Matthews International Corp (MATW) 2010 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the second quarter financial results conference call.

At this time all participants are in a listen only mode.

Later we'll conduct a question and answer session.

Instructions will be given at that time.

(Operator Instructions).

I would now like to the turn the conference over to our host, Chief Financial Officer for Matthews International, Mr.

Steve Nicola, please go ahead.

Thank you Jeff.

I'm 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 will be available for replay at approximately noon today.

To access the replay dial 1-320-365-3844 enter the access code 153955.

The replay will be available until 11:59 PM May 7, 2010.

We have posted on our website, which is www.matw.com the second quarter's earning release and financial information we'll discuss this morning.

In the left hand column of our home page under investor relations you can click on "investor news" to access the earnings release or collect on "reports", to access the quarterly financial data.

The financial data is presented under the heading "current quarterly reports" in PDF file format.

Before beginning the discussion at the advice of legal council I've 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 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 the future period to be materially different from management expectations.

Although the company believes the expectations reflected in such forward-looking statements are reasonable, no insurance 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 SEC.

In addition, please note that the balance sheet and income statement information provided today are preliminary data, since our quarterly report on form 10-Q for the period ended March 31, 2010, will not be filed with the SEC until the first week of May.

To begin the conference, I will be review the financial results for the quarter, Mr.

Bartolacci will then provide general con comments on our operations, following that we'll open the discussion for questions.

For the quarter ended March 31st, 2010, the Company recorded earnings of $0.53 per share compared to $0.42 for the second quarter last year.

Earnings for the current quarter were negatively impacted by an increase in pension expense of $1.3 million, or $0.03 per share compared to the second quarter last year.

In addition, changes in the values of foreign currencies relative to the US dollar have favorable impact of approximately $0.01 per share in the current quarter, compared to the second quarter last year.

Earnings for the second quarter a year ago included unusual charges of $0.11 per share, which primarily consisted of costs related to the consolidation of production within the bronze segment, cost structure initiatives in other segments and asset adjustments.

For the six months ended March 31st, 2010, the Company recorded earnings ever $0.96 per share compared to $0.79 pr share a year ago.

Year to date earnings through March 31st, 2010, were negatively affected by increase in pension expense of $2.6 million or $0.06 per share compared to the first six months last year.

In addition, changes in the value of foreign currency compared to the US dollar had favorable impact of approximately $0.02 per share, compared to the first six months last year.

Earnings for the six months last year included unusual charges of $0.25 per share, which primarily consists of costs related to the consolidation of production within the bronze segment, cost structure initiatives in other segments and asset adjustments.

In addition prior year earning's included a one time benefit of $0.03 per share, which was recorded in the fiscal 2009 first quarter, related to a favorable adjustment in income tax expense.

This adjustment related to the Company's availability to utilize a European tax loss carry over which was generated in prior years.

Consolidated sales for the second quarter of fiscal 2010 were $201 million, compared to $197 million for the same quarter a year ago.

Consolidated sales for the first six months of fiscal 2009 were $394 million, compared to $389 million last year.

The increase in sales over the prior year was primarily due to acquisitions in the favorable impact of foreign currency rate changes.

For the quarter, and six months ended March 31st, 2010, changes in foreign currency rates favorably impacted sales by approximately $$5 million and $11 million respectively, compared to the same periods a year ago.

Excluding the effect of acquisitions in currency changes, consolidated sales for the quarter and year to date periods were lower than last year, primarily due to a decline in sales on the merchandising solutions segment, and the impact on lower casket to death rates on casket and bronze memorial sales.

In our memorialization businesses, sales for the bronze segment for approximately $54 million for the second quarter, compared to $53 million last year.

On a year to date basis, bronze segment sales were $103 million through March 31, 2010, compared to $102 million last year.

The increase reflected the acquisition of United Memorial products in December 2009, and the favorable benefit of changes in foreign currency rates, offset partially by the impact of lower casket to death rates.

Compared to a year ago, based on available published data, death rates were estimated to have declined approximately 4% in the US during the quarter ended March 31, 2010, with casket to death estimated to decline over 6%.

Sales for our casket segment were $55 million for the current quarter, which was slightly higher than the same quarter last year.

Year to date, casket segment sales were approximately $106 million this year, compared to $108 million last year.

A decline in unit volume was substantially offset by the impact of the recent acquisition of several small casket businesses.

Second quarter sales for the cremation segment were $9 million compared to $8 million for the same period last year.

Year to date sales for this segment in fiscal 2010 were $17 million, compared to $14 million last year.

The acquisition of a smaller European cremation equipment manufacturer in the fiscal 2009 first quarter was the principle factor in the year over year sales increase.

Sales in this European operation were higher in the fiscal 2010 second quarter compared to a year ago.

In our brand solutions group, sales for the graphics imaging segment were $60 million for the fiscal 2010 second quarter compared to $56 million a year ago.

Year to date, sales for the graphics imaging segment were $120 million this year, compared to $113 million for the first six months last year.

Favorable changes in foreign currency rates and growth in sales for the groups recently acquired (inaudible) subsidiary were the primary contributors in the sales increase.

The segment's US and UK operations continue to struggle during the current quarter.

The marking products segment reported sales up $12 million for the current quarter compared to slightly less than $10 million in the same quarter last year.

For the first six months of the current fiscal year, sales for the marking products segment were $23 million, compared to approximately $21 million last year.

An increase in unit volume in the second quarter, particularly in sales of consumables was the principle reason for the year over year sales improvement.

Current year sales for this segment also benefited from the acquisition of a small European distributor at the end of the fiscal 2009.

Sales for our merchandising solutions segment were $11 million for the fiscal 2010 second quarter, compared to almost $17 million a year ago.

Year to date sales for this segment in fiscal 2010, approximate indicated $24 million compared to $30 million last year.

Several large projects were completed in the second quarter last year, that did not repeat in fiscal 2010.

In addition, project delays continued this quarter reflecting the ongoing impact of the current economy on merchandising spending.

Consolidated operating profit for the quarter end March 31, 2010, was $27.1 million, compared to $23.4 million for the same quarter a year ago.

Year to date consolidated operating profits for fiscal 2010 was $49.3 million, compared to $43.5 million last year.

Operating profits for the current year reflected an increase in pension expense of $1.3 million and $2.6 million respectively for the second quarter and year to date periods compared to the same periods last year.

In addition, operating profit for the second quarter and six month periods a year ago included unusual charges of approximately $4.9 million and $10.7 million respectively.

As I noted earlier, unusual charge for the prior year primarily consisted of a consolidation of production within our bronze segment, cost structure initiatives and other segment and asset adjustments, resulting from last year's market conditions.

Acquisitions did not have a significant impact on operating profits for the current year, primarily due to integration and acquisition related costs.

In our memorialization businesses the bronze segment reported operating profit of $12.2 million for the fiscal 2010 second quarter, compared to $12.3 million a year ago.

Year to date, operating profits for the bronze segment was $22.6 million this year, compared to $21.5 million last year.

Prior year's result included unusual charges of $2.1 million and $5.5 million respectively for the second quarter and six month period primarily representing cost and at et impact charges in connection with consolidation of certain of its production operations.

Excluding these charges from last year, operating income declined in fiscal 2010, as a result of lower unit volume and higher pension costs.

Operating profits for the casket segment was $8.7 million for the fiscal 2010 second quarter, compared to $5.4 million a year ago.

Unusual charges for the casket segment during the second quarter last year were approximately $1.5 million, mainly consisting of an increase in the segment's bad debt reserve.

Excluding unusual charges from a year ago, second quarter operating profit for the current period was higher due to improvements in distribution and manufacturing productivity.

Casket segment operating profit for the six months ended March 31, 2010, was $14.5 million, compared to $11.8 million last year.

Year to date operating profit for the casket segment a year ago included unusual charges of approximately $2.5 million.

The cremation segment reported operating profit slightly below $1 million for the fiscal 2010 second quarter, compared to $1.3 million last year.

On a year to date basis, operating profits for the cremation division was $2.1 million, which was relatively unchanged from a year ago.

An unfavorable change in product mix and higher pension costs were the principle factors impacting operating results for the current year.

In the brand solutions group, the graphics imaging segment reported operating profit for $4.6 million for the year ending March 31st, am compared to$3.1 million a year ago.

For the first six months of fiscal 2010, the graphics imaging segment reported operating profit of $8.6 million compared to $5.7 million last year.

Significant improvement in the operating profit of [Souraffy] and a favorable currency rate changes were the principle contributors to the increase in this segment's operating profit.

In addition, the prior year included unusual charges of approximately $900,000 for the second quarter, and $1.8 million year to date.

Unusual items mainly included severance charges and costs in connection of integration of [Souraffy].

Operating profit for the marketing product segment was $1.3 million for the quarter ended March 31, 2010, compared to $374,000 a year ago.

For the first half of the fiscal 2010, the marking product segment reported operating profit of $1.9 million compared to $1 million last year.

The increase in operating profit over last year resulted principally from higher sales.

In addition, the year to date results last year for this segment included unusual charges of approximately $500,000, which principally consisted of cost structure initiatives incurred in the December 2008 fiscal quarter.

The merchandising solutions segment reported an operating loss of $631,000 for the fiscal 2010 second quarter, compared to an operating profit of $977,000 in the same quarter last year.

Year to date, the merchandising solutions segment recording an operating loss of $342,000 this year, compared to an operating profit of $1.3 million a year ago.

A significant decline in sale was the main factor in the reduction and operating profit for the comparable periods last year.

Sales and operating income by segment for the quarter and year to date periods are posted on our website.

We have also posted last year's unusual charges by segment for your reference.

In our fiscal 2010 second quarter consolidated operating profit margin was 13.5% of sales, compared to 11.9% a year ago.

The current quarter included an increase in pension expense of $1.3 million or 0.6% of sales.

Unusual charges included an operating profit for the second quarter last year were approximately $4.9 million, or 2.5% of sales.

For the first six months of fiscal 2010, our consolidated operating margin was 12.5% of sales, compared to 11.2% a year ago.

The current period included an increase in pension expense of $2.6 million, or 0.7% of sales.

Unusual charges included an operating profit for the first six months last year totaled $10.7 million or 2.8% of sales.

Gross margin for the quarter ending March 31, 2010, was 38.7% of sales compared for 37% for the same period a year ago.

Year do date gross margin for fiscal 2010 was 38.4% of sales compared to 36.3% last year.

The improvement in the quarter and year to date gross margins was attributable to inclusion of the unusual charges in the prior year's results, and the current period benefits from the fiscal 2009 cost structure initiatives, particularly in the [Souraffy] operation.

Selling and administrative expense for the current quarter was 25.2% of sales, which was relatively unchange from the second quarter last year.

Selling and administrative expense for the first six months of the current fiscal year was 25.9% of sales, compared to 25.1% of sales a year ago.

Higher pension costs and the impact of the recent acquisitions were the principle factors in the increase in our SG&A percentage on a year to date basis.

Investment income for the fiscal 2010 second quarter was $809,000, compared to a net investment loss of $307,000 a year ago.

Year to date, investment income was $2 million, compared to a net investment loss of $695,000 last year.

Unusual charges for the prior fiscal year included mark to market asset adjustments of approximately $400,000 and $1.2 million for the second quarter and year to date periods respectively, respecting unrealized losses and value as held in long-term trusted for certain employee benefit plans.

Interest expense for the current quarter was $1.8 million compared to $3 million for the same period a year ago.

For the first six months, interest expense was $3.8 million in fiscal 2010, compared to $6.3 million last year.

The decrease in interest costs resulted primarily from a decline in interest rates.

Other income deductions net for the fiscal 2010 second quarter represented a deduction of $633,000, compared to income of $114,000 a year ago.

Currency losses in the current period on inner company debt were the primary reason for the year over year change.

The deduction for net income from non-controlling interests, was $364,000 for the current quarter, compared to $86,000 a year ago.

On a year to date basis the deduction for net income from non-controlling interests was $1 million for the current quarter, compared to $77,000 last year.

The improvement in the operating results for [Souraffy] was the primary factor for the increased production this year.

The year to date fiscal 2010 effective income tax rate was 36% of pre-tax income, compared to 34% for the same period last year.

Excluding the favorable impact of the one time first quarter tax adjustment that I mentioned earlier, the year to date effective tax through March 31st, last year was 36.5%.

The effective tax rate for the full 2009-fiscal year excluding unusual adjustments was 36.2%.

At March 31, 2010, the Company's consolidated cash and short-term investment balance was approximately $62 million, compared to $58 million at September 30, 2009.

Our current ratio was 2.1 at March 31, 2010, compared to 2.3 at September 30, 2009.

Our outstanding accounts receivables balance at March 31, 2010, was approximately $130 million, which represented 58-day sales outstanding.

Outstanding accounts receivable at September 30, 2009, approximated $139 million, which represented 62 days sale outstanding.

At March 31, 2010, consolidated inventory sold approximately $95 million, compared to $94 million September 30, 2009.

At March 31, 2010, the Company had approximately 30,253,000 shares outstanding, during the first six months of fiscal fiscal 2010, the company purchased approximately 272,000 shares under its share re-purchase program at a cost of approximately $9.4 million.

At March 31, 2010, approximately 2.4 million shares remained under the new re-purchase authorization, which was granted in January 2010.

Our long-term debt balance at March 31, 2010, both current and long-term portion, approximated $233 million, $173 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 the domestic revolving credit facility is September 2012.

Depreciation and amortization expense for the quarter and six months ended March 31, 2010, were $6.2 million, and $12.5 million respectively.

Capital expenditures for the same period were $4.2 million, and $8.4 million respectively.

In summary, the significant factors encountered in the fiscal 2010 second quarter included a continuation of the difficulty market environment in all of our segment and a further decline in death rates.

Despite these challenging conditions, and an increase in pension costs of $0.03 per share, we were able to generate earnings per share for the current quarter equivalent to a year ago on an apples to apples basis which excludes unusual charges.

The primary driver in these results was the benefit of last year's cost structure initiatives.

In addition, the market for our marking products business showed initial signs of recovery during the quarter, which was and encouraging sign for our brand solutions group.

As our year to date results were generally in line with our internal expectations, we re-affirming our earnings guidance for fiscal 2010.

We currently expect to achieve earnings per share at least equivalent to fiscal 2009, excluding unusual charges.

We continue to remain cautious given the continued decline in casket to death rates.

On certain economic conditions and rising commodity costs.

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

Thank you, Steve.

Good morning.

During our second quarter, we began to see evidence of recovery in several of our most challenging segments.

Our European packaging graphics division performed as we saw the benefits of our restructure at [Souraffy] and stability in the balance of our operations.

We also saw the beginnings of the picture pack projects for the various European cigarette manufacturer for whom we provide (inaudible) cylinders and project management.

Our European packaging group has become a significant contributor to our overall profitability and given their recent performance, we expect our overall packaging graphic division to meet our expectations for the year.

Our marketing products division began to see improvements this quarter with results especially in the final weeks of the period.

The division saw stronger demand for consumables, which is evidence of restocking and increased production activity at our customers.

This is probably consistent with the normal recovery, but we have not yet seen a return in the demand for equipment, which is the necessary element for us to have a return to normalcy in this division.

We hope we see better orders for the durable goods in the quarters to come.

Our merchandising solutions business did not have a good quarter but for the most part, it was anticipated.

We have however seen orders solidify for the coming quarters an we should see improvement in their results assuming those records do not ship.

The team in this division has strengthened its sales talent and improved its cost structure during the down turn, we expect this division to be a solid contributor in the quarters to come.

Our memorialization group continues to struggle with the decline in the number of casket to deaths, which has had an impact open our overall performance in the group.

Despite that decline, our casket division beginning to see the benefit of restructuring efforts and the continued move of product to our Mexican manufacturing facility.

Our bronze division is moving forward with a new foundry in Mexico as well, which we expect to have fully operational within the next 18 months.

The acquisition of United Memorial, as expected was no the a significant contributor to the quarterly results, but has been met with strong acceptance by our customer, we expect this acquisition to be a key element of our long-term strategy of being a total solutions provider to the further industry.

Meanwhile, our cremation division has, was unfavorably affected bay change in product mix and a few equipment cancellations.

Fortunately this division has about a one year backlog of orders that should allow you us to ship that equipment to other customers in the near future.

Our European cremation business performed well during the quarter and we acquired a small equipment manufacturer in the UK.

We continue to be optimistic about our long-term opportunities in Europe as we grow our presence there and share technologies with our new partners.

All together, we are pleased with our results particularly in light of the increased pension costs that we have absorbed, and the challenges that we faced.

We remain confident with we will meet our guidance for the year, but we are aware of the headwinds to come.

Copper and steel prices continue to rise.

Near term death rates seem somewhat uncertain and the effect of the economy on our performance our brands solution groups, are all issues we must contend with.

We remain diligent in our effort to confront these challenges and I thank our employees for their tireless effort over the past 12 months.

With that I'd like to open it up to questions.

For those that will be asking questions, we request that you limit them to one question and a follow-up question until all those who with wish to participant in the Q and A session, have an opportunity to do so.

Jeff?

(Operator Instructions).

Our first question is from Bob Labick with CGS Securities.

Good morning.

Hi, Bob.

Hi.

First question, I wanted to ask relates to the casket division, you had a nice nice results there particularly on the margin side, you mentioned part of it as shifting in manufacturing, could you elaborate a little bit more on the margin level that we're seeing now, what the benefits were and what we should start to expect on a go forward basis?

Well on a go forward basis, let's start there, Bob, we've communicated to the market that we expect this to be you a mid, a mid double digit performing business so we expect this to be the mid teens, maybe a little higher over time.

What you're seeing right now are some of the effort, the benefits of the efforts we've taken over the last 12 to 18 months.

We move more product to Mexico as we've talk about over time, we should see continued movement there, but I don't know how much we're going to end up finally moving down there, given what's going on in Mexico today.

But we expect that we will continue to improve our profitability, going forward for the balance of the year we should see this in the 2010 to 2011, total because we're entering the slower period for that division.

We have some acquisitions that we are trying to integrate at this time, and we'll see the benefit of those probably the following year.

Great.

And then just on my follow-up on that, you talk a little bit about, you said in the quarter there were a few small acquisitions, obviously you made one post the quarter, what are your thoughts on the acquisition environment for caskets and I guess overall?

Well, as we always have, let's put it this way, last year we turn off the valve but we didn't stop looking.

We have a few things teed up.

I wouldn't say, suggest that any of them are needle movers, but they are all part of our longer term strategy and where we want to be in the various businesses that we operate.

So the environment in the market for acquisitions I think has loosened up on both sides, with sellers being a little more realistic on their price expectations and us, we the inquirer being a little more willing to take that chance right now.

Okay.

Great.

Thank you very much.

We have a question from Clint Fendley with Davenport, go ahead please.

Good morning.

Joe and Steve.

Good morning, Clint.

Good morning, Clint.

Joe, I was wondering if you could talk a bit just about copper and steel prices and impact moving forward here.

If you can remind us on where you might stand on any forward purchasing contracts to date.

Sure, we are probably going to start to feel the impact of copper prices in the fourth quarter, end of the third quarter.

We have incorporated that into our thinking for our guidance of the balance of the year, so barring a significant spike further up from where we are today, we expect that our results will reflect higher copper prices in our bronzing in the balance of the year.

We are not bought out well into next year, so we're hoping that, that sometime during the next several months we might see an opportunity to buy a little better than we are currently seeing.

It's hard to tell.

And there's a lot of speculation on what's going on in the market, whether this is true demand or whether this is just financial players in the game, but we're not, we're not going to speculate late.

We're going to be try to be opportunity opportunistic tick when we can.

The real issue for us to think, and this might be a little bit of a change than we've had had in the past, we do think it is in the long-term best interest of our business to not try to force what I would consider reasonable costs increases on our customers, other than in the normal course.

We generally raise prices at the beginning of the year.

So that unless we see significant spikes beyond where we are today, we'll absorb and recover over time rather than force surcharges through on our customers.

Okay.

And than on the steel prices?

Steel steel had a different impact on us.

We are seeing steel prices go up.

We expect that we'll start to feel that a while off, because of our inventory turn that should not have a material impact on our fiscal year this year.

Great.

Thank you, guys.

We have a question from Jamie Clement with Sidoti, go ahead please.

Joe, Steve, good morning.

Good morning.

Joe, in the last couple of calls you've, you've talked about mixed trends in the bronze and casket divisions, you talked a fair amount about volume in the prepared remarks.

Can you give us a little bit more on term of where mix is versus a year ago also where it's trended over the last six months?

We still find our mix moving south on us.

I don't think that's inconsistent with what our customers are seeing, especially the larger customer.

However all of us, including our customers are being looking for ways to market that product up a little bit.

We do think that is a longer term trend, but not at the pace we're seeing right now.

And hopefully through some marketing efforts in our total solutions opportunity that we're going to be moving forward with when we come it our bronze and our stone and elsewhere, we'll be able to market through total, total solutions an opportunity to raise our, our overall dollar yield per event.

Okay.

And you so I mean, Joe, just getting back to one of previous questions, the operating profit increase, and obviously there were charges in the second quarter of last year in caskets, I mean, you would attribute that to really managing costs better over the period of time, because certainly you didn't get a volume tail wind and it sounds like you didn't get a mix tail wind either.

No, we did.

That's really our internal management both on financial side doing better job of collecting receivables as well operation getting better in our facilities and distribution.

Okay.

Very fair.

Thank you very much.

We have a question from Liam Burke with Janney, go ahead please.

Good morning Joe, morning Steve.

Good morning, Liam.

Joe and Steve, can we talk about bronze for a second?

I know the operating margins were dramatically lower as a function of pension costs but if I net out the pension costs on a year over year basis, how were operating margins in bronze?

Operating, Liam operating margins in bronze would have still been lower even if you net out the pension costs.

There are a couple things, you net out the pension costs from this year, and you net out the unusual charges from last year, apples to apples, operating margins are down and that's really a function of unit volume being down, and just the incremental profitability that goes with volume in our bronze business.

Okay.

Great.

On the merchandising, I know you had a tough quarter, the economy isn't exactly cooperating.

Are there any project pending to sort of change the reverse the trend on that business?

We're, relative to the size of that division, we're expecting a pretty good third quarter.

We've solidified some significant contracts for that division.

I don't want to suggest it's going to move the needle overall, to the overall corporation, but that business saw some shift from this quarter to next.

We're hoping that that does not shift from the third quarter to the fourth.

But we have knowingly invested in our talent in that business during this downturn taking advantage of some of our competitive situations out there, we've made pretty good end roads in some of our larger customers accessing more departments within that, so going forward, we're pretty comfortable with what's going to come out of this division.

Great.

Thank you.

We have a question from Scott Blumenthal with Emerald Advisers.

Go ahead please.

Good morning Joe and Steve.

Hi Scott.

Good morning Scott.

Joe, could you comment on the casket to death rate you mentioned and Steve mentioned in his comments as well that it's down 4%.

Are York and Milso operations down the same, slightly less and, what do you think that the edition of the Reynoldsville acquisition is going to do?

Will that catch us up most of the way, all of the way, can you comment on that?

Sure.

I'll let Steve give you more of the specifics but I'll just tell you, when Steve references the overall death rate being down, he's looking at it on he a national basis.

What we've didn't telling the market, given our market share in certain areas, particularly the Northeastern part of the United States, the impact on us is more focused in that part, obviously.

That part of the United States is actually higher in terms of year over year declines.

We're closer to Steve, 5.5%.

About 5.5% declines in that area.

We're feeling that impact a little harder than on a national basis.

Having said that, we actually were down less than that in those areas so we do think we've picked up a little bit of share, but not significant, so we actually are performing relative to the market that we operate in pretty well.

The Reynoldsville acquisition is is really a a good tuck-in opportunity for us.

It is right in our bailiwick, it is in the Northeastern part of the United States.

Concentrated in Pennsylvania and New York, our manufacturing facilities will benefit from the flow of decisional product going through there.

Reynoldsville did not acquire any wood products from us that we think that is an opportunity to further offer to the customers that are purchasing from Reynoldsville today an expanded product like they did not have access to before.

We think it's a good little addition.

However I don't want to mislead anybody into thinking this is going to change the overall results in the business.

This is just a good little acquisition to tuck in.

Got it.

And you mentioned that the United acquisition, I think you're quote was met with acceptance by many, by many of your customers, can you talk about these as weather they're non-United customers, and might be able to define acceptance for us too?

Sure.

Let me kind of give you a feel.

We started to talk with investing community of what our longer term strategy is, and that really, we define that as total solutions to the further industry.

United Memorial was the last significant piece of the product line that we do not offer.

If you think about it, we offer the bronze market.

Cremation equipment, casket and now this stone.

What we're looking to do over a period of time is to offer to our customers anything they may need, and then ultimately better pricing for them and better yield to us so they purchase everything from us.

So strategically we think it's the right thing to do.

That message is being received well by our customers, as an opportunity to consolidate their billing frankly, and, and their, strengthened their association with a strong supplier that's going to be around for the next 100 years.

What I mean, by strong acceptance is, as everybody very well knows, there is a, an increasing trend toward cremation.

One of our key focuses in our, our memorialization businesses solving the cremation solution.

Finding a solution for servicing the cremation market.

The, the United Memorial addition for us adds the ability to develop cremation, cremation niches, which is an adjunct to our bronze niches that we currently offer to customers, that is a good solution.

And our customers are starting to look at ways that they're going to need to spend to develop a solution for their customers, the private parties on how to memorialize cremation.

So acceptance, when I say acceptance, what I'm saying is, our existing reputation and our existing customer base, which was not United Memorial customers in the past, are very willing to talk to us today about total solution for them.

Okay.

Terrific.

Thank you.

We have a question from Greg Halter with Great Lakes Review, go ahead please.

Yes.

Good morning.

Hi Greg.

Hi.

I wondered if you could comment on the bronze foundry that you're working on down in Mexico.

What the goal of that facility will be once you get it fully up and running, what kind of impact it could have on the business either on the top line or the operating profit line?

Well, frankly, Greg, we're looking at this as a long-term solution for us.

As we see prices continue to escalate in the United States, cost continue to escalate in the United States this offers us an alternative in the lower cost area to produce product at a competitive rate with anybody that may be performing in the United States.

Having said that, we are a US operator, in many cases our customers an our employees are be home to us in this country, so we're not going to be able to move all of our business to, to the, to Mexico anytime soon, and that's not what our intentions are.

But there are elements of our product line that would benefit both us and our customer if we're able to produce it at a lower price.

Okay.

And relative to the pension costs, do you expect that to continue throughout this year and if so what kind of magnitude?

Greg, I'll continue with the same quarterly rate throughout the year, $1.3 million higher than the comparable quarters last year.

Pension costs is set according to accounting rules once a year, so that will stay in place between now and the end of the fiscal year.

And any early expectations for fiscal 2011 on how that will play out?

Couldn't comment on that now, Greg.

The factors that impacted the increase this year were the change in the asset values in the plan assets that we hold for the pension.

As well as the discount rates used to value the pension obligation.

Those two are what drove the change in pension costs, so where those settled out at September 30th, will determine next year's cost.

Greg, as you're aware I'm sure the pension expense is a non-cash expense.

Right.

Right.

Hopefully your asset values are up, but I think the discount rate will be down.

Hopefully not further than it was last year.

Right.

Well who knows.

Thank you.

You're welcome.

(Operator Instructions).

We have another question from Greg Halter with Great Lakes Review, go ahead please.

Hi, again I thought he was limited to two, but I guess there was no one else there.

Could you comment on how much the acquisitions added to sales on you a dollar figure in the quarter?

Hold on just a second, Greg.

Let me, let me try to add that up.

Okay.

And while you're doing that, and what it may have cost operating profit given all the things you have to do when you initially make an acquisition in terms of costs?

Well, I can answer the second question first.

In terms of actual costs, I would, I would, I would suggest that the acquisition didn't help nor did they hurt our operating profit year over year for the quarter, and year to date.

And the acquisitions from a, from a sales perspective were, for the quarter, quarter over quarter were in the $3 million to $4 million range quarter over quarter.

Okay.

And --

And maybe $5 million a year over year.

Added $5 million.

Okay.

And can you remind us what your average rate on debt is all in, and also the structure on the long-term, when that is maturing, or at least the large chunks.

The average rate off the top of my head, I have the average rate for the domestic debt today is about 3%, and part of that is tied up in interest rates swaps which roll every in one, two and three year periods, the expiration of our revolving credit facility is September, 2012.

Okay.

Greg, I just, I'll just point you to one thing in respect to our debt and our balance sheet in general, I think that last year we committed to kind of tightening our rains a little bit.

We took our debt position between last year and this year down $26 million and yet increased our cash position by about $11 million, so we're very focused on the balance sheet as well, especially during that time period when we were down.

Yes, well that's good.

One last one for you on capital spending, I think we've had a number about $26 million, but your year to date is $8.5 million, I think, will you get to $26 million or is that too high on the budgeted side initially?

That's a little high.

We expect it closer to the high teens,$20 million total in the end.

Okay.

Thanks.

There are currently no other questions in queue.

Okay.

Thank you, we appreciate all that attended this morning, and we look forward to our third quarter earnings release and conference call in approximately the third week of July.

Thank you again, and have a good morning.

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