Matthews International Corp (MATW) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the third quarter financial results conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to your host, Mr. Steve Nicola. You may begin.

Thank you. Good morning. I’m Steve Nicola. On the call with me today is Dave Kelly, Chairman of the Board, President and CEO of Matthews. Today’s conference call is set up for one hour. The call will be available for replay at approximately 1:30 p.m. today. To access the replay, dial 1 (320) 365-3844 and enter the access code 788017. The replay will be available until 11:59 p.m. August 2, 2005.

If you access our website at www.matw.com and click on the investor information icon, you will have access to the third quarter earnings release and financial information we will discuss this morning. This data is available now.

For those of you who have questions, we ask that you please limit them to one question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so. We are conducting the call to comply with the Securities and Exchange Commission Regulation FD. At the advice of our legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements.

Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the company’s results to differ from those discussed today are set forth in the company's quarterly reports on form 10Q, annual report on form on 10K, and other periodic filings with the SEC.

I might also add that the balance sheet and income statement information we provide today should be considered preliminary data, since our 10Q for the quarter ended June 30th, 2005, will not be filed with the SEC until around August 9th, 2005.

To begin the conference, I will review the financial results for the period ended June 30th, 2005. Dave Kelly will then provide general comments on our operations. Following that, we will open the discussion for questions.

For the quarter ended June 30th, 2005, the company reported an increase in earnings per share of 13.6%, from $0.44 a year ago to $0.50 for the current quarter. For the first nine months of fiscal 2005, earnings per share were $1.36, compared to $1.21 for the same period last year, representing an increase of 12.4%. The improvement in earnings per share for the current quarter primarily reflected sales and operating income growth in our bronze and marketing product segments, the acquisitions of the Cloverleaf Group, which represents our new merchandising solutions segment, and Holjeron Corporation in the fourth fiscal quarter last year, and an increase in the value of foreign currencies against the U.S. dollar. The year-to-date improvement in operating results primarily reflected higher income in our bronze segment, the acquisition of the Cloverleaf Group, and an increase in the value of foreign currencies against the U.S. dollar.

Consolidated sales for the quarter increased 32%, or $38.3 million. Year-to-date consolidated sales increased $101.4 million, or 28%. The company's acquisitions in the fiscal 2004 fourth quarter were the significant contributors to these increases. These acquisitions included the Cloverleaf Group, the InTouch Group, and the Holjeron Corporation.

Changes in foreign currency rates were also a factor in the sales increase. On a consolidated basis, we estimate that changes foreign currency rates favorably impacted sales by $1.1 million for the third quarter and $5.5 million year-to-date versus the comparable period last year. Our new merchandising solutions segment reported sales of approximately $20 million for the third quarter and almost $66 million year-to-date. Graphics Imaging segment sales were up $8.7 million, or around 32% for the quarter, and $24.2 million, or 29% year-to-date. The higher level of sales resulted principally from the acquisition of the InTouch Group in August of 2004 and an increase in the value of the Euro. The InTouch Group is our new graphics business, which is headquartered in Leeds, England.

On a year-to-date basis, North American sales were lower compared to a year ago, but showed improvement in the third quarter. Bronze segment sales rose $3.9 million, or 8%, over the prior quarter, and $5.9 million, or 4%, year-to-date. These increases were principally the result of higher memorial sales during the quarter, which included a price surcharge implemented last year for the increase in bronze metal costs. These increases more than offset a decline in mausoleum sales.

Sales for the marketing product segment increased $2.6 million, or 28% for the third quarter, and $4.6 million, or 16%, for the first nine months of fiscal 2005. The segment sales growth primarily resulted from the acquisition in July, 2004, of Holjeron Corporation and an increase in the value of the Swedish krona relative to a year ago.

Sales in our casket segment increased $2.9 million, or 11% for the third quarter, and $1.6 million, or 2%, year-to-date. The sales growth reflected a combination of higher volume in the third quarter and price, compared to the same periods a year ago.

Sales for the cremation segment were relatively consistent for the third fiscal quarter and slightly lower on a year-to-date basis, compared to the same periods last year. Sales of cremation equipment and related supplies and services were consistent with the prior periods. Sales of cremation caskets were slightly higher for the third quarter, but lower than last year on a year to date basis.

Operating profit for the quarter was $2.3 million, or 9% higher than the same quarter last year. For the nine months ended June 30, 2005, consolidated operating profit increased $4.8 million, or about 7% over the same period a year ago. These higher levels of consolidated operating profit were primarily attributable to our bronze segment and the acquisition of the Cloverleaf Group, which were partially offset by a decline in operating results for our graphics imaging businesses. Changes in foreign currency rates were also a factor in the operating profit improvement. On a consolidated basis, changes in foreign currency rates favorably impacted operating profit by approximately $300,000 for the third quarter and $1.5 million year to date versus the comparable periods last year. The merchandising solution segment reported operating income of approximately $500,000 for the third quarter and $2.5 million year to date. The bronze segment reported an increase in operating profit of $2 million for the third quarter and $6.9 million for the first nine months of fiscal 2005, compared to the same periods a year ago.

The improvement reflected an increase of sales for the period, which included the surcharge and the benefit of productivity improvement initiatives. One of these initiatives included a personnel reduction program in March 2004, which resulted in a one-time charge for severance costs that negatively affected the segment’s reported results for the second quarter last year. The segment’s results for the current year were also unfavorably affected by significantly higher bronze costs.

Operating profit for the graphics imaging segment declined $1 million for the third quarter and $3.7 million year to date, compared to the same periods last year. The segment’s results primarily reflected lower year to date sales in North America and a decline in margins in several of its businesses. In addition, investments during the current year in developing new accounts continued to affect the segment’s domestic profitability.

Operating profit for the marking products segment increased approximately $700,000 in the third quarter, and about $600,000 year to date over the same periods last year. Contributions from the segment’s newly acquired Holjeron operation were the significant factor in the year over year improvement. The year to date results for the segment were also affected by costs incurred in new product development initiatives.

Operating profit for the casket segment declined a little over $200,000 for the third quarter and about $1 million year to date relative to the same periods in fiscal 2004. A significant increase in steel costs and expenses incurred in establishing a casket manufacturing facility in Mexico were the principal factors in the reduction in operating income. For the current quarter and year to date periods, costs charged against income for the Mexican facility approximated $1 million and $2.1 million, respectively.

The cremation segment reported an increase in operating profit of approximately $300,000 for the third quarter but a decline of $600,000 year to date compared to the same periods last year. Although the segment’s margins improved during the third quarter, they are still considerably below expectations, and management is continuing to work on strategies for improvement.

Third quarter in year to date sales and operating profit by segment are posted on our Web site.

Year to date operating profit percentages by segment are as follows. Bronze, 28.2% of sales; casket: 13.3%; cremation, 1.7%; graphics imaging, 10.2%; merchandising solutions, 3.8%; marking products, 17.2%.

Our fiscal 2005 third quarter consolidated operating profit as a percent of sales was 17.3% of sales, compared to 20.9% in the third quarter last year. Our year to date consolidated operating profit as a percent of sales for fiscal 2005 was 15.9%, compared to 19.1% last year.

Gross margin for the quarter was 35.9% of sales, versus 40.2% a year ago. Gross margin for the nine months ended June 30, 2005 was 34.5% of sales, compared to 38.3% a year ago. The decline primarily reflected the significant increase in metal costs, lower margins in our graphics operation and the acquisition of the Cloverleaf Group, which generally has lower margins than other Matthews businesses.

Selling and administrative expenses for the quarter were 18.6% of sales, compared to 19.3% for the third quarter last year. Year to date SG&A expense was 18.5% of sales, compared to 19.2% a year ago. The decline related principally to cost controls in the bronze segment and the acquisition of the Cloverleaf Group, which generally has lower SG&A expenses relative to sales as compared to other Matthews businesses.

For the third quarter, investment income was $366,000, compared to $435,000 for the same period a year ago. Year to date investment income was $1 million, compared to $1.1 million last year.

Interest expense for the third quarter was $519,000, compared to $613,000 for the same period a year ago, reflecting a decline in the average debt levels during the quarter. For the nine months ended June 30, 2005, interest expense was $1.5 million, which was relatively consistent with the same period last year.

Minority interest deduction was $1.2 million for the quarter, compared to $1.4 million a year ago. For the nine months ended June 30, 2005, minority interest deduction was $3.8 million, compared to $4 million last year. The slight decline resulted from lower margins in several of our European graphics businesses.

Our third quarter and year-to-date tax rate was 38% of pretax income, compared to 38.8% for fiscal 2004. The reduction reflects lower estimated state and foreign income taxes.

Our cash and investment balance at June 30, 2005, was approximately $59 million, compared to $74 million on September 30, 2004. Stock repurchases were a significant use of cash in the first half of the current fiscal year. At June 30, 2005, our current ratio was 1.7 to 1, compared to a ratio of 1.8 to 1 at September 30, 2004.

Our outstanding accounts receivable balance at June 30, 2005 was approximately $89 million, which represents 51 day sales outstanding, consistent with 51 day sales outstanding at September 30, 2004.

Our long-term debt balance at June 30, 2005, both current and long-term portions, approximated $70 million. $40 million of this balance represents borrowings under our domestic revolving credit facility. The remainder is primarily debt on the books of our Italian and German subsidiaries. On July 11, 2005, we increased our outstanding borrowings under the revolving credit facility to $130 million as a result of the acquisition of Milso Industries. The majority of the revolving credit facility is April, 2009.

At June 30, 2005, we had approximately 32 million shares outstanding. Due to the acquisition of Milso, stock repurchase activity was nominal during the third quarter. For the fiscal year the company has repurchased approximately 793,000 shares of its common stock in the open market. At June 30, 2005, approximately 1,379,000 shares remain to be purchased under the current repurchase authorization. With the increase in bank borrowings related to the Milso acquisition, we expect stock repurchase activity to continue to be limited in the near future in favor of debt repayments.

Depreciation and amortization expense for the quarter and nine months ended June 30, 2005 were $4.9 million and $14.7 million respectively.

Capital expenditures for the quarter and nine months ended June 30, 2005 were $13.7 million and $21.6 million respectively. These amounts are significantly higher than the same periods a year ago, principally related to current year investments in the Mexican casting facility and the purchase of a facility in western Pennsylvania for the consolidation of several merchandising solutions operations.

The total cost of the Mexican project is currently estimated to be in the range of $11 million to $12 million, which includes both capital and expense charges.

Finally, as indicated in our press release yesterday, the company does not expect to achieve the same level of earnings per share in the fiscal 2005 fourth quarter as it did a year ago. Last year’s fourth quarter was unusually strong for some of our segments, and those results are not expected to repeat, especially given the current high cost of metals and continued challenges in several of our businesses. Although we expect the acquisition of Milso to be accretive to earnings per share on an annual basis, our fourth fiscal quarter is seasonally the slowest for the casket business. In addition, interest costs on acquisition related borrowings and required purchase accounting adjustments will unfavorably impact fourth quarter earnings. In light of these factors and considering our ongoing investments in Mexico and the new merchandising solutions facility, we are not adjusting our previously forecasted fiscal 2005 earnings per share projections at this time.

This concludes the financial review, and Dave Kelly will now comment on our operations.

Thank you, Steve. Good morning, everyone. I’d like to address my comments this morning primarily to the coming year. As Steve noted just a minute ago, our projections for this year are working out pretty much as we have anticipated from the beginning of the year, somewhere in the $1.80 to $1.85 range. So, not a surprise to us. The question then becomes what’s going to happen next year. And of course, I preface my comments by saying that Matthews does its budget process in the August-September time frame. So, we really won’t have a solid handle on next year until another couple of months. But, looking at areas where I expect to see improvement and I believe we have opportunities for improvement, I’d really like to focus on three principal ones.

Starting off with our casket businesses, the Milso and York brands, we definitely see opportunities there in the coming year. We made a very significant investment in our Mexican facility. It is now up and running on a very limited basis – what I might call test production. I think we’re pretty much on schedule to get it to significant production volumes by the end of this year. That should be a positive for next year. The Milso acquisition, obviously, should be a positive for us for next year, and, hopefully, there will be some normalization of our material costs, especially steel, that could conceivably help us next year. Wrapping all those things together, and also including the obvious impact that higher volume levels can potentially have on our factory costs, I think we should see an improvement in our operating profits as a percent of sales for our casket businesses in the coming year.

Secondly, our merchandising solutions area has evolved pretty much as we expected from an operating profit viewpoint. We expect our operating profit to be pretty much on our budgeted levels in absolute dollars and percent. One surprise we had was we had a lot more growth than we anticipated, and our top line revenue is higher than we had expected. Right now, we would see no reason that shouldn’t continue into next year. Our major cost improvement projects are [online] schedule. We are in the process, as I have mentioned in the past, of consolidating the seven facilities down to one. That remains on schedule to be completed in the first calendar quarter of next year, March of 2006. That, together with some other productivity improvements that we’re working on, should enable us to improve our operating margins pretty much along the lines that we expected in that acquisition, so we’re pleased with the way that’s going.

The third area that I would hope for improvement is in our graphics imaging businesses. We’ve had a little bit of a downturn this year, which was not expected in our budgeting process, and that relates to some volume impacts that we’ve had in some of our operations in Europe and North America. There is an ebb and flow of customers in that business, and I think we suffered a little bit this year from the ebb. Hopefully, some of the efforts that are underway and have been underway will help generate additional top line revenue for the coming year and let us get those margins back to the levels that we’d like to see them at.

So, I would say, you know, taking an early look at 2006, once gain, it needs to be verified by our budgeting process, but I certainly see opportunities for improvement pretty much along the lines that we’ve anticipated and indicated in our prior conversations.

With those few comments, I’d like to open the call to questions. So, if there are any questions now, Mary?

[OPERATOR INSTRUCTIONS] Bill Burns from Johnson & Rice.

Good morning, Dave and Steve. My question is about Milso. How are you going to approach the integration? I’m not familiar with Milso. Do they own their distribution centers? How exactly is York and Milso going to integrate?

Okay, Bill. Milso-- we’re very pleased with this acquisition. We’ve ended up with a top-notch management team with a great deal of in-depth experience in the death gear industry. Milso does, for the most part, distribute caskets through a wholly owned distribution company. They have very close contacts with funeral customers throughout the industry. The integration question is a really very important one to us. We just finalized the acquisition in the past couple of weeks when we got the HSR issue resolved, and we have begun now a series of strategy meetings with the Milso management and Matthews management and York management. Out of those strategy sessions will come specific plans as to how to integrate on the manufacturing front so we can maximize the benefit from the higher volume and how to integrate our distribution and selling efforts. Our plan is to maintain two brands and to sell one brand through our York distribution network and the other brand, the Milso brand, through their existing distribution company.

And then a follow up. For modeling purposes, you talked about interest going up. The financing- would it be – should I assume that it was all done with the credit facility?

Yes. We took the credit facility from $40 million at June 30 to $130 million as a result of the acquisition.

Okay. Good. That’s what I’m going to model, then. Thanks, Steve.

James Clement [sp] from Sidoti.

Two questions, if I may. The first is about the – with the addition of Milso, looking forward, I know you guys have made a lot of acquisitions over the years, so sometimes I think the seasonality of your business sort of gets distorted in the actual results. But, can you kind of walk us through what the resulting seasonality should kind of look like?

Well, Jamie, I think what you’re going to see with respect to what Milso adds is probably a typical seasonality for the casket business, where – if you correlate it to our fiscal quarters, probably toward the end of the first quarter and our second quarter, generally the winter months are generally the stronger seasonally for the casket business. Then, in the warmer weather months, it tends to decline. Again, that’s why we say looking at this acquisition and the impact on our fourth quarter – again, it’s a little bit hard for us to project much in the way of incremental improvement right away.

Okay. The second question is about metal prices. Refresh my memory. I think I could be wrong, but I think it was the September quarter, the fourth quarter of fiscal ’04, when you really started to feel the impact of rising metal prices. Is that right?

Yes. That’s correct. I would say, Jamie, that we started to feel the rise in the metal costs earlier than September 30 of last year, but certainly in the third and fourth quarters and then into the first and second quarters this year. And, from a bronze metal price perspective, that’s just continued to go up. It’s at its highest levels that it’s been during this whole period today.

Okay. But, I guess the question I would sort of have is that the real bulk of the initial increase – I mean it’s almost getting to the point where it’s sort of been annualized now. Right?

I wouldn’t say that, Jamie. I wouldn’t say it’s been annualized. No. Because early on at September 30 – again, I’m ballparking these numbers for you, but at September 30, 2004, the cost of bronze was probably around, say $1.25 a pound, give or take. Now, today, it’s trading up as high as $1.50 to $1.60. So, if it were to stay at these levels for a full fiscal year, it would annualize at a higher rate than what we’ve seen this past fiscal year.

Okay. Alright. Thanks very much. I’ll let somebody else ask some questions. Thanks.

Greg Halter from Great Lakes Review.

I wanted to probe the merchandising solutions unit a little more. Dave, you mentioned that it’s growing a little more rapidly than you had expected. I’m just wondering where that’s coming from – if it’s the fact that the entity is part of Matthews now or there’s new account wins or referrals. What’s going on there to drive that growth?

Well, it’s kind of very exciting to us right now because it appears that the strategy that we went into this acquisition with is working quite well. First, there have been some re-wins of some major customers. iDL’s largest customer is a petroleum company, and they do the signage for it throughout the eastern part of the United States. We re-won that business. And then, secondly, there have been several new customers which have come partly through the efforts of our consultancy, Big Red Rooster. As they’ve gone in and done retail consulting work, they have been able to successfully refer accounts to iDL. So, we picked up some new business. Now, it’s unfortunate, but for us getting as much new business as we did, just at the same time that we were moving our facilities from one location to another, actually caused us a little bit of pain because it forced into situations where we had to have excess overtime. We did not realize the profit from that new business that we would have liked to have earned. But, I think once we’re into our new quarters, then we’re going to be helped substantially in that regard.

Okay. And one follow up, back on the bronze side of things and copper. If prices continue to rise here, would there be or could there be another surcharge?

I don’t think there would be – we can really answer that question. It just depends upon what the situation and circumstances are. We certainly don’t want to have another surcharge if we can possibly avoid it. We’re working as hard as we can to find ways to reduce our costs. We’re looking at consolidations. We’re looking at productivity improvements. Our customers certainly don’t want to see us have additional surcharges. We’re going to keep our fingers crossed, hope that we’ve seen a peaking of these prices, and hope that we don’t see any more surcharges in the coming year.

Charles Smith of Fort Pitt Capital.

Quick question on merchandising solutions – sort of a follow up. Given that you’re consolidating those ops, what’s the square footage of your new facility? Are you confident that you’re going to have enough capacity there, given the revenue growth greater than you expected?

The new facility is located in Butler, Pennsylvania. It’s approximately 600,000 square feet. We’re not fully utilizing all 600,000 square feet currently because we haven’t completed moving all the operations. But, we’re getting there rapidly. We think that it’s going to be more than adequate, although there’s still some question about that. We have layout issues, and we have productivity issues, and we have some staffing issues that we have to continue to work through. There might not be 100 percent unanimous opinion about that yet, given the higher volume. But, I think we will be able to handle, particularly given a second shift, all of our requirements in that facility.

Deforcit Hindman [ph] of Paradigm Capital.

I just had a couple of questions. One of them is about the Milso acquisition in terms of the margins. What were their margins compared to yours prior to the acquisition?

We haven’t disclosed those margins yet. We’re still working through financial auditing and financial review of those numbers. They were a private company, so, as you can appreciate, until we get comfortable with the numbers, we’re not in a position to disclose that yet.

Well, can you say anything about margins – if they will be improved or less than what they’re currently running at?

We think that with the acquisition and with the addition of the Milso volume through now our combined capacity, we think there’s an opportunity to improve the overall margins of our casket segment beyond where they are today.

All right. And a follow up on the Mexican facility. Is that to increase overall capacity? Are we going to see some of the U.S. capacity shift to Mexico?

We’re trying very hard to answer that question ourselves. Of course, like any company, we’re constantly looking for opportunities to expand our business. We’ve got a couple of opportunities to do that which haven’t played out yet. But, we also have to be realistic and say that this is additional volume, and particularly given the Milso acquisition, we have to ask ourselves the question whether we have the right number of factories or not. We have put together a manufacturing team to do that. They’re going to assess each of the facilities, what the strengths and weaknesses are, and hopefully by this fall, we’ll come to a resolution.

Scott Blumenthal of Emerald Advisors.

Are you able to give us a ballpark figure on the cost of the consolidation of the merchandising solutions division?

The actual cost of the facility plus the improvements or the P&L impact? Right now, we don’t have an estimate on the P&L impact. The cost of the facility itself is about $6 million, and we’re still working through the improvements that we’re making on that facility. If you were to look at the capital expenditures for the year, $6 million of that increase year to date reflects just the building itself.

Okay. And, do you have a handle on what the cost of the move is at this point?

It’s difficult to segregate that out because – For example, in my view, part of the cost is the extra overtime that we’ve incurred. While you have people moving, you’re forced into situations where you have to work evenings and weekends. It’s kind of difficult to segregate those out. They have not been insignificant during the course of this year.

Greg Halter from Great Lakes Review.

A follow up on the capital expenditure question. I know this year is going to be higher than normal. Do you see that coming back down in fiscal ’06 to a more Matthews-like, normalized level?

I don’t think it’s going to come down to our historical averages, Greg, because we’re going to have -- between Cloverleaf, InTouch and Milso, we’ve added some significant mid-sized businesses to our group. But, certainly, the significant increase this year over last year, yeah; you’re going to see that subside, if for no other reason, the capital expenditures in Mexico – the one-time expenditures in Mexico and the one-time expenditure here related to this building. You’ll see that go away.

And, what do you expect this year will be for the full year on an estimated basis?

That’s really hard to say. Right now, we’re at $21 million, so I would think that by the end of the year, it could be around that $25 million mark.

Steven McBoyle from Lord Abbett.

I’m coming on the call here late, so I apologize if I’ve asked some questions that have been covered. First, with Milso, just on the brand strategy, can you inform me how many brands they have, what your plan is going forward, and I’ll just start with that.

Yes. Milso sells under the Milso brand. In certain sections of the country, it’s an extremely well known brand, held in high regard by funeral home customers. The York brand is also extremely well known, and it has been around for a long period of time and has a strong customer following also. So, the key part of our strategy development is how do we maintain the strengths of both of these brands in such a way that we can maximize the volume through our factories.

So, you’ll obviously maintain the Milso brand?

Oh, very much so.

And it will go exclusively through their distribution?

Yes.

And would any of your product go through their distribution?

Well, if there’s going to be – This, again, gets back to the manufacturing strategy. We’ve got to decide where we’re going to build what product. Then, part of that is going to be what type of differentiation are we going to have between the Milso brand and the York brand. You can’t really answer that question until you look at which factory you’re going to build it in at the same time. So, some of those things have to be worked out. But, as a general statement, we’re going to have two brands with distinct products.

And this was a business with $65 million in revenue?

Actually, it was $85 million in revenue for, I believe, it was calendar 2004.

And historically growing at what sort of rate?

Historically growing – the rate I don’t have available with me right now.

Maybe just on the casket side. On the earlier part of the call, you talked about significant production down in Mexico. Can you talk about how many lines you expect there initially?

We expect basically one line. It’s going to be a factory which is going to produce metal caskets. It’s going to be a modern, state of the art facility, with some of the latest manufacturing equipment in it. We have about 90 employees down there now going through various stages of training program and process development. So, as I said earlier in my comments, towards the end of this year, we expect to be at a substantial production rate in that factory.

And, substantial being how many caskets would you produce on one line?

I would say our typical factories now might produce anywhere in general from 50,000 up to 75,000 caskets. So, you know, to some extent, we’ve got to leave ourselves a little bit of flexibility in answering that question until we find out some of the other strategy questions. But, I think we’ll certainly be capable of doing that range.

And, to be able to do that range, how many lines would that require?

We’d just basically have one line.

Is that right? Fair enough. And, your comments with regards to higher volume expectations on the casket side, just being sensitive to some of your customer contracts that may be coming up this year or next year, but can you just refresh me as to when those contracts may be coming up in the near future, and, if one were to be successful, when we’d anticipate to learn of that?

These things are always in a state of flux one way or the other. The contracts are really somewhat unclear because they have riders and provisions in them, et cetera. So, I would think that in the course of this year and next year, that there will be some significant contracts that will be renewed. Whether we’ll participate in those renewals remains to be seen. We’re continuing to work as hard as we possibly can to get our product line in terms of its quality and our delivery system, our speed of delivery up to the levels expected by these customers so we can be competitive.

Okay, great. And, on the graphics side of the equation, you talked about hopefully getting back to levels of profitability as you had originally anticipated. What would those levels be? Memory serves me - mid-teens margins. Is that still a realistic goal when looking out over the next twelve months or so on the graphics side of the equation?

I said in the graphics business, 15% is the margin level that we’d like to achieve. We’ve been there in the past. We’re below there now. We’re going to – I know the management team is working as hard as they possibly can to correct some of the issues that we’ve been faced with in 2005. Again, that’s something that I probably really need to get through the budget process to have a good answer for. You know – how much ground we’re going to make up in 2006. But, I’m certainly hoping to move back to that 15% [ov].

Okay. Well, we’d like to thank everyone for participating in the call this morning. We look forward to the fourth quarter and our next conference call in November. Thank you.

Ladies and gentlemen, this conference will be available for replay after 1:30 p.m. eastern time today, through August 2, 2005, at 11:59 p.m. Eastern Time. You may access the AT&T teleconference replay system at any time by dialing 1 (320) 365-3844 and entering the access code 788017. Again, those numbers are 1 (320) 365-3844; access code 788017. This does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.