Matthews International Corp (MATW) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Matthews International year-end results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) And as a reminder this is being recorded.

I would now like to introduce your host for today's conference, Mr. Steve Nicola, Chief Financial Officer. You may begin.

Thank you, good morning. I'm Steve Nicola. On the call with me today is Joseph 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 892151. The replay will be available until 11:59 p.m. November 28, 2007. We have posted on our website, which is www.matw.com the fourth quarter earnings release and financial information we will discuss this morning. In the last 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 annual report on form 10-K for the year-ended September 30th, 2007 will not be filed with the SEC until around November 29, 2007.

To begin the conference I will review the financial results for the quarter. Mr. Bartolacci will then provide general comments on our operations. Following that, we will open the discussion for questions. For the quarter ended September 30th, 2007, the Company reported earnings per share of $0.64 compared to $0.59 for the same period a year ago. The results for both fourth quarter periods were affected by unusual items. For the current quarter, the results included unusual items which had a net favorable impact on pre-tax income of $4.1 million or $0.08 a share after tax. These items included settlements received by the Company in connection with casket litigation which when net of legal costs incurred by the segment during the quarter added $2.8 million to operating profit. In addition, the Company recorded a net gain of $1.3 million during the quarter on the sale of its marketing consultancy business. The marketing consultancy business, which was a part of the Merchandising Solutions segment reported sales of slightly less than $6 million in fiscal 2007.

In the fourth quarter a year ago, unusual items had a net favorable impact on pre-tax income of $1 million, or $0.04 per share after tax. The fourth quarter unusual items last year included a gain on the sale of property and impairment charges related to the plant shut down of one of our metal casket plants. For the year ended September 30th, 2007, the Company reported earnings per share of $2.04 compared to $2.06 per share last year. Unusual items affected comparability of the annual results for both fiscal years as well. For fiscal 2007, unusual items had a net unfavorable impact on pre-tax income of $8.8 million or $0.17 per share after tax. On a pre-tax basis, the $4.1 million net favorable impact of fourth quarter items in fiscal 2007 was more than offset by special charges totaling $12.9 million, which were incurred earlier in the fiscal year. The most significant portion of these charges related to the acceleration of earn-out payments in the resolution of employment agreements from the acquisition of Milso Industries in 2005. The total costs incurred in connection with this matter approximated $9.4 million.

In addition, the Company incurred other special charges during the fiscal year related to cost structure initiatives in several of its businesses. These charges were primarily severance related costs incurred in our graphics operations. For fiscal 2006, unusual items included the fourth quarter gain on the sale of property and the Casket segment impairment charges I noted earlier. Consolidated sales for the fourth quarter of fiscal 2007 were $185 million, compared to $183 million for the same quarter a year ago. For the year ended September 30th, 2007, consolidated sales were $749 million compared to $716 million last year, representing an increase of approximately 5%. In our memorialization business, sales for the Bronze segment were $62 million for the fourth quarter compared to $ 59 million last year. For the year, Bronze segment sales were $230 million compared to $218 million a year ago. The increase in sales for the current year principally reflected higher selling prices in connection with the continued escalation in bronze ingot costs.

Sales for our Casket Segment were $49 million for the current quarter, compared to $48 million a year ago. For the year, Casket segment sales were $211 million, compared to $201 million last year. Higher sales for both the quarter and year-over-year periods were primarily attributable to the transition to Company owned distribution. Sales through Company owned distribution generally have higher unit selling price points than sales to independent distributors. Excluding this change in channel mix, Casket unit volumes were lower for the quarter in fiscal year primarily as a result of the termination of several independent distributer arrangements over the past two fiscal years, including the agreement with our largest distributer, Yorktown Casket Company on April 15, 2007. However, we hope that the recent settlement of our litigation with Yorktown, which was reached in July 2007 will allow us to maintain our competitive position in this territory.

Cremation segment sales for the quarter ended September 30th, 2007 were $5.7 million compared to $6.7 million for the same period last year. For the year, sales for the Cremation segment were $25.2 million, compared to $26 million a year ago. The timing on delivery of several Cremation equipment units impacted the segments quarter-over-quarter and year-over-year comparability. In our Brand Solutions Group, fourth quarter sales for the Graphics Imaging segment were $38.7 million compared to $37.4 million a year ago. For the year, the segment sales were $146 million, compared to $141 million for fiscal 2006. The group benefited from higher foreign currency exchange rates and an increase in sales in the German market which were offset partially by lower demand in the U.S. and U.K. graphics markets. Fourth quarter sales in the Marketing Products segment increased $1.7 million or 12% over the fourth quarter a year ago, primarily as a result of the acquisition of a small Chinese inkjet equipment company. For Fiscal 2007 sales for the Marketing Product sales were $5.2 million higher than last queer.

Sales for our Merchandising Solutions business were $15.3 million for the fiscal 2007 fourth quarter, compared to $18.4 million a year ago. Weaker market conditions, combined with project timing and the segment's effort to focus on higher margin opportunities, contributed to the decline from the fiscal 2006 fourth quarter. For the year, Merchandising Solutions sales increased $2.4 million over last year. The favorable impact of the Microsoft Vista project in our second quarter was partially offset by lower overall demand. Consolidated operating profit for the quarter ended September 30th, 2007 was $34.9 million, compared to $31.9 million for the same quarter a year ago. As I noted earlier, unusual items had a net favorable impact of $4.1 million in the fiscal 2007 fourth quarter and a net favorable impact of $1 million for the fiscal 2006 fourth quarter. For the year ended September 30th, 2007, consolidated operating profit was $111.8 million, compared to $113.9 million last year. Unusual items had a net unfavorable impact of $8.8 million in fiscal 2007 and a net favorable impact of $1 million in fiscal 2006.

In our memorialization business, the Bronze segment reported operating profit of $19.7 million for the fiscal 2007 fourth quarter, compared to $21.1 million a year ago. The fiscal 2006 fourth quarter included a $2.7 million gain on the sale of property. For fiscal 2007, the Bronze segment's operating profit was $ 66.3 million compared to $65 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 Casket segment was $4.1 million for the fiscal 2007 fourth quarter compared to $1.4 million a year ago. As I mentioned earlier, litigation settlements net of legal costs incurred favorably impacted the 2007 results by $2.8 million. In addition, the fiscal 2006 fourth quarter reflected impairment charges of $1.7 million. Excluding unusual items from both quarters, operating profit for the Casket segment declined from a year ago, principally reflecting higher distribution costs and lower of manufacturing profit.

For the year, operating profit for the Casket segment was $11.8 million compared to $17 million last year. Unusual items had a net unfavorable impact of $7.2 million in fiscal 2007, which primarily consisted of charges incurred in the resolution of the Milso earn-out earlier in the fiscal year, partially offset by the benefit of the fourth quarter net litigation settlements. Last year's results included the $1.7 million fourth quarter impairment charges. Excluding unusual items, operating profit for the Casket segment was relatively flat year-over-year, reflecting higher sales and higher distribution costs. Fourth quarter operating profit for the Cremation segment was relatively unchanged from a year ago. For the year, the segment's operating profit was $3.6 million compared to $3.4 million last year. Productivity improvements more than offset lower sales for the year.

In the Brand Solutions Group, the Graphics Imaging segment reported a $1.4 million increase in operating profit over the fourth quarter a year ago. An increase in sales in the German market, higher foreign currency values and the benefit of cost structure improvements initiated earlier in the year were the principal factors in the improvement. For the year ended September 30th, 2007, operating profit for the Graphics Imaging Group declined $2.1 million from last year. Special charges of approximately $2.2 million in connection with the aforementioned cost structure initiatives impacted the current year results. Our Merchandising Solutions business reported operating profit of $922,000 for the fiscal 2007 fourth quarter, compared to $1.3 million in the fourth quarter last year. The current quarter included a gain of $1.3 million on the sale of the segments marketing consultancy business. Excluding this gain, the segment incurred an operating loss in the current quarter on lower sales. For the full fiscal year, the Merchandising Solutions segment reported operating profit of $5.7 million in Fiscal 2007, compared to $2.9 million last year. The combination of higher sales and the benefit of recent cost structure initiatives were the main factors in the year-over-year improvement.

Fourth Quarter and year-to-date sales and operating income by segment are posted on the website. As a result of the unusual items, our fourth quarter consolidated operating margin for fiscal 2007 increased to 18.8% compared to 17.4% in the fourth quarter last year. On a year-to-date basis, consolidated operating margin declined to 14.9% of sales compared to 15.9% last year. Gross margin for the quarter ended September 30, 2007, was 38.8% of sales versus 40.2% for the same period a year ago. The decline for the quarter resulted from lower sales and related profitability in the Merchandising Solutions business. Gross margin for the year ended September 30th, 2007, was 37.4% of sales versus 38% last year. This decline reflected the impact of a portion of the special charges. SG&A expense for the current quarter was 20% of sales compared to 22.8% of sales in the same quarter last year. The net unfavorable impact of litigation settlements in the Casket segment -- the net favorable impact of litigation settlements in the Casket segment was one of the main reasons for the decline from a year ago.

SG&A expense for the year-ended September 30th, 2007, was 22.5% of sales, compared to 22.1% 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 principal factors in the consolidated year-over-year increases. For the fiscal 2007 fourth quarter, investment income was $660,000, compared to $483,000 for the same period a year ago. Year to date, investment income was $2.4 million compared to $1.4 million 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 $2.3 million, compared to $2.1 million for the same period a year ago. For the year-ended September 30th, 2007, interest expense was $ 8.1 million, compared to $7 million last year. The rise in interest cost principally resulted from a higher average level of debt and higher interest rates during the current periods. Minority interest deduction was $900,000 for the current quarter compared to $959,000 a year ago. For the year, minority interest deduction was $2.7 million in fiscal 2007 compared to $3 million last year.

Our fiscal 2007 fourth quarter and year-to-date tax rate was 37.6% of pre-tax income which is higher than the 37% effective tax rate for the fiscal 2006 year. The fiscal 2006 effective rate reflected a tax benefit on the sale of property in the fourth quarter. At September 30th, 2007, the consolidated cash and investment balance was approximately $56 million compared to $41 million at September 30th, 2006. At September 30th, 2007, our current ratio was 2.2-to-1 compared to a ratio of 1.8-to-1 at September 30th, 2006. Our outstanding accounts receivable balance at September 30th, 2007, was approximately $121, million which represented 59 days sales outstanding. Outstanding accounts receivable at September 30th, 2006 approximated $122 million, which represented 60 days sales outstanding. At September 30th, 2007, consolidated inventories totaled approximately $94 million, compared to $85 million at September 30th, 2006. The increase in inventories relates mainly to the Company's expansion of its Casket distribution capabilities.

At September 30th, 2007, shares outstanding totaled 31,057,162. During the fiscal 2007 fourth quarter, the Company repurchased approximately 452,000 shares under its share repurchase program. Year-to-date, the Company has repurchased approximately 1,366,000 shares at a repurchase cost of approximately $57 million. At September 30th, 2007, approximately 2 million shares remain to be purchased under the repurchase authorization. Our long term debt balance at September 30th, 2007, both current and long term portions, approximated $169 million. $148 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. In September 2007, we increased our borrowing limit under the domestic revolving credit facility from $175 million to $225 million and extended the maturity until September 2012.

Depreciation and amortization expense for the quarter and year ended September 30th, 2007 were $5.1 million and $20.5 million respectively. Capital expenditures for the fourth quarter and year-to-date periods were $6.4 million and $20.6 million respectively. In summary, as indicated in our Press Release yesterday, we were generally satisfied with our consolidated operating results for the year in light of the challenges in several of our businesses. Despite these challenges, on an adjusted basis our earnings were still higher than last year, although not quite at the level of our long term growth objectives. Additionally, we were encouraged that all of our business segments reported operating profit improvements, excluding unusual items, over fiscal 2006. As we look back, we consider fiscal 2007 to be an important transition year for the Company. The most significant element of this transition has been in the distribution strategy in several territories of our Casket division. Although challenging and with some integration work still to be done, we feel that the business is now better positioned for growth. Additionally, our recent cost structure initiatives in the Graphics Imaging and Merchandising Solutions segments should allow us to achieve improved margins in fiscal 2008. This concludes the financial review, and Joe Bartolacci will now comment on our operations.

Good morning. I just have a couple of comments and basically want to reiterate some of the things that Steve has stated. As many of you are aware, fiscal '07 was a very, very difficult year for us and one of the most difficult years in our history. We face difficult internal and external issues that, in many cases, were resolved this year. The Casket division, which was the division that had many of those issues and was the focus of much of our internal and external attention, had a lot of changes this year. During the past year, we addressed a difficult issue about -- difficult issues revolving around the termination of the Yorktown distribution agreement, as Steve said. As you may recall, Yorktown was the largest distributer representing 60,000 units per year. As we announced earlier this year our efforts to resolve our litigation resulted in us acquiring certain assets from Yorktown which facilitated our transition from the distribution agreement.

This was the last territory, which was in immediate jeopardy of losing a distributer. We believe we have solidified our relationship with our remaining distributors over the past 12 months and are now in a position to continue to improve our operating results in that division. As we look forward, we recognize -- we ask you to recognize that we are are still in the early stages of our distribution efforts in several of those territories and it will take time to improve. We are optimistic about our efforts in that division and look forward to what we can achieve over the coming years. With regard to the Bronze division, despite higher metal prices, the division again achieved a record year. We're very proud of what that division continues to accomplish year in and year out. We look forward to also what they can achieve in 2008. Similarly, with our Marketing Products division, they faced some very difficult market conditions with the sharp decline in the construction industry and our overall industrial slowdown for our customers, yet new products and markets have allowed us to achieve another record year. We're proud of their accomplishments.

All in all, I'm generally satisfied with the overall results in light of the difficulties that we face. I do believe, however, that we are better positioned today and that '08 should see us back on track. Therefore, I'm maintaining our guidance for fiscal '08 to an increase of 12 to 15% earnings per share. I ask you to be aware, however, that in several of our businesses, there are factors outside of our control which may impact those results, specifically metal prices and other commodity prices in both our Casket and Bronze division could impact those results, as well as currency expectations in our foreign businesses may have impact on those results. With that, I'm going to turn it back to Steve and open it up for questions.

For those of you who 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. With that, Mary, could you open up the call for questions?

(OPERATOR INSTRUCTIONS) Our first question comes Jamie Clement from Sidoti.

Joe, Steve, good morning.

Good morning, Jamie.

A couple of quick questions. Just with respect to how to think about '08 guidance, I'm a little unclear on whether there's still some work to be done with regard to the restructuring efforts in Graphics Imaging and in Merchandising, and also Joe based on your comments just a moment ago, about being still at the relatively early stages of self distribution in some of your Casket regions, should we be thinking about higher levels of year-over-year growth in the second half of fiscal '08 as opposed to the first half? Is that the message you were trying to get across?

Essentially, Jamie, we are -- some of the things that we are facing, for example, on the transition of Casket division, we acquired inventory in the Yorktown transaction that we referred to earlier. We're working through that inventory. That inventory was purchased and for accounting reasons was recorded at higher than cost -- manufacturing cost prices, so we're working through that inventory over the course of the next several months. In addition, for example, we are still working through some distribution locations that are no longer necessary as a result of that effort. We think that we should be fine over the course of every quarter. We're more comfortable, however, with the whole year being 12 to 15% in all of our divisions.

Okay, that is very fair. And Steve, quick question. Maybe I missed this when you were running down the segment information. Your press I think said that Bronze division's operating profit adjusted for any kind of unusual items was up year-over-year in the quarter. That's what it said I think in the Press Release, but on the -- in your, the preliminary numbers that you have on your website and I believe in your comments it actually indicated it was down. Were there some kind of unusual items that I was missing there?

You're talking about quarter-over-quarter operating profit? Is that what you said, Jamie for Bronze? Hello, Jamie?

Yeah.

Quarter-over-quarter? Well, last year, we had a gain in the Bronze division.

And what was the gain related to? I just I forgot what that was.

We sold property last year.

Oh, okay.

And the gain was $2.7 million.

Got you, got you, okay, thanks very much. I'll get back in the queue.

You're welcome.

Our next question comes from Scott Blumenthal from Emerald Advisers.

Good morning.

Good morning, Scott.

Hi, Scott.

We don't often have or it's kind of difficult to get a lot of clarity throughout the quarter on what's going on in the Graphics and Merchandising business and I remember -- I'm not sure if it was the previous quarter or the quarter before that, Joe, where you talked about the U.K. business being kind of soft, so can you give us some idea as to the backlog or pipeline of projects that you're seeing, especially in lieu of everything that we're hearing with the consumer being weak and retail being weak and so on and so fourth.

Yeah, sure, Scott. I'll take the two different -- the two businesses separately. The Graphics business is a much less cyclical business than the Merchandising Solutions business. On that front, we have taken the steps in the English business, we believe, to have structured it for the loss of a couple of accounts that we had last year. As you may know, these accounts are relatively large as it relates to a particular operating site, so the loss or the gain of a particular account could have significant impact. And given that we are operating in Europe in some of these cases, where the ability to adjust staffing levels immediately are not necessarily easy, we think today we have adjusted our capacities in Europe for the most part so that we can continue to achieve operating results that were better than they were the year before.

With regard to Merchandising Solutions, however, that pipeline is in some cases only 60 to 90 days out. It is really project based, based on the customers that we have. some of the people we do work for are companies like Nike and Microsoft. There was just a recent launch in Microsoft again for another product that it relates I believe to Zune. We were involved in that. It really is dependent on that consumer products company and their willingness to promote, and we're more subject to the whim of their marketing department than we would be in the packaging side. So although they're both related to that marketing and may feel the impact of the consumer, we're more directed to what the CPG wants to do on the marketing side with new products. Oftentimes when the consumer slows down, and CPG companies actually pick up their marketing efforts, so it's hard to tell right now. We do not have big backlogs in the Merchandising Solutions business, though.

Okay, and I guess Steve mentioned at the end of his comments that there's still some integration work to be done there. Can you maybe give us some details as to some of the things that you're working on right now?

Sure, I'll give you some ideas, Scott. If for example, the Yorktown territory is a territory that covers about ten states. In anticipation of the termination of their agreement, we had opened warehouses throughout that territory. As a result of the resolution with Yorktown, we've added several more warehouses now and we know where the -- we know better where our volume is coming from. As a result of that, we are able to discern where we need to be and where we don't need to be. We'll be shutting down, we've already shut down a couple warehouses and we'll be shutting down some more as we move forward. We will have some lingering costs as it relates to leasing facilities in that territory and maybe some minor severance costs associated with employees there, but for the most part, we will be getting better and better, we hope, in our distribution business over the year and obviously over the years to come.

Okay, can I follow up with that one?

Certainly.

You know, you mentioned just now, Joe, that there will be some lingering costs, severance costs. As you get a little bit more clarity on what the distribution or the warehouse footprint is going to be in Yorktown territory, how does it look now as compared to what you had originally thought or how you originally set things up?

Well, I'll give you a perfect example. As a part of the Yorktown transaction, we assume the Yorktown's lease on what's called their Robesonia facility. Robesonia is near Philadelphia. It's their largest distribution center. We had set up three warehouses in about a 100-mile radius of that location to service that. We now have three warehouses extra. We're going to be working through a site in Yorktown, in York, Pennsylvania, another one in Allentown, another one down in Maryland -- or excuse me, in Delaware as we work through that, so we will be, we clearly have more capacity on the distribution side than we need. It's just going to be a matter of how quickly we can get through that. Inventory, we don't want to pick up Caskets and move them to another territory. That's not an efficient way to work it through. We have damage and other issues related to merchandising those warehouses are affected. We think we can get through that mostly in the next three to six months. We still have some lingering costs for rent that -- obviously, we've got to pay our rent on the leased space that we have there and that will terminate over the next 12 to 18 months we believe.

So at this point, do you feel as though you're going to need a lot less warehouse space than you originally planned?

Oh, for sure. We'll needless warehouse space and frankly we'll need less inventory we believe.

What we're working on is defining how much less.

Right. One of the big issues, Scott, was the multiple product lines that we had. And now with the resolution of Yorktown, we're able to begin the process of focusing on a single product line for the entire territory.

Yes.

And as a result today, we have a little more inventory than we want. We will be able to skinny the inventory down, both through elimination of distribution centers and through the elimination of duplicate product.

Okay, great. And Steve, do you have any idea as to what you think would be kind of a normalized inventory balance then, seeing as right now, in this I guess $94 million worth of inventory, we've got some increased costs from having to repurchase inventory at a higher than production cost and also some inventory that we -- I guess are just, we have out there now in order to service the customers as we get a better clarity as to what the distribution footprint is like?

Scott, we don't have a fix on what that number is. That's precisely what we're trying to work through here over the next three to six months.

Okay, great. Thanks, Steve. Thanks, Joe.

Thank you.

Our next question comes from Greg Halter from Great Lakes Review.

Good morning, guys.

Good morning, Greg.

I wonder if you could provide an outlook on the bronze ingot costs going forward, if you see any relief there?

We would like to ask you that same question.

Yeah.

It's probably the single largest unknown. The copper prices have gone up and down. We're trying to be opportunistic with our buying, but frankly, our smelters don't give us a long lead time. In general, we're only able to buy from them for a couple of months at most. And we try to buy whenever we can and we hope they honor the committment, frankly. So it is a variable that we're having difficulty quantifying and getting our arms around and, as I mentioned in my comments, it's one of the factors that could impact our achieving our results in '08.

Okay, you've obviously done very well in terms of either cost and/or price there and any idea on whether or not you can continue to maintain that effort to keep the margins around 30% there?

We're expecting to do everything we can to keep it around that area. We -- obviously if we get another 10, 15% increase or more in metal, we're in trouble on that, but we're taking every efforts, we still have plans in the works right now for maintaining that through other cost efforts that may develop over the course of the year, depending on how things work out on the metal price.

Yeah, Greg, their margins are certainly susceptible to significant increases in the price of bronze. What we try to do is, as Joe mentioned, we try to be opportunistic with our purchases so that if we see an opportune price point, we try to buy out, to some degree, for a couple of months where we can, relative to what our target prices are and what we've baked in if you will into our projections. So hopefully, we can continue to manage that effectively but that's all dependent on this volatility and, even within the last four weeks, we've seen a significant swing in the pricing, both positive and negative.

One other thing I want to add, Greg, I don't want to steal your questions here, but there are other -- there are obviously other metals or metal Caskets have a significant risk related to steel prices. We really don't no where that's going to be, with some of the consolidation efforts that are out there. But we also have a new element to our business which is oil. We are significant consumers of gasoline at this point, and it's difficult for us to figure out where that's going also. So some of these commodity issues are impacting us more than they may have in the past, and we're doing our best to contain our costs but it is something we just can't control.

All right, and on your Casket side, how is the Mexican facility operating?

Very successfully, Greg. It is probably our single proudest decision three years ago , two years ago when we started that process. It is operating at about one shift, a little less than one shift full capacity. We'll start the process this year of looking at ramping up a second shift down there and really it is now an easier thing for us to evaluate, given that we've solidified some of our volume issues in Casket.

And is it safe to say it is profitable now?

Oh, yes, it is.

Okay. And what does selling the marketing consultancy business do for the whole Merchandising Solutions Group? Should that -- was that entity incurring losses?

No, frankly, it was more a personality issue. It was a small business that added about $1 million worth of operating profit, and maybe a little less this year. In fact, the reality is that when you're dealing with -- it was probably a very small business related to our overall business but difficult to kind of integrate that small of a business into our operations. At the end of the day, it was better that we parted ways than tried to make them work. We struggled with trying to integrate the personalities with the businesses that we had.

Okay, and Steve, do you have the amounts that cost of goods sold and SG&A were impacted by these special items for the fourth quarter of fiscal '07?

For fiscal '07?

Yeah.

$2.8 million pre-tax.

But in the individual components of cost of goods sold and SG&A?

Oh, no, no, no, I don't. In fact, actually the number I just gave you was incorrect. $2.8 million was the Casket impact, $1.3 million was the Merchandising Solutions impact.

But a portion came out of each one of those two areas, SG&A and cost of goods sold?

Actually, I believe that was all SG&A.

Okay.

For the quarter.

Okay.

I'm sorry I didn't understand your question.

Sorry. And then looking at your capital spending needs for fiscal '08, any significant projects or maintenance that's being required coming up here?

At this time, we're projecting what I would call a standard year.

So about $20 million?

I would say about $20 million, I'd say somewhere close to our depreciation and amortization, maybe slightly a little bit less, again barring any significant projects that may come up.

All right that sounds good.

Okay.

Our next question comes from [Daniel Youri] from Litmus Capital.

Good morning, guys.

Good morning, Danny.

Quick question. Looks like goodwill and other intangibles went up a decent amount in the quarter. What is that?

A lot -- actually a lot of that has to do with the improvement or I shouldn't say the improvement, the impact of exchange rates. A number -- a fair amount of our goodwill and intangibles relates to our overseas operations, particularly in Europe. And with the euro climbing to $1.45, $1.46 recently, the translation of those amounts to U.S. dollars causes the increase.

Okay, and did I hear you say that you made an acquisition in the quarter also?

No. The acquisition that I was referring to was in June. It was the third quarter. It was a small Chinese company in our marketing products business.

Got it. And in order to hit your guidance for this coming year for 2008, can you do that without making additional acquisitions ? I mean just from what you already have operating today?

We expect that we can. We have taken some steps throughout '08 to put us in that position and we're comfortable with our budgets, but as we said, there's always some factor that could impact those budgets as we go forward. So today we are comfortable saying that what we have should get us there.

Great. Thank you very much.

It doesn't mean we won't move into acquisitions, however.

Sure, sure. Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Jamie Clement from Sidoti.

Hi, guys. Just a follow-up question on the Graphics business, if I could.

Sure, Jamie.

You know, Joe, I think you've always you guys have always sort of characterized the graphics business as kind of a 15% operating margin type of business. This quarter was better than that and it was better than that fairly abruptly considering the quarter that you were coming off of.

Right.

Is there any reason with the restructuring actions that you've taken there? I mean, is this a better than 15% operating margin business now or was there a foreign currency impact in there? Is that something that sort of brought it above 15?

Foreign currency helped us get us get it beyond that, but we still think this is overall a 15% operating business. The efforts we've taken, I think, has put us in position to be more along that line throughout the year.

Okay.

I don't think that it's 20 to 25% operating business.

Okay, but just this quarter was better than 15%, and I was just curious like was there certain, was there a flow of work that was a little unusual because, I mean, it was a darn good quarter.

Yeah, Jamie, that has more to do with the mix of where our sales and profits were. We had a good quarter in Germany and our German businesses because of their mix of sales have higher margins than our domestic and U.K. business.

Okay, very good. Thanks very much for your time.

You're welcome.

Your next question comes from Scott Blumenthal from Emerald Advisors.

Hi, guys. Just a couple of follow-ups. Joe, I think you mentioned that you had some nice leverage from new products in the Marketing Products business.

Right.

Can you talk about maybe what you're seeing far as the percentage of sales that you see coming from some of these new products and if these are leading you into possibly acquiring new customers?

Certainly. In fact, the new product line -- if you know our Marketing Products business, our traditional Marketing Products business has been an industrial based, construction, tire manufacturing type of business, really the down and dirty manufacturing construction related businesses that make the core of our sales in the past. The new products we developed are more directed towards the primary packaging side of the business. If you look at some of the inkjet marks that may appear on a bottle of Coca Cola or on a milk cannister that may say that -- the born on dates or the expiration dates whatever it may be, that's the kind of product that we're entering into and the kind of market we're entering into. We have some alternative sales channels, as well, that come with that. Some of the sales channels we're looking at are distributor based rather than direct sales. Those folks have some contacts in that industry that we did not. So we have good hope, both for the development of that market and the products that relate to that as well as some opportunities to acquire some businesses that are not currently in our, that have not been in the past in our radar.

Do you get any leverage from your merchandising or graphics customers with this?

We sure hope so. We attended a trade show recently where we tested that out and we're hope together see some effort out of that.

Okay, very good. And Steve, could you please repeat the D&A numbers again for the quarter and the year? I'm sorry, I missed those.

Sure, I'd be glad to.

Thank you.

Depreciation and amortization for the quarter was $5.1 million and for the year was $20.5 million, and capital expenditures were $6.4 million for the quarter and $20.6 million for the year.

Great. Thank you very much.

You're welcome.

(OPERATOR INSTRUCTIONS) I'm not showing any further questions.

Okay, well, we certainly thank everyone for participating in the call and we look forward to our first quarter earnings release and conference call in late January. Thank you again.

Ladies and gentlemen, this does conclude today's conference. This conference will be available for replay after 1:30 p.m. eastern time today until November 28, 2007, at 11:59 p.m. You may access the AT&T teleconference replay at any time by dialing 320-365-3844 and entering access code 892151. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.