Matthews International Corp (MATW) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International year-end financial call.

(Operator Instructions)

As a reminder, this conference is being recorded.

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

Thank you, Toni. Good morning.

I'm Steve Nicola, Chief Financial Officer of Matthews. Also on the call this morning is Joe Bartolacci, our Company's President and CEO. Today's conference call has been scheduled for one hour and will be available for replay later this morning. To access the replay, dial 1-320-365-3844 and enter the access code 341413. The replay will be available until 11:59 PM November 28,2014.

We have posted on our website, which is www.matw.com, the fourth quarter earnings release and financial information we will discuss this morning. On the top of our homepage, under the Investor tab, click on Investor News to access the earnings release. For the quarterly financial data, click on Financial Reports to access the information under the section Matthews International Quarterly Reports. The documents are presented 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 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, income statement and cash flow information provided today are preliminary data, since our annual report on Form 10-K for the fiscal year ended September 30, 2014 will not be filed with the SEC until the end of this month.

To begin the conference, I'll review the financial results for the quarter. Joe will then provide general comments on our operations. Following that, we will open the discussion for questions.

For the quarter ended September 30, 2014, the Company reported earnings of $0.16 per share compared to $0.52 per share a year ago. On the non-GAAP basis, the Company's adjusted earnings per share were $0.82 for the current quarter compared to $0.77 a year ago. The net amount of these non-GAAP adjustments was $0.66 per share for the FY14 fourth quarter, and $0.25 for the same quarter a year ago.

In our earnings release, we've provided a reconciliation of earnings per share on a GAAP and non-GAAP basis. Beginning with this period, we are including intangible amortization expense as a non-GAAP adjustment for earnings per share. Due to the significance of intangible amortization as a result of the acquisition of Schawk Inc., or SGK, we consider the inclusion of these amounts as a non-GAAP adjustment to be appropriate for proper comparability and analysis of the Company's operating performance.

The other non-GAAP adjustments included in our FY14 earnings were as follows. One, pension and post retirement expense: Consistent with last year for our non-GAAP disclosure, we have adjusted pension and post retirement expense to reflect only the service cost components of this expense.

Two, acquisition costs: On July 29, 2014, we closed on the acquisition of SGK. Transaction and integration related costs in connection with the acquisition totaled approximately $0.28 per share for the FY14 fourth quarter and $0.49 year-to-date. These amounts also included an unfavorable $0.02 per share and $0.05 per share, respectively, income tax impact for the non-deductible portion of these costs. Acquisition-related items last year primarily included net gains from settlements on previous acquisitions.

Three, inventory step-up expense: In the valuation of SGK assets acquired for opening balance sheet reporting purposes, the value of inventory was increased to reflect fair value. As the inventory is sold, this incremental value is reflected as an expense in the Company's cost of goods sold. This additional expense was $0.20 per share during the FY14 fourth quarter.

Four, cost reduction initiatives: We continue to have significant ongoing strategic cost reduction programs in our businesses. The additional costs associated with these initiatives unfavorably impacted earnings by approximately $0.06 per share during the current quarter compared to $0.21 per share a year ago. For the fiscal year ended September 30, 2014, these costs totaled $0.18 per share compared to $0.43 per share last year.

And five, litigation costs: As we previously reported, our Funeral Home Products segment is currently in a legal dispute. Due to the extent of anticipated costs in connection with the litigation of this matter, we are including this expense as a non-GAAP adjustment. Non-GAAP adjustments for the prior year also included an intangible asset impairment charge.

Consolidated sales for the FY14 fourth quarter were $350 million, compared to $253 million for the fourth fiscal quarter a year ago. Consolidated sales for the fiscal year ended September 30, 2014 were $1.1 billion, compared to $985 million last year. The acquisition of SGK contributed $75 million for the Company's consolidated sales increases for the current quarter and fiscal year.

In addition, the Graphics Imaging, excluding SGK, Merchandising Solutions, Cemetery Products, and Marking and Fulfillment Systems segments reported higher sales for the FY14 fourth quarter. Year-to-date sales were also favorably impacted by a significant display project in our Merchandising Solutions segment and a waste incineration project for our Cremation segment.

Operating profit for the quarter ended September 30, 2014 was $14.8 million, compared to $23.5 million a year ago. Non-GAAP adjustments, except for the pension-related and intangible amortization non-GAAP adjustments, for the current quarter were $24.5 million, compared to $7.1 million a year ago. Excluding the impact of these adjustments, consolidated operating profit increased approximately 29% from the FY14 fourth quarter. The increase resulted primarily from the SGK acquisition and higher adjusted operating profit for the Cemetery Products, Graphics Imaging, and Marking and Fulfillment Systems segments.

Consolidated operating profit for the fiscal year ended September 30, 2014 was $82.9 million, compared to $95.8 million a year ago. Non-GAAP adjustments for the current period were $38.6 million, compared to $14.1 million a year ago. Excluding the impact of these adjustments, consolidated operating profit increased $11.6 million, or approximately 11% from last year.

Sales for the Cemetery Products segment were approximately $61 million for the FY14 fourth quarter, compared to $57 million a year ago. The increase for the current quarter resulted primarily from higher unit volume of memorial products. Year to date, the Cemetery Products segment reported sales of $222 million in FY14, compared to $227 million last year. Lower unit volume of memorial products for the year was the main factor in the sales decline. Based on published CDC data, we estimate that the number of casket and in ground burial deaths in the US declined this fiscal year.

Operating profit for the Cemetery Products segment was $12 million for the FY14 fourth quarter, compared to $8.6 million a year ago. Higher sales and a reduction in costs related to strategic initiatives were the principle factors in the operating profit improvement. The segment's operating profit for FY14 was $36.2 million, compared to $32.6 million last y ear. Excluding non-GAAP adjustments, the segment's operating profit was $36.9 million for FY14, compared to $38.5 million in FY13, primarily reflecting losses in connection with two mausoleum projects.

Funeral Home Products sales were $54.8 million for the FY14 fourth quarter, compared to $55.5 million a year ago. The slight decline for the current quarter primarily reflected lower sales to independent distributors. For the fiscal year, Funeral Home Products sales were $235 million for the current period, compared to $243 million last year, reflecting a decline in casket unit volumes.

Operating profit for Funeral Home Products was $4.1 million for the FY14 fourth quarter, compared to $7.7 million a year a go. On a non-GAAP adjusted basis, operating profit for Funeral Home Products was $6 million for the current quarter, compared to $8 million a year ago. The decrease in operating profit for the quarter primarily resulted from higher material costs, such as lumber and steel.

On the year-to-date basis, Funeral Home Products operating profit was $28 million for the current fiscal year, compared to $37.3 million last year. On a non-GAAP adjusted basis operating profit for the Funeral Home Products segment was $34.1 million for the current fiscal year, compared to $35.9 million a year ago. The decline in operating profit was primarily attributable to lower sales and higher material costs, offset partially by the benefits of the Company's strategic cost initiatives.

Non-GAAP adjustments for the Funeral Home Products segment for the current fiscal year primarily included costs related to lean initiatives and the litigation-related costs mentioned earlier. The prior year costs included costs associated with the Company's cost structure initiatives and the gain related to the settlement of previous acquisitions.

FY14 fourth quarter sales for the Cremation segment were $12 million, compared to $13.7 million for the same quarter last year. The decrease reflected lower equipment sales in all of the segment's principle markets. As a result of the sales decrease, the Cremation segment reported operating profit of $149,000 for the current quarter, compared to $1.7 million a year ago.

Year-to-date sales for the Cremation segment were $51.8 million for FY14, compared to $48.5 million last year. The impact of a significant waste incineration equipment project in Saudi Arabia was partially offset by lower cremation equipment sales for the year. Year-to-date, the segment's FY14 operating profit was $5.1 million, compared to $3.1 million last year. On a non-GAAP adjusted basis, the segment's FY14 operating profit was $5.2 million, compared to $4.2 million last year, reflecting the benefit of the incineration project.

Excluding SGK, Graphics Imaging sales were $89 million in the FY14 fourth quarter, compared to $75 million last year. The increase primarily reflected higher sales in all of their principle markets, particularly Europe. For FY14, Graphics Imaging sales, excluding SGK, were $323 million, compared to $295 million last year. Higher sales volume, the acquisition of Wetzel in the first fiscal quarter last year, and favorable currency rate changes were the primary contributors to the sales growth.

Fourth quarter operating profit for the Graphics Imaging segment, including SGK, was $342,000 for the current year, compared to an operating loss of $281,000 a year ago. On the non-GAAP adjusted basis, which primarily excludes costs in connection with the SGK acquisition, and strategic initiatives, Graphics Imaging operating profit was $9.6 million for the current quarter, compared to $3.5 million a year ago, reflecting the sales improvement for the period. For FY14, Graphics Imaging, excluding SGK, reported non-GAAP adjusted operating profit of $20.9 million, compared to $16 million for FY13.

FY14 fourth quarter sales for Merchandising Solutions were $27.3 million, compared to $21.6 million a year ago. Year-to-date, Merchandising Solutions sales were $99 million this year, compared to $79 million a year ago. A major portion of these increases were due to a significant merchandising display project during the current year.

Merchandising Solutions operating profit was $1.3 million for the FY14 fourth quarter, compared to $2.1 million a year ago. A higher proportion of lower margin projects, including freight-related revenues, which are generally a pass-through item, was the principle factor in the operating profit decline. Merchandising Solutions reported operating profit of $7.2 million for FY14, compared to $4.3 million a year ago, due primarily to the sales increase.

Sales for the Marking and Fulfillment Systems segment for the FY14 fourth quarter were $30.8 million, compared to $29.6 million for the same quarter last year. The increase reflected higher volume in North America and Europe. FY14 sales for this segment were $101 million, compared to $94 million last year. This increase was resulted from a combination of higher sales volume and the benefit of the December 2012 acquisition of Pyramid Controls.

Operating profit for Marketing and Fulfillment Systems was $5.3 million for the current quarter, compared to $3.6 million for the FY13 fourth quarter, reflecting the increased sales. On a year-to-date basis, the segment's operating profit was $11 million, compared to $8.9 million last year.

Sales and operating profit by segment, including non-GAAP adjustments for the quarter and fiscal year-to-date periods, are posted on our website for your reference. Our FY14 consolidated operating margin was 4.2% of sales, compared to 9.3% a year ago. On an adjusted basis, our operating margin was 11.2% for the current quarter, compared to 12.1% last year. For FY14, our consolidated operating margin on an adjusted basis was 11%, compared to 11.1% last year. The declines primarily reflect the impact of incremental intangible amortization for the SGK acquisition.

Gross margin for the quarter ended September 30, 2014 was 33.4% of sales, compared to 35.7% a year ago, primarily reflecting SGK inventory step-up expense, lower sales for the Cremation segment, and higher material costs for Funeral Home Products. Year-to-date FY14 gross margin was 35.5%, compared to 36.2% last year.

Selling and administrative expense for the current quarter was 29.1% of sales, compared to 26.4% for the same quarter last year. Year-to-date, selling and administrative expense for the current year was 28% of sales, compared to 26.5% last year. The increased percentages mainly reflected the impact of acquisition expenses and costs related to the Company's strategic initiatives. In addition, SG&A costs in the prior year included the benefit of favorable adjustments related to the settlement of previous acquisitions.

Investment income for FY14 -- for the FY14 fourth quarter -- was $380,000, compared to $810,000 a year ago. Year-to-date investment income was $2.1 million for FY14, compared to $2.3 million a year ago. The year-over-year changes reflect investment performance on assets held in trust for certain of the Company's benefit plans.

Interest expense for the current quarter was $4.4 million, compared to $3.1 million for the same period last year. The increase resulted from additional borrowings in connection with the SGK acquisition. Interest expense for FY14 was $12.6 million, compared to $12.9 million last year. The decline reflected lower borrowing rates for the current fiscal year, offset partially by the additional fourth quarter borrowings for the SGK acquisition.

Other income deductions net for FY14 fourth quarter represented a deduction of $1.9 million, compared to $557,000 a year ago. Year-to-date, other income deductions for FY14 represented a deduction of $4.5 million, compared to $3.7 million a year ago. Other income and deductions generally include, among other items, banking-related fees and the impact of currency gains or losses on certain inter company debt.

Net income from non-controlling interests for the current quarter resulted in a deduction of $360,000, compared to $366,000 a year ago. Year-to-date net income from non-controlling interests for FY14 resulted in a deduction of $646,000, compared to additional income of $116,000 last year. The deduction in the current year reflected the minority interest portion of income generated by our UK incineration operations.

The Company's effective income tax rate for the fiscal year ended September 30, 2014 was 34.6% of pre-tax income. The effective rate was 32.7% for the fiscal year ended September 30, 2013. The effective rate for FY14 reflected the unfavorable impact of non-deductible acquisition-related costs. The effective rate for FY13 included the benefit of the European tax loss carry back.

At September 30, 2014, the Company's consolidated cash was $76 million, compared to $59 million at September 30, 2013. Accounts receivable at the end of the current year totaled $281 million, compared to $178 million at the end of FY13. Consolidated inventories at September 30, 2014 were $153 million, compared to $130 million at September 30, 2013. The increases in receivables and inventories resulted mainly from the acquisition of SGK.

Long-term debt at the end of the current year, including both current and long-term portions, approximated $729 million, compared to $375 million at September 30, 2013. The increase resulted from incremental borrowings for the SGK acquisition, of which the Company has already repaid $20 million as of September 30, 2014. At September 30, 2014, $680 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of around 2.5%. In July, the borrowing capacity of this facility was increased to $900 million with a maturity date of July, 2018, to accommodate the SGK acquisition.

The Company had approximately 32.9 million shares outstanding at September 30, 2014. During FY14, the Company purchased approximately 229,000 shares under its share repurchase program, of which 116,000 shares were purchased during the most recent quarter. As you would expect, our repurchase program was curtailed for most of the fiscal year, pending the acquisition. At the end of the current fiscal year, approximately 966,000 shares remained under the current share repurchase authorization.

Depreciation and amortization expense for the quarter and year ended September 30, 2014 approximated $15 million and $43 million, respectively. Capital expenditures for the current quarter and year-to-date periods approximated $10 million and $29 million, respectively.

With respect to FY15, we will continue to devote a significant level of effort to the integration of SGK. With the size of this acquisition and the projected synergy opportunity, we expect this effort to continue for an extended period of time. The costs associated with this ongoing effort and the acquisition step-up expense will impact our results for FY15, which we will identify on a quarterly basis as they are incurred.

Lastly, the Board yesterday declared a dividend of $0.13 per share on the Company's common stock. This represents an increase of 18% in our dividend rate and represents an annual yield of 1.1%, based on yesterday's closing stock price. The dividend is payable December 8, 2014 to stockholders of record November 24, 2014.

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

Thank you, Steve. Good morning, everybody.

Before we get started, let me take a moment to welcome our new SGK colleagues onto this call. We know that many are listening and we welcome them to our team.

Now, on to the business of the day. As you all are aware, we closed our acquisition of SGK during the fourth quarter. And we've begun to see the benefits of the transaction, even in these early days. Although we are still in the early phases, enthusiasm is high and our integration is on track.

Our integration teams scattered around the world have verified synergies that meet our expectations of at least $35 million, and we see a pathway to more. We have also spoken to a significant number of our clients around the world, and they have generally been enthusiastic about the combination of the two companies.

Together, we are the global leading provider of pre-media services to the packaging market. With operations in over 20 countries and more than 5,000 employees servicing consumer product companies and printers around the world, we have the breadth and the depth to meet any packaging need better than anybody else. When these capabilities are combined with our leading Merchandising Solutions team, we truly believe that we have a unique set of products and services that nobody else can offer.

From a financial perspective, we expected the addition of SGK to be modestly dilutive for the fiscal year ending 2014 on a GAAP basis, when adjusted for transaction-related expenses. But when we look at our FY14 results on a non-GAAP adjusted basis, SGK was accretive. For 2015, we'd expect SGK to continue to be accretive on a full-year basis, once integration costs are excluded, and we expect that trend to improve over the years to come. All in all, we're off to a good start and we've had no surprises.

Even with the positive news coming from the SGK transaction, we have not taken our eye off the balance of the business, where we continue to see strong performance. On a stand-alone basis, I'm happy to note that we've met our initial guidance that we communicated last November. This is a tribute to our team who have in many ways stepped up to do double duty doing a stressful integration and a much-needed strong fourth quarter.

For example, our Marketing and Fulfillment business had a strong fourth quarter and continues to show year-over-year improvement, despite significant R&D spending. This business has seen strong equipment and ink sales in the US and Europe, which should continue into 2015. We have also seen continued good performance from our Fulfillment business, including a strong backlog for 2015.

Despite these successes, which have propelled us for 2014, however, we continue to be challenged by a slowing economy in China, where the introduction of new equipment is expected to improve operating results in 2015. Again, as I've stated in the past, this team has made substantial progress with adjacency businesses like fulfillment and new products, and we expect to continue to invest in R&D and acquisitions to position this business for more substantial growth.

In addition, our stand-alone packaging graphics business had a very strong quarter, led by our European group, particularly Saueressig, which saw strong cylinder volumes and the shipment of a large equipment order from our engineering group. Nonetheless, in this division we saw good performance from all geographies.

Our Cemetery Products business also had a good quarter, driven by strong volume and good production efficiencies. Although we've had our challenges in this business, we are seeing positive signs from some of our marketing and lean initiatives.

As I said earlier, we are early into the SGK integration and we are still learning the nuances of that business. The timing of marketing spend by our clients is the most uncertain part of our planning. Also, despite our confidence in our ability to capture the expected synergies and continue to deliver high-quality products and services to our clients around the world, we will err on the side of prudence in our early actions, and therefore, it may impact the timing of synergies and we will make the right long-term decisions for the business as we proceed. We also expect to have negative currency translation working against us on a comparative basis, which can change over the coming year.

Also, going into 2015, we are seeing volatile input costs in some of our businesses, which could unfavorably impact the year. So despite our enthusiasm and confidence regarding our prospects for next year, we remain cautious with our expectations and are targeting $3.00 per share of adjusted non-GAAP EPS.

With that, we will open it up for questions.

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

(Operator Instructions)

Daniel Moore, CJS Securities.

Two quick things. One focused one. If I missed it, I apologize. Cemetery Products, best quarter of growth in some time, up 6%. Was that all organic? What were the key drivers, particularly given casketed deaths continue to remain flat to down?

Dan, they were all organic. Timing in that market is hard to predict sometimes. When an order is actually placed for a marker versus when that actually occurs. But it was all organic. We had some price in there, as we implemented a price increase earlier in the year. But at the end of the day, there were no acquisitions and some pretty good performance out of that group.

Okay. And then in your legacy Graphics Imaging business, obviously you talked about it accelerated in Q4. What were the drivers there? And you gave some brief comments, but what's your outlook as we look out to FY15 for sustaining --?

Dan, over the last couple of years, we've made a couple of acquisitions over -- in what I will call the stand-alone graphics, the pre-SGK graphics business, particularly in Europe. We have solidified a leading position by a long shot in the cylinder production business in Europe, with operations in multiple locations around that part of the world. That has led to some very good contracts with large CPGs, particularly in the tobacco business. We're starting to see the benefit of that. And we're also starting to see the benefits and some of the synergies that we expected to see out of those businesses as we integrate them into our [Schawk asset] business.

The last piece of that -- and this is part of the business we do not talk a lot about in our European business -- is our Engineering Solutions business, where the team over there, very, very competent, very strong engineers, have taken cylinder production to a different level. So we do things like produce equipment for lithium ion battery production, or we use machines that use our cylinders for tissue production. That business is lumpy, but it is a wonderful addition to what I would call traditional cylinders. And we shipped a very nice piece of equipment and hope to have more. Although, a little less predictable than the rest of the business, they're good margins and unique solutions that we are building adjacencies for the business we have.

As I said in my call, though, the reality is, we performed in all segments, all geographies of that division performed well. And some of it has been new wins and accounts, and some of it has just been volume picking up as economies around the world have improved. We expect that to continue. Our expectations for 2015 is that will continue.

Great. Lastly, Steve, of the $3 in adjusted EPS, as Joe mentioned, how much of that is, in terms of EPS, would be the impact of intangible amortization?

The incremental intangible amortization, Dan, from the acquisition -- and this is the amount over what SGK was previously reporting -- is in the $12 million to $13 million range.

Got it. I'll jump back in queue. Thank you.

Liam Burke, Wunderlich Securities.

Joe, you saw a decline, lower year-over-year margins in both funeral home and cremation, and you mentioned materials cost as being part of the reason. Do have any flexibility to move prices up in response to that?

It's interesting, Liam. The industry -- we're not the price leader in the funeral home industry. The leader is Batesville, in that case. And their price increases come out in September. Because of the nature of the industry, that only occurs once a year. And they recently came out. I would tell you that their price increase was probably not what we would like to have seen, but we've matched that going forward. Lumber and steel are the two drivers in that particular business right now. Lumber is seeing double-digit increases and steel is moving on us, as well.

So that's a bit of the challenge in that industry. Couple that with the volume decline that we saw in death rates, and we had a tough quarter in there. Having said that, though, I would stress that division on a clean basis has hit our targets from an operating margin. They've done a great job in getting their costs under control. We've long talked about getting that to a mid double-digit operating profit. Their EBITDA is pushing 20%, when you look at it on a pre-corporate basis. That's a good business right now.

Okay. And when you mentioned the lower distribution sales, is that a design to back out of the distribution market and go entirely to direct selling on the casket side?

That's timing. Distribution -- when we talked about distribution, these are some of our legacy distributors that remained with us after the Milso acquisition a few years back. And we also sell into the distribution -- the independent distribution market. That's more timing on when they choose to manage their inventories than anything else.

Great. And just one more. You mentioned fulfillment backlog in the Marking and Fulfillment was strong. How were Fulfillment sales in the quarter?

Fulfillment sales were okay. They weren't stellar. They weren't bad. There were kind of as expected. But I will tell you, that team is bringing together a pretty good solution. When we look at some of the products that we've put together and some of the other pieces to the puzzle that we want to add, we've got great hopes for Fulfillment. We're bullish in that segment going forward and also in 2015.

Great. Thanks very much, Joe.

Scott Blumenthal, Emerald Advisors.

Steve, just as a refresher, we realize that the bulk, if not all of SGK, falls in Graphics Imaging. Is there anything in Merchandising, as well?

No. For purposes of the reporting that you see on the financial summary we put on the website, no. SGK is classified under the Graphics Imaging segment.

Okay. Terrific. And the Merchandising project that provided a bump in the last couple of quarters, is that expected to continue into this quarter And if so, how much more legs does that thing have?

For the most part, Scott, that is completed. Obviously, our client, in that case, uses a successful launch on our part should build some relationship that will put us in the position with the next launch. But nothing is in the works today.

Okay. Great. Thank you, Joe. And one last one, if I may. Liam touched on Marking and Fulfillment. I know that you had a couple of meaningful pilot projects underway for a while. I was wondering how those were progressing and what the outlook is there?

Those progress very well and are leading to other opportunities. So that's one of the reasons why we remain so bullish that we have an excellent team on that side. And I can't speak highly enough of the whole team. They continue to integrate and add different solutions on a unique basis. We're expecting big things over time from this division, from where it was. If you look back to the history of this business, this was a $30 million, $35 million business, just 8, 9 years ago. And the profit in this business today versus where it was then is light years of difference. So we expect similar kind of growth, if not better, from this team. I know they're listening. So, they'll get that message.

Okay. Terrific. Thank you.

Jamie Clement, Macquarie.

Wondering if you can help me reconcile some of the $3 adjusted EPS to the cash flow statement, to the best of your ability. Steve, beyond the intangible amortization that you all are backing out of the adjusted EPS, is that the new $12 million associated with the deal? Or is it closer to the $20 million that I think is full, all-in deal-plus pre-existing Schawk?

Well, if you take the $12 million to $13 million that is incremental, and existing Schawk was somewhere around $4 million or so, and then our intangible amortization stand-alone was about $4 million, that gets us close to the $20 million number that you just referenced.

So the $20 million is going to be backed out for adjustment purposes now, not just the $12 million, right?

That's correct.

Okay.

For a long time, Jamie.

Yes. Got it. Schawk's CapEx over the last 9 or 10 years has really bounced around a lot as a percentage of revenue. Obviously, they invested a lot in systems and controls and that sort of thing. All-in, Matthews' CapEx for FY15, Steve, do you have a rough range of what we should expect?

Jamie, let me speak to that. Because with the integration that we've got going on, and particularly the ERP implementation side, I expect our capital expenditures in FY15 to be higher than average. I think that on a run rate basis, excluding incremental integration-related capital expenditures, that our run rate of about $30 million and their run rate of about $10 million -- so totaling $40 million -- is probably what I would call a good number to model, as a excluding unusual item, if you will, capital expenditures number. And as you would expect, though, it's difficult to predict what the incremental capital expenditures are related to the integration. But they could be, in FY15, $10 million or more.

Okay. Okay. Great. Thank you all very much for your time.

Jason Rodgers, Great Lakes Review.

Wonder if you could provide an update on the tobacco-related orders in Europe, if you're seeing any signs that those would be realized at least in the first half of FY15?

We're expecting strong tobacco orders, frankly. It was a large part of -- not the only part -- but a large part of the volume increase in the fourth quarter of FY14. One of the things that we expect next year is continuation of that. Frankly, one of the things that will help or could hurt that in FY15 is an expectation to open a Russian plant. And I'm sure you all are reading the papers lately. And that is a good growth opportunity for us, where we already have existing contracts, to do more volume for the tobacco industry.

If you look at Philip Morris, for example, their largest tobacco producing facility in the world is in Moscow. And we're putting a facility not far away to service them and other tobacco industry members. But we're cautiously optimistic next year and cautiously hopeful that diplomacy will get through a solution that makes us comfortable to do that.

And looking at the Cremation side, what opportunities for the energy-related sector are you seeing? And are there opportunities in Cremation for that medical waste, as well?

You're tapping onto things that we continue to look at. Our UK business that helped us land this incineration project in [Makkah] does have products designed for campsite disposal. We sell a fair amount of that equipment into the Middle East and Northern Africa. And in the US, certain environmental rules may not allow us to do that, but we're looking for solutions that make some sense.

Medical waste, we're looking at alternatives. We obviously have the competency to develop products for that. There are players in this business right now, not the least of which some of the large disposal companies, that handle medical waste disposal. We would need a change in business model for the hospitals and medical facilities around the country to want to use our equipment today.

Okay. But no large deals brewing currently in the energy sector for Cremation?

We have large incineration projects being bid every day, none that we are able to talk about that are close to being landed today.

Then finally, just your best guess on the tax rate for FY15.

Somewhere in the 34% to 34.5% range.

Thank you.

And that would be clean of any non-GAAP adjustments.

Daniel Moore, CJS Securities.

Joe, you talked about in your remarks, the timing of synergies being pushed out a little bit, being prudent, obviously. Excluding amortization and that whole issue, can you give us a sense of when you expect the deal to turn from dilutive to being accretive? Any sense of what type of run rate synergies you think might the achievable by the end of FY15 or in FY16?

There are a lot of questions there. I'll see if I can parse that out. As I said, on an non-GAAP adjusted basis for the quarter, Schawk, SGK, was already accretive. We expect that to improve as we get a full year under our belt, as well as the synergies associated with that.

In my comments on the prudent side, I was not suggesting that we don't have plans in place to continue to achieve those synergies as we have right now. But this is a service industry. Disruption of service can really put our clients in difficult spots. We are just being cautious in our communications, saying that the timing of this is really dependent on maintaining that service level for those folks.

So the total synergy capture, I would say -- not even total -- the vast majority of the synergy capture is the next 36 months. And we'll have more as we move forward and continue to integrate some of our IT solutions. For right now, we're on track for accretion, continued accretion in FY15 and improvement in FY16 and FY17.

Now that you've had a chance to get out under the hood a little for Schawk for a few months, update us on the revenue and cross-selling opportunities that you see and when you might start to see some of that benefit -- how long do you think some of that initial benefit will take?

We are seeing it already, at the end of the day, a couple of small projects, as we start to look at the cross selling. And particularly, I would tell you that when I speak with the SGK team, the part of the business that they're most excited about is our Merchandising business and the opportunities that are presented in the cross-selling opportunities there. I think there's some doors being opened that will continue to help us on that side of the business.

But even on the CPG packaging side, the extension of what some of the creative work that SGK does, mostly in the US and Europe and Asia, in the UK and Asia, we think we can extend into mainland Europe. And we're starting to see entrees to be able to do that. And from a global solutions standpoint, I would tell you we're probably ahead of some of the CPGs when it comes to global management of the products. Others are already there and love the deal. So it's just a matter of where they stand in their evolution, from a global standpoint. But there's nobody that I would say has suggested this was the wrong thing to do.

Got it. And then lastly, Steve, can you give us a cut at, of the $24.5 million unusual charges in the quarter, how much of those impacted cost of goods sold versus how much were SG&A and other?

Well, of the $24.5 million, $9.5 million of that number certainly impacted cost of goods sold, because that was related to the inventory step-up expense at SGK. And I'd say that the balance, I'd say the significant -- a very significant portion of the remainder -- would have been SG&A cost.

Got it. And lastly, Schawk, on a pro forma or organic basis, what did their growth look like for the quarter and for the trailing 12 months?

For the quarter, it's difficult to compare. Because at the end of the day, we had slightly more than two months of revenue in the cut-offs, and those are a little difficult to compare from a year-over-year basis. The studies that we have performed in our due diligence for this acquisition would suggest that we should expect a GDP plus growth top line. But largely dependent on marketing spend and economies, right now. So that is more of a prospective look. But, I would look two to four years out, we'll get there.

The one thing that's going to drive revenue, and we'll start to speak about this more over the coming quarters and year, is that the FDA has issued new regulations for labeling, requiring clarifications and content. And it's kind of like the old trans fat labeling act. That was a -- we expect two things to occur from that. We expect a spike in volume on a temporary basis, as packaging starts to get regulated. But we could also anticipate -- perhaps, we don't know -- a hold back in marketing spend, while they try to do a one-time launch of product, rather than having to do it twice.

So we're a little uncertain how that's going to play out, just yet. That is expected to take effect sometime in the 2017 period. It has been delayed in the past, and things like this. So the timing of that will probably impact the timing of some of our revenues.

Thank you.

Scott Blumenthal, Emerald Advisers.

Joe, just on your last point, you said that you expected the regulations to be in effect in 2017? Or do you expect regulations to be promulgated now and for your customers to wait until 2017 in order to figure out what's going on there?

No, no. The comment period has ended. The timing of the regulations are expected implementation by 2017 or so. And that means that it could be a busy period at that time, depending on how quickly our clients react to that. But it may also hold back some of their spending, until they figure that out.

Understood. Got it. Thank you. And following up on Jason's question about the tobacco orders, you've got a meaningful business in Turkey. Obviously, things have been getting a little bit testy there, as well. I was wondering if you might want to comment on how, if at all, that might impact your business, other than maybe the Turks smoking more.

Well, we continue to do well there. Frankly, they're pretty much online, I would say modestly behind our expectation when we did the acquisition. But I think that's more just the politics of the market today, rather than us. So we're not disappointed with that acquisition. We think it's going to continue to be valuable, as things hopefully will stabilize there. And we are far enough away from what I would call the difficult front, that it's not impacting our day-to-day ability to run the business. It may be impacting the overall economy, though.

Very good. Thank you.

Thank you. There are no questions in the queue at this time. Please continue.

All right. Thank you, Toni. We would like to thank all participants for being on the call this morning, and we look forward to our first quarter earnings release and conference call in January, 2015. Thank you and have a great day.

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