Matthews International Corp (MATW) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Matthews International first-quarter results conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Chief Financial Officer Mr. Steve Nicola. Please go ahead.

Thank you. Hello, I'm Steve Nicola. On the call with me today is Dave Kelly Chairman of the Board and CEO of Matthews and Joe Bartolacci President and Chief Operating Officer. Today's conference call is set up with the phone company for one hour and we are conducting the call to comply with the Securities and Exchange Commission Regulation FD. This call will be available for replay at approximately 1:30 PM today. To access the replay, dial 1-320-365-3844 and enter the access code 813113. The replay will be available until 11:59 PM February 3rd 2006. If you access our website at matw.com and click on the investor information icon you will have access to the first-quarter earnings release and financial information we will discuss this morning. This data is available now. For those of you will be asking questions we request that you 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.

Before beginning the discussion 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 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 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 annual report on Form 10-K and other periodic filings with the SEC. I might also add that the balance sheet and income statement data provided today are preliminary data since our 10-Q for the quarter ended December 31st 2005 will not be filed with the SEC until around February 9th 2006.

To begin the conference I will review the financial results for the quarter. Dave Kelly will then provide general comments on our operations. Following that we will open the discussion for questions.

For the quarter ended December 31st 2005 the Company reported earnings per share of $0.40 compared to $0.38 for the same period a year ago, representing an increase of 5.3%. The acquisition of Milso Industries in July 2005 and higher operating income in both our Memorialization and Brand Solutions businesses were the principal factors in the earnings growth. In addition, other income for the first-quarter last fiscal year was 1.9 million higher than the current quarter as a result of one time currency exchange gains on intercompany advances to our overseas affiliates. Please note that the prior period earnings per share amount has been restated by $0.01 to reflect the adoption of SFAS No. 123(R) which is the accounting rule requiring expensing of stock options.

Consolidated sales for the quarter were $170.1 million representing an increase of 14% or $21 million over the same period a year ago. The acquisition of Milso and higher sales in our Bronze, Marking Products and Cremation segments were the principal contributors to this increase. In our Memorialization business, Bronze segment sales were up $4.7 million or 11% for the quarter resulting from an increase in price and unit volume of Memorial products. Mausoleum sales were also higher than a year ago. Casket sales for the fiscal 2006 first-quarter increased to $48.2 million compared to $29.7 million in the same period last year. The $18.5 million increase resulted primarily from the acquisition of Milso. Excluding this acquisition, casket sales declined for the quarter on lower unit volume in certain territories. Sales for the cremation segment grew 11% from the same quarter a year ago. This increase resulted principally from higher unit volume for both cremation caskets and cremation equipment. In addition, higher prices also contributed to the sales improvement.

In the Brand Solutions business our Marking Products segment reported sales of $12.3 million for the current quarter compared to $10.4 million for the same quarter last year. An increase in product demand was the primary factor in this sales gross growth particularly from the segment's Holjeron operation which was purchased in July 2004.

Graphics Imaging segment sales declined $1.6 million or around 5% for the quarter resulting primarily from a decline in the value of the Euro compared to the U.S. dollar. Excluding this effect sales for the current period were relatively consistent with the same quarter last year. The segment's domestic sales were slightly higher for the period and European sales were slightly lower.

The Merchandising Solutions segment reported a decline in sales of $2.6 million for the first-quarter of fiscal 2006 compared to the first-quarter of fiscal 2005. This sales performance was within our expectations as the first quarter of last year included several large promotional programs which did not repeat in this fiscal year. Operating profit for the fiscal 2006 first-quarter was $22.4 million compared to $19.5 million for the same quarter a year ago. The increase of $2.9 million or 15% resulted from higher operating income in 5 of our 6 segments. Please note that prior period operating profit amounts have been restated to reflect the accounting change to expense stock options.

In our Memorialization Group, first-quarter operating profit for the Bronze segment increased $1.8 million or 18% from the same quarter last year. It's operating profit as a percent of sales increased from 23.1% in the first-quarter last fiscal year to 24.5% in the current period as a result of higher sales. Operating profit for the casket segment for the 3 months ended December 31st 2005 was 7% higher than the same period last year, due primarily to the acquisition of Milso. Excluding Milso, operating profit would have declined for the period as a result of lower sales and costs related to the new manufacturing plant in Mexico. Net operating costs incurred at the Mexican plant in the current quarter approximated $1.3 million compared to about $0.5 million for the same period last year. Operating profit for the cremation segment improved in the first-quarter of fiscal 2006 to approximately $600,000 which represents a margin of 10% of sales. Higher sales volume, improved pricing, and cost reductions contributed to the operating profit growth.

For the Brand Solutions segment, first-quarter operating profit in the Graphics segment was about $400,000 higher than the first-quarter last fiscal year. Despite the lower sales which resulted principally from a decline in the value of the Euro, operating income was higher primarily due to cost structure changes initiated in the fourth quarter of fiscal 2005.

Marking Products operating profit for the quarter ended December 31st 2005 approximated $1.9 million compared to $1.6 million for the same quarter a year ago. The 22% increase resulted from the segment's 18% sales growth for the period.

The Merchandising Solutions segment reported operating profit of approximately $800,000 for the current quarter compared to $1.4 million for the first quarter of fiscal 2005. The reduction in operating income is a result of the segment's lower sales for the quarter.

First-quarter sales and operating income by segment are posted on our website. Operating margins by segment were as follows. Bronze, 24.5% of sales; Casket, 7.4%; Cremation, 10%; Graphics Imaging, 10.7%; Marking Products, 15.8%; and Merchandising Solutions, 3.8% of sales. Our first-quarter consolidated operating margin for fiscal 2006 was 13.2% of sales compared to 13.1% in the first-quarter last year.

Gross margin for the quarter ended December 31st 2005 was 36% of sales versus 32.6% for the same period a year ago. The increase primarily reflected the Milso acquisition and improved margins in our Graphics Imaging and Cremation businesses. SG&A expense for the current quarter was 22.8% of sales compared to 19.5% of sales in the first-quarter last year. The increase relates principally to the Milso acquisition. Because Milso is in the casket distribution business it generally has higher SG&A expenses as a percent of sales compared to York casket which sells primarily through independent distribution. For the fiscal 2006 first quarter investment income was $327,000 compared to $323,000 for the same period a year ago. Interest expense for the current quarter was $1.4 million compared to $483,000 for the first quarter last year. This increase reflected a higher average debt balance for the quarter reflecting borrowings in July 2005 for the Milso acquisition. Other income deductions net was a reduction in income of about $30,000 for the current quarter compared to in increased income of $1.9 million for the same quarter last year. Other income a year ago included currency exchange gains on intercompany advances to our overseas affiliates.

Minority interest deduction was approximately $600,000 for the current quarter compared to $1.4 million for the prior period. In September 2005 the Company purchased additional ownership interest in one of its less than wholly-owned German subsidiaries. As a result minority interest deduction is lower for the current period. Our first-quarter tax rate is 37.6% of pre-tax income which is equivalent to the effective rate for fiscal year 2005. At December 31st 2005 the consolidated cash and investment balance was approximately $43 million compared to $51 million at September 30th 2005. At December 31st 2005 our current ratio was 1.7 to 1 compared to a ratio of 1.6 to 1 at September 30th 2005. Our outstanding accounts receivable balance at December 31st 2005 was approximately $107 million which represents 57 days-sales-outstanding. Outstanding accounts receivable at September 30th 2005 approximated $115 million which represented 58 days-sales-outstanding. At December 31st 2005 consolidated inventories totaled approximately $77 million compared to $71 million at September 30th 2005. The increase in inventories relates to the Company's expansion of its casket distribution capabilities. At December 31st 2005 shares outstanding totaled 32,056,128 shares. No shares were repurchased under the Company's share buyback program during the fiscal 2006 first-quarter. At December 31st 2005 approximately 1,379,000 shares remain to be purchased under the current repurchase authorization. Our long-term debt balance at December 31st 2005, both current and long-term portions, approximated $145 million. $117 million of this balance represents borrowings under our domestic revolving credit facility. The remainder is primarily debt on the books of our German and Italian subsidiaries. The majority of the domestic revolving credit facility is April 2009.

Depreciation and amortization was $5.4 million for the quarter ended December 31st 2005. Capital expenditures for the quarter ended December 31st 2005 were $3.8 million.

In November the Company provided earnings guidance in the range of $2.10 to $2.15 per share for fiscal 2006. In providing this guidance we expressed caution due to several factors such as the startup of our casket facility in Mexico and its related operating costs and the rising bronze metal costs. In addition the Company continues to work on the integration of Milso in its casket segment and is taking actions to address the low profitability rate of our Merchandising Solutions segment. For these reasons we are currently forecasting earnings per share to be at the lower end of this range for fiscal 2006. I should further note that we expect operating costs to still exceed revenues in our Mexican plant for our second fiscal quarter but are targeting to achieve breakeven shortly thereafter. This concludes the financial review and Dave Kelly will now comment on our operations.

Thank you, Steve. Steve, just a couple of comment about our earnings forecast for 2006 and a little bit of background on that issue. First as Steve has noted, that we are in the range of $2.10 to $2.15 but at the lower end of that range. During the first quarter of 2006 we pretty much have met our expectations, but looking to the full year and looking at the issues, particularly in the Casket division as Steve mentioned and also in the Merchandising Solutions we think it's prudent at this point to be looking at the bottom end of the range.

In the Casket division we are slightly behind our schedule with respect to the startup of our Mexican facility. But in some records that's good news, not bad news, because the principal driver of those delays has been the quality of our product. We don't want just a good product, we want an excellent product. And we're making sure that all of our systems and processes are working to our level of expectations. And they are, and the product that we have shipped to date has met our customers' expectations. So we are pleased with the progress we're making even though it's been somewhat delayed from our original schedule and we fully expect the plant to meet its operating guidelines in this quarter.

With respect to volume, again as Steve indicated, we've had a couple of territories where we're switching our Casket distribution from independent distributors to wholly-owned distribution and that process has caused us in some instances to lose volume. And it will take us some time to replace that volume. And we think eventually the quality of our product offering, the competitiveness of our prices and our ability to provide top-notch services will win back that volume. And so we are sanguine on that point over the longer-term. But in the short term there's going to be some disruption in our volume.

With respect to Merchandising Solutions, we've talked about this in previous quarterly calls, but we are undergoing a major consolidation project in Pittsburgh. It's due to be completed in the first quarter. We're still pretty much on schedule and we're looking for a rebound in our margins once that project is completed. So with those brief comments, I'd like to open the meeting up to questions.

(Operator Instructions). James Clement, Sidoti & Company.

Dave, I'm wondering if I can ask you a follow-up question on the Merchandising business from your comments a moment ago. How much of the work has been done, how much needs to be done, and a two-part question would be, can you give us a sense of the identifiable costs associated with that project either in the quarter that's just been completed or perhaps your second fiscal quarter? And can you also maybe give us a medium to long-term outlook of what you think margins can be in that segment?

I'm going to -- Jamie, I'm going to let Steve address the issue with respect of the cost of the project. But let me make some comments about what was involved and where we stand. The division had 7 plants in Pittsburgh and we've been closing those and folding them into a single operation north of Pittsburgh. This month we're wrapping up the 6th, the 7th -- of the 7 -- 6 of the 7 operations. And we expect to complete the last one, which is a printing plant at the end of this quarter. The last one is the most challenging. It's the biggest part of the operation and the one that's most capital-intensive and therefore it's a little bit more difficult to complete. When that is done at the end of the quarter then we'll start to realize the consolidation savings which are really quite substantial.

With respect to the last part of your questions on the margins, in this business I would say between 10 and 15% is the margin range that we'd like to achieve and that's going to take us some time. And in addition to this consolidation project we have some internal process issues that we have to deal with, particularly in the area of minimizing quality and rework. So the management team there is hard at work. You know, comps and these things, they know what has to be done. And I believe it's just a matter of time. Steve, do you have anything you want to add to that?

With respect to the additional costs, Jamie, those are difficult to quantify. At this point they are principally redundancy and overlap costs because with the move, you have operations going on at two places to make sure that there is no disruption in service. But to segregate those costs is a little more difficult and identify which ones are one time, so I can't quantify those for you.

Bill Burns, Johnson Rice.

I want to follow-up on Jamie's cost question, but look at a couple of other areas, one being the Mexican facility and then just SG&A. And what I was trying to do this just for modeling purposes, see where these trends may be. It sounded like right at the end Steve, the Mexican facility. We're still going to have in the second fiscal quarter additional cost to the Mexican facility, it sounded like?

Yes, that's correct, Bill. We're still ramping up production and we have a full level of operating costs in that facility. So until we have production at the rate we think it should be for the operating costs that are in place, the operating costs are going to exceed the revenues. But as Dave mentioned before, our principal goal is to make sure that we ramp up that production with quality product and make sure it's done right. So that's why still going into this second quarter our costs are going to be higher than our revenues out of that facility.

Okay. What about third quarter?

It's too early to comment on the third quarter. But, again, we expect shortly within the end of the second quarter that we should get to breakeven.

Okay. Then moving to SG&A, quarter one, '06 compared to quarter one, '05, they are up like 34%. Your comment was -- part of the reason was Milso acquisition. Going forward is 20%+ of sales a good number?

I would say yes. I would say 20-something percent, certainly above the rate we've been running, Bill, is a good number. The dollar-for-dollar increase in cost is related to the acquisition of Milso, just layering on those extra SG&A costs will do that. And they also -- because they are a distributor of caskets, they have a higher rate of SG&A costs to sales than we traditionally have. So I'd say that was a fair comment on your part.

Greg Halter, Great Lakes Review.

Relative to the bronze business and the margins there, I'm surprised that they -- you continue to do so well in the face of rising copper, scrap copper, bronze raw material costs, whatever you want to call it. Just wondering if you could comment on what you're doing right in that business.

Well, Greg, as we've said in the past, we're just blessed there with a wonderful management team up and down through our organization and this is no accident that we've been able to maintain those margins. They've just absolutely dedicated themselves to constantly improving productivity. And it's not that I can point to one major project that has done it. But it's a whole series of events at different plants throughout the system. We've actually closed some facilities down and consolidated some facilities and we're tuning our headcount and working to minimize material content of the product, et cetera. And these things, when combined, have offset the increase in prices of bonds.

Okay. And looking at the Casket and Cremation business, we're sitting here in Cleveland with about 60 degrees and it's January 20th and you probably have the same in Pittsburgh. I'm wondering what kind of demand situation you're seeing relative to the flu and so forth which it does not seem to have been that bad so far this season.

You know, my answer to that is that it's not really a big issue for us. Yes, we have rises and falls in the death rate. But they tend to be short-term and we get the business eventually. So the important thing for us is just to maintain our share of market, maintain our level of service to our customers, and if we have a falloff in one quarter because of weather or flu-related items, it comes back later in the year or the following year.

[DeForest Inman], Paradigm Capital Management.

I had a couple of questions on the casket situations. What's the situation right now with the Hillenbrand and Yorktown casket and how's that going to affect us and our distribution of York caskets.

Well, that's a very important issue to us. Yorktown is our largest distributor. We have a contract with them which extends to April of 2007. And to the best of our knowledge they are living up to the terms of that contract and working hard to promote and sell our product. And until that contract expires, the Batesville and Yorktown have a planned acquisition as of that date. We've asked in court that that transaction not be completed until April 2007, because we think it's inappropriate for a competitor to own our distributor while they're still under contract to us. And to date the court has seen it from our viewpoint and we do have an injunction, and at some point we will develop an alternate channel of distribution. We'll begin working in that direction so that come April 2007 we'll be able to provide our customers a product through wholly-owned distribution.

Is that something that we're going to start addressing immediately? Or is that a couple of years down the road?

We have to begin our planning, in fact have already begun our planning process to do that now, because we are talking just about a year from now. So it's a very important issue to us.

And one more question if I could. You talked about a facility closure in Indiana, possibly. And you said I think a couple of quarters back about facility assessments. Are we looking to close additional factories in the U.S.?

When we do our planning we try and take into account a range of potential outcomes with respect to our volume. And a lot depends upon what happens with our business volume and the potential for new customers et cetera. And there are sets of alternatives in which we have the right capacity. And there are a set of alternatives in which we have too much capacity. So we'd have to just kind of monitor that as we go forward and make that decision at the appropriate time. I think we're in pretty good shape for the balance of this year but I think we have to look at it again going into next year.

Scott Blumenthal, Emerald Advisors.

My question is very similar to the previous question. However, I think I'd like to look at it from a little different perspective. Can you talk a little bit about where you expect margins to be as you switch from independent to wholly-owned distribution and what we can expect in the meantime as we kind of go from a straight, independent distribution system to then kind of a blended distribution and then into wholly-owned?

Sure. Of course as you move a portion of your business to wholly-owned distribution, you have to make significant additional investments in the area of, obviously, accounts receivable and inventory. And to pay for those investments you have the higher margin associated with distributing the product. So as we go forward, we'd expect things like SG&A to be higher as we are more wholly-owned distribution, because now you have the cost associated with running those distribution centers. By the same token, we'd expect the margins associated with that business to also be higher. And that's indeed what is happening. And we may go through a transition period that will take us through 2006 and possibly 2007. But we continue to believe that the casket business offers outstanding opportunities for margins. The key for us is to achieve our cost targets from our new manufacturing operations and to develop the expertise to be able to efficiently deliver product to our customers. But doing those things I see there's no reason why our margins can't be well above the 15% target that we've set for most of our businesses.

Do you have any idea or have you made any projections as to how much working capital will need to be tied up in inventory and receivables as we move to wholly-owned distribution?

Steve?

That's dynamic right now, Scott. As we look at the different territories and what our Milso acquisition currently brings in those specific territories that's really going to determine ultimately what our working capital needs are going to be.

And I guess just one last follow-up. Do you anticipate expanding the Milso distribution chain to -- I guess there's 12 locations Milso, 16 Yorktown -- is that something that we're going to grow immediately or any plans to do that?

When we were fortunate to to acquire Milso a year ago, it's really an outstanding company, which had been growing its business and a steady pace and quite independent of the acquisition, they have aggressive plans to grow the business particularly by extending their geographic reach to new territories and they've continued doing that. And it's going to be a continuing process. So we expect their business levels to go up and their distribution centers to go up to and their geographic coverage to go up continually over time.

Joe Napsha, Pittsburgh Tribune.

Joe Napsha with the Tribune Review. Just checking on the number of employees that would be affected by the consolidation in the Pittsburgh area with the merchandise business.

Steve?

Well, Joe, I don't have a total on that for you.

It actually, because of the consolidation itself, it would be rather nominal, because most of the positions are being transferred to the new facility. What would be affected would be positions that involve things like transporting goods from one plant to another, because we won't need those types of things anymore. But I don't think that by itself will be a huge number.

Okay. And where is the site going to be located, the consolidated facility?

It's in Butler.

In Butler. Thank you.

It's in East Butler.

DeForest Inman, Paradigm Capital Management.

Can we talk a little bit more about the Mexican casket facility in terms of quality issues? I mean what is causing that and what are we doing to address it? And if you could, give us kind of a capacity number that the facility is running at.

Yes, I certainly didn't mean to imply that we had quality issues in terms of any of the product that's being produced. What's happened is that as you install new capital equipment into a factory you have to work bugs out of the equipment. For example, at one point in our paint system, we had some silicone which was being introduced through the conveyor system and that had the potential to cause defects on the painted surface. So we had to make sure that the motors and the rest of the conveyor system were to our specifications and requirements. And it's just the delays associated with doing those types of things that took the extra time. And I'm just very proud of our manufacturing team because they said hey, this equipment is going to work perfectly and we're not going to flip the switch until it does.

But in terms of the work -- the workers there, are they ready to go? It's just the equipment that's holding them back, pretty much?

Oh, yes. In fact let me just be clear on that point. We are going and we have made beautiful caskets and we have shipped them to our customers and they've reacted very positively to them. So the factory is producing high-quality product now. And what -- the ramp up that we mentioned earlier, what has to take place in order for that ramp up to occur is that we have to transfer new SKUs down to the factory. And so in some cases it will be groups of new products which require some additional training. And there might be some additional steps involved in producing them, that type of thing. And that's what kind of dictates the ramp up. But the people are trained and they are producing high-quality product at this point.

And is there a capacity number you can give us?

Steve? I think probably at this point that we would like to keep that close to the breast.

Yes, I think that's correct, Dave.

Has there been any buy back so far in this quarter, that we're in now?

Share buybacks?

Yes.

No.

(Operator Instructions) Greg Halter, Great Lakes Review.

I wondered if you could comment on your thoughts relative to capital spending for this year? I know it had been impacted somewhat last fiscal year by the Mexican plant.

Sure, Greg. Last fiscal year, our capital expenditures were in the $28 million range I believe. And our depreciation and amortization was around 20 million. Our depreciation and amortization this year should be a little higher than that, maybe 21, $22 million. And I would expect capital expenditures to be at that rate this year -- less than last year but certainly higher than our normal run rate, because we are a larger company.

So around 21 to 22?

Yes. I would model it to be the same as depreciation and amortization.

Okay. And I notice a contract or situation with Service Corp. International -- a casket contract. Has anything new developed there in the last couple of months or so forth?

Yes, that situation continues to evolve. It's our understanding that Service Corp. International is nearing the end of their previous contract with Batesville and is now considering what their alternatives are going forward. And they've been putting a great deal of thought and effort into that. And we don't know what the outcome of their decision-making will be. But certainly to the extent that it's possible, we would like to supply some of their casket needs.

Robert Schwarzkopf, Kayne Anderson.

Would you talk about the overlap between Milso and Yorktown in terms of geography and customers?

Yes. Milso's business originally grew up in the New York, New Jersey, New England, Pennsylvania area. And then over time, they've expanded into the Midwest and the Southwest. And they've had -- and a little bit into the Southeast. And they've had a very measured pace of growth, because as you go into new markets, you not only have to put in a new distribution center. But of course you need highly-qualified salespeople and distribution center people. The York brand, which we have historically, predominantly sold through independent distribution, covers pretty much the entire country. So it has broader coverage than the Milso brand. And we have some very excellent distributors who have done a wonderful job for us over the years, and have made York a well-known national brand.

My question is Yorktown the distributor. What's the overlap between Milso and Yorktown, the distributor?

Okay. Yorktown covers the Northeast, they cover Pennsylvania, New England, parts of Ohio. And there's pretty substantial overlap in the territory that they cover and what Milso covers.

And in your plan to own your own distribution, you plan to buy distributors or build them from the ground up?

Really, both. In one case that's already taken place, we have built it from the ground up. We set up new warehouses and hired new people et cetera. But in other cases, we're looking at the possibility of acquiring distributors. So there's no fixed answer. It depends upon the circumstances in each case.

In the cases where you're going to build it from the ground up, what happens to the independent distributor who you've used? Do they take on other products and become your competitor?

In one case that I mentioned a second ago, yes, that particular distributor signed an agreement with another supplier and are selling their product. And that's part of the reason I mentioned earlier that we have to expect some dip in our volume as we make these transitions, because obviously we don't capture all of that business from the get go. It takes us time to establish ourselves in the marketplace and gain reputation. But ultimately, the winner is going to be the company that can provide the customer with the best product, at the best price, with the best service.

And it would seem that if the distributor has already caught the relationships, it would be your preferred route to buy the distributor, rather than build and try and re-create the relationships. In those cases where you build, rather than buy, is it for the simple reason that the distributor isn't for sale or not at your price?

Exactly. That's exactly right.

And I'm still trying to understand what motivated Hillenbrand to purchase Yorktown. Could you help me understand that?

Well, and soon as you get the answer, will you please let us know, because we don't understand it either. No, I can't really help you with that. I just don't know. You'd have to ask them.

You still have the right of first refusal for the purchase of Yorktown. I believe you said that you do not intend to exercise that. Is that because you've gone with Milso instead?

No, it's because we did an in-depth analysis of the purchase price, relative to the benefit. We used outside experts to help us in that analysis. And we concluded that the purchase price was just simply too high to make it a worthwhile thing for us to do. It's our understanding that the purchase price is $68 million. And that seemed to be out of line to us.

And so in April of 2007 when your contract expires, do you expect to reach those same -- your end customers through Milso or other arrangements?

Well, we will reach them through Matthews-owned distribution facilities and that will be selling branded product through those distribution facilities. And Milso and Milso management team will provide the expertise in running and operating those.

Are you saying that Milso is not going to be integrated into the York distribution?

No, the management of our Casket division is under the leadership of Harry Pontone, who is the previous owner of Milso. Under his leadership, all of our casket operations are integrated. And it's our intention to utilize two brands, a Milso brand and a York brand, depending upon the needs of our individual customers.

Joe Napsha, Pittsburgh Tribune.

Has the Company filed a warrant notice with the Indiana Department of Labor regarding its casket plant in Lynn, Indiana?

Yes.

Yes, we have.

You have done that, okay.

(Operator Instructions). And we have no more questions in queue. Please continue.

Okay. Well, we'd like to thank everyone for their participation in the call this morning. And we look forward to our call in the second quarter in April. Thank you again.

Thank you. Ladies and gentlemen, this conference will be available for replay after 1:30 PM Eastern time today through February 3rd, 2006, at midnight. You may access the AT&T replay system at any time by dialing 1-320-365-3844, access code 813113. Again, those numbers are 1-320-365-3844, access code 813113. That does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.