Matthews International Corp (MATW) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Matthews International quarterly conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. (operator instructions) As a reminder, this conference is being recorded.

I would like to turn the conference over to your host, Steve Nicola. Please go ahead.

Thank you, good morning. I'm Steve Nicola. On the call with me today is Joe Bartolacci, President and CEO of Matthews. Today's conference call has been set up 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 p.m. today. To access the replay dial 1-320-365-3844 and enter the access code 878925. The replay will be available until 11:59 p.m. August 3, 2007.

We have posted on our web site, which is www.matw.com, third quarter earnings release and financial information we will discuss this morning. In the left column of our home page under investor relations you can click on "Investor News" to access the earnings release, or click on "Reports" to access the quarterly financial data. The financial data is presented under the heading "Preliminary Quarterly Reports" in a PDF file format.

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 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 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 will not be filed with the SEC until around August 9, 2007.

To begin the conference I will review the financial results for the quarter. Joe Bartolacci will then provide general comments on our operations. Following that we will open the discussion for questions. For the quarter ended June 30, 2007, the Company reported earnings per share of $0.38 compared to $0.55 for the same period a year ago.

The results for the current third quarter were unfavorably impacted by special charges totaling $10.7 million, or $0.21 per share. The most significant portion of these charges related to the acceleration of earnout payments in the resolution of employment agreements from the acquisition of Milso Industries in 2005. Total costs incurred in connection with this matter approximated $9.4 million, of which $1.3 million had been accrued through March 31, 2007.

In addition, the Company incurred other special charges during the quarter related to restructuring activities in several of its businesses. The restructuring charges were primarily severance related costs occurred in our U.S. and U.K. Graphics operations and our Merchandising Solutions business and our Casket segment.

For the nine months ended June 30, 2007, earnings per share were $1.40 compared to $1.47 for the first nine months last year. Year-to-date special charges for the current year totaled $12.9 million or $0.25 per share. Consolidated sales for the third quarter of fiscal 2007 were $185 million compared to $182 million for the same quarter a year ago.

For the first nine months of fiscal 2007, consolidated sales were $564 million representing an increase of 6% or $31 million over the same period last fiscal year. In our Memorialization business, sales for the Bronze segment were $62 million for the third quarter compared to $57 million last year. Year-to-date Bronze segment sales were $168 million compared to $159 million a year ago. The increase in sales for the current year principally reflected higher selling prices as a result of the continued escalation in bronze ingot costs.

Sales for our Casket division were $49 million for the third quarter compared to $50 million a year ago. For the first nine months of fiscal 2007, Casket division sales were $162 million compared to $153 million last year. Higher sales for the the year-to-date period were primarily attributable to the transition the Company-owned distribution, and higher pricing. Casket sales for the third quarter were impacted by the expiration of the distributor agreement with Yorktown Caskets on April 15, 2007.

Cremation segment sales for the quarter ended June 30, 2007, were $6.2 million compared to $6.9 million for the same period last year. The timing on delivery of several cremation equipment units impacted the segment's third quarter sales. Year-to-date sales for the Cremation segment were $19.5 million compared to $19.2 million a year ago, reflecting higher sales of cremation caskets.

In our Brand Solutions group third quarter sales for Marking Product segment increased 8% to $14.1 million compared to $13.1 million last year. For the year-to-date period, the segment's sales were approximately $42 million compared to $38 million a year ago. Higher international sales, which included the benefit of a small acquisition in China during June, represented the principle contributor to the segment's sales improvement.

Sales for the Graphics Imaging group were approximately $37 million for the fiscal 2007 third quarter compared to $36 million a year ago. For the fiscal year-to-date period, the group's sales increased from $103 million a year ago to $107 million in the current year. The increase in sales for both the quarter and year-to-date periods principally resulted from an increase in the value of the euro and the British pound relative to the U.S. dollar. Excluding the currency impact, the group's sales declined for both periods reflecting continued weakness in the U.S. and U.K. graphics markets.

The Merchandising Solutions segment reported sales of $17.4 million for the fiscal 2007 third quarter compared to $18.7 million last year. For the first nine months of the fiscal year, the segment sales were $65 million compared to $59 million a year ago. The sales decline in the current quarter reflected a decline in demand due to weaker market conditions. The improvement in sales for the year-to-date period resulted from a significant project completed in our second fiscal quarter.

Consolidated operating profit for the quarter ended June 30 2007 was $21.1 million compared to $30.5 million for the same quarter a year ago. For the first nine months of fiscal 2007, consolidated operating profit was $77 million compared to $82 million last year. As I stated earlier, operating profit for both periods reflected the unfavorable impact of special charges, which amounted to $10.7 million for the fiscal 2007 third quarter and $12.9 million year-to-date. The most significant portion of these charges related to the acceleration of earnout payments in the resolution of employment agreements from the acquisition of Milso Industries.

Total costs occurred in connection with this matter approximated $9.4 million, of which $1.3 million had been accrued through March 31, 2007. In addition, the segment incurred other severance costs in restructuring some of its operations. As a result, Casket segment reported an operating loss of $3.8 million for the fiscal 2007 third quarter compared to an operating profit of $5.1 million last year. Year-to-date, the segment reported operating profit of $7.7 million compared to $15.6 million last year.

In our other memorialization businesses, the Bronze segment reported operating profit of $19.1 million for the fiscal 2007 third quarter compared to $17 million a year ago. For the nine month period, the segment's operating profit was $46.6 million in the current year compared to $44 million in fiscal 2006. Higher sales and an increase in the value of the euro were partially offset by the continued increase in bronze ingot costs.

Operating profit for the Cremation segment approximated $1 million for the fiscal 2007 third quarter, which was relatively unchanged from a year ago. For the first nine months of fiscal 2007, the segments's operating profit was $3 million compared to $2.7 million a year ago. The improvements reflected improved margins and higher sales for the year-to-date period. The Brand Solutions group reported an overall decline in operating profit for the quarter on lower demand in the merchandising solutions market and the U.S. and U.K. graphics markets.

Our Merchandising Solutions business reported basically break even results for the third quarter this year compared to an operating profit of $1.2 million last year. Special charges of approximately $400,000 were recorded during the current quarter in connection with the segment's various restructuring activities. Year-to-date, the segment's operating profit increased from $1.6 million a year ago to $4.8 million this year, principally reflecting the benefit of higher year-to-date sales.

The Graphics Imaging group also will reported a decline in operating profit for the quarter. As a result of the continued weakness in the U.S. and U.K. graphics markets, the segment took significant actions to address the cost structures of these operations. Special charges incurred in connection with these actions, principally severance related, totaled $1.7 million for the quarter and $2.2 million year-to-date. Excluding these charges, the group's operating profit increased in the current quarter compared to the same quarter a year ago.

Marking Products operating profit for the third quarter of the current fiscal year was $2.7 million compared to $2.2 million last year. For the first nine months of fiscal 2007, the segment's operating profit was $6.8 million compared to $6.6 million a year ago. Higher sales were partially offset by lower margins reflecting an increase in overhead costs during the current year.

Third quarter and year-to-date sales and operating income by segment are posted on the web site. As a result of the special charges, our third quarter consolidated operating margin for fiscal 2007 declined to 11.4% compared to 16.8% in the third quarter last year. Consolidated operating margin for the first nine months of fiscal 2007 was 13.6% of sales compared to 15.4% for the same period last year.

Gross margin for the quarter ending June 30, 2007 was 37.4% of sales versus 38.7% for the same period a year ago. Gross margin for the first nine months of fiscal 2007 was 37% of sales versus 37.2% for the same period last year. The declines in gross margins reflected the impact of a portion of these special charges.

SG&A expense for the current quarter was 26% of sales, compared to 21.9% of sales in the same quarter last year. SG&A expense for the first nine months of the current fiscal year was 23.3% of sales compared to 21.8% of sales in the same period last year. A portion of the special charges and the transition to Company-owned casket distribution in certain territories were the principle factors in the consolidated year-over-year increases.

For the fiscal 2007 third quarter, investment income was $880,000 compared to $366,000 for the same period a year ago. Year-to-date investment income was $1.7 million compared to $937,000 last year. The increase in investment income principally reflected higher rates of return combined with higher average levels of invested funds.

Interest expense for the current quarter was $2.1 million compared to $1.9 million for the same period a year ago. For the nine months ended June 30, 2007, interest expense was $5.8 million compared to $4.9 million last year. The rise in interest costs principally reflected a higher average level of debt and higher interest rates during the current periods.

Minority interest deduction was $722,000 for the current quarter compared to $720,000 a year ago. For the first nine months of fiscal 2007, minority interest deduction was $1.8 million compared to $2 million last year. Our fiscal 2007 third quarter and year-to-date tax rate was 37.6% of pre-tax income which is equivalent to the effective rate for the same periods a year ago, but higher than the 37% effective rate for the full fiscal 2006 year. The fiscal 2006 full year effective rate reflected a tax benefit on the sale of property.

At June 30, 2007, the consolidated cash and investment balance was approximately $49 million compared to $41 million at September 30, 2006. At June 30, 2007, our current ratio is 2.1 to 1 compared to a ratio of 1.8 to 1 at September 30, 2006. Our outstanding accounts receivable balance at June 30, 2007 was approximately $121 million which represented 58 days sales outstanding. Outstanding accounts receivable at September 30, 2006, approximate $122 million, which represented 60 days sales outstanding.

At June 30, 2007, consolidated inventories totaled approximately $93 million compared to $85 million at September 30, 2006. The increase in inventories relates mainly to the Company's expansion of its casket distribution capabilities. At June 30, 2007, shares outstanding totaled 31,500,076 shares. During the fiscal 2007 third quarter, the Company purchased approximately 562,000 shares under its share repurchase program. Year-to-date, the Company has repurchased approximately 914,000 shares at a repurchase cost of approximately $37 million. At June 30, 2007, approximately 2,451,000 shares remained to be purchased under the repurchase authorization.

Our long-term debt balance at June 30, 2007, both current and long-term portions, approximated $160 million; $142 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 maturity of the domestic revolving credit facility is April 2009.

Depreciation and amortization expense for the quarter and nine months ended June 30, 2007, were $5.2 million and $15.4 million respectively. Capital expenditures for the third quarter and year-to-date periods were $3.5 million and $14.2 million respectively.

In summary, we expressed caution as we entered the third quarter due to the expiration of the contract of our largest casket distributor, the continued high level of bronze ingot costs, and weakness in our U.S. and U.K. graphics markets. As a result of these factors and lower than anticipated demand in our merchandising solutions business, we did not achieve our targeted growth for the third quarter.

We believe these factors will continue into the fourth quarter and have reset our projections accordingly. We are currently projecting our fourth quarter earnings to be in the range of $0.55 to $0.58 per share excluding the impact of additional special charges, if any. As stated in our earnings release yesterday, looking forward into fiscal 2008 our current estimates continue to project growth within our long-term objective of 12% to 15%. This concludes the financial review and Joe Bartolacci will now comment on our operations.

Thank you, Steve. And good morning. As Steve reported, we had a pretty difficult quarter. In some respects we expected the difficulties, and in others we did not.

As we communicated in our previous call, our Casket division had the most difficult quarter in the group. Our transition away from the Yorktown volume began about mid-April as their contract expired and we failed to receive any more orders from them. While capturing those direct sales in the territory, however, we were significantly delayed by inventory on hand at Yorktown.

We believe the inventory that Yorktown held to be greater than originally estimated and we had anticipated and communicated this in our previous calls. We view this to be the cause of our slow transition in the territory and given the volume uncertainty in the Yorktown territory we have chosen to error in favor of the customer and have been careful to adjust our capacities until we stabilize a reliable volume level.

These uncertainties and delays were the direct cause of the poor performance from continuous operations in the quarter by the Casket division. This poor operating performance, coupled with the costs associated with resolving the Milso earnout situation and restructuring charges in the Casket division represented the vast majority of the shortfall for the quarter.

Similarly, we had softness in several of our other divisions. That softness was greater than expected in the revenue side in our Merchandising Solutions businesses, and this added slightly to the overall shortfall for the quarter. Given our difficult quarter, though, we thought it was an appropriate time to accelerate several restructuring plans in many of our businesses. These plans have been ongoing in some divisions and we had initially projected them to be implemented over the next several quarters in all divisions.

We believe that the acceleration of these plans will put us in a better position to achieve our long-term growth objectives and regarding the fourth quarter, however, we are still expecting difficulty in our Casket division. We don't believe that given the softness in some of our divisions that our, that the other divisions will give us enough support to achieve our 12% to 15% growth rate targets for that quarter.

However, although we are in the early stage of the budgeting and the gathering of information and there still is some uncertainty as to volume in the Yorktown territory, we do believe that we will be able to achieve our 12% to 15% growth rate for the fiscal 2008 period. With that, I'd like to open up for questions.

At this time, we would like to open the call to questions. For those of you 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.

(operator instructions) Your first question comes from the line of Jamie Clement. Please go ahead.

Morning, Joe, morning, Steve.

Good morning, Jamie.

Just, Steve, I couldn't quite, I couldn't quite get what you were saying regarding the special charges in the Casket division. I think you said, did you say total there were $9.4 million, but $1.3 million had already been accrued, so should we effectively be adding $8.1 million back to the $3.8 million loss to get an idea what the pro forma operating level is?

Yes, let me explain that. That piece of it relates entirely to the Milso earnout resolution. There was a little more than that related to -- you have to add a little more to that number in order to get the total special charges that would have applied to the Casket division.

Okay. So --

But in effect your math is correct, just add a little bit more if you want to get a run rate.

But the $1.3 million had already been expensed out of the $9.4 million, right?

Correct.

So ballpark, $9 million ballpark, seems like a reasonable number, right?

In terms of for the quarter?

Yes, for the quarter.

Total special charges? No, less than that. Ballpark, $8.4 million, $8.5 million.

Okay, that's fine. And, Joe, do you have a sense, I mean I don't know, how possible it is to have accurate information on this kind of thing, but do you have any idea how many months worth of inventory Yorktown might be holding right now?

You know, Jamie, that's a question we ask ourselves all the time, because, practically speaking, we have scoured the territory, both myself, I've been out in the territory trying to make sure we have some feel for what's going on out there, number of customers have said as long as they can get my product from Yorktown we will stay with them and have committed to us, however, until they run out of inventory we're not seeing that volume yet.

You know, and just the last follow-up then I'll get back into queue, I don't know if this is something you all have considered or something you have pursued, perhaps it's not something that for strategic reasons you don't want to comment about, but at some point does it make sense just to attempt to repurchase the inventory back from them?

You know, that's something we have considered, but at this point in time we don't have that option nor do we want to deal with it.

Okay, thanks very much, I'll get back in the queue.

Your next question comes from the line of Jason Rodgers. Please go ahead.

Hello, it's Greg Halter on for Jason.

Hi, Greg.

Hello, Greg.

Hello. I'm wondering if you could provide some further commentary on the acquisition you indicated you made in June in China, whether or not this is the start of further there and what you hope or expect to get out of that acquisition?

Certainly, Greg. We made a small acquisition in China, it's not a significant acquisition, it's our first foray into the Asian market. It is primarily associated today with our Marking Products division. They manufacture a lower end product than what we currently manufacture in the U.S.

There's a lot of opportunities. Obviously, China is a huge market, it's an entree for our higher end products, as well as exporting their product into the U.S. to supplement what we currently have. There's great opportunity, we believe, but I don't want to mislead you into thinking it is an overnight transition, it's a very small acquisition. We're real cautious stepping into the Chinese market and we have not done so in a big, big way.

Okay. Thank you.

Your next question comes from the line of Scott Blumenthal. Please go ahead.

Good morning, Joe, good morning, Steve.

Morning, Scott.

Good morning, Scott.

I think we all kind of expected the unexpected in the Casket division for this quarter and probably the one that we're in. Can you talk a little bit about the softness in Graphics and Merchandising? I understand Merchandising is relatively new, but that's been kind of flat and it looks like we have been trying to consolidate that, put things together, move facilities and, where do you stand on that and where do you see the markets in both of those segments?

Sure. As we relate to the, as it relates to the U.K. market we have had that softness for a period of time, Scott, and we have been taking steps to reduce our scale. It largely relates to the loss of one customer and we have added some other customers over there, just not to the same level of revenue yet.

We think that the actions that we have taken in this quarter should put us in the position to bring that back to a more level capacity load over there. And as usual, especially in the U.K. market, we have a number of tenders out there that may or may not come to fruition. We think we're past the restructuring requirements over there. The problem has been, as you might expect in some of these foreign countries, that reducing scale is a very costly process.

Sure.

It's not as easy in the U.S.

Okay. And in the Merchandising?

In the Merchandising side, as we have always said this is a very up and down business in the sense that large projects come in the quarter, be off a quarter and come back the quarter after.

We are taking the steps right now to kind of reduce our break even level, that's what we have done over the last quarter or two, so that we may have an easier time of making reasonable money in the slower quarters. Obviously, when we get a bigger quarter we will struggle a little bit more trying to find staffing, having to work overtime, but at the same time it's probably a better position for that business to be in going long term.

How does the project pipeline look as compared to what it was the last quarter. or maybe this time last year?

I think it's pretty consistent with where it was last year. The problem is we're not in control of when the, when the projects are released. Pipeline is always in discussion We're subject really to the retailers and the brand owners release of their projects. And given the size of some of these projects, they're just not things, they can have big swings in any quarter.

Yes, Scott just to add to that, just in it terms of what we see in the pipeline, it's not a lack of consistency, but it's the release dates, as Joe mentioned. Shorter term, let me say it differently. The release dates are more longer term than shorter term. So that's why we have this concern going into the fourth quarter, but not necessarily into 2008.

Having said that, we have been in situations, again, where brand owners or retailers have accelerated things on a very short notice period. So this is our best knowledge at this time.

Okay. Great, I'll get back into queue, thanks.

Thanks, Scott.

Your next question comes from the line of Charlie Smith, please go ahead.

Yes, good morning, guys. I want to delve a little more into Merchandising.

Good morning.

Sure.

You have specific retail end markets that dominate that business, could you give us a little color on that?

Sure. Some of our customers include Microsoft, Nike, BP gas stations, Chevron, and they kind of break up into two different types of categories, repeat projects where we are actually managing projects across the country, for example, on a BP or Chevron. In those situations it's a relatively stable month-to-month program.

It may swing half a million dollars in a month where we are doing the graphics and the imaging in their stores across the U.S., whereas on a Nike or a Microsoft, for example, when we did the Microsoft project in the second quarter it's usually related to a launch or a marketing program related to a specific product. As you know, Microsoft and Nike are constantly going through relaunches of new products and new designs, and when those projects are let is when we get the projects, get notice of the project for us. However, we may be informed of the project up to one to two years earlier.

Does this include overseas projects or mostly just domestic?

Mostly just domestic, however, we have done some consulting with Nike over in China. The revenue generated on the consulting side, obviously, is significantly lower than the revenue generated on producing the fixturing. But, yes, we are branching out, and some of our graphics customers throughout the world have asked us to talk to them about that. It is an opportunity that we see, but at the same time we have not brought to fruition yet.

What fraction of the revenue in that division is consulting?

We are roughly a 10% consulting business.

Okay, thanks a lot.

Sure. You're welcome.

(operator instructions) We have a follow-up question from the line of Jason Rodgers. Please go ahead.

Hello, it's Greg, again.

Hi, Greg.

Hello. I wondered, Steve, if you had the operating margins by segment for the ones that were affected by the charge, what they would have been excluding any special charges?

I don't have that data in front of me, Greg, no.

Okay.

I have to be careful, you're delving into non-GAAP information so I've got to be careful how I present that.

All right. And in your prepared remarks, you had indicated, I think, the Merchandising Products operating profit was $2.7 million for the third quarter, but that the preliminary financial showed $2.3 million. I was wondering if --

Marking Products?

Merchandise.

Sorry, Marking Products.

Marking Products was $2.3 million for the third quarter. Did I say that wrong?

Yes, you did.

I apologize.

Okay. And I missed the figure, if you gave one, on what the special charges were in the Casket segment?

I didn't give them all. What I did say was that the special charges in the Casket segment related to the Milso earnout resolution totaled $9.4 million for the year, $1.3 million of that had been recorded through March and, but I did tell, I did answer one other question earlier, I would, the ballpark total for the quarter, including the other special charges, I'd say around $8.4 million.

For the total --

For the quarter.

Total for the quarter, including the resolution, yes.

For the entire Company or just for --

Just for Casket.

Okay, all right. And you had mentioned that in both the gross margin and SG&A there were a portion of the charge there, do you have what those numbers may have been?

No, I don't.

Okay. And one last one, regarding the share repurchase, I think you indicated 562,000, on a sequential period this year went from 31.9 to 31.7, I'm just curious about the timing, why the share count didn't go down more than that would have indicated?

You mean in terms of the average for the quarter?

Correct.

Well, we did have some option exercises early in the quarter, so when you do the average it it didn't impact the total share outstanding because of option exercises.

Okay. Would you have the quarter end share count available?

31,500,076 shares.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Jamie Clement. Please go ahead.

Hey, guys, again. Just a question on the Bronze business. Can you talk a little bit about what drove the strength during the quarter, particularly in the light of metal costs doing what they were. I know that you had success in the last couple quarters with some of the new products you have launched, looking out to the fourth quarter, I mean, is, can we comfortably project operating profit growth kind of in that long-term 12% to 15% range, or is that aggressive given what we have seen in metals recently?

Jamie, for the Bronze division operating profit, given the maturity of that industry, that 12% to 15% operating profit growth for them would be very aggressive for them.

So why the strength this quarter then, where did you see the strength?

Well, you know, Jamie, what we have, as Steve said in his remarks, we continue to have pricing pressure on the metals side. And in the middle of the quarter we instituted a surcharge again to cover some of those costs. So it really related to revenue generated from price increases.

Okay. I guess, what I, I guess we can, we can talk later, it's just that, to see, I mean, presumably, if your revenue is increasing 7.6% and you have got a rising raw material environment and you're passing along some of that, I guess I was pleasantly surprised to see the operating profit up as much as it was up.

We continue to take cost cutting measures, they were part of the restructuring, nowhere near as big, but they have been part of the restructuring over the course of the year and we continue to take costs out of the system.

Okay. All right, very good. Thank you very much.

Your next question comes from the line of Scott Blumenthal. Please go ahead.

Just one more question, I think just about everything that I needed has been answered. Can you talk about the Cremation segment, the cremation caskets especially, that seems to be a pretty decent market, is that pricing or is there just much more demand for those?

Well, it's a couple of things Scott. First off, we have launched several new products over the last 18 months that are a little better price for us from the standpoint they're a premium product for the cremation industry.

Typically, the cremation industry has been a very, very low end product line, everything from a cardboard box to a simple pine box. We have launched some higher grade products that are paper veneers and some cloth-covered products, that's a better price point for us and for the funeral director which allow us to achieve a better revenue line, and as a result, better profitability.

Okay, great, thank you.

We lost you there.

Thank you.

Okay.

You're welcome, thanks Scott.

And your next question comes from the line of [Daniel Yeary.] Please go ahead.

Hey, guys, given the maturity of the bronze market that you just talked about, what gives you the confidence in 12% to 15% growth in 2008? What drives that growth?

In 2008? Obviously, it's not going to all come from the Bronze division. We currently do not expect to get 12% to 15% growth out of any single business long term. It's been a combination of three factors, internal growth through better products and more efficiencies. And in addition to that, we have been acquisition program where we have added revenue and profitability, and lastly through our share repurchases. It's a three-pronged approach to achieving our 12% to 15% growth.

Got it.

As it really relates to 2008, specifically looking at it, if you look at our P&Ls for the last 12 to 24 months, there's a number of actions, steps, that we have taken to put ourselves in position to go forward in all of our businesses, in particular our Casket division.

By 2008 we will have transitioned through this Yorktown issue we have talked about and begin to focus, have a reliable volume level in that division and be able to focus on improving its profitability through cost containment and better sales.

Sure, sure. And then on the Bronze division, is 31% margin sustainable or will we be going back into the 20s?

No, I guess, Danny, I would answer it that way, that we have been in the high 20s and given where the ingot costs are I would say that that's probably more representative of long-term what we can expect. Again, qualifying that, any future increases in bronze ingot costs.

It's been a relatively volatile market.

Sure, absolutely. All right, thank you very much.

You're welcome.

Your next question comes from the line of Jason Rodgers. Please go ahead.

Hello. It's Greg, again, sorry. Looking it at the price of just copper on the futures market now it's getting close to another new high, unfortunately, and wondered if you have any forward buys, or how you're approaching the market relative to at least the bronze ingot, or scrap copper, or however you phrase it?

No, we really haven't made any changes in the way we approach the market, Greg. What we try to do is in this period of volatility we try to take advantage when we see the prices go down and maybe try to take out our purchase a couple of months, and then in periods where they rise, hopefully, we're out of the market or buying short term at that time.

But still given, given the unpredictability and also given there really aren't any bronze future markets, it's really just copper, and the lack of a sufficient correlation between those prices that makes it difficult to really react any differently.

Okay. Is there any substitute that you can use?

Well, we are constantly exploring that. One of the features of bronze is its longevity. Given that cemeteries are a permanent, indefinite fixture we have jet to find a metal that sustains indefinitely. But there's also some regulations out that require the use of bronze, it is a product that is traditionally used in the cemetery industry. To date, we have not found an acceptable substitute. I have to tell you it is something on our mind and on some of our customers minds.

Okay. Any change in the competitive situation in that business?

Not that we're aware of.

All right. And can you give us an update on the veterans contract, what the status of that is currently?

Other than we know that it's going to be coming up for bid at the end of the year, we have been in discussions about extending our contract for a year while they go through some of that process. We don't know where that will shake out. Our best information at this point is it will be rebid end of this year.

Okay. And last question, I believe you still have a goal of 15% operating margin for each one of your segments.

Right.

Given that there's three of them over currently, and two are just there, and bronze is about double, any consideration to doing any sort of split of the Company to benefit from the, I guess, relative outperformance of bronze relative to the other segments?

We're always looking at what is the right thing for creating shareholder value going forward. That is a topic that we consider. At this point in time it, there's no expectation or plan to do that, however.

Okay, thank you.

And we have no further questions at this time.

Okay. Well, we thank you all for participating in the call and we look forward to our next call for the fourth quarter of fiscal 2007. Thank you, again, for participating this morning.

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