Matthews International Corp (MATW) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International fiscal and 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 at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host and Chief Financial Officer, Mr. Steve Nicola. Please go ahead.

Thank you, Laura. 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 will be available for replay at approximately noon today. To access the replay dial 1.320.365.3844, and under the access code 176395. The replay will be available until 11.59 PM November 26, 2010. 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 Reports to access the earnings release and quarterly financial data. The documents are presented under the heading Matthews International Quarterly Reports in a PDF file format.

Before beginning the discussion, at the advice of 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 expectation. 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, income statement and cash flow information provided today are preliminary data since our annual report on Form 10-K for the year ended September 30, 2010 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 discussions for questions.

For the quarter ended September 30, 2010, the Company reported earnings of $0.67 per share compared to $0.52 for the fourth quarter last year. Earnings for the current quarter included a favorable income tax adjustment of $0.01 per share. In addition, 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 fourth quarter last year. Earnings for the fourth quarter a year ago included net unusual charges of $0.07 per share, which primarily consisted of costs related to operational and systems improvements in several of the Company segments. Changes in the values of foreign currencies relative to the US dollar had an estimated negative impact of $0.01 cent per share on the reported results for the fiscal 2010 fourth quarter, compared to the same quarter last year.

For the fiscal year ended September 30, 2010, the Company reported earnings of $2.31 per share compared to $1.90 per share a year ago. Fiscal 2010 earnings reflect a favorable tax adjustment of $0.03 per share, primarily related to the closure of certain tax periods. In addition, earnings for the current fiscal year were negatively affected by an increase in pension expense of $5.2 million or $0.11 per share compared to last fiscal year. Earnings for fiscal 2009 were negatively affected by unusual items totaling $0.31 per share. This included $0.35 of unusual charges offset partially by favorable income tax adjustments of $0.04 per share. Last year's unusual charges primarily consisted of costs related to the consolidation of production in the Bronze segment, cost structure initiatives in other segments, and asset adjustments. For the full year, changes in the values of foreign currencies relative to the US dollar did not have a significant impact on the reported results for fiscal 2010 compared to fiscal 2009.

Consolidated sales for the fiscal 2010 fourth quarter were $215 million compared to $200 million for the same quarter a year ago, representing an increase of 7%. The Company reported higher sales in all business units except Graphics Imaging. An increase in unit volume in several of our businesses, and the impact of recent acquisitions were the principal contributors to the sales growth. An unfavorable change in the average value of the Euro relative to the US dollar during the recent quarter was the primary reason for the decline in Graphics Imaging sales compared to the fourth quarter last year. Consolidated operating profit for the quarter ended September 30, 2010 was $32.8 million compared to $27.7 million for the same quarter a year ago. The increase was primarily due to higher sales, the benefit of recent cost structure initiatives and acquisitions. Fourth quarter operating profit for the current year reflected an increase in pension costs of $1.3 million. In addition, the fourth quarter last year included unusual charges of $3.7 million.

Consolidated sales for the fiscal year ended September 30, 2010, were $822 million compared to $781 million last year, representing an increase of 5%. The increase in sales over fiscal 2009 was primarily due to higher unit volume in several segments and acquisitions. Consolidated operating profits for fiscal 2010 was $116.6 million compared to $101 million last year. Operating profit for the current year reflected an increase in pension expense of $5.2 million compared to last year. In addition, last year's operating profit included unusual charges of approximately $16.5 million.

Based on available data, it appears the total US deaths increased slightly in the fiscal 2010 fourth quarter compared to the same quarter a year ago. However, casketed deaths, ie, non-cremation, were estimated to have declined again. For the year both the total US deaths and casketed deaths were estimated to have declined. Sales for the Bronze segment were $59 million for the fiscal 2010 fourth quarter compared to $57 million last year. The increase in sales was primarily related to sales of granite products resulting from the acquisition of United Memorial Products in December 2009. This increase was offset by lower sales of bronze memorial products. Although total sales for the Bronze segment were higher, their operating profit for the fiscal 2010 fourth quarter was lower than a year ago, primarily reflecting a decline in the sales of bronze products, which generally have higher margins, an increase in pension expense and higher bronze costs.

Operating profits for the fourth quarter a year ago included unusual charges totaling $500,000. For the full year, Bronze segment sales were $224 million in fiscal 2010 compared to $216 million last year. The increase primarily reflected the acquisition of United Memorial Products in December 2009. Fiscal 2010 operating profit for the Bronze segment was $1.4 million or 2.5% lower than a year ago. The current year's results included an increase in pension costs compared to last year, and an unfavorable change in product mix. The segment's results last year included unusual charges totaling $7.2 million.

Casket segment sales were $52 million for the fiscal 2010 fourth quarter compared to $48 million for the same quarter last year. The increase resulted from recent acquisitions. Excluding acquisitions, the segment sales were relatively consistent with the fourth quarter last year. Operating profits for the Casket segment for the fiscal 2010 fourth quarter was $6.2 compared to $2.1 million a year ago. Cost structure improvements and manufacturing and distribution operations, favorable material costs variances compared to a year ago, and a slight improvement in net pricing were the primary contributors to the improved profitability.

For the year, Casket segment sales were approximately $210 million for fiscal 2010 compared to $203 million last year. The impact of the segment's recent acquisitions was offset partially by a decline in unit volume. The segment's operating profit for the current fiscal year was $26.2 million compared to $17.7 million last year. The increase primarily reflected the benefit of the segment's recent cost structure improvements. The prior year included unusual charges totaling $2.7 million in connection with these cost structure initiatives.

Fiscal 2010 fourth quarter sales for the Cremation segment were $11 million compared to $9 million for the same quarter last year. Higher sales for the segment's Italian operation and the impact of a recent small acquisition in England were the primary factors in the sales increase. The segment's operating profit for the current quarter was $1.6 million compared to $1.5 million a year ago, mainly reflecting the sales increase. Cremation segment sales for the 12 months ended September 30, 2010 were $39 million compared to $31 million last year. Similar to the fourth quarter, higher European sales and acquisitions were the principal contributors to the year over year sales improvement. Operating profit for the Cremation segment was $4.9 million for fiscal 2010 compared to $5 million last year, primarily reflecting the impact of higher pension costs in the US and lower operating margins in the European business.

In our Brand Solutions group, Graphics Imaging sales were $62 million in the fiscal 2010 fourth quarter compared to $64 million a year ago. Changes in foreign currency values, principally the Euro, had an unfavorable impact of $3.9 million on the segment sales for the current period compared to the fiscal 2009 fourth quarter. Excluding this impact, fiscal 2010 fourth quarter sales were higher than a year ago, primarily resulting from sales growth in the segment's German operations. Fourth quarter operating profits for the group in the current year was $7 million compared to $8 million last year. An unfavorable currency impact, continued weakness in the US operations and lower margins in Europe were the main factors in the decline. The prior period included unusual charges totaling approximately $800,000.

Graphics Imaging sales were $240 million for the year ended September 30, 2010, compared to $235 million last year. The increase principally resulted from growth in sales for the group's German operations and the acquisition of a small operation in Hong Kong in July 2009, which were partially offset by lower sales in the US and UK operations. Fiscal 2010 operating profit for the Graphics Imaging segment was $21.1 million, compared to $19.2 million a year ago. The increase primarily reflected a significant improvement in the profitability of Saueressig. In addition, the prior year included unusual charges of $3.1 million principally for severance charges within the group and costs incurred in connection with the integration of Saueressig.

Marking Products segment sales for the fiscal 2010 fourth quarter were $14 million compared to $11 million for the same quarter last year. The increase was primarily attributable to higher unit volumes of equipment and consumables products, such as inks, and the acquisition of a small distributor in Germany. Fourth quarter operating products for the Marking Products segment in the current year was $1.8 million compared to relatively break even results a year ago. Higher sales and the benefit of last year's cost structure actions were the main reasons for the increase. In addition, the fourth quarter operating results a year ago included unusual charges of $1.2 million.

For the full year, sales for the Marking Products segment were $51 million in fiscal 2010, compared to $42 million last year. The increase principally reflected higher unit volume, particularly in sales of consumables and the small acquisition in Germany. The segment's operating profit was $5.8 million for the year ended September 30, 2010, compared to $1.5 million last year. The increase resulted mainly from higher sales and the benefit of last year's cost structure initiatives. In addition, last year's results for this segment included unusual charges of $1.9 million.

Fiscal 2010 fourth quarter sales for the Merchandising Solutions segment were $16 million compared to $11 million a year ago. Compared to the fiscal 2009 fourth quarter, projects increased in the current period as the order rate continued to improve. As a result of the sales increase, the segment's operating profit for the current quarter was $1 million compared to a loss of $1.5 million a year ago. The fourth quarter last year included unusual charges of $1.1 million.

Sales for the Merchandising Solutions segment for the 12 months ended September 30, 2010, were $57 million compared to $53 million last year. Sales growth in the third and fourth quarters of this fiscal year, relative to the comparable periods last year, more than offset declines earlier in the current year. Fiscal 2010 operating profit for the Merchandising Solutions segment was $2.4 million compared to a slight operating loss year. The increase resulted from higher sales. In addition, unusual charges for this segment approximated $1.4 million last fiscal year.

Sales in operating profit 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. Our fiscal 2010 fourth quarter consolidated operating margin was 15.3% of sales compared to 13.8% 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 fourth quarter last year were approximately $3.7 million or 1.9% of sales.

Our consolidated operating margin for the full fiscal year was 14.2% of sales in fiscal 2010 compared to 12.9% a year ago. The current year included an increase in pension expense of $5.2 million or 0.6% of sales. Unusual charges included an operating profit last year totaled $16.5 million or 2.1% of sales.

Gross margin for the fiscal 2010 fourth quarter was 40.6% of sales compared to 39.1% for the same period a year ago. Gross margin for the fiscal year ended September 30, 2010 was 39.3% of sales compared to 37.7% last year. The improvement in the quarter in year to date gross margins was attributable to the inclusion of unusual charges in prior years' results and the current period benefits from the fiscal 2009 cost structure initiative.

Selling and administrative expense for the fiscal 2010 fourth quarter was 25.4% of sales compared to 25.3% a year ago. Year to date selling and administrative expense for the current fiscal year was 25.2% of sales compared to 24.8% of sales a year ago. Higher pension costs and the impact of recent acquisitions were the principal factors in the increase in our SG&A percentage on a year to date basis.

For the fiscal 2010 fourth quarter, investment income was $628,000 compared to $1.4 million for the same period a year ago. Unusual items in the prior quarter included a mark to market adjustment for unrealized gains in the value of investments held in long-term trusts for certain employee benefits plans. Under the Company's accounting policies, unrealized gains and losses on these investments are recorded through the income statement. Year to date fiscal 2010 investment income was $2.5 million compared to $2 million last year.

Interest expense for the current quarter was $1.8 million compared to $3 million for the same period a year ago. For the full year, interest expense was $7.4 million in fiscal 2010, compared to $12.1 million last year. The decline in interest expense for the quarter and fiscal year resulted primarily from lower interest rates. Other income deductions net for the fiscal 2010 fourth quarter represented a deduction of $225,000 compared to a deduction of $97,000 a year ago. Year to date, other income deductions net represented a deduction of $1.3 million in the current year compared to $12,000 last year.

Currency losses on inter-company debt were the main factor for the increased deduction in fiscal 2010. The deduction for net income from noncontrolling interest was $895,000 for the current quarter, compared to $1.1 million a year ago. On a year to date basis, the deduction for net income from noncontrolling interest was $2.7 million for fiscal 2010, compared to $1.9 million last year. The improvement in the operating results for Saueressig was the primary factor in the increased deduction of the current fiscal year.

The fiscal 2010 effective income tax rate was 35% of pretax income compared to 34.4% for fiscal 2009. Excluding the favorable impact of unusual tax adjustments, the Company's effective tax rate approximated 35.8% for fiscal 2010, which is relatively consistent with last year. At September 30, 2010, the Company's consolidated cash and short term investment balance was approximately $61 million compared to $58 million at September 30, 2009. Our current ratio was 2.3 at September 30, 2010, compared to 2.3 at September 30, 2009.

Outstanding accounts receivable at the end of the current fiscal year totaled approximately $151 million which represented 63 days sales outstanding. Outstanding accounts receivable at the close of fiscal 2009 approximated $139 million which represented 62 days sales outstanding. At September 30, 2010, consolidated inventories totaled approximately $108 million compared to $94 million at September 30, 2009. The increases in accounts receivable and inventories from a year ago resulted principally from the acquisitions completed during the current fiscal year.

The Company had approximately 29,478,000 shares outstanding at September 30, 2010. During the current fiscal year the Company purchased approximately 1,070,000 shares under its share repurchase program at a cost of approximately $35 million. At the close of fiscal 2010, approximately 1.6 million shares remained under the new repurchase authorization which was granted in January 2010.

Our long-term debt balance at the end of fiscal 2010, both current and long-term portions, approximated $237 million. $187 million of this balance represented borrowing under our domestic revolving credit facility. The remainder is set 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, 2010 were $7.3 million and $27.3 million, respectively. Capital expenditures for the same periods were $10.4 million and $21.4 million, respectively.

In assessing the Company's operating results for fiscal 2010, we were pleased with the progress achieved by several of our businesses. Order rates in the Marking Products and Merchandising Solutions businesses became more stable as the fiscal year progressed and we benefited from the fiscal 2009 cost structure initiatives in several of our segments. In addition, the profitability of our Saueressig operation which was acquired in 2008, increased during the current fiscal year and is now operating at an EBITDA rate in excess of our pre-acquisition projections. For our Memorialization businesses, one of the key demographics for this industry, ie, the decline in US casketed deaths, remains a challenge. As a result, in developing our projections for fiscal 2011 we continue to remain cautious in our growth expectations. In addition, we still expect ongoing challenges from global and domestic economic conditions which may affect the consistency of our results on a quarterly basis. Rising commodity costs and the recent volatility in foreign currency values also further complicate our forecast models.

However, we are encouraged by our results in fiscal 2010, a trend of stable and improving order rates in our brand solutions businesses, and the operating performance of our recent acquisitions. On this basis we currently estimate fiscal 2011 earnings to grow in the mid to high single digit percentage range over fiscal 2010 excluding unusual charges from both years. Based on our current forecast, we expect earnings for the fiscal 2011 first quarter to be relatively consistent with the fiscal 2010 first quarter, with the results for comparable orders improving as fiscal 2011 progresses.

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

Thank you, Steve. Good morning. During the fourth quarter of 2010, our businesses generally performed as expected. Improvements in most of our businesses allowed us to achieve our anticipated goals and have positioned us to continue our performance in the year to come.

During the quarter, we saw an improvement in our sales and a return to an operating profit that is more in line with our historic rate. We had continued good improvement in our Casket division where our operating profit dollars and as a percent of sales continue to move toward our long-term goals. We have yet to fully integrate some of our recent acquisitions so we continue to believe that our long-term goals of achieving an operating profit as a percent of sales in the mid teens is still achievable.

Our European graphics division continues to perform well and is on track to have another good year next year, as we look to take advantage of our scale both with continued acquisitions and new customer accounts. We still have not seen a return to normalized profitability in our German engineering and decorative products businesses which are more economically sensitive but these businesses should improve with the economy. Our Marking Products division continues to show material improvement versus prior year as we have begun to see interest in machine orders, a key sign of a recovery for us. We are still off our normalized rate but we seem to have overcome the worst of the recession. We expect this division to return its normalized rate of operating profit in the high teens as a percent of sales as the economy recovers.

Our Merchandising Solutions business also saw a good improvement over prior year results as we began to win new accounts and saw marketing projects begin to be released again. This division has done a good job of managing its costs during this difficult time while we know we incurred higher sales costs to better position ourselves with key customers. We hope to have a good improvement in this business over the coming year. Our Cremation business saw modest improvement over the prior year results for the quarter but softer than expected cancelation and delays by the customers largely delayed the more significant improvement we had anticipated. We are beginning to see the benefits of our recent acquisitions in Europe and expect this business to perform well next year as our order rates, especially in Europe, are good.

Lastly, our Bronze division saw sluggish demand for markers and architectural products. But the results of a recently launched merchandising system at a significant account has had good success on a test basis and improving the dollar value for Marker. We have begun to promote the system to our larger customers and hope to see the benefit of higher yields on each marker sold over time. Similarly, we have yet to see a significant benefit from our recent acquisition in the stone side of the business. We've only begun to promote our complete offering but in general it's been well received where it has been presented. A critical part of our stone offering is to serve the cremation market with niches and gardens. We believe we are the best positioned company in the market to offer this product and we look forward to this becoming a more significant contributor as we confront the largest opportunity in our industry which is the cremation market.

All in all, we are satisfied but not pleased with our results for the full year. We anticipated a difficult year but we saw modest improvement in many of our businesses which allowed us to exceed our guidance which we set forth last November. We did however, have significant positives that occurred this year. We generated record cash from operations this year of over $150 million, surpassing our previous record. We also continued to pay down our debt, and we returned almost $44 million to shareholders in the form of dividends and share buybacks. We expect this type of management performance in 2011 to continue but we also expect 2011 to be another challenging year with unpredictable metal prices, uncertain marketing budgets at consumer goods companies, and currency that seems to fluctuate more frequently than ever before. Therefore, we are anticipating growth in our earnings per share in the mid to high single digit range at this time and we will adjust our range as the year progresses.

With that, I would like to open it up 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. Laura?

(Operator Instructions) One moment for the first question. From Mr. Bob Labick with CJS Securities, please go ahead. One moment. Clint Fendley with Davenport, please go ahead.

Good morning, Joe and Steve, thanks for taking my question. I wondered if you could talk a bit, the assumptions that you've made regarding volumes that are implicit in your 2011 guidance, especially as it relates to the Memorialization segments?

When we look at our volume for 2011, I can divide our business into three segments. Our cremation equipment business, we're expecting volume to be up, and that has to do a lot with our acquisitions in Europe that we acquired over the last several years. They have a pretty good backlog as a result of some efforts we've made over there and we expect that to be up. Our Casket business, excuse me folks, we here are suffering a little from the early flu, our Casket business, as we've acquired some businesses. We expect to retain a significant portion of that acquisition volume, as anticipated. So we expect volume in our Casket business to be up on a year-over-year basis including those acquisitions that we have. On the memorial side, we expect-- that's the challenge. We have been looking at our bronze marker business and suggesting that we expect volumes to return to at least stability. We've seen it go down over the last couple years with the decline in death rates. Stability being for us an anticipated decline from cremation, flat death rates and some new business we expect to have achieved. So I would tell you it would be very modest or flat volumes on our Memorial business. But that is what our expectations are.

So it sounds like if we were looking at it on a same-store basis, then it would be flat to slightly down then?

Right. We look at some information here, Clint, and maybe for everybody on the call to understand, it's difficult for us to predict. We looked at a -- there's an industry guide by the name of Cremation Association of North America, it does some predictions and late as 2008, had predicted about 2.65 million deaths in 2010. So only two years ago, they were predicting almost 200,000 more deaths than we saw this year. We think that volume will return. We're hoping that this is the year we start to see some stability, not necessarily increases. But we're not baking in any increase of significance in our business.

Last question, I'm sorry if I missed it, but what impact did the granite acquisition have on the Bronze profit margins in the quarter?

It depressed the margins. In terms of absolute dollars, Clint, it was relatively break-even for the year in our Bronze segment and in terms of its impact on the operating margin as a percent of sales, obviously for that reason, because it was relatively break-even from a dollar standpoint, it had a reducing effect.

We had some purchase accounting and some contractual issues we worked through this year. We weren't expecting a whole lot from a contributory standpoint this year. It's more about how we position it going forward, Clint.

Joe, just any color on just the, obviously we saw some really innovative and differentiated products at the conference recently. Any plans for how that might roll out as we move throughout fiscal 2011?

We just put together the tool bag over the last several months here for our Bronze sales. We've talked about whether we are going to roll that out also with some of our other sales folks in different parts of the country. But expect that over the next 12, 24, 36 months, we will be looking for a footprint on the East Coast side because we're predominantly today located on the West Coast and we may be looking something South, as well, as we begin to promote what we consider, as you said, a pretty innovative approach to the solution of cremation.

Great. Thanks, guys. Nice quarter.

Next question is from Jamie Clement with Sidoti.

Joe, Steve, good morning. With respect to your first-quarter commentary of earnings being relatively in line with last year, then improvements as the year goes on, is the reason for the flatness, is that primarily metal prices being high and you guys usually being able to get some pricing in the first half of the calendar year rather than the fourth quarter of the calendar year? Is that one of the drivers along with just the time it takes to get some of the recent acquisitions up to profitability?

That's pretty much the case, Jamie. We're seeing a large increase in the metal pricing that we won't see any recovery until the first calendar quarter of 2011. You're right on that side, so we see relatively flat there. We have some uncertainty as it relates to what currency is going to be. As I said in my comment, as recently as six weeks ago people were still talking about parity. We just don't know where that's going to end up just yet but if currency holds about where it is, we might be doing a little bit better.

And Jamie, in the last piece I'd mentioned, we're still seeing inconsistency from the economic conditions just in terms of order rates. And as we get closer to the holidays, time off in North America and purchasing patterns traditional with the first quarter, it's just difficult for us to project any better than that.

Okay. Fair enough. Thank you all for your time.

The next question is from Liam Burke with Janney Capital Markets.

Thank you. Good morning Joe, good morning Steve. Steve, could we get a little more detail on the granite business? I know you started out in California and what the growth or the expansion plans would be in the next year or so?

Liam, this is Joe, I'll take that. Once again I apologize for my throat. We acquired this business on the West Coast late December, it took us about three or four months just to get our feet on the ground, understand the relationships we have around the world through the suppliers. As you know, we do not own quarries. We are the sourcers of products that we design. So as a result, we've been transferring those relationships to us and doing the due diligence we needed to do and work with purchase accounting. Our strategy going forward is going to be, when you look at the marketplace in the United States, West Coast, there are what are specifically called combos where cemeteries are also funeral home operators. So we have to look at that operation out there to decide whether or not, who is going to call on those operators, will it be our Casket guys or would it be our Bronze guys, or both. On the East Coast it's a little different. There's some pre-established relationships there. We're looking at several what I would call regional players that are not quarries, as well. We're not interested today in owning a quarry in the United States. We won't preclude that but just not interested today. And we expect that we're going to need some footprint. Stone is a pretty costly thing to transport across the United States.

Great. And staying with the Bronze business, how has progress been in the, the Mexican operation down there?

Progress is as planned, but frankly, a little slower than I would like to see, but with due respect to our folks there's been some concern about the environment. We're having a little bit more difficulty sending a lot of people down there just yet, but we think that we're on track to produce what we expect to produce over there right now. Just a little slower than I would like sometimes.

Great. Thank you, Joe.

The next one is from Scott Blumenthal with Emerald Advisers.

Good morning Joe, good morning Steve. Steve, did you break out pension expense in the Bronze segment? And if not, could you tell us whether without pension-- the increased pension costs in that segment, was operating profit as a percentage still down year-over-year?

Yes. We did not break out the pension cost by segment, but even without the pension cost increase, the Bronze operating margin would be down year-over-year. A fair amount of that is going to be attributable to the United Memorial Products acquisition and just the relatively flat results. Or break-even results of that granite business.

Scott, going forward, just to make sure everybody's aware, we're expecting margins in that business to be a little bit more compressed because the stone business does not have the same kind of margins that our bronze business will have.

Got it. And Joe, you didn't have any pension catch-up or anything to do with regard to that business specifically, did you?

No, no. All historic for us.

Got it. And Steve, the status of the pension in 2011, do you expect to be making the same level of contributions in 2011now that the markets have caught you back up a little bit this year? Do you expect it to be the same or lower or maybe even higher?

Let me distinguish the difference between the expense and the contributions. For tax purposes, and I realize this is more technical stuff, because we still qualify under the tax rules for full funding or being within the full-funding limitations, we're not required to make these contributions although we do and we are making contributions to the pension plan just to keep the assets within a good funded situation under those tax rules. With respect to our pension expense in fiscal 2011, that should be slightly up over fiscal 2010. Even though the market value of the assets have increased, they have increased in line with expectations. We have what I'd call the normal increase in pension costs and in this market it's still a little bit of a decline in the discount rate, which negatively impacts pension expense. So all that together results in a slightly higher pension expense in 2011 versus fiscal 2010.

And it's still materially higher than 2009.

Correct.

Right. Okay. Steve, can I sneak in one more? Did you mention whether -- I got sidetracked -- did you mention whether you had repurchased any shares during the quarter?

Yes we did. We repurchased shares during the quarter for the year. The total amount was a 1,070,000 shares, which I believe results in about 400,000 share purchases during the quarter because I believe we were about 650,000 shares purchased through the end of the third quarter.

Okay, great. Thank you.

Thank you. The next question is from Adam Hamill with Gates Capital Management. Please go ahead.

This is actually Dax Vlassis. I was wondering if you could comment on the acquisition environment currently in your balance sheet regarding your debt structure now. Obviously the bond market is pretty strong right now. Have you thought about moving some of your bank debt down to mezzanine financing in a debt offering, or do you have any larger-sized acquisitions that would make that an interesting option for you currently?

Dax, let me comment on the debt position and I'll let Joe talk about the acquisition environment. With respect to our debt position, our balance sheet is pretty good, and obviously, as Joe alluded to earlier, our operating cash flow, we hit a record level in fiscal 2010. So our ability to borrow and our ability to access credit is very good as a company, so credit accessibility and capital resource availability is not an issue for Matthews. We evaluate debt structure within the Company on a periodic basis. Right now we still believe that the bank debt and the cost of bank debt and the ability to even lock in longer-term, or I should say mid-term, rates at our discretion is still appropriate for the size of Matthews. That's not to suggest that we wouldn't need to consider something like a private placement or even a bond offering, but I think that would depend obviously on the transaction that we'd be looking to finance and our ability to handle it with the current bank resources we have and the internal operating cash that we have. The good news is that we have plenty of access because of our credit to capital.

From a market environment for acquisitions, for those of you who are out and about, we always have a few things in the works. I can tell you today, we have nothing what I would call of large significance that we are active with, but we do have a laundry list of things we'd like to accomplish over the course of the year, which we talked about. We clearly can do everything we want to do either through our operating line or our existing cash flow while maintaining our other dividends and our buyback program.

Okay. And can you just comment on your tax rate expectations for 2011? Thanks.

For fiscal 2011 I would expect the tax rate still to be in approximately, excluding the unusual items we had in 2010, approximately in the fiscal 2010 levels, which we ended up with the year, 35.8%. So I would call it a 36% range.

Thank you.

Thank you. The next question is from Greg Halter with Great Lakes Review, please go ahead.

Good morning guys. I wonder if you could comment on your capital-spending plans for fiscal 2011? You were at about $21.5 million '10, up from $19.5 million for '09. Just your thoughts for '11?

I would expect to be somewhere in the $20 million range, maybe a little bit more as we continue to invest in some of the acquisitions we've done. But I wouldn't call it significant. I don't expect us to approach our D&A rate, we're done with that.

We'll continue to be under our D&A rate, Greg. The increase that you may see in 2011 may be related to further investments in our Bronze business in Mexico. But absent that I don't expect our going-forward capital expenditure rates to deviate too far from the $20 million range.

And you commented about M&A. What did you spend dollar-wise in fiscal '10, realizing that there may be some burnouts or whatever from earlier acquisitions? But what was the dollar number?

The dollar amount was a little bit north of $30 million.

And one last one for you. Yesterday in the United States here, there's new rules on packaging for cigarettes and I think you're doing a program over in Europe. Does that program, if it goes through in the US, with all those gross pictures, have any applicability to your possibility of that being an opportunity for Matthews?

Absolutely. We are well aware of that, we're waiting for it to come, now we're looking for the opportunity. It's a few years off still, so don't expect anything to happen overnight. But we're waiting for that entree. We have very good relationships with British American Tobacco, Phillip Morris in Europe, a Japanese tobacco company over there. We're hoping to get a little bit of help with those relationships over here. We're going to have to decide whether we do this through a smaller acquisition or through a greenfield. I prefer to do the acquisition to avoid the startup costs of a greenfield.

Okay, great. Thanks.

Thank you. The next question is from Bob Labick with CJS Securities. Go ahead.

Thank you, can you hear me this time?

We can. Good morning Bob.

Good morning. Obviously a bunch of my questions have been asked. Looking over at Marking Products, you had a strong recovery there and you mentioned it was both in consumables and in the equipment, as well. Can you tell what end markets are driving that and what are your expectations going forward?

We have not seen a recovery [that's remniscent] in the housing market, as you can tell. So that is still probably the most significant part of our business that has not come back yet. We've seen some more industrial related things. We operate in the aluminum industry, as well, and the tire industry. We've seen some of that come back. But we have also developed some new products that is designed to serve the consumer goods product lines that we've been talking about the last several years, as we were working on that. So we're seeing a little bit of that. One of the key drivers for us is the construction industry and that will be the filling in of the revenue line that we're not seeing right now.

Okay. Great. That's helpful. Then, Joe, at the end of the prepared remarks you had mentioned a new offering in Bronze that is showing some strong traction. I didn't catch everything you said. Could you just elaborate on that a little bit for us?

I'm sorry, I've got a scratchy throat today. We have developed a new merchandising system for our bronze memorials that has had very good success and a really significant customer. We've been testing it with our partner there to understand how it works. For him it is moving, very significant improvement on a per unit sale and as a result we benefit as well. His experience with implementing the system as well as our knowledge going forward tweaking the system that we intend to do, we are rolling out to our better customers right now and we extend across the United States little by little. As you know, this is not an industry that changes quickly, but his results are indicative -- if his results are indicative of what others can achieve, it'll sell itself.

Okay. Great. Thank you very much.

Thank you. The next question is from Charlie Smith with Fort Pitt Capital. Go ahead. Mr. Smith, you can please go ahead.

Sorry, I had my mute button on. Good morning, guys. I'm wondering how much your earnings expectation number for next year mid-single digits comprehends further big swings in copper prices? If we get copper back where it was, say at Labor Day, what does that mean for you and what is the timing for it for next year?

It's difficult for us to anticipate and communicate that because when we do our budgets we're generally relatively conservative and we try to buy out as much as we can to lock in a rate. How quickly that changes -- we'd need a material change beyond -- I can't recall what it was at Labor Day, but we'd need a material change in copper to have any significant impact next year on the downside. We could have more impact on the upside -- or, excuse me, we could have a negative impact on the upside if we see copper prices continue to stay where they are right now.

But any impact would be mostly in the second half of next year?

It would be.

Okay. Thanks.

Thank you. The next question is from Adam Hamill with Gates Capital Management. Please go ahead.

Yes, just a couple quick ones. As far as the earnings guidance, I think your basis was, your reported earnings per share was $2.31 for the year. There was a $0.03 per share benefit from tax. Does your earnings guidance for the next year, is that after the $0.03? In other words, is the basis, would that be $2.28 per share?

Correct.

So it was $2.28 per share basis for the growth rate?

Right.

Okay. And then as far as your D&A goes, I think it was 27.3% for 2010. Do you expect much of a change for 2011?

No, it'll continue to be in that upper 20s region.

Okay. And that's it. Thank you very much.

Okay, thank you. (Operator Instructions) We have another question, Greg Halter with Great Lakes Review, please go ahead.

Thanks for taking the follow-up. Relative to the acquisition that you just completed on Freeman Metals, just wondering if you can provide a little background there and what you hope to do or accomplish through that acquisition.

Freeman is a good acquisition for us from a geographic and from a manufacturing standpoint. They were a smaller player for the southeastern part of the United States, probably where we have our lowest market share, so incorporating that volume in our facilities over time will be very very good for us, but also giving us a greater presence in that territory making our distributions a little bit more efficient. They have very good management down there. We're looking to bring that team along, to the extent that they want to stay with us. But we haven't for quite a while now as we try to integrate that business. It's not going to happen overnight. We are looking to integrate that over the course of the year . Probably won't see the full benefit of that until the year after.

Thank you.

(Operator Instructions) Mr. Nicola, there appears to be no further questions at this time. Please continue.

Thank you, Laura. We would like to thank everyone for participating in our call this morning. And we look forward to our first quarter fiscal 2011 conference call in January 2011. Thank you again and have a good day.

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