015 to approximate $80 million.

Depreciation and amortization was $17.4 million in the current quarter and $67.4 million for the full year. In 2015, we expect depreciation to be in the range of $60 million in amortization of about $8 million. At September 30, 2014 we had $92 million in cash and total debt outstanding net of discount of $813 million, resulting in net-dept position of $721 million. We have about $181 million available for borrowing under our revolving credit facility.

With respect to our guidance for FY15 revenue, we expect home and building products to grow in the mid-single digits, benefiting from inclusion of Cyclone and Northcote for those portions of the year that we did not have them in the 2014 year. Plastics is expected to grow in the low-single digits and Telephonics is also expected to grow in the low-single digits.

In providing this guidance, we're mindful of many risks that may affect those results. First, as we've seen over the last couple of years, AMES is most subject to the weather that can dramatically affect point-of-sale of many of our customers and directly impact our revenue. We continue to contemplate a gradual recovery in housing, including repair and renovation of existing housing stock, which should benefit our home and building products segment.

While Telephonics backlog is solid the future of the US Department of Defense budget remains uncertain and it's difficult to forecast the time required to develop international opportunities in Telephonics business. Finally, Plastics guidance is most susceptible to variation due to a combination of resin pricing and foreign currency, as well as keeping in mind that half of our business is in Europe and Latin America. In both locations macro economic conditions remain uncertain and that's further aggravated by the fact that both the euro and the Brazilian real have weakened considerably in the last several months, in comparison to actual exchange rates used in FY14.

Based on the revenue expectations outlined, we expect our segment adjusted EBITDA to be $200 million or better, representing a 5% or better increase over 2014 results. In forecasting this level of profitability, we are giving consideration to certain long-term initiatives that we have underway. Most notably, in Telephonics, but in all of the businesses that will impact operating results for the next few years but which we expect will yield significant benefits in the years to come. Corporate and unallocated expenses are expected to approximate $34 million, including all equity compensation for the Company in 2015. That equity comp will be in the range of $12 million to $13 million and we will continue to update this guidance as the new fiscal year progresses.

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

Thanks. We're very pleased with our results for 2014 and are encouraged to see our efforts to improve efficiency driving earnings growth. We're entering 2015 on a solid foundation from the work we've done over the past five years. We expect continued improvements in both revenues and earnings in the years ahead as we continue to drive efficiency across the Company. We're committed to shareholder value creation and are confident that we can make investments for organic growth, pursue additional acquisitions and continue to return value to our shareholders via our dividend and share repurchase programs. We're very optimistic about our prospects.

With that, Operator, we'll open it up for questions.

Thank you.

(Operator Instructions)

Seth Yeager, Jefferies.

Good afternoon.

Hi, Seth.

Very nice quarter. Can you talk a little bit further about the strong unit volumes within the door segment? Definitely above what I had modeled. Can you just sort of remind us the exposure there for new construction versus replacement activity or any sort of one off things, any restocking, maybe, that you guys saw?

Well, we continue to believe that we're in the early stages of the housing recovery and our performance is as much about the management of the Business than it is about the recovery in the market. We have positioned this Company over the last several years through plant consolidation to be able to take advantage of what we knew to be a repair and remodel driven business. And while new home construction is helpful to us, we skew much more to the repair and remodel through both our big-box relationships and through our dealer network.

So, this is about a business that's taken costs out, has increased market share. And we believe that any increase in the housing market, which we continue to believe is ahead of us, is going to benefit both the repair and remodel and the new home side of that business.

That's helpful.

Seth, long-term over the last decade or longer, repair and renovate has represented about 70% of the residential business and the balance being new construction.

Got it. And that sort of what I thought. What's interesting is when you look at the Census Bureau data, it tends to imply that R&R has been down pretty dramatically and I would suspect that this is relatively on average big-ticket items.

It seems like that certainly isn't the case for you guys. You're still seeing pretty strong organic underlying growth there?

We're seeing both good organic growth as well as market share gains.

Got it. Okay. And thanks for the details for your outlook on 2015.

One question I had is around the ongoing AMES restructuring. The last three or four quarters you've used the same sort of language in your filings around the expectation of $10 million in cost saves on current operating levels. Given that those operating levels are higher today than they were when you first started that initiative, what upside do you see to those savings as you look into 2015? $10 million a little conservative to me. Is that fair to say?

Well, look, we try to be conservative in how we view this and let's be realistic about how fragile the recovery and the US economy has been. We give guidance to be helpful for investors to understand the trends and most importantly we try to give guidance from an EBITDA standpoint for credit investors.

We believe that the earnings power of these businesses is substantially beyond their current performance. The home and building products segment on a blended margin basis between our doors and our AMES business should achieve a 10% or better EBITDA target some time in the foreseeable future. Exactly when that happens we couldn't tell you.

What we're certain of, and if you go back and look at the history of where we were with our doors business when we went through this plant consolidation and restructuring initiative, is that when you build on the success of some of these initiatives, over time margins improved. And we knew we had issues to deal with in AMES manufacturing footprint which we addressed over a period of years. We addressed a management issue that we felt was going to reposition the Company for further growth.

We feel like we're in a very strong position going forward to achieve increased profitability and exactly where the margin improvements top out, I'm not sure but it's certainly ahead of us. We want to continue to give guidance that's going to be helpful but quarter-over-quarter, year-over0year, we're going to be impacted by everything from weather to the economy. And we'd rather be in a position of meeting or exceeding than disappointing.

No, I appreciate that. Just last one for me. What opportunities are you seeing in the acquisition pipeline?

With the low growth relative to your other segments and somewhat uncertain government outlook for Telephonics, is that a business that you would consider divesting? What's the longer term thoughts around that particular segment? Thank you.

We like each of the businesses, each of the segments we're in and we're always looking to do tuck-in acquisitions around those businesses. Our growth plans have always been to look for opportunistic growth through acquisition.

The reality of today's marketplace and where we've positioned Griffon over the last several years is to get the operating performance of each of the businesses that we own into much better shape, all of which is reflected in our results in 2014 and beyond. We are very happy to continue to run the business as we own and grow them and expect that we've got some tailwinds behind us in the economy and in each of the operating strategies. We're very happy with our portfolio of companies and we hope to add to it over time.

All right, great. Thanks a lot. Good luck.

Thank you.

Bob Labick, CJS Securities.

Good afternoon. Congratulations on the quarter and the year.

Thanks, Bob.

Thanks, Bob.

I just want to talk a little bit more about AMES to start. Obviously a very strong quarter really good results coming out of the tuck ins, the acquisitions you made. Can you give us a sense of the organic expectations for next year as well as some of the incremental contribution you might be expecting from those acquisitions?

And then also, have you filled out Australia now? You seem to have a pretty good critical mass of there, or are there more opportunities for acquisitions there?

Bob, let me touch on the numbers for 2015 and then maybe Ron can talk to the acquisition part of the question.

At the present time, obviously we said that the Cyclone business on an annualized basis was, I don't have it front of me, but I think it was $60 million of revenue and Northcote was somewhere in the range of $25 million to $30 million. On a full-year basis, let's say round numbers adding to $100 million and we've had Northcote for now three quarters and we've had Cyclone for just a little over one quarter so, four months. You can kind of work it out. You can certainly see the impact of that in the reported numbers. Northcote and Cyclone accounted for 35% of a 47% increase.

That does speak to pretty good volume, that 12% growth and we commented on that strong performance in pots and planters and the snow load in for the coming winter season. So I think basically you're looking at, in this environment, taking into account the incremental effect of Cyclone and Northcote, you're probably looking at low- to mid-single-digit growth organically for AMES in North America. And that will be subject to the normal impacts of weather and the usual things we've experienced over the last couple of years.

Bob, I would add to it from an acquisition standpoint, look, we've been very successful building out the AMES business through Southern Patio, through Northcote, through Cyclone. And, we have a confidence level that the leadership team, Mike Sarrica, has come into the AMES business, he is in his first year there, has had a tremendous impact on repositioning and getting both costs out of the business.

And the growth prospects for this Company and the acquisitions prospects, we expect the business to grow organically and we're going always look for tuck-in acquisitions like what we've done over the past couple of years. There seem to be an unlimited number of smaller tuck-ins that we can do.

For 2015, our plan is to integrate what we've already done and execute and prove that we can improve operating margins, get to a much higher level of performance throughout all of our companies. But very excited about where we have AMES positioned going into this year.

Okay, terrific. And then just jumping over to films, you've did a very good job for the year with 100 basis point increase in margins, obviously the quarter had a little mix going against it.

Can you just tell us about the opportunities? You said you're still targeting above 10% on an annual basis going forward. Can you talk about, I guess geographically where the opportunities lie and what it will take to keep improving the margins?

Yes. I'd say North American business continues to do quite well. We've improved significantly our German business, but we think there's more opportunity there. Our Brazil business, which had been a problem is now trending up.

So we continue to have growth outside of the United States and we continue to have opportunities within the United States. We think the 10% EBITDA operating margin is well within our sight and we're optimistic about the prospects of where Allen Copeland and his team have positioned the Company.

We've come a tremendous way from where we were two years ago, the year-over-year, the quarter-over-quarter improvement. There's always going to be some variability in this business based on FX and resin costs, which as you know is the three to four month pass-through. But the operating efficiency of the Company is markedly improved from where was and its growth prospects are very much ahead of it.

Growth in this business comes with capital expenditures and we're always evaluating putting money to work in the business versus other alternatives. We're excited about where we've got the Management team, where we got the strategy and the proof is in continued operating performance.

Thank you. And then going to -- on the Telephonic side, you obviously addressed the budget uncertainty at the DoD. I know that's three-quarters, or nearly three-quarters of the business on that side. Could you talk a little bit about the growth opportunities outside the DoD, be it the small FAA announced you made or some international opportunities or what you're looking for there?

Yes. We continue to believe that part of Telephonic's growth has to be by doing the diversification to both commercial business as well as international business, both of which take time and we believe that are part of its strategic plan. We are investing in the business significantly to be able to position our technology to be ahead of our competition.

Our Indian joint venture, we're optimistic about with the new guidelines there and hope to make some progress on both our ownership structure there as well as our ability to move that business into a revenue-generating and ultimately profit-creating business opportunity. But the internationalization for Telephonics takes time.

We're excited about where the Company is and it's got a good quarter backlog in its existing businesses. And these are all the things that are topical within Telephonics and its dialogue with Griffon on an ongoing basis as how to grow the business. We're very focused and very hopeful that FAA, Custom and Border Patrol, international sales, are all part of our future.

Great. Last one for me, you touched on it a moment ago but the CapEx budget for next year, I think you said is $80 million, can you just -- with the AMES restructuring winding down can you tell us the focus of the CapEx budget for the coming year?

Well, Bob, it's a budget first of all and everything is still subject to very detailed scrutiny on an individual project basis. It's a number that we put out there and then we'll have to update that as the year goes on.

But AMES will continue above and beyond the plant consolidation initiative. There's some additional capital we have there to further improve efficiency and then you've got some ongoing investment in plastics as well as building products. You round it up, but we'll keep you posted as the year progresses and again, every project is subject to a very detailed review.

Yes and I'd make the overriding comment that investing capital back into the businesses is what positions the business for, as we think about it, long-term growth. And the capital that we've committed to the door business has absolutely come home to show us increased performance. The AMES business similar, Telephonics over a period of years we continue to believe capital spending leads to the growth in keeping ahead of the technology curve.

In our plastics business, we've rationalized a capital spending program that needed to be rationalized. So putting money into the businesses and getting our Management teams focused on return on invested capital is a priority and an ongoing goal for us. We try to put out what we expect CapEx budgets to be and we expect to get returns on capital spending.

Okay. Thank you very much.

(Operator Instructions)

Justin Bergner, Gabelli and Company.

Good afternoon, Ron, good afternoon, Doug and nice quarter.

Thank you.

My first question just, you rifled off some of the parts of your guidance a little bit quickly and I was just wondering if you could remind us the depreciation amortization and the unallocated sort of corporate overhead in the coming fiscal year.

Sure. Depreciation and amortization is not going to vary much from the current year. It's [$87.45 million] in the current year and about $68 million next year. This depreciation and amortization combined. The amortization component of that is $8 million. Okay?

Great.

I'm sorry, what were with other aspects? The unallocated? It's going to be in the range of $34 million, $33 million to $34 million, and that includes $12 million to $13 million of equity compensation. That's equity compensation for all of the business units which is retained at corporate.

Okay. That's very helpful. And then with respect to home and building products, was the guidance for mid-single-digit reported revenue growth for that segment in the coming fiscal year?

Yes. Quite frankly and a ballpark it's probably about 50% organic growth and 50% incremental due to the acquisitions.

Okay. I guess if I do the math, though, while the acquisition sort of add about $50 million in the coming fiscal year, which would leave the organic portion at a pretty negligible level? Or is my math off on that?

You're not far off. But as I say it's a budget and I said approximately 50% organic and 50% incremental due to the acquisitions.

Okay. And then on the CapEx side, as we look out sort of a couple years down the road, is that $80 million figure still sort of an above run rate or above normal figure that we should expect to come down in sort of future years? Or is that something that we should think about as a level going forward after --?

If you look historically over time, and obviously change a little bit because of the AMES acquisition a couple of years ago and some of the changes in plastics. But historically, Griffon, over a five or six year period, the CapEx always pretty much averaged out equal to depreciation over that same period of time. Some of our capital initiatives are lumpy.

It's most notable in plastics because when you make it a significant plastics investment it is significant at one point in time. But I think you'll probably see CapEx maybe stay at this level for the next year or two and then you should see a period of somewhat lower capital activity.

And enhance growth as a result of the capital spending. So to Doug's point the, particularly to the plastics business, when you make CapEx commitments there, the returns on those capital commitments are measured over years, not over quarters.

This is a business that we believe you have to be committed to and you have to continue to invest in. And ultimately the value creation proposition comes from our goal of making the businesses operate as efficiently as possible and to generate as much free cash flow as possible over time. But the goal of getting CapEx matched up to depreciation and amortization is a good benchmark to think through.

Thank you and just one more question. On the Telephonics side of the business, could you maybe talk about the portion of your backlog that is being pushed into the future in terms of when you expect to realize it? What types of the grams or products does that sort of non-current portion relate to?

We've seen, over the last couple of years, that the percentage to be realized in the next 12 months has come down from 72% or 73% down to the current estimate of 65%. Some of that had to do with international sometimes takes a little bit longer. Some of it has to do with the best information we have based on DoD spending expectations.

It is an expectation that it will be fulfilled within the next 12 months but invariably it's going to flex a little bit from that 65%. Could be north or could be south. I think the very positive thing the Telephonics should be very proud about is the record backlog at a time when there's very challenging spending overall worsening with a record backlog.

Okay, thank you. Good luck in the coming year.

Thank you.

Philip Volpicelli, Deutsche Bank.

Good afternoon.

Hi, Phil.

I was just wondering if you could give us a framework on how you guys determine the level of the dividend and how that's going to progress over time as the earnings continue to grow with the tailwinds at your back?

We have had a consistent policy since we initiated dividends that as the businesses continue to produce more cash flow we're going to look to continue to evaluate our dividend policy. And we're not targeting any specific dividend level other than when we see our business can afford to both buyback stock, invest in the business and pay dividends, we will continue to evaluate and adjust it appropriately.

Okay.

Just from your perspective, though, with the dividend increase offset by the impact of the shares repurchased during the course of the year the impact of the dividend increases a little bit over $1 million in terms of our cash flow.

Okay. Great.

And then as you look at the balance sheet, obviously you guys have done a good job with tuck-in acquisitions and continue to seek them. How much cash do you -- would you say as excess cash on the balance sheet that you would be willing to apply to acquisitions in 2015?

We don't think of it that way and when we have we have an acquisition we'll figure out how to finance it.

Okay. That's great.

And then, with regard to the revolver, it's due in 2016. Any thoughts of extending that or is that something that you'll address next year?

No we extended already.

Oh, sorry. My mistake.

When we did the refinancing a margin was extended one additional year. I think it goes out to 2019.

Okay, great. Thank you.

Thank you.

All right, thanks.

That will conclude the question-and-answer session. At this time I'll turn things over to Ron Kramer for closing remarks.

We had a very good 2014 and we expect to have a continued successful growth into 2015. We'll look forward to speaking to you in January. Thank you.

That does conclude today's conference call. Thank you all for your participation.