UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
Form
10-Q
x
|
Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For The
Quarterly Period Ended June 30, 2009
Commission
File No. 0-9115
MATTHEWS
INTERNATIONAL CORPORATION
(Exact
Name of registrant as specified in its charter)
PENNSYLVANIA
|
|
25-0644320
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
Incorporation
or organization)
|
|
Identification
No.)
|
TWO
NORTHSHORE CENTER, PITTSBURGH, PA
|
|
15212-5851
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
|
|
|
|
|
Registrant's
telephone number, including area code
|
|
(412)
442-8200
|
NOT
APPLICABLE
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate 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, or a non-accelerated filer. See definition of
“accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
As of
July 31, 2009, shares of common stock outstanding were:
Class A Common Stock 30,339,498
shares
PART I -
FINANCIAL INFORMATION
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollar
amounts in thousands, except per share data)
|
|
June
30, 2009
|
|
|
September
30, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$ |
51,893 |
|
|
|
|
|
$ |
50,667 |
|
Short-term
investments
|
|
|
|
|
|
62 |
|
|
|
|
|
|
62 |
|
Accounts
receivable, net
|
|
|
|
|
|
136,751 |
|
|
|
|
|
|
145,288 |
|
Inventories
|
|
|
|
|
|
94,248 |
|
|
|
|
|
|
96,388 |
|
Deferred
income taxes
|
|
|
|
|
|
1,308 |
|
|
|
|
|
|
1,271 |
|
Other
current assets
|
|
|
|
|
|
12,127 |
|
|
|
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
|
|
296,389 |
|
|
|
|
|
|
303,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
12,515 |
|
|
|
|
|
|
10,410 |
|
Property,
plant and equipment: Cost
|
|
|
294,083 |
|
|
|
|
|
|
|
288,865 |
|
|
|
|
|
Less accumulated
depreciation
|
|
|
(159,339 |
) |
|
|
|
|
|
|
(143,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
134,744 |
|
|
|
|
|
|
|
145,738 |
|
Deferred
income taxes
|
|
|
|
|
|
|
20,936 |
|
|
|
|
|
|
|
17,714 |
|
Other
assets
|
|
|
|
|
|
|
19,181 |
|
|
|
|
|
|
|
17,754 |
|
Goodwill
|
|
|
|
|
|
|
374,443 |
|
|
|
|
|
|
|
359,641 |
|
Other
intangible assets, net
|
|
|
|
|
|
|
55,674 |
|
|
|
|
|
|
|
59,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
$ |
913,882 |
|
|
|
|
|
|
$ |
914,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, current maturities
|
|
|
|
|
|
$ |
14,309 |
|
|
|
|
|
|
$ |
35,144 |
|
Accounts
payable
|
|
|
|
|
|
|
25,937 |
|
|
|
|
|
|
|
26,647 |
|
Accrued
compensation
|
|
|
|
|
|
|
33,882 |
|
|
|
|
|
|
|
40,188 |
|
Accrued
income taxes
|
|
|
|
|
|
|
15,480 |
|
|
|
|
|
|
|
12,075 |
|
Other
current liabilities
|
|
|
|
|
|
|
42,298 |
|
|
|
|
|
|
|
47,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
|
|
|
131,906 |
|
|
|
|
|
|
|
161,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
238,812 |
|
|
|
|
|
|
|
219,124 |
|
Accrued
pension
|
|
|
|
|
|
|
19,833 |
|
|
|
|
|
|
|
17,208 |
|
Postretirement
benefits
|
|
|
|
|
|
|
22,366 |
|
|
|
|
|
|
|
20,918 |
|
Deferred
income taxes
|
|
|
|
|
|
|
10,558 |
|
|
|
|
|
|
|
10,594 |
|
Environmental
reserve
|
|
|
|
|
|
|
6,579 |
|
|
|
|
|
|
|
7,382 |
|
Other
liabilities and deferred revenue
|
|
|
|
|
|
|
15,178 |
|
|
|
|
|
|
|
12,500 |
|
Total
liabilities
|
|
|
|
|
|
|
445,232 |
|
|
|
|
|
|
|
449,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest and
minority
interest arrangement
|
|
|
|
|
|
|
29,208 |
|
|
|
|
|
|
|
30,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
36,334 |
|
|
|
|
|
|
|
36,334 |
|
|
|
|
|
Additional paid-in
capital
|
|
|
45,987 |
|
|
|
|
|
|
|
47,250 |
|
|
|
|
|
Retained
earnings
|
|
|
546,274 |
|
|
|
|
|
|
|
511,130 |
|
|
|
|
|
Accumulated other comprehensive
income
|
|
|
(11,022 |
) |
|
|
|
|
|
|
(2,979 |
) |
|
|
|
|
Treasury stock, at
cost
|
|
|
(178,131 |
) |
|
|
|
|
|
|
(157,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
439,442 |
|
|
|
|
|
|
|
433,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
|
|
|
|
$ |
913,882 |
|
|
|
|
|
|
$ |
914,282 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
(Dollar
amounts in thousands, except per share data)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
192,047 |
|
|
$ |
219,270 |
|
|
$ |
580,695 |
|
|
$ |
599,445 |
|
Cost
of sales
|
|
|
(116,581 |
) |
|
|
(132,351 |
) |
|
|
(364,260 |
) |
|
|
(360,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
75,466 |
|
|
|
86,919 |
|
|
|
216,435 |
|
|
|
239,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
(45,656 |
) |
|
|
(50,185 |
) |
|
|
(143,107 |
) |
|
|
(141,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
29,810 |
|
|
|
36,734 |
|
|
|
73,328 |
|
|
|
97,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
1,324 |
|
|
|
392 |
|
|
|
629 |
|
|
|
1,395 |
|
Interest
expense
|
|
|
(2,759 |
) |
|
|
(2,648 |
) |
|
|
(9,053 |
) |
|
|
(6,682 |
) |
Other
income (loss), net
|
|
|
80 |
|
|
|
(122 |
) |
|
|
83 |
|
|
|
246 |
|
Minority
interest
|
|
|
(901 |
) |
|
|
(785 |
) |
|
|
(999 |
) |
|
|
(2,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
27,554 |
|
|
|
33,571 |
|
|
|
63,988 |
|
|
|
90,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(9,486 |
) |
|
|
(12,193 |
) |
|
|
(21,889 |
) |
|
|
(31,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,068 |
|
|
$ |
21,378 |
|
|
$ |
42,099 |
|
|
$ |
59,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$0.60 |
|
|
|
$0.69 |
|
|
|
$1.39 |
|
|
|
$1.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$0.60 |
|
|
|
$0.69 |
|
|
|
$1.38 |
|
|
|
$1.90 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar
amounts in thousands, except per share data)
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$ |
42,099 |
|
|
$ |
59,092 |
|
Adjustments to reconcile net
income to net cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
23,118 |
|
|
|
17,200 |
|
Net
loss on sale of assets
|
|
|
393 |
|
|
|
405 |
|
Minority
interest
|
|
|
999 |
|
|
|
2,052 |
|
Stock-based compensation
expense
|
|
|
4,358 |
|
|
|
3,821 |
|
Change in deferred
taxes
|
|
|
(1,757 |
) |
|
|
(1,875 |
) |
Changes in working capital
items
|
|
|
(1,017 |
) |
|
|
3,990 |
|
Increase in other
assets
|
|
|
(1,426 |
) |
|
|
(3,780 |
) |
Decrease in other
liabilities
|
|
|
(833 |
) |
|
|
(283 |
) |
Increase (decrease) in pension
and postretirement benefits
|
|
|
3,561 |
|
|
|
(2,117 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
69,495 |
|
|
|
78,505 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(11,556 |
) |
|
|
(7,867 |
) |
Proceeds from sale of
assets
|
|
|
311 |
|
|
|
922 |
|
Acquisitions, net of cash
acquired
|
|
|
(4,843 |
) |
|
|
(90,919 |
) |
Purchases of
investments
|
|
|
(2,615 |
) |
|
|
(4,177 |
) |
Proceeds
from disposition of investments
|
|
|
- |
|
|
|
5,457 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(18,703 |
) |
|
|
(96,584 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term
debt
|
|
|
45,156 |
|
|
|
114,246 |
|
Payments on long-term
debt
|
|
|
(56,309 |
) |
|
|
(68,343 |
) |
Proceeds from the sale of
treasury stock
|
|
|
1,143 |
|
|
|
6,631 |
|
Purchases of treasury
stock
|
|
|
(27,348 |
) |
|
|
(25,889 |
) |
Tax benefit of exercised stock
options
|
|
|
98 |
|
|
|
992 |
|
Dividends
|
|
|
(6,078 |
) |
|
|
(5,581 |
) |
Distributions to minority
interests
|
|
|
(2,291 |
) |
|
|
(1,330 |
) |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(45,629 |
) |
|
|
20,726 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(3,937 |
) |
|
|
4,206 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
$ |
1,226 |
|
|
$ |
6,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures financed by capital leases
|
|
$ |
5,130 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2009
(Dollar
amounts in thousands, except per share data)
Note
1. Nature of Operations
Matthews
International Corporation ("Matthews" or the “Company”), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of memorialization products and brand
solutions. Memorialization products consist primarily of bronze
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 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 and cremation caskets. The Graphics Imaging segment
manufactures and provides brand management, printing plates, gravure cylinders,
pre-press services and imaging services for the primary packaging and corrugated
industries. The Marking Products segment designs, manufactures and
distributes a wide range of marking and coding equipment and consumables, and
industrial automation products 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.
The
Company has manufacturing and marketing facilities in the United States, Mexico,
Canada, Europe, Australia and China.
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 nine months ended
June 30, 2009 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 2009. 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,
2008. The consolidated financial statements include all domestic and
foreign subsidiaries in which the Company maintains an ownership interest and
has operating control. All intercompany accounts and transactions
have been eliminated.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
3. Fair Value Measurements
The
Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157,
“Fair Value Measurements”, (“SFAS No. 157”) for its financial assets and
liabilities effective October 1, 2008. SFAS 157-2 extended the effective date
for nonfinancial assets and liabilities to fiscal years beginning after November
15, 2008. The Company is evaluating the potential impact of SFAS No. 157, as it
relates to pension plan assets, nonfinancial assets and liabilities on the
consolidated financial statements. SFAS No. 157 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. SFAS
No. 157 establishes a three level fair value hierarchy to prioritize the inputs
used in valuations, as defined below:
Level
1: Observable
inputs that reflect unadjusted quoted prices for identical assets or liabilities
in active markets.
Level
2: Inputs
other than quoted prices included within level 1 that are observable for the
asset or liability, either directly or indirectly.
Level
3: Unobservable
inputs for the asset or liability.
As of
June 30, 2009, the fair values of the Company’s assets and liabilities measured
on a recurring basis are categorized as follows:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term investments
|
|
$ |
62 |
|
|
|
- |
|
|
|
- |
|
|
$ |
62 |
|
Trading
securities
|
|
|
9,950 |
|
|
|
- |
|
|
|
- |
|
|
|
9,950 |
|
Total
assets at fair value
|
|
$ |
10,012 |
|
|
|
- |
|
|
|
- |
|
|
$ |
10,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, net of tax of $2,158
(1)
|
|
|
- |
|
|
$ |
3,376 |
|
|
|
- |
|
|
$ |
3,376 |
|
Total
liabilities at fair value
|
|
|
- |
|
|
$ |
3,376 |
|
|
|
- |
|
|
$ |
3,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Interest
rate swaps are valued based on observable market swap rates and are
classified within Level 2 of the fair value hierarchy.
|
|
Note
4. Inventories
Inventories
consisted of the following:
|
|
June
30, 2009
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
Materials
and finished goods
|
|
$ |
82,049 |
|
|
$ |
84,925 |
|
Labor
and overhead in process
|
|
|
12,199 |
|
|
|
11,463 |
|
|
|
$ |
94,248 |
|
|
$ |
96,388 |
|
Note
5. Debt
The
Company has a domestic Revolving Credit Facility with a syndicate of financial
institutions. The maximum amount of borrowings available under the
facility is $225,000 and the facility’s maturity is September 2012. Borrowings
under the facility bear interest at LIBOR plus a factor ranging from .40% to
..80% based on the Company’s leverage ratio. The leverage ratio is
defined as net indebtedness divided by EBITDA (earnings before interest, taxes,
depreciation and
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
5. Debt (continued)
amortization). The
Company is required to pay an annual commitment fee ranging from .15% to .25%
(based on the Company’s leverage ratio) of the unused portion of the
facility. The Revolving Credit Facility requires the Company
to
maintain
certain leverage and interest coverage ratios. A portion of the
facility (not to exceed $20,000) is available for
the
issuance of trade and standby letters of credit. Outstanding
borrowings on the Revolving Credit Facility at June 30, 2009 were
$177,500. The weighted-average interest rate on outstanding
borrowings at June 30, 2009 and 2008 was 3.95% and 4.38%,
respectively.
The
Company has entered into the following interest rate swaps:
Date
|
Initial
Amount
|
Fixed
Interest Rate
|
Interest
Rate Spread at June 30, 2009
|
Maturity
Date
|
September
2007
|
25,000
|
4.77
|
.60
|
September
2012
|
May
2008
|
40,000
|
3.72
|
.60
|
September
2012
|
October
2008
|
20,000
|
3.21
|
.60
|
October
2010
|
October
2008
|
20,000
|
3.46
|
.60
|
October
2011
|
The
Company enters into interest rate swaps in order to achieve a mix of fixed and
variable rate debt that it deems appropriate. The interest rate swaps have been
designated as cash flow hedges of the future variable interest payments under
the Revolving Credit Facility which are considered probable of
occurring. Based on the Company’s assessment, all of the critical
terms of each of the hedges matched the underlying terms of the hedged debt and
related forecasted interest payments, and as such, these hedges were considered
highly effective.
The fair
value of the interest rate swaps reflected an unrealized loss of $5,534 ($3,376
after tax) at June 30, 2009 that is included in shareholders’ equity as part of
accumulated other comprehensive income. Assuming market rates remain
constant with the rates at June 30, 2009, approximately $1,302 of the $3,376
loss included in accumulated other comprehensive income is expected to be
recognized in earnings as an adjustment to interest expense over the next twelve
months.
On
January 1, 2009 the Company adopted SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161
amends and expands the disclosure requirements of FASB Statement 133,
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”)
to require qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit risk-related
contingent features in derivative agreements.
At June
30, 2009 and September 30, 2008, the interest rate swap contracts were reflected
as a liability on the balance sheets. The following derivatives are
designated as hedging instruments under SFAS No. 133:
Liability Derivatives
|
|
|
|
Balance
Sheet Location:
|
|
June
30, 2009
|
|
|
September
30, 2008
|
|
Current
liabilities:
|
|
|
|
|
|
|
Other
current liabilities
|
|
$ |
2,135 |
|
|
$ |
580 |
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Other
accrued liabilities and deferred revenue
|
|
|
3,399 |
|
|
|
760 |
|
Total
derivatives
|
|
$ |
5,534 |
|
|
$ |
1,340 |
|
|
|
|
|
|
|
|
|
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
5. Debt (continued)
The
income recognized on derivatives was as follows:
Derivatives
in
|
|
Location
of
|
|
|
|
|
|
|
Statement
133
|
|
Gain
or (Loss)
|
|
Amount
of
|
|
|
Amount
of
|
|
Fair
Value
|
|
Recognized
in
|
|
Gain
or (Loss)
|
|
|
Gain
or (Loss)
|
|
Hedging
|
|
Income
on
|
|
Recognized
in Income
|
|
|
Recognized
in Income
|
|
Relationships
|
|
Derivative
|
|
on
Derivatives
|
|
|
on
Derivatives
|
|
|
|
|
|
Three
Months ended June 30,
|
|
|
Nine
months ended June 30,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
Interest
expense
|
|
$ |
(1,110 |
) |
|
$ |
(319 |
) |
|
$ |
(2,555 |
) |
|
$ |
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recognized the following gains or losses in accumulated other
comprehensive income (“OCI”):
|
|
|
|
|
Location
of
|
|
|
|
|
|
|
|
|
Gain
or
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
Reclassified
|
|
Amount
of Gain or (Loss)
|
|
Derivatives
in
|
|
|
|
|
from
|
|
Reclassified
from
|
|
Statement
|
|
|
Amount
of Gain or
|
|
Accumulated
|
|
Accumulated
OCI into
|
|
|
133
|
|
|
(Loss)
Recognized in
|
|
OCI
into
|
|
Income
|
|
Cash
Flow
|
|
|
OCI
on Derivatives
|
|
Income
|
|
(Effective
Portion*)
|
|
Hedging
Relationships
|
|
|
June
30,2009
|
|
|
September
30, 2008
|
|
(Effective
Portion*)
|
|
June
30, 2009
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
$ |
(3,376 |
) |
|
$ |
(817 |
) |
Interest
expense
|
|
$ |
(1,559 |
) |
|
$ |
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*There is no ineffective portion or
amount excluded from effectiveness testing.
|
|
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 was 25.0 million Euros ($35,073). Outstanding
borrowings under the credit facility totaled 19.7 million Euros ($27,567) at
June 30, 2009. The weighted-average interest rate on outstanding
borrowings under this facility at June 30, 2009 and 2008 was 2.74% and 5.88%,
respectively.
The
Company, through its German subsidiary, Saueressig GmbH & Co. KG
(“Saueressig”), has several loans with various European banks. At
June 30, 2009, outstanding borrowings under these loans totaled 10.6 million
Euros ($14,872). The weighted-average interest rate on outstanding
borrowings of Saueressig at June 30, 2009 and 2008 was 5.84% and 5.76%,
respectively.
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 13.0 million Euros ($18,274) at June 30,
2009. Matthews International S.p.A. also has three lines of credit
totaling 8.4 million Euros ($11,784) with the same Italian
banks. Outstanding borrowings on these lines were 2.3 million Euros
($3,258) at June 30, 2009. The weighted-average interest rate on
outstanding Matthews International S.p.A. borrowings at June 30, 2009 and 2008
was 3.80% and 3.92%, respectively.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
5. Debt (continued)
As of
June 30, 2009, the fair value of the Company’s long-term debt, including current
maturities, was as follows:
|
|
Carrying
Value included
|
|
|
|
|
|
|
in
the Balance Sheet
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
Long
term debt, including current maturities
|
|
$ |
253,121 |
|
|
$ |
224,621 |
|
|
|
|
|
|
|
|
|
|
Fair
value was calculated using a discounted cash flow model and estimates of current
interest rates for similar debt instruments.
Note
6. Comprehensive Income
Comprehensive
income consists of net income adjusted for changes, net of the related income
tax effect, in cumulative foreign currency translation, the fair value of
derivatives, unrealized investment gains and losses and pension and
postretirement liabilities. For the three months ended June 30, 2009 and 2008,
comprehensive income was $32,515 and $23,318, respectively. For the nine months
ended June 30, 2009 and 2008, comprehensive income was $34,054 and $69,499,
respectively.
Note
7. Share-Based Payments
The
Company maintains a stock incentive plan (the “1992 Incentive Stock Plan”) that
provided for grants of stock options, restricted shares and certain other types
of stock-based awards. In February 2008, the Company’s shareholders
approved the adoption of a new plan, the 2007 Equity Incentive Plan (the “2007
Plan”), that provides for the grants of stock options, restricted shares,
stock-based performance units and certain other types of stock-based awards.
Under the 2007 Plan, which has a ten-year term, the maximum number of shares
available for grants or awards is an aggregate of 2,200,000. There
will be no further grants under the 1992 Incentive Stock Plan. At
June 30, 2009, there were 2,039,005 shares reserved for future issuance under
the 2007 Plan. Both plans are administered by the Compensation Committee of the
Board of Directors.
The
option price for each stock option granted under either plan may not be less
than the fair market value of the Company's common stock on the date of
grant. Outstanding stock options are generally exercisable in
one-third increments upon the attainment of 10%, 33% and 60% appreciation in the
market value of the Company’s Class A Common Stock. In addition,
options generally vest in one-third increments after three, four and five years,
respectively, from the grant date (but, in any event, not until the attainment
of the market value thresholds). The options expire on the earlier of
ten years from the date of grant, upon employment termination, or within
specified time limits following voluntary employment termination (with the
consent of the Company), retirement or death. The Company generally
settles employee stock option exercises with treasury shares. With
respect to outstanding restricted share grants, generally one-half of the shares
vest on the third anniversary of the grant. The remaining one-half of
the shares vest in one-third increments upon attainment of 10%, 25% and 40%
appreciation in the market value of the Company’s Class A Common Stock.
Additionally, restricted shares granted in fiscal 2009 cannot vest until the
first anniversary of the grant date. Unvested restricted shares
generally expire on the earlier of five years from the date of grant, upon
employment termination, or within specified time limits following voluntary
employment termination (with the consent of the Company), retirement or
death. The Company issues restricted shares from treasury
shares.
For the
three-month periods ended June 30, 2009 and 2008, total stock-based compensation
cost totaled $1,500 and $1,274, respectively. For the nine-month
periods ended June 30, 2009 and 2008, total stock-based compensation cost
totaled $4,358 and $3,821, respectively. The associated future income
tax benefit recognized was $585 and $497 for the three-month periods ended June
30, 2009 and 2008, respectively, and was $1,700 and $1,490 for the nine-month
periods ended June 30, 2009 and 2008, respectively.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
7. Share-Based Payments (continued)
No stock
options were exercised during the three months ended June 30,
2009. For the three months ended June 30, 2008, the amount of cash
received from the exercise of stock options was $1,233. For the
nine-month periods ended June 30, 2009 and 2008, the amount of cash received
from the exercise of stock options was $1,143 and $6,631,
respectively. In connection with these exercises, the tax benefit
realized by the Company for the three-month period ended June 30, 2008 was $123
and the tax benefits realized by the Company for the nine-month periods
ended June 30, 2009 and 2008 were $242 and $1,792,
respectively.
Changes
to restricted stock for the nine months ended June 30, 2009 were as
follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
grant-date
|
|
|
|
Shares
|
|
|
fair
value
|
|
Non-vested
at September 30, 2008
|
|
|
113,121 |
|
|
$ |
39.05 |
|
Granted
|
|
|
160,995 |
|
|
|
36.63 |
|
Vested
|
|
|
(1,200 |
) |
|
|
43.72 |
|
Expired
or forfeited
|
|
|
(480 |
) |
|
|
36.41 |
|
Non-vested
at June 30, 2009
|
|
|
272,436 |
|
|
|
37.61 |
|
As of
June 30, 2009, the total unrecognized compensation cost related to unvested
restricted stock was $4,973 and is expected to be recognized over a
weighted-average period of 1.8 years.
The
transactions for shares under options for the nine months ended June 30, 2009
were as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
|
|
|
|
|
|
|
exercise |
|
|
contractual |
|
|
intrinsic |
|
|
|
Shares
|
|
|
price
|
|
|
term
|
|
|
value
|
|
Outstanding,
September 30, 2008
|
|
|
1,366,342 |
|
|
$ |
35.56 |
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Exercised
|
|
|
(44,768 |
) |
|
|
25.53 |
|
|
|
|
|
|
|
Expired
or forfeited
|
|
|
(91,865 |
) |
|
|
36.57 |
|
|
|
|
|
|
|
Outstanding,
June 30, 2009
|
|
|
1,229,709 |
|
|
|
35.85 |
|
|
|
5.9 |
|
|
$ |
- |
|
Exercisable,
June 30, 2009
|
|
|
556,674 |
|
|
|
32.34 |
|
|
|
5.0 |
|
|
$ |
- |
|
The fair
value of shares earned during the three-month periods ended June 30, 2009 and
2008 was $77 and $1,312, respectively, and $2,722 and $4,906 during the
nine-month periods ended June 30, 2009 and 2008, respectively. The
intrinsic value of options (which is the amount by which the stock price
exceeded the exercise price of the options on the date of exercise) exercised
during the nine-month periods ended June 30, 2009 and 2008 was $657 and
$4,895, respectively.
The
transactions for non-vested options for the nine months ended June 30, 2009 were
as follows:
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
grant-date
|
|
Non-vested
shares
|
|
Shares
|
|
|
fair
value
|
|
Non-vested
at September 30, 2008
|
|
|
1,034,868 |
|
|
$ |
11.46 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(270,818 |
) |
|
|
10.05 |
|
Expired
or forfeited
|
|
|
(91,015 |
) |
|
|
10.40 |
|
Non-vested
at June 30, 2009
|
|
|
673,035 |
|
|
|
12.17 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
7. Share-Based Payments (continued)
As of
June 30, 2009, the total unrecognized compensation cost related to non-vested
stock options was approximately $1,625. This cost is expected to be recognized
over a weighted-average period of 2.0 years in accordance with the vesting
periods of the options.
The fair
value of each restricted stock grant is estimated on the date of grant using a
binomial lattice valuation model. The following table indicates the
assumptions used in estimating fair value of restricted stock for the nine
months ended June 30, 2009 and 2008.
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
volatility
|
|
|
27.0 |
% |
|
|
24.0 |
% |
Dividend
yield
|
|
|
.6 |
% |
|
|
.6 |
% |
Average
risk free interest rate
|
|
|
2.4 |
% |
|
|
3.6 |
% |
Average
expected term (years)
|
|
|
2.3 |
|
|
|
2.3 |
|
The risk
free interest rate is based on United States Treasury yields at the date of
grant. The dividend yield is based on the most recent dividend payment and
average stock price over the 12 months prior to the grant
date. Expected volatilities are based on the historical volatility of
the Company’s stock price. The expected term represents an estimate
of the average period of time for restricted shares to vest. Separate
employee groups and option characteristics are considered separately for
valuation purposes.
Under the
Company’s Director Fee Plan, directors who are not also officers of the Company
each receive, as an annual retainer fee, either cash or shares of the Company's
Class A Common Stock equivalent to $60. An additional annual retainer
fee of $70 is paid to a non-employee Chairman of the Board. Where the annual
retainer fee is provided in shares, each director may elect to be paid these
shares on a current basis or have such shares credited to a deferred stock
account as phantom stock, with such shares to be paid to the director subsequent
to leaving the Board. The value of deferred shares is recorded in
other liabilities. A total of 25,014 shares had been deferred under
the Director Fee Plan at June 30, 2009. Additionally, prior to
fiscal 2009 directors who are not also officers of the Company each receive an
annual stock-based grant (non-statutory stock options, stock appreciation rights
and/or restricted shares) with a value of $50. In fiscal 2009 the value of the
stock-based grant is $70. A total of 22,300 stock options have been granted
under the plan. At June 30, 2009, 17,800 options were outstanding and
vested. Additionally, 37,210 shares of restricted stock have been granted under
the plan, 22,810 of which were unvested at June 30, 2009. A total of
300,000 shares have been authorized to be issued under the Director Fee
Plan.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
8. Earnings Per Share
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,068 |
|
|
$ |
21,378 |
|
|
$ |
42,099 |
|
|
$ |
59,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
30,117,360 |
|
|
|
30,917,136 |
|
|
|
30,311,529 |
|
|
|
30,956,850 |
|
Dilutive
securities, stock options and restricted shares
|
|
|
104,750 |
|
|
|
123,977 |
|
|
|
192,229 |
|
|
|
128,284 |
|
Diluted
weighted-average
common
shares outstanding
|
|
|
30,222,110 |
|
|
|
31,041,113 |
|
|
|
30,503,758 |
|
|
|
31,085,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
$0.60 |
|
|
|
$0.69 |
|
|
|
$1.39 |
|
|
|
$1.91 |
|
Diluted
earnings per share
|
|
|
$0.60 |
|
|
|
$0.69 |
|
|
|
$1.38 |
|
|
|
$1.90 |
|
Options
to purchase 1,009,421 of shares of common stock were not included in the
computation of diluted earnings per share for the three-month period ended June
30, 2009 because the inclusion of these options would be anti-dilutive. Options
to purchase 764,650 shares of common stock were not included in the computation
of diluted earnings per share for the nine-month period ended June 30, 2009
because the inclusion of these options would be anti-dilutive. There were no
anti-dilutive securities in the three or nine month periods ended June 30,
2008.
Note
9. Pension and Other Postretirement Benefit Plans
The
Company provides defined benefit pension and other postretirement plans to
certain employees. Net periodic pension and other postretirement benefit cost
for the plans included the following:
|
|
Pension
|
|
|
Other
Postretirement
|
|
Three
months ended June 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
856 |
|
|
$ |
1,016 |
|
|
$ |
143 |
|
|
$ |
146 |
|
Interest
cost
|
|
|
1,868 |
|
|
|
1,744 |
|
|
|
386 |
|
|
|
348 |
|
Expected
return on plan assets
|
|
|
(1,900 |
) |
|
|
(1,836 |
) |
|
|
- |
|
|
|
- |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(9 |
) |
|
|
4 |
|
|
|
(322 |
) |
|
|
(322 |
) |
Net
actuarial loss
|
|
|
456 |
|
|
|
317 |
|
|
|
71 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
benefit cost
|
|
$ |
1,271 |
|
|
$ |
1,245 |
|
|
$ |
278 |
|
|
$ |
294 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
9. Pension and Other Postretirement Benefit Plans
(continued)
|
|
Pension
|
|
|
Other
Postretirement
|
|
Nine
months ended June 30,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
2,568 |
|
|
$ |
3,048 |
|
|
$ |
429 |
|
|
$ |
438 |
|
Interest
cost
|
|
|
5,604 |
|
|
|
5,232 |
|
|
|
1,158 |
|
|
|
1,044 |
|
Expected
return on plan assets
|
|
|
(5,700 |
) |
|
|
(5,508 |
) |
|
|
- |
|
|
|
- |
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(27 |
) |
|
|
12 |
|
|
|
(966 |
) |
|
|
(966 |
) |
Net
actuarial loss
|
|
|
1,368 |
|
|
|
951 |
|
|
|
213 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
benefit cost
|
|
$ |
3,813 |
|
|
$ |
3,735 |
|
|
$ |
834 |
|
|
$ |
882 |
|
Benefit
payments under the Company’s principal retirement plan are made from plan
assets, while benefit payments under the postretirement benefit plan are made
from the Company’s operating funds. Based on the valuation performed
at the plan’s year end in 2008, the Company is not required to make any
significant contributions to its principal retirement plan in the 2009 plan
year. However, with the recent unfavorable impact of current market
conditions on the plan’s assets, the Company may make a discretionary
contribution to its principal retirement plan before September 30,
2009. As of June 30, 2009, contributions of $640 and $507 have been
made under the supplemental retirement plan and postretirement plan,
respectively. The Company currently anticipates contributing an
additional $267 and $299 under the supplemental retirement plan and
postretirement plan, respectively, for the remainder of fiscal
2009.
On
October 1, 2008, the Company adopted the measurement provisions of SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans” (“SFAS No. 158”). The measurement date for the Company’s pension and
postretirement plans was changed from July 31 to September
30. Accordingly, an additional pension liability of $577 and
postretirement liability of $125, net of tax, was recorded to recognize the
additional expense through September 30, with a corresponding adjustment to
retained earnings.
Note
10. Income Taxes
The
Company’s effective tax rate for the first nine months of fiscal 2009 was 34.2%,
compared to 34.9% for the same period last year. The nine-month
period ended June 30, 2009 included the favorable impact of adjustments totaling
$1.2 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. The tax rate for the first nine months of fiscal 2008
reflected the favorable impact of a $1.9 million reduction in net deferred tax
liabilities to reflect the enactment of the lower statutory income tax rates in
Europe. Excluding these adjustments in fiscal 2009 and 2008, the
effective tax rate for the first nine months of fiscal 2009 was 36.1%, compared
to 36.2% for the fiscal year ended September 30, 2008. 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.
The
Company had unrecognized tax benefits (excluding penalties and interest) of
$3,800 and $4,370 on June 30, 2009 and September 30, 2008, respectively, all of
which, if recorded, would impact the 2009 annual effective tax
rate. It is reasonably possible that the amount of unrecognized tax
benefits could decrease by approximately $450 in the next 12 months primarily
due to tax examinations and the expiration of statutes related to specific tax
positions.
The
Company classifies interest and penalties on tax uncertainties as a component of
the provision for income taxes. The Company included $196 in interest and
penalties in the provision for income taxes for the nine months ended June 30,
2009. Total penalties and interest accrued were $2,970 and $2,774 at June 30,
2009 and September 30, 2008, respectively. These accruals may
potentially be applicable in the event of an unfavorable outcome of uncertain
tax positions.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
10. Income Taxes (continued)
The
Company is currently under examination in several tax jurisdictions and remains
subject to examination until the statute of limitations expires for those tax
jurisdictions. As of June 30, 2009, the tax years that remain subject
to examination by major jurisdiction generally are:
United
States – Federal
|
|
2007
and forward
|
United
States – State
|
|
2005
and forward
|
Canada
|
|
2004
and forward
|
Europe
|
|
2002
and forward
|
United
Kingdom
|
|
2007
and forward
|
Australia
|
|
2004
and forward
|
Note
11. Segment Information
The
Company's products and operations consist of two principal businesses that are
comprised of three operating segments each, as described under Nature of
Operations (Note 1): Memorialization Products (Bronze, Casket,
Cremation) and Brand Solutions (Graphics Imaging, Marking Products,
Merchandising Solutions). Management evaluates segment performance
based on operating profit (before income taxes) and does not allocate
non-operating items such as investment income, interest expense, other income
(deductions), net and minority interest.
Information
about the Company's segments follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Sales
to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronze
|
|
$ |
56,678 |
|
|
$ |
66,949 |
|
|
$ |
159,123 |
|
|
$ |
182,063 |
|
Casket
|
|
|
48,159 |
|
|
|
53,754 |
|
|
|
155,730 |
|
|
|
170,927 |
|
Cremation
|
|
|
7,698 |
|
|
|
6,752 |
|
|
|
21,992 |
|
|
|
19,561 |
|
|
|
|
112,535 |
|
|
|
127,455 |
|
|
|
336,845 |
|
|
|
372,551 |
|
Brand Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics Imaging
|
|
|
57,768 |
|
|
|
58,309 |
|
|
|
170,589 |
|
|
|
131,815 |
|
Marking Products
|
|
|
9,870 |
|
|
|
15,701 |
|
|
|
30,972 |
|
|
|
45,319 |
|
Merchandising
Solutions
|
|
|
11,874 |
|
|
|
17,805 |
|
|
|
42,289 |
|
|
|
49,760 |
|
|
|
|
79,512 |
|
|
|
91,815 |
|
|
|
243,850 |
|
|
|
226,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
192,047 |
|
|
$ |
219,270 |
|
|
$ |
580,695 |
|
|
$ |
599,445 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
11. Segment Information (continued)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronze
|
|
$ |
18,531 |
|
|
$ |
20,716 |
|
|
$ |
40,066 |
|
|
$ |
50,603 |
|
Casket
|
|
|
3,848 |
|
|
|
5,541 |
|
|
|
15,663 |
|
|
|
20,308 |
|
Cremation
|
|
|
1,464 |
|
|
|
1,240 |
|
|
|
3,574 |
|
|
|
3,611 |
|
|
|
|
23,843 |
|
|
|
27,497 |
|
|
|
59,303 |
|
|
|
74,522 |
|
Brand Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics Imaging
|
|
|
5,336 |
|
|
|
5,392 |
|
|
|
11,073 |
|
|
|
12,851 |
|
Marking Products
|
|
|
445 |
|
|
|
2,329 |
|
|
|
1,490 |
|
|
|
6,037 |
|
Merchandising
Solutions
|
|
|
186 |
|
|
|
1,516 |
|
|
|
1,462 |
|
|
|
4,494 |
|
|
|
|
5,967 |
|
|
|
9,237 |
|
|
|
14,025 |
|
|
|
23,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,810 |
|
|
$ |
36,734 |
|
|
$ |
73,328 |
|
|
$ |
97,904 |
|
Note
12. Acquisitions
In
September 2008, the Company acquired the remaining 20% interest in S+T
Gesellschaft fur Reprotechnik GmbH (“S+T GmbH”). The Company had
acquired a 50% interest in S+T GmbH in 1998 and a 30% interest in
2005.
In May
2008, the Company acquired a 78% interest in Saueressig. Saueressig
is headquartered in Vreden, Germany and has its principal manufacturing
operations in Germany, Poland and the United Kingdom. The transaction
was structured as an asset purchase with a purchase price of approximately 58.4
million Euros ($91,248), subject to settlement of final working capital
adjustments. The cash portion of the transaction was funded principally through
borrowings under the Company’s existing credit facilities. The
acquisition is designed to expand Matthews’ products and services in the global
graphics imaging market.
In
addition, the Company entered into an option agreement related to the remaining
22% interest in Saueressig. The option agreement contains certain put
and call provisions for the purchase of the remaining 22% interest in future
years at a price to be determined by a specified formula based on future
operating results of Saueressig. The Company has accounted for this
agreement under Emerging Issues Task Force Abstract Topic No. D-98 (“EITF
D-98”). In accordance with EITF D-98, the initial carrying value of
minority interest was adjusted to the estimated future purchase
price
(“Redemption Value”) of the minority interest, with a corresponding charge to
retained earnings. For subsequent periods, the carrying value of minority
interest reflected on the Company’s balance sheet will be adjusted for changes
in Redemption Value, with a corresponding adjustment to retained
earnings. Under EITF D-98, to the extent Redemption Value in future
periods is less than or greater than the estimated fair value of the minority
interest, income available to common shareholders in the determination of
earnings per share will increase or decrease, respectively, by such
amount. However, income available to common shareholders will only
increase to the extent that a decrease was previously recognized. In
any case, net income will not be affected by such amounts. At June 30, 2009,
Redemption Value was equal to fair value, and there was no impact on income
available to common shareholders.
The
Company has established the fair value of the assets acquired and liabilities
assumed in the Saueressig acquisition. Operating results of the
acquired business have been included in the consolidated statement of income
from the acquisition date forward.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
12. Acquisitions (continued)
The
following table summarizes the fair value of major assets and liabilities of
Saueressig at the date of acquisition.
Cash
|
|
$ |
504 |
|
Trade
receivables
|
|
|
22,324 |
|
Inventory
|
|
|
11,500 |
|
Other
current assets
|
|
|
1,013 |
|
Property,
plant and equipment
|
|
|
68,493 |
|
Goodwill
|
|
|
56,254 |
|
Intangible
assets
|
|
|
14,287 |
|
Other
assets
|
|
|
3,581 |
|
Total
assets acquired
|
|
|
177,956 |
|
|
|
|
|
|
Trade
accounts payable
|
|
|
5,016 |
|
Debt
|
|
|
53,714 |
|
Other
liabilities
|
|
|
25,458 |
|
Minority
interest
|
|
|
2,520 |
|
Total
liabilities assumed
|
|
|
86,708 |
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
91,248 |
|
The fair
value of the acquired intangible assets of Saueressig include trade names with
an assigned value of $1,705, customer relationships with an assigned value of
$11,582, and technology and non-compete values of approximately
$1,000. The intangible assets will be amortized between 2 and 19
years.
The
following unaudited pro-forma information presents a summary of the consolidated
results of Matthews combined with Saueressig as if the acquisition had occurred
on October 1, 2007:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
$ |
192,047 |
|
|
$ |
233,026 |
|
|
$ |
580,695 |
|
|
$ |
682,219 |
|
Income
before income taxes
|
|
|
27,554 |
|
|
|
32,797 |
|
|
|
63,988 |
|
|
|
89,394 |
|
Net
income
|
|
|
18,068 |
|
|
|
20,852 |
|
|
|
42,099 |
|
|
|
57,955 |
|
Earnings
per share
|
|
|
$0.60 |
|
|
|
$0.67 |
|
|
|
$1.38 |
|
|
|
$1.86 |
|
These
unaudited pro forma results have been prepared for comparative purposes only and
include certain adjustments, such as interest expense on acquisition
debt. The pro forma information does not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
13. Goodwill and Other Intangible Assets
Goodwill
related to business combinations is not amortized but is subject to annual
review for impairment. In general, when the carrying value of a reporting unit
exceeds its implied fair value, an impairment loss must be recognized. For
purposes of testing for impairment the Company uses a discounted cash flows
valuation technique. Intangible assets are amortized over their estimated useful
lives unless such lives are considered to be indefinite. A significant decline
in cash flows generated from these assets may result in a write-down of the
carrying values of the related assets. The Company performed its
annual impairment review in the second quarter of fiscal 2009 and determined
that no additional adjustments to the carrying values of goodwill were
necessary.
Changes
to goodwill, net of accumulated amortization, for the nine months ended June 30,
2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Graphics
|
|
|
Marking
|
|
|
Merchandising
|
|
|
|
|
|
|
Bronze
|
|
|
Casket
|
|
|
Cremation
|
|
|
Imaging
|
|
|
Products
|
|
|
Solutions
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
September
30, 2008
|
|
$ |
76,787 |
|
|
$ |
121,437 |
|
|
$ |
6,536 |
|
|
$ |
136,154 |
|
|
$ |
9,589 |
|
|
$ |
9,138 |
|
|
$ |
359,641 |
|
Additions
during period
|
|
|
- |
|
|
|
1,360 |
|
|
|
2,185 |
|
|
|
14,719 |
|
|
|
- |
|
|
|
- |
|
|
|
18,264 |
|
Dispositions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Translation
and other adjustments
|
|
|
(87 |
) |
|
|
- |
|
|
|
229 |
|
|
|
(3,614 |
) |
|
|
10 |
|
|
|
- |
|
|
|
(3,462 |
) |
Balance
at June 30, 2009
|
|
$ |
76,700 |
|
|
$ |
122,797 |
|
|
$ |
8,950 |
|
|
$ |
147,259 |
|
|
$ |
9,599 |
|
|
$ |
9,138 |
|
|
$ |
374,443 |
|
The
addition to Graphics goodwill during the first nine months of fiscal 2009
represents the effect of final adjustments to the allocation of purchase price
for the Saueressig acquisition. The addition to Cremation goodwill reflects the
acquisition of a small cremation equipment manufacturer in Europe. The addition
to Casket reflects the acquisition of a small casket distributor in the United
States.
The
following tables summarize the carrying amounts and related accumulated
amortization for intangible assets as of June 30, 2009 and September 30, 2008,
respectively.
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
June
30, 2009:
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
$ |
24,600 |
|
|
$ |
- |
* |
|
$ |
24,600 |
|
Trade
names
|
|
|
1,532 |
|
|
|
(376 |
) |
|
|
1,156 |
|
Customer
relationships
|
|
|
35,173 |
|
|
|
(7,545 |
) |
|
|
27,628 |
|
Copyrights/patents/other
|
|
|
7,685 |
|
|
|
(5,395 |
) |
|
|
2,290 |
|
|
|
$ |
68,990 |
|
|
$ |
(13,316 |
) |
|
$ |
55,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
$ |
25,109 |
|
|
$ |
- |
* |
|
$ |
25,109 |
|
Trade
names
|
|
|
2,822 |
|
|
|
(145 |
) |
|
|
2,677 |
|
Customer
relationships
|
|
|
34,477 |
|
|
|
(5,720 |
) |
|
|
28,757 |
|
Copyrights/patents/other
|
|
|
7,885 |
|
|
|
(4,518 |
) |
|
|
3,367 |
|
|
|
$ |
70,293 |
|
|
$ |
(10,383 |
) |
|
$ |
59,910 |
|
*
Not subject to
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
13. Goodwill and Other Intangible Assets
(continued)
The
change in intangible assets during the quarter ended June 30, 2009 was due to
the impact of fluctuations in foreign currency exchange rates on intangible
assets denominated in foreign currencies and additional
amortization.
Amortization
expense on intangible assets was $1,067 and $1,072 for the three-month periods
ended June 30, 2009 and 2008, respectively. For the nine-month periods ended
June 30, 2009 and 2008, amortization expense was $3,178
and $2,555, respectively. The remaining
amortization expense is estimated to be $959 in 2009, $3,271 in 2010, $2,938 in
2011, $2,530 in 2012 and $2,285 in 2013.
Note
14. Accounting Pronouncements
The
Company adopted Emerging Issues Task Force (EITF) Issue No. 06-11, “Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11)
on October 1, 2008. EITF 06-11 requires that tax benefits generated
by dividends on equity classified non-vested equity shares, non-vested equity
share units, and outstanding equity share options be classified as additional
paid-in capital and included in a pool of excess tax benefits available to
absorb tax deficiencies from share-based payment awards. The adoption
had no material impact on the Company’s financial position or results of
operations.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141R”). SFAS No. 141R requires recognition and measurement of the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in a business combination, goodwill acquired or a gain from a bargain
purchase. The Statement is effective for fiscal years beginning on or
after December 15, 2008 and is to be applied prospectively. Earlier
adoption is not permitted. The Company is currently evaluating the
impact of the adoption of SFAS No. 141R.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160
amends Accounting Research Bulletin 51 and establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary. The Statement
requires that consolidated net income reflect the amounts attributable to both
the parent and the noncontrolling interest, and also includes additional
disclosure requirements. The Statement is effective for fiscal years beginning
on or after December 15, 2008 and is to be applied prospectively as of the
beginning of the fiscal year in which the Statement is initially applied, except
for the presentation and disclosure requirements which shall be applied
retrospectively for all periods presented. Earlier adoption is not
permitted. The Company is currently evaluating the impact of the
adoption of SFAS No. 160.
In
December 2008, the FASB issued FASB Staff Position (“FSP”) Statement No.
132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”,
(“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 enhances disclosures
regarding assets in defined benefit pension or other postretirement plans.
The Statement is effective for fiscal years ending after December 31,
2009. Earlier application of this statement is permitted. The Company
is currently evaluating the impact of the adoption of FSP FAS
132(R)-1.
In April 2009, the FASB
issued FSP FAS 107-1 and Accounting Principles Board ("APB") 28-1,
"Interim Disclosures about Fair Value of Financial Instruments." FSP
FAS 107-1 and APB 28-1 amends SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. It also amends APB Opinion
No. 28, "Interim Financial Reporting," to require those disclosures in
summarized financial information at interim reporting periods. The Statement is effective
for interim reporting periods ending after June 15, 2009. See Note
5 for disclosures required
by FSP FAS 107-1 and APB 28-1.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar
amounts in thousands, except per share data)
Note
14. Accounting Pronouncements (continued)
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No.
165”). SFAS No. 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The
Statement is effective for interim or annual financial periods ending after June
15, 2009. Accordingly, the Company adopted SFAS No. 165 as of June
30, 2009. The adoption had no material impact on the Company’s
financial position or results of operations.
In May
2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”).
SFAS 168 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the U.S. (the GAAP hierarchy).
SFAS 168 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The
Company currently adheres to the GAAP hierarchy as presented in SFAS 168,
and does not expect its adoption will have a material impact on its consolidated
results of operations and financial condition.
Note
15. Subsequent Events
In
accordance with SFAS No.165, “Subsequent Events”, the Company
evaluated subsequent events for recognition and disclosure through August 5,
2009. The evaluation resulted in no impact to the interim consolidated financial
statements.
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 (“Matthews” or the
“Company”) 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, 2008. 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 foreign currency exchange rates,
changes in commodity prices and the related 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.
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.
|
|
Nine
Months Ended
|
|
|
Years
Ended
|
|
|
|
June
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross
profit
|
|
|
37.3 |
% |
|
|
39.9 |
% |
|
|
39.5 |
% |
|
|
37.4 |
% |
Operating
profit
|
|
|
12.6 |
% |
|
|
16.3 |
% |
|
|
16.2 |
% |
|
|
14.9 |
% |
Income
before taxes
|
|
|
11.0 |
% |
|
|
15.2 |
% |
|
|
14.9 |
% |
|
|
13.8 |
% |
Net
income
|
|
|
7.3 |
% |
|
|
9.9 |
% |
|
|
9.7 |
% |
|
|
8.6 |
% |
Sales for
the nine months ended June 30, 2009 were $580.7 million, compared to $599.4
million for the nine months ended June 30, 2008. The decrease
principally reflected lower sales in the Company’s Bronze, Casket, Marking
Products and Merchandising Solutions segments. The impact of the
global recession, a lower estimated domestic death rate compared to a year ago
and changes in foreign currency values against the U.S. dollar were the
principal factors in the reduction in the Company’s consolidated
sales. The declines were partially offset by the acquisitions of
Saueressig GmbH & Co. KG (“Saueressig”) in May 2008 and the acquisition of a
small European cremation equipment manufacturer in December 2008. For the
nine months ended June 30, 2009, changes in foreign currency values against the
U.S. dollar had an unfavorable impact of approximately $28.4 million on the
Company’s consolidated sales compared to the nine months ended June 30,
2008.
In the
Memorialization businesses, Bronze segment sales for the first nine months of
fiscal 2009 were $159.1 million compared to $182.1 million for the first nine
months of fiscal 2008. The decrease primarily reflected a decline in
unit volume and decreases in the value of foreign currencies against the U.S.
dollar. Sales for the Casket segment were $155.7 million for the
first nine months of fiscal 2009 compared to $170.9 million for the same period
in fiscal 2008. The decrease resulted principally from lower unit
volume and an unfavorable change in product mix. The decline in sales
for both the Bronze and Casket segments reflected the impact of the current
recession on consumer spending, and a decline in the estimated number of
casketed deaths compared to the prior year. Sales for the Cremation
segment
were
$22.0 million for the nine months ended June 30, 2009, compared to $19.6 million
for the same period a year ago. The increase reflected the
acquisition of a small European cremation equipment manufacturer, partially
offset by lower sales of cremation caskets. In the Company’s Brand
Solutions businesses, sales for the Graphics Imaging segment in the first nine
months of fiscal 2009 were $170.6 million, compared to $131.8 million for the
same period a year ago. The increase resulted from the inclusion of
Saueressig in fiscal 2009, compared to two months through June
30, 2008 (acquired in May 2008). Excluding this
acquisition, sales were lower in this segment as a result of weak economic
conditions and a decrease in the value of foreign currencies against the U.S.
dollar. Marking Products segment sales for the nine months ended June 30, 2009
were $31.0 million, compared to $45.3 million for the first nine months of
fiscal 2008. The decrease was principally due to lower product demand
in the U.S. and foreign markets, reflecting a decline in industrial capital
spending and lower sales of consumables. In addition, Marking
Products sales were unfavorably affected by a decrease in the value of foreign
currencies against the U.S. dollar. Sales for the Merchandising
Solutions segment were $42.3 million for the first nine months of fiscal 2009,
compared to $49.8 million for the same period a year ago. The
decrease is attributable to a decline in volume due to project delays or
cancellations by customers, also resulting from the downturn in the U.S.
economy.
Gross
profit for the nine months ended June 30, 2009 was $216.4 million, compared to
$239.1 million for the nine months ended June 30, 2008. Consolidated
gross profit as a percent of sales decreased from 39.9% for the first nine
months of fiscal 2008 to 37.3% for the first nine months of fiscal
2009. The decrease in consolidated gross profit primarily
reflected the impact of lower sales, decreases in the values of foreign currency
values against the U.S. dollar, and unusual charges in several of the Company’s
segments totaling approximately $7.1 million. The unusual charges
included severance and other expenses related to the consolidation of certain
Bronze segment production facilities, and costs related to operational and
systems improvements in several of the Company’s other segments.
Selling
and administrative expenses for the nine months ended June 30, 2009 were $143.1
million, compared to $141.2 million for the first nine months of fiscal
2008. Consolidated selling and administrative expenses as a percent
of sales were 24.6% for the nine months ended June 30, 2009, compared to 23.6%
for the same period last year. The increases in costs and percentage
of sales primarily resulted from the Saueressig acquisition and unusual charges.
Unusual charges included in selling and administrative expenses totaled $5.7
million for the nine months ended June 30, 2009, and consisted principally of
Saueressig integration costs, bad debt expense, termination related expenses and
costs related to operational and system improvements.
Operating
profit for the nine months ended June 30, 2009 was $73.3 million, compared to
$97.9 million for the nine months ended June 30, 2008. Operating profit for the
nine months ended June 30, 2009 included unusual charges of approximately $12.8
million, and changes in the values of foreign currencies against the U.S. dollar
had an unfavorable impact of approximately $3.6 million on consolidated
operating profit for the current period, compared to a year ago. In addition,
incentive compensation costs for the nine months ended June 30, 2009 were
significantly less than in the prior year as a result of lower profitability in
the current year. Bronze segment operating profit for the first nine months of
fiscal 2009 was $40.1 million, compared to $50.6 million for the same period in
fiscal 2008. The decrease primarily reflected the impact of lower
sales and decreases in the value of changes in foreign currencies against the
U.S. dollar. Additionally, Bronze segment operating profit included
unusual charges of approximately $6.7 million, principally related to facilities
consolidations. Operating profit for the Casket segment for the first
nine months of fiscal 2009 was $15.7 million, compared to $20.3 million for the
first nine months of fiscal 2008. The decrease resulted mainly from
lower sales and unusual charges of approximately $2.6 million, which were
principally related to bad debt expense and severance and other employment
termination-related expenses. Cremation segment operating profit was
$3.6 million for the nine months ended June 30, 2009, which was relatively
unchanged from a year ago. Fiscal 2009 operating profit reflected a
favorable change in product mix and the impact of the acquisition of a small
European cremation equipment manufacturer, offset by lower domestic sales volume
and unusual charges of approximately $235,000. Graphics Imaging
segment operating profit for the nine months ended June 30, 2009 was $11.1
million, compared to $12.9 million for the nine months ended June 30,
2008. The decrease primarily resulted from lower sales (excluding the
Saueressig acquisition) and unusual charges of approximately $2.3 million, which
principally reflected severance charges and Saueressig integration
costs. These declines were partially offset by an operating profit
reported by Saueressig. Operating profit for the Marking Products
segment for the first nine months of fiscal 2009 was $1.5 million, compared to
$6.0 million for the same period a year ago. The decrease primarily
reflected the impact of lower sales, decreases in the value of foreign
currencies against the U.S. dollar, and unusual charges of approximately
$665,000. The Merchandising Solutions segment operating profit was
$1.5 million for the nine months ended June 30, 2009, compared to $4.5 million
for the same period in fiscal 2008. The decrease principally
reflected lower sales and unusual charges of approximately
$297,000.
Investment
income for the nine months ended June 30, 2009 was $629,000, compared to $1.4
million for the nine months ended June 30, 2008. The decrease
reflected lower investment performance, and included unusual charges of
approximately $405,000, representing unrealized losses in the value of
investments held in long-term trusts for certain employee benefit
plans. Interest expense for the first nine months of fiscal
2009 was $9.1 million, compared to $6.7 million for the same period last
year. The increase in interest expense primarily reflected higher
average debt levels during fiscal 2009 compared to the same period a year ago,
resulting from the acquisition of Saueressig in May 2008.
Other
income, net, for the nine months ended June 30, 2009 was $83,000, compared to
$246,000 for the same period last year. Minority interest deduction
was $1.0 million for the first nine months of fiscal 2009, compared to $2.1
million for the same period in fiscal 2008. The decrease in the
minority interest deduction primarily reflected the Company’s purchase of the
remaining interest in one of its less than wholly-owned German subsidiaries in
September 2008, partially offset by improved profitability at
Saueressig.
The
Company’s effective tax rate for the first nine months of fiscal 2009 was 34.2%,
compared to 34.9% for the same period last year. The nine-month
period ended June 30, 2009 included the favorable impact of adjustments
totaling $1.2 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. The tax rate for the first nine
months of fiscal 2008 reflected the favorable impact of a $1.9 million reduction
in net deferred tax liabilities to reflect the enactment of the lower statutory
income tax rates in Europe. Excluding these adjustments in fiscal
2009 and 2008, the effective tax rate for the first nine months of fiscal 2009
was 36.1%, compared to 36.2% for the fiscal year ended September 30,
2008. 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.
Goodwill:
Goodwill
related to business combinations is not amortized, but is subject to annual
review for impairment. In general, when the carrying value of a
reporting unit exceeds its implied fair value, an impairment loss must be
recognized. For purposes of testing for impairment, the Company uses
a combination of valuation techniques, including discounted cash
flows. The Company performed its annual impairment review in the
second quarter of fiscal 2009 and determined that no additional adjustments to
the carrying values of goodwill were necessary.
Liquidity
and Capital Resources:
Net cash
provided by operating activities was $69.5 million for the nine months ended
June 30, 2009, compared to $78.5 million for the first nine months of fiscal
2008. Operating cash flow for both periods primarily reflected net
income adjusted for non-cash charges (depreciation, amortization, stock-based
compensation expense and an increase in minority interest). Cash flow
from operating activities for the nine months ended June 30, 2008 includes a
$5.0 million contribution to the Company’s principal retirement
plan.
Cash used
in investing activities was $18.7 million for the nine months ended June 30,
2009, compared to $96.6 million for the nine months ended June 30,
2008. Investing activities for the first nine months of fiscal 2009
primarily included capital expenditures of $11.6 million, acquisition-related
payments of $4.8 million, purchases of investment of $2.6 million and proceeds
from the disposal of assets of $311,000. Investing activities for the
first nine months of fiscal 2008 primarily included acquisitions (principally
Saueressig) of $90.9 million, capital expenditures of $7.9 million, purchases of
investments of $4.2 million and proceeds from the sale of investments of $5.5
million.
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 $17.4 million for the last three
fiscal years. Although the approved capital budget for fiscal 2009 is
$26.7 million, the Company expects capital expenditures to be less than $20
million in fiscal 2009. The Company expects to generate sufficient
cash from operations to fund all anticipated capital spending
projects.
Cash used
in financing activities for the nine months ended June 30, 2009 was $45.6
million, reflecting net repayments of long-term debt of $11.2 million, purchases
of treasury stock of $27.3 million, proceeds of $1.1 million from the sale of
treasury stock (stock option exercises), payment of dividends of $6.1 million to
the Company's shareholders and distributions of $2.3 million to minority
interests. Cash provided by financing activities for the nine months
ended June 30, 2008 was $20.7 million, reflecting proceeds, net of repayments,
from long-term debt of $45.9 million, purchases of treasury stock of $25.9
million, proceeds of $6.6 million from the sale of treasury stock (stock option
exercises), a tax benefit of $992,000 from exercised stock options, payment of
dividends of $5.6 million to the Company's shareholders and distributions of
$1.3 million to minority interests.
The
Company has a domestic Revolving Credit Facility with a syndicate of financial
institutions. The maximum amount of borrowings available under the
facility is $225.0 million and the facility’s maturity is September 2012.
Borrowings under the facility bear interest at LIBOR plus a factor ranging from
..40% to .80% 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 .15% to .25% (based on the
Company’s leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility requires the Company to maintain certain leverage and
interest coverage ratios. A portion of the facility (not to exceed
$20 million) is available for the issuance of trade and standby letters of
credit. Outstanding borrowings on the Revolving Credit Facility at
June 30, 2009 and September 30, 2008 were $177.5 million and $172.5 million,
respectively. The weighted-average interest rate on outstanding
borrowings at June 30, 2009 and 2008 was 3.95% and 4.38%,
respectively.
The
Company has entered into the following interest rate swaps:
Date
|
Initial
Amount
|
Fixed
Interest Rate
|
Interest
Rate Spread at June 30, 2009
|
Maturity
Date
|
September
2007
|
$25
million
|
4.77%
|
.60
|
September
2012
|
May
2008
|
$40
million
|
3.72
|
.60
|
September
2012
|
October
2008
|
$20
million
|
3.21
|
.60
|
October
2010
|
October
2008
|
$20
million
|
3.46
|
.60
|
October
2011
|
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 $5.5 million
($3.4 million after tax) at June 30, 2009 that is included in shareholders’
equity as part of accumulated other comprehensive income. Assuming
market rates remain constant with the rates at June 30, 2009, approximately $1.3
million of the $3.4 million loss included in accumulated other comprehensive
income is expected to be recognized in earnings as interest expense over the
next twelve months.
The
Company, through certain of its German subsidiaries, has a credit facility with
a European bank for borrowings up to 25.0 million Euros ($35.1 million).
Outstanding borrowings under the credit facility at June 30, 2009 and September
30, 2008 totaled 19.7 million Euros ($27.6 million) and 22.5 million Euros
($31.7 million), respectively. The weighted-average interest
rate on outstanding borrowings under this facility at June 30, 2009 and 2008 was
2.74% and 5.88%, respectively.
The
Company, through its German subsidiary, Saueressig, has several loans with
various European banks. Outstanding borrowings under these loans at
June 30, 2009 and September 30, 2008 totaled 10.6 million Euros ($14.9 million)
and 11.6 million Euros ($16.3 million), respectively. The
weighted-average interest rate on outstanding borrowings of Saueressig at June
30, 2009 and 2008 was 5.84% and 5.76%, respectively.
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 13.0 million Euros ($18.3 million) at June 30,
2009. Matthews International S.p.A. also has three lines of credit
totaling approximately 8.4 million Euros ($11.8 million) with the same Italian
banks. Outstanding borrowings on these lines at June 30, 2009 and
September 30, 2008 were 2.3 million Euros ($3.3 million) and 2.3 million Euros
($3.3 million), respectively. The weighted-average
interest
rate on
outstanding borrowings of Matthews International S.p.A. at June 30, 2009 and
2008 was 3.80% and 3.92%, respectively.
The
Company has a stock repurchase program, which was initiated in
1996. Under the program, the Company's Board of Directors had
authorized the repurchase of a total of 12,500,000 shares (adjusted for stock
splits) of Matthews common stock, of which 12,240,102 shares have been
repurchased as of June 30, 2009. 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 Articles of
Incorporation.
Consolidated
working capital of the Company was $164.5 million at June 30, 2009, compared to
$141.4 million at September 30, 2008. Cash and cash equivalents
were $52.0 million at June 30, 2009, compared to $50.7 million at
September 30, 2008. The Company's current ratio was 2.2 at June
30, 2009, compared to 1.9 at September 30, 2008.
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”), a wholly-owned subsidiary of the
Company, 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 June
30, 2009, an accrual of approximately $7.4 million had been recorded for
environmental remediation (of which $844,000 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. 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
September 2008, the Company acquired the remaining 20% interest in S+T
Gesellschaft fur Reprotechnik GmbH (“S+T GmbH”). The Company had
acquired a 50% interest in S+T GmbH in 1998 and a 30% interest in
2005.
In May
2008, the Company acquired a 78% interest in Saueressig. The
transaction was structured as an asset purchase with a preliminary purchase
price of approximately 58.4 million Euros ($91.2 million). In
addition, the Company entered into an option agreement related to the remaining
22% interest in Saueressig. The acquisition was designed to expand
Matthews’ products and services in the global graphics imaging
market.
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
ten fiscal years, the Company has achieved an average annual increase in
earnings per share of approximately 14.7%.
Matthews
has a three-pronged strategy to attain 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.
The most
significant factors impacting fiscal 2009 are the severity of the slowdown in
the U.S. and global economies, and an estimated decline in the casketed death
rate compared to fiscal 2008. Additionally, the strengthening of the
U.S. dollar unfavorably impacted fiscal 2009 reported results for the Company’s
overseas operations, when compared to fiscal 2008.
The
decline in global economies is expected to continue to impact the Company’s
operating results, especially in the near term. Buying patterns of
customers in both the Memorialization and Brand Solutions businesses have been
affected by the current recession, impacting unit volume, net pricing and
product mix in all of the Company’s operating segments. As a result,
the predictability of results in the near-term is difficult and, as such, the
Company remains very cautious.
All of
the Company’s businesses are continuing efforts to adjust cost structures, to
the degree practical, to better align with current revenue run rates to mitigate
some of the economy’s impact. For this reason, further unusual
charges are expected in the coming quarters. Although the unusual
charges associated with these actions have adversely impacted profitability in
the short term, these steps are designed to provide long-term benefits to the
Company when the economy recovers.
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 and in the critical accounting policies in
Management’s Discussion and Analysis included in the Company's Annual Report on
Form 10-K for the year ended September 30, 2008. 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.
LONG-TERM
CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The
following table summarizes the Company’s contractual obligations at June 30,
2009, and the effect such obligations are expected to have on its liquidity and
cash flows in future periods.
|
|
Payments
due in fiscal year:
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Remainder
|
|
|
2010
to 2011
|
|
|
2012
to 2013
|
|
|
After
2013
|
|
Contractual Cash
Obligations:
|
|
(Dollar
amounts in thousands)
|
|
Revolving
credit facilities
|
|
$ |
205,067 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
205,067 |
|
|
$ |
- |
|
Notes
payable to banks
|
|
|
35,889 |
|
|
|
2,705 |
|
|
|
13,864 |
|
|
|
13,692 |
|
|
|
5,628 |
|
Short-term
borrowings
|
|
|
3,258 |
|
|
|
3,258 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Capital
lease obligations
|
|
|
8,255 |
|
|
|
846 |
|
|
|
5,892 |
|
|
|
1,517 |
|
|
|
- |
|
Other
|
|
|
1,322 |
|
|
|
1,322 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Non-cancelable
operating leases
|
|
|
22,804 |
|
|
|
2,261 |
|
|
|
13,124 |
|
|
|
5,915 |
|
|
|
1,504 |
|
Total
contractual cash obligations
|
|
$ |
276,595 |
|
|
$ |
10,392 |
|
|
$ |
32,880 |
|
|
$ |
226,191 |
|
|
$ |
7,132 |
|
A
significant portion of the loans included in the table above bear interest at
variable rates. At June 30, 2009, the weighted-average interest rate was 3.95%
on the Company’s domestic Revolving Credit Facility, 2.74% on the credit
facility through the Company’s wholly-owned German subsidiaries, 3.80% on bank
loans to the Company’s wholly-owned subsidiary, Matthews International S.p.A,
and 5.84% on bank loans to the Company’s subsidiary, Saueressig.
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. Based
on the valuation performed at the plan’s year end in 2008, the Company is not
required to make any significant contributions to its principal retirement plan
in the 2009 plan year. However, with the recent unfavorable impact of
current market conditions on the plan’s assets, the Company may make a
discretionary contribution to its principal retirement plan before September 30,
2009. As of June 30, 2009, contributions of $640,000 and $507,000
have been made under the supplemental retirement plan and postretirement plan,
respectively. The Company currently anticipates contributing an
additional $267,000 and $299,000 under the supplemental retirement plan and
postretirement plan, respectively, for the remainder of fiscal
2009.
In
connection with its acquisition of a 78% interest in Saueressig, the Company
entered into an option agreement related to the remaining 22%
interest. The option agreement contains certain put and call
provisions for the purchase of the remaining 22% interest in future years at a
price to be determined by a specified formula based on future operating results
of Saueressig. The Company has recorded an estimate of $27.8 million
in “Minority interest and minority interest arrangement” in the Consolidated
Balance Sheets as of June 30, 2009 and September 30, 2008 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. The Company had unrecognized tax benefits, excluding
penalties and interest, of approximately $3.8 million and $4.4 million at June
30, 2009 and September 30, 2008, respectively. The timing of
potential future payments related to the unrecognized tax benefits is not
presently determinable.
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:
Effective
September 30, 2007, the Company adopted the recognition and related disclosure
provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans” (“SFAS No. 158”) which amends SFAS No. 87, No.
88, No. 106 and No. 132(R). SFAS No. 158 requires the Company to measure
the plan assets and benefit obligations of defined benefit postretirement plans
as of the date of its year-end balance sheet. This provision of the SFAS No. 158
is effective for public companies for fiscal years beginning after December 15,
2008. Previously, the Company measured plan assets and benefit obligations as of
July 31 of each year. Effective October 1, 2008, the Company adopted
the measurement provision of SFAS No. 158, therefore the measurement date for
plan assets and benefit obligations will be September 30 of each
year. The adoption of this provision had no material effect on the
financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 applies under
other accounting pronouncements that require or permit fair value measurements
and does not require any new fair value measurements. SFAS No. 157
was implemented by the Company effective October 1, 2008 for financial assets
and liabilities. As a result of the adoption of this provision,
additional disclosures were included in the financial statements. For
non-financial assets and liabilities, the effective date has been extended to
fiscal years beginning after November 15, 2008. The Company is currently
evaluating the impact of the adoption of the remainder of SFAS No.
157.
The
Company adopted Emerging Issues Task Force (EITF) Issue No. 06-11, “Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11)
on October 1, 2008. EITF 06-11 requires that tax
benefits
generated
by dividends on equity classified non-vested equity shares, non-vested equity
share units, and outstanding equity share options be classified as additional
paid-in capital and included in a pool of excess tax benefits available to
absorb tax deficiencies from share-based payment awards. The adoption
had no material effect on the financial statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141R”). SFAS No. 141R requires recognition and measurement of the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in a business combination, goodwill acquired or a gain from a bargain
purchase. The Statement is effective for fiscal years beginning on or
after December 15, 2008 and is to be applied prospectively. Earlier
adoption is not permitted. The Company is currently evaluating the
impact of the adoption of SFAS No. 141R.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160
amends Accounting Research Bulletin 51 and establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary. The Statement
requires that consolidated net income reflect the amounts attributable to both
the parent and the noncontrolling interest, and also includes additional
disclosure requirements. The Statement is effective for fiscal years beginning
on or after December 15, 2008 and is to be applied prospectively as of the
beginning of the fiscal year in which the Statement is initially applied, except
for the presentation and disclosure requirements which shall be applied
retrospectively for all periods presented. Earlier adoption is not
permitted. The Company is currently evaluating the impact of the
adoption of SFAS No. 160.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and
expands the disclosure requirements of FASB Statement 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS No. 133”) to require
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit risk-related contingent
features in derivative agreements. The Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. See Note 5 to the Consolidated Financial
Statements for disclosures required by SFAS No. 161.
In
December 2008, the FASB issued FASB Staff Position (“FSP”) Statement No.
132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,”
(“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 enhances disclosures regarding assets in
defined benefit pension or other postretirement plans. The Statement is
effective for fiscal years ending after December 31, 2009. Earlier
application of this statement is permitted. The Company is currently evaluating
the impact of the adoption of FSP FAS 132(R)-1.
In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board ("APB")
28-1, "Interim Disclosures about Fair Value of Financial Instruments." FSP
FAS 107-1 and APB 28-1 amends SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. It also amends APB Opinion
No. 28, "Interim Financial Reporting," to require those disclosures in
summarized financial information at interim reporting periods. The Statement is
effective for interim reporting periods ending after June 15,
2009. See Note 5 to the Consolidated Financial Statements for
disclosures required by FSP FAS 107-1 and APB 28-1.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No.
165”). SFAS No. 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The
Statement is effective for interim or annual financial periods ending after June
15, 2009. Accordingly, the Company adopted SFAS No. 165 as of June
30, 2009. The adoption had no material impact on the Company’s
financial position or results of operations.
In May
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”).
SFAS 168 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the U.S. (the GAAP hierarchy).
SFAS 168 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The
Company currently adheres to the GAAP hierarchy as presented in SFAS 168,
and does not expect its adoption will have a material impact on its consolidated
results of operations and financial condition.
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, except as noted
below.
Interest
Rates - The Company’s most significant long-term debt instrument is the domestic
Revolving Credit Facility, as amended, which bears interest at variable rates
based on LIBOR.
The
Company has entered into interest rate swaps as listed under “Liquidity and
Capital Resources.” 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 $5.5 million
($3.4 million after tax) at June 30, 2009 that is included in equity as part of
accumulated other comprehensive income. A decrease of 10% in market
interest rates (i.e. a decrease from 5.0% to 4.5%) would result in an increase
of approximately $1.3 million 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, wood and photopolymers) used in its
manufacturing operations. The Company obtains competitive prices for materials
and supplies when available.
Foreign
Currency Exchange Rates - The Company is subject to changes in various foreign
currency exchange rates, including the Euro, the British Pound, Canadian dollar,
Australian dollar, Swedish Krona and the Chinese Yuan 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. A strengthening
of the U. S. dollar of 10% would have resulted in a decrease in sales of $12.9
million and a decrease in operating income of $1.1 million for the nine months
ended June 30, 2009.
Item
4. Controls and Procedures
The
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to
provide reasonable assurance that information required to be disclosed in our
reports filed under that Act (the “Exchange Act”), such as this Quarterly Report
on Form 10-Q, is recorded, processed, summarized and reported within the
time periods specified in the rules of the Securities and Exchange Commission.
These disclosure controls and procedures also are designed to provide reasonable
assurance that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosures.
Management,
under the supervision and with the participation of our Chief Executive Officer
and the Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures in effect as of June 30, 2009. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of
June 30, 2009, the Company’s disclosure controls and procedures were effective
to provide reasonable assurance that material information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, and that such information is recorded, summarized and
properly reported within the appropriate time period, relating to the Company
and its consolidated subsidiaries, required to be included in the Exchange Act
reports, including this Quarterly Report on Form 10-Q.
There
have been no changes in the Company’s internal controls over financial reporting
that occurred during the fiscal quarter ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
PART
II - OTHER INFORMATION
Item
1. 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
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 had
authorized the repurchase of a total of 12,500,000 shares (adjusted for stock
splits) of Matthews common stock, of which 12,240,102 shares have been
repurchased as of June 30, 2009. All purchases of the Company’s
common stock during the first nine months of fiscal 2009 were part of the
repurchase program.
The
following table shows the monthly fiscal 2009 stock repurchase
activity:
Period
|
|
Total
number of shares purchased
|
|