UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarterly Period Ended March 31, 2004 Commission File No. 0-9115 MATTHEWS INTERNATIONAL CORPORATION (Exact Name of registrant as specified in its charter) PENNSYLVANIA 25-0644320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (412) 442-8200 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of April 30, 2004, shares of common stock outstanding were: Class A Common Stock 32,192,289 shares PART I - FINANCIAL INFORMATION MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollar amounts in thousands, except per share data)
March 31, 2004 September 30, 2003 -------------- ------------------ ASSETS Current assets: Cash and cash equivalents $82,146 $66,954 Short-term investments 4,601 4,588 Accounts receivable, net 65,794 62,883 Inventories: Materials and finished goods $26,939 $25,576 Labor and overhead in process 2,432 1,489 ------- ------- 29,371 27,065 Other current assets 3,915 4,564 ------- ------- Total current assets 185,827 166,054 Investments 4,673 4,561 Property, plant and equipment: Cost 146,688 140,487 Less accumulated depreciation (81,471) (70,854) ------- ------- 65,217 69,633 Deferred income taxes and other assets 28,962 32,182 Goodwill 157,458 154,690 Other intangible assets, net 12,888 13,062 ------- ------- Total assets $455,025 $440,182 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current maturities $ 30,969 $ 6,029 Accounts payable 18,741 19,805 Accrued compensation 23,367 24,745 Accrued income taxes 13,519 1,274 Customer prepayments 1,866 2,488 Other current liabilities 20,088 21,982 ------ ------ Total current liabilities 108,550 76,323 Long-term debt 12,209 57,023 Estimated finishing costs 4,840 4,863 Postretirement benefits 17,700 17,644 Environmental reserve 11,028 11,154 Deferred income taxes 2,297 3,441 Other liabilities and deferred revenue 13,436 13,506 Shareholders' equity: Common stock 36,334 36,334 Additional paid in capital 9,668 6,476 Retained earnings 280,165 257,559 Accumulated other comprehensive income 11,017 6,643 Treasury stock, at cost (52,219) (50,784) ------- ------- 284,965 256,228 ------- ------- Total liabilities and shareholders' equity $455,025 $440,182 ======= =======
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (Dollar amounts in thousands, except per share data)
Three Months Ended Six Months Ended March 31, March 31, --------------------- ----------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Sales $124,987 $115,581 $241,889 $224,654 Cost of sales (77,355) (72,190) (151,634) (143,061) ------- ------- -------- -------- Gross profit 47,632 43,391 90,255 81,593 Selling and administrative expenses (23,466) (22,913) (46,236) (44,281) ------- ------- ------- ------- Operating profit 24,166 20,478 44,019 37,312 Investment income 311 356 662 631 Interest expense (429) (703) (880) (1,672) Other income(deductions), net 1 (28) (85) (45) Minority interest (1,499) (1,131) (2,566) (2,101) ------- ------- ------- ------- Income before income taxes 22,550 18,972 41,150 34,125 Income taxes (8,749) (7,360) (15,966) (13,240) ------- ------- ------- ------- Net income $13,801 $11,612 $25,184 $20,885 ======= ======= ======= ======= Earnings per share: Basic $ .43 $ .37 $ .78 $ .67 ===== ===== ===== ===== Diluted $ .42 $ .36 $ .77 $ .65 ===== ===== ===== ===== Dividends per share: $.04 $.0275 $.08 $.055 ===== ===== ===== =====
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollar amounts in thousands, except per share data)
Six Months Ended March 31, -------------------------- 2004 2003 ---- ---- Cash flows from operating activities: Net income $25,184 $20,885 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,508 7,323 Change in deferred taxes 172 188 Changes in working capital items 1,799 (11,791) Decrease in other assets 3,653 1,001 Decrease in estimated finishing costs (23) (1,093) Increase (decrease) in other liabilities (81) 2,062 Decrease in postretirement benefits (190) (225) Tax benefit of exercised stock options 2,385 2,100 Net (gain) loss on sales of assets 1 (348) ------- ------- Net cash provided by operating activities 40,408 20,102 ------- ------- Cash flows from investing activities: Capital expenditures (3,156) (4,200) Proceeds from sales of assets 133 1,256 Purchases of investment securities (143) (103) Proceeds from disposition of investment securities 12 11 ------ ------ Net cash used in investing activities (3,154) (3,036) ------ ------ Cash flows from financing activities: Payments on long-term debt (20,825) (21,224) Proceeds from the sale of treasury stock 5,623 3,612 Purchases of treasury stock (6,251) (2,110) Dividends (2,578) (1,729) ------- ------- Net cash used in financing activities (24,031) (21,451) ------- ------- Effect of exchange rate changes on cash 1,969 2,555 ------- ------- Net increase (decrease) in cash and cash equivalents $15,192 $(1,830) ====== ======
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004 (Dollar amounts in thousands, except per share data) Note 1. Nature of Operations Matthews International Corporation ("Matthews"), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of memorialization products, caskets and cremation equipment for the cemetery and funeral home industries and custom-made products which are used to identify people, places, products and events. The Company's products and operations are comprised of five business segments: Bronze, York Casket, Cremation, Graphics Imaging, and Marking Products. The Bronze segment is a leading manufacturer of cast bronze memorials and other memorialization products, cast and etched architectural products and is a leading builder of mausoleums in the United States. The York Casket segment is a leading casket manufacturer in the United States and produces a wide variety of wood and metal caskets. The Cremation segment is a leading designer and manufacturer of cremation equipment and cremation caskets primarily in North America. The Graphics Imaging segment manufactures and provides printing plates, pre-press services and imaging services for the corrugated and flexible packaging industries. The Marking Products segment designs, manufactures and distributes a wide range of marking equipment and consumables for identifying various consumer and industrial products, components and packaging containers. The Company has manufacturing and marketing facilities in the United States, Australia, Canada and Europe. Note 2. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three months and six months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2003. The consolidated financial statements include all majority-owned foreign and domestic subsidiaries. The consolidated financial statements also include the accounts of the Company's 50%-owned affiliate, S+T GmbH & Co. KG. All intercompany accounts and transactions have been eliminated. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollar amounts in thousands, except per share data) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. Note 3. Stock-Based Compensation The Company has accounted for its stock-based compensation plans in accordance with the intrinsic value provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the Company did not record any compensation expense in the consolidated financial statements for its stock-based compensation plans. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure", the following table illustrates the effect on net income and earnings per share had compensation expense been recognized consistent with the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Three Months Ended Six Months Ended March 31, March 31, ------------------------- -------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Net income, as reported $13,801 $11,612 $25,184 $20,885 Net income, pro forma 13,359 11,242 24,420 20,256 Basic earnings per share, as reported .43 .37 .78 .67 Diluted earnings per share, as reported .42 .36 .77 .65 Basic earnings per share, pro forma .41 .36 .76 .65 Diluted earnings per share, pro forma .41 .35 .75 .64
Note 4. Income Taxes Income tax provisions for the Company's interim periods are based on the effective income tax rate expected to be applicable for the full year. The difference between the estimated effective tax rate for fiscal 2004 of 38.8% and the Federal statutory rate of 35% primarily reflects the impact of state and foreign income taxes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollar amounts in thousands, except per share data) Note 5. Earnings Per Share
Three Months Ended Six Months Ended March 31, March 31, ------------------------- -------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Net income $13,801 $11,612 $25,184 $20,885 ========== ========== ========== ========== Weighted-average common shares outstanding 32,212,133 31,438,751 32,155,592 31,336,961 Dilutive securities, primarily stock options 488,572 708,751 496,653 749,496 ---------- ---------- ---------- ---------- Diluted weighted-average common shares outstanding 32,700,705 32,147,502 32,652,245 32,086,457 ========== ========== ========== ========== Basic earnings per share $ .43 $ .37 $ .78 $ .67 ==== ==== ==== ==== Diluted earnings per share $ .42 $ .36 $ .77 $ .65 ==== ==== ==== ====
Note 6. Segment Information The Company is organized into five business segments based on products and services. The segments, which are Bronze, York Casket, Cremation, Graphics Imaging and Marking Products, are described under Nature of Operations (Note 1). Management evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and minority interest. Information about the Company's segments follows:
Three Months Ended Six Months Ended March 31, March 31, ------------------------- -------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Sales to external customers: Bronze $47,171 $44,820 $92,605 $87,721 York Casket 33,967 33,617 64,142 63,776 Cremation 5,527 5,499 11,389 10,677 Graphics Imaging 28,743 23,745 54,925 46,987 Marking Products 9,579 7,900 18,828 15,493 ----------- ----------- ----------- ----------- $124,987 $115,581 $241,889 $224,654 =========== =========== =========== =========== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollar amounts in thousands, except per share data) Three Months Ended Six Months Ended March 31, March 31, ------------------------- -------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Operating profit: Bronze $10,654 $11,810 $20,390 $21,183 York Casket 5,664 3,755 9,627 7,150 Cremation 511 255 957 712 Graphics Imaging 5,747 3,700 9,675 6,328 Marking Products 1,590 958 3,370 1,939 ----------- ----------- ----------- ----------- $24,166 $20,478 $44,019 $37,312 =========== =========== =========== ===========
Note 7. Comprehensive Income Comprehensive income consists of net income adjusted for changes, net of tax, in cumulative foreign currency translation, unrealized investment gains and losses and minimum pension liability. For the three months ended March 31, 2004 and 2003, comprehensive income was $11,489 and $16,834, respectively. For the six months ended March 31, 2004 and 2003, comprehensive income was $29,558 and $26,750, respectively. Note 8. Goodwill and Other Intangible Assets Under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill is no longer amortized but is subject to annual review for impairment. In general, when the carrying value of a reporting unit exceeds its implied fair value, an impairment loss must be recognized. For purposes of testing for impairment the Company uses a 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. The Company performs its annual impairment review in its second fiscal quarter. Changes to goodwill, net of accumulated amortization, for the six months ended March 31, 2004, are as follows.
York Graphics Marking Bronze Casket Cremation Imaging Products Consolidated -------- -------- --------- -------- -------- ------------- Balance at September 30, 2003 $ 72,122 $ 40,706 $ 6,536 $ 35,161 $ 165 $154,690 Additions during period - - - - - - Translation and other adjustments 1,341 - - 1,427 - 2,768 ------ ------ ------ ------ --- ------- Balance at March 31, 2004 $ 73,463 $ 40,706 $ 6,536 $ 36,588 $ 165 $157,458 ====== ====== ====== ====== === =======
The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of March 31, 2004 and September 30, 2003, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollar amounts in thousands, except per share data) York Casket Segment Cremation Segment -------------------- ------------------ Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization ------- ------------ -------- ------------ March 31, 2004: - ------------------ Trade names $ 8,000 $ - * $ - $ - Customer relationships 4,100 (563) - - Copyrights/patents/other 1,300 (202) 300 (47) ------ ---- --- --- $13,400 $(765) $ 300 $(47) ====== ==== === === September 30, 2003: - ------------------ Trade names $ 8,000 $ - * $ - $ - Customer relationships 4,100 (442) - - Copyrights/patents/other 1,300 (159) 300 (37) ------ ---- --- --- $13,400 $(601) $ 300 $(37) ====== ==== === === * Not subject to amortization Intangible assets established for customer relationships and copyrights, patents and other are amortized over their estimated useful lives of 17 years and 15 years, respectively. For the three-month period ended March 31, 2004, amortization expense on intangible assets was $82 for the York Casket segment and $5 for the Cremation segment. For the six-month period ended March 31, 2004, amortization expense was $164 for the York Casket segment and $10 for the Cremation segment. Amortization expense on intangible assets is expected to approximate $350 each year between 2004 and 2008. Note 9. Pension and Other Postretirement Benefit Plans The Company provides defined benefit pension and other postretirement plans to certain employees. The following represents the net periodic pension and other postretirement benefit cost (income) for the plans in accordance with the revised version of SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," as described in Note 11:
Pension Other Postretirement ---------------- -------------------- Three months ended March 31, 2004 2003 2004 2003 ------ ------ ------ ------ Service cost $906 $759 $99 $72 Interest cost 1,266 1,208 262 265 Expected return on plan assets (1,484) (1,154) - - Amortization: Prior service cost 28 28 (322) (322) Net actuarial loss 293 313 112 124 ----- ----- ----- ----- Net benefit cost $1,009 $ 1,154 $151 $139 ===== ===== ===== ===== NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollar amounts in thousands, except per share data) Pension Other Postretirement ---------------- -------------------- Six months ended March 31, 2004 2003 2004 2003 ------ ------ ------ ------ Service cost $ 1,813 $1,518 $198 $144 Interest cost 2,531 2,416 524 530 Expected return on plan assets (2,968) (2,308) - - Amortization: Prior service cost 56 56 (644) (644) Net actuarial loss 586 626 224 248 ----- ----- ----- ----- Net benefit cost $ 2,018 $2,308 $302 $278 ===== ===== ===== =====
Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan, postretirement benefit plan and 401(k) plan are made from the Company's operating funds. Due to the full funding limitations, the Company is not required to make any contributions to its principal retirement plan in fiscal year 2004. As of March 31, 2004, contributions of $161 and $381 have been made to the supplemental retirement plan and postretirement plans, respectively. The Company currently anticipates contributing an additional $193 and $545 to fund the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2004. Contributions to the Company's 401(k) plan approximate $680 per year. Note 10. Acquisitions In August 2003, Matthews acquired Reproservice Eurodigital GmbH Munchen ("Reproservice Munich"), a German graphics and flexographic printing plate manufacturer in Munich, Germany. The transaction was structured as a stock purchase, at an acquisition price of 4.1 million Euros (U.S.$4,800). Products and services of Reproservice Munich include pre-press packaging, digital and analog flexographic printing plates, design, art work, lithography and color separation. The combination of Matthews and Reproservice Munich is an important part of the Matthews strategy to increase its European presence in the graphics industry. In May 1998, Matthews acquired a 50% interest in O.N.E. Color Communications ("O.N.E."), a digital graphics service company located in Oakland, California. The purchase price consisted of $2,000 cash upon closing plus an additional $2,750 in 2001, which was based upon the attainment of certain operating performance levels of O.N.E. The purchase agreement also required Matthews to acquire the remaining 50% interest no later than May 2004, with the purchase price contingent on the attainment of certain operating performance levels of O.N.E., but not less than $4,500. The accounts of O.N.E. have been included in the consolidated financial statements of Matthews since May 1998 and a liability was recorded for the future minimum payout. Effective July 31, 2003, Matthews completed the purchase of the remaining 50% interest in O.N.E. for $5,700. (Dollar amounts in thousands, except per share data) Note 11. Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation addresses consolidation by business enterprises of variable interest entities with certain characteristics. FIN 46 is effective immediately for all variable interest entities created after January 31, 2003. In October 2003, the FASB agreed to defer the effective date of FIN 46 for variable interest entities held by public companies that were acquired before February 1, 2003. The deferral will require that public companies adopt the provisions of FIN 46 for periods ending after December 15, 2003. The adoption of FIN 46 did not have a material impact on the Company's consolidated financial position and results of operations. In July 2003, the EITF issued Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables." Issue No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue generating activities. The provisions of Issue No. 00-21 were effective July 1, 2003, and have been applied prospectively by the Company to the finishing and storage elements of its pre-need sales. Issue No. 00-21 did not have a material impact on the Company's results of operations or financial position. In December 2003, the FASB issued a revised version of SFAS No. 132 "Employer's Disclosures about Pensions and Other Postretirement Benefits." This statement requires additional disclosures about assets, obligations, cash flows and net periodic benefit costs of defined benefit plans and other defined benefit postretirement plans. The disclosure requirements are effective for annual financial statements with fiscal years ending after December 15, 2003 and for interim periods beginning after December 15, 2003. The disclosure requirements of the revised version of SFAS No. 132 have been adopted by the Company and are included in this quarterly report on Form 10-Q. In January 2004, the FASB issued FASB Staff Position No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-1"). FSP 106-1 permits the sponsor of a postretirement health care plan that provides prescription drug benefits to make a one time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). FSP 106-1 also requires certain other disclosures, whether the deferral is elected or not. In accordance with FSP 106-1, the Company has elected to defer accounting for the Act since the effects of the Act on the Company's postretirement benefit plan have not been calculated. The FASB is expected to issue specific guidance on the accounting for certain elements of the Act which, when adopted by the Company, could require a change to previously reported information regarding the Company's postretirement benefit plan. However, FSP 106-1 is not expected to have a material impact on the Company's consolidated financial position or results of operations. Note 12. Subsequent Event On April 21, 2004, the Company signed an amendment to its Revolving Credit Facility, extending its maturity to April 30, 2009 and modifying certain other terms and covenants. Effective April 30, 2004, the Company increased its outstanding borrowings under the facility to $50,000 and simultaneously entered into an interest rate swap that fixed the interest rate on such borrowings at 3.16% for a five-year period. The interest rate swap has been designated as a cash flow hedge of the future variable interest payments under the revolving credit facility. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement: The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended September 30, 2003. Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in raw material prices, 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 foreign competitive pressures, unknown risks in connection with the Company's acquisitions, and technological factors beyond the Company's control. Results Of Operations: The following table sets forth certain income statement data of the Company expressed as a percentage of sales for the periods indicated. Six months ended Years ended March 31, September 30, ------------------ -------------------- 2004 2003 2003(1) 2002 2001(2) ---- ---- ------ ---- ------ Sales 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 37.3 36.3 37.1 37.5 42.2 Operating profit 18.2 16.6 17.5 15.9 18.8 Income before taxes (3) 17.0 15.2 16.0 14.6 18.2 Net income (3) 10.4 9.3 9.8 8.9 11.2 (1) The fourth quarter of fiscal 2003 included a net pre-tax charge of approximately $1.0 million from special items which consisted of a pre-tax gain of $2.6 million on the sale of a facility and a goodwill impairment charge of $3.6 million. (2) Fiscal 2001 included pre-tax income of $500,000 from special items, which consisted of a pre-tax gain of $7.1 million on the sale of a subsidiary and asset impairments, restructuring costs and other special pre-tax charges totaling $6.6 million. (3) Before cumulative effect of change in accounting. Fiscal 2002 reflected a pre-tax charge of $5.3 million ($.10 per share after-tax) for transitional goodwill impairment. Sales for the six months ended March 31, 2004 were $241.9 million and were $17.2 million, or 7.7%, higher than sales of $224.7 million for the six months ended March 31, 2003. Bronze segment sales for the first six months of fiscal Results of operations, continued: 2004 were $92.6 million compared to $87.7 million for the first six months of fiscal 2003. The increase of 5.6% in Bronze sales reflected an increase in the values of foreign currencies against the U.S. dollar and higher sales of memorialization products. The increase was partially offset by a decline in mausoleum sales during the first six months of fiscal 2004 compared to the same period in fiscal 2003. Sales for the York Casket Segment were $64.2 million for the first six months of fiscal 2004 compared to $63.8 million for the comparable period of fiscal 2003. The increase reflected higher casket sales, partially offset by the impact of the segment's divestiture of a small manufacturing facility and several distribution operations in fiscal 2003. Sales for the Cremation segment were $11.4 million for the first half of fiscal 2004 compared to $10.7 million for the same period a year ago. The increase reflected higher sales of cremation equipment and cremation caskets compared to the same period last year. Sales for the Graphics Imaging segment in the first half of fiscal 2004 were $54.9 million, compared to $47.0 million for the same period a year ago. The increase primarily reflected an increase in the value of the Euro against the U.S. dollar, the acquisition of Reproservice Eurodigital GmbH Munchen ("Reproservice Munich") in August 2003 and higher sales in the segment's other European operations. Marking Products segment sales for the six months ended March 31, 2004 were $18.8 million, compared to $15.5 million for the first six months of fiscal 2003. The increase of $3.3 million, or 21.5%, was principally due to an increase in demand for the segment's products, reflecting a continued improvement in the U.S. economy and new product introductions. In addition, the segment's sales were positively affected by an increase in the value of the Swedish Krona against the U.S. dollar. For the first six months of fiscal 2004, higher foreign currency values against the U.S. dollar had a favorable impact of approximately $8.9 million on the Company's consolidated sales compared to the first six months of fiscal 2003. Gross profit for the six months ended March 31, 2004 was $90.3 million, compared to $81.6 million for the six months ended March 31, 2003. Consolidated gross profit as of percent of sales increased from 36.3% for the first half of fiscal 2003 to 37.3% for the first six months of fiscal 2004. The increase in consolidated gross profit and gross profit percentage primarily resulted from higher sales and improved operating efficiencies in the York Casket and Marking Products segments. The Bronze segment's gross margin for the first six months of fiscal 2004 included a charge for the cost of early retirement and other severance costs incurred during March 2004 and the impact of higher raw ingot prices during fiscal 2004 compared to fiscal 2003. Gross profit for the Bronze segment for the first six months of fiscal 2003 included the benefit of a reduction in the segment's pre-need finishing cost liability due to manufacturing efficiencies. Selling and administrative expenses for the six months ended March 31, 2004 were $46.2 million, compared to $44.3 million for the first half of fiscal 2003. The increase of $1.9 million, or 4.4%, primarily resulted from higher sales, the acquisition of Reproservice Munich in August 2003 and the impact of the increase in values of foreign currencies against the U.S. dollar. Consolidated selling and administrative expenses, as a percent of sales were 19.1% for the six months ended March 31, 2004, compared to 19.7% for the same period last year. Operating profit for the six months ended March 31, 2004 was $44.0 million, representing an increase of $6.7 million, or 18.0%, over operating profit of $37.3 million for the six months ended March 31, 2003. Bronze segment operating profit for the first six months of fiscal 2004 was $20.4 million, compared to $21.2 million for the first half of fiscal 2003. The decrease of Results of operations, continued: 3.7% reflected the absence of a one-time favorable adjustment recorded in fiscal 2003 related to the segment's pre-need memorial finishing cost liability. In addition, current period results were negatively affected by early retirement and severance costs as well as increased bronze ingot costs. Operating profit for the York Casket segment for the first six months of fiscal 2004 was $9.6 million, an increase of $2.5 million, or 34.6%, over the same period a year ago. The increase reflected the favorable impact of the divestiture of unprofitable manufacturing and distribution operations during fiscal 2003, operating efficiencies realized in connection with productivity and quality initiatives at several of the segment's manufacturing facilities and a reduction in administrative expenses. Operating profit for the Cremation segment for the first six months of fiscal 2004 was $957,000 compared to $712,000 for the same period in fiscal 2003. The 34.4% increase reflected higher sales for the period and the benefit of operating and administrative efficiencies realized during fiscal 2004. Graphics Imaging operating profit for the six months ended March 31, 2004 was $9.7 million compared to $6.3 million for the six months ended March 31, 2003. The segment's operating profit was favorably impacted by the acquisition of Reproservice Munich in August 2003, sales growth in the Company's other European operations and an increase in the value of the Euro against the U.S. dollar. Additionally, operating profit for the segment's domestic operations increased as a result of the closure of unprofitable operations in fiscal 2003 and recent cost structure improvements. Operating profit for the Marking Products segment for the first half of fiscal 2004 was $3.4 million, representing an increase of $1.4 million over the same period a year ago. The increase of 73.8% reflected the impact of higher sales and an increase in the value of the Swedish Krona against the U.S. dollar. Higher foreign currency values against the U.S. dollar had a favorable impact of approximately $2.0 million on the Company's consolidated operating profit for the six months ended March 31, 2004 compared to the six months ended March 31, 2003. Investment income for the six months ended March 31, 2004 was $662,000, compared to $631,000 for the six months ended March 31, 2003. Interest expense for the first half of fiscal 2004 was $880,000, compared to $1.7 million for the same period last year. The decline in interest expense reflected a lower level of debt during the fiscal 2004 six-month period combined with a reduction in the average borrowing rate. Other income (deductions), net, for the six months ended March 31, 2004 represented a reduction in pre-tax income of $85,000, compared to a reduction in pre-tax income of $45,000 for same period last year. Minority interest deduction for the first half of fiscal 2004 was $2.6 million, compared to $2.1 million for the first half of fiscal 2003. The higher minority interest deduction for fiscal 2004 resulted from operating income growth in the Company's four European Graphics Imaging businesses that are not wholly owned. The Company's effective tax rate for the six months ended March 31, 2004 was 38.8%, which remained unchanged from the effective rate of 38.8% for the fiscal year ended September 30, 2003. The difference between the Company's effective tax rate and the Federal statutory rate of 35% primarily reflected the impact of state and foreign income taxes. Goodwill: Under Statement of Financial Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill related to business combinations is no longer 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, Goodwill, continued: the Company uses a combination of valuation techniques, including discounted cash flows. The Company performed its annual impairment review in the second quarter of fiscal 2004 and determined that no additional adjustments to the carrying values of goodwill were necessary at this time. Liquidity and Capital Resources: Net cash provided by operating activities was $40.4 million for the six months ended March 31, 2004, compared to $20.1 million for the first six months of fiscal 2003. Operating cash flow for the first half of fiscal 2004 primarily reflected net income adjusted for depreciation and amortization (non-cash charges) and a tax benefit of $2.4 million from exercised stock options. For the six months ended March 31, 2003, operating cash flow primarily reflected net income adjusted for depreciation and amortization and payments to customers in the second quarter of fiscal 2003 under the York Casket segment's rebate programs. Operating cash flow for first six months of fiscal 2003 also included a tax benefit of $2.1 million from exercised stock options. Cash used in investing activities was $3.2 million for the six months ended March 31, 2004, compared to $3.0 million for the six months ended March 31, 2003. Investing activities for the first six months of fiscal 2004 primarily included capital expenditures of $3.2 million. Investing activities for the first six months of fiscal 2003 primarily included capital expenditures of $4.2 million, which was partially offset by proceeds of $1.4 million from the sale of assets. Capital expenditures 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 $8.9 million for the last three fiscal years. The capital budget for fiscal 2004 is $13.9 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects. Cash used in financing activities for the six months ended March 31, 2004 was $24.0 million, reflecting payments on long-term debt of $20.8 million, purchases of treasury stock of $6.2 million, and dividends of $2.6 million to the Company's shareholders, partially offset by proceeds of $5.6 million from the sale of treasury stock (stock option exercises). Cash used in financing activities for the six months ended March 31, 2003 was $21.4 million, reflecting payments on long-term debt of $21.2 million, purchases of treasury stock of $2.1 million, and dividends of $1.7 million to the Company's shareholders, partially offset by proceeds of $3.6 million from the sale of treasury stock (stock option exercises). On December 3, 2001, the Company entered into a Revolving Credit Facility for $125.0 million with a syndicate of financial institutions. The facility was scheduled to mature on November 30, 2004. On April 21, 2004, the Company signed an amendment to the facility which extends its maturity to April 30, 2009. Borrowings under the amended facility bear interest at LIBOR plus a factor ranging from .50% to 1.00% based on the Company's leverage ratio. 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 Liquidity and Capital Resources, continued: Revolving Credit Facility, as amended, requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $10.0 million) is available for the issuance of trade and standby letters of credit. The Company borrowed $124.5 million under the original Revolving Credit Facility on December 3, 2001 in connection with the acquisition of York Casket, and for the repayment of all amounts outstanding under its previous credit facility. The outstanding balance on the Revolving Credit Facility was $24.5 million at March 31, 2004. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2004 was 2.1%. Effective April 30, 2004, the Company increased its outstanding borrowings under the facility to $50.0 million and simultaneously entered into an interest rate swap that fixed the interest rate on such borrowings at 3.16% for a five-year period. The interest rate swap has been designated as a cash flow hedge of the future variable interest payments under the revolving credit facility. Caggiati S.p.A. has four lines of credit totaling approximately U.S.$13.3 million with various Italian banks. Outstanding borrowings on these lines approximated U.S.$4.2 million at March 31, 2004. The Company has a stock repurchase program, which was initiated in 1996. Under the program, the Company's Board of Directors authorized the repurchase of a total of 8,000,000 shares (adjusted for stock splits) of Matthews common stock, of which 7,563,311 shares have been repurchased as of March 31, 2004. On April 23, 2004, the Company announced that its Board of Directors authorized the continuance of the repurchase program and increased the total authorization for stock repurchases to 10,000,000 shares. The repurchase 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 of the Company was $77.3 million at March 31, 2004, compared to $89.7 million at September 30, 2003. Cash and cash equivalents were $82.1 million at March 31, 2004, compared to $67.0 million at September 30, 2003. The Company's current ratio was 1.7 at March 31, 2004 and 2.2 at September 30, 2003. A significant factor in the reductions in working capital and current ratio is the classification of outstanding borrowings under the Revolving Credit Facility as a current liability, since the maturity of the facility (before the amendment on April 21, 2004) was November 30, 2004. 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 policies and procedures with respect to environmental, safety and health, including the proper handling, storage and disposal of hazardous materials. Environmental Matters, continued: 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, York Casket was identified, along with others, by the Environmental Protection Agency as a potentially responsible party for remediation of a landfill site in York, PA. At this time, the Company has not been joined in any lawsuit or administrative order related to the site or its clean-up. At March 31, 2004, an accrual of $11.6 million was recorded for environmental remediation (of which $610,000 has been 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 Casket 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. 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: In August 2003, Matthews acquired Reproservice Eurodigital GmbH Munchen ("Reproservice Munich"), a German graphics and flexographic printing plate manufacturer in Munich, Germany. The transaction was structured as a stock purchase, at an acquisition price of 4.1 million Euros (U.S.$4.8 million). The combination of Matthews and Reproservice Munich is an important part of the Matthews strategy to increase its European presence in the graphics industry. Reproservice Munich, a family-owned business with annual sales of approximately U.S.$6.0 million, was established in 1983. Products and services of Reproservice Munich include pre-press packaging, digital and analog flexographic printing plates, design, art work, lithography and color separation. In May 1998, Matthews acquired a 50% interest in O.N.E. Color Communications ("O.N.E."), a digital graphics service company located in Oakland, California. The purchase price consisted of $2.0 million cash upon closing plus an additional $2.75 million in 2001, which was based upon the attainment of certain operating performance levels of O.N.E. The purchase agreement also required Matthews to acquire the remaining 50% interest no later than May 2004, with the purchase price contingent on the attainment of certain operating performance levels of O.N.E., but not less than $4.5 million. The accounts of O.N.E. have been included in the consolidated financial statements of Matthews since May 1998 and a liability was recorded for the future minimum payout. Effective July 31, 2003, Matthews completed the purchase of the remaining 50% interest in O.N.E. for $5.7 million. Forward-Looking Information: The Company's objective with respect to operating performance is to increase annual earnings per share in the range of 12% to 15% annually. For the past eight fiscal years, the Company has achieved an average annual increase in earnings per share of 15.2%. Matthews has a three-pronged strategy to attain Forward-Looking Information, continued: the annual growth rate objective, which has remained unchanged from the prior year. This strategy consists of the following: internal growth (which includes 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. For the first six months of fiscal 2004, the Company's earnings of $0.77 per share were in line with management's expectations and represented an increase of 18.5% over earnings per share of $0.65 for the same period last year. Based on the expected impact of the Company's recent acquisitions, anticipated internal growth and also considering recent significant increases in bronze ingot and steel costs, the Company expects diluted earnings per share to be in the range of $1.55 to $1.58 for the fiscal year ended September 30, 2004. 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 "Quantitative and Qualitative Disclosures about Market Risk" in this Quarterly Report on Form 10-Q. A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2003. 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 are considered critical to the preparation of the Company's consolidated financial statements. Allowance for Doubtful Accounts The allowance for doubtful accounts is based on an evaluation of specific customer accounts in which available facts and circumstances indicate collectibility may be a problem. In addition, the allowance includes a general 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. Goodwill is no longer amortized, but is subject to periodic review for impairment. 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. Pension Costs 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 Pension Costs, continued: 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. Environmental Reserve 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 in Estimated Finishing Costs 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. In July 2003, the Emerging Issues Task Force ("EITF") issued Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables." Issue No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue generating activities. The provisions of Issue No. 00-21 were effective July 1, 2003 and have been applied prospectively by the Company to the finishing and storage elements of its pre-need sales. 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. Issue No. 00-21 did not have a material impact on the Company's results of operations or financial position. At March 31, 2004, the Company held 359,832 memorials and 237,760 vases in its storage facilities under the pre-need sales program. Construction revenues are recognized under the percentage-of-completion method of accounting. 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. LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS: The following table summarizes the Company's contractual obligations at March 31, 2004, and the effect such obligations are expected to have on its liquidity and cash flows in future periods. Long-term Contractual Obligations and Commitments, continued:
Payments due in fiscal year: ------------------------------------------------ 2004 After Total (remainder) 2005 to 2006 2007 to 2008 2008 --------- ----------- ------------ ------------ ------ Contractual Cash Obligations: (Dollar amounts in thousands) Revolving credit facility(1) $24,500 $ - $24,500 $ - $ - Notes payable to banks 13,663 845 3,054 2,632 7,132 Short-term borrowings 4,214 4,214 - - - Capital lease obligations 801 346 443 12 - Non-cancelable operating leases 10,190 1,439 3,916 2,729 2,106 ------- ------ ------ ----- ------ Total contractual cash obligations $53,368 $6,844 $31,913 $5,373 $9,238 ======= ====== ====== ===== ====== (1) On April 21, 2004, the Company signed an amendment to its Revolving Credit Facility, extending its maturity to April 30, 2009 and modifying certain other terms and covenants. Effective April 30, 2004, the Company increased its outstanding borrowings under the facility to $50,000 and simultaneously entered into an interest rate swap that fixed the interest rate on such borrowings at 3.16% for a five-year period. The interest rate swap has been designated as a cash flow hedge of the future variable interest payments under the revolving credit facility.
Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan, postretirement benefit plan and 401(k) plan are made from the Company's operating funds. Due to the full funding limitations, the Company is not required to make any contributions to its principal retirement plan in fiscal year 2004. As of March 31, 2004, contributions of $161,000 and $381,000 have been made to the supplemental retirement plan and postretirement plans, respectively. The Company currently anticipates contributing an additional $193,000 and $545,000 to fund the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2004. Contributions to the Company's 401(k) plan approximate $680,000 per year. 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. Accounting Pronouncements: In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation addresses consolidation by business enterprises of variable interest entities with certain characteristics. FIN 46 is effective immediately for all variable interest entities created after January 31, 2003. In October 2003, the FASB agreed to defer the effective date of FIN 46 for variable interest entities held by public companies that were acquired before February 1, 2003. The deferral will require that public companies adopt the provisions of FIN 46 for periods ending after December 15, 2003. The adoption of FIN 46 did not have a material impact on the Company's consolidated financial position and results of operations. In December 2003, the FASB issued a revised version of SFAS No. 132 "Employer's Disclosures about Pensions and Other Postretirement Benefits." This statement requires additional disclosures about assets, obligations, cash flows and net periodic benefit costs of defined benefit plans and other defined benefit postretirement plans. The disclosure requirements are Accounting Pronouncements, continued: effective for annual financial statements with fiscal years ending after December 15, 2003 and for interim periods beginning after December 15, 2003. The disclosure requirements of the revised version of SFAS No. 132 have been adopted by the Company and are included in this quarterly report on Form 10-Q. In January 2004, the FASB issued FASB Staff Position No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-1"). FSP 106-1 permits the sponsor of a postretirement health care plan that provides prescription drug benefits to make a one time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). FSP 106-1 also requires certain other disclosures, whether the deferral is elected or not. In accordance with FSP 106-1, the Company has elected to defer accounting for the Act since the effects of the Act on the Company's postretirement benefit plan have not been calculated. The FASB is expected to issue specific guidance on the accounting for certain elements of the Act which, when adopted by the Company, could require a change to previously reported information regarding the Company's postretirement benefit plan. However, FSP 106-1 is not expected to have a material impact on the Company's consolidated financial position or results of operations. Item 3. 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. However, under the Revolving Credit Facility, as amended, the Company entered into an interest rate swap arrangement effective April 30, 2004 to fix the interest rate at 3.16% on its outstanding borrowings of $50.0 million. The Company's most significant long-term debt instrument is the Revolving Credit Facility, as amended, which bears interest at variable rates based on LIBOR and the carrying amount of such debt approximates fair value. 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 and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available. The Company is subject to foreign currency exchange rate changes 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. Item 4. Controls and Procedures Based on their evaluation at the end of the period covered by this Quarterly Report on Form 10-Q, the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. PART II - OTHER INFORMATION Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Stock Repurchase Plan The Company has a stock repurchase program, which was initiated in 1996. Under the program, the Company's Board of Directors has authorized the repurchase of a total of 8,000,000 shares (adjusted for stock splits) of Matthews common stock, of which 7,563,311 shares have been repurchased as of March 31, 2004. All purchases of the Company's common stock during the first six months of fiscal 2004 were part of this repurchase program. The following table shows the monthly fiscal 2004 stock repurchase activity:
Total number of Average shares purchased Maximum number Total number price as part of a of shares that yet of shares paid per publicly announced may be purchased Period purchased share plan under the plan (1) - ------ ------------ -------- ------------------ ----------------- October 1, 2003 through October 31, 2003 158,300 $27.63 158,300 509,768 November 1, 2003 through November 30, 2003 60,700 28.62 60,700 449,068 December 1, 2003 through December 31, 2003 79 28.70 79 448,989 January 1, 2004 through January 31, 2004 - - - 448,989 February 1, 2004 through February 29, 2004 - - - 448,989 March 1, 2004 through March 31, 2004 12,300 32.03 12,300 436,689 ------- ----- ------- ======= Total 231,379 28.12 231,379 ======= ===== ======= (1) In April 2004 the Company's Board of Directors authorized the purchase of an additional 2,000,000 shares of Matthews common stock, bringing the total authorization for stock repurchases to 10,000,000 shares.
Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of Matthews International Corporation was held on February 19, 2004. A total of 32,113,969 shares of Class A Common Stock were eligible to vote at such meeting. The matters voted upon at such meeting were as follows: 1. Election of Directors: The following individuals were nominated for election to the Board of Directors for a term expiring at the Annual Meeting of Shareholders in the year indicated. Item 4. Submission of Matters to a Vote of Security Holders, continued: Votes ----------------------------- Term Withhold Nominee Expiration For Authority ------- ---------- ----------- ----------- G.R. Mahone 2006 22,236,537 6,669,985 D.J. DeCarlo 2007 22,284,084 6,622,438 R.J. Kavanaugh 2007 28,441,279 465,243 J.P. O'Leary, Jr. 2007 28,397,618 508,904 The nominations were made by the Board of Directors and no other nominations were made by any shareholder. The nominees had currently been members of the Board of Directors at the date of the Annual Meeting. The terms of the following additional directors continued after the meeting: D.M. Kelly, W.J. Stallkamp and J.D. Turner. 2. Selection of Auditors: The shareholders voted to ratify the appointment by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as independent auditors to audit the records of the Company for the year ending September 30, 2004. Votes For: 28,157,070 Votes Against: 718,128 Abstaining: 31,324 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description ------- ----------- 10.1 First Amendment to Revolving Credit Facility 31.1 Certification of Principal Executive Officer for David M. Kelly. 31.2 Certification of Principal Financial Officer for Steven F. Nicola. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for David M. Kelly. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Steven F. Nicola. (b) Reports on Form 8-K On January 21, 2004, Matthews filed a Current Report on Form 8-K under Item 12 in connection with a press release announcing its earnings for the quarter ended December 31, 2003. On February 17, 2004, Matthews filed a Current Report on Form 8-K under Item 9 in connection with a press release announcing personnel changes. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATTHEWS INTERNATIONAL CORPORATION (Registrant) Date 5/10/04 D.M. Kelly ------------ ----------------------------------------- D.M. Kelly, Chairman of the Board, President and Chief Executive Officer Date 5/10/04 S.F. Nicola ------------ ----------------------------------------- S.F. Nicola, Chief Financial Officer, Secretary and Treasurer