Matthews International Corp (MATW) 2008 Q3 法說會逐字稿

(Audio in Progress) International, Steve Nicola. Please go ahead, sir.

Thank you. Good morning. I am Steve Nicola. On the call with me 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 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 931651. The replay will be available until 11:59 p.m. August 8, 2008.

We have posted on our website, which is www.matw.com, the third-quarter earnings release and press release -- I'm sorry -- the third-quarter earnings release and financial information we will discuss this morning. In the left column of our homepage 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 period ended June 30, 2008 will not be filed with the SEC until the week of August 4, 2008.

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 fiscal 2008 third quarter, the Company reported earnings per share of $0.69 compared to $0.38 for the same period a year ago. Earnings per share for the third quarter last year reflected special charges of $0.21 per share related to the resolution of employment agreements from the Milso acquisition and cost structure initiatives in several of our segments.

For the nine months ended June 30, 2008, earnings were $1.90 per share compared to $1.40 for the same period last year. Current year earnings include a one-time benefit of $0.06 per share related to a favorable adjustment in income tax expense which was recorded in our fiscal 2008 first quarter.

As a result of recent tax rate changes in Europe, an adjustment to the corresponding deferred income taxes was required under US accounting rules. Year-to-date results a year ago reflected special charges of $0.25 per share related to the resolution of the Milso employment agreements and various cost structure initiatives.

Consolidated sales for the fiscal 2008 third quarter were $219 million compared to $185 million for the third quarter a year ago. For the first nine months of fiscal 2008, consolidated sales were $599 million compared to $564 million for the same period in fiscal 2007. Sales for the current quarter and year-to-date periods included the Company's recent acquisition of Saueressig GmbH & Co. KG in May 2008. Saueressig reported sales of approximately $18 million from the acquisition date through the end of June.

Last year's consolidated sales total included a large one-time project in the Merchandising Solutions segment. This project generated over $10 million in revenue in the fiscal 2007 second quarter. Other factors impacting comparability of consolidated sales relative to a year ago included the favorable effect of higher currency exchange values, the acquisition of an interest in a small marking products operation in China in June 2007, and the sale by the Merchandising Solutions segment of its marketing consultancy business in August 2007.

In our Memorialization businesses, sales for the Bronze segment were $67 million for the third quarter compared to $62 million last year. Year-to-date, Bronze segment sales were $182 million versus $168 million last year. The increase in sales for the current periods principally reflected higher selling prices in connection with the continued high level of bronze medal costs, while volume during the current year has declined.

Casket segment sales for the fiscal 2008 third quarter were $54 million compared to $49 million a year ago. For the first nine months of fiscal 2008, Casket segment sales were $171 million versus $162 million last year, reflecting an increase in volume and higher average selling prices. The increase in average selling prices was partially attributable to a changing channel mix with the recent transition to direct distribution in several territories. Directs distribution sales, i.e. sales directly to funeral service providers, generally have higher unit selling prices than sales to independent distributors.

Sales for the Cremation segment in the quarter ended June 30, 2008 were $6.8 million, compared to $6.2 million for the same period last year. Year-to-date Cremation segment sales were $19.6 million through June 30, 2008 compared to $19.5 million a year ago. Higher equipment and service and repair revenues were the principal factors in the segment's sales improvement during the quarter.

In our Brand Solutions group, third-quarter sales for the Graphics Imaging segment were $58 million compared to $37 million a year ago. For the nine months ended June 30, 2008, Graphics Imaging group sales were $132 million versus $107 million a year ago. A significant portion of the increase in sales for the quarter and year-to-date periods resulted from the acquisition of Saueressig. Saueressig reported sales of approximately $18 million from its May 2008 acquisition date through the end of the current quarter.

The Graphics Imaging group also benefited from higher foreign currency exchange rates and an increase in sales in both the German and US markets, which were partially offset by continued weakness in the UK graphics market.

Marking Products segment sales were $16 million in the fiscal 2008 third quarter, compared to $14 million a year ago. Year-to-date sales for this segment were $45 million versus $42 million last year. The sales improvement resulted from the acquisition of an interest in a small Chinese ink jet equipment company and the benefit of higher currency exchange rates. Excluding the effect of the acquisition, sales for the segment declined from a year ago. North American sales were lower than a year ago principally reflecting the downturn in the US economy.

Sales for the Merchandising Solutions segment were $17.8 million for the quarter ended June 30, 2008, compared to $17.4 million a year ago. For the nine months ended June 30, 2008, Merchandising Solutions sales were $50 million compared to $65 million for the first nine months of fiscal 2007. Last year's sales included a large one-time project which represented over $10 million in revenue that did not repeat in the current year. In addition, the year-to-date decline reflected the sale of the segment's marketing consultancy business in August, 2007.

Consolidated operating profit for the quarter ended June 30, 2008 was $36.7 million compared to $21.1 million for the same quarter a year ago. The third-quarter operating profit for last year included special charges totaling $10.7 million related to the resolution of employment agreements from the Milso acquisition and cost structure initiatives in several of our segments. Year-to-date consolidated operating profit was $97.9 million as of June 30, 2008, compared to $77 million last year. Operating profit for the first nine months a year ago included special charges of $12.9 million.

In our Memorialization businesses, the Bronze segment reported operating profit of $20.7 million for the fiscal 2008 third quarter, compared to $19.1 million a year ago. For the first nine months of fiscal 2008, Bronze segment operating profit was $50.6 million, compared to $46.6 million last year. The year-over-year improvement in profitability for both the quarter and nine month periods reflected increased sales and changes in the value of foreign currencies against the US dollar.

Operating profit for the Casket segment was $5.5 million for the fiscal 2008 third quarter, compared to an operating loss of $3.8 million a year ago. Year-to-date, the Casket segment's operating profit was $20.3 million through June 30, 2008, compared to $7.7 million last year. Special charges, which principally included the resolution of the Milso employment agreements and the impact of certain cost structure initiatives negatively impacted third-quarter operating profit a year ago by approximately $8 million.

For the first nine months last year, these special charges had a negative impact of approximately $10.5 million. Excluding these charges from a year ago, the segment's fiscal 2008 third quarter and year-to-date operating profit improved compared to the same periods last year, reflecting the benefit of higher sales and last year's cost structure initiatives.

For the fiscal 2008 third quarter, operating profit for the Cremation segment was $1.2 million compared to $1 million a year ago. For the first nine months of fiscal 2008, the Cremation segment reported operating profit of $3.6 million compared to $3 million for the same period last year. Higher sales and cost control efforts were the principle reasons for the operating profit improvement.

In the Brand Solutions group, the Graphics Imaging segment reported operating profit of $5.4 million for the quarter ended June 30, 2008, compared to $2.5 million a year ago. Year-to-date, Graphics Imaging group operating profit was $12.9 million through June 30, 2008, compared to $8.1 million last year. Last year's operating results for both the quarter and year-to-date periods included special charges in connection with cost structure initiatives in the UK and US operations, which benefited current year results. Higher sales including the benefit of favorable currency exchange rate changes also contributed to the year-over-year operating profit improvement.

Operating results for Saueressig were relatively breakeven from the acquisition date through the end of the quarter. This was not unexpected given that Saueressig was a family-run business and the process of selling their company was a significant distraction. We expect operating results for this business to begin to improve in the fourth quarter.

The Merchandising Solutions segment reported operating profit of $1.5 million for the fiscal 2008 third quarter compared to around breakeven results a year ago. Operating results for the third quarter a year ago included special charges in connection with some cost structure changes. The benefit of these actions combined with higher sales in the third quarter this fiscal year contributed to the year-over-year improvement in the current quarter's profitability.

For the first nine months of fiscal 2008, the segment's operating profit was $4.5 million, compared to $4.8 million for the same period last year. Lower sales due to the absence of last year's large one-time project and the sale of the segment's marketing consultancy business was the reason for the operating profit decline.

Operating profit for the Marking Products segment was $2.3 million for the quarter ended June 30, 2008, compared to $2.4 million a year ago. Year-to-date Marking Products operating profit was $6 million as of June 30, 2008, compared to $6.8 million last year. Lower sales in North America resulting from the recent economic slowdown in certain of its drastic markets were the principal factor in the decline and profitability.

Third-quarter and year-to-date sales and operating income by segment are posted on the website. Year-to-date operating margins by segment were as follows. Bronze 27.8% of sales; Casket 11.9%; Cremation 18.5%; Graphics Imaging 9.7%; Marking Products 13.3%; and Merchandising Solutions 9% of sales.

Our fiscal 2008 third-quarter and year-to-date consolidated operating margins were 16.8% and 16.3% of sales respectively. Consolidated operating margins for the same periods a year ago were 11.4% and 13.6% respectively, reflecting the negative impact of last year's special charges.

Gross margin for the fiscal 2008 third quarter was 39.6% of sales versus 37.4% for the same period a year ago. Year-to-date, the Company's consolidated gross margin was 39.9% of sales through June 30, 2008 compared to 37% last year. The increase related partially to the transition in the Casket segment to a higher proportion of direct distribution sales, which have a higher gross margin but also a higher level of selling costs. The improvement in gross margins also reflected productivity initiatives in several of our businesses.

SG&A expense for the quarter ended June 30, 2008 was 22.9% of sales versus 26% for the same period a year ago. Special charges significantly impacted SG&A expense in the third quarter last year. Year-to-date, the Company's SG&A expense was 23.6% of sales through June 30, 2008 compared to 23.3% last year. This increase principally reflects the transition in the Casket segment to a higher proportion of direct distribution sales. In addition, lower sales in the North American Marking Products business adversely impacted the SG&A expense percentage relative to sales. Again, special charges significantly impacted last year's SG&A expense.

For the fiscal 2008 third quarter, investment income was $392,000, compared to $880,000 for the same period a year ago. For the nine months ended June 30, 2008, investment income was $1.4 million compared to $1.7 million last year. The reduction in investment income principally reflected a lower average level of invested funds and the decline in investment performance.

Interest expense for the current quarter was $2.6 million compared to $2.1 million in the third quarter last year. Year-to-date, interest expense was $6.7 million through June 30, 2008 compared to $5.8 million a year ago. The increase in interest costs principally resulted from a higher average level of debt as a result of the recent acquisition of Saueressig.

Minority interest deduction was $785,000 for the current quarter compared to $722,000 a year ago. For the first nine months of fiscal 2008, minority interest deduction was $2.1, compared to $1.8 million last year. The acquisition of the small Chinese Marking Products business in June last year was the main reason for the increase.

The year-to-date effective income tax rate as of June 30, 2008 was 34.9% of pretax income. Excluding the favorable impact of the one-time first-quarter income tax adjustment, our fiscal 2008 year-to-date tax rate was 37%, which represents a reduction from our fiscal 2008 second-quarter estimated tax rate of 37.4% and the fiscal 2007 effective tax rate of 37.6%. Favorable rates changes in Europe and the impact of the US Federal Manufacturing Credit where the principal factors in the reduction in the consolidated effective tax rate.

The impact of the year-to-date effective rate reduction resulted in an effective tax rate of 36.3% for fiscal 2000 eight third quarter, which had a favorable impact of about $0.01 per share on the quarter.

At June 30, 2008, the consolidated cash and investment balance was approximately $61 million, compared to $56 million at September 30, 2007. Our current ratio was 1.7-to-1 at June 30, 2008, compared to 2.2 at September 30, 2007.

Our outstanding accounts receivable balance at June 30, 2008 was approximately $145 million, which represented 60 days sales outstanding. Our outstanding accounts receivable balance at September 30, 2007 approximated $120 million, which represented 59 days sales outstanding. The increase in the outstanding accounts receivable balance primarily reflects the Saueressig acquisition.

At June 30, 2008, consolidated inventories totaled approximately $101 million, compared to $94 million at September 30, 2007. Again, the increase in the consolidated inventory balance primarily reflects the Saueressig acquisition.

At June 30, 2008, the Company had approximately 30,828,000 shares outstanding. During the first nine months of fiscal 2008, the Company purchased approximately 614,000 shares under its share repurchase program at a repurchase cost of approximately $28 million. A June 30, 2008, approximately 1.4 million shares remained under the current repurchase authorization.

Our long-term debt balance at June 30, 2008, both current and long-term portions, approximated $268 million. $176 million of this balance represented 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 September 2012.

Depreciation and amortization expense for the quarter and nine months ended June 30, 2008 were $7 million and $17.2 million respectively. Capital expenditures for the quarter and nine months ended June 30, 2008 were $3.4 million and $7.9 million respectively.

In evaluating our earnings results on a consolidated level, the three months ended June 30, 2008 represented another good quarter for Matthews. Excluding the impact of special charges from the results a year ago, the Company's earnings per share growth for the fiscal 2008 third quarter exceeded our 12% to 15% long-term growth target.

For the fiscal 2008 third quarter -- I'm sorry -- for the fiscal 2008 fourth quarter, we are currently projecting earnings per share in the range of $0.64 to $0.66 per share. This range excludes the impact of unusual items, if any.

Earnings in the fourth quarter last year were $0.64 per share, which included a one-time benefit of $0.08 per share in connection with the net favorable impact of the settlement of some Casket-related litigation and a gain on the sale of our marketing consultancy business. Excluding the impact of these one-time items from last year's results, our current year fourth-quarter projection represents an increase of 14% to 18% over the prior year.

In addition, this fourth-quarter range would result in earnings per share excluding unusual items from both years within our 12% to 15% growth target for fiscal 2008.

As stated in our press release yesterday, we continue to remain cautious in the near term as the US economy continues to be challenging and with the ongoing volatility in the commodity markets specifically for copper, steel, and fuel.

This concludes the financial review, and Joe Bartolacci will now comment on our operations.

Thank you, Steve, and good morning. I am generally pleased with the performance of our businesses in this difficult economic environment. The results this quarter and year-to-date reflect actions to improve profitability that were planned and implemented in prior years, but only now are beginning to show their expected benefits. This is characteristic of our businesses and our employees and makes me proud to be part of this organization.

Now to our businesses, the two notable improvements this year have been in our Casket and Merchandising Solutions businesses. Both businesses have improved their operating performance while at the same time freeing up significant cash as they worked on inventory and receivables. Caskets has performed well despite rising fuel and metal prices but profitability in the fourth quarter may be less than we had originally planned as we see -- as we more fully feel the impact of the unanticipated steel prices.

We do expect market to increase prices, but the increase has traditionally occurred in the fourth calendar quarter. Similarly, our Merchandising Solutions business has performed well despite not having a project like the Microsoft Vista launch, which occurred last year. We have taken difficult steps in this business, but today it is performing in line with our expectations.

Our Bronze business continues to hold up well in this high commodity pricing market. Actions are being planned in this business, too, to continue to maintain its profitability into the future. But I must caution you that significant changes in metal prices may impact our short-term results as we may have more limited ability to fully pass on significant material price increases.

In summary, we are cautiously optimistic about the remainder of our fiscal year given the actions we have taken and what we know today. I must remind you, however, that we are not completely immune to the economy and the impact it may have on our customers. This is particularly true in the Brand Solutions side of our business, where the timing of projects may move from quarter to quarter. I am however pleased with the operational and sales initiatives in all of our businesses and therefore, I still believe that we will achieve our full-year results within our original guidance range.

Thank you and at this time I would like to open it up for questions.

At this time, we would like to open the call 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 participate or who wish to participate in the Q&A session have had an opportunity to do so.

(OPERATOR INSTRUCTIONS) Jason Rodgers, Great Lakes Review.

Good morning. Could you get out the number for shareholders equity in the quarter?

Shareholders equity in the quarter? No, I did not state that, but that should be somewhere in the neighborhood of $450 million, $440 million to $450 million.

Okay and how about accounts payable?

Accounts payable, I don't have that figure available.

Okay and for the Saueressig acquisition, I was wondering if you had any estimate on accretion either for the fourth quarter or for next fiscal year?

Not at this time. Not anything that we would be comfortable disclosing, Jason.

Okay and finally looking at some of your comments on steel prices, I was wondering if something changed in the marketplace to make you a little bit more cautious about being able to pass through the higher prices with higher price increases?

No, Jason, not at all. In fact, it is more about when timing has -- pricing has historically gone up in this industry. We are starting to feel more full with that impact this year as we work through this quarter, as we work through our inventories and we will start to feel as we get toward the latter part of our fourth quarter. Price increases traditionally have been out there October, November, and not being the price leader, we expect that to be consistent this year. So we may miss it by a couple of months.

Okay, thank you.

Bob Labick, CJS securities.

Good morning. Congratulations on a strong quarter. I just wanted to start with the Saueressig acquisition. You gave us a little color, right? $18 million in sales from the May close date, is that right?

Right.

Okay, then the step up in D&A in the quarter, I guess you did 5.1 in each of the first two quarters on average up to 7 million. What is the -- have you finalized the D&A and amortization of intangibles for the acquisition?

Bob, we have not completely finalized the analysis of that, but certainly are comfortable enough in terms of the recognition of what we recorded for the first two months of the year. So your question, though, specifically --?

How much of the bump up from the 5.1 to the 7 is related to the acquisition? Can we extrapolate that? If it is entirely related, that maybe it is about $10 million in total D&A including amortization for next year or for annualized period?

I would say that is close.

So for now if we use 10 million we are fair there, okay. Then also it appears that there was essentially no SG&A growth as a result of the acquisition. Have you just folded this entirely into your operations or will you be taking on any SG&A? Margins obviously were very strong there.

Bob, when I think about the comparatives, you have to remember that we had some large one-time charges that were included in our SG&A results a year ago. So when you look at the comparability, it may not look like we have had any increase this year but if you take the one-time charges out of last year's SG&A, you do have an increase year-over-year.

Okay, and there is some --?

And that would be principally attributable to Saueressig.

Okay, terrific. I will get back in queue and ask a few more questions in a minute.

Dax Vlassis, Gates Capital Management.

Yes, a couple questions. The SG&A in the quarter, what was the absolute amount?

The absolute amount of SG&A in the quarter was $50,000,000.

$50 million, okay. It looks like from the cash flow numbers you provided I guess Saueressig was $110 million?

Excuse me? I didn't catch (multiple speakers) your question.

Saueressig was $110 million. Is that correct -- for the price of the acquisition?

The price of the acquisition was --

In the quarter.

Post exchange rate. I'm trying to get the number for you. The acquisition net of the cash that we took on was actually about $90 million, $91 million.

$91 million, okay. So it looks like even without Saueressig that the working capital was up again in the quarter for the Company. It looks like you've bled some cash from operations with the rough numbers that I have. What is the receivables -- how much of the receivables and inventory was from Saueressig?

(multiple speakers) Most of it. What quarters are you comparing?

Of the $145 million that you gave for receivables, how much is due to Saueressig?

You mean the increase from September 30?

No, I mean the absolute amount.

I don't have those figures in front of me.

Okay, because it looks like excluding the acquisition that you bled a fair amount of cash in the quarter from operations. So I'm trying to figure out what happened in the quarter.

We don't see that. It is hard for us to look at your analysis.

Yes, I'm a little confused by your question.

Well, net debt went up by $121 million in the quarter, correct?

That is correct.

That is up $121 million and then if you have $90 million -- if it cost $90 million for the acquisition, then it's up $31 million from -- then it would only be up $31 million excluding the acquisition. You bought back $19 million worth of stock, so that is up $12 million and you paid a $2 million dividend. So it looks like at most you generated -- I mean I don't know what the options exercise or other was in there, but it looks like you didn't really generate any cash from operations in the quarter.

No, we generated a fair amount of cash from operations for the quarter. My suggestion is that once we prepare the official balance sheets and the cash flow statements for the quarter, then -- and that will be in our 10-Q, that that will become clearer.

You don't have the cash flow from operations --?

We are going to be recording cash from operations of in excess of $20 million for the quarter. When you take net income, add back depreciation and amortization, take into account some of the other changes. We should be reporting cash from operations in excess of $20 million for the quarter, and then when you deduct some capital expenditures for the quarter, we did have some payments on long-term debt during the quarter and we certainly brought back some stock during the quarter. Then some dividends during the quarter.

Okay, it doesn't make sense from what you said, but I will get back with you on that. Then the fourth quarter, so basically from last quarter, you just -- you reduced the top end of the guidance.

Hold on one second, please. The participant disconnected. Next please.

Next question is from a follow-up from Bob Labick's line.

I just wanted to follow up. In terms of the Marking Products, obviously you have shown some pretty good resiliency in that area, given the economic environment in the US. Could you give us a sense of where the sales are coming from? Are they still more equipment sales? Have the consumables picked up? How is that division looking?

The consumables have not picked up, Bob. What we are seeing right now is the benefits of our Chinese acquisition last year as well as the sales, new products, about 18 months, 24 months ago, we were telling the market that we had some new products in development that we were ready to launch. Those are starting to take off a little bit now, but still have not made up the shortfall on the sales side that we expect. The division is performing well in light of the economy. When the economy does turn, we should see a very significant improvement there.

I was just going to say in terms of -- given the last two quarters and this 15% operating margin business -- basis for this segment, is that a decent range to think about while the economy remains soft? We have been even more cautious given the mix to more equipment versus consumables. I'm just trying to get a sense of broadly speaking how to think of that over -- assuming the economy stays similar, obviously when it picks up, your margins should grow back to where they were.

I will tell you the fourth quarter is going to have little bit of an issue because our Chinese operations are essentially having some problems as it relates to the Beijing Olympics. Our headquarters are in Beijing, so some shipping issues may occur there. But going forward beyond the fourth quarter, I think that is a reasonable range to be in.

Okay, great. Then given the strong free cash flow characteristics, I think free cash has been strong this year and I am looking at next year in excess of $90 million, maybe $100 million in free cash. And where your debt stands, could you just -- with the acquisition completed now, prioritize again the uses of your free cash for next year in terms of debt repayment? Is that a priority given your low cost of debt or will it be more share repurchase or acquisitions out there? Just remind us of the priorities now that you've made this acquisition.

I would tell you that the Company's number one priority with its cash is to find the right operating investment opportunity for that. So our top priority is a good acquisition or a good investment.

The second priority would really depend on cash flow position at any point in time. But we certainly continue to remain active and will remain active in the share repurchase program and that will depend entirely on price and again cash flow at a particular time when those opportunities come up. But we certainly will stay -- we'll certainly look to debt repayments as well since we have taken on a significant amount of debt. Debt becomes a higher priority, but I don't think it is supplants share repurchases, because the share repurchase program as we have discussed in the past, we look at that opportunistically and that depends on price and excess cash flow at any point in time.

Bob, the only thing I would add to that is that the Saueressig acquisition came at a fairly good, tax effective interest rate. So it is not a high priority to pay that down given its current effective rate.

Okay, terrific. Thank you very much. We look forward to seeing you at our conference in August.

(OPERATOR INSTRUCTIONS) Jaime Clement.

Jaime Clement, Sidoti & Co. Joe, Steve, good morning. Joe, can you give us a little more color on the long-term process of moving towards Casket self distribution and the assets you have, the number of -- you don't have to give me specific numbers, but the warehouse facilities and all of that. Because I've asked over the last couple of quarters and it seems like it is a long-term process or a multi-quarter process. How do you feel about your platform? How do you feel about the efficiency of getting caskets around and all of those kinds of things?

Sure, let me kind of state where we are right now in the process. We've moved about three quarters of our business to direct sales and for those of you that have not been around, only three years ago we were about 100% through independent distributors. And in that process we have opened some 50 or so warehouses. We've started the process to work them down. They run through leases. When you sign these contracts, you do have a lease associated with them.

But as we have run through that integration process of Yorktown and a few other territories, we are now able to discern where those zip codes of our customers are and therefore where our warehouses should be and the volume in those territories.

I guess the best way to look at this is what our internal goals are that we've been communicating. We expect this to be a 15% operating profit business in the next 24 to 36 months. And I think taking the costs associated with distribution as well as the assets associated with distribution out of the process is part of getting there.

Okay, okay. So there is still work to be done and -- okay, very good. Just, Steve, I'm sorry if I missed this. Did you give a -- was there any kind of foreign currency benefit during the quarter? If you said so, I apologize.

No, there was foreign currency benefit, but, Jaime, we haven't dollarized that.

You haven't dollarized it, okay. Just, Joe, your early thoughts on the Saueressig acquisition, are there -- I know obviously you operate a very successful business or you did operate a very successful business already in Germany. Are there opportunities to combine those businesses, realize synergies, that kind of thing?

The combination of the businesses is probably less likely, but the synergies to be achieved are on the top line. Essentially, Jaime, we only offer photopolymer plate services in Europe.

And that is gravure, yes, okay.

This is gravure, so completing the product line mix in Europe allows us to cross sell between the two. So do I think that occurs quickly? No, but it is a longer-term part of the strategy of what we want to be. We have solidified ourselves as the dominant mainland Europe player right now, and that is a good thing.

Okay and in terms of the US graphics market what is --? Has there been an economic impact there or is it kind of -- ? I think you all started talking a little bit about that in the second half of 2007 and I know you have been able to rationalize costs and those kind of things, but from a demand perspective, what are you seeing in the US?

I made my comment earlier in my discussion about the impact on our Brand Solutions side of our business in general, both our Merchandising Solutions, Graphics and Marking Products, are subject to delays. And now fortunately our major customers on the US graphics side to date have not shifted too much work away to another quarter. We've not lost customers. I can tell you -- I won't say that it is a robust business today, but we haven't seen any real negative impact. But I think it is more about our mix than it is about the actual market.

Okay, I understand what you are saying. Thank you very much for your time.

Jaime, just on your earlier question on the exchange rate, year-to-date, I have the year-to-date figures with me. The year-to-date impact of currency with respect to sales compared to year ago was about $20 million -- a little over $20 million and an operating profit about $3.5 million.

I'm sorry, if you wish to respond to that, (OPERATOR INSTRUCTIONS) Please go ahead.

The numbers you just gave, that is through the first nine months? That is not the six months, right?

Right, those are the full-year results.

Full year, okay, great. Thank you so much.

I should say full year-to-date results.

Very good.

Jason Rodgers, Great Lakes Review.

Just a quick follow-up. On the inventory purchase from Yorktown, the higher cost inventory, has that pretty much been worked through the system now?

We're working that down as we continue to speak. There is some slow stuff still out there, but it is pretty much gone. We should see a little better productivity out of our plants going into next year.

Okay, so the Mexican facility is still operating well?

It is operating very well. We are in the midst of a second shift down there and once volume kind of picks up as our season -- we are in the slow season for that's part of our business. And as we ramp up here for the fourth calendar quarter and the first quarter of '09, we will start to see better benefits there.

Okay, thank you.

Charlie Smith, Fort Pitt Capital.

Good morning, gentlemen, a clarification. What was the timeline again on the 15% operating margin in Casket?

24 to 36 months, assuming that no catastrophes happen in the steel market, that is.

Okay, that was my next question. Assumptions with regard to raw materials, is that part of the benefit or --?

Actually no. Our assumptions are on the operating side. The risks associated are on the raw materials side and the ability to pass on -- we are making assumptions that we will generally be able to pass on raw material costs and that is a bit of an unknown at this point in time.

Okay, thanks a lot.

At this time, we have no further questions in queue.

Okay, well we would like to thank everyone for attending this morning and we certainly look forward to our call with respect to fourth-quarter results in November. Thank you again and have a great day.

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