Matthews International Corp (MATW) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the fourth-quarter year-end financial results conference call.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your Chief Financial Officer, Mr. Steve Nicola. Please go ahead, sir.

Thank you Marybeth. 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 405604. The replay will be available until 11:59 pm December 2, 2016.

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 home page 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.

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, 2016, the Company reported earnings of $0.74 per share compared to $0.51 per share a year ago. Consolidated sales for the FY16 fourth quarter were $377 million compared to $368 million last year.

Consolidated operating profit for the quarter ended September 30, 2016 was $39.7 million compared to $32.8 million a year ago. The increase in consolidated sales primarily reflected the impact of the acquisition of Aurora Casket Company, Aurora, in August last year; higher cemetery memorial product sales volume; and sales growth in the UK and Asia markets for the SGK Brand Solutions segment.

Changes in foreign currency exchange rates had an unfavorable impact of $3.5 million on the consolidated fourth-quarter sales compared to last year. The increase in consolidated operating profit for the quarter primarily reflected the consolidated sales growth and the impacts of the realization of acquisition integration synergies, productivity improvements, and lower commodity costs. Operating profit for both periods was impacted by acquisition integration costs. In addition, the current year reflected an increase in intangible amortization resulting from the Aurora acquisition.

For the fiscal year ended September 30, 2016 consolidated sales were $1.48 billion, representing an increase of $45 million compared to last fiscal year. Similar to the fourth quarter, the increase primarily reflected the impact of Aurora, higher cemetery memorial product sales volume, and an increase in sales in the UK and Asia Pacific brand markets. Changes in foreign currency exchange rates had an unfavorable impact of $25 million on FY16 consolidated sales compared to last year.

For the fiscal year ended September 30, 2016, consolidated operating profit was $118.8 million compared to $105 million last year. The increase for the current year primarily reflected higher sales and the impacts of the realization of acquisition integration synergies, productivity improvements, and lower commodity costs. Operating profit for both periods was impacted by acquisition integration costs. In addition, the current year reflected an increase in intangible amortization from the Aurora acquisition. Last year's operating profit included a $4.8 million write-off of certain intangible assets and the benefit of a $9 million net gain on a litigation settlement in the memorialization segment.

Consolidated adjusted EBITDA for the quarter ended September 30, 2016 was $69.5 million compared to $61.7 million a year ago. For the fiscal year ended September 30, 2016, consolidated adjusted EBITDA was approximately $240 million, compared to $216 million last year. The increases resulted primarily from higher sales, the realization of acquisition integration synergies, productivity improvements, and lower commodity costs. A reconciliation of adjusted EBITDA was provided in our press release yesterday and is included in the quarterly financial data posted to our website.

On a non-GAAP basis, the Company's adjusted earnings per share were $1.08 for the current quarter compared to $0.93 a year ago, representing an increase of 16.1%. The net amount of the non-GAAP adjustments for the FY16 fourth quarter was $0.34 per share compared to $0.42 per share for the same quarter a year ago. As we anticipated a significant portion of the 2016 non-GAAP adjustments included costs and other charges in connection with the integrations of the acquisitions of Schawk, Inc, or SGK, and Aurora.

In our earnings release yesterday, which is posted on our website, we included a reconciliation between GAAP and non-GAAP earnings per share. In the fourth fiscal quarter a year ago, non-GAAP adjustments affecting consolidated operating profit primarily included Aurora acquisition costs, SGK integration-related costs and other charges. Year-to-date operating profit a year ago also included the benefit of a litigation settlement in our memorialization segment, the favorable impact of the settlement of a pension plan installment payment obligation, and the write-off of certain intangible assets of the SGK Brand Solutions segment.

Sales for the SGK Brand Solutions segment were $193.7 million for the current quarter, compared to $200.7 million for the same quarter a year ago. The segment reported sales growth in its UK and Asia markets, which were offset by lower sales in North America and Europe due to continued slow brand market conditions.

In addition, currency rate changes had an unfavorable impact of $3.4 million on the segment sales for the quarter compared to a year ago. The segment sales for the fiscal year ended September 30, 2016 were $756 million compared to $798 million last year. The currency rate changes had an unfavorable impact of $21 million on the segment's current-year sales compared to last year.

The SGK Brand Solutions segment reported operating profit of $16.8 million for the current quarter compared to $16.3 million for the same quarter a year ago. Charges related to the acquisition integration and other cost-reduction initiatives were $6.3 million for the current quarter compared to $7.2 million last year. The quarter-over-quarter increase in operating profit excluding these charges primarily related to the realization of acquisition synergies and other cost reductions.

For the full fiscal year, the segment operating profit was $42.9 million in 2016 compared to $21.9 million last year. Charges in connection with the acquisition integration and other cost-reduction initiatives were $25 million for the current year, compared to $39.5 million last year.

Memorialization segment sales for the FY16 fourth quarter were $152 million compared to $136 million for the same quarter a year ago. The increase primarily resulted from the acquisition of Aurora and higher cemetery memorial product sales volume. Casket sales volume, excluding the impact of the Aurora acquisition, was also slightly higher during the current quarter.

For the fiscal year ended September 30, 2016, memorialization segment sales were $610 million compared to $508 million last fiscal year. Aurora contributed incremental sales of approximately $113 million for the current year. In addition, cemetery memorial product sales volume was higher. Casket sales were lower for the fiscal year, primarily reflecting a decline in US casketed deaths.

Operating profit for the memorialization segment for the FY16 fourth quarter was $20.2 million compared to $12.7 million for the same quarter a year ago. The increase primarily reflected higher sales, productivity initiatives, and lower commodity costs. Operating profit for the memorialization segment for the year ended September 30, 2016 was $68.3 million compared to $70.1 million last year.

The current year included acquisition integration charges and the prior year included a gain from the settlement of litigation. Excluding these items, current year operating profit was higher as a result of sales growth, productivity initiatives, and lower commodity costs.

Operating profit for this segment also reflected intangible amortization expense of $1.2 million for the current quarter compared to approximately $800,000 for the same quarter last year. For the full fiscal year, this intangible amortization expense was $4.9 million in 2016 compared to $2.1 million last year. The significant increases resulted from the incremental amortization in connection with the Aurora acquisition.

The industrial technology segment reported sales of $31 million for the quarter ended September 30, 2016, compared to $31.7 million for the same quarter last year. The segment reported sales of $114.3 million for the fiscal year ended September 30, 2016, compared to $119.7 million last year.

Lower sales in the fulfillment systems market were a significant factor in the changes. As we noted last quarter, this segment had a particularly strong quarter and strong year in fulfillment sales last year, and as a result, presented a challenging comparable for the current year. In addition, as we started to see earlier this fiscal year, the segment's principal markets happen generally reflecting slower market conditions.

Operating profit for the industrial technology segment was $2.7 million for the current quarter compared to $3.7 million for the same quarter last year, primarily reflecting the sales change. The segment's operating profit for the year ended September 30, 2016 was $7.7 million compared to $13.1 million last year, primarily reflecting lower sales and an unfavorable change in product mix.

Our FY16 fourth-quarter consolidated adjusted EBITDA as a percent of sales was 18.4%, compared to 16.7% a year ago. Consolidated adjusted EBITDA for the fiscal year ended September 30, 2016 was 16.2% of sales compared to 15.1% a year ago. The adjusted EBITDA margin improvements primarily reflected the impact of acquisition synergies and other cost-reduction initiatives. A summary of operating results by segment, including non-GAAP adjustments for the quarter and fiscal year-to-date periods, are posted on our website for your reference.

Gross margin for the quarter ended September 30, 2016 was 38.9% of sales compared to 38.4% a year ago. Gross margin for the year ended September 30, 2016 was 37.6% of sales compared to 37.1% a year ago. The benefits of productivity improvements and other cost-reduction initiatives and lower commodity costs contributed to the year-over-year improvement in gross margin percentages.

Selling and administrative expense for the current quarter was 28.4% of sales, compared to 29.5% for the same quarter last year. The decline primarily resulted from synergy realization and a reduction in acquisition integration cost. For the year ended September 30, 2016, selling and administrative expenses was 29.6% of sales compared to 29.8% last year. The reduction primarily reflected synergy realization and lower acquisition integration costs, offset partially by incremental intangible amortization expense related to the Aurora acquisition. In addition, last year's percentage included the impacts of the intangible asset write-off and the net gain from the litigation settlement.

Investment income for the FY16 fourth quarter was $601,000 compared to a loss of $856,000 a year ago. For the full fiscal year, investment income was $2.1 million for 2016 compared to $175,000 last year. The year-over-year changes represent investment performance on assets held in trust for certain of the Company's benefit plans.

Interest expense for the current quarter was $6.2 million compared to $5.5 million for the same quarter last year. Interest expense for the year ended September 30, 2016 was $24.3 million compared to $20.6 million a year ago. The increases resulted primarily from additional borrowings in connection with the Aurora acquisition.

Other income deductions net for the FY16 fourth quarter was a net deduction of $692,000 compared to $1.4 million a year ago. The fourth quarter a year ago included costs related to [a theft] identified last year. Other income deductions net for the ended September 30, 2016 represented a deduction of $1.3 million compared to income of $5.1 million a year ago. The prior-year amount included the favorable impact of a settlement of a pension plan installment payment obligation.

The Company's effective income tax rate for the fiscal year ended September 30, 2016 was 30.5% of pretax income. This rate reflects certain favorable tax benefits and utilization of certain tax attributes specific to the current year. The effective tax rate was 29.4% for the fiscal year ended September 30, 2015. The effective rate for FY15 included the benefit of the utilization of certain tax attributes resulting from organizational restructuring.

At September 30, 2016, the Company's consolidated cash was $55.7 million, compared to $72.2 million at September 30, 2015. Accounts receivable at the end of the current fiscal year was approximately $295 million compared to $284 million last year. Consolidated inventories at September 30, 2016 were $162 million compared to $171 million at September 30, 2015.

Long-term debt at the end of the current fiscal year, including the current portion, approximated $873 million, compared to $903 million at September 30, 2015. Despite borrowings in connection with the repurchase in May 2016 of a portion of the shares held by several Schawk family members, and a $15 million contribution to the Company's pension plan in September 2016, consolidated outstanding debt was reduced by $30 million during FY16 as a result of the Company's continued strong cash flow.

Outstanding borrowings on the Company's domestic credit facility at September 30, 2016 were approximately $855 million. Total borrowing capacity on this facility was increased to $1.15 billion in FY16, $250 million of which is in the form of an amortizing term loan. The facility has a maturity date in April 2021.

Additionally, as we previously disclosed, we received a claim in September 2014 seeking to draw upon a letter of credit issued by the Company of GBP8.6 million with respect to a performance guarantee on a project for a customer in Saudi Arabia. We assessed the customer's claim to be without merit, and accordingly, initiated an action with the court. Pursuant to this action, a court order was issued in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the court, pending resolution of the dispute between the parties.

As a result, the Company made payment on the draw of the financial institution for the letter of credit, and the funds were ultimately received by the customer. The customer did not remit the funds to the court as ordered. On June 14, 2016, the court ruled completely in favor of Matthews following a trial on the merits. However, as the customer has not yet honored this court order and remitted the funds, it is possible the resolution of this matter could have an unfavorable impact on Mathews' results of operations.

The Company had 32.1 million shares outstanding at September 30, 2016. For FY16, the Company purchased approximately 1.132 million shares under its share repurchase program at a cost of $58 million. This includes the purchase in May 2016 of 970,000 shares held by several Schawk family members. At the end of the current quarter, approximately 2 million shares remained under the current share repurchase authorization.

Depreciation and amortization expense for the quarter and fiscal year ended September 30, 2016 was $16.2 million and $65.5 million, respectively, compared to $15.5 million and $62.6 million, respectively, a year ago. Capital expenditures for the quarter and year ended September 30, 2016 were $9 million and $41.7 million, respectively, compared to $13.6 million and $48.3 million, respectively, a year ago.

Finally, the Board yesterday declared a dividend of $0.17 per share on the Company's common stock, representing an increase of 13.3% over the previous dividend rate. The dividend is payable December 12, 2016 to stockholders of record November 28, 2016. This concludes the financial review, and Joe will now comment on our operations.

Thank you, Steve. Good morning. Thanks to the strong efforts in several of our businesses, we finished FY16 very positively, ending with another record for earnings per share. During the fourth quarter, we continued to deliver strong synergy capture, raised our synergy expectations on both of our recent acquisitions, saw good growth in our cemetery products division, improved cost structure thanks to several strategic initiatives, and contained costs in markets where our revenue was challenged. All of these efforts have allowed us to exceed market expectation for the quarter and the full year.

Regarding our Aurora acquisition, the integration continues to go very well, with expected synergies continuing to grow. Good management practices has allowed us to take over $9 million out of inventory during the year, and we expect that trend to continue as we consolidate warehouses and align on a common product line.

We are excited about the synergies that are scheduled to be delivered in 2017, which is a large part of our anticipated year-over-year growth. Much of our efforts during 2016 were mitigated by early dissynergies and lower death rates. As death rates normalize, perhaps in 2017, we should see significant improvement in our results. Our hats go off to the combined integration teams who are handling tremendous stress from numerous projects with great professionalism and confidence.

With regard to our brand business, our SGK integration continues to go well and is in the final stages. As I mentioned in our last call, we still have to implement our ERP solution in our legacy Matthews brand businesses in Europe, and we still have a piece of the ERP implementation in legacy SGK, which will help with order entry, job tracking, and file management. Both of these remaining projects will be ongoing throughout 2017 and into early 2018, and will help drive the remaining synergies left to be achieved on this acquisition.

As I mentioned in the past, we have completed much of the integration spending as it relates to SGK. Therefore, our integration costs will come down significantly during 2017. We still have significant integration costs related to the Aurora integration yet to be incurred, and we expect our peak to be in 2017. Therefore, as we move into FY18, our GAAP and non-GAAP earnings should be much more aligned and result in stronger cash flows as transaction-related expenses wane.

During the year, we repurchased approximately 1.1 million shares as part of our goal to return our outstanding shares to pre-acquisition levels. Although we do not expect to repurchase as many shares during 2017, we will return to the market if we see opportunities. Also, as committed, we repaid the entire purchase price of the $50 million for the shares that we acquired from the Schawk family in late second quarter.

From another positive perspective, during FY16, our operating cash flow was $140 million. This strong cash flow has allowed us to gain -- to again raise our annual dividend by 13% to $0.68 per share. We are pleased to note that we have almost doubled our dividend rate in the last five years, while making gross debt repayments of over $400 million. We believe this to be a very positive sign of our discipline and our desire to return capital to our shareholders.

Our Industrial Technologies group finished a difficult year where prior-year comparables were challenging, especially in our fulfillment business. Still, the team continues to deliver solid equipment sales driven by recent product launches, as our new products continue to gain acceptance throughout the market. As you are aware, we are spending significantly on development of yet another new product, with R&D spending in the segment of over $4 million during 2016. As we approach completion of the development phase of our new project, we expect 2017 to be our highest R&D spend on this project, with total spending approaching $7 million.

Looking at 2017, we remain confident of our ability to achieve our goals, including the amount of synergies that we expect to realize. In over achieving expectations for 2016, we saw an acceleration of synergies and a few projects being pulled forward. Thus, possibly taking away from 2017.

Moreover, we remain cautious, giving uncertainty around expected death rates, sluggish North American and European brand markets, currency fluctuations and commodity headwinds. Nonetheless, we remain pleased with the direction of all of our businesses and the investments that we have made. Therefore, assuming stability in the markets in which we operate, we expect our 2017 earnings to grow in the high single-digit range.

With that, let's open it up for questions.

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

(Operator Instructions)

Daniel Moore, CJS Securities.

Good morning, Joe. Good morning, Steve.

Good morning, Dan.

Good morning, Dan.

I want to focus first on the memorializations. Can you break out organic growth between the casket side of the Business and the memorial side? And what drove the uptick in improvement in memorials volume in the quarter?

Sure. I would tell you the best way to look at it, Dan, is that we saw consistent growth rates, actually a little bit of a decline on the organic volume rate for our funeral home products business, which is modestly ahead of the death rate that we see in the casketed burials.

On the cemetery side of the products, we have done a great job. The team out there has gone back to several customers that we may have lost throughout that integration of the SAP that you all may recall, regained their confidence and regained their business. We've seen low- to mid-single-digit growth in that business relative to the death rates when you take that into consideration. So we're very, very pleased with that.

More importantly, if you recall, we made a couple of investments in some smaller branded business with the expectation to expand that opportunity across the country. That business is performing very well relative to where it's been over the last several years. We think that business is on track to be the kind of business that we can continue to invest in, and we hope to see more out of them.

Very helpful, good to hear about the recapturing market share. As we look out to 2017, it sounded in your prepared remarks a little bit of optimism around the death care side of the Business. And I think we heard from one of your competitors expected more of the same, down low-single digits for next year. So are you seeing anything that gives you confidence that we could see a flattening? What are your expectations?

Well, Dan, when we look forward, we anticipate what the Census Bureau has predicted going forward. We expect death rates over the next 20 years or so to grow at about 1% to 1.5% per year, much of that being consumed by burials -- excuse me, by cremations. So a relatively flat burial rate.

As you might expect at this point in history, what we're seeing is a little bit of choppiness on that top 1% or 2% that's going either away. We had a down year from a volume standpoint last year. Will that come back this year? We don't know.

But I can tell you what we do know is that, given a relative stable base of burials, the synergies that remain to be captured in our Aurora business will give us the kind of growth we expect. Plus, some of the efforts on the cemetery side, both in granite and bronze, give us pretty good confidence. And unless the bottom falls out on us last year, we'll be better than we were this year.

Very good. And just switching gears, quickly to the Schawk side of the Business, SGK side of the Business, any tangible evidence, if not dollar volume, in terms of conversations around potential benefits for the Food Labeling Act in 2017? And then another question as it relates to that, private label, the increased penetration in private label, is that part of the reason why we've seen modest growth in US and Europe? Or is that not having as much of an impact?

I think it's clearly having an impact, but let me answer your first question. Your first question, with regard to the FMLA, we are starting to hear conversations from our food providers that many of them are going through reformulation of their product first, before they go out and disclose exactly what is in it. So there's some improvements going into the formulations. Those are occurring as we speak.

We're starting to have conversations that some of this may start to hit in the second to third quarter of 2017. How much that is, we cannot tell. But we would tell you that with a 2018 implementation date, we're going to have to start to see some things coming in pretty soon. So we expect something, but I can't give you a feel. And we're not anticipating big numbers in our forecast going into next year.

With regard to private label, clearly, I think there's a couple things going on, Dan. As we look at what I would call zero-based budgeting going forward for some of our CPGs as they try to understand what is the right level of marketing spend, what innovation do they need, what type of movements are going to private label versus what needs to be continued to invest in their brands, we're seeing some of that sluggishness both in North America as well as in Europe.

As we look forward though, for brands to continue to be of value, there's going to be a need to continue to innovate and invest in those brands. So we do think it's cyclical. Where the new norm may be is maybe lower than we might have hoped it to be. But for right now, I would tell you that the sluggishness is driven by an intent with CPGs to re-understand what they really want to do with these brands and how much they want to invest.

Very helpful. Lastly, knocking the cover off the ball in terms of the synergies cost savings, what should we think about just in terms of the incremental synergies, cost-savings benefit in FY17 from here?

Dan, I would tell you to think about this way. We've got some inflationary costs that are going through. You've seen commodities, steel is going through the roof. And copper, you see what's happening with copper as well.

We expect our actual cost synergy to be somewhere between $12 million to $15 million that we're going to capture, but some of that may be mitigated by some of the other sides of the things that are going through our P&Ls that are hard to control from our standpoint. So we think it's $12 million to $15 million. We're pretty confident we can achieve that. How much we get to bring to the bottom line is somewhat out of our control.

But I think the important message, Dan, in that, is not necessarily how much we're going to bring next year. We're going to deliver on those synergies. We're now going into our third year of these integrations. For those of you that have been with us for a long time, you've watched us go through some challenges with our ERP implementations, trying to get ourselves into a position to be able to do this. We appreciate you all sticking with us, but where we stand today is that we have both -- we have processes, we have teams, and we have systems that will allow us to do this again.

So we have delivered on the cost synergies as expected. We think we'll do that again next year, but we're positioning ourselves to do more over the future. So I think that's the real story that comes out of this.

Perfect. Thank you for the color.

Jamie Clement, Macquarie.

Joe, Steve, good morning. Thanks for taking my questions.

You're welcome. Good morning, Jamie.

Joe, quick follow-up to Dan's question: Before people get confused, you're still handling private-label packaging design for a lot of customers though. It's not like you're not in the private-label space, right? Let's just make that clear, right?

Sure, we are in the retail space where a lot of private label is being done. We have some very large retail customers, both in North America and in Europe, so, yes. But generally what we've seen, Jamie, is that private-label manufacturers copy rather than necessarily go out and be innovative. So we're doing the work, probably at a lower level.

Well, hopefully they don't hear you saying that (laughter). Anyway, moving on, as we think about free cash flow next year, Steve, any change in any significant way directionally to CapEx versus what you spent in 2015 and 2016 versus what you anticipate spending in 2017?

Yes, I think CapEx will be a little bit higher next year as we continue with some of our ERP implementation, and as we do some of the integration work in our Aurora business. So I do see it a little bit higher, maybe in the $45 million to $50 million range.

Okay. And as far as cash integration spending, restructuring spending, in that kind of bucket, I was a little unclear because it sounded like that number might be coming down, yet you do have certain projects that are in the works also to capture additional synergies. So should the cash restructuring number, should that be coming down or should that be staying about the same? Hello?

Ladies and gentlemen, please stand by, one moment. Ladies and gentlemen, we will resume the question-and-answer session at this time.

(Operator Instructions)

David Stratton, Great Lakes Review.

Good morning, thanks for taking the questions.

Good morning.

Looking at FY17, do you have any guidance around the tax rate and D&A? I think you just spoke about CapEx before everything got disconnected.

Yes. David, I expect the D&A to be maybe slightly higher next year, not much. And then, what was the first piece of your question?

Tax rate, I actually expect that -- let me explain the tax rate a little bit. This year's tax rate was a blend of what I'll call standard effective tax rate and some items that were discrete to this year. So having said that, I would tell you next year's tax rate, excluding discrete, somewhere in the range of 31.5% to 32%.

All right. And then, when we look at the synergies that you've outlined, are you maintaining your expectations for the three-year prospect? Or are those changing with what you've seen in the end of 2016 and going forward?

As we said earlier, David, our expected synergies continue to climb beyond what we had communicated early on. But many of those synergies will be out in the out-years, closer to the end of the third, into the fourth year, and maybe into the early fifth year as we move forward. But we will have achieved what we originally communicated on the high end of the range during the three-year period we communicated.

All right, and then really quick, could you talk about -- you highlighted some product pull-forwards in the last year or maybe this quarter, not necessarily knowing what that will shape up like in FY17. Could you just give a little extra color there about the timing and what we're looking at?

Sure. When you look at some of our businesses, brand in particular, but also on the fulfillment side, they're more episodic businesses that are project based. And whether those projects get repeated or not is a different question.

Some of the projects that were incurred in the last part of the fourth quarter were anticipated to be delivered into the first quarter of 2017. So we got a little bit of pull-forward there. And we also got a little better synergy realization than we anticipated for the full-year basis.

So the total synergy rates did not change, maybe a little earlier than expected by a quarter or two. So we might expect a little lighter quarter than we were originally forecasting for the first quarter of 2017, but on a full-year basis, in line with what we've always communicated.

All right, and then finally, what was the dollar amount of synergies you realized in FY16? Are you willing to break that out for us?

Actually, David, I do not have a breakout of that in front of me. So I apologize.

That's all right. Thank you for the time.

You're welcome.

Liam Burke, Wunderlich.

Thank you. Good morning, Joe. Good morning, Steve.

Hi, Liam.

Good morning, Liam.

Joe, on the Aurora front, on the Aurora revenue side of the Business, have you been able to maintain churn rates at lower levels since you bought in Aurora under the umbrella?

What we've said, Liam, and we anticipated early dissynergies; we came in pretty much in line with where that is. That has stabilized, probably as of the end of the third quarter, and that's why you're not seeing the full benefit of some of the actions. And that's, frankly, one of the reasons why you're seeing it in our fourth quarter is because that stability has allowed us to see the benefits of the synergies more clearly.

So I would tell you going forward from here, it's the normal churn of up and downs within the marketplace, win some, lose some. But at the end of the day, we're pretty stable.

Great. And the fulfillment side of the industrial business, how does the contract pipeline look there?

Better than it did same time last year, let's put it that way. Last year in the fourth quarter, we were tailing into the end of a couple of nice projects that moved into the first quarter. So we might see a little bit lighter performance in our first quarter of 2017 there, but our pipeline is better. And we're not at 2015 levels, but it's early in the year.

Great. Thanks, Joe.

Jamie Clement.

Joe, I'm sorry I got cut out there. I apologize for that.

Welcome back, Jamie.

I appreciate that. Joe, any comments on the acquisition pipeline? It sounds like with the system, the ERP system implementation, that sounds like it's in good shape. It seems like you have the capacity to potentially do something that's significant. Obviously, we don't know what's out there, but can you give us a little flavor of what we might see in the next 12 months or so?

Jamie, I would tell you that our integration teams are pretty well stretched right now. As you all have been with us for many years, you've seen a number of smaller deals that have come through the Organization.

And as you also might expect, we turned that valve off about three years ago as we were going into the planning for SGK. I would tell you that I wouldn't be surprised to see a number of smaller deals come through this year as we fulfill a couple of our pockets, whether it be product lines, whether it be geographies, whether the additional products we want to offer.

From a larger deals perspective, we've got a lot of things we'd like to do. It takes two to tango, and we're not willing to overpay. So we are confident we'll find another one, it's just a matter of when, probably not this year though.

Okay, fair enough. Thanks very much. I appreciate that.

Daniel Moore.

Thank you, I missed about a minute or two of the call. Did you talk about interest expense assumptions for FY17?

No, we did not talk about interest expense assumptions, Dan. But in our expectations for next year, we're not assuming a significant increase in our overall interest cost.

So Q4 is a reasonable run rate?

Yes, I would say so. When I say that, Dan, I expect that we will delever. But again, we've also seen some creep in interest for longer-term interest rates. So again, on balance, I just don't expect a significant change year over year at this point in time.

The one thing we have seen with interest rates, Dan, that is impacting us is the discount rate on our pension. So we're seeing an increase in our pension expense, which is a non-cash expense that is impacting us. Hopefully, with interest rates starting to creep, we'll get that benefit in 2018.

That was my last question, and just going in that direction. It has been creeping up a little bit. Do you expect that to continue to creep in FY17? And is there any point at which you would consider more significant funding, cash funding, to try and bring that down?

Well, Dan, so the interest, the discount rates are set once a year at the end of September. So those have already been set. And so we won't have an opportunity to reset that until September of next year.

With respect to impact on funding, we did, because of the discount rates, make a fairly sizable contribution, $15 million just a couple of months ago in September. Our expectation into next year is we'll still make a contribution, but much smaller.

And with respect to where we stand in terms of required funding levels, required contributions, other than a smaller contribution maybe mid-next year, that should be it. That should be it in terms of what we're required to do. And if discount rates start to increase, that actually should be beneficial in terms of required contributions.

Got it. Okay. Thank you again.

And there are no further questions in the queue. I'll yield the conference back to you, sir.

Thank you, Marybeth. Well, we appreciate everyone for participating in our conference call this morning, and we look forward to our next conference call in January for our first-quarter earnings. Thank you and have a great day.

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