UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2011
Commission File Number 0-09115
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF PENNSYLVANIA
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25-0644320
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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TWO NORTHSHORE CENTER, PITTSBURGH, PA
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15212-5851
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(Address of principal executive offices)
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(Zip Code)
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Registrant's telephone number, including area code
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(412) 442-8200
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which registered
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Class A Common Stock, $1.00 par value
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NASDAQ Global Select Market System
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
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. x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405a of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the Class A Common Stock outstanding and held by non-affiliates of the registrant, based upon the closing sale price of the Class A Common Stock on the NASDAQ Global Select Market System on March 31, 2011, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1.1 billion.
As of October 31, 2011, shares of common stock outstanding were: Class A Common Stock 28,439,802 shares
Documents incorporated by reference: Specified portions of the Proxy Statement for the 2012 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.
The index to exhibits is on pages 75-76.
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
Any forward-looking statements contained in this Annual Report on Form 10-K (specifically those contained in Item 1, "Business", Item 1A, “Risk Factors” and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations") are included in this report 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 actual results of Matthews International Corporation (“Matthews” or the “Company”) 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 materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company’s products, changes in death rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of domestic or international competitive pressures, unknown risks in connection with the Company's acquisitions and technological factors beyond the Company's control. In addition, although the Company does not have any customers that would be considered individually significant to consolidated sales, changes in the distribution of the Company’s products or the potential loss of one or more of the Company’s larger customers are also considered risk factors.
ITEM 1. BUSINESS.
Matthews, 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 products, and merchandising solutions. The Company's products and operations are comprised of six business segments: Bronze, Casket, Cremation, Graphics Imaging, Marking Products and Merchandising Solutions. The Bronze 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 Casket segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood and metal 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 solutions, printing plates, gravure cylinders, pre-press services and imaging services for the primary packaging and corrugated industries. The Marking Products segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, industrial automation products and order fulfillment systems that are used for identifying, tracking and conveying various consumer and industrial products, components and packaging containers. The Merchandising Solutions segment designs and manufactures merchandising displays and systems and provides creative merchandising and marketing solutions services.
At October 31, 2011, the Company and its majority-owned subsidiaries had approximately 5,300 employees. The Company's principal executive offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212, its telephone number is (412) 442-8200 and its internet website is www.matw.com. The Company files all required reports with the Securities and Exchange Commission (“SEC”) in accordance with the Exchange Act. These reports are available free of charge on the Company’s website as soon as practicable after being filed or furnished to the SEC. The reports filed with the SEC are also available to read and copy at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by contacting the SEC at 1-800-732-0330. All reports filed with the SEC can be found on its website at www.sec.gov.
The following table sets forth reported sales and operating profit for the Company's business segments for the past three fiscal years. Detailed financial information relating to business segments and to domestic and international operations is presented in Note 16 (“Segment Information”) to the Consolidated Financial Statements included in Part II of this Annual Report on Form 10-K.
ITEM 1. BUSINESS, (continued)
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Years Ended September 30,
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2011
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2010
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2009
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in Thousands)
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Sales to unaffiliated customers:
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Memorialization:
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Bronze
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$224,773
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25.0%
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$224,247
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27.3%
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$215,934
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27.7%
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Casket
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238,753
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26.6
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210,279
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25.6
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203,247
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26.0
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Cremation
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43,816
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4.9
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39,356
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4.8
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30,909
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4.0
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507,342
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56.5
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473,882
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57.7
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450,090
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57.7
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Brand Solutions:
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Graphics Imaging
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268,975
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29.9
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239,957
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29.2
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234,966
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30.1
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Marking Products
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61,938
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6.9
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51,069
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6.2
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42,355
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5.4
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Merchandising Solutions
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60,566
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6.7
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56,921
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6.9
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53,497
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6.8
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391,479
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43.5
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347,947
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42.3
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330,818
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42.3
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Total
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$898,821
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100.0%
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$821,829
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100.0%
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$780,908
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100.0%
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Operating profit:
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Memorialization:
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Bronze
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$52,474
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44.3%
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$56,167
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48.2%
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$57,598
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57.0%
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Casket
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26,785
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22.6
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26,242
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22.5
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17,716
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17.5
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Cremation
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5,733
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4.8
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4,910
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4.2
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5,036
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5.0
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84,992
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71.7
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87,319
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74.9
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80,350
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79.5
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Brand Solutions:
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Graphics Imaging
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22,427
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18.9
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21,077
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18.1
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19,217
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19.0
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Marking Products
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7,819
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6.6
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5,817
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5.0
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1,500
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1.5
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Merchandising Solutions
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3,278
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2.8
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2,368
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2.0
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(56)
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-
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33,524
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28.3
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29,262
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25.1
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20,661
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20.5
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Total
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$118,516
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100.0%
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$116,581
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100.0%
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$101,011
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100.0%
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In fiscal 2011, approximately 62% of the Company's sales were made from the United States, and 33%, 2%, 2% and 1% were made from Europe, Australia, Asia and Canada, respectively. For further information on Segments, see Note 16 (“Segment Information”) in Item 8 “Financial Statements and Supplementary Data” on page 62 of this report. Bronze segment products are sold throughout the world with the segment's principal operations located in the United States, Europe, Canada, and Australia. Casket segment products are primarily sold in North America. Cremation segment products and services are sold primarily in North America, Europe, Asia, and Australia. Products and services of the Graphics Imaging segment are sold primarily in Europe, the United States and Asia. The Marking Products segment sells equipment and consumables directly to industrial consumers and distributors in the United States and internationally through the Company's subsidiaries in Canada, Sweden and China, and through other foreign distributors. Matthews owns a minority interest in Marking Products distributors in Asia, Australia and Europe. Merchandising Solutions segment products and services are sold principally in the United States.
ITEM 1.
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BUSINESS, (continued)
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MEMORIALIZATION PRODUCTS AND MARKETS:
Bronze:
The Bronze segment manufactures and markets a full line of memorialization products used primarily in cemeteries. The segment's products, which are sold principally in the United States, Europe, Canada and Australia, include cast bronze memorials, granite memorials and other memorialization products. The segment also manufactures and markets architectural products that are produced from bronze, aluminum and other metals, which are used to identify or commemorate people, places, events and accomplishments.
Memorial products, which comprise the majority of the Bronze segment's sales, include flush bronze and granite memorials, upright granite memorials and monuments, cremation memorialization products, granite benches, flower vases, crypt plates and letters, cremation urns, niche units, cemetery features and statues, along with other related products and services. Flush memorials are bronze plaques or granite memorials which contain personal information about a deceased individual (such as name, birth date, and death date), photos and emblems. Flush bronze and granite memorials are even or "flush" with the ground and therefore are preferred by many cemeteries for easier mowing and general maintenance. The segment's memorial products also include community and family mausoleums. Matthews is a leading builder of mausoleums within North America. In addition, the segment’s other memorial products include bronze plaques, letters, emblems, vases, lights and photoceramics that can be affixed to granite monuments, mausoleums, crypts and flush memorials. Principal customers for memorial products are cemeteries and memorial parks, which in turn sell the Company's products to the consumer.
Customers of the Bronze segment can also purchase memorials and vases on a “pre-need” basis. The “pre-need” concept permits families to arrange for these purchases in advance of their actual need. Upon request, the Company will manufacture the memorial to the customer’s specifications (e.g., name and birth date) and place it in storage for future delivery. All memorials in storage have been paid in full with title conveyed to each pre-need purchaser.
The Bronze segment manufactures a full line of memorial products for cremation, including urns in a variety of sizes, styles and shapes as well as standard and custom designed granite cremation pedestals and benches. The segment also manufactures bronze and granite niche units, which are comprised of numerous compartments used to display cremation urns in mausoleums and churches. In addition, the Company also markets turnkey cremation gardens, which include the design and all related products for a cremation memorial garden. As part of the Memorialization group, the segment works with the Casket and Cremation segments to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets.
Architectural products include cast bronze and aluminum plaques, etchings and letters that are used to recognize, commemorate and identify people, places, events and accomplishments. The Company's plaques are frequently used to identify the name of a building or the names of companies or individuals located within a building. Such products are also used to commemorate events or accomplishments, such as military service or financial donations. The principal markets for the segment's architectural products are corporations, fraternal organizations, contractors, churches, hospitals, schools and government agencies. These products are sold to and distributed through a network of independent dealers including sign suppliers, awards and recognition companies, and trophy dealers.
Raw materials used by the Bronze segment consist principally of bronze and aluminum ingot, granite, sheet metal, coating materials, photopolymers and construction materials and are generally available in adequate supply. Ingot is obtained from various North American, European and Australian smelters.
Competition from other cemetery product manufacturers is on the basis of reputation, product quality, delivery, price, and design availability. The Company believes that its superior quality, broad product lines, innovative designs, delivery capability, customer responsiveness, experienced personnel and consumer-oriented merchandising systems are competitive advantages in its markets. Competition in the mausoleum construction industry includes various construction companies throughout North America and is on the basis of design, quality and price. Competitors in the architectural market are numerous and include companies that manufacture cast and painted signs, plastic materials, sand-blasted wood and other fabricated products.
ITEM 1. BUSINESS, (continued)
Casket:
The Casket segment is a leading manufacturer and distributor of caskets and other funeral home products in North America. The segment produces and markets metal and wood caskets. The Casket segment also manufactures and distributes cremation caskets. Caskets can be customized with many different options such as color, interior design, handles and trim in order to accommodate specific religious, ethnic or other personal preferences. The segment also markets other funeral home products such as urns, jewelry, stationery and other funeral home products and supplies. The segment offers individually personalized caskets and urns through the Company-owned distribution network.
Metal caskets are made from various gauges of cold-rolled steel, stainless steel, copper and bronze. Metal caskets are generally categorized by whether the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper, or steel) and in the case of steel, by the gauge (thickness) of the metal. Cremation caskets are made primarily from wood or cardboard covered with cloth or veneer. These caskets appeal primarily to cremation consumers, the environmentally concerned, and value buyers.
The segment's wood caskets are manufactured from nine different species of wood, as well as from veneer. The species of wood used are poplar, pine, ash, oak, pecan, maple, cherry, walnut and mahogany. The Casket segment is a leading manufacturer of all-wood constructed caskets, which are manufactured using pegged and dowelled construction, and include no metal parts. All-wood constructed caskets are preferred by certain religious groups.
The segment also produces casket components. Casket components include stamped metal parts, metal locking mechanisms for gasketed metal caskets, adjustable beds, interior panels and plastic ornamental hardware for the exterior of the casket. Metal casket parts are produced by stamping cold-rolled steel, stainless steel, copper and bronze sheets into casket body parts. Locking mechanisms and adjustable beds are produced by stamping and assembling a variety of steel parts. Certain ornamental hardware styles are produced from injection molded plastic. The segment purchases from sawmills and lumber distributors various species of uncured wood, which it dries and cures. The cured wood is processed into casket components.
The segment provides product and service assortment planning and merchandising and display products to funeral service businesses. These products assist funeral service professionals in providing information, value and satisfaction to their client families.
The primary materials required for casket manufacturing are cold-rolled steel and lumber. The segment also purchases copper, bronze, stainless steel, corrugated materials, cloth, ornamental hardware and coating materials. Purchase orders or supply agreements are typically negotiated with large, integrated steel producers that have demonstrated timely delivery, high quality material and competitive prices. Lumber is purchased from a number of sawmills and lumber distributors. The Company purchases most of its lumber from sawmills within 150 miles of its wood casket manufacturing facility in York, Pennsylvania.
The segment markets its casket products in the United States through a combination of Company-owned and independent casket distribution facilities. The Company operates approximately 60 distribution centers in the United States. Over 70% of the segment’s casket products are currently sold through Company-owned distribution centers. As part of the Memorialization group, the segment works with the Bronze and Cremation segments to provide a total solution to customers that own and operate businesses in both the cemetery and funeral home markets.
The casket business is highly competitive. The segment competes with other manufacturers on the basis of product quality, price, service, design availability and breadth of product line. The segment provides a line of casket products that it believes is as comprehensive as any of its major competitors. There are a large number of casket industry participants operating in North America, and the industry has recently seen a few new foreign casket manufacturers, primarily from China, enter the North American market. The Casket segment and its two largest competitors account for a substantial portion of the finished caskets produced and sold in North America.
ITEM 1.
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BUSINESS, (continued)
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Cremation:
The Cremation segment provides six distinct, complementary, groups of products and services:
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Crematory Management/Operations
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·
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Cremation Columbarium and Niche Units
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·
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Cremation Urns and Memorial Products
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Servicing both the human and pet markets, the segment’s primary market areas are North America and Europe. The segment also sells into Latin America and the Caribbean, Australia and Asia.
Cremation equipment includes both traditional flame-based and water-based bio-cremation systems for cremation of humans and pets, as well as equipment for processing the cremated remains and other related equipment such as handling equipment (ventilated work stations, tables, cooler racks, vacuums). The principal markets for these products are funeral homes, cemeteries, crematories, pet crematories, animal disposers and veterinarians. These products are marketed mostly direct by segment personnel.
Crematory service and supplies consist of preventative maintenance and “at need” service work performed on various makes and models of cremation equipment. This work can be as simple as replacing defective bulbs or as complex as complete reconstruction and upgrading or retro-fitting on site. The principal markets for these services are the owners and operators of cremation equipment. Cremation supplies are consumable items associated with the cremation operations. Supplies could include operator safety equipment, identification discs, combustible roller tubes, as well as products such as plastic temporary cremation containers, pans and brushes used in the process.
Environmental systems include emissions filtration units, waste heat recovery equipment, waste gas treatment products, as well as waste reduction equipment and bio-mass incinerators. The principal markets are the cremation industry, waste to energy and other industries which utilize incinerators for waste reduction and energy production.
Crematory management/operations represents the actual operation and management of client-owned crematories.
Cremation columbarium and niche units are produced by the segment for the placement/display of urns and other containers of cremated remains. The principal markets targeted by the segment include church and university markets, affinity groups and other emerging memorialization markets.
Cremation urns and memorialization products include urns which support various forms of memorialization (burial, niche, scattering, and home décor). Merchandise includes any other family-related products such as cremation jewelry, mementos, remembrance products and other assorted at-need merchandise.
Raw materials used by the Cremation segment consist principally of structural steel, sheet metal, electrical components, combustion devices and refractory materials. These are generally available in adequate supply from numerous suppliers.
The Company competes with several manufacturers in the cremation and accessory equipment market principally on the basis of product design, quality and price. The Cremation segment and its three largest global competitors account for a substantial portion of the U.S. and European cremation equipment market.
ITEM 1.
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BUSINESS, (continued)
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BRAND SOLUTIONS PRODUCTS AND MARKETS:
Graphics Imaging:
The Graphics Imaging segment provides brand management, pre-press services, printing plates and cylinders, embossing tools, and creative design services principally to the primary packaging and corrugated industries. The primary packaging industry consists of manufacturers of printed packaging materials such as boxes, flexible packaging, folding cartons and bags commonly seen at retailers of consumer goods. The corrugated packaging industry consists of manufacturers of printed corrugated containers. Other major industries served include the wallpaper, flooring, automotive, and textile industries.
The principal products and services of this segment include brand management, pre-press graphics services, printing plates, gravure cylinders, steel bases, embossing tools, special purpose machinery, engineering assistance, print process assistance, print production management, digital asset management, content management, and package design. These products and services are used by brand owners and packaging manufacturers to develop and print packaging graphics that identify and help sell the product in the marketplace. Other packaging graphics can include nutritional information, directions for product use, consumer warning statements and UPC codes. The primary packaging manufacturer produces printed packaging from paper, film, foil and other composite materials used to display, protect and market the product. The corrugated packaging manufacturer produces printed containers from corrugated sheets. Using the Company's products, these sheets are printed and die cut to make finished containers.
The segment offers a wide array of value-added services and products. These include print process and print production management services; print engineering consultation; pre-press preparation, which includes computer-generated art, film and proofs; plate mounting accessories and various press aids; and rotary and flat cutting dies used to cut out intricately designed containers and point-of-purchase displays. The segment also provides creative digital graphics services to brand owners and packaging markets.
The Company works closely with manufacturers to provide the proper printing forms and tooling used to print the packaging to the user's specifications. The segment's printing plate products are made principally from photopolymer resin and sheet materials. Upon customer request, plates can be pre-mounted press-ready in a variety of configurations that maximize print quality and minimize press set-up time. Gravure cylinders, manufactured from steel, copper and chrome, can be custom engineered for multiple print processes.
The Graphics Imaging segment customer base consists primarily of brand owners and packaging industry converters. Brand owners are generally large, well-known consumer products companies and retailers with a national or global presence. These types of companies tend to purchase their graphics needs directly and supply the printing forms, or the electronic files to make the printing plates and gravure cylinders, to the packaging printer for their products. The Graphics Imaging segment serves customers primarily in Europe, the United States and Asia.
Major raw materials for this segment's products include photopolymers, steel, copper, film and graphic art supplies. All such materials are presently available in adequate supply from various industry sources.
The Graphics Imaging segment is one of several manufacturers of printing plates and cylinders and providers of pre-press services with an international presence. The segment competes in a fragmented industry consisting of a few multi-plant regional printing form suppliers and a large number of local single-facility companies located across Europe and the United States. The combination of the Company's Graphics Imaging business in Europe, the United States and Asia is an important part of Matthews’ strategy to become a worldwide leader in the graphics industry and service multinational customers on a global basis. Competition is on the basis of product quality, timeliness of delivery and price. The Company differentiates itself from the competition by consistently meeting these customer demands, its ability to service customers both nationally and globally, and its ability to provide value-added services.
ITEM 1.
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BUSINESS, (continued)
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Marking Products:
The Marking Products segment designs, manufactures and distributes a wide range of equipment and related consumables used by manufacturers and suppliers to identify, track, and brand their products. Marking products can range from a mechanical marking solution to microprocessor-based ink-jet printing systems that can integrate into the customer’s manufacturing, inventory tracking and material handling control systems. The Company manufactures and markets products and systems that employ different marking technologies including contact printing, indenting, etching, laser, and ink-jet printing. Customers will often use a combination of these methods in order to achieve an appropriate mark. These methods apply product information required for identification and traceability as well as to facilitate inventory and quality control, regulatory compliance and brand name communication.
Other solutions provided by the Company complement the tracking and distribution of customer’s products and include order fulfillment systems, motor-driven rollers and controls for material handling systems, and other innovative custom solutions that address specific customer requirements. Some of the industries for which custom products are produced include oil exploration, material handling and security scanning. Material handling industry customers include some of the largest automated assembly, distribution and mail sorting companies in the United States.
A significant portion of the revenue of the Marking Products segment is attributable to the sale of consumables and replacement parts in connection with the marking, coding and tracking hardware sold by the Company. The Company develops inks, rubber and steel consumables in harmony with the marking equipment in which they are used, which is critical to assure ongoing equipment reliability and mark quality. Many marking equipment customers also use the Company's inks, solvents and cleaners.
The principal customers for the Company's marking products are manufacturers of durable goods and building products, consumer goods manufacturers, including food and beverage processors and producers of pharmaceuticals. The Company also serves a wide variety of industrial markets, including metal fabricators, manufacturers of woven and non-woven fabrics, plastic, rubber and automotive products.
A portion of the segment's sales are outside the United States and are distributed through the Company's subsidiaries in Canada, Sweden, Germany and China in addition to other international distributors. Matthews owns a minority interest in distributors in Asia, Australia and Europe.
The marking products industry is diverse, with companies either offering limited product lines for well-defined specialty markets, or similar to the Company, offering a broad product line and competing in various product markets and countries. In the United States, the Company has manufactured and sold marking products and related consumable items since 1850.
Major raw materials for this segment's products include precision components, electronics, printing components, tool steels, rubber and chemicals, all of which are presently available in adequate supply from various sources.
Competition for marking products is based on product performance, integration into the manufacturing process, service and price. The Company normally competes with specialty companies in specific brand marking solutions and traceability applications. The Company believes that, in general, it offers one of the broadest lines of products to address a wide variety of marking, coding and tracking applications.
ITEM 1.
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BUSINESS, (continued)
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Merchandising Solutions:
The Merchandising Solutions segment provides merchandising and printing solutions for brand owners and retailers. The segment designs, manufactures and installs merchandising and display systems, and provides total turnkey project management services. The segment also provides creative merchandising and marketing solutions services.
The majority of the segment’s sales are derived from the design, engineering, manufacturing and installation of merchandising and display systems. These systems include permanent and temporary displays, custom store fixtures, brand concept shops, interactive kiosks, custom packaging, and screen and digitally printed promotional signage. Design and engineering services include concept and model development, graphics design and prototyping. Merchandising and display systems are manufactured to specifications developed by the segment in conjunction with the customer. These products are marketed and sold primarily in the United States.
The segment operates in a fragmented industry consisting primarily of a number of small, locally operated companies. Industry competition is intense and the segment competes on the basis of reliability, creativity and providing a broad array of merchandising products and services. The segment is unique in its ability to provide in-depth marketing and merchandising services as well as design, engineering and manufacturing capabilities. These capabilities allow the segment to deliver complete turnkey merchandising solutions quickly and cost effectively.
Major raw materials for the segment’s products include wood, particleboard, corrugated materials, structural steel, plastic, laminates, inks, film and graphic art supplies. All of these raw materials are presently available in adequate supply from various sources.
PATENTS, TRADEMARKS AND LICENSES:
The Company holds a number of domestic and foreign patents and trademarks. However, the Company believes the loss of any or a significant number of patents or trademarks would not have a material impact on consolidated operations or revenues.
BACKLOG:
Because the nature of the Company's Bronze, Graphics Imaging and Merchandising Solutions businesses are primarily custom products made to order with short lead times, backlogs are not generally material except for mausoleums in the Bronze segment. Backlogs vary in a range of approximately one year of sales for mausoleums. Backlogs for the Casket segment and the cremation casket businesses are not material. Cremation equipment sales backlogs vary in a range of eight to ten months of sales. Backlogs generally vary in a range of up to four weeks of sales in the Marking Products segment. The Company’s backlog is expected to be substantially filled in fiscal 2012.
REGULATORY MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations. As such, the Company has developed environmental, health and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.
The Company is party to various environmental matters. These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at these sites, as appropriate. In addition, prior to its acquisition, The York Group, Inc. was identified, along with others, by the Environmental Protection Agency as a potentially responsible party for remediation of a landfill site in York, Pennsylvania. At this time, the Company has not been joined in any lawsuit or administrative order related to the site or its clean-up.
ITEM 1.
|
BUSINESS, (continued)
|
At September 30, 2011, an accrual of approximately $6.2 million had been recorded for environmental remediation (of which $788,000 was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations. The accrual does not consider the effects of inflation and anticipated expenditures are not discounted to their present value. While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.
ITEM 1A. RISK FACTORS.
There are inherent risks and uncertainties associated with the Company’s businesses that could adversely affect its operating performance and financial condition. Set forth below are descriptions of those risks and uncertainties that the Company currently believes to be material. Additional risks not currently known or deemed immaterial may also result in adverse effects on the Company.
Changes in Economic Conditions. Generally, changes in domestic and international economic conditions affect the industries in which the Company and its customers and suppliers operate. These changes include changes in the rate of consumption or use of the Company’s products due to economic downturns, volatility in currency exchange rates, and changes in raw material prices resulting from supply and/or demand conditions.
Uncertainty about current global economic conditions poses a risk, as consumers and businesses may continue to postpone or cancel spending. Other factors that could influence customer spending include energy costs, conditions in the credit markets, consumer confidence and other factors affecting consumer spending behavior. These and other economic factors could have an effect on demand for the Company’s products and services and negatively impact the Company’s financial condition and results of operations.
Changes in Foreign Currency Exchange Rates. Manufacturing and sales of a significant portion of the Company’s products are outside the United States, and accordingly, the Company holds assets, incurs liabilities, earns revenue and pays expenses in a variety of currencies. The Company’s consolidated financial statements are presented in U.S. dollars, and therefore, the Company must translate the reported values of its foreign assets, liabilities, revenue and expenses into U.S. dollars. Increases or decreases in the value of the U.S. dollar compared to foreign currencies may negatively affect the value of these items in the Company’s consolidated financial statements, even though their value has not changed in local currency.
Increased Prices for Raw Materials. The Company’s profitability is affected by the prices of the raw materials used in the manufacture of its products. These prices may fluctuate based on a number of factors, including changes in supply and demand, domestic and global economic conditions, and volatility in commodity markets, currency exchange rates, labor costs and fuel-related costs. If suppliers increase the price of critical raw materials, alternative sources of supply, or an alternative material, may not exist.
The Company has standard selling price structures (i.e., list prices) in several of its segments, which are reviewed for adjustment generally on an annual basis. In addition, the Company has established pricing terms with several of its customers through contracts or similar arrangements. Based on competitive market conditions and to the extent that the Company has established pricing terms with customers, the Company’s ability to immediately increase the price of its products to offset the increased costs may be limited. Significant raw material price increases that cannot be mitigated by selling price increases or productivity improvements will negatively affect the Company’s results of operations.
ITEM 1A. RISK FACTORS, (continued)
Changes in Mortality and Cremation Rates. Generally, life expectancy in the United States and other countries in which the Company’s Memorialization businesses operate has increased steadily for several decades and is expected to continue to do so in the future. The increase in life expectancy is also expected to impact the number of deaths in the future. Additionally, cremations have steadily grown as a percentage of total deaths in the United States since the 1960’s, and are expected to continue to increase in the future. The Company expects that these trends will continue in the future, and the result may affect the volume of bronze memorialization products and burial caskets sold in the United States. However, sales of the Company’s Cremation segment may benefit from the growth in cremations.
Changes in Product Demand or Pricing. The Company’s businesses have and will continue to operate in competitive markets. Changes in product demand or pricing are affected by domestic and foreign competition and an increase in consolidated purchasing by large customers operating in both domestic and global markets. The Memorialization businesses generally operate in markets with ample supply capacity and demand which is correlated to death rates. The Brand Solutions businesses serve global customers that are requiring their suppliers to be global in scope and price competitive. Additionally, in recent years the Company has witnessed an increase in products manufactured offshore, primarily in China, and imported into the Company’s U.S. markets. It is expected that these trends will continue and may affect the Company’s future results of operations.
Risks in Connection with Acquisitions. The Company has grown in part through acquisitions, and continues to evaluate acquisition opportunities that have the potential to support and strengthen its businesses. There is no assurance however that future acquisition opportunities will arise, or that if they do, that they will be consummated. In addition, acquisitions involve inherent risks that the businesses acquired will not perform in accordance with expectations, or that synergies expected from the integration of the acquisitions will not be achieved as rapidly as expected, if at all. Failure to effectively integrate acquired businesses could prevent the realization of expected rates of return on the acquisition investment and could have a negative effect on the Company’s results of operations and financial condition.
Technological Factors Beyond the Company’s Control. The Company operates in certain markets in which technological product development contributes to its ability to compete effectively. There can be no assurance that the Company will be able to develop new products, that new products can be manufactured and marketed profitably, or that new products will successfully meet the expectations of customers.
Changes in the Distribution of the Company’s Products or the Loss of a Large Customer. Although the Company does not have any customer that is considered individually significant to consolidated sales, it does have contracts with several large customers in both the Memorialization and Brand Solutions businesses. While these contracts provide important access to large purchasers of the Company’s products, they can obligate the Company to sell products at contracted prices for extended periods of time. Additionally, any significant divestiture of business properties or operations by current customers could result in a loss of business if the Company is not able to maintain the business with the subsequent owners of the properties.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
Principal properties of the Company and its majority-owned subsidiaries as of October 31, 2011 were as follows (properties are owned by the Company except as noted):
Location
|
|
Description of Property
|
|
Bronze:
|
|
|
|
Pittsburgh, PA
|
|
Manufacturing / Division Offices
|
|
Kingwood, WV
|
|
Manufacturing
|
|
Melbourne, Australia
|
|
Manufacturing
|
(1)
|
Monterrey, Mexico
Parma, Italy
|
|
Manufacturing
Manufacturing / Warehouse
|
(1)
(1)
|
Searcy, AR
|
|
Manufacturing
|
|
Whittier, CA
|
|
Manufacturing
|
(1)
|
|
|
|
|
Casket (2):
|
|
|
|
Monterrey, Mexico
|
|
Manufacturing
|
(1)
|
Richmond, IN
|
|
Manufacturing
|
(1)
|
Richmond, IN
|
|
Manufacturing / Metal Stamping
|
|
Richmond, IN
|
|
Injection Molding
|
(1)
|
York, PA
|
|
Manufacturing
|
|
|
|
|
|
Cremation:
|
|
|
|
Apopka, FL
|
|
Manufacturing / Division Offices
|
|
Richmond, IN
|
|
Manufacturing
|
(1)
|
Manchester, England
Udine, Italy
|
|
Manufacturing
Manufacturing
|
(1)
(1)
|
Graphics Imaging:
|
|
|
|
Pittsburgh, PA
|
|
Manufacturing / Division Offices
|
|
Julich, Germany
|
|
Manufacturing / Division Offices
|
|
Atlanta, GA
|
|
Manufacturing
|
|
Woburn, MA
|
|
Manufacturing
|
(1)
|
Bristol, England
|
|
Manufacturing
|
|
Goslar, Germany
|
|
Manufacturing
|
(1)
|
Leeds, England
|
|
Manufacturing
|
(1)
|
Monchengladbach, Germany
|
|
Manufacturing
|
|
Munich, Germany
|
|
Manufacturing
|
(1)
|
Nuremberg, Germany
|
|
Manufacturing
|
(1)
|
Oakland, CA
|
|
Manufacturing
|
(1)
|
Poznan, Poland
|
|
Manufacturing
|
|
St. Louis, MO
|
|
Manufacturing
|
|
Shenzhen, China
|
|
Manufacturing
|
(1)
|
Vienna, Austria
|
|
Manufacturing
|
(1)
|
Vreden, Germany
|
|
Manufacturing
|
|
Wan Chai, Hong Kong
|
|
Manufacturing
|
(1)
|
Izmir, Turkey
|
|
Manufacturing
|
|
|
|
|
|
ITEM 2.
|
PROPERTIES, (continued)
|
Location
|
|
Description of Property
|
|
|
|
|
|
Marking Products:
|
|
|
|
Pittsburgh, PA
|
|
Manufacturing / Division Offices
|
|
Gothenburg, Sweden
|
|
Manufacturing / Distribution
|
(1)
|
Tualatin, OR
|
|
Manufacturing
|
(1)
|
Beijing, China
|
|
Manufacturing
|
(1)
|
Ixonia, WI
|
|
Manufacturing
|
(1)
|
Germantown, WI
|
|
Manufacturing
|
(1)
|
|
|
|
|
Merchandising Solutions:
|
|
|
|
East Butler, PA
|
|
Manufacturing / Division Offices
|
|
Portland, OR
|
|
Sales Office
|
(1)
|
|
|
|
|
Corporate Office:
|
|
|
|
Pittsburgh, PA
|
|
General Offices
|
|
(1)
|
These properties are leased by the Company under operating lease arrangements. Rent expense incurred by the Company for all leased facilities was approximately $15.2 million in fiscal 2011.
|
(2)
|
In addition to the properties listed, the Casket division leases warehouse facilities totaling approximately 1.0 million square feet in 27 states under operating leases.
|
All of the owned properties are unencumbered. The Company believes its facilities are generally well suited for their respective uses and are of adequate size and design to provide the operating efficiencies necessary for the Company to be competitive. The Company's facilities provide adequate space for meeting its near-term production requirements and have availability for additional capacity. The Company intends to continue to expand and modernize its facilities as necessary to meet the demand for its products.
ITEM 3. LEGAL PROCEEDINGS
Matthews is subject to various legal proceedings and claims arising in the ordinary course of business. Management does not expect that the results of any of these legal proceedings will have a material adverse effect on Matthews’ financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 2011.
|
OFFICERS AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
|
The following information is furnished with respect to officers and executive management as of October 31, 2011:
Name
|
|
Age
|
|
Positions with Registrant
|
|
|
|
|
|
Joseph C. Bartolacci
|
|
51
|
|
President and Chief Executive Officer
|
|
|
|
|
|
David F. Beck
|
|
59
|
|
Vice President and Controller
|
|
|
|
|
|
Jennifer A. Ciccone
|
|
44
|
|
Vice President, Human Resources
|
|
|
|
|
|
Brian J. Dunn
|
|
54
|
|
Group President, Brand Solutions
|
|
|
|
|
|
Steven D. Gackenbach
|
|
48
|
|
Group President, Memorialization
|
|
|
|
|
|
Steven F. Nicola
|
|
51
|
|
Chief Financial Officer, Secretary and Treasurer
|
|
|
|
|
|
Paul F. Rahill
|
|
54
|
|
President, Cremation Division
|
|
|
|
|
|
Brian D. Walters
|
|
42
|
|
Vice President and General Counsel
|
Joseph C. Bartolacci was appointed President and Chief Executive Officer effective October 1, 2006.
David F. Beck was appointed Vice President and Controller effective February 18, 2010. Prior thereto he had been Controller since September 15, 2003.
Jennifer A. Ciccone was appointed Vice President, Human Resources effective February 19, 2009. Prior thereto, Ms. Ciccone had been Director, Corporate Human Resources since 2006.
Brian J. Dunn was appointed Group President, Brand Solutions effective February 18, 2010. Prior thereto, he was appointed Group President, Graphics and Marking Products effective September 1, 2007 and had been President, Marking Products Division prior thereto.
Steven D. Gackenbach was appointed Group President, Memorialization effective October 31, 2011. Prior thereto he had been Chief Commercial Officer, Memorialization since January 3, 2011 when he joined the Company. Prior to joining the Company, Mr. Gackenbach served as the Senior Director of Strategy for Kraft Foods’ Cheese and Dairy Division from 2002 to 2010.
Steven F. Nicola was appointed Chief Financial Officer, Secretary and Treasurer effective December 1, 2003.
Paul F. Rahill was appointed President, Cremation Division in October 2002.
Brian D. Walters was appointed Vice President and General Counsel effective February 19, 2009. Mr. Walters joined the Company as Legal Counsel in 2005.
PART II
|
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
|
Market Information:
The authorized common stock of the Company consists of 70,000,000 shares of Class A Common Stock, $1 par value. The Company's Class A Common Stock is traded on the NASDAQ Global Select Market System under the symbol “MATW”. The following table sets forth the high, low and closing prices as reported by NASDAQ for the periods indicated:
|
|
High
|
|
|
Low
|
|
|
Close
|
|
Fiscal 2011:
|
|
|
|
|
|
|
|
|
|
Quarter ended: September 30, 2011
|
|
$ |
41.08 |
|
|
$ |
28.57 |
|
|
$ |
30.73 |
|
June 30, 2011
|
|
|
40.49 |
|
|
|
35.60 |
|
|
|
40.17 |
|
March 31, 2011
|
|
|
38.65 |
|
|
|
33.56 |
|
|
|
38.55 |
|
December 31, 2010
|
|
|
36.00 |
|
|
|
31.62 |
|
|
|
34.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended: September 30, 2010
|
|
$ |
36.92 |
|
|
$ |
28.29 |
|
|
$ |
35.36 |
|
June 30, 2010
|
|
|
36.58 |
|
|
|
28.91 |
|
|
|
29.28 |
|
March 31, 2010
|
|
|
37.00 |
|
|
|
31.33 |
|
|
|
35.50 |
|
December 31, 2009
|
|
|
39.81 |
|
|
|
33.23 |
|
|
|
35.43 |
|
The Company has a stock repurchase program. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews’ common stock under the program, of which 2,169,470 shares had been repurchased as of September 30, 2011. In November 2011, the Company’s Board of Directors approved the continuation of its stock repurchase program and increased the total authorization for stock repurchases by an additional 2,500,000 shares. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company’s Restated Articles of Incorporation.
All purchases of the Company’s common stock during fiscal 2011 were part of this repurchase program.
ITEM 5.
|
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
|
The following table shows the monthly fiscal 2011 stock repurchase activity:
Period
|
|
Total number of shares purchased
|
|
|
Average price paid per share
|
|
|
Total number of shares purchased as part of a publicly announced plan
|
|
|
Maximum number of shares that may yet be purchased under the plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2010
|
|
|
760 |
|
|
$ |
33.44 |
|
|
|
760 |
|
|
|
1,649,145 |
|
November 2010
|
|
|
11,735 |
|
|
|
33.31 |
|
|
|
11,735 |
|
|
|
1,637,410 |
|
December 2010
|
|
|
69,048 |
|
|
|
33.69 |
|
|
|
69,048 |
|
|
|
1,568,362 |
|
January 2011
|
|
|
20,347 |
|
|
|
34.14 |
|
|
|
20,347 |
|
|
|
1,548,015 |
|
February 2011
|
|
|
35,000 |
|
|
|
36.16 |
|
|
|
35,000 |
|
|
|
1,513,015 |
|
March 2011
|
|
|
75,000 |
|
|
|
35.96 |
|
|
|
75,000 |
|
|
|
1,438,015 |
|
April 2011
|
|
|
3,085 |
|
|
|
39.44 |
|
|
|
3,085 |
|
|
|
1,434,930 |
|
May 2011
|
|
|
126,113 |
|
|
|
38.21 |
|
|
|
126,113 |
|
|
|
1,308,817 |
|
June 2011
|
|
|
53,120 |
|
|
|
37.71 |
|
|
|
53,120 |
|
|
|
1,255,697 |
|
July 2011
|
|
|
142,184 |
|
|
|
36.92 |
|
|
|
142,184 |
|
|
|
1,113,513 |
|
August 2011
|
|
|
529,271 |
|
|
|
32.32 |
|
|
|
529,271 |
|
|
|
584,242 |
|
September 2011
|
|
|
253,712 |
|
|
|
31.01 |
|
|
|
253,712 |
|
|
|
330,530 |
|
Total
|
|
|
1,319,375 |
|
|
$ |
33.78 |
|
|
|
1,319,375 |
|
|
|
|
|
Holders:
Based on records available to the Company, the number of registered holders of the Company's common stock was 504 at
October 31, 2011.
Dividends:
A quarterly dividend of $.09 per share was paid for the fourth quarter of fiscal 2011 to shareholders of record on October 31, 2011. The Company paid quarterly dividends of $.08 per share for the first three quarters of fiscal 2011 and the fourth quarter of fiscal 2010. The Company paid quarterly dividends of $.07 per share for the first three quarters of fiscal 2010 and the fourth quarter of fiscal 2009. The Company paid quarterly dividends of $.065 per share for the first three quarters of fiscal 2009 and the fourth quarter of fiscal 2008.
Cash dividends have been paid on common shares in every year for at least the past forty years. It is the present intention of the Company to continue to pay quarterly cash dividends on its common stock. However, there is no assurance that dividends will be declared and paid as the declaration and payment of dividends is at the discretion of the Board of Directors of the Company and is dependent upon the Company's financial condition, results of operations, cash requirements, future prospects and other factors deemed relevant by the Board.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN *
AMONG MATTHEWS INTERNATIONAL CORPORATION,
S&P 500 INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX **
* Total return assumes dividend reinvestment
** Fiscal year ended September 30
Note: Performance graph assumes $100 invested on October 1, 2006 in Matthews International Corporation Common Stock, Standard & Poor's (S&P) 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index. The results are not necessarily indicative of future performance.
|
ITEM 6. SELECTED FINANCIAL DATA.
|
|
|
Years Ended September 30,
|
|
|
|
2011(1)
|
|
|
2010(2)
|
|
|
2009(3)
|
|
|
2008(4)
|
|
2007(5)
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
|
(Not Covered by Report of Independent Registered Public Accounting Firm)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
898,821 |
|
|
$ |
821,829 |
|
|
$ |
780,908 |
|
|
$ |
818,623 |
|
|
$ |
749,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
118,516 |
|
|
|
116,581 |
|
|
|
101,011 |
|
|
|
132,952 |
|
|
|
111,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
8,241 |
|
|
|
7,419 |
|
|
|
12,053 |
|
|
|
10,405 |
|
|
|
8,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Matthews shareholders
|
|
|
72,372 |
|
|
|
69,057 |
|
|
|
57,732 |
|
|
|
79,484 |
|
|
|
64,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$2.47 |
|
|
|
$2.32 |
|
|
|
$1.91 |
|
|
|
$2.57 |
|
|
|
$2.05 |
|
Diluted
|
|
|
2.46 |
|
|
|
2.31 |
|
|
|
1.90 |
|
|
|
2.55 |
|
|
|
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,775 |
|
|
|
29,656 |
|
|
|
30,245 |
|
|
|
30,928 |
|
|
|
31,566 |
|
Diluted
|
|
|
28,812 |
|
|
|
29,706 |
|
|
|
30,318 |
|
|
|
31,184 |
|
|
|
31,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
|
$.330 |
|
|
|
$.290 |
|
|
|
$.265 |
|
|
|
$.245 |
|
|
|
$.225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,097,455 |
|
|
$ |
993,825 |
|
|
$ |
949,653 |
|
|
$ |
914,282 |
|
|
$ |
771,069 |
|
Long-term debt, non-current
|
|
|
299,170 |
|
|
|
225,256 |
|
|
|
237,530 |
|
|
|
219,124 |
|
|
|
142,273 |
|
(1)
|
Fiscal 2011 included the favorable effect of an adjustment of $606 to income tax expense primarily related to changes in estimated tax accruals for open tax periods.
|
(2)
|
Fiscal 2010 included the favorable effect of an adjustment of $838 to income tax expense primarily related to changes in estimated tax accruals for open tax periods.
|
(3)
|
Fiscal 2009 included pre-tax unusual charges of approximately $16,500, which primarily consisted of severance and other costs related to the consolidation of certain production operations within the Company’s Bronze segment, costs related to operational and systems improvements in several of the Company’s other businesses, and asset adjustments resulting from current market conditions. In addition, fiscal 2009 earnings included the favorable effect of an adjustment of $1,255 to income tax expense primarily related to the Company’s ability to utilize a European tax loss carryover generated in prior years and changes in the estimated tax accruals for open tax periods.
|
(4)
|
Fiscal 2008 included a reduction in income taxes of $1,882 to reflect the adjustment of net deferred tax liabilities resulting from the enactment of lower statutory income tax rates in certain European countries.
|
(5)
|
Fiscal 2007 included a net pre-tax charge of approximately $8,765 which consisted primarily of special charges related to the acceleration of earn-out payments in the resolution of employment agreements from the Milso Industries acquisition and pre-tax charges related to severance costs incurred in several of the Company’s segments, partially offset by a pre-tax gain on the sale of the marketing consultancy business of the Merchandising Solutions segment and favorable legal settlements, net of related legal costs, in the Casket segment.
|
|
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation and related notes thereto. In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS:
The following table sets forth certain income statement data of the Company expressed as a percentage of net sales for the periods indicated and the percentage change in such income statement data from year to year.
|
|
Years Ended September 30,
|
|
|
Percentage Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
2011-2010 |
|
|
|
2010-2009 |
|
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
9.4 |
% |
|
|
5.2 |
% |
Gross profit
|
|
|
39.1 |
|
|
|
39.3 |
|
|
|
37.7 |
|
|
|
8.7 |
|
|
|
9.7 |
|
Operating profit
|
|
|
13.2 |
|
|
|
14.2 |
|
|
|
12.9 |
|
|
|
1.7 |
|
|
|
15.4 |
|
Net income attributable to Matthews shareholders
|
|
|
8.1 |
|
|
|
8.4 |
|
|
|
7.4 |
|
|
|
4.8 |
|
|
|
19.6 |
|
Comparison of Fiscal 2011 and Fiscal 2010:
Sales for the year ended September 30, 2011 were $898.8 million, compared to $821.8 million for the year ended September 30, 2010. The increase resulted principally from the impact of acquisitions, higher sales volume in the Company’s Brand Solutions businesses and changes in the values of foreign currencies against the U.S. dollar, which had a favorable impact of approximately $11.4 million on the Company’s consolidated sales compared to fiscal 2010.
In the Memorialization businesses, Bronze segment sales for fiscal 2011 were $224.8 million compared to $224.2 million for fiscal 2010. The increase primarily reflected the December 2009 acquisition of United Memorial Products, Inc. (“UMP”) and the favorable impact of changes in foreign currency values against the U.S. dollar. Excluding the impact of acquisitions and currency changes, fiscal 2011 Bronze segment sales declined compared to fiscal 2010, reflecting lower sales volume of bronze memorial and architectural products and an unfavorable change in product mix. Sales for the Casket segment were $238.8 million for fiscal 2011 compared to $210.3 million for fiscal 2010. The increase resulted principally from acquisitions. Excluding the impact of acquisitions, fiscal 2011 Casket segment sales declined, principally reflecting slightly lower unit volume and an unfavorable change in product mix. Lower sales (excluding acquisitions) for both the Bronze and Casket segments reflected the impact of a decline in the estimated number of casketed deaths compared to the prior year. Based on available published data, U.S. deaths for the year ended September 30, 2011 were estimated to have increased from fiscal 2010; however, casketed deaths (non-cremation) were estimated to have declined from the prior year. Sales for the Cremation segment were $43.8 million for fiscal 2011 compared to $39.4 million a year ago. The increase principally resulted from higher sales in all of the segment’s principal markets (U.S., U.K. and Europe) and the acquisition of a small manufacturer of cremation equipment in the U.K. in March 2010. In the Company’s Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2011 were $269.0 million, compared to $240.0 million a year ago. The increase resulted principally from higher sales in all markets (Europe, U.S., U.K. and Asia), the July 2011 acquisition of Kroma Pre-Press Preparation Systems Industry & Trade, Inc. (“Kroma”) and the favorable impact from changes in the values of foreign currencies against the U.S. dollar. Marking Products segment sales for the year ended September 30, 2011 were $61.9 million, compared to $51.1 million for fiscal 2010. The increase was principally due to higher sales of equipment and consumables in the U.S. and China, two small acquisitions in fiscal 2011 and the favorable impact of changes in foreign currency values. Sales for the Merchandising Solutions segment were $60.6 million for fiscal 2011, compared to $56.9 million a year ago. The improvement was attributable to an increase in project volume to several large global customers in fiscal 2011, compared to fiscal 2010.
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
|
Gross profit for the year ended September 30, 2011 was $351.7 million, or 39.1% of sales, compared to $323.4 million, or 39.3% of sales, for fiscal 2010. The increase in fiscal 2011 consolidated gross profit compared to fiscal 2010 reflected higher sales in the Brand Solutions businesses and the benefit of cost structure initiatives. The increases were partially offset by higher commodity costs, primarily in the Bronze and Casket segments.
Selling and administrative expenses for the year ended September 30, 2011 were $233.1 million, or 25.9% of sales, compared to $206.8 million, or 25.2% of sales, for fiscal 2010. The increase primarily resulted from higher sales and the impact of acquisitions.
Operating profit for fiscal 2011 was $118.5 million, compared to $116.6 million for fiscal 2010. The increase in operating profit for fiscal 2011 reflected the impact of acquisitions and a favorable impact of $1.4 million from changes in foreign currency values against the U.S. dollar. These increases were partially offset by higher commodity costs, primarily in the Bronze and Casket segments. Bronze segment operating profit for fiscal 2011 was $52.5 million, compared to $56.2 million for fiscal 2010. The decrease in fiscal 2011 operating profit compared to fiscal 2010 reflected lower sales, including an unfavorable shift in product mix, and a significant increase in bronze metal costs in fiscal 2011. Operating profit for the Casket segment for fiscal 2011 was $26.8 million, compared to $26.2 million for fiscal 2010. The increase in Casket segment operating profit for fiscal 2011 primarily reflected the benefit of acquisitions. Excluding acquisitions, Casket segment operating profit declined, primarily reflecting an unfavorable change in product mix and the impact of higher steel and fuel costs, partially offset by the benefit of recent cost structure initiatives. Cremation segment operating profit for the year ended September 30, 2011 was $5.7 million, compared to $4.9 million a year ago. Fiscal 2011 operating profit reflected higher sales and the impact of the March 2010 acquisition of a small cremation equipment manufacturer in the U.K. Graphics Imaging operating profit for fiscal 2011 was $22.4 million, compared to $21.1 million for 2010. The increase in fiscal 2011 reflected higher sales, improvements in the segment’s U.S. cost structure, the acquisition of Kroma and the favorable impact of changes in foreign currency values, partially offset by higher manufacturing costs in the segment’s European gravure manufacturing operations. Operating profit for the Marking Products segment for fiscal 2011 was $7.8 million, compared to $5.8 million a year ago. The increase in Marking Products segment operating profit principally reflected the impact of acquisitions and higher sales in the U.S. and China. These increases were partially offset by an increase in research and development costs. The Merchandising Solutions segment operating profit was $3.3 million for fiscal 2011, compared to $2.4 million for fiscal 2010. The increase principally reflected the impact of higher sales.
Investment income for the year ended September 30, 2011 was $1.4 million, compared to $2.5 million for the year ended September 30, 2010. The decrease principally reflected a decline in the market value of investments held in trust for certain of the Company’s benefit plans. Interest expense for fiscal 2011 was $8.2 million, compared to $7.4 million last year. The increase in interest expense reflected higher average debt levels resulting primarily from recent acquisitions.
Other income (deductions), net, for the year ended September 30, 2011 represented an increase in pre-tax income of $298,000, compared to a reduction in pre-tax income of $1.3 million in 2010. The favorable impact on other income (deductions), net in fiscal 2011 primarily reflected a foreign currency exchange gain on the settlement of an intercompany loan.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company's effective tax rate for fiscal 2011 was 34.4%, compared to 35.0% for fiscal 2010. Fiscal 2011 and 2010 included the favorable impact of adjustments totaling $606,000 and $838,000, respectively, in income tax expense primarily related to changes in the estimated tax accruals for open tax periods. Excluding these adjustments from both periods, the Company’s effective tax rate was 35.0% for fiscal year 2011 and 35.8% for fiscal year 2010. The decrease in the fiscal 2011 effective tax rate, compared to fiscal 2010 primarily reflected the impact of the Company’s European tax structure initiatives. 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.
Net income attributable to noncontrolling interest was $1.1 million for fiscal 2011, compared to $2.7 million in fiscal 2010. The decrease related principally to the Company’s acquisition, effective as of the beginning of fiscal 2011, of the remaining 25% interest in one of its less than wholly-owned German graphics businesses and the acquisition of the remaining 22% interest in Saueressig GmbH & Co. KG (“Saueressig”) in April 2011.
Comparison of Fiscal 2010 and Fiscal 2009:
Sales for the year ended September 30, 2010 were $821.8 million, compared to $780.9 million for the year ended September 30, 2009. The increase resulted principally from the impact of acquisitions and higher sales volume in several of the Company’s businesses. For the year ended September 30, 2010, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $3.9 million on the Company’s consolidated sales compared to fiscal 2009.
In the Memorialization businesses, Bronze segment sales for fiscal 2010 were $224.2 million compared to $215.9 million for fiscal 2009. The increase primarily reflected the acquisition of UMP. The increase was partially offset by a decline in bronze memorial unit volume. Sales for the Casket segment were $210.3 million for fiscal 2010 compared to $203.2 million for fiscal 2009. The increase resulted principally from the acquisition of several casket businesses, partially offset by lower unit volume. The decline in sales (excluding acquisitions) for both the Bronze and Casket segments reflected the impact of a decline in the estimated number of casketed deaths compared to the prior year. Based on available published data, U.S. deaths for the year ended September 30, 2010 were estimated to have declined. Casketed deaths (non-cremation) were also estimated to have declined from fiscal 2009. Sales for the Cremation segment were $39.4 million for fiscal 2010 compared to $30.9 million in fiscal 2009. The increase principally resulted from the acquisition of a small manufacturer of cremation equipment in the U.K. and higher sales in the U.S. and European markets. In the Company’s Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal 2010 were $240.0 million, compared to $235.0 million in the prior year. The increase resulted principally from higher sales by Saueressig and the impact of the acquisition of a small graphics operation headquartered in Hong Kong in the fourth quarter of fiscal 2009, partially offset by lower sales in the U.S. and U.K. markets. Marking Products segment sales for the year ended September 30, 2010 were $51.1 million, compared to $42.4 million for fiscal 2009. The increase was principally due to higher unit volume and the acquisition of a small European distributor. Sales for the Merchandising Solutions segment were $56.9 million for fiscal 2010, compared to $53.5 million in fiscal 2009. The increase was attributable to an increase in project volume in the last six months of fiscal 2010.
Gross profit for the year ended September 30, 2010 was $323.4 million, compared to $294.8 million for fiscal 2009. Consolidated gross profit as a percent of sales increased to 39.3% for fiscal 2010 from 37.7% for fiscal 2009. Gross profit for fiscal 2009 included unusual charges totaling approximately $9.0 million, consisting of severance and other expenses related to the facility consolidations in the Bronze segment, and costs related to operational and system improvements in several of the Company’s other segments. The increase in fiscal 2010 consolidated gross profit and gross profit percentage compared to fiscal 2009 also reflected the benefit of fiscal 2009 cost structure changes, particularly in the Saueressig operation and the Casket and Marking Products segments.
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
|
Selling and administrative expenses for the year ended September 30, 2010 were $206.8 million, compared to $193.8 million for fiscal 2009. Consolidated selling and administrative expenses as a percent of sales were 25.2% for the year ended September 30, 2010, compared to 24.8% in the prior year. The increases in costs and percentage of sales primarily resulted from higher pension expense and the impact of acquisitions. The increase in pension cost primarily reflected unfavorable changes in the values of plan assets and a reduction in the actuarial discount rate. Unusual charges included in selling and administrative expenses totaled $7.5 million for fiscal 2009, and consisted primarily of Saueressig integration costs, increased bad debt expense, termination-related expenses, and costs related to operational and systems improvements. These unusual charges included consulting fees incurred for assistance in the operational and financial integration of Saueressig into Matthews. Bad debt expense, particularly in the Casket segment, was significantly higher in fiscal 2009, reflecting economic conditions. The increase resulted from the deterioration in the aging of outstanding accounts receivable. Employee termination-related and the other costs in connection with operational and systems improvements primarily reflected the Company’s initiatives as a result of the recession. The principal objectives of these initiatives were to better align the cost structures of the Company’s businesses with their respective revenue run rates.
Operating profit for fiscal 2010 was $116.6 million, compared to $101.0 million for fiscal 2009. Operating profit for fiscal 2010 included an increase of approximately $5.2 million in pension cost. Operating profit for fiscal 2009 included unusual charges of approximately $16.5 million. Bronze segment operating profit for fiscal 2010 was $56.2 million, compared to $57.6 million for fiscal 2009. Bronze segment operating profit for fiscal 2009 included unusual charges of approximately $7.2 million, principally relating to facility consolidations. The decrease in fiscal 2010 operating profit compared to fiscal 2009 reflected lower sales volume (excluding the UMP acquisition) and higher pension cost. Operating profit for the Casket segment for fiscal 2010 was $26.2 million, compared to $17.7 million for fiscal 2009. Fiscal 2009 Casket segment operating profit included unusual charges of approximately $2.7 million. Excluding the impact of the unusual charges in fiscal 2009, Casket segment operating profit for fiscal 2010 increased by $5.8 million, reflecting the benefit of cost structure changes initiated in fiscal 2009 and the impact of acquisitions. Cremation segment operating profit for the year ended September 30, 2010 was $4.9 million, compared to $5.0 million in fiscal 2009. Fiscal 2010 operating profit reflected higher sales and the impact of the March 2010 acquisition of a small cremation equipment manufacturer in the U.K., offset by the impact of an unfavorable change in product mix and higher pension cost. The Graphics Imaging segment operating profit for fiscal 2010 was $21.1 million, compared to $19.2 million for 2009. Operating profit in fiscal 2009 included unusual charges of approximately $3.1 million. Excluding the effect of the unusual charges, operating profit decreased approximately $1.2 million in fiscal 2010 compared to fiscal 2009. A decline in operating profit in the U.S. graphics operations offset higher operating profit from Saueressig and the impact of the acquisition of a small graphics business headquartered in Hong Kong. Operating profit for the Marking Products segment for fiscal 2010 was $5.8 million, compared to $1.5 million in fiscal 2009. Marking Products operating profit for fiscal 2009 included unusual charges of approximately $1.9 million. The increase in year-over-year operating profit, excluding the unusual charges, primarily reflected higher sales and the favorable impact of fiscal 2009 cost structure initiatives. The Merchandising Solutions segment operating profit was $2.4 million for fiscal 2010, compared to an operating loss of $56,000 for fiscal 2009. The increase principally reflected the impact of higher sales and fiscal 2009 unusual charges of approximately $1.3 million.
Investment income for the year ended September 30, 2010 was $2.5 million, compared to $2.0 million for the year ended September 30, 2009. The increase reflected higher average levels of invested funds and improved asset performance. Interest expense for fiscal 2010 was $7.4 million, compared to $12.1 million last year. The decrease in interest expense primarily reflected lower interest rates and lower average debt levels.
Other income (deductions), net, for the year ended September 30, 2010 represented a reduction in pre-tax income of $1.3 million, compared to a reduction in pre-tax income of $12,000 in 2009. The fiscal 2010 reduction in income primarily reflected foreign currency exchange losses on intercompany loans.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The Company's effective tax rate for fiscal 2010 was 35.0%, compared to 34.4% for fiscal 2009. Fiscal 2010 included the favorable impact of adjustments totaling $838,000 in income tax expense primarily related to changes in the estimated tax accruals for open tax periods. Fiscal 2009 included the favorable impact of adjustments totaling $1.3 million in income tax expense related to the Company’s ability to utilize a tax loss carryover in Europe and changes in the estimated tax accruals for open tax periods. Excluding the one-time adjustments in both periods, the Company’s effective tax rate was 35.8% for fiscal years 2010 and 2009. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state and foreign income taxes.
Net income attributable to noncontrolling interest was $2.7 million for fiscal 2010, compared to $1.9 million in fiscal 2009. The increase primarily related to the improvement in operating results for Saueressig.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $95.6 million for the year ended September 30, 2011, compared to $106.5 million and $90.9 million for fiscal 2010 and 2009, respectively. Operating cash flow for fiscal 2011 primarily reflected net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by a net increase in working capital items. In addition the Company made a cash contribution of $9.0 million to its principal pension plan. Operating cash flow for fiscal 2010 primarily reflected net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by a cash contribution of $9.0 million to the Company’s principal pension plan. Operating cash flow for fiscal 2009 primarily reflected net income adjusted for depreciation and amortization, stock-based compensation expense, and an increase in deferred taxes, partially offset by a cash contribution of $12.0 million to the Company’s principal pension plan.
Cash used in investing activities was $106.8 million for the year ended September 30, 2011, compared to $54.3 million and $32.7 million for fiscal years 2010 and 2009, respectively. Investing activities for fiscal 2011 primarily reflected payments (net of cash acquired) of $84.4 million for acquisitions and capital expenditures of $22.4 million. Investing activities for fiscal 2010 primarily reflected payments (net of cash acquired) of $32.3 million for acquisitions, capital expenditures of $21.4 million and purchases of investment securities, net of proceeds from dispositions of $690,000. Investing activities for fiscal 2009 primarily reflected payments (net of cash acquired) of $11.0 million for acquisitions, capital expenditures of $19.4 million and purchases of investment securities of $2.6 million.
Capital expenditures were $22.4 million for the year ended September 30, 2011, compared to $21.4 million and $19.4 million for fiscal 2010 and 2009, respectively. Capital expenditures in each of the last three fiscal years reflected reinvestment in the Company's business segments and were made primarily for the purchase of new manufacturing machinery, equipment and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements. Capital expenditures for the last three fiscal years were primarily financed through operating cash.
Capital spending for property, plant and equipment has averaged $21.1 million for the last three fiscal years. Capital spending for fiscal 2012 is currently expected to be approximately $30.0 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.
Cash provided by financing activities for the year ended September 30, 2011 was $10.4 million, reflecting proceeds, net of repayments, on long-term debt of $68.9 million, purchases of treasury stock of $44.6 million, proceeds from the sale of treasury stock (stock option exercises) of $1.9 million, payment of dividends to the Company’s shareholders of $9.6 million ($0.33 per share) and distributions of $6.2 million to noncontrolling interests. Cash used in financing activities for the year ended September 30, 2010 was $51.5 million, reflecting repayments, net of proceeds, on long-term debt of $8.8 million, purchases of treasury stock of $35.3 million, proceeds from the sale of treasury stock (stock option exercises) of $1.5 million, payment of dividends to the Company’s shareholders of $8.7 million ($0.29 per share) and distributions of $234,000 to noncontrolling interests. Cash used in financing activities for the year ended September 30, 2009 was $53.6 million, reflecting repayments, net of proceeds, on long-term debt of $15.7 million, purchases of treasury stock of $28.8 million, proceeds from the sale of treasury stock (stock option exercises) of $1.2 million, payment of dividends to the Company’s shareholders of $8.2 million ($0.265 per share) and distributions of $2.3 million to noncontrolling interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
In December 2010, the Company entered into a new domestic Revolving Credit Facility with a syndicate of financial institutions. The maximum amount of borrowings available under the new facility is $300.0 million and borrowings under the facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% based on the Company’s leverage ratio. The facility’s maturity is December 2015. The new facility replaced the Company’s $225.0 million Revolving Credit Facility. 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 .20% to .30% (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 $25.0 million) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at September 30, 2011 and 2010 were $250.0 million and $187.0 million, respectively. The weighted-average interest rate on outstanding borrowings at September 30, 2011 and 2010 was 2.59% and 2.69%, respectively.
The Company has entered into the following interest rate swaps:
Effective Date
|
Amount
|
Fixed Interest Rate
|
Interest Rate Spread at September 30, 2011
|
Maturity Date
|
September 2007
|
$25 million
|
4.77%
|
1.25%
|
September 2012
|
May 2008
|
20 million
|
3.72%
|
1.25%
|
September 2012
|
October 2008
|
20 million
|
3.46%
|
1.25%
|
October 2011
|
May 2011
|
25 million
|
1.37%
|
1.25%
|
May 2014
|
October 2011
|
25 million
|
1.67%
|
1.25%
|
October 2015
|
November 2011
|
25 million
|
2.13%
|
1.25%
|
November 2014
|
March 2012
|
25 million
|
2.44%
|
1.25%
|
March 2015
|
September 2012
|
25 million
|
3.03%
|
1.25%
|
December 2015
|
November 2012
|
25 million
|
1.33%
|
1.25%
|
November 2015
|
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 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 loss of $7.2 million ($4.4 million after tax) at September 30, 2011 that is included in equity as part of accumulated other comprehensive loss. Assuming market rates remain constant with the rates at September 30, 2011, approximately $1.3 million of the $4.4 million loss included in accumulated other comprehensive loss is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.
The Company, through certain of its German subsidiaries, has a credit facility with a European bank. The maximum amount of borrowings available under this facility is 25.0 million Euros ($33.5 million). Outstanding borrowings under the credit facility totaled 23.6 million Euros ($31.6 million) and 12.0 million Euros ($16.4 million) at September 30, 2011 and 2010, respectively. The weighted-average interest rate on outstanding borrowings under the facility at September 30, 2011 and 2010 was 2.38% and 1.58%, respectively. The facility’s maturity is September 2012. The Company has the ability and intent to renew this borrowing upon maturity.
The Company, through its German subsidiary, Saueressig, has several loans with various European banks. Outstanding borrowings on these loans totaled 8.3 million Euros ($11.2 million) and 7.9 million Euros ($10.8 million) at September 30, 2011 and 2010, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at September 30, 2011 and 2010 was 6.05% and 6.18%, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
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 8.7 million Euros ($11.6 million) and 12.1 million Euros ($16.5 million) at September 30, 2011 and 2010, respectively. Matthews International S.p.A. also has three lines of credit totaling 11.4 million Euros ($15.2 million) with the same Italian banks. Outstanding borrowings on these lines were 493,000 Euros ($661,000) and 2.1 million Euros ($2.8 million) at September 30, 2011 and 2010, respectively. The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at September 30, 2011 and 2010 was 3.11% and 3.47%, respectively.
The Company, through its Turkish subsidiary, Kroma (acquired in July 2011), has several loans with various Turkish banks. Outstanding borrowings on these loans totaled 13.3 million Turkish Lira ($7.2 million) at September 30, 2011. The weighted-average interest rate on outstanding borrowings of Kroma was 9.27% at September 30, 2011.
The Company has a stock repurchase program. Under the current authorization, the Company's Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews’ common stock under the program, of which 2,169,470 shares had been repurchased as of September 30, 2011. In November 2011, the Company’s Board of Directors approved the continuation of its stock repurchase program and increased the total authorization for stock repurchases by an additional 2,500,000 shares. The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share. Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company’s Restated Articles of Incorporation.
Consolidated working capital was $208.1 million at September 30, 2011, compared to $187.5 million and $173.1 million at September 30, 2010 and 2009, respectively. Working capital at September 30, 2011 reflected an increase in accounts receivable and inventory in connection with recent acquisitions. Working capital at September 30, 2010 reflected an increase in accounts receivable and inventory in connection with recent acquisitions. Working capital at September 30, 2009 reflected an increase in cash and investments and a reduction in current maturities of long-term debt. Cash and cash equivalents were $60.3 million at September 30, 2011, compared to $59.7 million and $57.8 million at September 30, 2010 and 2009, respectively. The Company's current ratio was 2.3 at September 30, 2011, 2010 and 2009.
ENVIRONMENTAL MATTERS:
The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations. As such, the Company has developed environmental, health, and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.
The Company is party to various environmental matters. These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites. The Company is currently performing environmental assessments and remediation at these sites, as appropriate. In addition, prior to its acquisition, The York Group, Inc. (“York”) was identified, along with others, by the Environmental Protection Agency as a potentially responsible party for remediation of a landfill site in York, Pennsylvania. At this time, the Company has not been joined in any lawsuit or administrative order related to the site or its clean-up.
At September 30, 2011, an accrual of approximately $6.2 million had been recorded for environmental remediation (of which $788,000 was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations. The accrual, which reflects previously established reserves assumed with the acquisition of York and additional reserves recorded as a purchase accounting adjustment, does not consider the effects of inflation and anticipated expenditures are not discounted to their present value. Changes in the accrued environmental remediation obligation from the prior fiscal year reflect payments charged against the accrual.
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
|
While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.
ACQUISITIONS:
Fiscal 2011:
Acquisition spending, net of cash acquired, during the year ended September 30, 2011 totaled $84.4 million. The acquisitions were not individually material to the Company’s consolidated financial position or results of operations, and primarily included the following:
In August 2011, the Company acquired Lightning Pick Technologies, Inc. (“LPT”), a manufacturer that develops, installs and supports paperless order fulfillment solutions. The transaction is intended to expand the Company’s presence and product breadth in the marking products industry.
In July 2011, the Company entered into an agreement to acquire a 70% interest in Kroma, a leading provider of pre-press services and roto-gravure printing cylinders in Turkey. The acquisition is designed to further extend Matthews' presence as the leading provider of reprographic pre-press products and services to the European packaging and tobacco markets. The Company completed the purchase of a 61.5% interest in July 2011 and the additional 8.5% interest will be purchased in fiscal 2012. In addition, the Company entered into an option agreement related to the remaining 30% interest in Kroma.
In April 2011, the Company completed the purchase of the remaining 22% interest in Saueressig for 19.3 million Euros ($27.4 million), completing the option agreement in connection with the May 2008 acquisition of a 78% interest in Saueressig.
In March 2011, the Company acquired Innovative Picking Technologies, Inc. ("IPTI"), a manufacturer of paperless order fulfillment systems. The transaction is intended to expand the Company's presence and product breadth in the marking products industry.
In October 2010, the Company acquired Freeman Metal Products, Inc. and its affiliated companies (“Freeman”), a manufacturer and distributor of caskets. The purchase price for the acquisition was $22.8 million, plus additional consideration up to $6.0 million contingent on operating performance over the next three years. The transaction is intended to provide synergies in the manufacturing and distribution of caskets and expand the Company’s market presence in the Southeast and South Central regions of the United States.
In October 2010, the Company acquired the remaining 25% interest in Rudolf Reproflex GmbH & Co. KG ("Reproflex"). The Company acquired a 75% interest in Reproflex in 2001.
Fiscal 2010:
Acquisition spending, net of cash acquired, during the year ended September 30, 2010 totaled $32.3 million. The acquisitions primarily included the following:
In August 2010, the Company acquired Newmark of Colorado and its affiliated companies (“Newmark”), a distributor of primarily York brand caskets in the West region of the United States. The transaction was designed as an asset purchase and was intended to expand the Company’s casket distribution capabilities in the western United States.
In April 2010, the Company acquired Reynoldsville Casket Company (“Reynoldsville”), a manufacturer and distributor of caskets primarily in the Northeast region of the United States. The acquisition was structured as an asset purchase and was intended to expand the Company’s casket distribution capabilities in the northeastern United States.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
In March 2010, the Company acquired an 80% interest in Furnace Construction Cremators Limited (“FCC”), a manufacturer of cremation equipment located in the United Kingdom. The acquisition was designed to expand the Company’s global presence in the European cremation markets.
In February 2010, the Company acquired A. J. Distribution, Inc. ("A.J. Distribution"), a distributor of primarily York brand caskets in the Northwest region of the United States. The transaction was structured as an asset purchase and was intended to expand the Company's casket distribution capabilities in the northwestern United States.
In December 2009, the Company acquired UMP , primarily a supplier of granite memorial products and caskets in the West region of the United States. The transaction was structured as an asset purchase and was designed to extend Matthews’ presence in the broad granite market.
Fiscal 2009:
Acquisition spending, net of cash acquired, during the year ended September 30, 2009 totaled $11.0 million. The acquisitions primarily included the following:
In July 2009, the Company acquired an 80% interest in Tact Group Limited, a small graphics business headquartered in Hong Kong. The acquisition was intended to expand the Company’s graphics imaging capabilities in Asia.
In December 2008, the Company acquired an 80% interest in Gem Matthews International s.r.l., a cremation equipment manufacturer in Italy. The acquisition was intended to expand Matthews’ cremation equipment manufacturing capabilities in Europe.
FORWARD-LOOKING INFORMATION:
Matthews has a three-pronged strategy to attain annual growth in earnings per share. This strategy, which has remained unchanged from prior years, consists of the following: internal growth (which includes organic growth, productivity improvements, new product development and the expansion into new markets with existing products), acquisitions and share repurchases under the Company’s stock repurchase program (see "Liquidity and Capital Resources"). For the past ten fiscal years, the Company has achieved an average annual increase in earnings per share of 10.9%.
For fiscal 2012, the Company continues to face several challenges. The uneven pace of the economic recovery will influence the pace of growth for all segments. Recent financial market issues in Europe could affect several of the countries in which the Company operates, which may also have an unfavorable impact on currency exchange rates. In addition, the Memorialization businesses continue to operate in a climate of relatively flat death rates, competitive pressures on pricing and product mix, and volatile commodity costs. However, the Company is continuously working on productivity and cost reduction initiatives to strengthen all of its businesses. In addition, recent acquisitions are expected to favorably impact fiscal 2012 results.
On this basis, the Company currently estimates fiscal 2012 earnings per share to grow in the mid-single digit percentage range over fiscal 2011 (excluding unusual items from both years). Based on current forecasts, earnings for the fiscal 2012 first quarter are expected to be lower than the fiscal 2011 first quarter, with the projected growth for the remainder of the fiscal year sufficient to achieve the Company’s objective for the full fiscal year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
CRITICAL ACCOUNTING POLICIES:
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. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques. Actual results may differ from those estimates. A discussion of market risks affecting the Company can be found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K.
The Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company's operating results and financial condition. The following accounting policies involve significant estimates, which were considered critical to the preparation of the Company's consolidated financial statements for the year ended September 30, 2011.
Trade Receivables and Allowance for Doubtful Accounts:
Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to such receivables that are more than 30 days past due. The allowance for doubtful accounts is based on an evaluation of specific customer accounts for which available facts and circumstances indicate collectibility may be uncertain. In addition, the allowance includes a reserve for all customers based on historical collection experience.
Long-Lived Assets:
Property, plant and equipment, goodwill and other intangible assets are carried at cost. Depreciation on property, plant and equipment is computed primarily on the straight-line method over the estimated useful lives of the assets. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets is determined by evaluating the estimated undiscounted net cash flows of the operations to which the assets relate. An impairment loss would be recognized when the carrying amount of the assets exceeds the fair value which is based on a discounted cash flow analysis.
Goodwill is not amortized, but is subject to periodic 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 combination of valuation techniques, including discounted cash flows. 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 reviews in the second quarters of fiscal 2011, 2010 and 2009 and determined that no adjustments to the carrying values of goodwill or other intangibles with indefinite lives were necessary at those times.
Share-Based Payment:
Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the employee requisite service period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
Pension and Postretirement Benefits:
Pension assets and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of benefit obligations. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension cost.
The Company's principal pension plan maintains a substantial portion of its assets in equity securities in accordance with the investment policy established by the Company’s pension board. Based on an analysis of the historical performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for these assets at 8.0% at September 30, 2011 for purposes of determining pension cost and funded status. The Company’s discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices as of September 30, 2011 and September 30, 2010 for the fiscal year end valuation. The discount rate was 4.75%, 5.25% and 5.50% in fiscal 2011, 2010 and 2009, respectively.
Environmental:
Environmental liabilities are recorded when the Company's obligation is probable and reasonably estimable. Accruals for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value.
Revenue Recognition:
Revenues are generally recognized when title and risk of loss pass to the customer, which is typically at the time of product shipment. For pre-need sales of memorials and vases, revenue is recognized when the memorial has been manufactured to the customer’s specifications (e.g., name and birth date), title has been transferred to the customer and the memorial and vase are placed in storage for future delivery. A liability has been recorded for the estimated costs of finishing pre-need bronze memorials and vases that have been manufactured and placed in storage prior to July 1, 2003 for future delivery. Beginning July 1, 2003, revenue is deferred by the Company on the portion of pre-need sales attributable to the final finishing and storage of the pre-need merchandise. Deferred revenue for final finishing is recognized at the time the pre-need merchandise is finished and shipped to the customer. Deferred revenue related to storage is recognized on a straight-line basis over the estimated average time that pre-need merchandise is held in storage. At September 30, 2011, the Company held 333,174 memorials and 236,460 vases in its storage facilities under the pre-need sales program.
Construction revenues are recognized under the percentage-of-completion method of accounting using the cost-to-cost method.
The Company offers rebates to certain customers participating in volume purchase programs. Rebates are estimated and recorded as a reduction in sales at the time the Company’s products are sold.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The following table summarizes the Company’s contractual obligations at September 30, 2011, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
|
|
Payments due in fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2012
|
|
|
2013 to 2014
|
|
|
2015 to 2016
|
|
|
2016
|
|
Contractual Cash Obligations:
|
|
(Dollar amounts in thousands)
|
|
Revolving credit facilities
|
|
$ |
281,593 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
281,593 |
|
|
$ |
- |
|
Notes payable to banks
|
|
|
31,193 |
|
|
|
15,299 |
|
|
|
14,588 |
|
|
|
1,214 |
|
|
|
92 |
|
Short-term borrowings
|
|
|
661 |
|
|
|
661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Capital lease obligations
|
|
|
3,865 |
|
|
|
2,165 |
|
|
|
1,700 |
|
|
|
- |
|
|
|
- |
|
Non-cancelable operating leases
|
|
|
20,110 |
|
|
|
7,957 |
|
|
|
8,754 |
|
|
|
2,935 |
|
|
|
464 |
|
Total contractual cash obligations
|
|
$ |
337,422 |
|
|
$ |
26,082 |
|
|
$ |
25,042 |
|
|
$ |
285,742 |
|
|
$ |
556 |
|
A significant portion of the loans included in the table above bear interest at variable rates. At September 30, 2011, the weighted-average interest rate was 2.59% on the Company’s domestic Revolving Credit Facility, 2.38% on the credit facility through the Company’s wholly-owned German subsidiaries, 3.11% on bank loans to the Company’s wholly-owned subsidiary, Matthews International S.p.A., 6.05% on bank loans to its wholly-owned subsidiary, Saueressig, and 9.27% on bank loans to its majority-owned subsidiary, Kroma.
Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company’s operating cash. Under IRS regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2011, however, in fiscal 2011, the Company made a contribution of $9.0 million to its principal retirement plan. The Company is not required to make any significant cash contributions to its principal retirement plan in fiscal 2012. The Company estimates that benefit payments to participants under its retirement plans (including its supplemental retirement plan) and postretirement benefit payments will be approximately $6.0 million and $1.1 million, respectively, in fiscal 2012. The amounts are expected to increase incrementally each year thereafter, to $7.6 million and $1.5 million in 2016. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.
In connection with its July 2011 acquisition of a 70% interest in Kroma, the Company entered into an option agreement related to the remaining 30% interest in Kroma. The option agreement contains put and call provisions for the purchase of the remaining 30% interest in future years at a price to be determined by a formula based upon future operating results of Kroma. The Company has recorded an estimate of $10.2 million in “Arrangement with noncontrolling interest” on the September 30, 2011 Consolidated Balance Sheet representing the current estimate of the future purchase price. The timing of the exercise of the put and call provisions is not presently determinable.
Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities. If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary. As of September 30, 2011, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $2.9 million. The timing of potential future payments related to the unrecognized tax benefits is not presently determinable.
INFLATION:
Except for the volatility in the cost of bronze ingot, steel and fuel (see “Results of Operations”), inflation has not had a material impact on the Company over the past three years nor is it anticipated to have a material impact for the foreseeable future.
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the guidance for goodwill and other intangibles. The amendment applies to the goodwill impairment test and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as a likelihood of more than 50 percent. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. This amendment will be adopted by the Company for the quarter ended March 31, 2012. Upon adoption, this amendment is not expected to have a material effect on the financial statements.
In June 2011, the FASB issued an amendment to the guidance on the presentation of comprehensive income. The amendment requires that comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and other comprehensive income are presented. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company is evaluating the impact of this amendment on its financial statements and the timing of its adoption.
In May 2011, the FASB issued an amendment to revise the wording used to describe many of the requirements for measuring fair value and disclosing information about fair value measurements. This amendment clarifies the FASB’s intention about the application of fair value. In addition, the amendment changes certain principles or requirements for measuring fair value and disclosure of such measurements. The amendment is effective for annual and interim reporting periods beginning after December 15, 2011, and will be adopted by the Company for the quarter ended March 31, 2012. Upon adoption, this amendment is not expected to have a material effect on the financial statements.
In December 2010, the FASB issued an amendment to the disclosure requirements for business combinations. This amendment specifies that if comparative financial statements are presented in connection with a business combination, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendment also expands the disclosure requirement to include the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination. The amendment is effective for business combinations consummated on or before the beginning of the first annual reporting period beginning on or after December 15, 2010, and early adoption is permitted. This amendment will be adopted by the Company for the fiscal year ended September 30, 2012. Upon adoption, this amendment is not expected to have a material effect on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion about the Company's market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates. The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.
Interest Rates - The Company’s most significant long-term debt instrument is the domestic Revolving Credit Facility, which bears interest at variable rates based on LIBOR.
The Company has entered into the following interest rate swaps:
Effective Date
|
Amount
|
Fixed Interest Rate
|
Interest Rate Spread at September 30, 2011
|
Maturity Date
|
September 2007
|
$25 million
|
4.77%
|
1.25%
|
September 2012
|
May 2008
|
20 million
|
3.72%
|
1.25%
|
September 2012
|
October 2008
|
20 million
|
3.46%
|
1.25%
|
October 2011
|
May 2011
|
25 million
|
1.37%
|
1.25%
|
May 2014
|
October 2011
|
25 million
|
1.67%
|
1.25%
|
October 2015
|
November 2011
|
25 million
|
2.13%
|
1.25%
|
November 2014
|
March 2012
|
25 million
|
2.44%
|
1.25%
|
March 2015
|
September 2012
|
25 million
|
3.03%
|
1.25%
|
December 2015
|
November 2012
|
25 million
|
1.33%
|
1.25%
|
November 2015
|
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 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 loss of $7.2 million ($4.4 million after tax) at September 30, 2011 that is included in equity as part of accumulated other comprehensive loss. A decrease of 10% in market interest rates (e.g. a decrease from 5.0% to 4.5%) would result in an increase of approximately $789,000 in the fair value liability of the interest rate swaps.
Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to the purchases of certain materials and supplies (such as bronze ingot, steel, fuel and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available. In addition, based on competitive market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar arrangements, the Company’s ability to immediately increase the price of its products to offset the increased costs may be limited.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, (continued)
Foreign Currency Exchange Rates - The Company is subject to changes in various foreign currency exchange rates, primarily including the Euro, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, Chinese Yuan, Hong Kong Dollar, Polish Zloty, Turkish Lira and Vietnamese Dong in the conversion from local currencies to the U.S. dollar of the reported financial position and operating results of its non-U.S. based subsidiaries. An adverse change (strengthening dollar) of 10% in exchange rates would have resulted in a decrease in reported sales of $34.7 million and a decrease in reported operating income of $4.0 million for the year ended September 30, 2011.
Actuarial Assumptions - The most significant actuarial assumptions affecting pension expense and pension obligations include the valuation of retirement plan assets, the discount rate and the estimated return on plan assets. The estimated return on plan assets is currently based upon projections provided by the Company’s independent investment advisor, considering the investment policy of the plan and the plan’s asset allocation. The fair value of plan assets and discount rate are “point-in-time” measures, and the recent volatility of the debt and equity markets makes estimating future changes in fair value of plan assets and discount rates more challenging. The following table summarizes the impact on the September 30, 2011 actuarial valuations of changes in the primary assumptions affecting the Company’s retirement plans and supplemental retirement plan.
|
Impact of Changes in Actuarial Assumptions
|
|
Change in Discount Rate
|
|
Change in Expected Return
|
|
Change in Market Value of Assets
|
|
+1%
|
|
-1%
|
|
+1%
|
|
-1%
|
|
+5%
|
|
-5%
|
|
(Dollar amounts in thousands)
|
Increase (decrease) in net benefit cost
|
$ (2,259)
|
|
$ 2,729
|
|
$(915)
|
|
$915
|
|
$ (833)
|
|
$ 833
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in projected benefit obligation
|
(20,183)
|
|
24,973
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in funded status
|
20,183
|
|
(24,973)
|
|
-
|
|
-
|
|
4,711
|
|
(4,711)
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
Description
|
|
Pages
|
|
|
|
Management’s Report to Shareholders
|
|
35
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
36
|
|
|
|
Financial Statements:
|
|
|
|
|
|
Consolidated Balance Sheets as of September 30, 2011 and 2010
|
|
37-38
|
|
|
|
Consolidated Statements of Income for the years ended September 30, 2011, 2010 and 2009
|
|
39
|
|
|
|
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2011, 2010 and 2009
|
|
40
|
|
|
|
Consolidated Statements of Cash Flows for the years ended September 30, 2011, 2010 and 2009
|
|
41
|
|
|
|
Notes to Consolidated Financial Statements
|
|
42-66
|
|
|
|
Supplementary Financial Information (unaudited)
|
|
67
|
|
|
|
Financial Statement Schedule – Schedule II-Valuation and Qualifying
|
|
|
Accounts for the years ended September 30, 2011, 2010 and 2009
|
|
68
|
MANAGEMENT’S REPORT TO SHAREHOLDERS
To the Shareholders and Board of Directors of
Matthews International Corporation:
Management’s Report on Financial Statements
The accompanying consolidated financial statements of Matthews International Corporation and its subsidiaries (collectively, the “Company”) were prepared by management, which is responsible for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management’s best judgments and estimates. The other financial information included in this Annual Report on Form 10-K is consistent with that in the financial statements.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting management has conducted an assessment using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s internal controls over financial reporting include those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2011, based on criteria in Internal Control – Integrated Framework issued by the COSO. The effectiveness of the Company’s internal control over financial reporting as of September 30, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Management’s Certifications
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in the Company’s Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Matthews International Corporation:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Matthews International Corporation and its subsidiaries at September 30, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
November 22, 2011
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2011 and 2010
(Dollar amounts in thousands, except per share data)
__________
ASSETS
|
|
2011
|
|
|
2010
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
60,271 |
|
|
$ |
59,715 |
|
Short-term investments
|
|
|
1,391 |
|
|
|
1,395 |
|
Accounts receivable, net of allowance for doubtful
accounts of $10,736 and $11,261, respectively
|
|
|
164,738 |
|
|
|
151,038 |
|
Inventories
|
|
|
125,567 |
|
|
|
107,926 |
|
Deferred income taxes
|
|
|
1,722 |
|
|
|
1,666 |
|
Other current assets
|
|
|
16,157 |
|
|
|
13,915 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
369,846 |
|
|
|
335,655 |
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
15,105 |
|
|
|
13,642 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
134,504 |
|
|
|
129,750 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
33,818 |
|
|
|
30,555 |
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
16,354 |
|
|
|
21,101 |
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
465,003 |
|
|
|
405,180 |
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
|
62,825 |
|
|
|
57,942 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,097,455 |
|
|
$ |
993,825 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
September 30, 2011 and 2010
(Dollar amounts in thousands, except per share data)
__________
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
2011
|
|
|
2010
|
|
Current liabilities:
|
|
|
|
|
|
|
Long-term debt, current maturities
|
|
$ |
18,014 |
|
|
$ |
12,073 |
|
Trade accounts payable
|
|
|
46,655 |
|
|
|
36,308 |
|
Accrued compensation
|
|
|
31,339 |
|
|
|
39,062 |
|
Accrued income taxes
|
|
|
10,272 |
|
|
|
12,984 |
|
Other current liabilities
|
|
|
55,461 |
|
|
|
47,686 |
|
Total current liabilities
|
|
|
161,741 |
|
|
|
148,113 |
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
299,170 |
|
|
|
225,256 |
|
|
|
|
|
|
|
|
|
|
Accrued pension
|
|
|
66,714 |
|
|
|
50,276 |
|
|
|
|
|
|
|
|
|
|
Postretirement benefits
|
|
|
26,417 |
|
|
|
23,307 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
17,007 |
|
|
|
15,950 |
|
|
|
|
|
|
|
|
|
|
Environmental reserve
|
|
|
5,406 |
|
|
|
5,961 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
42,745 |
|
|
|
31,234 |
|
Total liabilities
|
|
|
619,200 |
|
|
|
500,097 |
|
|
|
|
|
|
|
|
|
|
Arrangement with noncontrolling interest
|
|
|
10,162 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity-Matthews:
|
|
|
|
|
|
|
|
|
Class A common stock, $1.00 par value; authorized
70,000,000 shares; 36,333,992 shares issued
|
|
|
36,334 |
|
|
|
36,334 |
|
Preferred stock, $100 par value, authorized 10,000 shares, none issued
|
|
|
- |
|
|
|
- |
|
Additional paid-in capital
|
|
|
48,554 |
|
|
|
48,294 |
|
Retained earnings
|
|
|
681,658 |
|
|
|
621,923 |
|
Accumulated other comprehensive loss
|
|
|
(58,658 |
) |
|
|
(37,136 |
) |
Treasury stock, 7,884,190 and 6,855,669 shares, respectively, at cost
|
|
|
(243,246 |
) |
|
|
(207,470 |
) |
Total shareholders' equity-Matthews
|
|
|
464,642 |
|
|
|
461,945 |
|
Noncontrolling interests
|
|
|
3,451 |
|
|
|
31,783 |
|
Total shareholders' equity
|
|
|
468,093 |
|
|
|
493,728 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$ |
1,097,455 |
|
|
$ |
993,825 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share data)
__________
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Sales
|
|
$ |
898,821 |
|
|
$ |
821,829 |
|
|
$ |
780,908 |
|
Cost of sales
|
|
|
(547,161 |
) |
|
|
(498,442 |
) |
|
|
(486,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
351,660 |
|
|
|
323,387 |
|
|
|
294,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
(99,251 |
) |
|
|
(91,215 |
) |
|
|
(83,576 |
) |
Administrative expense
|
|
|
(133,893 |
) |
|
|
(115,591 |
) |
|
|
(110,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
118,516 |
|
|
|
116,581 |
|
|
|
101,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
1,443 |
|
|
|
2,536 |
|
|
|
2,048 |
|
Interest expense
|
|
|
(8,241 |
) |
|
|
(7,419 |
) |
|
|
(12,053 |
) |
Other income (deductions), net
|
|
|
298 |
|
|
|
(1,285 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
112,016 |
|
|
|
110,413 |
|
|
|
90,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(38,556 |
) |
|
|
(38,639 |
) |
|
|
(31,313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
73,460 |
|
|
|
71,774 |
|
|
|
59,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
(1,088 |
) |
|
|
(2,717 |
) |
|
|
(1,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Matthews shareholders
|
|
$ |
72,372 |
|
|
$ |
69,057 |
|
|
$ |
57,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Matthews shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$2.47 |
|
|
|
$2.32 |
|
|
|
$1.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$2.46 |
|
|
|
$2.31 |
|
|
|
$1.90 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share data)
__________
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income (Loss)
|
|
|
Treasury
|
|
|
controlling
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(net of tax)
|
|
|
Stock
|
|
|
interests
|
|
|
Total
|
|
Balance, September 30, 2008
|
|
$ |
36,334 |
|
|
$ |
47,250 |
|
|
$ |
511,130 |
|
|
$ |
(2,979 |
) |
|
$ |
(157,780 |
) |
|
$ |
4,963 |
|
|
$ |
438,918 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
57,732 |
|
|
|
- |
|
|
|
- |
|
|
|
1,949 |
|
|
|
59,681 |
|
Minimum pension liability
|
|
|
- |
|
|
|
- |
|
|
|
(702 |
) |
|
|
(28,430 |
) |
|
|
- |
|
|
|
- |
|
|
|
(29,132 |
) |
Translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,189 |
|
|
|
- |
|
|
|
55 |
|
|
|
4,244 |
|
Fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,664 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,664 |
) |
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,129 |
|
Stock-based compensation
|
|
|
- |
|
|
|
5,822 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,822 |
|
Purchase of 796,916 shares
treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(28,813 |
) |
|
|
- |
|
|
|
(28,813 |
) |
Issuance of 241,016 shares
treasury stock
|
|
|
- |
|
|
|
(5,636 |
) |
|
|
- |
|
|
|
- |
|
|
|
7,139 |
|
|
|
- |
|
|
|
1,503 |
|
Dividends, $.265 per share
|
|
|
- |
|
|
|
- |
|
|
|
(8,199 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,199 |
) |
Distribution to noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,291 |
) |
|
|
(2,291 |
) |
Arrangement-noncontrolling interest
|
|
|
- |
|
|
|
- |
|
|
|
(175 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(175 |
) |
Balance, September 30, 2009
|
|
|
36,334 |
|
|
|
47,436 |
|
|
|
559,786 |
|
|
|
(29,884 |
) |
|
|
(179,454 |
) |
|
|
4,676 |
|
|
|
438,894 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
69,057 |
|
|
|
- |
|
|
|
- |
|
|
|
2,717 |
|
|
|
71,774 |
|
Minimum pension liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,929 |
|
|
|
- |
|
|
|
- |
|
|
|
3,929 |
|
Translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,952 |
) |
|
|
- |
|
|
|
901 |
|
|
|
(11,051 |
) |
Fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
771 |
|
|
|
- |
|
|
|
- |
|
|
|
771 |
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,423 |
|
Stock-based compensation
|
|
|
- |
|
|
|
6,567 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,567 |
|
Purchase of 1,070,173 shares
treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(35,305 |
) |
|
|
- |
|
|
|
(35,305 |
) |
Issuance of 246,178 shares
treasury stock
|
|
|
- |
|
|
|
(5,709 |
) |
|
|
- |
|
|
|
- |
|
|
|
7,289 |
|
|
|
- |
|
|
|
1,580 |
|
Dividends, $.29 per share
|
|
|
- |
|
|
|
- |
|
|
|
(8,688 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,688 |
) |
Distribution to noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(234 |
) |
|
|
(234 |
) |
Arrangement-noncontrolling interest
|
|
|
- |
|
|
|
- |
|
|
|
1,768 |
|
|
|
- |
|
|
|
- |
|
|
|
23,723 |
|
|
|
25,491 |
|
Balance, September 30, 2010
|
|
|
36,334 |
|
|
|
48,294 |
|
|
|
621,923 |
|
|
|
(37,136 |
) |
|
|
(207,470 |
) |
|
|
31,783 |
|
|
|
493,728 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
72,372 |
|
|
|
- |
|
|
|
- |
|
|
|
1,088 |
|
|
|
73,460 |
|
Minimum pension liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,255 |
) |
|
|
- |
|
|
|
- |
|
|
|
(11,255 |
) |
Translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,607 |
) |
|
|
- |
|
|
|
523 |
|
|
|
(8,084 |
) |
Fair value of derivatives
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,660 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,660 |
) |
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,461 |
|
Stock-based compensation
|
|
|
- |
|
|
|
6,972 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,972 |
|
Purchase of 1,319,375 shares
treasury stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,567 |
) |
|
|
- |
|
|
|
(44,567 |
) |
Issuance of 290,854 shares
treasury stock
|
|
|
- |
|
|
|
(6,712 |
) |
|
|
- |
|
|
|
- |
|
|
|
8,791 |
|
|
|
- |
|
|
|
2,079 |
|
Dividends, $.33 per share
|
|
|
- |
|
|
|
- |
|
|
|
(9,632 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,632 |
) |
Distribution to noncontrolling interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,220 |
) |
|
|
(6,220 |
) |
Arrangement-noncontrolling interest
|
|
|
- |
|
|
|
- |
|
|
|
(3,005 |
) |
|
|
- |
|
|
|
- |
|
|
|
(23,723 |
) |
|
|
(26,728 |
) |
Balance, September 30, 2011
|
|
$ |
36,334 |
|
|
$ |
48,554 |
|
|
$ |
681,658 |
|
|
$ |
(58,658 |
) |
|
$ |
(243,246 |
) |
|
$ |
3,451 |
|
|
$ |
468,093 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share data)
__________
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
73,460 |
|
|
$ |
71,774 |
|
|
$ |
59,681 |
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,661 |
|
|
|
27,322 |
|
|
|
30,292 |
|
Stock-based compensation expense
|
|
|
6,972 |
|
|
|
6,567 |
|
|
|
5,822 |
|
Increase in deferred taxes
|
|
|
9,481 |
|
|
|
4,299 |
|
|
|
7,506 |
|
Gain on sale of investments
|
|
|
(50 |
) |
|
|
(715 |
) |
|
|
(466 |
) |
(Gain) loss on sale of assets
|
|
|
(2,782 |
) |
|
|
171 |
|
|
|
190 |
|
Changes in working capital items
|
|
|
(23,093 |
) |
|
|
(65 |
) |
|
|
(1,831 |
) |
Decrease (increase) in other assets
|
|
|
4,787 |
|
|
|
(3,176 |
) |
|
|
(2,245 |
) |
Decrease in other liabilities
|
|
|
(2,007 |
) |
|
|
(1,415 |
) |
|
|
(488 |
) |
Increase (decrease) in pension and postretirement
benefit obligations
|
|
|
1,135 |
|
|
|
1,725 |
|
|
|
(7,603 |
) |
Net cash provided by operating activities
|
|
|
95,564 |
|
|
|
106,487 |
|
|
|
90,858 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(22,440 |
) |
|
|
(21,437 |
) |
|
|
(19,410 |
) |
Acquisitions, net of cash acquired
|
|
|
(84,369 |
) |
|
|
(32,323 |
) |
|
|
(10,953 |
) |
Proceeds from dispositions of assets
|
|
|
1,463 |
|
|
|
196 |
|
|
|
295 |
|
Purchases of investment securities
|
|
|
(1,639 |
) |
|
|
(1,616 |
) |
|
|
(2,620 |
) |
Proceeds from dispositions of investments
|
|
|
173 |
|
|
|
926 |
|
|
|
- |
|
Net cash used in investing activities
|
|
|
(106,812 |
) |
|
|
(54,254 |
) |
|
|
(32,688 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
117,107 |
|
|
|
58,465 |
|
|
|
54,128 |
|
Payments on long-term debt
|
|
|
(48,214 |
) |
|
|
(67,307 |
) |
|
|
(69,791 |
) |
Purchases of treasury stock
|
|
|
(44,567 |
) |
|
|
(35,305 |
) |
|
|
(28,762 |
) |
Proceeds from the sale of treasury stock
|
|
|
1,859 |
|
|
|
1,502 |
|
|
|
1,206 |
|
Tax benefit on exercised stock options
|
|
|
70 |
|
|
|
78 |
|
|
|
111 |
|
Dividends
|
|
|
(9,632 |
) |
|
|
(8,688 |
) |
|
|
(8,199 |
) |
Distributions to noncontrolling interests
|
|
|
(6,220 |
) |
|
|
(234 |
) |
|
|
(2,291 |
) |
Net cash provided by (used in) financing activities
|
|
|
10,403 |
|
|
|
(51,489 |
) |
|
|
(53,598 |
) |
Effect of exchange rate changes on cash
|
|
|
1,401 |
|
|
|
1,239 |
|
|
|
2,493 |
|
Net change in cash and cash equivalents
|
|
|
556 |
|
|
|
1,983 |
|
|
|
7,065 |
|
Cash and cash equivalents at beginning of year
|
|
|
59,715 |
|
|
|
57,732 |
|
|
|
50,667 |
|
Cash and cash equivalents at end of year
|
|
$ |
60,271 |
|
|
$ |
59,715 |
|
|
$ |
57,732 |
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
8,367 |
|
|
$ |
7,605 |
|
|