UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
x
|
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For The Quarterly Period Ended June 30, 2013
Commission File No. 0-9115
MATTHEWS INTERNATIONAL CORPORATION
(Exact Name of registrant as specified in its charter)
PENNSYLVANIA
|
|
25-0644320
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation or organization)
|
|
Identification No.)
|
TWO NORTHSHORE CENTER, PITTSBURGH, PA
|
|
15212-5851
|
(Address of principal executive offices)
|
|
(Zip Code)
|
|
|
|
|
|
|
Registrant's telephone number, including area code
|
|
(412) 442-8200
|
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 31, 2013, shares of common stock outstanding were:
Class A Common Stock 27,434,613 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except per share data)
|
|
June 30, 2013
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
$ |
54,861 |
|
|
|
|
|
$ |
58,259 |
|
Accounts receivable, net
|
|
|
|
|
|
183,437 |
|
|
|
|
|
|
174,632 |
|
Inventories
|
|
|
|
|
|
131,839 |
|
|
|
|
|
|
130,690 |
|
Deferred income taxes
|
|
|
|
|
|
1,648 |
|
|
|
|
|
|
1,694 |
|
Other current assets
|
|
|
|
|
|
20,399 |
|
|
|
|
|
|
19,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
392,184 |
|
|
|
|
|
|
385,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
19,709 |
|
|
|
|
|
|
18,842 |
|
Property, plant and equipment: Cost
|
|
$ |
382,338 |
|
|
|
|
|
|
$ |
350,521 |
|
|
|
|
|
Less accumulated depreciation
|
|
|
(214,807 |
) |
|
|
|
|
|
|
(206,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
167,531 |
|
|
|
|
|
|
|
144,049 |
|
Deferred income taxes
|
|
|
|
|
|
|
29,669 |
|
|
|
|
|
|
|
32,647 |
|
Other assets
|
|
|
|
|
|
|
15,375 |
|
|
|
|
|
|
|
12,083 |
|
Goodwill
|
|
|
|
|
|
|
532,926 |
|
|
|
|
|
|
|
476,181 |
|
Other intangible assets, net
|
|
|
|
|
|
|
53,166 |
|
|
|
|
|
|
|
59,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$ |
1,210,560 |
|
|
|
|
|
|
$ |
1,128,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, current maturities
|
|
|
|
|
|
$ |
17,520 |
|
|
|
|
|
|
$ |
21,566 |
|
Accounts payable
|
|
|
|
|
|
|
41,644 |
|
|
|
|
|
|
|
44,294 |
|
Accrued compensation
|
|
|
|
|
|
|
36,985 |
|
|
|
|
|
|
|
30,222 |
|
Accrued income taxes
|
|
|
|
|
|
|
11,284 |
|
|
|
|
|
|
|
7,632 |
|
Customer prepayments
|
|
|
|
|
|
|
12,409 |
|
|
|
|
|
|
|
15,883 |
|
Contingent Consideration
|
|
|
|
|
|
|
8,559 |
|
|
|
|
|
|
|
13,298 |
|
Other current liabilities
|
|
|
|
|
|
|
48,854 |
|
|
|
|
|
|
|
47,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
177,255 |
|
|
|
|
|
|
|
180,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
359,561 |
|
|
|
|
|
|
|
298,148 |
|
Accrued pension
|
|
|
|
|
|
|
87,028 |
|
|
|
|
|
|
|
78,563 |
|
Postretirement benefits
|
|
|
|
|
|
|
28,633 |
|
|
|
|
|
|
|
27,725 |
|
Deferred income taxes
|
|
|
|
|
|
|
19,431 |
|
|
|
|
|
|
|
18,624 |
|
Other liabilities
|
|
|
|
|
|
|
28,536 |
|
|
|
|
|
|
|
33,194 |
|
Total liabilities
|
|
|
|
|
|
|
700,444 |
|
|
|
|
|
|
|
637,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrangement with noncontrolling interest
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
10,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity-Matthews:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$ |
36,334 |
|
|
|
|
|
|
$ |
36,334 |
|
|
|
|
|
Additional paid-in capital
|
|
|
45,805 |
|
|
|
|
|
|
|
47,893 |
|
|
|
|
|
Retained earnings
|
|
|
764,294 |
|
|
|
|
|
|
|
727,176 |
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(64,603 |
) |
|
|
|
|
|
|
(65,083 |
) |
|
|
|
|
Treasury stock, at cost
|
|
|
(274,831 |
) |
|
|
|
|
|
|
(268,499 |
) |
|
|
|
|
Total shareholders’ equity-Matthews
|
|
|
|
|
|
|
506,999 |
|
|
|
|
|
|
|
477,821 |
|
Noncontrolling interests
|
|
|
|
|
|
|
3,117 |
|
|
|
|
|
|
|
2,613 |
|
Total shareholders’ equity
|
|
|
|
|
|
|
510,116 |
|
|
|
|
|
|
|
480,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
|
|
|
|
$ |
1,210,560 |
|
|
|
|
|
|
$ |
1,128,042 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
250,652 |
|
|
$ |
227,478 |
|
|
$ |
732,651 |
|
|
$ |
670,236 |
|
Cost of sales
|
|
|
(159,261 |
) |
|
|
(139,769 |
) |
|
|
(466,420 |
) |
|
|
(419,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
91,391 |
|
|
|
87,709 |
|
|
|
266,231 |
|
|
|
250,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
(60,631 |
) |
|
|
(60,196 |
) |
|
|
(193,902 |
) |
|
|
(178,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
30,760 |
|
|
|
27,513 |
|
|
|
72,329 |
|
|
|
71,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
634 |
|
|
|
176 |
|
|
|
1,474 |
|
|
|
3,020 |
|
Interest expense
|
|
|
(3,486 |
) |
|
|
(2,881 |
) |
|
|
(9,784 |
) |
|
|
(8,165 |
) |
Other income (deductions), net
|
|
|
(986 |
) |
|
|
(602 |
) |
|
|
(3,158 |
) |
|
|
(1,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26,922 |
|
|
|
24,206 |
|
|
|
60,861 |
|
|
|
64,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(9,024 |
) |
|
|
(7,821 |
) |
|
|
(20,905 |
) |
|
|
(21,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
17,898 |
|
|
|
16,385 |
|
|
|
39,956 |
|
|
|
42,997 |
|
Net (income) loss attributable to noncontrolling interests
|
|
|
93 |
|
|
|
(60 |
) |
|
|
482 |
|
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Matthews shareholders
|
|
$ |
17,991 |
|
|
$ |
16,325 |
|
|
$ |
40,438 |
|
|
$ |
42,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Matthews shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$0.65 |
|
|
|
$0.58 |
|
|
|
$1.47 |
|
|
|
$1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$0.65 |
|
|
|
$0.58 |
|
|
|
$1.46 |
|
|
|
$1.51 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands)
|
|
Three Months Ended June 30,
|
|
|
|
Matthews
|
|
|
Noncontrolling Interest
|
|
|
Total
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
$ |
17,991 |
|
|
$ |
16,325 |
|
|
$ |
(93 |
) |
|
$ |
60 |
|
|
$ |
17,898 |
|
|
$ |
16,385 |
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(1,653 |
) |
|
|
(11,441 |
) |
|
|
44 |
|
|
|
(33 |
) |
|
|
(1,609 |
) |
|
|
(11,474 |
) |
Pension plans and other postretirement
benefits
|
|
|
1,073 |
|
|
|
1,023 |
|
|
|
- |
|
|
|
- |
|
|
|
1,073 |
|
|
|
1,023 |
|
Unrecognized gain (loss) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change from periodic revaluation
|
|
|
2,463 |
|
|
|
(1,407 |
) |
|
|
- |
|
|
|
- |
|
|
|
2,463 |
|
|
|
(1,407 |
) |
Net amount reclassified to earnings
|
|
|
649 |
|
|
|
542 |
|
|
|
- |
|
|
|
- |
|
|
|
649 |
|
|
|
542 |
|
Net change in unrecognized gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on derivatives
|
|
|
3,112 |
|
|
|
(865 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,112 |
|
|
|
(865 |
) |
Other comprehensive income (loss), net of tax
|
|
|
2,532 |
|
|
|
(11,283 |
) |
|
|
44 |
|
|
|
(33 |
) |
|
|
2,576 |
|
|
|
(11,316 |
) |
Comprehensive income (loss)
|
|
$ |
20,523 |
|
|
$ |
5,042 |
|
|
$ |
(49 |
) |
|
$ |
27 |
|
|
$ |
20,474 |
|
|
$ |
5,069 |
|
|
|
Nine Months Ended June 30,
|
|
|
|
Matthews
|
|
|
Noncontrolling Interest
|
|
|
Total
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
$ |
40,438 |
|
|
$ |
42,868 |
|
|
$ |
(482 |
) |
|
$ |
129 |
|
|
$ |
39,956 |
|
|
$ |
42,997 |
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(7,587 |
) |
|
|
(8,239 |
) |
|
|
99 |
|
|
|
(101 |
) |
|
|
(7,488 |
) |
|
|
(8,340 |
) |
Pension plans and other postretirement
benefits
|
|
|
3,220 |
|
|
|
3,068 |
|
|
|
- |
|
|
|
- |
|
|
|
3,220 |
|
|
|
3,068 |
|
Unrecognized gain (loss) on derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change from periodic revaluation
|
|
|
2,960 |
|
|
|
(2,068 |
) |
|
|
- |
|
|
|
- |
|
|
|
2,960 |
|
|
|
(2,068 |
) |
Net amount reclassified to earnings
|
|
|
1,887 |
|
|
|
1,408 |
|
|
|
- |
|
|
|
- |
|
|
|
1,887 |
|
|
|
1,408 |
|
Net change in unrecognized gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on derivatives
|
|
|
4,847 |
|
|
|
(660 |
) |
|
|
- |
|
|
|
- |
|
|
|
4,847 |
|
|
|
(660 |
) |
Other comprehensive income (loss), net of tax
|
|
|
480 |
|
|
|
(5,831 |
) |
|
|
99 |
|
|
|
(101 |
) |
|
|
579 |
|
|
|
(5,932 |
) |
Comprehensive income (loss)
|
|
$ |
40,918 |
|
|
$ |
37,037 |
|
|
$ |
(383 |
) |
|
$ |
28 |
|
|
$ |
40,535 |
|
|
$ |
37,065 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the nine months ended June 30, 2013 and 2012 (Unaudited)
(Dollar amounts in thousands, except per share data)
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
controlling
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
interests
|
|
|
Total
|
|
Balance,
September 30, 2011
|
|
$ |
36,334 |
|
|
$ |
48,554 |
|
|
$ |
681,658 |
|
|
$ |
(58,658 |
) |
|
$ |
(243,246 |
) |
|
$ |
3,451 |
|
|
$ |
468,093 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
42,868 |
|
|
|
- |
|
|
|
- |
|
|
|
129 |
|
|
|
42,997 |
|
Minimum pension liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,068 |
|
|
|
- |
|
|
|
- |
|
|
|
3,068 |
|
Translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,239 |
) |
|
|
- |
|
|
|
(101 |
) |
|
|
(8,340 |
) |
Fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(660 |
) |
|
|
- |
|
|
|
- |
|
|
|
(660 |
) |
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,065 |
|
Stock-based compensation
|
|
|
- |
|
|
|
4,097 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,097 |
|
Purchase of 618,366
shares of treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(18,908 |
) |
|
|
- |
|
|
|
(18,908 |
) |
Issuance of 184,806
shares of treasury stock
|
|
|
- |
|
|
|
(6,149 |
) |
|
|
- |
|
|
|
- |
|
|
|
6,022 |
|
|
|
- |
|
|
|
(127 |
) |
Dividends, $.27 per share
|
|
|
- |
|
|
|
- |
|
|
|
(7,597 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,597 |
) |
Distributions to
noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(170 |
) |
|
|
(170 |
) |
Balance, June 30, 2012
|
|
$ |
36,334 |
|
|
$ |
46,502 |
|
|
$ |
716,929 |
|
|
$ |
(64,489 |
) |
|
$ |
(256,132 |
) |
|
$ |
3,309 |
|
|
$ |
482,453 |
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
controlling
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
interests
|
|
|
Total
|
|
Balance,
September 30, 2012
|
|
$ |
36,334 |
|
|
$ |
47,893 |
|
|
$ |
727,176 |
|
|
$ |
(65,083 |
) |
|
$ |
(268,499 |
) |
|
$ |
2,613 |
|
|
$ |
480,434 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
40,438 |
|
|
|
- |
|
|
|
- |
|
|
|
(482 |
) |
|
|
39,956 |
|
Minimum pension liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,220 |
|
|
|
- |
|
|
|
- |
|
|
|
3,220 |
|
Translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,587 |
) |
|
|
- |
|
|
|
99 |
|
|
|
(7,488 |
) |
Fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,847 |
|
|
|
- |
|
|
|
- |
|
|
|
4,847 |
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,535 |
|
Stock-based compensation
|
|
|
- |
|
|
|
4,153 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,153 |
|
Purchase of 405,116 shares of treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,529 |
) |
|
|
- |
|
|
|
(13,529 |
) |
Issuance of 250,472 shares of treasury stock
|
|
|
- |
|
|
|
(6,241 |
) |
|
|
- |
|
|
|
- |
|
|
|
7,197 |
|
|
|
- |
|
|
|
956 |
|
Dividends, $.30 per share
|
|
|
- |
|
|
|
- |
|
|
|
(8,300 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,300 |
) |
Arrangement with noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
4,980 |
|
|
|
- |
|
|
|
- |
|
|
|
1,653 |
|
|
|
6,633 |
|
Distributions to
noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(766 |
) |
|
|
(766 |
) |
Balance, June 30, 2013
|
|
$ |
36,334 |
|
|
$ |
45,805 |
|
|
$ |
764,294 |
|
|
$ |
(64,603 |
) |
|
$ |
(274,831 |
) |
|
$ |
3,117 |
|
|
$ |
510,116 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands, except per share data)
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
39,956 |
|
|
$ |
42,997 |
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,481 |
|
|
|
21,858 |
|
Stock-based compensation expense
|
|
|
4,153 |
|
|
|
4,097 |
|
Gain on sale of assets
|
|
|
(1,582 |
) |
|
|
(4,633 |
) |
Change in deferred taxes
|
|
|
137 |
|
|
|
(2,711 |
) |
Changes in working capital items
|
|
|
(5,827 |
) |
|
|
(15,749 |
) |
Decrease in other assets
|
|
|
370 |
|
|
|
3,586 |
|
Decrease in other liabilities
|
|
|
2,864 |
|
|
|
(2,575 |
) |
Increase in pension and postretirement benefits
|
|
|
10,043 |
|
|
|
9,479 |
|
Other, net
|
|
|
(3,657 |
) |
|
|
(1,088 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
72,938 |
|
|
|
55,261 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,268 |
) |
|
|
(24,641 |
) |
Proceeds from sale of assets
|
|
|
251 |
|
|
|
1,229 |
|
Acquisitions, net of cash acquired
|
|
|
(67,587 |
) |
|
|
(12,541 |
) |
Purchases of investments
|
|
|
- |
|
|
|
(950 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(84,604 |
) |
|
|
(36,903 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
113,906 |
|
|
|
21,000 |
|
Payments on long-term debt
|
|
|
(74,122 |
) |
|
|
(19,051 |
) |
Payment on contingent consideration
|
|
|
(9,542 |
) |
|
|
- |
|
Proceeds from the sale of treasury stock
|
|
|
956 |
|
|
|
267 |
|
Purchases of treasury stock
|
|
|
(13,529 |
) |
|
|
(18,908 |
) |
Dividends
|
|
|
(8,300 |
) |
|
|
(7,597 |
) |
Distributions to noncontrolling interests
|
|
|
(766 |
) |
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
8,603 |
|
|
|
(24,459 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(335 |
) |
|
|
(869 |
) |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$ |
(3,398 |
) |
|
$ |
(6,970 |
) |
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition of equipment under capital lease
|
|
$ |
- |
|
|
$ |
420 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2013
(Dollar amounts in thousands, except per share data)
Note 1. Nature of Operations
Matthews International Corporation ("Matthews" or the “Company”), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of memorialization products and brand solutions. Memorialization products consist primarily of bronze and granite memorials and other memorialization products, caskets and cremation equipment for the cemetery and funeral home industries. Brand solutions include graphics imaging products and services, marking and fulfillment systems and merchandising solutions. The Company's products and operations are comprised of six business segments: Cemetery Products, Funeral Home Products, Cremation, Graphics Imaging, Marking and Fulfillment Systems and Merchandising Solutions. The Cemetery Products segment is a leading manufacturer of cast bronze and granite memorials and other memorialization products, cast and etched architectural products and is a leading builder of mausoleums in the United States. The Funeral Home Products segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood, metal and cremation caskets. The Cremation segment is a leading designer and manufacturer of cremation equipment in North America and Europe. The Graphics Imaging segment manufactures and provides brand management, printing plates, gravure cylinders, pre-press services and imaging services for the primary packaging and corrugated industries. The Marking and Fulfillment Systems segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products. The Merchandising Solutions segment designs and manufactures merchandising displays and systems and provides creative merchandising and marketing solutions services.
The Company has manufacturing and marketing facilities in the United States, Mexico, Canada, Europe, Australia and Asia.
Note 2. Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2012. The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
A reclassification has been made in the Consolidated Statement of Cash Flows for the nine-month period ended June 30, 2012 to conform to the current period presentation. The reclassification adjusted the effect of exchange rate changes on cash with a corresponding change in net cash flows from operating activities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 3. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level fair value hierarchy is used to prioritize the inputs used in valuations, as defined below:
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
The fair values of the Company’s assets and liabilities measured on a recurring basis are categorized as follows:
|
|
June 30, 2013
|
|
|
September 30, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (1)
|
|
|
- |
|
|
$ |
3,745 |
|
|
|
- |
|
|
$ |
3,745 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Trading
securities
|
|
$ |
17,215 |
|
|
|
- |
|
|
|
- |
|
|
|
17,215 |
|
|
$ |
16,265 |
|
|
|
- |
|
|
|
- |
|
|
$ |
16,265 |
|
Total assets at
fair value
|
|
$ |
17,215 |
|
|
$ |
3,745 |
|
|
|
- |
|
|
$ |
20,960 |
|
|
$ |
16,265 |
|
|
|
- |
|
|
|
- |
|
|
$ |
16,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives (1)
|
|
|
- |
|
|
$ |
4,932 |
|
|
|
- |
|
|
$ |
4,932 |
|
|
|
- |
|
|
$ |
9,133 |
|
|
|
- |
|
|
$ |
9,133 |
|
Total liabilities
at fair value
|
|
|
- |
|
|
$ |
4,932 |
|
|
|
- |
|
|
$ |
4,932 |
|
|
|
- |
|
|
$ |
9,133 |
|
|
|
- |
|
|
$ |
9,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest rate swaps are valued based on observable market swap rates.
|
|
Note 4. Inventories
Inventories consisted of the following:
|
|
June 30, 2013
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
40,898 |
|
|
$ |
41,003 |
|
Work in process
|
|
|
25,804 |
|
|
|
22,772 |
|
Finished goods
|
|
|
65,137 |
|
|
|
66,915 |
|
|
|
$ |
131,839 |
|
|
$ |
130,690 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 5. Debt
The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions. In July 2013, the maximum amount of borrowings available under the facility was increased to $500,000 and borrowings under the new facility bear interest at LIBOR plus a factor ranging from .75% to 1.25% based on the Company’s leverage ratio. The facility’s maturity is July 2018. The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization). The Company is required to pay an annual commitment fee ranging from .15% to .25% (based on the Company’s leverage ratio) of the unused portion of the facility.
The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $30,000) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at June 30, 2013 and September 30, 2012 were $307,500 and $281,323, respectively. The weighted-average interest rate on outstanding borrowings on this facility at June 30, 2013 and 2012 was 3.05% and 3.15%, respectively.
The Company has entered into the following interest rate swaps:
Effective Date
|
Amount
|
Fixed Interest Rate
|
Interest Rate Spread at June 30, 2013
|
Maturity Date
|
May 2011
|
$25,000
|
1.37%
|
1.50%
|
May 2014
|
October 2011
|
25,000
|
1.67%
|
1.50%
|
October 2015
|
November 2011
|
25,000
|
2.13%
|
1.50%
|
November 2014
|
March 2012
|
25,000
|
2.44%
|
1.50%
|
March 2015
|
June 2012
|
40,000
|
1.88%
|
1.50%
|
June 2022
|
August 2012
|
35,000
|
1.74%
|
1.50%
|
June 2022
|
September 2012
|
25,000
|
3.03%
|
1.50%
|
December 2015
|
September 2012
|
25,000
|
1.24%
|
1.50%
|
March 2017
|
November 2012
|
25,000
|
1.33%
|
1.50%
|
November 2015
|
The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility which are considered probable of occurring. Based on the Company’s assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.
The fair value of the interest rate swaps reflected an unrealized net loss of $1,187 ($724 after tax) and $8,244 ($5,029 after tax) at June 30, 2013 and 2012, respectively, that is included in shareholders’ equity as part of accumulated other comprehensive loss (“AOCL”). Assuming market rates remain constant with the rates at June 30, 2013, approximately $1,273 of the $724 net unrealized loss included in AOCL is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 5. Debt (continued)
At June 30, 2013 and September 30, 2012, the interest rate swap contracts were reflected as net asset and net liability on the balance sheets. The following derivatives are designated as hedging instruments:
Liability Derivatives
|
|
|
|
Balance Sheet Location:
|
|
June 30, 2013
|
|
|
September 30, 2012
|
|
Current assets
|
|
|
|
|
|
|
Other current assets
|
|
$ |
416 |
|
|
$ |
- |
|
Long-term assets
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
3,329 |
|
|
|
- |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
2,503 |
|
|
|
2,851 |
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,429 |
|
|
|
6,282 |
|
Total derivatives
|
|
$ |
1,187 |
|
|
$ |
9,133 |
|
The loss recognized on derivatives was as follows:
|
Location of
|
|
|
|
|
|
|
Derivatives in
|
Loss
|
|
Amount of
|
|
|
Amount of
|
|
Cash Flow
|
Recognized in
|
|
Loss Recognized
|
|
|
Loss Recognized
|
|
Hedging
|
Income on
|
|
in Income
|
|
|
in Income
|
|
Relationships
|
Derivative
|
|
on Derivatives
|
|
|
on Derivatives
|
|
|
|
|
Three Months ended June 30,
|
|
|
Nine Months ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Interest expense
|
|
|
$(1,065) |
|
|
|
$(888) |
|
|
|
$(3,094) |
|
|
|
$(2,308) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized the following losses in AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
Gain or
|
|
|
|
|
|
|
|
(Loss)
|
|
Amount of Loss
|
|
|
|
|
|
Reclassified
|
|
Reclassified from
|
|
|
|
Amount of Gain or (Loss)
|
|
From
|
|
AOCL into
|
|
Derivatives in
|
|
Recognized in
|
|
AOCL into
|
|
Income
|
|
Cash Flow
|
|
AOCL on Derivatives
|
|
Income
|
|
(Effective Portion*)
|
|
Hedging Relationships
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
(Effective
Portion*)
|
|
June 30, 2013
|
|
|
June 30,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
$2,960 |
|
|
|
$(2,068) |
|
Interest expense
|
|
|
$(1,887) |
|
|
|
$(1,408) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*There is no ineffective portion or amount excluded from effectiveness testing.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 5. Debt (continued)
In March 2013, the Company, through certain of its European subsidiaries, entered into a credit facility with a European bank. The maximum amount of borrowing available under this facility is 25.0 million Euros ($32,525). Outstanding borrowings under the credit facility totaled 25.0 million Euros ($32,525) at June 30, 2013. The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2013 was 1.37%.
The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks. Outstanding borrowings under these loans totaled 2.9 million Euros ($3,725) and 8.2 million Euros ($10,514) at June 30, 2013 and September 30, 2012, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2013 and 2012 was 3.92% and 6.11%, respectively.
The Company, through its German subsidiary, Wetzel GmbH (“Wetzel”), acquired in November 2012, has several loans with various European banks. Outstanding borrowings under these loans totaled 8.0 million Euros ($10,353) at June 30, 2013. The weighted-average interest rate on outstanding borrowings of Wetzel at June 30, 2013 was 7.26%.
The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks. Outstanding borrowings on these loans totaled 4.1 million Euros ($5,351) and 6.3 million Euros ($8,080) at June 30, 2013 and September 30, 2012, respectively. Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($14,792) with the same Italian banks. Outstanding borrowings on these lines were 5.7 million Euros ($7,375) and 3.4 million Euros ($4,322) at June 30, 2013 and September 30, 2012, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at June 30, 2013 and 2012 was 3.17% and 3.09%, respectively.
As of June 30, 2013 and September 30, 2012 the fair value of the Company’s long-term debt, including current maturities, which is classified as level 2 in the fair value hierarchy, approximated the carrying value included in the Condensed Consolidated Balance Sheet.
Note 6. Share-Based Payments
The Company maintains an equity incentive plan (the “2007 Equity Incentive Plan”) that provides for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. The Company also maintains a stock incentive plan (the “1992 Incentive Stock Plan”) that previously provided for grants of stock options, restricted shares and certain other types of stock-based awards. In February 2013, the Company’s shareholders approved the adoption of a new plan, the 2012 Equity Incentive Plan (the “2012 Plan”), that provides for grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. Under the 2012 Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,500,000. There will be no further grants under the 2007 Equity Incentive Plan or the 1992 Incentive Stock Plan. At June 30, 2013, there were 2,500,000 shares reserved for future issuance under the 2012 Plan. All plans are administered by the Compensation Committee of the Board of Directors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 6. Share-Based Payments (continued)
The option price for each stock option granted under any of the plans may not be less than the fair market value of the Company's common stock on the date of grant. Outstanding stock options are generally exercisable in one-third increments upon the attainment of pre-defined levels of appreciation in the market value of the Company’s Class A Common Stock. In addition, options generally vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the market value thresholds). The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company generally settles employee stock option exercises with treasury shares. With respect to outstanding restricted share grants, for grants made prior to fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company’s Class A Common Stock. For grants made in fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company’s Class A Common Stock. Additionally, restricted shares cannot vest until the first anniversary of the grant date. Unvested restricted shares generally expire on the earlier of five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death. The Company issues restricted shares from treasury shares.
For the three-month periods ended June 30, 2013 and 2012, total stock-based compensation cost totaled $1,396 and $1,366, respectively. For the nine-month periods ended June 30, 2013 and 2012, total stock-based compensation cost totaled $4,153 and $4,097, respectively. The associated future income tax benefit recognized was $545 and $533 for the three-month periods ended June 30, 2013 and 2012, respectively, and $1,620 and $1,598 for the nine-month periods ended June 30, 2013 and 2012, respectively.
For the three-month period ended June 30, 2013, the amount of cash received from the exercise of stock options was $432. For the three-month period ended June 30, 2012, no stock options were exercised. For the nine-month periods ended June 30, 2013 and 2012, the amount of cash received from the exercise of stock options was $956 and $265, respectively. In connection with these exercises, the tax benefits realized by the Company were $32 for the three-month period ended June 30, 2013, and $98 and $19 for the nine-month periods ended June 30, 2013 and 2012, respectively.
The transactions for restricted stock for the nine months ended June 30, 2013 were as follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
grant-date
|
|
|
|
Shares
|
|
|
fair value
|
|
Non-vested at September 30, 2012
|
|
|
551,389 |
|
|
|
$32.56 |
|
Granted
|
|
|
236,500 |
|
|
|
25.22 |
|
Vested
|
|
|
(99,226 |
) |
|
|
35.95 |
|
Expired or forfeited
|
|
|
(44,006 |
) |
|
|
30.83 |
|
Non-vested at June 30, 2013
|
|
|
644,657 |
|
|
|
29.46 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 6. Share-Based Payments (continued)
As of June 30, 2013, the total unrecognized compensation cost related to unvested restricted stock was $5,274 and is expected to be recognized over a weighted average period of 1.7 years.
The transactions for shares underlying options for the nine months ended June 30, 2013 were as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
Aggregate
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
intrinsic
|
|
|
|
Shares
|
|
|
exercise price
|
|
|
contractual term
|
|
|
value
|
|
Outstanding, September 30, 2012
|
|
|
840,282 |
|
|
|
$37.15 |
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Exercised
|
|
|
(37,874 |
) |
|
|
25.44 |
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(56,067 |
) |
|
|
37.10 |
|
|
|
|
|
|
|
Outstanding, June 30, 2013
|
|
|
746,341 |
|
|
|
37.75 |
|
|
|
2.4 |
|
|
|
$ - |
|
Exercisable, June 30, 2013
|
|
|
414,170 |
|
|
|
36.93 |
|
|
|
2.2 |
|
|
|
$ - |
|
No shares were earned during the nine-month periods ended June 30, 2013 and 2012, respectively. The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the nine-month periods ended June 30, 2013 and 2012 was $291 and $57, respectively.
The transactions for non-vested options for the nine months ended June 30, 2013 were as follows:
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
grant-date
|
|
|
|
Shares
|
|
|
fair value
|
|
Non-vested at September 30, 2012
|
|
|
355,872 |
|
|
|
$11.35 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
- |
|
|
|
- |
|
Expired or forfeited
|
|
|
(23,701 |
) |
|
|
12.16 |
|
Non-vested at June 30, 2013
|
|
|
332,171 |
|
|
|
11.29 |
|
The fair value of each restricted stock grant is estimated on the date of grant using a binomial lattice valuation model. The following table indicates the assumptions used in estimating fair value of restricted stock for the nine months ended June 30, 2013 and 2012.
|
|
Nine Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Expected volatility
|
|
|
29.5 |
% |
|
|
30.4 |
% |
Dividend yield
|
|
|
1.2 |
% |
|
|
1.0 |
% |
Average risk free interest rate
|
|
|
0.6 |
% |
|
|
0.9 |
% |
Average expected term (years)
|
|
|
2.0 |
|
|
|
2.0 |
|
The risk free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date. Expected volatilities are based on the historical volatility of the Company’s stock price. The expected term represents an estimate of the average period of time for restricted shares to vest. The option characteristics for each grant are considered separately for valuation purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 6. Share-Based Payments (continued)
Under the Company’s Director Fee Plan, directors (except for the Chairman of the Board) who are not also officers of the Company each receive, as an annual retainer fee, either cash or shares of the Company's Class A Common Stock with a value equal to $60. The annual retainer fee paid to a non-employee Chairman of the Board is $130. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board. The value of deferred shares is recorded in other liabilities. A total of 17,005 shares had been deferred under the Director Fee Plan at June 30, 2013. Additionally, directors who are not also officers of the Company each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $100. A total of 22,300 stock options have been granted under the plan. At June 30, 2013, 11,800 options were outstanding and vested. Additionally, 103,150 shares of restricted stock have been granted under the plan, 38,227 of which were unvested at June 30, 2013. A total of 300,000 shares have been authorized to be issued under the Director Fee Plan.
Note 7. Earnings Per Share Attributable to Matthews’ Shareholders
The information used to compute earnings per share attributable to Matthews’ common shareholders was as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Net income attributable to Matthews shareholders
|
|
$ |
17,991 |
|
|
$ |
16,325 |
|
|
$ |
40,438 |
|
|
$ |
42,868 |
|
Less: dividends and undistributed earnings
allocated to participating securities
|
|
|
178 |
|
|
|
235 |
|
|
|
438 |
|
|
|
677 |
|
Net income available to Matthews shareholders
|
|
$ |
17,813 |
|
|
$ |
16,090 |
|
|
$ |
40,000 |
|
|
$ |
42,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
27,299 |
|
|
|
27,749 |
|
|
|
27,303 |
|
|
|
27,865 |
|
Effect of dilutive securities
|
|
|
161 |
|
|
|
37 |
|
|
|
116 |
|
|
|
83 |
|
Diluted shares
|
|
|
27,460 |
|
|
|
27,786 |
|
|
|
27,419 |
|
|
|
27,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 550,366 and 563,022 shares of common stock were not included in the computation of diluted earnings per share for the three months and nine months ended June 30, 2013, respectively, because the inclusion of these options would be anti-dilutive. Options to purchase 783,092 and 785,475 shares of common stock were not included in the computation of diluted earnings per share for the three months and nine months ended June 30, 2012, respectively, because the inclusion of these options would be anti-dilutive.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 8. Pension and Other Postretirement Benefit Plans
The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:
|
|
Three months ended June 30,
|
|
|
|
Pension
|
|
|
Other Postretirement
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
1,685 |
|
|
$ |
1,424 |
|
|
$ |
199 |
|
|
$ |
182 |
|
Interest cost
|
|
|
1,913 |
|
|
|
1,950 |
|
|
|
282 |
|
|
|
321 |
|
Expected return on plan assets
|
|
|
(2,243 |
) |
|
|
(1,953 |
) |
|
|
- |
|
|
|
- |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(52 |
) |
|
|
(11 |
) |
|
|
(68 |
) |
|
|
(113 |
) |
Net actuarial loss
|
|
|
1,806 |
|
|
|
1,680 |
|
|
|
110 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost
|
|
$ |
3,109 |
|
|
$ |
3,090 |
|
|
$ |
523 |
|
|
$ |
524 |
|
|
|
Nine months ended June 30,
|
|
|
|
Pension
|
|
|
Other Postretirement
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
5,055 |
|
|
$ |
4,272 |
|
|
$ |
597 |
|
|
$ |
546 |
|
Interest cost
|
|
|
5,739 |
|
|
|
5,850 |
|
|
|
846 |
|
|
|
963 |
|
Expected return on plan assets
|
|
|
(6,729 |
) |
|
|
(5,859 |
) |
|
|
- |
|
|
|
- |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(156 |
) |
|
|
(33 |
) |
|
|
(204 |
) |
|
|
(339 |
) |
Net actuarial loss
|
|
|
5,418 |
|
|
|
5,040 |
|
|
|
330 |
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost
|
|
$ |
9,327 |
|
|
$ |
9,270 |
|
|
$ |
1,569 |
|
|
$ |
1,572 |
|
Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company’s operating funds. Under IRS regulations, the Company is not required to make any significant contributions to its principal retirement plan in fiscal year 2013.
Contributions made and anticipated for fiscal year 2013 are as follows:
Contributions
|
|
Pension
|
|
|
Other Postretirement
|
|
|
|
|
|
|
|
|
Contributions during the nine months ended June 30, 2013:
|
|
|
|
|
|
|
Supplemental retirement plan
|
|
$ |
543 |
|
|
$ |
- |
|
Other postretirement plan
|
|
|
- |
|
|
|
594 |
|
|
|
|
|
|
|
|
|
|
Additional contributions expected in fiscal 2013:
|
|
|
|
|
|
|
|
|
Supplemental retirement plan
|
|
|
177 |
|
|
|
- |
|
Other postretirement plan
|
|
|
- |
|
|
|
300 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 9. Income Taxes
Income tax provisions for the Company’s interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's effective tax rate for the nine months ended June 30, 2013 was 34.3%, compared to 33.7% for the nine months ended June 30, 2012. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.
The Company had unrecognized tax benefits (excluding penalties and interest) of $3,197 and $2,708 on June 30, 2013 and September 30, 2012, respectively, all of which, if recorded, would impact the 2013 annual effective tax rate. The Company does not expect any of the unrecognized tax benefits to be recognized in the next 12 months.
The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. The Company included $434 in interest and penalties in the provision for income taxes for the first nine months of fiscal 2013. Total penalties and interest accrued were $2,305 and $1,871 at June 30, 2013 and September 30, 2012, respectively. These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.
The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions. As of June 30, 2013, the tax years that remain subject to examination, by major jurisdiction, generally are:
United States – Federal
|
2010 and forward
|
United States – State
|
2009 and forward
|
Canada
|
2008 and forward
|
Europe
|
2004 and forward
|
United Kingdom
|
2010 and forward
|
Australia
|
2009 and forward
|
Asia
|
2008 and forward
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 10. Segment Information
The Company's products and operations consist of two principal businesses that are comprised of three operating segments each, as described under Nature of Operations (Note 1): Memorialization (Cemetery Products, Funeral Home Products, Cremation) and Brand Solutions (Graphics Imaging, Marking and Fulfillment Systems, Merchandising Solutions). Management evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and minority interests.
Information about the Company's segments follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Sales to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Products
|
|
$ |
60,913 |
|
|
$ |
58,423 |
|
|
$ |
169,427 |
|
|
$ |
157,148 |
|
Funeral Home Products
|
|
|
58,523 |
|
|
|
56,115 |
|
|
|
187,276 |
|
|
|
176,453 |
|
Cremation
|
|
|
11,408 |
|
|
|
12,342 |
|
|
|
34,830 |
|
|
|
32,874 |
|
|
|
|
130,844 |
|
|
|
126,880 |
|
|
|
391,533 |
|
|
|
366,475 |
|
Brand Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics Imaging
|
|
|
78,505 |
|
|
|
62,429 |
|
|
|
219,459 |
|
|
|
197,711 |
|
Marking and Fulfillment Systems
|
|
|
23,653 |
|
|
|
19,310 |
|
|
|
63,918 |
|
|
|
53,449 |
|
Merchandising Solutions
|
|
|
17,650 |
|
|
|
18,859 |
|
|
|
57,741 |
|
|
|
52,601 |
|
|
|
|
119,808 |
|
|
|
100,598 |
|
|
|
341,118 |
|
|
|
303,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250,652 |
|
|
$ |
227,478 |
|
|
$ |
732,651 |
|
|
$ |
670,236 |
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Products
|
|
$ |
11,709 |
|
|
$ |
12,591 |
|
|
$ |
23,932 |
|
|
$ |
27,291 |
|
Funeral Home Products
|
|
|
12,089 |
|
|
|
6,936 |
|
|
|
29,533 |
|
|
|
20,751 |
|
Cremation
|
|
|
(67 |
) |
|
|
1,314 |
|
|
|
1,405 |
|
|
|
3,303 |
|
|
|
|
23,731 |
|
|
|
20,841 |
|
|
|
54,870 |
|
|
|
51,345 |
|
Brand Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics Imaging
|
|
|
4,204 |
|
|
|
2,588 |
|
|
|
10,006 |
|
|
|
11,300 |
|
Marking and Fulfillment Systems
|
|
|
2,527 |
|
|
|
2,862 |
|
|
|
5,310 |
|
|
|
6,275 |
|
Merchandising Solutions
|
|
|
298 |
|
|
|
1,222 |
|
|
|
2,143 |
|
|
|
2,805 |
|
|
|
|
7,029 |
|
|
|
6,672 |
|
|
|
17,459 |
|
|
|
20,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,760 |
|
|
$ |
27,513 |
|
|
$ |
72,329 |
|
|
$ |
71,725 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 11. Acquisitions
In April 2013, the Company completed the purchase of the remaining 20% interest in Tact Group Limited (“Tact”). The Company had acquired an 80% interest in Tact in July 2009.
In March 2013, the Company completed the purchase of the remaining 38.5% interest in Kroma Pre-Press Preparation Systems Industry & Trade, Inc. (“Kroma”), completing the option arrangement in connection with the July 2011 acquisition of a 61.5% interest in Kroma.
In March 2013, the Company completed the purchase of the remaining 20% interest in Furnace Construction Cremators Limited (“FCC”). The Company had acquired an 80% interest in FCC in March 2010.
In December 2012, the Company acquired Pyramid Controls, Inc. and its affiliate, Pyramid Control Systems (collectively, “Pyramid”). Pyramid is a provider of warehouse control systems and conveyor control solutions for distribution centers. The acquisition is designed to expand Matthews' fulfillment products and services in the warehouse management market. The initial purchase price for the transaction was $24,532, plus potential additional consideration up to $3,700 based on future operating results.
In November 2012, the Company acquired Wetzel Holding AG, Wetzel GmbH and certain related affiliates (collectively “Wetzel”). Wetzel is a leading European provider of pre-press services and gravure printing forms, with manufacturing operations in Germany and Poland. Wetzel’s products and services are sold primary within Europe, and the acquisition is designed to expand Matthews' products and services in the global graphics imaging market. The purchase price for Wetzel was 42.6 million Euros ($54,748) on a cash-free, debt-free basis.
The allocation of purchase price for the Wetzel and Pyramid acquisitions are preliminary. The Company has allocated the additional purchase price to goodwill. Adjustments are expected to other intangibles, property, plant and equipment once the valuations are finalized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued
(Dollar amounts in thousands, except per share data)
Note 12. Goodwill and Other Intangible Assets
Goodwill related to business combinations is not amortized but is subject to annual review for impairment. In general, when the carrying value of a reporting unit exceeds its implied fair value, an impairment loss must be recognized. For purposes of testing for impairment, the Company uses a discounted cash flow technique. Intangible assets are amortized over their estimated useful lives unless such lives are considered to be indefinite. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets. The Company performed its annual impairment review in the second fiscal quarter and determined that no additional adjustments to the carrying value of goodwill were necessary.
A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:
|
|
Cemetery
|
|
|
Funeral Home
|
|
|
|
|
|
Graphics
|
|
|
Marking and Fulfillment
|
|
|
Merchandising
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Cremation
|
|
|
Imaging
|
|
|
Products
|
|
|
Solutions
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
97,783 |
|
|
$ |
162,876 |
|
|
$ |
17,558 |
|
|
$ |
167,262 |
|
|
$ |
30,816 |
|
|
$ |
9,138 |
|
|
$ |
485,433 |
|
Accumulated impairment losses
|
|
|
(412 |
) |
|
|
- |
|
|
|
(5,000 |
) |
|
|
(3,840 |
) |
|
|
- |
|
|
|
- |
|
|
|
(9,252 |
) |
Balance at September 30, 2012
|
|
|
97,371 |
|
|
|
162,876 |
|
|
|
12,558 |
|
|
|
163,422 |
|
|
|
30,816 |
|
|
|
9,138 |
|
|
|
476,181 |
|
|
|
|
|
|