Matthews International Corp (MATW) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Matthews International year end financial results 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 to you at that time. (Operator Instructions) And also as a remainder, today's conference is being recorded. I would now like to turn the call over to your host, CFO, 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 around Noon today. To access the replay, dial 1-320-365-3844, and enter the access code 121888. The replay will be available until 11:59 PM, November 26, 2009.

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 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 Current 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. In addition, please note that the balance sheet and income statement information provided today are preliminary data, since our Annual Report on Form 10-K for the year ended September 30, 2009 will not be filed with the SEC until the end of November.

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 30, 2009, the Company reported earnings of $0.52 per share. Included in the earnings for the current quarter were net unusual charges of $0.07 per share. These unusual items primarily consisted of charges related to operational and system improvements in several of the Company's businesses.

Unusual items for the current quarter also included a favorable mark-to-market asset adjustment of approximately $400,000 representing unrealized gains in the value of investments held in long-term trusts for certain employee benefit plans. Earnings per share for the fiscal 2008 fourth quarter were $0.65 per share.

For the year ended September 30, 2009, the Company reported earnings of $1.90 per share. Fiscal 2009 earnings included unusual charges of $0.35 per share. Unusual charges primarily consisted of severance and other costs related to the consolidation of certain production operations within the Company's Bronze segment, costs related to operational and systems improvements in several of the Company's other businesses, and asset adjustments resulting from current market conditions.

Current year earnings also included a benefit of $0.04 per share related to favorable adjustments in income tax expense. These adjustments primarily relayed to the Company's ability to utilize a European tax loss carryover which was generated in prior years. Also, changes in the values of foreign currencies relative to the US dollar had an unfavorable impact of approximately $0.06 per share on fiscal 2009 earnings compared to last year.

Earnings for fiscal 2008 were $2.55 per share, and included a one-time tax benefit of $0.06 per share related to a favorable adjustment in income tax expense, which was recorded in the fiscal 2008 first quarter. As a result of tax rate changes in Europe, an adjustment to our deferred tax account was required under US accounting rules.

Consolidated sales for the fiscal 2009 fourth quarter were $200 million, compared to $219 million for the fourth quarter last year. The reduction in consolidated sales reflected the impact of the current recession on unit volumes and selling prices and a decline in casketed death rate compared to a year ago.

Consolidated sales for year ended September 30, 2009 were $781 million compared to $819 million last year. Sales for the current year reflected the acquisition in the Company's Graphics Imaging segment of Saueressig GmbH & Co. KG in May 2008.

Saueressig reported sales of approximately $107 million for the year ended September 30, 2009 compared to $49 million in fiscal 2008. Saueressig was acquired in May 2008 and was included in our fiscal 2008 consolidated results for five months.

In addition, changes in the values of foreign currencies against the US dollar unfavorably affected fiscal 2009 sales by approximately $25 million compared to last year. In our memorialization businesses, sales for the Bronze segment were approximately $57 million for the fourth quarter, compared to $61 million last year. For the year, Bronze segment sales were $216 million in fiscal 2009 compared to $243 million last year.

Lower unit volume and an unfavorable change in product mix were the primary factors in the reduction in sales. Based on available CDC statistics, we estimate that US casketed death rates declined approximately 3% in fiscal 2009 compared to last year.

Currency rate changes also had an unfavorable impact of approximately $4 million on Bronze segment sales for fiscal 2009 compared to last year. Sales for the Casket segment were $48 million for the current quarter compared to $49 million a year ago. For the year, Casket segment sales were approximately $203 million in fiscal 2009 compared to $220 million last year.

Lower unit volume and an unfavorable change in product mix were the main factors in the sales decline. Fourth quarter sales for the Cremation segment were $9 million in the current fiscal year compared to $7 million for the same period last year. Fiscal 2009 Cremation segment sales were $31 million compared to $27 million for fiscal 2008.

The acquisition of a small European cremation equipment manufacturer in the fiscal 2009 first quarter was the principal factor in the sales increase. In our brand solutions group, sales for the Graphics Imaging segment were $64 million in the fiscal 2009 fourth quarter compared to $72 million a year ago. The decline reflected the impact of the global recession, particularly on our businesses in the US and UK.

For the year, fiscal 2009 sales for the Graphics Imaging segment were $235 million compared to $204 million last year. Saueressig reported fiscal 2009 sales of approximately $107 million compared to $49 million last year. Saueressig was acquired in May 2008 and was included in our fiscal 2008 consolidated results for five months.

Excluding the Saueressig acquisition from both periods, sales declined from last year primarily reflecting lower volume. Currency rate changes also had an unfavorable impact of approximately $18 million on Graphics Imaging fiscal 2009 sales compared to last year.

The Marking Products segment reported sales of approximately $11 million for the fiscal 2009 fourth quarter compared to $15 million a year ago. Fiscal 2009 sales for the Marking Products segment were $42 million compared to $60 million last year. Sales for this segment continued to be affected by lower industrial capital spending and a decline in the sales of consumables as a result of the current recession.

Sales for our Merchandising Solutions segment were approximately $11 million for the fiscal 2009 fourth quarter compared to $16 million a year ago. For the year, fiscal 2009 sales for this segment were $53 million compared to approximately $65 million last year.

This segment experienced a significant reduction in projects due to delays or cancellations by customers as a result of the current economic conditions. Consolidated operating profit for the quarter ended September 30, 2009 was $27.7 million compared to $35 million for the same quarter a year ago. Operating profit for the fiscal 2009 fourth quarter included approximately $3.7 million of unusual charges.

Unusual charges for current quarter primarily consisted of costs related to operational and systems improvements in several of the Company's businesses. Consolidated operating profits for the fiscal year ended September 30, 2009 was $101 million compared to $133 million last year.

Fiscal 2009 operating profit included unusual charges of $16.5 million. Unusual charges for the year primarily consisted of severance and other costs related to the consolidation of certain production operations within the Company's Bronze segment, costs related to operational and systems improvements in several of the Company's other businesses, and asset adjustments resulting from current market conditions.

Asset adjustments that affected operating profit primarily included lease termination costs for facilities being exited in connection with cost improvement initiatives, changes in inventory valuation, and adjustments to bad debt expense. Under the Company's accounting rules, we generally provide a reserve for outstanding accounts receivable that exceed certain aging thresholds.

In addition, unusual charges for the current year also included costs related to the integration of the Saueressig acquisition and the expansion of the SAP system into certain other business segments within Matthews. In addition, changes in foreign currency values against the US dollar had an unfavorable impact of $3.1 million on fiscal 2009 operating profit compared to last year.

In our memorialization businesses, the Bronze segment reported operating profit of $17.5 million for the fiscal 2009 fourth quarter compared to $21 million a year ago. The decline in operating profit reflected lower sales for the period. In addition, unusual charges for the segment were approximately $500,000, primarily representing severance costs.

For the year, operating profit for the Bronze segment was $57.6 million in fiscal 2009 compared to $71.6 million last year. Unusual charges for the current year totaled $7.2 million mainly related to the consolidation of certain memorial production operations and other severance costs.

Operating profit for the Casket segment was $2.1 million for the fiscal 2009 fourth quarter compared to $3 million a year ago. Lower sales were the main factor in the decline in operating profit. For the year, Casket segment operating profit was $17.7 million in fiscal 2009 compared to $23.3 million last year.

The segment's 2009 operating profit included unusual charges of approximately $2.7 million primarily related to costs associated with employee terminations, lease termination costs, and adjustments to bad debt expense. The Cremation segment reported operating profit of $1.5 million for the fiscal 2009 fourth quarter compared to $1.9 million a year ago. Last year's fourth quarter reflected a very favorable product mix with respect to equipment sales.

For the year, operating profit for the Cremation division was $5 million compared to $5.5 million last year. In the brand solutions group, the Graphics Imaging segment reported operating profit of $8.1 million for the quarter ended September 30, 2009 compared to $5.8 million a year ago. For the year, the Graphics Imaging segment reported operating profit of $19.2 million for fiscal 2009 compared to $18.6 million last year.

Saueressig reported an improvement in operating profit compared to the fourth quarter a year ago reflecting the benefit of its recent cost structure initiatives. Excluding Saueressig, the segment's operating profit declined for the year on lower sales. In addition, unusual charges were approximately $800,000 for the fourth quarter and $3.1 million for the year, mainly related to severance charges and costs incurred in connection with the integration of Saueressig.

The Merchandising Solutions segment reported an operating loss of $1.5 million for the fiscal 2009 fourth quarter compared to operating profit of $300,000 in the same quarter last year. For the year, the Merchandising Solutions segment reported a slight operating loss in fiscal 2009 compared to operating profit of $4.8 million last year. Lower sales were the main factor in the reduction in operating profit from the comparable periods last year.

In addition, unusual charges for this segment, which were incurred in connection with asset adjustments and employee terminations, approximated $1.1 million for the fiscal 2009 fourth quarter and $1.3 million for the year. The Marking Products segment reported essentially break even results for the quarter ended September 30, 2009 compared to an operating profit of $3.1 million a year ago.

For the year, Marking Products segment reported operating profit of $1.5 million in fiscal 2009 compared to $9.1 million last year. The decline in operating profit from last year resulted principally from lower sales. Unusual charges for this segment approximated $1.2 million for the current quarter and $1.9 million for the year, primarily related to downsizing initiatives in the segment's operation in Sweden and other cost structure improvement actions.

Sales and operating income by segment for the fourth quarter and fiscal year are posted on our website. We have also posted estimated unusual charges by segment for your reference. In our fiscal 2009 fourth quarter, consolidated operating margin was 13.8% of sales. Unusual charges included in operating profit for the current quarter were approximately $3.7 million or 1.9% of sales.

Our consolidated operating margin was 16% in the fourth quarter last year. For fiscal 2009, our consolidated operating margin was 12.9% of sales compared to 16.2% of sales last year. Unusual charges included in operating profit for the year totaled $16.5 million or 2.1% of sales. Gross margin for the quarter ended September 30, 2009 was 39.1% of sales compared to 38.2% for the same period a year ago.

The increase primarily reflects an improvement in the year-over-year operating performance of Saueressig. Gross margin for the year ended September 30, 2009 was 37.7% of sales compared to 39.5% last year. The decline resulted from lower sales and unusual charges.

Selling and administrative expense for the current quarter was 25.3% of sales compared to 22.8% of sales in the same quarter last year. SG&A expense for fiscal 2009 was 24.8% of sales compared to 23.2% of sales year ago. Lower sales and the impact of unusual charges were the principal factors in the increase in the percentage of SG&A costs relative to sales.

For the fiscal 2009 fourth quarter, investment income totaled $1.4 million compared to $413,000 for the same period a year ago. Unusual items for the current quarter included a favorable mark-to-market asset adjustment of $400,000 representing unrealized gains in the value of investments held in long-term trusts for certain employee benefit plans.

Under the Company's accounting policies, unrealized gains and losses on these investments are recorded through the income statement. Year-to-date, investment income was $2 million compared to $1.8 million last year. Interest expense for the current quarter was $3 million compared to $3.7 million for the same period a year ago. The decline primarily reflected lower short-term borrowing rates.

For the year, interest expense was $12.1 million in fiscal 2009 compared to $10.4 million last year. The increase in interest cost resulted primarily from a higher average level of debt for the year as a result of the acquisition of Saueressig. Minority interest deduction was $1.5 million for the current quarter compared to $1.2 million a year ago.

An increase in the operating profit of Saueressig was the primary factor in the increased minority interest deduction in the most recent quarter. For the year, the minority interest deduction was $2.5 million compared to $3.3 million last year. At the end of fiscal 2008, the Company purchased the remaining interest in one of its German companies which was the primary reason for the decline in the deduction from last year.

The effective income tax rate for fiscal 2009 was 34.8% of pre-tax income. Excluding the favorable impact of the current year one-time adjustments, our fiscal 2009 effective tax rate was 36.3%. Excluding the non-recurring favorable adjustment from income tax expense a year ago, the effective rate for fiscal year ended September 30, 2008 was 36.2%.

At September 30, 2009, the consolidated cash and investment balance was approximately $71 million, compared to $61 million at September 30, 2008. Our current ratio is 2.3 at September 30, 2009, and 1.9 at September 30, 2008. Our outstanding accounts receivable balance at September 30, 2009 was approximately $139 million which represented 62 days sales outstanding.

Outstanding accounts receivable at September 30, 2008 approximated $145 million which represented 60 days sales outstanding. At September 30, 2009, consolidated inventories totaled approximately $94 million compared to $96 million at September 30, 2008.

At September 30, 2009, the Company had approximately 30,302,000 shares outstanding. For the year, the Company purchased approximately 797,000 shares under its share repurchase program at a repurchase cost of approximately $29 million. At September 30, 2009, approximately 220,000 shares remained under the current repurchase authorization.

Our long-term debt balance at September 30, 2009, both current and long-term portions, approximated $252 million; $178 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 fiscal year ended September 30, 2009 were $7.2 million and $30.3 million respectively. Capital expenditures for the same periods were $7.9 million and $19.4 million respectively.

In summarizing our operating performance for fiscal 2009, we clearly felt the impact of the economy in all of our businesses, which resulted in lower unit volumes and some shifting to lower priced products. In addition, a reduction in the casketed death rate further contributed to the decline in sales. As evidenced by the unusual charges recorded during the year, we have initiated a number of actions designed to improve our cost structure going forward and we remain focused on achieving our long-term objectives.

For fiscal 2009 we are maintaining a cautious outlook. While we recently have seen signs of stability in a few of our markets, we still expect operating results to be challenging in the coming months. Near-term clarity continues to be an issue and as a result, it is difficult at this time for us to project a definitive trend toward improvement.

In addition, we project pension expense to increase by approximately $5 million next year as a result of the market's impact on plan assets and the valuation of the pension obligation. On this basis, we currently estimate that our overall earnings for fiscal 2010 will be at a level relatively consistent with fiscal 2009 excluding the impact of unusual items for both years.

We expect year-over-year results comparisons to be more challenging in the early part of fiscal 2010 but improving as the year progresses. This concludes the financial review, and Joe will now comment on our operations.

Thank you, Steve. Good morning. As you all are aware 2009 was a difficult year for many of our businesses. Despite these difficulties, swift managerial action has allowed us to post adjusted earnings for share equal to our second best year on record.

Our Brand Solutions segment suffered from severe drops in revenue caused by cuts in marketing budgets at major brand owners and tight capital budgets throughout the world. Our European operations performed better than our US operations but they, too, had to struggle through difficult cost structure adjustments to achieve those results.

We also suffered from some unfortunate timing as we acquired Saueressig, our leading German-based rotogravure provider only several months prior to the economic collapse. Faced with these challenges we were successful in restructuring operations and expect to see the benefits of those adjustments as the economy recovers.

We have also landed new brand accounts and expanded our penetration to existing accounts during this period of weakness. These efforts, coupled with the expectation of better capital spending throughout our markets which would benefit a couple of our equipment-based businesses gives us great hope for an improvement to our results in the future as things get better.

Regarding our Memorialization segment, unanticipated declines in casketed deaths, slow capital spending and an accelerated downward trend in consumer preferences all combined to put pressure on our revenues and margins. Nevertheless, we accelerated actions to reduce our cost structures and are seeking ways to continue to improve -- to properly merchandise our product so as to improve our overall mix.

We're also looking for ways to expand our presence in the death care industry, and capitalize on our breadth of product offering, reputation in the industry, and knowledge of the market. We have great expectations for this segment as we benefit from all these actions. All in all, 2009 was not up to our expectations, but I believe that we have performed admirably in these difficult times.

Looking forward, 2010 remains somewhat unclear from a recovery standpoint. Therefore, we remain cautious from a revenue perspective. Many markets which we serve have not seen any signs of material improvement, and our managers lack the visibility necessary to be optimistic at this time.

For those reasons we expect the results to be relatively flat on a year-over-year basis. We may continue to struggle in the early quarters of the year. With that, I would like to open it up to questions.

At this time, we would like to open the call to 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.

Thank you. (Operator Instructions) Our first question comes from Bob Labick with CJS Securities.

Good morning.

Hi, Bob.

Good morning, Bob.

Hi. I had a couple questions, but sticking with your one, I will start with one, and I'll get back in. I was hoping you could elaborate, and just expand a little bit on the casket margins in the quarter. I understand the seasonal decline in the quarter, and obviously casketed deaths have been going down, but if you could talk a little bit more about it?

A couple of years ago you put in a restructuring plan to grow those margins. How do you see margins going next year and where do we stand in that plan entirely? I'm just trying to get a sense of where we go on a go-forward basis and what happened at the end of the year, if was death rate related or what are the other factors?

Well, Bob, with respect to the margins and what we expect going forward, we still feel that the margins in this division can improve. Our margins have been hanging around the 10% level, high-single-digits, 10% level, for a little bit here now.

As we go through initiatives to improve our manufacturing productivity, as well as our distribution infrastructure, we're still in those processes and some of the unusual charges that you saw in 2009 are still addressing some of those actions that we're taking. So we do expect starting next fiscal year to see improved margins. Hopefully, toward our midterm goal, two, three, four years of those mid-teens.

Okay, great. I guess the actions taken this year are essentially winding down, and that's what would lead to the improvement in margins, or what else should we --

On the cost restructuring standpoint, the actions are continuing to wind down, Bob, but we also had some actions with respect to merchandising that will continue to benefit over time.

We've had a little bit of price pressure this year, as you might expect in this difficult environment which also are impacting our margins. We will work on that, and it is one of our items that we expect to improve over the next several years.

Okay, terrific. I will jump back in queue.

Thank you. And our next question comes from Liam Burke with Janney Montgomery Securities.

Yes, good morning, Joe. Good morning, Steve.

Good morning, Liam.

It looks like your graphics business had a nice rebound in the fourth quarter. In terms of contribution from Saueressig, was that entirely Saueressig and is there more to come from that area?

Most of the improvement this quarter came from Saueressig and it was really the benefit of a year-over-year comparison. As I said in my comments, we had a difficult start coming right out of the block with the acquisition, and then having it collapse. They performed well over the quarter.

We're still seeing the benefit of that as we look at our budget this year. It is really dependent, Liam, on some of the capital spending over there. The packaging side of that business seems to have stabilized, albeit at a lower level.

There's another piece of the business which is more decorative and more engineering based which has not seen any recovery on the revenue line. If we see those results, we could see a much better result coming out of Saueressig.

Thank you.

Thank you. And our next question comes from Greg Halter with Great Lakes Review.

Yes, good morning, guys.

Good morning, Greg.

Good morning, Greg.

Wondered if you could run through the raw material cost dynamics for things like steel and bronze, and anything else that's critical to your operations on what you see going forward?

Well, excuse me. I have a bit of a cold here. The steel costs seem to be relatively flat right now. There's not a lot of pressure on the steel side, so we think we're okay for much of the year as we bought out and have commitments for product for a good part of the year.

The bronze side, as you can tell from the price of copper over the last several months, has been relatively unstable, or at least accelerating on its increase as we went through the year. We're covered for several more months, but we're going to start to see that impact probably middle of the second quarter, third quarter, as we look at would we have to do to meet those costs, but it will be an impact.

Part of the reason for our being cautious right now is we just don't know where that's going to be. It's going to remain at these levels, come down, or what.

Okay, and can you comment on the pension dynamics, given that the market has improved here recently, but I just don't know of all the dynamics behind what's going on with that $5 million increase on a year-over-year basis?

Sure, Greg, I'd be glad to explain that. Our pension comparisons work from September to September, so that when we had our valuation done, which determined pension expense for fiscal 2009, that was done based on asset values as of September 30, 2008.

So with respect to our valuation this fiscal year, I'm sorry, for this coming fiscal year, we're using September 2009 asset data, which as you can expect, is much lower than it was a year ago at this time. In addition to that year-over-year interest rates, the interest rates that you use, the discount rate that you use to determine your pension obligation, has declined.

So that both of those factors, the first factor impacts, obviously, our assets and the income we expect from those assets, and the discount rate, the lower the discount rate that increases the pension obligation, which increases the expense for us. So those two factors, and again, relative to September 30 a year ago, are what's impacting our fiscal 2010 expense.

Okay, thank you.

You're welcome.

Thank you. And our next question comes from Jamie Clement with Sidoti. Please go ahead.

Steve, Joe, good morning.

Good morning, Jamie.

Good morning.

Joe, with -- acquisitions have always been a part of Matthews' growth strategy, and obviously since Saueressig you guys have been seemingly relatively quiet on that front. With the balance sheet that you have right now, with some signs of stabilization in your markets, are you more inclined to potentially look for external growth opportunities?

Absolutely, Jamie. We always have a laundry list of targets that we'd like to acquire. On the list today, there's a lot of hopes and dreams in terms of large step-change acquisitions, but nothing right now that is in the works.

We have several that we're dealing with that are smaller but critical to our overall strategy, as you saw what we did with -- we did announce a small acquisition in Europe of a cremator business. We have great hopes for that opportunity over there to expand from where it is right now. Absolutely, we are always in the market.

Okay. Joe, my perception was over the last two or three conference calls you seemed a little bit more hesitant than normal. Are you feeling a little bit more comfortable right now than you were, let's say, six months ago?

Yes, in fact, Jamie, if you take a look at the balance sheet, we increased our cash position, we wanted to be relatively conservative with that. We think that we have seen at least stabilization at this point in time. That will allow us to do a couple of things.

We've always said there's two parts to our strategy; grow the business internally and particularly grow the business through acquisition and share repurchase. We will reactivate the last two elements of that, the repurchases as well as the acquisitions, albeit on a smaller scale over the next 12 months.

Okay. Great, thanks a lot.

Thank you. And our next question comes from Bob Labick with CJS Securities.

Hi, thanks. Wanted to ask another question as it relates to your multi-year growth strategy. Could you just talk about opportunities for expansion, either on the Memorialization or on the Brand Solutions side, and how you're thinking about it just on a three to five-year basis what opportunities might be out there for you?

Bob, did you say other than Brand Solutions and Memorialization?

No, no, in each of them. It's more a global question, not a specific, we're going to do this today, but what are you thinking about over the next three to five years to grow Memorialization Or Brand Solutions?

Sure. We have a couple of things that we're looking at. Obviously, on the Memorialization side of the business we are a provider of markers for the cemetery business. Those are bronze markers. Those bronze markers represent we think somewhere around 35% to 40% of the overall market.

We're looking for the right opportunity to get into the other side of the market, which, not necessarily at the same kind of margins that we're getting on the bronze side, but still good businesses, if the right model is established, and we're trying to develop that model as we speak. Similarly, there are other facets of the death care business. For example, the European business that we acquired.

There's other opportunities over in Europe that continue to expand that portion of the business. Plus some regulation changes on the European version of the EPA. I'm not sure what that acronym is in Europe, but essentially requires changes in the environmental protection laws as it relates to crematories over there.

So we're expanding our focus in Europe from the cremation standpoint and think that is an opportunity for us as well as perhaps looking at some of the service side in the European market for cremation. On the Brand Solutions side, we're still digesting our acquisition in Germany and getting our arms around it in this difficult time.

We remain optimistic about opportunities to both roll up some rotogravure opportunities in Europe as well as add pieces to the puzzle in the United States and elsewhere in Europe, elsewhere in the world. A small acquisition we just did Hong Kong, for example, on the graphics business gives us some global footprint for our graphics businesses that we expect to see the benefit from and starting to see great interest in over the last 12 months.

So these are the types of things we're looking at. A we don't touch all the markets we'd like to been just yet, but we continue to see opportunities, mostly geographic, when we talk about that, though.

Okay, great. And then just one thing to clarify on the pension. You said roughly a $5 million. I think it's in the ballpark of a $0.10 hit. When you said you expect EPS to be roughly in line with fiscal 2009 is that including the $0.10 hit or excluding the $0.10?

Including.

Okay, terrific, thank you.

We cannot call that out as an unusual item.

Okay, got it, thanks.

Thank you. Our next question comes from Clint Fendley with Davenport.

Hi. Good morning, Joe, and Steve. I'm sorry I was a bit late joining the call. I wondered if you could describe the nature of the $0.07 of unusual items related to operational and systems improvements?

Clint, I would be glad to. That is pretty much more of the same story for the first nine months of the year. As we continued through these tough times, our managers continue to look for ways to make their businesses more cost effective.

So those included some severance costs, some asset impairment costs, in terms of right-sizing some of our businesses, some lease termination costs, for example. Generally those are -- I would call those three categories out.

Okay. And I know it's always tough to know, but any outlook for future charges of these nature here?

At this time, I can't suggest that we expect anything significant going forward. But having said that, as we continue to go through the markets -- the economy that we're going through, it wouldn't be -- it wouldn't be unexpected that our managers identify some more opportunities.

Okay, thank you, guys.

One of the things I want to add to that, from Steve's comments, we are, as we've said in the past, beginning the process of establishing a Mexican facility for some of our bronze products. We're probably going to have some ramp-up costs over the course of the next 12 to 24 months. As we've done in the past with our casket business we'll call those out, probably not necessarily as unusual, and let you know what the costs associated with that to the extent it impacts our earnings.

When due expect that that facility will be in operation, Joe?

We're in construction of the building as we speak, so we're probably three to six months from being operating down there. And that will be a slow operation. A lot of the things that we do are custom, and we do not want to drop the ball on this one.

Got it. Thanks, guys.

You're welcome.

Thank you. Our next question comes from Greg Halter with Great Lakes Review.

Hello, I'm back. Question for you on your capital spending thoughts for fiscal 2010. Notice you'd had about $19 million in fiscal 2009, up from $12 million in 2008. Just wondered what your thoughts are for fiscal 2010 and what that may be spent on?

Sure. The reason for the higher than -- I guess, higher than average rate for the first nine months of the year, Greg, really related to some capital spending on our installation of the SAP system and also some capital investment that we had with our new Saueressig operation in Germany.

Next year I would model out somewhere in the neighborhood of $20 million also, at least that's my feel right now. I think that in addition to just some normal maintenance capital spending, we're going to have capital spending in Germany -- I'm sorry, in Mexico as we continue to construct that facility.

And with Saueressig as a new entity they've got some ongoing capital needs that increases our annual capital spend as well, and we continue to spend as we continue to roll out this SAP system to other business units in fiscal 2010.

Okay, and relative to SAP, how far along would you say you are in percentage terms?

We're actually halfway through SAP right now.

Any problems encountered so far?

Well -- None we'll call out.

I would say nothing that wouldn't be anticipated in a major system implementation like this would be, but something that we -- we've been able to handle the problems, but that certainly presents its set of challenges.

Okay. And on the charge, the $3.7 million, where, or what percentage was in cost of goods versus SG&A?

Greg, I don't have that information now to call out, but if I do I'll get back to you with that.

Okay. And I think we've discussed your receivables in the past. Just wondered if could you give some commentary there on the quality and what your bad debt reserve looks like and what the expense was in fiscal 2009 as well?

Well, our expense was up in fiscal 2009, and obviously that had a lot to do with the economy. We did see a fair share of that increase in the casket business, particularly with funeral homes. Again, it's not unexpected with the economy.

I need to add, though, as I have said in prior quarters, we haven't seen a significant increase in what we believe are going to be actual uncollectible accounts, so that we believe the increase that we've seen in receivables -- in receivable reserve, bad debt expense, is more related to our policies with respect to recording reserve as these receivables reach certain aging thresholds.

I would like to think that in fiscal 2010, we'll be back to a normal year in terms of bad debt expense, so that I'd like to think that we're past the significant part of the increase. But, again, that's all subject to the economy.

Okay. And I think in the past you've commented that you have a relatively low rate on the debt, specifically the Saueressig debt, or the piece there. Just wondering what your thoughts are in the coming year here, fiscal 2010, on debt reduction?

You mean as a use of our cash flow?

Yes, yes.

I don't think we change our mindset with respect to use of excess cash. I think that we will be, as Joe said earlier, as we see acquisition opportunities, the right investments are our preferable use of cash. The share buyback program certainly is a -- will be a focus for us as part of our strategy to grow earnings per share.

But I would also suggest that, again, depending on those other two and the levels of investments, we probably will be reducing debt just to keep our powder dry. With respect to debt rates, that's hard to predict. We do have some portion of our debt that is fixed through swaps, and those are identified -- those haven't changed since the third quarter.

But the current -- the shorter-term debt that we have that hasn't been fixed by swaps, we're enjoying some pretty low rates right now. Our LIBOR spread on our revolving credit facility is 40 to 80 basis points, and I think we all know where the short-term LIBOR rates are.

So those are certainly favorable for us right now, and as long as the Fed keeps those rates relatively low, that will be a good thing going forward, but that will also be susceptible to interest rate climate.

Okay, and one last one. I missed your comments on the share repurchase, either what you've done in the quarter or year-to-date?

Year-to-date we purchased 797,000 shares and spent about $29 million doing that.

Okay. Great, thank you.

And there are no further questions in queue.

Okay, we would like to thank everyone for attending our conference call this morning, and we look forward to our first quarter earnings release and conference call in January 2010. Thank you, and have a great day.

And thank you, ladies and gentlemen. And just a reminder this conference will be available for replay starting today at 12:00 Noon and will run until November 26 at Midnight.

You may access the replay service by dialing 320-365-3844, and entering the access code of 121888. That number, again, is 320-365-3844, with the access code of 121888. That does conclude our conference for today. Thank you very much for your participation and for using the AT&T Executive Teleconference. You may now disconnect.