form10k-2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
fiscal year ended September 30, 2007
Commission
File Number 0-09115
MATTHEWS
INTERNATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
COMMONWEALTH
OF 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
|
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
|
Name
of each exchange on which registered
|
Class
A Common Stock, $1.00 par value
|
|
NASDAQ
National Market System
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
x No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405a of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
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
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
aggregate market value of the Class A Common Stock outstanding and held by
non-affiliates of the registrant, based upon the closing sale price of the
Class
A Common Stock on the NASDAQ National Market System on March 30, 2007, the
last
business day of the registrant’s most recently completed second fiscal quarter,
was approximately $1.3 billion.
As
of October 31, 2007, shares of common stock outstanding were: Class A
Common Stock 31,014,646 shares
Documents
incorporated by reference: Specified portions of the Proxy Statement for the
2008 Annual Meeting of Shareholders are incorporated by reference into Part
III
of this Report. The index to exhibits is on pages
70-72.
PART
I
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
Any
forward-looking statements contained in this Annual Report on Form 10-K
(specifically those contained in Item 1, "Business", Item 1A, “Risk Factors” and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations") are included in this report pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks
and uncertainties that may cause the Company's actual results in future periods
to be materially different from management's expectations. Although
Matthews International Corporation (“Matthews” or the “Company”) believes that
the expectations reflected in such forward-looking statements are reasonable,
no
assurance can be given that such expectations will prove
correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements
principally include changes in domestic or international economic conditions,
changes in foreign currency exchange rates, changes in the cost of materials
used in the manufacture of the Company’s products, changes in death rates,
changes in product demand or pricing as a result of consolidation in the
industries in which the Company operates, changes in product demand or pricing
as a result of domestic or international competitive pressures, unknown risks
in
connection with the Company's acquisitions, an unfavorable outcome in any
litigation claims or assessments involving the Company 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.
Matthews,
founded in 1850 and incorporated in Pennsylvania in 1902, is a designer,
manufacturer and marketer principally of memorialization products and brand
solutions. Memorialization products consist primarily of bronze
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 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 primarily in North America. The
Graphics Imaging segment manufactures and provides brand solutions, printing
plates, 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.
At
October 31, 2007, the Company and its majority-owned subsidiaries had
approximately 4,100 employees. The Company's principal executive
offices are located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212,
its telephone number is (412) 442-8200 and its internet website is
www.matw.com.
The
following table sets forth reported sales and operating profit for the Company's
business segments for the past three fiscal years. Detailed financial
information relating to business segments and to domestic and international
operations is presented in Note 15 (Segment Information) to the Consolidated
Financial Statements included in Part II of this Annual Report on Form
10-K.
ITEM
1.
|
BUSINESS,
continued
|
|
|
Years
Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in Thousands)
|
|
Sales
to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronze
|
|
$ |
229,850
|
|
|
|
30.7 |
% |
|
$ |
218,004
|
|
|
|
30.4 |
% |
|
$ |
205,675
|
|
|
|
32.1 |
% |
Casket
|
|
|
210,673
|
|
|
|
28.1
|
|
|
|
200,950
|
|
|
|
28.1
|
|
|
|
135,512
|
|
|
|
21.2
|
|
Cremation
|
|
|
25,166
|
|
|
|
3.3
|
|
|
|
25,976
|
|
|
|
3.6
|
|
|
|
21,497
|
|
|
|
3.4
|
|
|
|
|
465,689
|
|
|
|
62.1
|
|
|
|
444,930
|
|
|
|
62.1
|
|
|
|
362,684
|
|
|
|
56.7
|
|
Brand
Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics
Imaging
|
|
|
146,049
|
|
|
|
19.5
|
|
|
|
140,886
|
|
|
|
19.7
|
|
|
|
143,159
|
|
|
|
22.4
|
|
Marking
Products
|
|
|
57,450
|
|
|
|
7.7
|
|
|
|
52,272
|
|
|
|
7.3
|
|
|
|
45,701
|
|
|
|
7.1
|
|
Merchandising
Solutions
|
|
|
80,164
|
|
|
|
10.7
|
|
|
|
77,803
|
|
|
|
10.9
|
|
|
|
88,278
|
|
|
|
13.8
|
|
|
|
|
283,663
|
|
|
|
37.9
|
|
|
|
270,961
|
|
|
|
37.9
|
|
|
|
277,138
|
|
|
|
43.3
|
|
Total
|
|
$ |
749,352
|
|
|
|
100.0 |
% |
|
$ |
715,891
|
|
|
|
100.0 |
% |
|
$ |
639,822
|
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memorialization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronze
|
|
$ |
66,298
|
|
|
|
59.3 |
% |
|
$ |
65,049
|
|
|
|
57.1 |
% |
|
$ |
59,722
|
|
|
|
60.7 |
% |
Casket
|
|
|
11,801
|
|
|
|
10.6
|
|
|
|
16,971
|
|
|
|
14.9
|
|
|
|
12,645
|
|
|
|
12.8
|
|
Cremation
|
|
|
3,631
|
|
|
|
3.2
|
|
|
|
3,372
|
|
|
|
3.0
|
|
|
|
701
|
|
|
|
.7
|
|
|
|
|
81,730
|
|
|
|
73.1
|
|
|
|
85,392
|
|
|
|
75.0
|
|
|
|
73,068
|
|
|
|
74.2
|
|
Brand
Solutions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics
Imaging
|
|
|
14,439
|
|
|
|
12.9
|
|
|
|
16,554
|
|
|
|
14.5
|
|
|
|
14,861
|
|
|
|
15.1
|
|
Marking
Products
|
|
|
9,931
|
|
|
|
8.9
|
|
|
|
9,066
|
|
|
|
8.0
|
|
|
|
7,373
|
|
|
|
7.5
|
|
Merchandising
Solutions
|
|
|
5,724
|
|
|
|
5.1
|
|
|
|
2,872
|
|
|
|
2.5
|
|
|
|
3,111
|
|
|
|
3.2
|
|
|
|
|
30,094
|
|
|
|
26.9
|
|
|
|
28,492
|
|
|
|
25.0
|
|
|
|
25,345
|
|
|
|
25.8
|
|
Total
|
|
$ |
111,824
|
|
|
|
100.0 |
% |
|
$ |
113,884
|
|
|
|
100.0 |
% |
|
$ |
98,413
|
|
|
|
100.0 |
% |
In
fiscal
2007, approximately 75% of the Company's sales were made from the United States,
and 21%, 2%, 1% and 1% were made from Europe, Canada, Australia and China,
respectively. Bronze segment products are sold throughout the world
with the segment's principal operations located in the United States, Italy,
Canada, and Australia. Casket segment products are primarily sold in
the United States and Canada. Cremation segment products and services are sold
primarily in North America, as well as Asia, Australia, and
Europe. Products and services of the Graphics Imaging segment are
sold primarily in the United States and Europe. The Marking Products
segment sells equipment and consumables directly to industrial consumers and
distributors in the United States and internationally through the Company's
subsidiaries in Canada, Sweden, China and through other foreign
distributors. Matthews owns a minority interest in Marking Products
distributors in Singapore, Australia, France, Germany and the
Netherlands. Merchandising Solutions segment products and services
are sold principally in the United States.
ITEM
1.
|
BUSINESS,
continued
|
MEMORIALIZATION
PRODUCTS AND MARKETS:
Bronze:
The
Bronze segment manufactures and markets products used primarily in the cemetery
and funeral home industries. The segment's products, which are sold
principally in the United States, Europe, Canada and Australia, include cast
bronze memorials and other memorialization products used primarily in
cemeteries. The segment also manufactures and markets cast and etched
architectural products, that are produced from bronze, aluminum and other
metals, which are used to identify or commemorate people, places, events and
accomplishments.
Memorial
products, which comprise the majority of the Bronze segment's sales, include
flush bronze memorials, flower vases, crypt plates and letters, cremation urns,
niche units, cemetery features and statues, along with other related products
and services. Flush bronze memorials are bronze plaques which contain personal
information about a deceased individual such as name, birth date, death date
and
emblems. These memorials are used in cemeteries as an alternative to
upright and flush granite monuments. The memorials are even or
"flush" with the ground and therefore are preferred by many cemeteries for
easier mowing and general maintenance. In order to provide products
for the granite memorial and mausoleum markets, the Company's other memorial
products include community and family mausoleums, granite monuments and benches,
bronze plaques, letters, emblems, vases, lights and photoceramics that can
be
affixed to granite monuments, mausoleums, crypts and flush memorials. Matthews
is a leading builder of mausoleums within North America. Principal
customers for memorial products are cemeteries and memorial parks, which in
turn
sell the Company's products to the consumer.
Customers
of the Bronze segment can also purchase memorials and vases on a “pre-need”
basis. The “pre-need” concept permits families to arrange for these
purchases in advance of their actual need. Upon request, the Company
will manufacture the memorial to the customer’s specifications (e.g., name and
birth date) and place it in storage for future delivery. All
memorials in storage have been paid in full with title conveyed to each pre-need
purchaser.
The
Bronze segment manufactures a full line of memorial products for cremation,
including urns in a variety of sizes, styles and shapes. The segment
also manufactures bronze and granite niche units, which are comprised of
numerous compartments used to display cremation urns in mausoleums and
churches. In addition, the Company also markets turnkey cremation
gardens, which include the design and all related products for a cremation
memorial garden.
Architectural
products include cast bronze and aluminum plaques, etchings and letters that
are
used to recognize, commemorate and identify people, places, events and
accomplishments. The Company's plaques are frequently used to
identify the name of a building or the names of companies or individuals located
within a building. Such products are also used to commemorate events
or accomplishments, such as military service or financial
donations. The principal markets for the segment's architectural
products are corporations, fraternal organizations, contractors, churches,
hospitals, schools and government agencies. These products are sold
to and distributed through a network of independent dealers including sign
suppliers, awards and recognition companies, and trophy dealers.
Raw
materials used by the Bronze segment consist principally of bronze and aluminum
ingot, sheet metal, coating materials, photopolymers and construction materials
and are generally available in adequate supply. Ingot is obtained
from various North American, European and Australian smelters.
Competition
from other bronze memorialization product manufacturers is on the basis of
reputation, product quality, delivery, price and design availability. The
Company also competes with upright granite monument and flush granite memorial
providers. The Company believes that its superior quality, broad product lines,
innovative designs, delivery capability, customer responsiveness, experienced
personnel and consumer-oriented merchandising systems are competitive advantages
in its markets. Competition in the
ITEM
1. BUSINESS,
continued
mausoleum
construction industry includes various construction companies throughout North
America and is on the basis of design, quality and price. Competitors
in the architectural market are numerous and include companies that manufacture
cast and painted signs, plastic materials, sand-blasted wood and other
fabricated products.
Casket:
The
Casket segment is a leading manufacturer of caskets in North
America. The segment produces two types of caskets: metal and
wood. Caskets can be customized with many different options such as
color, interior design, handles and trim in order to accommodate specific
religious, ethnic or other personal preferences.
Metal
caskets are made from various gauges of cold rolled steel, stainless steel,
copper and bronze. Metal caskets are generally categorized by whether
the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper,
or steel) and in the case of steel, by the gauge, or thickness, of the
metal.
The
segment's wood caskets are manufactured from nine different species of wood,
as
well as from veneer. The species of wood used are poplar, pine, ash,
oak, pecan, maple, cherry, walnut and mahogany. The Casket segment is
a leading manufacturer of all-wood constructed caskets, which are manufactured
using pegged and dowelled construction, and include no metal
parts. All-wood constructed caskets are preferred by certain
religious groups.
The
segment also produces casket components. Casket components include
stamped metal parts, metal locking mechanisms for gasketed metal caskets,
adjustable beds, interior panels and plastic ornamental hardware for the
exterior of the casket. Metal casket parts are produced by stamping
cold rolled steel, stainless steel, copper and bronze sheets into casket body
parts. Locking mechanisms and adjustable beds are produced by
stamping and assembling a variety of steel parts. Certain ornamental
hardware styles are produced from injection molded plastic. The
segment purchases from sawmills and lumber distributors various species of
uncured wood, which it dries and cures. The cured wood is processed
into casket components.
Additionally,
the segment provides assortment planning and merchandising and display products
to funeral service businesses. These products assist funeral service
professionals in providing value and satisfaction to their client
families.
The
primary materials required for casket manufacturing are cold rolled steel and
lumber. The segment also purchases copper, bronze, stainless steel, cloth,
ornamental hardware and coating materials. Purchase orders or supply agreements
are typically negotiated with large, integrated steel producers that have
demonstrated timely delivery, high quality material and competitive
prices. Lumber is purchased from a number of sawmills and lumber
distributors. The Company purchases most of its lumber from sawmills
within 150 miles of its wood casket manufacturing facility in York,
Pennsylvania.
Prior
to
July 2005, the segment marketed its casket products primarily through
independent distributors. With the acquisition of Milso Industries
Corporation in July 2005, the segment significantly expanded its internal casket
distribution capabilities. The segment now markets its casket
products in the United States through a combination of Company-owned and
independent casket distribution facilities. The Company operates
approximately 50 distribution centers in the United States. Over 70%
of the segment’s casket products are currently sold through Company-owned
distribution centers.
The
casket business is highly competitive. The segment competes with other
manufacturers on the basis of product quality, price, service, design
availability and breadth of product line. The segment provides a line
of casket products that it believes is as comprehensive as any of its major
competitors. There are a large number of casket industry participants
operating in North America, and the industry has recently seen a few new foreign
casket manufacturers, primarily from China, enter the North American market.
The
Casket segment and its two largest competitors account for a substantial portion
of the finished caskets produced in North America.
ITEM
1. BUSINESS,
continued
Historically,
the segment's operations have experienced seasonal variations. Generally, casket
sales are higher in the second quarter and lower in the fourth quarter of each
fiscal year. These fluctuations are due in part to the seasonal variance in
the
death rate, with a greater number of deaths generally occurring in cold weather
months.
Cremation:
The
Cremation segment has four major groups of products and services: cremation
equipment, cremation caskets, equipment service and repair, and supplies and
urns.
The
Cremation segment is the leading designer and manufacturer of cremation
equipment in North America. Cremation equipment includes systems for
cremation of humans and animals, as well as equipment for processing the
cremated remains and other related equipment such as handling equipment (tables,
cooler racks, vacuums). Cremation equipment and products are sold
primarily to funeral homes, cemeteries, crematories, animal disposers and
veterinarians within North America, Asia, Australia and Europe.
Cremation
casket products consist primarily of three types of caskets: cloth-covered
wood,
cloth-covered corrugated material and paper veneer-covered
particleboard. These products are generally used in cremation and are
marketed principally to funeral homes through independent distributors in the
United States.
Service
and repair consists of maintenance work performed on various makes and models
of
cremation equipment. This work can be as simple as routine
maintenance or as complex as complete on-site reconstruction. The
principal markets for these services are the owners and operators of cremation
equipment. These services are marketed principally in North America
through Company sales representatives.
Supplies
and urns are consumable items associated with cremation
operations. Supplies distributed by the segment include operator
safety equipment, identification discs and combustible roller
tubes. Urns distributed by the segment include products ranging from
plastic containers to bronze urns for cremated remains. These
products are marketed primarily in North America.
Raw
materials used by the Cremation segment consist principally of structural steel,
sheet metal, electrical components, cloth, wood, particleboard, corrugated
materials, paper veneer and masonry materials and are generally available in
adequate supply from numerous suppliers.
The
Company competes with several manufacturers in the cremation equipment market
principally on the basis of product quality and price. The Cremation
segment and its three largest competitors account for a substantial portion
of
the U.S. cremation equipment market. The cremation casket business is
highly competitive. The segment competes with other cremation casket
manufacturers on the basis of product quality, price and design
availability. Although there are a large number of casket industry
participants, the Cremation segment and its two largest competitors account
for
a substantial portion of the cremation caskets sold in the United
States.
Historically,
the segment’s cremation casket operations have experienced seasonal
variations. These fluctuations are due in part to the seasonal
variance in the death rate, with a greater number of deaths generally occurring
in cold weather months.
ITEM
1. BUSINESS,
continued
BRAND
SOLUTIONS PRODUCTS AND MARKETS:
Graphics
Imaging:
The
Graphics Imaging segment provides brand management, pre-press services, printing
plates and creative design services to the primary packaging and corrugated
industries. The primary packaging industry consists of manufacturers of printed
packaging materials such as boxes, flexible packaging, folding cartons and
bags
commonly seen at retailers of consumer goods. The corrugated packaging industry
consists of manufacturers of printed corrugated containers.
The
principal products and services of this segment include brand management,
pre-press graphics services, printing plates, print process assistance, print
production management, digital asset management, content management, and package
design. These products and services are used by brand owners and
packaging manufacturers to develop and print packaging graphics that identify
and help sell the product in the marketplace. Other packaging
graphics can include nutritional information, directions for product use,
consumer warning statements and UPC codes. The primary packaging manufacturer
produces printed packaging from paper, film, foil and other composite materials
used to display, protect and market the product. The corrugated packaging
manufacturer produces printed containers from corrugated
sheets. Using the Company's products, this sheet is printed and die
cut to make a finished container.
The
segment offers a wide array of value-added services and
products. These include print process and print production management
services; pre-press preparation, which includes computer-generated art, film
and
proofs; plate mounting accessories and various press aids; and rotary and flat
cutting dies used to cut out intricately designed containers and
point-of-purchase displays. The segment also provides creative
digital graphics services to brand owners and packaging markets.
The
Company works closely with manufacturers to provide the proper printing plates
and tooling used to print the packaging to the user's
specifications. The segment's printing plate products are made
principally from photopolymer resin and sheet materials. Upon
customer request, plates can be pre-mounted press-ready in a variety of
configurations that maximize print quality and minimize press
set-up time.
The
Graphics Imaging segment customer base consists primarily of brand owners and
packaging industry converters. Brand owners are generally large,
well-known consumer products companies and retailers with a national or global
presence. These types of companies tend to purchase their graphics
needs directly and supply the printing plates, or the electronic files to make
the printing plates, to the packaging printer for their products. The
Graphics Imaging segment serves customers primarily in the United States and
Europe. In Europe, Matthews has subsidiaries principally in the U.K.,
Germany and Austria. Products and services of these operations
include pre-press packaging, digital and analog flexographic printing plates,
design, artwork, lithography and color separation.
Major
raw
materials for this segment's products include photopolymers, film and graphic
art supplies. All such materials are presently available in adequate
supply from various industry sources.
The
Graphics Imaging segment is one of several manufacturers of printing plates
and
providers of pre-press services with an international presence in the United
States and Europe. The segment competes in a fragmented industry
consisting of a few multi-plant regional printing plate suppliers and a large
number of local single-facility companies located across the United States
and
Europe. The combination of the Company's Graphics Imaging business in
the United States and Europe is an important part of Matthews’ strategy to
become a worldwide leader in the graphics industry and service multinational
customers on a global basis. Competition is on the basis of product
quality, timeliness of delivery, price and value-added services. The
Company differentiates itself from the competition by consistently meeting
customer demands, its ability to service customers nationally and globally,
and
its ability to provide value-added services.
ITEM
1. BUSINESS,
continued
Marking
Products:
The
Marking Products segment designs, manufactures and distributes a wide range
of
marking and coding products and related consumables, as well as industrial
automation products. The Company’s products are used by manufacturers
and suppliers to identify, track and convey their products and
packaging. Marking products can range from a simple hand stamp to
microprocessor-based ink-jet printing systems. Coding systems often
integrate into the customer’s manufacturing, inventory tracking and conveyance
control systems. The Company manufactures and markets products and
systems that employ the following marking methods to meet customer
needs: contact printing, indenting, etching and ink-jet
printing. Customers will often use a combination of these methods in
order to achieve an appropriate mark. These methods apply product
information required for identification and traceability as well as to
facilitate inventory and quality control, regulatory compliance and brand name
communication.
The
segment’s industrial automation products are based upon embedded control
architecture to create innovative custom solutions which can be
“productized.” Industries that products are created for include oil
exploration, material handling and security scanning. The material
handling industry customers include the largest automated assembly and mail
sorting companies in the United States.
A
significant portion of the revenue of the Marking Products segment is
attributable to the sale of consumables and replacement parts in connection
with
the marking, coding and tracking hardware sold by the Company. The
Company develops inks, rubber and steel consumables in harmony with the marking
equipment in which they are used, which is critical to assure ongoing equipment
reliability and mark quality. Many marking equipment customers also
use the Company's inks, solvents and cleaners.
The
principal customers for the Company's marking products are consumer goods
manufacturers, including food and beverage processors, producers of
pharmaceuticals, and manufacturers of durable goods and building
products. The Company also serves a wide variety of industrial
markets, including metal fabricators, manufacturers of woven and non-woven
fabrics, plastic, rubber and automotive products.
A
portion
of the segment's sales are outside the United States and are distributed through
the Company's subsidiaries in Canada, Sweden and China in addition to other
international distributors. Matthews owns a minority interest in
distributors in Singapore, Australia, France, Germany and the
Netherlands.
The
marking products industry is diverse, with companies either offering limited
product lines for well-defined specialty markets, or similar to the Company,
offering a broad product line and competing in various product markets and
countries. In the United States, the Company has manufactured and
sold marking products and related consumable items since 1850.
Major
raw
materials for this segment's products include precision components, electronics,
printing components, tool steels, rubber and chemicals, all of which are
presently available in adequate supply from various sources.
Competition
for marking products is intense and based on product performance, integration
into the manufacturing process, service and price. The Company
normally competes with specialty companies in specific brand marking solutions
and traceability applications. The Company believes that, in general,
it offers the broadest line of marking products to address a wide variety of
industrial marking applications.
ITEM
1. BUSINESS,
continued
Merchandising
Solutions:
The
Merchandising Solutions segment provides merchandising and printing solutions
for manufacturers and retailers. The segment designs, manufactures
and installs merchandising and display systems, and also provides creative
merchandising and marketing solutions services.
The
majority of the segment’s sales are derived from the design, engineering,
manufacturing and installation of merchandising and display
systems. These systems include permanent and temporary displays,
custom store fixtures, brand concept shops, interactive kiosks, custom
packaging, and screen and digitally printed promotional
signage. Design and engineering services include concept and model
development, graphics design and prototyping. Merchandising and
display systems are manufactured to specifications developed by the segment
in
conjunction with the customer. These products are marketed and sold
primarily in the United States.
The
segment operates in a fragmented industry consisting primarily of a number
of
small, locally operated companies. Industry competition is intense
and the segment competes on the basis of reliability, creativity and providing
a
broad array of merchandising products and services. The segment is
unique in its ability to provide in-depth marketing and merchandising services
as well as design, engineering and manufacturing capabilities. These
capabilities allow the segment to deliver complete turnkey merchandising
solutions quickly and cost effectively.
Major
raw
materials for the segment’s products include wood, particleboard, corrugated
materials, structural steel, plastic, laminates, inks, film and graphic art
supplies. All of these raw materials are presently available in
adequate supply from various sources.
PATENTS,
TRADEMARKS AND LICENSES:
The
Company holds a number of domestic and foreign patents and
trademarks. However, the Company believes the loss of any or a
significant number of patents or trademarks would not have a material impact
on
consolidated operations or revenues.
BACKLOG:
Because
the nature of the Company's Bronze, Graphics Imaging and Merchandising Solutions
businesses are primarily custom products made to order with short lead times,
backlogs are not generally material except for mausoleums. Backlogs vary in
a
range of approximately one year of sales for mausoleums. Backlogs for the Casket
segment and the cremation casket businesses are not material. Cremation
equipment sales backlogs vary in a range of eight to ten months of
sales. Backlogs generally vary in a range of up to four weeks of
sales in the Marking Products segment.
REGULATORY
MATTERS:
The
Company's operations are subject to various federal, state and local laws and
regulations relating to the protection of the environment. These laws
and regulations impose limitations on the discharge of materials into the
environment and require the Company to obtain and operate in compliance with
conditions of permits and other government authorizations. As such,
the Company has developed environmental, health and safety policies and
procedures that include the proper handling, storage and disposal of hazardous
materials.
The
Company is party to various environmental matters. These include
obligations to investigate and mitigate the effects on the environment of the
disposal of certain materials at various operating and non-operating
sites. The Company is currently performing environmental assessments
and remediation at these sites, as appropriate. In addition, prior to
its acquisition, The York Group, Inc. was identified, along with others, by
the
Environmental Protection Agency as a potentially responsible party for
remediation of a
ITEM
1. BUSINESS,
continued
landfill
site in York, Pennsylvania. At this time, the Company has not been
joined in any lawsuit or administrative order related to the site or its
clean-up.
At
September 30, 2007, an accrual of approximately $8.7 million had been recorded
for environmental remediation (of which $865,000 was classified in other
current liabilities), representing management's best estimate of the probable
and reasonably estimable costs of the Company's known remediation
obligations. The accrual does not consider the effects of inflation
and anticipated expenditures are not discounted to their present
value. While final resolution of these contingencies could result in
costs different than current accruals, management believes the ultimate outcome
will not have a significant effect on the Company's consolidated results of
operations or financial position.
ITEM
1A. RISK FACTORS.
Risk
factors specific to the Company relate primarily to the legal proceedings
described more fully in Item 3 “Legal Proceedings” of this Form 10-K. Other
general risk factors that could affect the Company’s future results principally
include changes in domestic or international economic conditions, changes in
foreign currency exchange rates, changes in the cost of materials used in the
manufacture of the Company’s products, changes in death rates, changes in
product demand or pricing as a result of consolidation in the industries in
which the Company operates, changes in product demand or pricing as a result
of
domestic or international competitive pressures, unknown risks in connection
with the Company's acquisitions, and technological factors beyond the Company's
control. In addition, although the Company does not have any
customers that would be considered individually significant to consolidated
sales, changes in the distribution of the Company’s products or the potential
loss of one or more of the Company’s larger customers are also considered risk
factors. These factors are also included in this Form 10-K under the
caption “Cautionary Statement Regarding Forward-Looking
Information.”
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not
Applicable.
Principal
properties of the Company and its majority-owned subsidiaries as of October
31,
2007 were as follows (properties are owned by the Company except as
noted):
Location
|
|
Description
of Property
|
|
Square
Feet
|
Bronze:
|
|
|
|
|
Pittsburgh,
PA
|
|
Manufacturing
/ Division Offices
|
|
97,000
|
Kingwood,
WV
|
|
Manufacturing
|
|
121,000
|
Melbourne,
Australia
|
|
Manufacturing
|
|
26,000(1)
|
Parma,
Italy
|
|
Manufacturing
/ Warehouse
|
|
231,000(1)
|
Searcy,
AR
|
|
Manufacturing
|
|
113,000
|
Seneca
Falls, NY
|
|
Manufacturing
|
|
21,000
|
|
|
|
|
|
Casket
(3):
|
|
|
|
|
Monterrey,
Mexico
|
|
Manufacturing
|
|
178,000(1)
|
Richmond,
IN
|
|
Manufacturing
|
|
55,000(1)
|
Richmond,
IN
|
|
Manufacturing
/ Metal Stamping
|
|
92,000
|
Richmond,
IN
|
|
Injection
Molding
|
|
18,000(1)
|
York,
PA
|
|
Manufacturing
|
|
307,000
|
|
|
|
|
|
Cremation:
|
|
|
|
|
Apopka,
FL
|
|
Manufacturing
/ Division Offices
|
|
40,000
|
Richmond,
IN
|
|
Manufacturing
|
|
129,000(1)
|
|
|
|
|
|
Graphics
Imaging:
|
|
|
|
|
Pittsburgh,
PA
|
|
Manufacturing
/ Division Offices
|
|
56,000
|
Julich,
Germany
|
|
Manufacturing
/ Division Offices
|
|
24,000
|
Atlanta,
GA
|
|
Manufacturing
|
|
16,000
|
Beverly,
MA
|
|
Manufacturing
|
|
14,500(1)
|
Dallas,
TX
|
|
Manufacturing
|
|
15,000(1)
|
Denver,
CO
|
|
Manufacturing
|
|
12,000(1)
|
Goslar,
Germany
|
|
Manufacturing
|
|
39,000(1)
|
Kansas
City, MO
|
|
Manufacturing
|
|
42,000(1)
|
Leeds,
England
|
|
Manufacturing
|
|
64,000(1)
|
Munich,
Germany
|
|
Manufacturing
|
|
10,000(1)
|
Nuremberg,
Germany
|
|
Manufacturing
|
|
27,000(1)
|
Oakland,
CA
|
|
Manufacturing
|
|
21,000(1)
|
St.
Louis, MO
|
|
Manufacturing
|
|
25,000
|
Vienna,
Austria
|
|
Manufacturing
|
|
38,000(1)
|
|
|
|
|
|
Marking
Products:
|
|
|
|
|
Pittsburgh,
PA
|
|
Manufacturing
/ Division Offices
|
|
85,000
|
Gothenburg,
Sweden
|
|
Manufacturing
/ Distribution
|
|
28,000(1)
|
Tualatin,
OR
|
|
Manufacturing
|
|
15,000(1)
|
Beijing,
China
|
|
Manufacturing
|
|
100,000(1)
|
|
|
|
|
|
Merchandising
Solutions:
|
|
|
|
|
East
Butler, PA
|
|
Manufacturing
/ Division Offices
|
|
630,000(2)
|
|
|
|
|
|
Corporate
Office:
|
|
|
|
|
Pittsburgh,
PA
|
|
General
Offices
|
|
48,000
|
(1)
|
These
properties are leased by the Company under operating lease arrangements.
Rent expense incurred by the Company for all leased facilities was
approximately $12.4 million in fiscal
2007.
|
(2)
|
Approximately
ten percent of this building is leased to unrelated
parties.
|
(3)
|
In
addition to the properties listed, the Casket division leases warehouse
facilities totaling approximately 789,000 square feet in 21 states
under
operating leases.
|
ITEM
2.
|
PROPERTIES,
continued
|
All
of
the owned properties are unencumbered. The Company believes its
facilities are generally well suited for their respective uses and are of
adequate size and design to provide the operating efficiencies necessary for
the
Company to be competitive. The Company's facilities provide adequate
space for meeting its near-term production requirements and have availability
for additional capacity. The Company intends to continue to expand
and modernize its facilities as necessary to meet the demand for its
products.
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
In
August
2005, The York Group, Inc. (“York”), a wholly-owned subsidiary of the Company,
was served with Civil Investigative Demands (“CIDs”) from the Attorneys General
in Maryland and Florida. Thereafter, in October 2005, York was also
served with a CID from the Attorney General in Connecticut. The
pending CIDs are part of a multi-state investigation in which the Attorneys
General from Maryland, Florida and Connecticut have requested information from
various sources, including several national owners and operators of funeral
homes, as well as several manufacturers of caskets, regarding alleged
anti-competitive practices in the funeral service industry. As one of
many potential sources of information, York has already timely responded to
the
document production request communicated through the CIDs. Presently,
the investigation continues to remain in the preliminary stages and the scope
of
the investigation has been limited to evaluating the sale of caskets in the
funeral service industry.
On
May
30, 2007, York resolved the legal claim filed by Harry Pontone and Scott Pontone
(the “Pontones”) concerning their employment agreements. Under the
resolution, York agreed to accelerate the timing of scheduled payments totaling
$8.0 million as originally contemplated at the time of the acquisition of Milso
Industries and consistent with the earn-out provisions of the Pontones’
employment agreements.
On
July
20, 2007, York reached a settlement agreement with Yorktowne Caskets, Inc.
(“Yorktowne”) and its shareholders finally resolving all outstanding litigation
between the parties. In exchange for the mutual releases, the
principal terms of the settlement included the assignment by Yorktowne of
certain customer and employment-related contracts to York Distribution Company
(“YDC”), a wholly-owned subsidiary of York, and the purchase by YDC of certain
assets, including York-product inventory, of Yorktowne. The purchase
price for the assets was $7.7 million, plus the value of the
inventory. Notwithstanding the foregoing, York’s lawsuit against the
additional co-defendant, Batesville Casket Company, Inc. (“Batesville”), filed
in the Court of Common Pleas of Allegheny County, Pennsylvania, remains
pending.
On
July
30, 2007, Batesville filed a complaint against York for damages and injunctive
relief in the United States District Court for the Southern District of Ohio
alleging, in part, that York’s settlement with Yorktowne resulted in the
commission of the tort of intentional interference of Batesville’s supply
agreement with Yorktowne dated April 15, 2007 (the “Complaint”). York
has preliminarily filed a responsive pleading to the allegations pled by
Batesville in the Complaint. The Company intends to vigorously defend
against the allegations set forth in the pending Complaint and does not
presently believe that the ultimate resolution of this matter will have a
material adverse impact on the Company’s financial position, results of
operations or cash flows.
On
September 12, 2007, York reached a settlement agreement with Horizon Casket
Group, Inc. (“Horizon”), Delta Casket Enterprises, Inc., Delta Casket Company,
Inc., Delta-Southern Casket Company, William W. Grubbs, Jr. and Gerald
Kilpatrick (collectively the “Delta Defendants”) addressing litigation
previously pending in the United Stated District Court for the Southern District
of Texas, Houston Division. In exchange for mutual releases, Horizon
and the Delta Defendants agreed to pay York the lump sum payment of $3.5
million. In connection with the same claims, York reached a settlement agreement
with York Southern, Inc. and affiliates earlier in fiscal 2007.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No
matters were submitted to a vote of the Company's security holders during the
fourth quarter of fiscal 2007.
OFFICERS
AND EXECUTIVE MANAGEMENT OF THE REGISTRANT
The
following information is furnished with respect to officers and executive
management as of October 31, 2007:
Name
|
|
Age
|
|
Positions
with Registrant
|
|
|
|
|
|
Joseph
C. Bartolacci
|
|
47
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
David
F. Beck
|
|
55
|
|
Controller
|
|
|
|
|
|
David
J. DeCarlo
|
|
62
|
|
Vice
Chairman
|
|
|
|
|
|
C.
Michael Dempe
|
|
51
|
|
Chief
Operating Officer, Cloverleaf Group, Inc.
|
|
|
|
|
|
James
P. Doyle
|
|
56
|
|
Group
President, Memorialization
|
|
|
|
|
|
Brian
J. Dunn
|
|
50
|
|
Group
President, Graphics and Marking Products
|
|
|
|
|
|
Steven
F. Nicola
|
|
47
|
|
Chief
Financial Officer, Secretary
|
|
|
|
|
and
Treasurer
|
|
|
|
|
|
Timothy
S. O’Brien
|
|
43
|
|
President,
Bronze Division
|
|
|
|
|
|
Paul
F. Rahill
|
|
50
|
|
President,
Cremation Division
|
|
|
|
|
|
Franz
J. Schwarz
|
|
59
|
|
President,
Graphics Europe
|
|
|
|
|
|
Joseph
C. Bartolacci was appointed President and Chief Executive Officer
effective October 1, 2006. He had been President and Chief Operating
Officer since September 1, 2005. Mr. Bartolacci was elected to the
Board of Directors on November 15, 2005. He had been President,
Casket Division since February 2004 and Executive Vice President of Matthews
since January 1, 2004. He had been President, Matthews Europe since
April 2002. Prior thereto, he was President, Caggiati, S.p.A. (a wholly-owned
subsidiary of Matthews International Corporation) and served as General Counsel
of Matthews.
David
F. Beck was appointed Controller effective September 15,
2003. Prior thereto, he was Vice President, Finance for the Company’s
Casket segment.
David
J. DeCarlo, a Director of the Company since 1987, was appointed Vice
Chairman effective September 1, 2005. Mr. DeCarlo had been Group
President, Bronze and Casket Divisions since February 2004 and prior thereto
had
been President, Bronze Division.
C.
Michael Dempe joined the Company as Chief Operating Officer of
Cloverleaf Group, Inc. (“Cloverleaf”), a wholly-owned subsidiary of Matthews
International Corporation, in July 2004. Cloverleaf was acquired by
Matthews in July 2004. Prior thereto, he was President and Chief
Operating Officer of iDL, Inc., a predecessor company to
Cloverleaf.
James
P. Doyle joined the Company as Group President, Memorialization in
December 2006. Prior to joining Matthews, he served as President,
Kohler Engine Business, (a manufacturer of air and liquid-cooled four cycle
engines), a division of Kohler Company, from 2004 to 2006. From 2000
to 2004, Mr. Doyle served as President of Fasco Industries, Inc., a division
of
Invensys PLC, which manufactured custom blowers, motors and gear-motors for
global markets.
OFFICERS
AND EXECUTIVE MANAGEMENT OF THE REGISTRANT, continued
Brian
J. Dunn was appointed Group President, Graphics and Marking Products
effective September 1, 2007. Prior thereto, Mr. Dunn had been
President, Marking Products Division.
Steven
F. Nicola was appointed Chief Financial Officer, Secretary and
Treasurer effective December 1, 2003. Prior thereto, he was Vice
President, Accounting and Finance.
Timothy
S. O’Brien joined the Company in October 2007 as President, Bronze
Division. Prior to joining the Company, Mr. O’Brien served in senior
management positions in the Cooper Lighting Division of Cooper Industries,
a
public company that produces and markets electrical products, tools, hardware
and metal support products, since 2002.
Paul
F. Rahill was appointed President, Cremation Division in October
2002.
Franz
J. Schwarz was named President, Graphics Europe in May
2006. He has been Managing Director of Matthews International GmbH (a
wholly-owned subsidiary of Matthews International Corporation) since 2000.
He
was a partial owner of S+T Gesellschaft fur Reprotechnik GmbH (“S+T GmbH”), a
provider of printing plates and print services located in Julich, Germany,
until
September 30, 2005. Matthews International GmbH owns an 80% interest
in S+T GmbH as of September 30, 2007.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
Market
Information:
The
authorized common stock of the Company consists of 70,000,000 shares of Class
A
Common Stock, $1 par value. The Company's Class A Common Stock is
traded on the NASDAQ National Market System under the symbol
“MATW”. The following table sets forth the high, low and closing
prices as reported by NASDAQ for the periods indicated:
|
|
High
|
|
|
Low
|
|
|
Close
|
|
Fiscal
2007:
|
|
|
|
|
|
|
|
|
|
Quarter
ended:
September 30, 2007
|
|
$ |
48.22
|
|
|
$ |
36.76
|
|
|
$ |
43.80
|
|
June
30, 2007
|
|
|
44.97
|
|
|
|
37.61
|
|
|
|
43.61
|
|
March
31, 2007
|
|
|
42.35
|
|
|
|
38.13
|
|
|
|
40.70
|
|
December
31, 2006
|
|
|
41.75
|
|
|
|
35.13
|
|
|
|
39.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended: September 30,
2006
|
|
$ |
38.25
|
|
|
$ |
31.02
|
|
|
$ |
36.79
|
|
June
30, 2006
|
|
|
38.32
|
|
|
|
33.21
|
|
|
|
34.47
|
|
March
31, 2006
|
|
|
39.98
|
|
|
|
35.03
|
|
|
|
38.26
|
|
December
31, 2005
|
|
|
40.49
|
|
|
|
34.25
|
|
|
|
36.41
|
|
The
Company has a stock repurchase program, which was initiated in
1996. Under the program, the Company's Board of Directors has
authorized the repurchase of a total of 12,500,000 shares of Matthews’ common
stock, of which 10,501,443 shares
have been
repurchased as of September 30, 2007. The buy-back program is
designed to increase shareholder value, enlarge the Company's holdings of its
common stock, and add to earnings per share. Repurchased shares may
be retained in treasury, utilized for acquisitions, or reissued to employees
or
other purchasers, subject to the restrictions of the Company’s Restated Articles
of Incorporation.
All
purchases of the Company’s common stock during fiscal 2007 were part of this
repurchase program.
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(continued)
|
The
following table shows the monthly fiscal 2007 stock repurchase
activity:
Period
|
|
Total
number of shares purchased
|
|
|
Average
price paid per share
|
|
|
Total
number of shares purchased as part of a publicly announced
plan
|
|
|
Maximum
number of shares that may yet be purchased under the plan
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
2006
|
|
|
-
|
|
|
$ |
-
|
|
|
|
-
|
|
|
|
864,854
|
|
November
2006
|
|
|
60,000
|
|
|
|
38.00
|
|
|
|
60,000
|
|
|
|
804,854
|
|
December
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
804,854
|
|
January
2007
|
|
|
11,500
|
|
|
|
39.64
|
|
|
|
11,500
|
|
|
|
793,354
|
|
February
2007
|
|
|
8,300
|
|
|
|
40.30
|
|
|
|
8,300
|
|
|
|
785,054
|
|
March
2007
|
|
|
271,900
|
|
|
|
39.54
|
|
|
|
271,900
|
|
|
|
513,154
|
|
April
2007
|
|
|
130,000
|
|
|
|
41.95
|
|
|
|
130,000
|
|
|
|
2,883,154
|
|
May
2007
|
|
|
335,604
|
|
|
|
43.22
|
|
|
|
335,604
|
|
|
|
2,547,550
|
|
June
2007
|
|
|
96,747
|
|
|
|
43.28
|
|
|
|
96,747
|
|
|
|
2,450,803
|
|
July
2007
|
|
|
210,000
|
|
|
|
39.28
|
|
|
|
210,000
|
|
|
|
2,240,803
|
|
August
2007
|
|
|
205,196
|
|
|
|
40.91
|
|
|
|
205,196
|
|
|
|
2,035,607
|
|
September
2007
|
|
|
37,050
|
|
|
|
42.09
|
|
|
|
37,050
|
|
|
|
1,998,557
|
|
Total
|
|
|
1,366,297
|
|
|
$ |
41.11
|
|
|
|
1,366,297
|
|
|
|
|
|
(1)
In
April 2007, the Company’s Board of Directors authorized the purchase of an
additional 2,500,000 shares of Matthews common stock, bringing the total
authorization for stock repurchases to 12,500,000 shares.
Holders:
Based
on
records available to the Company, the number of registered holders of the
Company's common stock was 500 at October 31, 2007.
Dividends:
A
quarterly dividend of $.06 per share was paid for the fourth quarter of fiscal
2007 to shareholders of record on October 31, 2007. The Company paid quarterly
dividends of $.055 per share for the first three quarters of fiscal 2007 and
the
fourth quarter of fiscal 2006. The Company paid quarterly
dividends of $.05 per share for the first three quarters of fiscal 2006 and
the
fourth quarter of fiscal 2005. The Company paid quarterly dividends
of $.045 per share for the first three quarters of fiscal 2005.
Cash
dividends have been paid on common shares in every year for at least the past
forty years. It is the present intention of the Company to continue
to pay quarterly cash dividends on its common stock. However, there
is no assurance that dividends will be declared and paid as the declaration
and
payment of dividends is at the discretion of the Board of Directors of the
Company and is dependent upon the Company's financial condition, results of
operations, cash requirements, future prospects and other factors deemed
relevant by the Board.
ITEM
5. MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS,
continued
Performance
Graph:
During
fiscal 2007, the Company’s common stock was added to the Standard & Poor’s
(“S&P”) MidCap 400 Index. Accordingly, the performance graph
includes the S&P MidCap 400 Index as well as the S&P 500 Index and
S&P SmallCap 600 Index included in the prior year performance
graph
COMPARISON
OF FIVE-YEAR CUMULATIVE RETURN *
AMONG
MATTHEWS INTERNATIONAL CORPORATION,
S&P
500 INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX
**
Note:
Performance graph assumes $100 invested on October 1, 2002 in Matthews
International Corporation Common Stock, Standard & Poor's (S&P) 500
Index, S&P MidCap 400 Index and S&P SmallCap 600 Index. The
results are not necessarily indicative of future performance.
ITEM
6.
|
SELECTED
FINANCIAL DATA.
|
|
|
Years
Ended September 30,
|
|
|
|
2007(1)
|
|
|
2006
(2)
|
|
|
2005
|
|
|
2004
|
|
|
2003
(3)
|
|
|
|
(Amounts
in thousands, except per share data)
|
|
|
|
(Not
Covered by Report of Independent Registered Public Accounting
Firm)
|
|
Net
sales
|
|
$ |
749,352
|
|
|
$ |
715,891
|
|
|
$ |
639,822
|
|
|
$ |
508,801
|
|
|
$ |
458,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
280,457
|
|
|
|
271,933
|
|
|
|
223,075
|
|
|
|
193,754
|
|
|
|
170,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
111,824
|
|
|
|
113,884
|
|
|
|
98,413
|
|
|
|
95,078
|
|
|
|
77,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
8,119
|
|
|
|
6,995
|
|
|
|
2,966
|
|
|
|
1,998
|
|
|
|
2,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
103,716
|
|
|
|
105,408
|
|
|
|
93,056
|
|
|
|
89,117
|
|
|
|
71,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
38,990
|
|
|
|
38,964
|
|
|
|
34,985
|
|
|
|
34,584
|
|
|
|
27,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,726
|
|
|
$ |
66,444
|
|
|
$ |
58,071
|
|
|
$ |
54,533
|
|
|
$ |
43,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$2.04
|
|
|
|
$2.06
|
|
|
|
$1.79
|
|
|
|
$1.68
|
|
|
|
$1.35
|
|
Basic
|
|
|
2.05
|
|
|
|
2.08
|
|
|
|
1.81
|
|
|
|
1.69
|
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,566
|
|
|
|
31,999
|
|
|
|
32,116
|
|
|
|
32,217
|
|
|
|
31,686
|
|
Diluted
|
|
|
31,680
|
|
|
|
32,252
|
|
|
|
32,381
|
|
|
|
32,542
|
|
|
|
32,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
|
$.225
|
|
|
|
$.205
|
|
|
|
$.185
|
|
|
|
$.165
|
|
|
|
$.123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
771,069
|
|
|
$ |
716,090
|
|
|
$ |
665,455
|
|
|
$ |
533,432
|
|
|
$ |
443,294
|
|
Long-term
debt, non-current
|
|
|
142,273
|
|
|
|
120,289
|
|
|
|
118,952
|
|
|
|
54,389
|
|
|
|
57,023
|
|
(1)
|
Fiscal
2007 included a net pre-tax charge of approximately $8,765 which
consisted
of a pre-tax charge of approximately $9,373 related to the acceleration
of
earn-out payments in the resolution of employment agreements from
the
Milso Industries acquisition and pre-tax charges of $3,515 primarily
related to severance costs incurred in several of the Company’s segments,
partially offset by a pre-tax gain of $1,322 on the sale of the
merchandising consulting business in the Merchandising Solutions
segment
and favorable legal settlements, net of related legal costs incurred,
of
approximately $2,801.
|
(2)
|
Fiscal
2006 included a net pre-tax gain of $1,016 which consisted of a pre-tax
gain of $2,670 from the sale of a facility and a pre-tax charge of
approximately $1,654 related to asset impairments and related
costs.
|
(3)
|
Fiscal
2003 included a net pre-tax charge of approximately $1,000 which
consisted
of a pre-tax gain of $2,600 on the sale of a facility and a goodwill
impairment charge of $3,600.
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
The
following discussion should be read in conjunction with the consolidated
financial statements of Matthews International Corporation and related notes
thereto. In addition, see "Cautionary Statement Regarding
Forward-Looking Information" included in Part I of this Annual Report on Form
10-K.
RESULTS
OF OPERATIONS:
The
following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods indicated and the
percentage change in such income statement data from year to year.
|
|
Years
Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-
|
|
|
|
2006-
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
4.7 |
% |
|
|
11.9 |
% |
Gross
profit
|
|
|
37.4
|
|
|
|
38.0
|
|
|
|
34.9
|
|
|
|
3.1
|
|
|
|
21.9
|
|
Operating
profit
|
|
|
14.9
|
|
|
|
15.9
|
|
|
|
15.4
|
|
|
|
(1.8 |
) |
|
|
15.7
|
|
Income
before taxes
|
|
|
13.8
|
|
|
|
14.7
|
|
|
|
14.5
|
|
|
|
(1.6 |
) |
|
|
13.3
|
|
Net
income
|
|
|
8.6
|
|
|
|
9.3
|
|
|
|
9.1
|
|
|
|
(2.6 |
) |
|
|
14.4
|
|
Comparison
of Fiscal 2007 and Fiscal 2006:
Sales
for
the year ended September 30, 2007 were $749.4 million, compared to $715.9
million for the year ended September 30, 2006. The increase reflected
higher sales in five of the Company’s six segments, and included the effect of
higher foreign currency values against the U.S. dollar. For the year
ended September 30, 2007, changes in foreign currency values against the U.S.
dollar had a favorable impact of approximately $13.6 million on the Company’s
consolidated sales compared to the year ended September
30,
2006.
In
the
Memorialization businesses, Bronze segment sales for fiscal 2007 were $229.8
million compared to $218.0 million for fiscal 2006. The increase
primarily reflected higher selling prices and increases in the value of foreign
currencies against the U.S. dollar. The higher selling prices were
generally related to increases in the cost of bronze ingot. Sales for
the Casket segment were $210.7 million for fiscal 2007 compared to $201.0 million
for the same period in fiscal 2006. The increase mainly
resulted from the segment’s transition to Company-owned distribution in certain
territories. Unit sales through Company-owned distribution are at
higher price levels than sales to independent distributors. Sales for
the Cremation segment were $25.2 million for fiscal 2007 compared to $26.0
million a year ago. The decrease primarily reflected lower sales
volume of cremation equipment units, which was partially due to the timing
of
delivery of several units at the end of fiscal 2007. In the Company’s
Brand Solutions businesses, sales for the Graphics Imaging segment in fiscal
2007 were $146.0 million, compared to $140.9 million a year ago. The
increase was mainly due to an increase in the value of foreign currencies
against the U.S. dollar and higher sales in the German markets, partially offset
by lower sales in the U.S. and U.K. markets. Marking Products segment
sales for the year ended September 30, 2007 were $57.5 million, compared to
$52.3 million for fiscal 2006. The increase primarily reflected
higher domestic and international sales volume, the acquisition of an interest
in a Chinese ink-jet equipment manufacturer in June 2007 and an increase in
the
value of foreign currencies against the U.S. dollar. Sales for the
Merchandising Solutions segment were $80.2 million for fiscal 2007, compared
to
$77.8 million a year ago. The increase is attributable to a
significant project completed in the second quarter for one of the segment’s
customers. Excluding this project, sales declined from a year ago,
reflecting lower demand.
ITEM
7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, continued
Gross
profit for the year ended September 30, 2007 was $280.5 million, compared to
$271.9 million for the year ended September 30, 2006. The increase in
consolidated gross profit primarily reflected the impact of higher sales, higher
foreign currency values against the U.S. dollar, productivity improvements
in
the Casket segment’s manufacturing facility in Mexico, and other manufacturing
and cost reduction initiatives. These gains were partially offset by the impact
of lower sales in the U.K. graphics market, the higher cost of bronze ingot
in
fiscal 2007 compared to fiscal 2006 and the impact of special charges incurred
by several of the Company’s segments. Consolidated gross profit as a percent of
sales decreased from 38.0% for fiscal 2006 to 37.4% for fiscal 2007, principally
resulting from the factors noted above.
Selling
and administrative expenses for the year ended September 30, 2007 were $168.6
million, compared to $158.0 million for fiscal 2006. Consolidated
selling and administrative expenses as a percent of sales were 22.5% for the year
ended September 30, 2007, compared to 22.1% last year. The increases
in costs and percentage of sales primarily resulted from the expansion of the
Casket segment’s distribution capabilities and special charges incurred in
several of the Company’s segments, the most significant of which was a Casket
segment charge related to the acceleration of earn-out payments in the
resolution of employment agreements from the fiscal 2005 acquisition of Milso
Industries (“Milso”). These increases were partially offset by
settlements of several Casket segment legal claims during fiscal
2007.
Operating
profit for fiscal 2007 was $111.8 million, compared to $113.9 million for fiscal
2006. Fiscal 2007 operating profit included unusual items which had a
net unfavorable impact of $8.8 million. The most significant portion
of these charges (approximately $9.4 million) related to the acceleration of
earn-out payments in the resolution of employment agreements from the Milso
acquisition. Fiscal 2006 operating profit included unusual items
which had a net favorable impact of $1.0 million.
Operating
profit reflected the positive impact of higher sales, increases in the values
of
foreign currencies against the U.S. dollar, and productivity improvements and
cost reduction initiatives in several of the Company’s
segments. Bronze segment operating profit for fiscal 2007 was $66.3
million, compared to $65.0 million for fiscal 2006. The increase
reflected the impact of higher sales and an increase in the value of foreign
currencies against the U.S. dollar, partially offset by the higher cost of
bronze ingot in fiscal 2007. Operating profit for the Casket segment
for fiscal 2007 was $11.8 million, compared to $17.0 million for fiscal
2006. Casket segment operating profit reflected special charges of
approximately $10.0 million, including costs related to the resolution of
employment agreements from the Milso acquisition and severance costs related
to
cost reduction initiatives in certain operations. These charges were
partially offset by favorable litigation settlements ($2.8 million net of legal
costs incurred) in the fiscal 2007 fourth quarter. In addition, the segment’s
results reflected additional selling and administrative costs related to the
expansion of the segment’s distribution capabilities in certain
territories. Cremation segment operating profit for the year ended
September 30, 2007 was $3.6 million, compared to $3.4 million a year
ago. The increase was mainly attributable to the impact of improved
price realization and cost reduction initiatives. The Graphics
Imaging segment operating profit for fiscal 2007 was $14.4 million, compared
to
$16.6 million for 2006. The decrease primarily reflected the impact
of lower sales in the U.K. market and special charges (mainly severance costs)
of approximately $2.2 million related to cost reduction initiatives in the
segment’s U.S. and U.K. operations, partially offset by higher sales in the
German markets and an increase in foreign currency values against the U.S.
dollar. Operating profit for the Marking Products segment for fiscal
2007 was $9.9 million, compared to $9.1 million a year ago. The
increase resulted principally from higher sales and the acquisition made in
June
2007, partially offset by higher overhead costs during fiscal
2007. The Merchandising Solutions segment operating profit was $5.7
million for fiscal 2007, compared to $2.9 million for fiscal
2006. The increase primarily reflected the impact of higher sales
attributable to a significant project completed in the second quarter for one
of
the segment’s customers, a net gain of $1.3 million recognized on the sale of
the segment’s merchandising consulting business in the fourth quarter of fiscal
2007 and the favorable effects of the segment’s facilities consolidation
program. Excluding the gain on the
ITEM
7.
MANAGEMENT'S DISCUSSION AND ANALYSIS, continued
sale
of
the consulting business, the Merchandising Solutions segment reported an
operating loss during the fourth quarter of fiscal 2007, compared to an
operating profit of $1.3 million for fiscal 2006. The decline principally
reflected lower sales during the fiscal 2007 fourth quarter compared to the
same
period a year ago. For the year ended September 30, 2007, changes in
foreign currency values against the U.S. dollar had a favorable impact of
approximately $2.4 million on the Company’s consolidated operating profit
compared to the year ended September 30, 2006.
Investment
income for the year ended September 30, 2007 was $2.4 million, compared to
$1.4
million for the year ended September 30, 2006. The increase reflected
higher average levels of invested funds and higher rates of return. Interest expense for
fiscal
2007 was $8.1 million, compared to $7.0 million last year. The
increase in interest expense primarily reflected a higher average level of
debt
and higher average interest rates during fiscal 2007 compared to fiscal
2006.
Other
income, net, for year ended September 30, 2007 was $354,000, compared to other
income of $70,000 last year. Minority interest deduction was $2.7
million for fiscal 2007, compared to $3.0 million in fiscal 2006. The
reduction reflected the Company’s purchase of the remaining ownership interest
in one of its less than wholly-owned German subsidiaries in September
2006.
The
Company's effective tax rate for fiscal 2007 was 37.6%, compared to 37.0% for
fiscal 2006. The fiscal 2006 effective tax rate reflected the
favorable tax impact from the sale of property in the fourth
quarter. 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.
Comparison
of Fiscal 2006 and Fiscal 2005:
Sales
for
the year ended September 30, 2006 were $715.9 million and were
$76.1 million, or 11.9%, higher than sales of $639.8 million for the year
ended September 30, 2005. The increase resulted principally from the
acquisition of Milso in July 2005, and higher sales in the Cremation, Marking
Products and Bronze segments. These increases were partially offset
by the effect of lower sales in the Merchandising Solutions segment and lower
foreign currency values against the U.S. dollar. Bronze segment sales
for fiscal 2006 were $218.0 million, compared to $205.7 million for fiscal
2005. The higher level of Bronze segment sales principally reflected
an increase in memorial sales (which included price surcharges related to
increases in the cost of bronze ingot) and higher mausoleum
sales. Sales for the Casket segment were $201.0 million for fiscal
2006, compared to $135.5 million for fiscal 2005. The increase
reflected the acquisition of Milso. Excluding Milso, fiscal 2006
sales volume was lower than fiscal 2005, partially attributable to the
transition to Company-owned distribution in certain territories and a lower
death rate for the year. Sales for the Cremation segment were $26.0
million for the year ended September 30, 2006, compared to $21.5 million for
fiscal 2005. The increase primarily reflected higher sales of
cremation equipment and cremation caskets. Sales for the Graphics
Imaging segment in fiscal 2006 were $140.9 million, compared to $143.2 million
in fiscal 2005. The decrease primarily reflected a lower value of the
Euro against the U.S. dollar and a decline in volume in certain German
markets. Marking Products segment sales for the year ended September
30, 2006 were $52.3 million, compared to $45.7 million for the year ended
September 30, 2005. The increase of $6.6 million was principally due
to higher worldwide ink-jet coating business and domestic sales volume,
particularly in the segment’s industrial automation business. Sales for the
Merchandising Solutions segment were $77.8 million for fiscal 2006, compared
to
$88.3 million for fiscal 2005. The decline was attributable to lower
sales of merchandising systems and displays. Additionally, fiscal
2005 included sales for several promotional programs that did not repeat in
fiscal 2006. Lower foreign currency values against the U.S. dollar
had an unfavorable impact of approximately $2.6 million on the Company’s
consolidated sales compared to the prior year.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Gross
profit for the year ended September 30, 2006 was $271.9 million, compared to
$223.1 million for the year ended September 30, 2005. The increase in
consolidated gross profit primarily reflected the Milso acquisition, higher
sales in the Cremation, Marking Products and Bronze segments and the effects
of
manufacturing improvements and cost reduction initiatives. These
gains were partially offset by lower Casket segment sales excluding Milso and
lower sales in the Merchandising Solutions segment. Consolidated
gross profit as a percent of sales increased from 34.9% for fiscal 2005 to
38.0%
for fiscal 2006. The gross margin percentage improvement principally
related to the acquisition of Milso and the transition to Company-owned casket
distribution in certain territories formerly served through independent
distribution. Sales through Company-owned distribution generally
result in higher gross margin and selling and administrative costs as a percent
of sales compared to sales through independent distribution. Gross
margin percentages also improved in the Cremation, Graphics Imaging, Marking
Products and Merchandising Solutions segments. These increases were
partially offset by a decline in Bronze segment gross margin, reflecting the
significant rise in bronze ingot cost.
Selling
and administrative expenses for the year ended September 30, 2006 were $158.0
million, compared to $124.7 million for fiscal 2005. The increase
primarily reflected the acquisition of Milso, the expansion of the Casket
segment’s distribution capabilities and a charge of $1.7 million in
the Casket segment for the impairment of redundant assets and related
costs. These increases were partially offset by a decrease in Bronze
segment selling and administrative costs due to cost containment efforts
intended to mitigate some of the increase in bronze metal cost, a reduction
in
Merchandising Solutions segment costs reflecting the effects of the segment’s
facilities consolidation program and a gain of $2.7 million on the sale of
a
Bronze segment facility. Consolidated selling and administrative
expenses as a percent of sales were 22.1% for the year ended September 30,
2006,
compared to 19.5% for fiscal 2005. The increase reflected the
acquisition of Milso, the expansion of the Casket segment’s casket distribution
capabilities and the impairment charge, partially offset by the gain on the
sale
of a Bronze facility.
Operating
profit for fiscal 2006 was $113.9 million, representing an increase of $15.5
million over operating profit of $98.4 million for the year ended September
30,
2005. Bronze segment operating profit for fiscal 2006 was $65.0
million, compared to $59.7 million for the year ended September 30,
2005. The increase reflected higher sales and cost reduction
initiatives. In addition, the segment’s fiscal 2006 operating profit
included a gain of $2.7 million on the sale of a facility. Operating
profit for the Casket segment for the year ended September 30, 2006 was $17.0
million, compared to $12.6 million for fiscal 2005. The increase
primarily reflected the Milso acquisition, partially offset primarily by lower
sales in several territories, and a fourth quarter 2006 charge of $1.7 million
for the impairment of redundant assets and related costs. Cremation segment
operating profit was $3.4 million for fiscal 2006, compared to $701,000 for
fiscal 2005. The increase primarily reflected higher sales of
cremation equipment and caskets, improved pricing and
cost
reduction initiatives. Graphics Imaging operating profit for the year
ended September 30, 2006 was $16.6 million, compared to $14.9 million for the
year ended September 30, 2005. The increase primarily reflected the
effects of cost structure initiatives implemented in the segment’s U.S. and U.K.
operations in the fourth quarter of fiscal 2005, partially offset by lower
foreign currency values against the U.S. dollar. Operating profit for
the Marking Products segment for fiscal 2006 was $9.1 million, compared to
$7.4
million for fiscal 2005. The increase resulted from the benefit of
higher sales. Merchandising Solutions segment operating profit for
the year ended September 30, 2006 was $2.9 million, compared to
$3.1
million for fiscal 2005. The decrease primarily reflected lower sales
volume. However, Merchandising Solutions operating margin as a
percent of sales improved during the second six months of fiscal 2006,
reflecting the effects of the facilities consolidation program and other cost
reduction initiatives.
Investment
income for the year ended September 30, 2006 was $1.4 million, compared to
$1.7
million for fiscal 2005. The decrease from the prior year primarily
reflected lower levels of invested cash. Interest expense for the year ended
September 30, 2006 was $7.0 million, compared to $3.0 million for the prior
year. The increase in interest expense primarily reflected higher
borrowings under the Company’s domestic Revolving Credit Facility (see
“Liquidity and Capital Resources”) and higher interest rates during fiscal
2006.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Other
income (deductions), net, for the year ended September 30, 2006 represented
an
increase in pre-tax income of $70,000, compared to an increase in pre-tax income
of $1.7 million for fiscal 2005. Other income in fiscal 2005
primarily reflected foreign currency exchange gains on intercompany advances
to
foreign affiliates. Minority interest deduction for fiscal 2006 was
$3.0 million, compared to $5.8 million for fiscal 2005. The lower
minority interest deduction for fiscal 2006 resulted principally from the
Company’s acquisition of an additional 30% interest in S+T Gesellschaft fur
Reprotechnik GmbH (“S+T”) on September 30, 2005.
The
Company's effective tax rate for the year ended September 30, 2006 was 37.0%
compared to 37.6% for fiscal 2005. The decrease in the effective tax
rate resulted primarily from the favorable tax impact of the sale of a Bronze
facility. The difference between the Company's effective tax rate and
the Federal statutory rate of 35% primarily reflected the impact of state and
foreign income taxes.
LIQUIDITY
AND CAPITAL RESOURCES:
Net
cash
provided by operating activities was $74.6 million for the year ended September
30, 2007, compared to $66.3 million and $70.9 million for fiscal 2006 and 2005,
respectively. Operating cash flow for fiscal 2007 primarily
reflected net income
adjusted for depreciation and amortization, stock-based compensation expense,
an
increase in minority interest and an increase in deferred taxes, partially
offset by a $5.0 million cash contribution to the Company’s principal pension
plan and an increase in working capital. The increase in working
capital is mainly attributable to higher inventory levels resulting from the
Casket segment’s further expansion of its distribution
capabilities. Operating cash flow for fiscal 2006 primarily reflected
net income adjusted for depreciation and amortization, stock-based compensation
expense and an increase in minority interest, partially offset by an increase
in
working capital. The lower level of cash provided by operating
activities in fiscal 2006 was attributable to an increase in working capital
primarily resulting from higher levels of accounts receivable and inventories
with the Casket segment’s expansion of its distribution
capabilities. Operating cash flow for fiscal 2005 primarily reflected
net income adjusted for depreciation and amortization, stock-based compensation
expense and an increase in minority interest, partially offset by an increase
in
working capital, primarily accounts receivable and inventory.
Cash
used
in investing activities was $38.7 million for the year ended September 30,
2007, compared to $48.8 million and $139.0 million for fiscal years 2006 and
2005, respectively. Investing activities for fiscal 2007 primarily
reflected payments (net of cash acquired) of $23.8 million for acquisitions,
capital expenditures of $20.6 million, net purchases of investments
of $1.1 million and proceeds of $6.9 million from the sale of
assets. Investing activities for fiscal 2006 primarily reflected
payments (net of cash acquired) of $32.3 million for acquisitions, capital
expenditures of $19.4 million, and proceeds of $3.1 million from the sale of
assets. Investing activities for fiscal 2005 primarily
included payments (net of cash acquired) of $109.4 million for acquisitions,
capital expenditures of $28.1 million, net purchases of investments of $2.6
million and proceeds of $1.1 million from the sale of assets. See
“Acquisitions” for further discussion of the Company’s
acquisitions.
Capital
expenditures were $20.6 million for the year ended September 30, 2007, compared
to $19.4 million and $28.1 million for fiscal 2006 and 2005, respectively. The higher level of capital
spending in fiscal 2005 reflected capital expenditures in connection with
establishment of the casket manufacturing facility in Mexico and the acquisition
of production facilities for the Merchandising Solutions segment and a European
graphics business. Capital expenditures in each of the last three
fiscal years reflected reinvestment in the Company's business segments and
were
made primarily for the purchase of new manufacturing machinery, equipment and
facilities designed to improve product quality, increase manufacturing
efficiency, lower production costs and meet regulatory
requirements. Capital expenditures for the last three fiscal years
were primarily financed through operating cash.
Capital
spending for property, plant and equipment has averaged $22.7 million for the
last three fiscal years. The capital budget for fiscal 2008 is $25.2
million. The Company expects to generate sufficient cash from
operations to fund all anticipated capital spending projects.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Cash
used
in financing activities for the year ended September 30, 2007 was $27.1 million,
reflecting treasury stock purchases of $56.5 million, net proceeds of long-term
debt of $17.7 million, proceeds of $16.5 million from the sale of treasury
stock
(stock option exercises), a tax benefit of $3.8 million from exercised stock
options, dividends of $7.1 million ($0.225 per share) to the Company’s
shareholders and distributions of $1.6 million to minority
interests. Cash used in financing activities for the year ended
September 30, 2006 was $29.0 million, reflecting treasury stock purchases of
$17.5 million, net repayments of long-term debt of $2.1 million, proceeds of
$2.0 million from the sale of treasury stock (stock option exercises), a tax
benefit of $637,000 from exercised stock options, dividends of $6.6 million
($0.205 per share) to the Company’s shareholders and distributions of $5.5
million to minority interests. Cash provided by financing activities
for the year ended September 30, 2005 was $44.8 million, reflecting proceeds,
net of repayments, from long-term debt of $75.7 million, treasury stock
purchases of $27.9 million, proceeds of $5.9 million from the sale of treasury
stock (stock option exercises), a tax benefit of $2.5 million from exercised
stock options, dividends of $5.9 million ($0.185 per share) to the Company’s
shareholders and distributions of $5.5 million to minority
interests.
The
Company has a domestic Revolving Credit Facility with a syndicate of financial
institutions. In September 2007, the maximum amount of borrowings
available under the facility was increased from $175.0 million to $225.0 million
and the facility’s maturity was extended to September 10, 2012. Borrowings under
the amended 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, as amended, requires the Company to maintain certain leverage and
interest coverage ratios. A portion of the facility (not to exceed
$10.0 million) is available for the issuance of trade and standby letters of
credit. Outstanding borrowings on the Revolving Credit Facility at September
30,
2007 and 2006 were $147.8 million and $123.2 million,
respectively. The weighted-average interest rate on outstanding
borrowings at September 30, 2007 and 2006 was 5.08% and 4.88%,
respectively.
The
Company has entered into the following interest rate swaps:
Date
|
Initial
Amount
|
|
Fixed
Interest Rate
|
|
|
Interest
Rate Spread at September 30, 2007
|
|
|
Equal
Quarterly Payments
|
|
Maturity
Date
|
April
2004
|
$50
million
|
|
|
2.66 |
% |
|
|
.40 |
% |
|
$2.5
million
|
|
April
2009
|
September
2005
|
50
million
|
|
|
4.14
|
|
|
|
.40
|
|
|
3.3 million
|
|
April
2009
|
August
2007
|
15
million
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
August
2007
|
10
million
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
September
2007
|
25
million
|
|
|
4.77
|
|
|
|
.40
|
|
|
|
-
|
|
September
2012
|
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 gain of $292,000
($178,000 after tax) at September 30, 2007 that is included in equity as part
of
accumulated other comprehensive income. Assuming market rates remain
constant with the rates at September 30, 2007, approximately $122,000 of the
$178,000 gain included in accumulated other comprehensive income is expected
to
be recognized in earnings as an adjustment to interest expense over the next
twelve months.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
The
Company, through its wholly-owned subsidiary, Matthews International GmbH
(“MIGmbH”), has a credit facility with National Westminster Bank Plc for
borrowings up to 10.0 million Euros ($14.3 million). Outstanding
borrowings under the credit facility totaled 8.0 million Euros ($11.4 million)
and 8.5 million Euros ($10.8 million) at September 30, 2007 and 2006,
respectively. The weighted-average interest rate on outstanding
MIGmbH related borrowings at September 30, 2007 and 2006 was 4.90% and 3.69%,
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 5.1 million Euros ($7.3 million) and 8.0 million Euros
($10.2 million) at September 30, 2007 and 2006,
respectively. Matthews International S.p.A. also has three lines of
credit totaling 8.4 million Euros ($11.9 million) with the same Italian
banks. Outstanding borrowings on these lines were 1.4 million Euros
($2.0 million) and 2.3 million Euros ($3.0 million) at September 30, 2007 and
2006, respectively. The weighted-average interest rate on outstanding
Matthews International S.p.A. related borrowings at September 30, 2007 and 2006 was
3.26%
and 3.17%, respectively.
The
Company has a stock repurchase program, which was initiated in
1996. As of September 30, 2007, the Company's Board of Directors had
authorized the repurchase of a total of 12,500,000 shares of Matthews’ common
stock under the program, of which 10,501,443 shares had been repurchased as
of
September 30, 2007. The buy-back program is designed to increase
shareholder value, enlarge the Company's holdings of its common stock, and
add
to earnings per share. Repurchased shares may be retained in
treasury, utilized for acquisitions, or reissued to employees or other
purchasers, subject to the restrictions of the Company’s Restated Articles of
Incorporation.
Consolidated
working capital of the Company was $143.1 million at September 30, 2007,
compared to $105.6 million and $86.6 million at September 30, 2006
and 2005, respectively. Working capital at September 30, 2007
reflected higher levels of inventories resulting primarily from the Casket
segment’s expansion of its distribution capabilities. Working capital at
September 30, 2006 reflected higher levels of accounts receivable and
inventories resulting primarily from the Casket segment’s expansion of its
distribution capabilities. Cash and cash equivalents were $44.0 million at
September 30, 2007, compared to $29.7 million and $39.6 million at
September 30, 2006 and 2005, respectively. The Company's current
ratio at September 30, 2007 was 2.2, compared to 1.8 and 1.6 at September 30,
2006 and 2005, respectively.
ENVIRONMENTAL
MATTERS:
The
Company's operations are subject to various federal, state and local laws and
regulations relating to the protection of the environment. These laws
and regulations impose limitations on the discharge of materials into the
environment and require the Company to obtain and operate in compliance with
conditions of permits and other government authorizations. As such,
the Company has developed environmental, health, and safety policies and
procedures that include the proper handling, storage and disposal of hazardous
materials.
The
Company is party to various environmental matters. These include
obligations to investigate and mitigate the effects on the environment of the
disposal of certain materials at various operating and non-operating
sites. The Company is currently performing environmental assessments
and remediation at these sites, as appropriate. In addition, prior to
its acquisition, The York Group, Inc. (“York”) was identified, along with
others, by the Environmental Protection Agency as a potentially responsible
party for remediation of a landfill site in York, Pennsylvania. At
this time, the Company has not been joined in any lawsuit or administrative
order related to the site or its clean-up.
At
September 30, 2007, an accrual of approximately $8.7 million had been recorded
for environmental remediation (of which $865,000 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
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
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:
Fiscal
2007:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2007 totaled
$23.8 million, and primarily included the following:
In
July
2007, York reached a settlement agreement with Yorktowne Caskets, Inc. and
its
shareholders (collectively “Yorktowne”) with respect to all outstanding
litigation between the parties. In exchange for the mutual release,
the principal terms of the settlement included the assignment by Yorktowne
of
certain customer and employment-related contracts to York and the purchase
by
York of certain assets, including York-product inventory, of
Yorktowne.
In
June
2007, the Company acquired a 60% interest in Beijing Kenuohua Electronic
Technology Co., Ltd., (“Kenuohua”), an ink-jet equipment manufacturer,
headquartered in Beijing, China. The acquisition was structured as a
stock purchase. The acquisition was intended to expand Matthews’
marking products manufacturing and distribution capabilities in
Asia.
In
December 2006, the Company paid additional purchase consideration of $7.0
million under the terms of the Milso acquisition
agreement.
Fiscal
2006:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2006 totaled
$32.3 million, and primarily included the following:
In
March
2006, the Company acquired Royal Casket Company, a distributor of primarily
York
brand caskets in the Southwest region of the United States. The transaction
was
structured as an asset purchase with potential additional consideration payable
contingent upon the operating performance of the acquired operations during
the
next five years. The Company expects to account for this
consideration as additional purchase price. The acquisition was
intended to expand Matthews’ casket distribution capabilities in the
Southwestern United States.
In
February 2006, the Company acquired The Doyle Group, a provider of reprographic
services to the packaging industry, located in Oakland,
California. The transaction was structured as an asset purchase, with
potential additional consideration payable contingent upon the operating
performance of the acquired operations during the next three
years. The Company expects to account for this consideration as
additional purchase price. The acquisition was intended to expand the
Company’s graphics business in the Western United States.
In
September 2005, the Company acquired an additional 30% interest in S+T which
was
paid in October 2005. The Company had acquired a 50% interest in S+T
in 1998.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Fiscal
2005:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2005 totaled
$109.4 million, and primarily included the following:
In
July
2005, the Company acquired Milso, a leading manufacturer and marketer of caskets
in the United States. Milso, headquartered in Brooklyn, New York, has
manufacturing operations in Richmond, Indiana and maintains distribution centers
throughout the Northeast, Mid-Atlantic, Midwest and Southwest regions of the
United States. The transaction was structured as an asset purchase,
at an initial purchase price of approximately $95.0 million. In
connection with the contingent consideration provisions of the acquisition
agreement, the Company paid additional purchase consideration in
December
2006. The additional consideration was recorded as additional
purchase price as of September 30, 2006. The acquisition was intended
to expand Matthews’ products and services in the United States casket
market.
In
June
2005, the Company paid additional consideration to the minority owner of Rudolf
Reproflex GmbH (“Rudolf”) under the terms of the original acquisition
agreement. The Company had acquired a 75% interest in Rudolf in
2001.
DISPOSITION:
In
August
2007, the Company sold the consulting services portion of its Merchandising
Solutions segment. The transaction resulted in a pre-tax gain of $1.3 million,
which was recorded as a reduction in administrative expenses in the Company’s
Consolidated Statement of Income.
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% over the long term. For
the past ten fiscal years, the Company has achieved an average annual increase
in earnings per share of 13.8%.
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 (see "Liquidity and Capital Resources").
The
significant factors impacting the Company’s fiscal 2007 results were the high
level of bronze metal costs, continued transition to Company-owned casket
distribution in certain territories in the Casket segment and difficult market
conditions in the U.S. and U. K. Graphics markets. The Company
expects to continue to face several of these same issues in fiscal
2008. Bronze metal costs are expected to remain high. The Casket
segment will continue in its efforts to effectively integrate newly-established
Company-owned distribution operations. Additionally, fiscal 2007 cost
structure initiatives in the Graphics Imaging segment (particularly in the
U.K.)
should position this business for improved profitability in fiscal
2008.
Based
on
the Company’s growth strategy and factors discussed above, the Company currently
expects to achieve fiscal 2008 diluted earnings per share in the range of $2.48
to $2.54, which represents growth in the 12% to 15% range over fiscal 2007
earnings per share on an adjusted basis. This earnings expectation
excludes the net impact of the unusual items incurred in fiscal 2007, and the
impact of unusual items, if any, which may occur in fiscal 2008.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
CRITICAL
ACCOUNTING POLICIES:
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Therefore, the determination of estimates requires the
exercise of judgment based on various assumptions and other factors such as
historical experience, economic conditions, and in some cases, actuarial
techniques. Actual results may differ from those
estimates. A discussion of market risks affecting the Company can be
found in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk,"
of this Annual Report on Form 10-K.
The
Company's significant accounting policies are included in the Notes to
Consolidated Financial Statements included in this Annual Report on Form
10-K. Management believes that the application of these policies on a
consistent basis enables the Company to provide useful and reliable financial
information about the Company's operating results and financial
condition. The following accounting policies involve significant
estimates, which were considered critical to the preparation of the Company's
consolidated financial statements for the year ended September 30,
2007.
Allowance
for Doubtful Accounts:
The
allowance for doubtful accounts is based on an evaluation of specific customer
accounts for which available facts and circumstances indicate collectibility
may
be uncertain. In addition, the allowance includes a reserve for all
customers based on historical collection experience.
Long-Lived
Assets:
Property,
plant and equipment, goodwill and other intangible assets are carried at
cost. Depreciation on property, plant and equipment is computed
primarily on the straight-line method over the estimated useful lives of the
assets. Property, plant and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of
such assets may not be recoverable. Recoverability of assets is
determined by evaluating the estimated undiscounted net cash flows of the
operations to which the assets relate. An impairment loss would be
recognized when the carrying amount of the assets exceeds the fair value which
generally is a discounted cash flow analysis.
Goodwill
is not amortized, but is subject to periodic review for
impairment. In general, when the carrying value of a reporting unit
exceeds its implied fair value, an impairment loss must be
recognized. For purposes of testing for impairment, the Company uses
a combination of valuation techniques, including discounted cash
flows. Intangible assets are amortized over their estimated useful
lives, unless such lives are considered to be indefinite. A
significant decline in cash flows generated from these assets may result in
a
write-down of the carrying values of the related assets. The Company
performed its annual impairment reviews in the second quarters of fiscal 2007
and fiscal 2006 and determined that no adjustments to the carrying values of
goodwill or other intangibles were necessary at those times.
Share-Based
Payment:
Effective
October 1, 2005, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123 (revised 2004), “Share-Based Payment”, (“SFAS No. 123(R)”)
using the modified retrospective method. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair value of the
award, and is recognized as expense over the employee requisite service
period. The Company
elected to apply the short-cut method for determining the pool of windfall
tax
benefits in connection with the adoption of SFAS No.
123(R).
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Pension
and Postretirement Benefits:
Pension
assets and liabilities are determined on an actuarial basis and are affected
by
the market value of plan assets, estimates of the expected return on plan assets
and the discount rate used to determine the present value of benefit
obligations. Actual changes in the fair market value of plan assets
and differences between the actual return on plan assets, the expected return
on
plan assets and changes in the selected discount rate will affect the amount
of
pension cost.
The
Company's principal pension plan maintains a substantial portion of its assets
in equity securities in accordance with the investment policy established by
the
Company’s pension board. Based on an analysis of the historical
performance of the plan's assets and consultation with its independent
investment advisor, the Company has maintained the long-term rate of return
assumption for these assets at 9.0% for purposes of determining pension cost
and
funded status under SFAS No. 87, "Employers' Accounting for Pensions" and SFAS
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.” The Company’s discount rate assumption
used in determining the present value of the projected benefit obligation is
based upon published indices for long-term (10-year) high quality bonds as
of
its plan year-end date (July 31). The discount rate was 6.50%, 6.50%
and 5.75% in fiscal 2007, 2006 and 2005, respectively, reflecting long-term
bond
rates in each of those periods.
Environmental
Reserve:
Environmental
liabilities are recorded when the Company's obligation is probable and
reasonably estimable. Accruals for losses from environmental
remediation obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present value.
Revenue
Recognition:
Revenues
are generally recognized when title and risk of loss pass to the customer,
which
is typically at the time of product shipment. For pre-need sales of
memorials and vases, revenue is recognized when the memorial has been
manufactured to the customer’s specifications (e.g., name and birth date), title
has been transferred to the customer and the memorial and vase are placed in
storage for future delivery. A liability has been recorded in
Estimated Finishing Costs for the estimated costs of finishing pre-need bronze
memorials and vases that have been manufactured and placed in storage prior
to
July 1, 2003 for future delivery.
In
July
2003, the Emerging Issues Task Force (“EITF”) issued Issue No. 00-21 “Revenue
Arrangements with Multiple Deliverables.” Issue No. 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which
it
will perform multiple revenue generating activities. The provisions
of Issue No. 00-21 were effective July 1, 2003 and have been applied
prospectively by the Company to the finishing and storage elements of its
pre-need sales. Beginning July 1, 2003, revenue is deferred by the
Company on the portion of pre-need sales attributable to the final finishing
and
storage of the pre-need merchandise. Deferred revenue for final
finishing is recognized at the time the pre-need merchandise is finished and
shipped to the customer. Deferred revenue related to storage is
recognized on a straight-line basis over the estimated average time that
pre-need merchandise is held in storage.
At
September 30, 2007, the Company held 354,886 memorials and 247,934 vases in
its
storage facilities under the pre-need sales program.
Construction
revenues are recognized under the percentage-of-completion method of accounting
using the cost-to-cost method. The Company offers rebates to certain
customers participating in volume purchase programs. Rebates are
estimated and recorded as a reduction in sales at the time the Company’s
products are sold.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
LONG-TERM
CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The
following table summarizes the Company’s contractual obligations at September
30, 2007, and the effect such obligations are expected to have on its liquidity
and cash flows in future periods.
|
|
Payments
due in fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
to 2010
|
|
|
2011
to 2012
|
|
|
2012
|
|
Contractual
Cash Obligations:
|
|
(Dollar
amounts in thousands)
|
|
Revolving
credit facilities
|
|
$ |
159,240
|
|
|
$ |
23,333
|
|
|
$ |
28,907
|
|
|
$ |
107,000
|
|
|
$ |
-
|
|
Notes
payable to banks
|
|
|
7,332
|
|
|
|
1,005
|
|
|
|
2,924
|
|
|
|
2,342
|
|
|
|
1,061
|
|
Short-term
borrowings
|
|
|
2,068
|
|
|
|
2,068
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Capital
lease obligations
|
|
|
711
|
|
|
|
664
|
|
|
|
41
|
|
|
|
6
|
|
|
|
-
|
|
Non-cancelable
operating leases
|
|
|
27,999
|
|
|
|
8,526
|
|
|
|
9,803
|
|
|
|
6,506
|
|
|
|
3,164
|
|
Total
contractual cash obligations
|
|
$ |
197,350
|
|
|
$ |
35,596
|
|
|
$ |
41,675
|
|
|
$ |
115,854
|
|
|
$ |
4,225
|
|
A
significant portion of the loans included in the table above bear interest
at
variable rates. At September 30, 2007, the weighted-average interest rate was
5.08% on the Company’s domestic Revolving Credit Facility, 4.90% on the credit
facility through the Company’s wholly-owned German subsidiary, and 3.26% on bank
loans to the Company’s wholly-owned subsidiary, Matthews International
S.p.A.
Benefit
payments under the Company’s principal retirement plan are made from plan
assets, while benefit payments under the supplemental retirement plan and
postretirement benefit plan are funded from the Company’s operating cash. Under
IRS regulations, the Company was not required to make any significant
contributions to its principal retirement plan in fiscal 2007, however, in
June
2007, the Company made a $5.0 million contribution to its principal retirement
plan. The Company does
not currently plan to make any significant contributions to its principal
retirement plan in fiscal 2008. The Company estimates that benefit
payments to participants under its retirement plans (including its supplemental
retirement plan) and postretirement benefit payments will be $5.3 million and
$1.1 million, respectively, in
fiscal 2008. The
amounts are not expected to change materially thereafter. 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.
INFLATION:
Except
for the significant increases in the cost of bronze ingot and steel (see
“Results of Operations”), inflation has not had a material impact on the Company
over the past three years nor is it anticipated to have a material impact for
the foreseeable future.
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). The provisions of the Statement are to be
applied prospectively; therefore, prior periods presented have not been
restated. The over-funded or under-funded status of defined benefit
postretirement plans has been recognized on the balance sheet with a
corresponding adjustment in accumulated other comprehensive income. In addition,
gains or loss and prior service costs or credits that were not included as
components of periodic benefit expense are recognized in accumulated other
comprehensive income. As a result of the adoption of SFAS No. 158,
the liability for pension and postretirement benefits increased approximately
$14.7 million, deferred tax assets increased approximately $5.7 million and
equity (accumulated other comprehensive income) decreased by approximately
$9.0
million.
ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS, continued
Further,
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. The
Company currently measures plan assets and benefit obligations as of July 31
of
each year. The Company is considering the implications of this provision and
the
feasibility of earlier adoption of this portion of the statement. Upon
adoption, this provision is not expected to have a material effect on the
financial statements.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes.” This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Any resulting
cumulative effect of applying the provisions of FIN 48 upon adoption will be
reported as an adjustment to beginning retained earnings in the period of
adoption. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company will adopt the provisions of FIN 48 in the first quarter
of
fiscal 2008. The Company is currently evaluating the impact of the
adoption of FIN 48, and does not expect such adoption to have a material impact
on the Company’s consolidated financial position or results of
operations.
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 is effective for fiscal years beginning
after November 15, 2007, however, 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 SFAS No. 157.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The
following discussion about the Company's market risk involves forward-looking
statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company has market
risk related to changes in interest rates, commodity prices and foreign currency
exchange rates. The Company does not generally use derivative
financial instruments in connection with these market risks, except as noted
below.
Interest
Rates - The Company’s most significant long-term debt instrument is the
domestic Revolving Credit Facility, as amended, which bears interest at variable
rates based on LIBOR.
The
Company has entered into the following interest rate swaps:
Date
|
Initial
Amount
|
|
Fixed
Interest Rate
|
|
|
Interest
Rate Spread at September 30, 2007
|
|
|
Equal
Quarterly Payments
|
|
Maturity
Date
|
April
2004
|
$50
million
|
|
|
2.66 |
% |
|
|
.40 |
% |
|
$2.5
million
|
|
April
2009
|
September
2005
|
50
million
|
|
|
4.14
|
|
|
|
.40
|
|
|
3.3 million
|
|
April
2009
|
August
2007
|
15
million
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
August
2007
|
10
million
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
September
2007
|
25
million
|
|
|
4.77
|
|
|
|
.40
|
|
|
|
-
|
|
September
2012
|
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 gain of $292,000
($178,000 after tax) at September 30, 2007 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 a decrease
of
approximately $140,000 in the fair value 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 and wood) 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, British Pound, Canadian
Dollar, Australian Dollar, Swedish Krona and 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. An adverse
change of 10% in exchange rates would have resulted in a decrease in sales
of
$18.7 million and a decrease in operating income of $2.7 million for the year
ended September 30, 2007.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Description
|
|
Pages
|
|
|
|
Management’s
Report to Shareholders
|
|
34
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
35
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
Consolidated
Balance Sheets as of September 30, 2007 and 2006
|
|
36-37
|
|
|
|
Consolidated
Statements of Income for the years ended September 30, 2007, 2006
and
2005
|
|
38
|
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended September
30, 2007,
2006 and 2005
|
|
39
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended September 30, 2007,
2006 and
2005
|
|
40
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
41-62
|
|
|
|
Supplementary
Financial Information (unaudited)
|
|
63
|
|
|
|
Financial
Statement Schedule – Schedule II-Valuation and Qualifying
|
|
|
Accounts
for the years ended September 30, 2007, 2006 and 2005
|
|
64
|
MANAGEMENT’S
REPORT TO SHAREHOLDERS
To
the
Shareholders and Board of Directors of
Matthews
International Corporation:
Management’s
Report on Financial Statements
The
accompanying consolidated financial statements of Matthews International
Corporation and its subsidiaries (collectively, the “Company”) were prepared by
management, which is responsible for their integrity and objectivity. The
statements were prepared in accordance with generally accepted accounting
principles and include amounts that are based on management’s best judgments and
estimates. The other financial information included in this Annual Report on
Form 10-K is consistent with that in the financial statements.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. In order to evaluate the effectiveness
of
internal control over financial reporting management has conducted an assessment
using the criteria in Internal Control – Integrated Framework, issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s internal controls over financial reporting include those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject
to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Based
on
its assessment, management has concluded that the Company maintained effective
internal control over financial reporting as of September 30, 2007, based on
criteria in Internal Control – Integrated Framework issued by the COSO.
Management’s assessment of the effectiveness of the Company’s internal control
over financial reporting as of September 30, 2007, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as
stated in their report which is included herein.
Management’s
Certifications
The
certifications of the Company’s Chief Executive Officer and Chief Financial
Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31
and
32 in the Company’s Form 10-K.
Report
of Independent Registered Public Accounting Firm
To
the
Shareholders and Board of Directors of Matthews International
Corporation:
In
our opinion, the consolidated
financial statements listed in the accompanying index present
fairly, in all material
respects, the financial position of Matthews International Corporation and
its
subsidiaries (the Company) at September 30, 2007 and 2006, and the results
of
their operations and their cash flows for each of the three years in the period
ended September
30, 2007 in
conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the
financial statement schedule listed in the accompanying index presents
fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial
statements. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting
as of
September 30, 2007, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company's management is
responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control Over Financial Reporting appearing
under Item 8. Our responsibility
is to express opinions on these financial statements, on the financial statement
schedule, and on the Company's internal control over financial reporting based
on our integrated audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those
standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
and
evaluating the design and operating effectiveness of internal control based
on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that
our
audits provide a reasonable basis for our opinions.
As
discussed in Note 10 to the
consolidated financial statements, the Company changed the manner in which
it
accounts for defined benefit pension and other postretirement plans in
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Pittsburgh,
Pennsylvania
November
21, 2007
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September
30, 2007 and 2006
(Dollar
amounts in thousands, except per share data)
__________
ASSETS
|
|
2007
|
|
|
2006
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
44,002
|
|
|
$ |
29,720
|
|
Short-term
investments
|
|
|
105
|
|
|
|
92
|
|
Accounts
receivable, net of allowance for doubtful
accounts
of $11,160 and $10,829, respectively
|
|
|
120,882
|
|
|
|
121,750
|
|
Inventories
|
|
|
93,834
|
|
|
|
85,415
|
|
Deferred
income taxes
|
|
|
1,666
|
|
|
|
1,682
|
|
Other
current assets
|
|
|
6,025
|
|
|
|
4,184
|
|
Total
current assets
|
|
|
266,514
|
|
|
|
242,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
12,044
|
|
|
|
11,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
88,926
|
|
|
|
88,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
23,311
|
|
|
|
24,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
10,670
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
318,298
|
|
|
|
298,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangible assets, net
|
|
|
51,306
|
|
|
|
44,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
771,069
|
|
|
$ |
716,090
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS, continued
September
30, 2007 and 2006
(Dollar
amounts in thousands, except per share data)
__________
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
2007
|
|
|
2006
|
|
Current
liabilities:
|
|
|
|
|
|
|
Long-term
debt, current maturities
|
|
$ |
27,057
|
|
|
$ |
28,451
|
|
Trade
accounts payable
|
|
|
22,859
|
|
|
|
26,925
|
|
Accrued
compensation
|
|
|
31,205
|
|
|
|
33,517
|
|
Accrued
income taxes
|
|
|
5,792
|
|
|
|
9,230
|
|
Other
current liabilities
|
|
|
36,543
|
|
|
|
39,086
|
|
Total
current liabilities
|
|
|
123,456
|
|
|
|
137,209
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
142,273
|
|
|
|
120,289
|
|
|
|
|
|
|
|
|
|
|
Accrued
pension
|
|
|
23,629
|
|
|
|
17,720
|
|
|
|
|
|
|
|
|
|
|
Postretirement
benefits
|
|
|
20,743
|
|
|
|
17,422
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
11,799
|
|
|
|
9,942
|
|
|
|
|
|
|
|
|
|
|
Environmental
reserve
|
|
|
7,841
|
|
|
|
9,028
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities and deferred revenue
|
|
|
14,550
|
|
|
|
12,055
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Class
A common stock, $1.00 par value; authorized
70,000,000
shares; 36,333,992 shares issued
|
|
|
36,334
|
|
|
|
36,334
|
|
Preferred
stock, $100 par value, authorized 10,000 shares, none
issued
|
|
|
-
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
41,570
|
|
|
|
33,953
|
|
Retained
earnings
|
|
|
467,846
|
|
|
|
410,203
|
|
Accumulated
other comprehensive income
|
|
|
13,390
|
|
|
|
4,386
|
|
Treasury
stock, 5,276,830 and 4,699,697 shares, respectively, at
cost
|
|
|
(132,362 |
) |
|
|
(92,451 |
) |
Total
shareholders' equity
|
|
|
426,778
|
|
|
|
392,425
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
771,069
|
|
|
$ |
716,090
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
for
the years ended September 30, 2007, 2006 and 2005
(Dollar
amounts in thousands, except per share data)
__________
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Sales
|
|
$ |
749,352
|
|
|
$ |
715,891
|
|
|
$ |
639,822
|
|
Cost
of sales
|
|
|
(468,895 |
) |
|
|
(443,958 |
) |
|
|
(416,747 |
) |
Gross
profit
|
|
|
280,457
|
|
|
|
271,933
|
|
|
|
223,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expense
|
|
|
(71,623 |
) |
|
|
(70,354 |
) |
|
|
(59,484 |
) |
Administrative
expense
|
|
|
(97,010 |
) |
|
|
(87,695 |
) |
|
|
(65,178 |
) |
Operating
profit
|
|
|
111,824
|
|
|
|
113,884
|
|
|
|
98,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
|
2,390
|
|
|
|
1,420
|
|
|
|
1,726
|
|
Interest
expense
|
|
|
(8,119 |
) |
|
|
(6,995 |
) |
|
|
(2,966 |
) |
Other
income, net
|
|
|
354
|
|
|
|
70
|
|
|
|
1,658
|
|
Minority
interest
|
|
|
(2,733 |
) |
|
|
(2,971 |
) |
|
|
(5,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
103,716
|
|
|
|
105,408
|
|
|
|
93,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(38,990 |
) |
|
|
(38,964 |
) |
|
|
(34,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,726
|
|
|
$ |
66,444
|
|
|
$ |
58,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$2.05
|
|
|
|
$2.08
|
|
|
|
$1.81
|
|
Diluted
|
|
|
$2.04
|
|
|
|
$2.06
|
|
|
|
$1.79
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
for
the years ended September 30, 2007, 2006 and 2005
(Dollar
amounts in thousands, except per share data)
__________
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
(Loss)
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(net
of tax)
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2004
|
|
$ |
36,334
|
|
|
$ |
24,859
|
|
|
$ |
298,165
|
|
|
$ |
11,538
|
|
|
$ |
(55,756 |
) |
|
$ |
315,140
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
58,071
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,071
|
|
Unrealized
gains (losses)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(28 |
) |
|
|
-
|
|
|
|
(28 |
) |
Minimum
pension liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,833 |
) |
|
|
-
|
|
|
|
(9,833 |
) |
Translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,676 |
) |
|
|
-
|
|
|
|
(3,676 |
) |
Fair
value of derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
640
|
|
|
|
-
|
|
|
|
640
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,174
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
2,874
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,874
|
|
Treasury
stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of 792,728 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,933 |
) |
|
|
(27,933 |
) |
Issuance
of 408,846 shares under stock plans
|
|
|
-
|
|
|
|
1,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,628
|
|
|
|
8,419
|
|
Dividends,
$.185 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,925 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(5,925 |
) |
Balance,
September 30, 2005
|
|
|
36,334
|
|
|
|
29,524
|
|
|
|
350,311
|
|
|
|
(1,359 |
) |
|
|
(77,061 |
) |
|
|
337,749
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
66,444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,444
|
|
Minimum
pension liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
|
|
88
|
|
Translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,688
|
|
|
|
-
|
|
|
|
5,688
|
|
Fair
value of derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(31 |
) |
|
|
-
|
|
|
|
(31 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,189
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
3,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,865
|
|
Treasury
stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of 513,750 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,491 |
) |
|
|
(17,491 |
) |
Issuance
of 121,353 shares under stock plans
|
|
|
-
|
|
|
|
564
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,101
|
|
|
|
2,665
|
|
Dividends,
$.205 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,552 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(6,552 |
) |
Balance,
September 30, 2006
|
|
|
36,334
|
|
|
|
33,953
|
|
|
|
410,203
|
|
|
|
4,386
|
|
|
|
(92,451 |
) |
|
|
392,425
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
64,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,726
|
|
Minimum
pension liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,191
|
|
|
|
-
|
|
|
|
2,191
|
|
Translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,546
|
|
|
|
-
|
|
|
|
16,546
|
|
Fair
value of derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(740 |
) |
|
|
-
|
|
|
|
(740 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,723
|
|
Initial
adoption of SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,993 |
) |
|
|
|
|
|
|
(8,993 |
) |
Stock-based
compensation
|
|
|
-
|
|
|
|
3,509
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,509
|
|
Treasury
stock transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of 1,366,297 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,526 |
) |
|
|
(56,526 |
) |
Issuance
of 789,164 shares under stock plans
|
|
|
-
|
|
|
|
4,108
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,615
|
|
|
|
20,723
|
|
Dividends,
$.225 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,083 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(7,083 |
) |
Balance,
September 30, 2007
|
|
$ |
36,334
|
|
|
$ |
41,570
|
|
|
$ |
467,846
|
|
|
$ |
13,390
|
|
|
$ |
(132,362 |
) |
|
$ |
426,778
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
for
the years ended September 30, 2007, 2006 and 2005
(Dollar
amounts in thousands, except per share data)
__________
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,726
|
|
|
$ |
66,444
|
|
|
$ |
58,071
|
|
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,528
|
|
|
|
21,463
|
|
|
|
19,893
|
|
Minority
interest
|
|
|
2,733
|
|
|
|
2,971
|
|
|
|
5,775
|
|
Stock-based
compensation expense
|
|
|
3,509
|
|
|
|
3,865
|
|
|
|
2,874
|
|
Increase
(decrease) in deferred taxes
|
|
|
7,826
|
|
|
|
(1,885 |
) |
|
|
1,304
|
|
Impairment
charges
|
|
|
-
|
|
|
|
986
|
|
|
|
-
|
|
Gain
on dispositions of assets
|
|
|
(3,106 |
) |
|
|
(3,090 |
) |
|
|
(200 |
) |
Changes
in working capital items
|
|
|
(14,373 |
) |
|
|
(28,093 |
) |
|
|
(19,673 |
) |
Increase
in other assets
|
|
|
(5,113 |
) |
|
|
(118 |
) |
|
|
(1,622 |
) |
Decrease
in other liabilities
|
|
|
(1,225 |
) |
|
|
(1,205 |
) |
|
|
(2,240 |
) |
(Decrease)
increase in pension and postretirement benefits
|
|
|
(907 |
) |
|
|
5,007
|
|
|
|
6,719
|
|
Net
cash provided by operating activities
|
|
|
74,598
|
|
|
|
66,345
|
|
|
|
70,901
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(20,649 |
) |
|
|
(19,397 |
) |
|
|
(28,066 |
) |
Acquisitions,
net of cash acquired
|
|
|
(23,784 |
) |
|
|
(32,278 |
) |
|
|
(109,352 |
) |
Proceeds
from
dispositions of assets
|
|
|
6,859
|
|
|
|
3,114
|
|
|
|
1,099
|
|
Purchases
of
investment securities
|
|
|
(4,033 |
) |
|
|
(232 |
) |
|
|
(11,758 |
) |
Proceeds
from
dispositions of investments
|
|
|
2,919
|
|
|
|
15
|
|
|
|
9,119
|
|
Net
cash used in investing activities
|
|
|
(38,688 |
) |
|
|
(48,778 |
) |
|
|
(138,958 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from
long-term debt
|
|
|
75,770
|
|
|
|
45,422
|
|
|
|
103,587
|
|
Payments
on
long-term debt
|
|
|
(58,024 |
) |
|
|
(47,539 |
) |
|
|
(27,851 |
) |
Purchases
of
treasury stock
|
|
|
(56,526 |
) |
|
|
(17,491 |
) |
|
|
(27,933 |
) |
Proceeds
from
the sale of treasury stock
|
|
|
16,524
|
|
|
|
2,028
|
|
|
|
5,894
|
|
Tax benefit on exercised stock options
|
|
|
3,834
|
|
|
|
637
|
|
|
|
2,525
|
|
Dividends
|
|
|
(7,083 |
) |
|
|
(6,552 |
) |
|
|
(5,925 |
) |
Distributions
to minority interests
|
|
|
(1,601 |
) |
|
|
(5,536 |
) |
|
|
(5,507 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(27,106 |
) |
|
|
(29,031 |
) |
|
|
44,790
|
|
Effect
of exchange rate changes on cash
|
|
|
5,478
|
|
|
|
1,629
|
|
|
|
(3,008 |
) |
Net
change in cash and cash equivalents
|
|
|
14,282
|
|
|
|
(9,835 |
) |
|
|
(26,275 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
29,720
|
|
|
|
39,555
|
|
|
|
65,830
|
|
Cash
and cash equivalents at end of year
|
|
$ |
44,002
|
|
|
$ |
29,720
|
|
|
$ |
39,555
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
8,105
|
|
|
$ |
6,377
|
|
|
$ |
2,692
|
|
Income
taxes
|
|
|
31,470
|
|
|
|
42,377
|
|
|
|
32,125
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar
amounts in thousands, except per share data)
__________
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 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 primarily in North America. The
Graphics Imaging segment manufactures and provides brand solutions, printing
plates, 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.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES:
|
Principles
of Consolidation:
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.
Use
of Estimates:
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 the 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.
Foreign
Currency:
Balance
sheet accounts for foreign subsidiaries are translated into U.S. dollars at
exchange rates in effect at the consolidated balance sheet
date. Gains or losses that result from this process are recorded in
accumulated other comprehensive income. The revenue and expense
accounts of foreign subsidiaries are translated into U.S. dollars at the average
exchange rates that prevailed during the period.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
continued:
|
Cash
and Cash Equivalents:
For
purposes of the consolidated statement of cash flows, the Company considers
all
investments purchased with a remaining maturity of three months or less to
be
cash equivalents. The carrying amount of cash and cash equivalents
approximates fair value due to the short-term maturities of these
instruments.
Allowance
for Doubtful Accounts:
The
allowance for doubtful accounts is based on an evaluation of specific customer
accounts for which available facts and circumstances indicate collectibility
may
be uncertain. In addition, the allowance includes a reserve for all
customers based on historical collection experience.
Inventories:
Inventories
are stated at the lower of cost or market with cost generally determined under
the average cost method.
Property,
Plant and Equipment:
Property,
plant and equipment are carried at cost. Depreciation is
computed primarily on the straight-line method over the estimated useful lives
of the assets, which generally range from 10 to 45 years for buildings and
3 to
12 years for machinery and equipment. Gains or losses from the
disposition of assets are reflected in operating profit. The cost of
maintenance and repairs is charged against income as
incurred. Renewals and betterments of a nature considered to extend
the useful lives of the assets are capitalized. Property, plant and
equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets is determined by evaluating the
estimated undiscounted net cash flows of the operations to which the assets
relate. An impairment loss would be recognized when the carrying
amount of the assets exceeds the fair value which generally is a discounted
net
cash flow analysis.
Goodwill
and Other Intangible Assets:
Goodwill
and indefinite-lived intangible assets are not amortized but are subject to
annual review for impairment. Other intangible assets are amortized
over their estimated useful lives, ranging from 2 to 20 years. 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. A significant decline in cash flows generated
from these assets may result in a write-down of the carrying values of the
related assets.
Environmental:
Costs
that mitigate or prevent future environmental issues or extend the life or
improve equipment utilized in current operations are capitalized and depreciated
on a straight-line basis over the estimated useful lives of the related
assets. Costs that relate to current operations or an existing
condition caused by past operations are expensed. Environmental
liabilities are recorded when the Company’s obligation is probable and
reasonably estimable. Accruals for losses from environmental
remediation obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present value.
Treasury
Stock:
Treasury
stock is carried at cost. The cost of treasury shares sold is
determined under the average cost method.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
continued:
|
Income
Taxes:
Deferred
tax assets and liabilities are provided for the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the years in which the differences are expected to
reverse. Valuation allowances are recorded to reduce deferred tax
assets when it is more likely than not that a tax benefit will not be
realized. Deferred income taxes for U.S. tax purposes have not been
provided on certain undistributed earnings of foreign subsidiaries, as such
earnings are considered to be reinvested indefinitely. To the extent
earnings are expected to be returned in the foreseeable future, the associated
deferred tax liabilities are provided.
Revenue
Recognition:
Revenues
are generally recognized when title and risk of loss pass to the customer,
which
is typically at the time of product shipment. For pre-need sales of
memorials and vases, revenue is recognized when the memorial has been
manufactured to the customer’s specifications (e.g., name and birth date), title
has been transferred to the customer and the memorial and vase are placed in
storage for future delivery. A liability has been recorded in
Estimated Finishing Costs for the estimated costs of finishing pre-need bronze
memorials and vases that have been manufactured and placed in storage prior
to
July 1, 2003 for future delivery.
In
July
2003, the Emerging Issues Task Force (“EITF”) issued Issue No. 00-21 “Revenue
Arrangements with Multiple Deliverables.” Issue No. 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which
it
will perform multiple revenue generating activities. The provisions
of Issue No. 00-21 were effective July 1, 2003 and have been applied
prospectively by the Company to the finishing and storage elements of its
pre-need sales. Beginning July 1, 2003, revenue is deferred by the
Company on the portion of pre-need sales attributable to the final finishing
and
storage of the pre-need merchandise. Deferred revenue for final
finishing is recognized at the time the pre-need merchandise is finished and
shipped to the customer. Deferred revenue related to storage is
recognized on a straight-line basis over the estimated average time that
pre-need merchandise is held in storage.
At
September 30, 2007, the Company held 354,886 memorials and 247,934 vases in
its
storage facilities under the pre-need sales program.
Construction
revenues are recognized under the percentage-of-completion method of accounting
using the cost-to-cost method. The Company offers rebates to certain
customers participating in volume purchase programs. Rebates are
estimated and recorded as a reduction in sales at the time the Company’s
products are sold.
Share-Based
Payment:
Stock-based
compensation cost is measured at grant date, based on the fair value of the
award, and is recognized as expense over the employee requisite service
period.
Derivatives
and Hedging:
Derivatives
are held as part of a formal documented hedging program. All
derivatives are straight forward and held for purposes other than
trading. Matthews measures effectiveness by formally assessing, at
least quarterly, the historical and probable future high correlation of changes
in the fair value or future cash flows of the hedged item. If the
hedging relationship ceases to be highly effective or it becomes probable that
an expected transaction will no longer occur, gains and losses on the derivative
will be recorded in other income (deductions) at that time.
Changes
in the fair value of derivatives designated as cash flow hedges are recorded
in
other comprehensive income, net of tax and are reclassified to earnings in
a
manner consistent with the underlying hedged item. The cash
flows from derivative activities are recognized in the statement of cash flows
in a manner consistent with the underlying hedged item.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES,
continued:
|
Research
and Development Expenses:
Research
and development costs are expensed as incurred and were approximately $2,700,
$2,800 and $3,300 for the years ended September 30, 2007, 2006 and 2005,
respectively.
Earnings
Per Share:
Basic
earnings per share is computed by dividing net income by the average number
of
common shares outstanding. Diluted earnings per share is computed
using the treasury stock method, which assumes the issuance of common stock
for
all dilutive securities.
Reclassifications:
Certain
reclassifications have been made in the Consolidated Statements of Cash Flows
and Consolidated Balance Sheets for prior periods to conform to the current
period presentation.
Inventories
at September 30, 2007 and 2006 consisted of the following:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Materials
and finished goods
|
|
$ |
86,304
|
|
|
$ |
79,715
|
|
Labor
and overhead in process
|
|
|
7,530
|
|
|
|
5,700
|
|
|
|
$ |
93,834
|
|
|
$ |
85,415
|
|
Investment
securities are recorded at estimated market value at the consolidated balance
sheet date and, except for investments held in a non-revocable trust established
to fund benefit payments under the Company’s supplemental retirement plan, are
classified as available-for-sale. Short-term investments consisted
principally of corporate obligations with purchased maturities of over three
months but less than one year. The cost of short-term investments
approximated market value at September 30, 2007 and 2006. Investments
classified as non-current and available-for-sale consisted of securities of
the
U.S. government and its agencies and corporate obligations with purchased
maturities in the range of one to five years. Accrued interest on
these non-current investment securities was classified with short-term
investments.
At
September 30, 2007 and 2006, non-current investments were as
follows:
|
|
2007
|
|
|
2006
|
|
Available-for-sale:
|
|
|
|
|
|
|
U.S.
government and its agencies
|
|
$ |
1,501
|
|
|
$ |
2,247
|
|
Corporate
obligations
|
|
|
3,814
|
|
|
|
2,747
|
|
Trading
securities:
|
|
|
|
|
|
|
|
|
Mutual
funds
|
|
|
4,923
|
|
|
|
4,598
|
|
Equity
and other investments
|
|
|
1,806
|
|
|
|
1,900
|
|
|
|
$ |
12,044
|
|
|
$ |
11,492
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
4. INVESTMENTS,
continued:
Non-current
investments classified as available for sale and trading securities are recorded
at market value, which approximated cost at September 30, 2007 and
2006.
Unrealized
gains and losses on available for sale securities, including related deferred
taxes, are reflected in accumulated other comprehensive
income. Realized gains and losses are based on the specific
identification method and are recorded in investment income. Realized
gains (losses) for fiscal 2007, 2006 and 2005 were not material. Bond
premiums and discounts are amortized on the straight-line method, which does
not
significantly differ from the interest method.
Equity
investments primarily included ownership interests in various entities of less
than 20%, which are recorded under the cost method of accounting.
5.
|
PROPERTY,
PLANT AND EQUIPMENT:
|
Property,
plant and equipment and the related accumulated depreciation at September 30,
2007 and 2006 were as follows:
|
|
2007
|
|
|
2006
|
|
Buildings
|
|
$ |
42,493
|
|
|
$ |
43,907
|
|
Machinery
and equipment
|
|
|
166,183
|
|
|
|
148,387
|
|
|
|
|
208,676
|
|
|
|
192,294
|
|
Less
accumulated depreciation
|
|
|
(129,995 |
) |
|
|
(114,247 |
) |
|
|
|
78,681
|
|
|
|
78,047
|
|
Land
|
|
|
4,159
|
|
|
|
4,814
|
|
Construction
in progress
|
|
|
6,086
|
|
|
|
5,238
|
|
|
|
$ |
88,926
|
|
|
$ |
88,099
|
|
During
the fourth quarter of fiscal 2006, the Company recorded a pre-tax gain of
approximately $2,670 from the sale of a facility and a pre-tax charge of
approximately $986 related to asset impairments.
Long-term
debt at September 30, 2007 and 2006 consisted of the following:
|
|
2007
|
|
|
2006
|
|
Revolving
credit facilities
|
|
$ |
159,240
|
|
|
$ |
133,946
|
|
Notes
payable to banks
|
|
|
7,332
|
|
|
|
10,214
|
|
Short-term
borrowings
|
|
|
2,068
|
|
|
|
2,961
|
|
Capital
lease obligations
|
|
|
690
|
|
|
|
1,619
|
|
|
|
|
169,330
|
|
|
|
148,740
|
|
Less
current maturities
|
|
|
(27,057 |
) |
|
|
(28,451 |
) |
|
|
$ |
142,273
|
|
|
$ |
120,289
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
6.
|
LONG-TERM
DEBT, continued:
|
The
Company has a domestic Revolving Credit Facility with a syndicate of financial
institutions. On September 10, 2007, the maximum amount of borrowings
available under the facility was increased from $175,000 to $225,000 and the
facility’s maturity was extended to September 10, 2012. Borrowings under the
amended 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, as amended, requires the Company to maintain certain leverage and
interest coverage ratios. A portion of the facility (not to exceed
$10,000) is available for the issuance of trade and standby letters of
credit. Outstanding borrowings on the Revolving Credit Facility at
September 30, 2007 and
2006 were $147,833 and
$123,167 respectively. The
weighted-average interest rate on outstanding borrowings at September 30, 2007 and
2006
was 5.08% and 4.88%, respectively.
The
Company has entered into the following interest rate swaps:
Date
|
|
Initial
Amount
|
|
|
Fixed
Interest Rate
|
|
|
Interest
Rate Spread at September 30, 2007
|
|
|
Equal
Quarterly Payments
|
|
Maturity
Date
|
April
2004
|
|
$ |
50,000
|
|
|
|
2.66 |
% |
|
|
.40 |
% |
|
$ |
2,500
|
|
April
2009
|
September
2005
|
|
|
50,000
|
|
|
|
4.14
|
|
|
|
.40
|
|
|
|
3,333
|
|
April
2009
|
August
2007
|
|
|
15,000
|
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
August
2007
|
|
|
10,000
|
|
|
|
5.07
|
|
|
|
.40
|
|
|
|
-
|
|
April
2009
|
September
2007
|
|
|
25,000
|
|
|
|
4.77
|
|
|
|
.40
|
|
|
|
-
|
|
September
2012
|
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 gain of $292 ($178
after tax) at September 30, 2007 that is included in shareholders’ equity as
part of accumulated other comprehensive income. Assuming market rates
remain constant with the rates at September 30, 2007, approximately $122 of
the
$178 gain included in accumulated other comprehensive income is expected to
be
recognized in earnings as an adjustment to interest expense over the next twelve
months.
The
Company, through its wholly-owned subsidiary, Matthews International GmbH
(“MIGmbH”), has a credit facility with National Westminster Bank Plc for
borrowings up to 10.0 million Euros ($14,259). Outstanding borrowings
under the credit facility totaled 8.0 million Euros ($11,407) and 8.5 million
Euros ($10,779) at September 30, 2007 and 2006, respectively. The
weighted-average interest rate on outstanding borrowings of MIGmbH at September
30, 2007 and 2006 was 4.90% and 3.69%, 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 5.1 million
Euros ($7,332) and 8.0 million Euros ($10,195) at September 30, 2007 and 2006,
respectively. Matthews International S.p.A. also has three lines of
credit totaling 8.4 million Euros ($11,935) with the same Italian
banks. Outstanding borrowings on these lines were 1.4 million Euros
($1,980) and 2.3 million Euros ($2,961) at September 30, 2007 and 2006,
respectively. The weighted-average interest rate on outstanding
borrowings of Matthews International S.p.A. at September 30, 2007 and 2006
was
3.26% and 3.17%, respectively.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
6.
|
LONG-TERM
DEBT, continued:
|
Aggregate
maturities of long-term debt, including short-term borrowings and capital
leases, follows:
2008
|
|
$ |
27,057
|
|
2009
|
|
|
30,395
|
|
2010
|
|
|
1,472
|
|
2011
|
|
|
1,466
|
|
2012
|
|
|
107,880
|
|
Thereafter
|
|
|
1,060
|
|
|
|
$ |
169,330
|
|
The
carrying amounts of the Company's borrowings under its financing arrangements
approximated their fair value.
The
authorized common stock of the Company consists of 70,000,000 shares of Class
A
Common Stock, $1 par value.
The
Company has a stock repurchase program, which was initiated in 1996. Under the program, the
Company's Board of Directors has authorized the repurchase of a total of
12,500,000 shares of Matthews’ common stock, of which 10,501,443 shares have been
repurchased as of September 30, 2007. The buy-back program is
designed to increase shareholder value, enlarge the Company's holdings of its
common stock, and add to earnings per share. Repurchased shares may
be retained in treasury, utilized for acquisitions, or reissued to employees
or
other purchasers, subject to the restrictions of the Company’s Restated Articles
of Incorporation.
Comprehensive
income consists of net income adjusted for changes, net of any related income
tax effect, in cumulative foreign currency translation, the fair value of
derivatives, unrealized investment gains and losses and minimum pension
liability.
Accumulated
other comprehensive income at September 30, 2007 and 2006 consisted of the
following:
|
|
2007
|
|
|
2006
|
|
Cumulative
foreign currency translation
|
|
$ |
30,526
|
|
|
$ |
13,980
|
|
Fair
value of derivatives, net of tax of $114 and $586,
respectively
|
|
|
178
|
|
|
|
918
|
|
Minimum
pension liability, net of tax of $5,091 and
$6,721,
respectively
|
|
|
(8,321 |
) |
|
|
(10,512 |
) |
Impact
of adoption of SFAS No. 158, net of tax of $5,748
|
|
|
(8,993 |
) |
|
|
-
|
|
|
|
$ |
13,390
|
|
|
$ |
4,386
|
|
The
Company has a stock incentive plan that provides for grants of incentive stock
options, non-statutory stock options and restricted share awards in an aggregate
number not to exceed 15% of the outstanding shares of the Company’s common stock
(4,658,574 shares at
September 30, 2007). The plan is administered by the Compensation
Committee of the Board of Directors. The option price for each stock
option that may be granted under the 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 exercisable in various share amounts based on the attainment of
certain market value
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
8.
|
SHARE-BASED
PAYMENTS, continued:
|
levels
of
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 appreciation of
10%,
33% and 60%, respectively, in the market value of the Company’s common
stock). 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 and restricted share awards with treasury shares.
Effective
October 1, 2005, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123(R), Share-Based Payment, (“SFAS No. 123 (R)”) using the
modified retrospective method. Accordingly, stock-based compensation
cost is measured at grant date, based on the fair value of the award, and is
recognized as expense over the employee requisite service period. The Company elected to
apply the short-cut method for determining the pool of windfall tax benefits
in
connection with the adoption of SFAS No. 123(R).
For
the
years ended September 30, 2007, 2006 and 2005, stock-based compensation cost
totaled $3,509, $3,865
and $2,874, respectively. The associated future income tax benefit
recognized was $1,369, $1,507 and $1,121 for the years ended September 30,
2007,
2006 and 2005, respectively.
The
amount of cash received from the exercise of stock options was $16,524, $2,028
and $5,894, for the years ended September 30, 2007, 2006 and 2005,
respectively. In connection with these exercises, the tax benefits
realized by the Company were $5,976, $902 and $3,148 for the years
ended
September 30, 2007, 2006 and 2005, respectively.
The
transactions for shares under options for the year ended September 30, 2007
were
as follows:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
Aggregate
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
intrinsic
|
|
|
|
Shares
|
|
|
exercise
price
|
|
|
contractual
term
|
|
|
value
|
|
Outstanding,
September 30, 2006
|
|
|
2,529,451
|
|
|
$ |
28.75
|
|
|
|
|
|
|
|
Granted
|
|
|
392,650
|
|
|
|
40.59
|
|
|
|
|
|
|
|
Exercised
|
|
|
(768,111 |
) |
|
|
21.36
|
|
|
|
|
|
|
|
Expired
or forfeited
|
|
|
(53,413 |
) |
|
|
31.45
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2007
|
|
|
2,100,577
|
|
|
|
33.60
|
|
|
|
7.2
|
|
|
|
$21,428
|
|
Exercisable,
September 30, 2007
|
|
|
458,376
|
|
|
|
27.02
|
|
|
|
5.6
|
|
|
|
$7,690
|
|
Shares
reserved for future options
|
|
|
2,557,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of options granted was $12.29 per share
in 2007, $9.47 per share in 2006, $11.61 per share in 2005. The fair
value of shares earned was $4,331, $3,752 and $2,606 during the years ended September 30, 2007, 2006
and 2005, 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 years ended September 30, 2007,
2006
and 2005 was $15,336, $2,411 and $9,132, respectively.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
8.
|
SHARE-BASED
PAYMENTS, continued:
|
The
transactions for non-vested shares for the year ended September 30, 2007 were
as
follows:
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
grant-date
|
|
|
|
Shares
|
|
|
fair
value
|
|
Non-vested
at September 30, 2006
|
|
|
1,814,878
|
|
|
$ |
9.84
|
|
Granted
|
|
|
392,650
|
|
|
|
12.29
|
|
Vested
|
|
|
(513,830 |
) |
|
|
8.43
|
|
Expired
or forfeited
|
|
|
(51,497 |
) |
|
|
9.83
|
|
Non-vested
at September 30, 2007
|
|
|
1,642,201
|
|
|
|
10.87
|
|
As
of
September 30, 2007, the total unrecognized compensation cost related to
non-vested stock options was approximately $5,459. This cost is expected
to be
recognized over a weighted-average period of 3.5 years in accordance with the
vesting periods of the options.
As
of
October 1, 2005, the fair value of each option grant is estimated on the date
of
grant using a binomial lattice valuation model. Prior to October 1,
2005, the fair value of each option award was estimated on the grant date using
a Black-Scholes valuation model.
The
following table indicates the assumptions used in estimating fair value for
the
years ended September 30, 2007, 2006 and 2005.
|
|
|
|
|
|
Years
Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Expected
volatility
|
|
|
24.0 |
% |
|
|
24.0 |
% |
|
|
23.2 |
% |
Dividend
yield
|
|
|
.6 |
% |
|
|
.6 |
% |
|
|
1.0 |
% |
Average
risk free interest rate
|
|
|
4.7 |
% |
|
|
4.4 |
% |
|
|
4.3 |
% |
Average
expected term (years)
|
|
|
6.3
|
|
|
|
5.5
|
|
|
|
7.9
|
|
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 period of time options are expected to remain
outstanding. Separate employee groups and option
characteristics are considered separately for valuation purposes.
In
the
first quarter of fiscal 2007, 15,209 shares of restricted stock were granted
to
certain employees. The shares generally vest based upon certain
service and performance criteria. At September 30, 2007, 9,249 shares of
restricted stock were outstanding. The unrecognized compensation cost related
to
the unvested shares was approximately $154 at September 30, 2007.
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 $30. 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. Directors may also elect to receive the
common
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
8.
|
SHARE-BASED
PAYMENTS, continued:
|
stock
equivalent of meeting fees credited to a deferred stock account. The
value of deferred shares is recorded in other liabilities. Shares
deferred under the Director Fee Plan at September 30, 2007, 2006 and
2005 were 48,697, 49,569
and
51,313, respectively. Directors who are not
also
officers of the Company each received an annual stock-based grant (non-statutory
stock options, stock appreciation rights and/or restricted shares) with a value
of $50 in fiscal 2007 and $40 in fiscal 2006 and 2005. A total of
22,300 stock options have been granted under the plan. At September 30, 2007,
21,300 options were outstanding, of which 16,500 are vested. Additionally,
13,200 shares of restricted stock have been granted under the plan, all of
which
are unvested at September 30, 2007. The restricted shares generally vest two
years after the date of issuance. As of November 13, 2007, a
total of 300,000 shares have been authorized to be issued under the Director
Fee
Plan.
9. EARNINGS
PER SHARE:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
64,726
|
|
|
$ |
66,444
|
|
|
$ |
58,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
31,565,716
|
|
|
|
31,999,309
|
|
|
|
32,116,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
securities, primarily stock options
|
|
|
113,900
|
|
|
|
252,415
|
|
|
|
265,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted-average common shares outstanding
|
|
|
31,679,616
|
|
|
|
32,251,724
|
|
|
|
32,381,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
$2.05
|
|
|
|
$2.08
|
|
|
|
$1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
$2.04
|
|
|
|
$2.06
|
|
|
|
$1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
10.
|
PENSION
AND OTHER POSTRETIREMENT
PLANS:
|
The
Company provides defined benefit pension and other postretirement plans to
certain employees. Effective September 30, 2007, the Company adopted the
recognition and related disclosure provisions SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans” which
amends SFAS No. 87, No. 88, No. 106 and No. 132(R). The following provides
a
reconciliation of benefit obligations, plan assets and funded status of the
plans:
|
|
Pension
|
|
|
Other
Postretirement
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation, beginning
|
|
$ |
104,060
|
|
|
$ |
106,352
|
|
|
$ |
18,267
|
|
|
$ |
22,068
|
|
Service
cost
|
|
|
3,892
|
|
|
|
4,504
|
|
|
|
533
|
|
|
|
632
|
|
Interest
cost
|
|
|
6,525
|
|
|
|
5,923
|
|
|
|
1,188
|
|
|
|
1,227
|
|
Assumption
changes
|
|
|
-
|
|
|
|
(9,887 |
) |
|
|
-
|
|
|
|
(1,693 |
) |
Actuarial
(gain) loss
|
|
|
1,774
|
|
|
|
2,016
|
|
|
|
2,944
|
|
|
|
(2,494 |
) |
Benefit
payments
|
|
|
(4,708 |
) |
|
|
(4,848 |
) |
|
|
(1,113 |
) |
|
|
(1,473 |
) |
Benefit
obligation, ending
|
|
|
111,543
|
|
|
|
104,060
|
|
|
|
21,819
|
|
|
|
18,267
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value, beginning
|
|
|
75,817
|
|
|
|
79,915
|
|
|
|
-
|
|
|
|
-
|
|
Actual
return
|
|
|
9,849
|
|
|
|
(43 |
) |
|
|
-
|
|
|
|
-
|
|
Benefit
payments
|
|
|
(4,708 |
) |
|
|
(4,848 |
) |
|
|
(1,113 |
) |
|
|
(1,473 |
) |
Employer
contributions
|
|
|
6,082
|
|
|
|
793
|
|
|
|
1,113
|
|
|
|
1,473
|
|
Fair
value, ending
|
|
|
87,040
|
|
|
|
75,817
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
|
(24,503 |
) |
|
|
(28,243 |
) |
|
|
(21,819 |
) |
|
|
(18,267 |
) |
Unrecognized
actuarial loss
|
|
|
24,296
|
|
|
|
27,487
|
|
|
|
7,991
|
|
|
|
5,335
|
|
Unrecognized
prior service cost
|
|
|
311
|
|
|
|
342
|
|
|
|
(4,214 |
) |
|
|
(5,502 |
) |
Net
amount recognized
|
|
$ |
104
|
|
|
$ |
(414 |
) |
|
$ |
(18,042 |
) |
|
$ |
(18,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liability
|
|
$ |
(874 |
) |
|
$ |
(517 |
) |
|
$ |
(1,076 |
) |
|
$ |
(1,012 |
) |
Noncurrent
benefit liability
|
|
|
(23,629 |
) |
|
|
(17,720 |
) |
|
|
(20,743 |
) |
|
|
(17,422 |
) |
Accumulated
other comprehensive income
|
|
|
24,607
|
|
|
|
17,823
|
|
|
|
3,777
|
|
|
|
-
|
|
Net
amount recognized
|
|
$ |
104
|
|
|
$ |
(414 |
) |
|
$ |
(18,042 |
) |
|
$ |
(18,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial gain/loss
|
|
$ |
24,296
|
|
|
|
|
|
|
$ |
7,991
|
|
|
|
|
|
Prior
service cost
|
|
|
311
|
|
|
|
|
|
|
|
(4,214 |
) |
|
|
|
|
Net
amount recognized
|
|
$ |
24,607
|
|
|
|
|
|
|
$ |
3,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
10.
|
PENSION
AND OTHER POSTRETIREMENT PLANS,
continued:
|
The
accumulated benefit obligation for the Company’s defined benefit pension plans
was $97,283 and $91,442 at September 30, 2007 and 2006, respectively. The
projected benefit obligation for the Company’s defined benefit pension plans was
$111,543 and $104,060 at September 30, 2007 and 2006, respectively.
The
following table reflects the effects of the adoption of SFAS No. 158 on the
Company’s consolidated balance sheet as of September 30, 2007:
|
|
Balance
prior to Additional Minimum Liability and SFAS No.158
Adjustments
|
|
|
Additional
Minimum Liability
Adjustments
|
|
|
Balance
prior to
SFAS
No.
158 Adjustments
|
|
|
SFAS
No.
158 Adjustments
|
|
|
Balance
after SFAS
No.
158 Adjustments
|
|
Pension
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
$ |
360
|
|
|
$ |
(360 |
) |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
Current
liabilities
|
|
|
(874 |
) |
|
|
-
|
|
|
|
(874 |
) |
|
|
-
|
|
|
|
(874 |
) |
Pension
liabilities
|
|
|
(16,845 |
) |
|
|
4,181
|
|
|
|
(12,664 |
) |
|
|
(10,965 |
) |
|
|
(23,629 |
) |
Deferred
tax assets
|
|
|
6,951
|
|
|
|
(1,630 |
) |
|
|
5,321
|
|
|
|
4,276
|
|
|
|
9,597
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(17,823 |
) |
|
|
4,181
|
|
|
|
(13,642 |
) |
|
|
(10,965 |
) |
|
|
(24,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(1,076 |
) |
|
|
-
|
|
|
|
(1,076 |
) |
|
|
-
|
|
|
|
(1,076 |
) |
Postretirement
benefits
|
|
|
(16,966 |
) |
|
|
-
|
|
|
|
(16,966 |
) |
|
|
(3,777 |
) |
|
|
(20,743 |
) |
Deferred
tax assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,473
|
|
|
|
1,473
|
|
Accumulated
other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,777 |
) |
|
|
(3,777 |
) |
Net
periodic pension and other postretirement benefit cost for the plans included
the following:
|
|
Pension
|
|
|
Other
Postretirement
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3,892
|
|
|
$ |
4,504
|
|
|
$ |
3,707
|
|
|
$ |
533
|
|
|
$ |
632
|
|
|
$ |
505
|
|
Interest
cost
|
|
|
6,525
|
|
|
|
5,923
|
|
|
|
5,615
|
|
|
|
1,188
|
|
|
|
1,227
|
|
|
|
1,173
|
|
Expected
return on plan assets
|
|
|
(6,410 |
) |
|
|
(6,879 |
) |
|
|
(6,333 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
31
|
|
|
|
(14 |
) |
|
|
83
|
|
|
|
(1,287 |
) |
|
|
(1,287 |
) |
|
|
(1,287 |
) |
Net
actuarial loss
|
|
|
1,527
|
|
|
|
1,979
|
|
|
|
1,378
|
|
|
|
288
|
|
|
|
646
|
|
|
|
493
|
|
Net
benefit cost
|
|
$ |
5,565
|
|
|
$ |
5,513
|
|
|
$ |
4,450
|
|
|
$ |
722
|
|
|
$ |
1,218
|
|
|
$ |
884
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
10.
|
PENSION
AND OTHER POSTRETIREMENT PLANS,
continued:
|
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 made from the Company’s operating cash. Under IRS regulations,
the
Company was not required to make any significant contributions to its principal
retirement plan in fiscal 2007, however, in June 2007 the Company made a $5,000
contribution to its principal retirement plan. The Company does not
currently plan to make any significant contributions to its principal retirement
plan in fiscal 2008. Contributions of $485
and
$1,113 were made under the Company’s supplemental retirement plan and
postretirement benefit plan, respectively, in fiscal 2007.
Amounts
expected to be recognized in net periodic benefit costs in fiscal 2008
include:
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
|
|
|
|
|
|
|
Net
actuarial gain/loss
|
|
$ |
1,268
|
|
|
$ |
487
|
|
Prior
service cost
|
|
|
28
|
|
|
|
(1,287 |
) |
The
measurement date of annual actuarial valuations for the Company’s principal
retirement and other postretirement benefit plans is July 31, and the
weighted-average assumptions for those plans were:
|
|
Pension
|
|
|
Other
Postretirement
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Discount
rate
|
|
|
6.50 |
% |
|
|
6.50 |
% |
|
|
5.75 |
% |
|
|
6.50 |
% |
|
|
6.50 |
% |
|
|
5.75 |
% |
Return
on plan assets
|
|
|
9.00
|
|
|
|
9.00
|
|
|
|
9.00
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Compensation
increase
|
|
|
4.25
|
|
|
|
4.25
|
|
|
|
4.25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
Company's principal pension plan maintains a substantial portion of its assets
in equity securities in accordance with the investment policy established by
the
Company’s pension board. Based on an analysis of the historical
performance of the plan's assets and consultation with its independent
investment advisor, the Company has maintained the long-term rate of return
assumption for these assets at 9.0% for purposes of determining pension cost
and
funded status under SFAS No. 87. The Company’s discount rate
assumption used in determining the present value of the projected benefit
obligation is based upon published indices for long-term (10-year) high quality
bonds.
Benefit
payments expected to be paid are as follows:
|
|
|
|
|
Other
|
|
|
|
Pension
|
|
|
Postretirement
|
|
Year
ended September 30:
|
|
Benefits
|
|
|
Benefits
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
5,270
|
|
|
$ |
1,076
|
|
2009
|
|
|
5,344
|
|
|
|
1,192
|
|
2010
|
|
|
5,597
|
|
|
|
1,301
|
|
2011
|
|
|
5,827
|
|
|
|
1,426
|
|
2012
|
|
|
6,082
|
|
|
|
1,488
|
|
2013-2017
|
|
|
35,147
|
|
|
|
9,149
|
|
|
|
$ |
63,267
|
|
|
$ |
15,632
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
10.
|
PENSION
AND OTHER POSTRETIREMENT PLANS,
continued:
|
For
measurement purposes, a rate of increase of 9.0% in the per capita
cost
of health care benefits was assumed for 2007; the rate was assumed to decrease
gradually to 5.0% for 2014 and remain at that level
thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported. An increase in the assumed health
care cost trend rates by one percentage point would have increased the
accumulated postretirement benefit obligation as of September 30, 2007 by
$1,207 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by
$133. A decrease in the assumed health care cost trend rates by one
percentage point would have decreased the accumulated postretirement benefit
obligation as of September 30, 2007 by $1,060 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the
year then ended by $115.
The
provision for income taxes consisted of the following:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
20,941
|
|
|
$ |
28,782
|
|
|
$ |
26,346
|
|
State
|
|
|
2,762
|
|
|
|
5,245
|
|
|
|
2,953
|
|
Foreign
|
|
|
7,461
|
|
|
|
7,087
|
|
|
|
5,005
|
|
|
|
|
31,164
|
|
|
|
41,114
|
|
|
|
34,304
|
|
Deferred
|
|
|
7,826
|
|
|
|
(2,150 |
) |
|
|
681
|
|
Total
|
|
$ |
38,990
|
|
|
$ |
38,964
|
|
|
$ |
34,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Postretirement
benefits
|
|
$ |
8,510
|
|
|
$ |
7,189
|
|
Environmental
reserve
|
|
|
3,437
|
|
|
|
3,924
|
|
Pension
costs
|
|
|
8,762
|
|
|
|
6,088
|
|
Deferred
compensation
|
|
|
2,535
|
|
|
|
4,289
|
|
Stock
options
|
|
|
3,825
|
|
|
|
4,631
|
|
Other
|
|
|
14,284
|
|
|
|
13,148
|
|
|
|
|
41,353
|
|
|
|
39,269
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(3,510 |
) |
|
|
(4,725 |
) |
Goodwill
|
|
|
(24,550 |
) |
|
|
(17,776 |
) |
Other
|
|
|
(115 |
) |
|
|
(587 |
) |
|
|
|
(28,175 |
) |
|
|
(23,088 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$ |
13,178
|
|
|
$ |
16,181
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
11. INCOME
TAXES, continued
The
reconciliation of the federal statutory tax rate to the consolidated effective
tax rate was as follows:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Federal
statutory tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Effect
of state income taxes, net of federal deduction
|
|
|
2.2
|
|
|
|
2.9
|
|
|
|
1.8
|
|
Foreign
taxes in excess of federal statutory rate
|
|
|
.5
|
|
|
|
.4
|
|
|
|
.5
|
|
Tax
on repatriated earnings
|
|
|
.0
|
|
|
|
.0
|
|
|
|
.7
|
|
Other
|
|
|
(0.1 |
) |
|
|
(1.3 |
) |
|
|
(.4 |
) |
Effective
tax rate
|
|
|
37.6 |
% |
|
|
37.0 |
% |
|
|
37.6 |
% |
The
Company's foreign subsidiaries had income before income taxes for the years
ended September 30, 2007, 2006 and 2005 of approximately $24,300, $24,500 and
$24,600, respectively. At September 30,
2007, undistributed earnings of foreign subsidiaries for which deferred U.S.
income taxes have not been provided approximated $81,400. During
fiscal 2005, the Company’s Chief Executive Officer and Board of Directors
approved a domestic reinvestment program as required by the American Jobs
Creation Act of 2004. The Company repatriated $13,700 of dividends in
fiscal 2005, on which taxes were provided in accordance with FASB Staff Position
No. 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of
2004."
12.
|
COMMITMENTS
AND CONTINGENT
LIABILITIES:
|
The
Company operates various production, warehouse and office facilities and
equipment under operating lease agreements. Annual rentals under
these and other operating leases were $15,621, $13,747 and
$10,950 in 2007, 2006 and 2005, respectively. Future minimum rental
commitments under non-cancelable operating lease arrangements for fiscal years
2008 through 2012 are $8,526, $5,461, $4,342, $3,397 and $3,109, respectively,
and $3,164 thereafter.
The
Company is party to various legal proceedings, the eventual outcome of which
are
not predictable. Although the ultimate disposition of these
proceedings is not presently determinable, management is of the opinion that
they should not result in liabilities in an amount which would materially affect
the Company’s consolidated financial position, results of operations or cash
flows.
The
Company has employment agreements with certain employees, the terms of which
expire at various dates between 2008 and 2010. The agreements
generally provide for base salary and bonus levels and include non-compete
provisions. The aggregate commitment for salaries under these
agreements at September 30, 2007 was $12,711.
13.
|
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.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
13. ENVIRONMENTAL
MATTERS, continued
The
Company is party to various environmental matters. These include
obligations to investigate and mitigate the effects on the environment of the
disposal of certain materials at various operating and non-operating
sites. The Company is currently performing environmental assessments
and remediation at these sites, as appropriate. In addition, prior to
its acquisition, The York Group, Inc. (“York”) was identified, along with
others, by the Environmental Protection Agency as a potentially responsible
party for remediation of a landfill site in York, Pennsylvania. At
this time, the Company has not been joined in any lawsuit or administrative
order related to the site or its clean-up.
At
September 30, 2007, an accrual of $8,706 had been recorded for environmental
remediation (of which $865 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. 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.
14.
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
Changes
in working capital items as presented in the Consolidated Statements of Cash
Flows consisted of the following:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
1,502
|
|
|
$ |
(4,110 |
) |
|
$ |
(13,489 |
) |
Inventories
|
|
|
(2,135 |
) |
|
|
(10,860 |
) |
|
|
(9,886 |
) |
Other
current assets
|
|
|
(2,567 |
) |
|
|
518
|
|
|
|
549
|
|
|
|
|
(3,200 |
) |
|
|
(14,452 |
) |
|
|
(22,826 |
) |
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
|
1,064
|
|
|
|
(9,765 |
) |
|
|
7,529
|
|
Accrued
compensation
|
|
|
(2,411 |
) |
|
|
50
|
|
|
|
1,584
|
|
Accrued
income taxes
|
|
|
(3,644 |
) |
|
|
(2,410 |
) |
|
|
(1,378 |
) |
Customer
prepayments
|
|
|
514
|
|
|
|
(674 |
) |
|
|
722
|
|
Other
current liabilities
|
|
|
(6,696 |
) |
|
|
(842 |
) |
|
|
(5,304 |
) |
|
|
|
(11,173 |
) |
|
|
(13,641 |
) |
|
|
3,153
|
|
Net
change
|
|
$ |
(14,373 |
) |
|
$ |
(28,093 |
) |
|
$ |
(19,673 |
) |
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.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
15.
|
SEGMENT
INFORMATION, continued:
|
The
accounting policies of the segments are the same as those described in Summary
of Significant Accounting Policies (Note 2). Intersegment sales are
accounted for at negotiated prices. Operating profit is total revenue
less operating expenses. Segment assets include those assets that are
used in the Company's operations within each segment. Assets
classified under “Other” principally consist of cash and cash equivalents,
investments, deferred income taxes and corporate headquarters'
assets. Long-lived assets include property, plant and equipment (net
of accumulated depreciation), goodwill, and other intangible assets (net of
accumulated amortization).
Information
about the Company's segments follows:
|
|
Memorialization
|
|
|
Brand
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graphics
|
|
|
Marking
|
|
|
Merchandising
|
|
|
|
|
|
|
|
|
|
Bronze
|
|
|
Casket
|
|
|
Cremation
|
|
|
Imaging
|
|
|
Products
|
|
|
Solutions
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
229,850
|
|
|
$ |
210,673
|
|
|
$ |
25,166
|
|
|
$ |
146,049
|
|
|
$ |
57,450
|
|
|
$ |
80,164
|
|
|
$ |
-
|
|
|
$ |
749,352
|
|
2006
|
|
|
218,004
|
|
|
|
200,950
|
|
|
|
25,976
|
|
|
|
140,886
|
|
|
|
52,272
|
|
|
|
77,803
|
|
|
|
-
|
|
|
|
715,891
|
|
2005
|
|
|
205,675
|
|
|
|
135,512
|
|
|
|
21,497
|
|
|
|
143,159
|
|
|
|
45,701
|
|
|
|
88,278
|
|
|
|
-
|
|
|
|
639,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
208
|
|
|
|
220
|
|
|
|
2,594
|
|
|
|
13
|
|
|
|
41
|
|
|
|
41
|
|
|
|
-
|
|
|
|
3,117
|
|
2006
|
|
|
151
|
|
|
|
301
|
|
|
|
1,048
|
|
|
|
1
|
|
|
|
36
|
|
|
|
105
|
|
|
|
-
|
|
|
|
1,642
|
|
2005
|
|
|
175
|
|
|
|
437
|
|
|
|
423
|
|
|
|
-
|
|
|
|
37
|
|
|
|
224
|
|
|
|
-
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
3,707
|
|
|
|
6,680
|
|
|
|
164
|
|
|
|
5,431
|
|
|
|
630
|
|
|
|
2,896
|
|
|
|
1,020
|
|
|
|
20,528
|
|
2006
|
|
|
4,411
|
|
|
|
6,581
|
|
|
|
221
|
|
|
|
6,015
|
|
|
|
482
|
|
|
|
2,760
|
|
|
|
993
|
|
|
|
21,463
|
|
2005
|
|
|
4,644
|
|
|
|
4,456
|
|
|
|
237
|
|
|
|
6,634
|
|
|
|
475
|
|
|
|
2,677
|
|
|
|
770
|
|
|
|
19,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
66,298
|
|
|
|
11,801
|
|
|
|
3,631
|
|
|
|
14,439
|
|
|
|
9,931
|
|
|
|
5,724
|
|
|
|
-
|
|
|
|
111,824
|
|
2006
|
|
|
65,049
|
|
|
|
16,971
|
|
|
|
3,372
|
|
|
|
16,554
|
|
|
|
9,066
|
|
|
|
2,872
|
|
|
|
-
|
|
|
|
113,884
|
|
2005
|
|
|
59,722
|
|
|
|
12,645
|
|
|
|
701
|
|
|
|
14,861
|
|
|
|
7,373
|
|
|
|
3,111
|
|
|
|
-
|
|
|
|
98,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
158,666
|
|
|
|
280,598
|
|
|
|
11,910
|
|
|
|
180,987
|
|
|
|
42,851
|
|
|
|
59,436
|
|
|
|
36,621
|
|
|
|
771,069
|
|
2006
|
|
|
149,593
|
|
|
|
258,224
|
|
|
|
11,452
|
|
|
|
157,677
|
|
|
|
31,477
|
|
|
|
65,860
|
|
|
|
41,807
|
|
|
|
716,090
|
|
2005
|
|
|
148,408
|
|
|
|
222,270
|
|
|
|
11,128
|
|
|
|
150,687
|
|
|
|
29,924
|
|
|
|
58,173
|
|
|
|
44,865
|
|
|
|
665,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
3,557
|
|
|
|
5,811
|
|
|
|
170
|
|
|
|
3,850
|
|
|
|
545
|
|
|
|
6,426
|
|
|
|
290
|
|
|
|
20,649
|
|
2006
|
|
|
2,101
|
|
|
|
7,217
|
|
|
|
38
|
|
|
|
3,730
|
|
|
|
592
|
|
|
|
5,391
|
|
|
|
328
|
|
|
|
19,397
|
|
2005
|
|
|
2,129
|
|
|
|
7,730
|
|
|
|
29
|
|
|
|
8,119
|
|
|
|
638
|
|
|
|
2,207
|
|
|
|
7,214
|
|
|
|
28,066
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
15.
|
SEGMENT
INFORMATION, continued:
|
Information
about the Company's operations by geographic area follows:
|
|
United
States
|
|
|
Mexico
|
|
|
Canada
|
|
|
Europe
|
|
|
Australia
|
|
|
China
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
563,594
|
|
|
$ |
-
|
|
|
$ |
14,475
|
|
|
$ |
158,651
|
|
|
$ |
9,969
|
|
|
$ |
2,663
|
|
|
$ |
749,352
|
|
2006
|
|
|
550,254
|
|
|
|
-
|
|
|
|
13,520
|
|
|
|
143,706
|
|
|
|
8,411
|
|
|
|
-
|
|
|
|
715,891
|
|
2005
|
|
|
474,466
|
|
|
|
-
|
|
|
|
11,319
|
|
|
|
145,931
|
|
|
|
8,106
|
|
|
|
-
|
|
|
|
639,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
312,694
|
|
|
|
6,377
|
|
|
|
504
|
|
|
|
131,786
|
|
|
|
3,066
|
|
|
|
4,103
|
|
|
|
458,530
|
|
2006
|
|
|
300,502
|
|
|
|
6,785
|
|
|
|
2,544
|
|
|
|
118,797
|
|
|
|
2,561
|
|
|
|
-
|
|
|
|
431,189
|
|
2005
|
|
|
270,540
|
|
|
|
6,759
|
|
|
|
2,482
|
|
|
|
113,521
|
|
|
|
2,634
|
|
|
|
-
|
|
|
|
395,936
|
|
Fiscal
2007:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2007 totaled
$23,784, and primarily included the following:
In
July
2007, York reached a settlement agreement with Yorktowne Caskets, Inc. and
its
shareholders (collectively “Yorktowne”) with respect to all outstanding
litigation between the parties. In exchange for the mutual release,
the principal terms of the settlement included the assignment by Yorktowne
of
certain customer and employment-related contracts to York and the purchase
by
York of certain assets, including York-product inventory, of
Yorktowne.
In
June
2007, the Company acquired a 60% interest in Beijing Kenuohua Electronic
Technology Co., Ltd., (“Kenuohua”), an ink-jet equipment manufacturer,
headquartered in Beijing, China. The acquisition was structured as a
stock purchase. The acquisition was intended to expand Matthews’
marking products manufacturing and distribution capabilities in
Asia.
In
December 2006, the Company paid additional purchase consideration of $7,000
under the terms of the Milso Industries (“Milso”) acquisition
agreement.
Fiscal
2006:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2006 totaled
$32,278, and primarily included the following:
In
March
2006, the Company acquired Royal Casket Company (“Royal”), a distributor of
primarily York brand caskets in the Southwest region of the United States.
The
transaction was structured as an asset purchase with potential additional
consideration payable contingent upon the operating performance of the acquired
operations during the next five years. The Company expects to account for this
consideration as additional purchase price. The acquisition was
intended to expand Matthews’ casket distribution capabilities in the
Southwestern United States.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
16.
|
ACQUISITIONS,
continued:
|
In
February 2006, the Company acquired The Doyle Group (“Doyle”), a provider of
reprographic services to the packaging industry, located in Oakland,
California. The transaction was structured as an asset purchase, with
potential additional consideration payable contingent upon the operating
performance of the acquired operations during the next three
years. The Company expects to account for this consideration as
additional purchase price. The acquisition was intended to expand the
Company’s graphics business in the Western United States.
In
September 2005, the Company acquired an additional 30% interest in S+T which
was
paid in October 2005. The Company had acquired a 50% interest in S+T
in 1998.
Fiscal
2005:
Acquisition
spending, net of cash acquired, during the year ended September 30, 2005 totaled
$109,352, and primarily included the following:
In
July
2005, the Company acquired Milso, a leading manufacturer and marketer of caskets
in the United States. Milso, headquartered in Brooklyn, New York, has
manufacturing operations in Richmond, Indiana and maintains distribution centers
throughout the Northeast, Mid-Atlantic, Midwest and Southwest regions of the
United States. The transaction was structured as an asset purchase,
at an initial purchase price of approximately $95,000. In connection
with the contingent consideration provisions of the acquisition agreement,
the
Company paid additional purchase consideration in December 2006. The
additional consideration was recorded as additional purchase price as of
September 30, 2006. The acquisition was intended to expand Matthews’
products and services in the United States casket market.
Acquired
intangible assets of Milso include trade names with an assigned value of $5,800,
which are not subject to amortization. Intangible assets also include
customer relationships with an assigned value of $10,400 to be amortized over
their useful lives of 20 years.
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed of Milso at the date of acquisition.
|
|
|
|
Cash
|
|
$ |
197
|
|
Trade
receivables
|
|
|
13,143
|
|
Inventories
|
|
|
17,975
|
|
Property,
plant and equipment
|
|
|
5,434
|
|
Intangible
assets
|
|
|
16,200
|
|
Goodwill
and other assets
|
|
|
63,152
|
|
Total
assets acquired
|
|
|
116,101
|
|
Trade
accounts payable
|
|
|
9,467
|
|
Debt
|
|
|
1,207
|
|
Other
liabilities
|
|
|
3,022
|
|
Total
liabilities assumed
|
|
|
13,696
|
|
Net
assets acquired
|
|
$ |
102,405
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
16.
|
ACQUISITIONS,
continued:
|
The
following unaudited pro forma information for the year ended September 30,
2005
presents a summary of the consolidated results of Matthews combined with Milso
as if the acquisition had occurred on October 1, 2004:
|
|
|
2005
|
|
|
Sales
|
|
$ |
707,222
|
|
|
Income
before taxes
|
|
|
98,734
|
|
|
Net
income
|
|
|
61,614
|
|
|
Earnings
per share
|
|
|
$1.90
|
|
|
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.
In
June
2005, the Company paid additional consideration to the minority owner of Rudolf
Reproflex GmbH (“Rudolf”) under the terms of the original acquisition
agreement. The Company had acquired a 75% interest in Rudolf in
2001.
Matthews
has accounted for these acquisitions using the purchase method and, accordingly,
recorded the acquired assets and liabilities at their estimated fair values
at
the acquisition dates. The excess of the purchase price over the
estimated fair value of the net assets acquired was recorded as
goodwill.
17. DISPOSITION:
In
August
2007, the Company sold the consulting services portion of its Merchandising
Solutions segment. The transaction resulted in a pre-tax gain of $1,322, which
was recorded as a reduction in administrative expenses in the Consolidated
Statement of Income.
18.
|
GOODWILL
AND OTHER INTANGIBLE
ASSETS:
|
Goodwill
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. Intangible assets are amortized over their estimated useful lives unless
such lives are considered to be indefinite. A significant decline in cash flows
generated from these assets may result in a write-down of the carrying values
of
the related assets.
The
Company performed its annual impairment reviews in the second quarters of fiscal
2007 and fiscal 2006 and determined that no adjustments to the carrying values
of goodwill or other indefinite lived intangibles were
necessary.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
18. GOODWILL
AND OTHER INTANGIBLE ASSETS, continued:
Changes
to goodwill, net of accumulated amortization, during the years ended September
30, 2007 and 2006, follow.
|
|
|
|
|
|
|
|
|
|
|
Graphics
|
|
|
Marking
|
|
|
Merchandising
|
|
|
|
|
|
|
Bronze
|
|
|
Casket
|
|
|
Cremation
|
|
|
Imaging
|
|
|
Products
|
|
|
Solutions
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2005
|
|
$ |
73,029
|
|
|
$ |
91,977
|
|
|
$ |
6,536
|
|
|
$ |
73,970
|
|
|
$ |
5,213
|
|
|
$ |
9,947
|
|
|
$ |
260,672
|
|
Additions
during period
|
|
|
-
|
|
|
|
24,005
|
|
|
|
-
|
|
|
|
8,502
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,507
|
|
Translation
and adjustments
|
|
|
1,149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,797
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,946
|
|
Balance
at September 30, 2006
|
|
|
74,178
|
|
|
|
115,982
|
|
|
|
6,536
|
|
|
|
86,269
|
|
|
|
5,213
|
|
|
|
9,947
|
|
|
|
298,125
|
|
Additions
|
|
|
-
|
|
|
|
4,573
|
|
|
|
-
|
|
|
|
885
|
|
|
|
3,550
|
|
|
|
-
|
|
|
|
9,008
|
|
Dispositions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(809 |
) |
|
|
(809 |
) |
Translation
and adjustments
|
|
|
3,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,478
|
|
|
|
299
|
|
|
|
-
|
|
|
|
11,974
|
|
Balance
at September 30, 2007
|
|
$ |
77,375
|
|
|
$ |
120,555
|
|
|
$ |
6,536
|
|
|
$ |
95,632
|
|
|
$ |
9,062
|
|
|
$ |
9,138
|
|
|
$ |
318,298
|
|
The
additions to Casket goodwill during fiscal 2006 related primarily to the
acquisitions of Royal and additional consideration recorded in accordance with
the purchase agreement with Milso. The additions to Graphics
Imaging goodwill relate to the acquisition of Doyle and additional consideration
paid in accordance with the purchase agreement related to a European Graphics
business.
In
fiscal
2007, the additions to Casket relate primarily to additional consideration
paid
in accordance with the acquisition of Royal and the purchase of certain
Yorktowne assets. The additions to Graphics Imaging goodwill relate to the
additional consideration paid in accordance with the purchase agreement related
to a European Graphics business. The addition to Marking Products goodwill
related to the purchase of a 60% interest in Kenuohua. The reduction
in goodwill in Merchandising Solutions relates to the disposition of its
consulting services business during the year.
The
following tables summarize the carrying amounts and related accumulated
amortization for intangible assets as of September 30, 2007 and 2006,
respectively.
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
September
30, 2007:
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
$ |
26,140
|
|
|
$ |
- |
* |
|
$ |
26,140
|
|
Customer
relationships
|
|
|
25,215
|
|
|
|
(3,977 |
) |
|
|
21,238
|
|
Copyrights/patents/other
|
|
|
7,382
|
|
|
|
(3,454 |
) |
|
|
3,928
|
|
|
|
$ |
58,737
|
|
|
$ |
(7,431 |
) |
|
$ |
51,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
$ |
24,003
|
|
|
$ |
- |
* |
|
$ |
24,003
|
|
Customer
relationships
|
|
|
20,900
|
|
|
|
(2,714 |
) |
|
|
18,186
|
|
Copyrights/patents/other
|
|
|
5,322
|
|
|
|
(2,546 |
) |
|
|
2,776
|
|
|
|
$ |
50,225
|
|
|
$ |
(5,260 |
) |
|
$ |
44,965
|
|
*
Not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollar
amounts in thousands, except per share data)
__________
18. GOODWILL
AND OTHER INTANGIBLE ASSETS, continued:
The
increase in intangible assets during fiscal 2007 was due to the addition of
intellectual property in the Bronze and Marking Products segments, the purchase
of certain assets by the Casket segment and the impact of fluctuations in
foreign currency exchange rates on intangible assets denominated in foreign
currencies, offset by additional amortization.
Amortization
expense on intangible assets was $2,129, $2,216, and $1,826 in 2007, 2006 and
2005, respectively. Amortization expense is estimated to be
$2,756 in 2008, $2,614 in 2009, $1,757 in 2010, $1,725 in 2011 and $1,662 in
2012.
19.
|
ACCOUNTING
PRONOUNCEMENTS:
|
Effective
September 30, 2007, the Company adopted the recognition and related disclosure
provisions of SFAS No. 158 which amends SFAS No. 87, No. 88, No. 106 and No.
132(R). The provisions of the Statement are to be applied prospectively;
therefore, prior periods presented have not been
restated. Accordingly, the over-funded or under-funded status of
defined benefit postretirement plans has been recognized on the balance sheet
with a corresponding adjustment in other comprehensive income. In addition,
gains or loss and prior service costs or credits that were not included as
components of periodic benefit expense are recognized in other comprehensive
income. As a result of the adoption of SFAS No. 158, the liability
for pension and postretirement benefits increased approximately $14,742,
deferred tax assets increased approximately $5,749 and equity (accumulated
other
comprehensive income) decreased by approximately $8,993.
Further,
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. The
Company currently measures plan assets and benefit obligations as of July 31
of
each year. The Company is considering the implications of this provision and
the
feasibility of earlier adoption of this portion of the statement. Upon
adoption, this provision is not expected to have a material effect on the
financial statements.
In
June
2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS No.
109, “Accounting for Income Taxes.” This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. Any resulting cumulative effect of applying the provisions of FIN
48
upon adoption will be reported as an adjustment to beginning retained earnings
in the period of adoption. The Interpretation is effective for fiscal years
beginning after December 15, 2006. The Company will adopt
the
provisions of FIN 48 in the first quarter of fiscal 2008. The Company
is currently evaluating the impact of the adoption of FIN 48, and does not
expect such adoption to have a material impact on the Company’s consolidated
financial position or results of operations.
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 is effective for fiscal years beginning
after November 15, 2007, however, 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 SFAS No. 157.
SUPPLEMENTARY
FINANCIAL INFORMATION
Selected
Quarterly Financial Data (Unaudited):
The
following table sets forth certain items included in the Company's unaudited
consolidated financial statements for each quarter of fiscal 2007 and fiscal
2006.
|
|
|
|
|
|
|
|
|
Quarter
Ended
|
|
|
|
|
|
|
December
31
|
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
Year
Ended
September
30
|
|
|
|
(Dollar
amounts in thousands, except per share data)
|
|
|
|
|
FISCAL
YEAR 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
175,424
|
|
|
$ |
202,979
|
|
|
$ |
185,477
|
|
|
$ |
185,472
|
|
|
$ |
749,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
64,934
|
|
|
|
74,207
|
|
|
|
69,418
|
|
|
|
71,898
|
|
|
|
280,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
24,184
|
|
|
|
31,645
|
|
|
|
21,129
|
|
|
|
34,866
|
|
|
|
111,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
13,971
|
|
|
|
18,501
|
|
|
|
12,029
|
|
|
|
20,225
|
|
|
|
64,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
.44
|
|
|
|
.58
|
|
|
|
.38
|
|
|
|
.64
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL
YEAR 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
170,109
|
|
|
$ |
181,068
|
|
|
$ |
181,804
|
|
|
$ |
182,910
|
|
|
$ |
715,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
61,197
|
|
|
|
66,947
|
|
|
|
70,289
|
|
|
|
73,500
|
|
|
|
271,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
22,418
|
|
|
|
29,061
|
|
|
|
30,523
|
|
|
|
31,882
|
|
|
|
113,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
12,907
|
|
|
|
16,852
|
|
|
|
17,706
|
|
|
|
18,979
|
|
|
|
66,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
.40
|
|
|
|
.52
|
|
|
|
.55
|
|
|
|
.59
|
|
|
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
STATEMENT SCHEDULE
SCHEDULE
II -- VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
|
|
|
Charged
to
|
|
|
|
|
|
|
|
|
|
beginning
of
|
|
|
Charged
to
|
|
|
other
|
|
|
|
|
|
Balance
at
|
|
Description
|
|
period
|
|
|
expense
|
|
|
accounts
|
|
|
Deductions
|
|
|
end
of period
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
Allowance
for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
$ |
10,829
|
|
|
$ |
335
|
|
|
$ |
209
|
|
|
$ |
(213 |
) |
|
$ |
11,160
|
|
September
30, 2006
|
|
|
10,547
|
|
|
|
474
|
|
|
|
890
|
|
|
|
(1,082 |
) |
|
|
10,829
|
|
September
30, 2005
|
|
|
7,717
|
|
|
|
398
|
|
|
|
3,209
|
|
|
|
(777 |
) |
|
|
10,547
|
|
(1)
|
Amount
comprised principally of acquisitions and purchase accounting adjustments
in connection with acquisitions.
|
(2)
|
Amounts
determined not to be collectible, net of
recoveries.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
There
have been no changes in accountants or disagreements on accounting or financial
disclosure between the Company and PricewaterhouseCoopers LLP, Independent
Registered Public Accounting Firm, for the fiscal years ended September 30,
2007, 2006 and 2005.
ITEM
9A. CONTROLS
AND PROCEDURES.
(a) Evaluation
of Disclosure Controls and Procedures.
Based
on
their evaluation at the end of the period covered by this Annual Report on
Form 10-K, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")) provide reasonable assurance that information required to
be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b)
Management’s Report on Internal Control over Financial Reporting.
Management’s
Report on Internal Control over Financial Reporting is included in Management’s
Report to Shareholders in Item 8 of this Annual Report on Form
10-K.
(c)
Attestation Report of the Registered Public Accounting Firm.
The
Company’s internal control over financial reporting as of September 30, 2007 has
been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included in Item 8 of this
Annual Report on Form 10-K.
(d)
Changes in Internal Control over Financial Reporting.
There
have been no changes in the Company’s internal controls over financial reporting
that occurred during the fiscal quarter ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
PART
III
ITEM
10.
|
DIRECTORS,
OFFICERS and EXECUTIVE MANAGEMENT OF THE
REGISTRANT.
|
In
addition to the information reported in Part I of this Form 10-K, under the
caption “Officers and Executive Management of the Registrant”, the information
required by this item as to the directors of the Company is hereby incorporated
by reference from the information appearing under the captions “Proposal No. 1 –
Elections of Directors”, “General Information Regarding Corporate Governance –
Audit Committee” and “Compliance with Section 16(a) of the Exchange Act” in the
Company’s definitive proxy statement, which involves the election of the
directors and is to be filed with the Securities and Exchange Commission
pursuant to the Exchange Act of 1934, as amended, within 120 days of the end
of
the Company’s fiscal year ended September 30, 2007.
The
Company’s Code of Ethics Applicable to Executive Management is set forth in
Exhibit 14.1 hereto.
ITEM
11. EXECUTIVE
COMPENSATION.
The
information required by this item as to the compensation of directors and
executive management of the Company is hereby incorporated by reference from
the
information appearing under the captions “Executive Compensation and Retirement
Benefits” and “Director Compensation” in the Company’s definitive proxy
statement which involves the election of directors and is to be filed with
the
Commission pursuant to the Exchange Act, within 120 days of the end of the
Company’s fiscal year ended September 30, 2007. The information
contained in the “Compensation Committee Report” is specifically not
incorporated herein by reference.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
|
The
information required by this item as to the ownership by management and others
of securities of the Company is hereby incorporated by reference from the
information appearing under the caption “Stock Ownership” in the Company’s
definitive proxy statement which involves the election of directors and is
to be
filed with the Commission pursuant to the Exchange Act, within 120 days of
the
end of the Company’s fiscal year ended September 30, 2007.
Equity
Compensation Plans:
The
Company has a stock incentive plan that provides for grants of incentive stock
options, non-statutory stock options and restricted share awards in an aggregate
number not to exceed 15% of the outstanding shares of the Company’s common
stock. The option price for each stock option that may be granted
under the 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
exercisable in various share amounts based on the attainment of appreciation
of
10%, 33% and 60%, respectively, in the market value of the Company’s common
stock but, in the absence of such events, options granted in fiscal 2005 and
prior are exercisable in full for a one-week period beginning five years from
the date of grant. Options granted after fiscal 2006 will not allow
for such one- week exercise period. 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 certain
market value levels described above). 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.
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 $30,000. 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. Directors may also elect to receive the common stock
equivalent of meeting fees credited to a deferred stock account. The
value of deferred shares is recorded in other liabilities. Shares
deferred under the Director Fee Plan at September 30, 2007, 2006 and
2005 were 48,697,
49,569 and 51,313, respectively. Directors who are not
also
officers of the Company each received an annual stock-based grant (non-statutory
stock options, stock appreciation rights and/or restricted shares) with a value
of $50,000 in fiscal 2007 and $40,000 in fiscal 2006 and 2005. A
total of 22,300 stock options have been granted under the plan. At September
30,
2007, 21,300 options were outstanding, of which 16,500 are vested. Additionally,
13,200 shares of restricted stock have been granted under the plan, all of
which
are unvested at September 30, 2007. The restricted shares generally vest two
years after the date of issuance. As of November 13, 2007, a
total of 300,000 shares have been authorized to be issued under the Director
Fee
Plan.
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued
The
following table provides information about grants under the Company's equity
compensation plans as of September 30, 2007:
|
Equity
Compensation Plan Information
|
|
|
|
|
Number
of securities
|
|
|
|
remaining
available
|
|
|
|
for
future issuance
|
|
Number
of securities
|
Weighted-average
|
under
equity
|
|
to
be issued upon
|
exercise
price
|
compensation
plans
|
|
exercise
of
|
of
outstanding
|
(excluding
|
|
outstanding
options,
|
options,
warrants
|
securities
reflected
|
Plan
category
|
warrants
and rights
|
and
rights
|
in
column (a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans
|
|
|
|
Approved
by security holders:
|
|
|
|
Stock
Incentive Plan
|
2,100,577
|
$33.60
|
2,557,997(1)
|
Employee
Stock Purchase Plan
|
-
|
-
|
1,732,435(2)
|
Director
Fee Plan
|
69,997
|
35.05
|
385,518(3)
|
Equity
compensation plans not approved by security holders
|
None
|
None
|
None
|
Total
|
2,170,574
|
$33.61
|
4,675,950
|
|
(1)
|
The
aggregate number of shares available for grant under such plan cannot
exceed 15% of the outstanding shares of the Company’s common stock
(4,658,574 shares at September 30, 2007) and includes up to 1,000,000
shares that can be issued as restricted stock under the Company’s 1992
Stock Incentive Plan.
|
|
(2)
|
Shares
under the Employee Stock Purchase Plan (the “Plan”) are purchased in the
open market by employees at the fair market value of the Company’s
stock. The Company provides a matching contribution of 10% of
such purchases subject to certain limitations under the
Plan. As the Plan is an open market purchase plan, it does not
have a dilutive effect.
|
|
(3)
|
Shares
of restricted stock may be issued under the Director Fee
Plan. On November 13, 2007, the maximum number of shares
authorized to be issued under the Director Fee Plan was reduced from
500,000 shares to 300,000 shares. As such, the number of
securities remaining available for future issuance under the Director
Fee
Plan was 185,518 at November 13,
2007.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS.
|
The
information required by this item as to certain relationships and transactions
with management and other related parties of the Company is hereby incorporated
by reference from the information appearing under the captions “Proposal No. 1 –
Election of Directors” and “Certain Transactions” in the Company’s definitive
proxy statement, which involves the election of directors and is to be filed
with the Commission pursuant to the Exchange Act, within 120 days of the end
of
the Company’s fiscal year ended September 30, 2007.
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES.
|
The
information required by this item as to the fees billed and the services
provided by the principal accounting firm of the Company is hereby incorporated
by reference from the information appearing under the caption “Relationship with
Independent Registered Public Accounting Firm” in the Company’s definitive proxy
statement, which involves the election of directors and is to be filed with
the
Commission pursuant to the Exchange Act within 120 days of the end of
the Company’s fiscal year ended September 30, 2007.
PART
IV
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
|
(a)
1. Financial Statements:
The
following items are included in Part II, Item 8:
|
Pages
|
Management’s
Report to Shareholders
|
34
|
|
|
Report
of Independent Registered Public Accounting Firm
|
35
|
|
|
Consolidated
Balance Sheets as of September 30, 2007 and 2006
|
36-37
|
|
|
Consolidated
Statements of Income for the years ended September 30, 2007, 2006
and
2005
|
38
|
|
|
Consolidated
Statements of Shareholders' Equity for the years ended September
30, 2007,
2006 and 2005
|
39
|
|
|
Consolidated
Statements of Cash Flows for the years ended September 30, 2007,
2006 and
2005
|
40
|
|
|
Notes
to Consolidated Financial Statements
|
41-62
|
|
|
Supplementary
Financial Information
|
63
|
2.
|
Financial
Statement Schedules:
|
Schedule
II - Valuation and Qualifying Accounts is included on page 64 in Part II, Item
8
of this Annual Report on Form 10-K.
The
index
to exhibits is on pages 70-72.
On
July
20, 2007 Matthews filed a Current Report on Form 8-K under Item 2 in connection
with a press release announcing its earnings for the third fiscal quarter of
2007.
On
July
24, 2007 Matthews filed a Current Report on Form 8-K under Item 7 in connection
with the settlement agreement with Yorktowne Caskets, Inc.
On
July
27, 2007 Matthews filed a Current Report on Form 8-K under Item 1 in connection
with the termination of the employment agreement with Martin J. Beck, President,
Brand Solutions.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, on November 27, 2007.
|
|
MATTHEWS
INTERNATIONAL CORPORATION
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
By
|
/s/Joseph
C. Bartolacci
|
|
|
Joseph
C. Bartolacci
|
|
|
President
and Chief Executive Officer
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on November 27,
2007:
/s/Joseph
C. Bartolacci
|
|
/s/Steven
F. Nicola
|
Joseph
C. Bartolacci
|
|
Steven
F. Nicola
|
President
and Chief Executive Officer
|
|
Chief
Financial Officer, Secretary
|
(Principal
Executive Officer)
|
|
and
Treasurer (Principal Financial
|
|
|
and
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/David
M. Kelly
|
|
/s/John
P. O'Leary, Jr.
|
David
M. Kelly, Chairman of the Board
|
|
John
P. O'Leary, Jr., Director
|
|
|
|
|
|
|
|
|
|
/s/David
J. DeCarlo
|
|
/s/Martin
Schlatter.
|
David
J. DeCarlo, Director
|
|
Martin
Schlatter, Director
|
|
|
|
|
|
|
|
|
|
/s/Glenn
R. Mahone
|
|
/s/William
J. Stallkamp
|
Glenn
R. Mahone, Director
|
|
William
J. Stallkamp, Director
|
|
|
|
|
|
|
|
|
|
/s/Robert
G. Neubert
|
|
/s/John
D. Turner
|
Robert
G. Neubert, Director
|
|
John
D. Turner, Director
|
MATTHEWS
INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS
INDEX
__________
The
following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated by reference. Exhibits marked with an
"a" represent a management contract or compensatory plan, contract or
arrangement required to be filed by Item 601(b)(10)(iii) of Regulation
S-K.
Exhibit
No.
|
|
Description
|
|
Prior
Filing or Sequential Page Numbers Herein
|
|
|
|
|
|
3.1
|
|
Restated
Articles of Incorporation *
|
|
Exhibit
Number 3.1 to Form 10-K
for
the year ended September 30, 1994
|
|
|
|
|
|
3.2
|
|
Restated
By-laws *
|
|
Exhibit
Number 99.1 to Form 8-K
dated
October 18, 2007
|
|
|
|
|
|
4.1
a
|
|
Form
of Revised Option Agreement of Repurchase
(effective
October 1, 1993) *
|
|
Exhibit
Number 4.5 to Form 10-K
for
the year ended September 30, 1993
|
|
|
|
|
|
4.2
|
|
Form
of Share Certificate for Class A Common Stock *
|
|
Exhibit
Number 4.9 to Form 10-K
for
the year ended September 30, 1994
|
|
|
|
|
|
10.1
|
|
Revolving
Credit Facility *
|
|
Exhibit
Number 10.1 to Form 10-K
for
the year ended September 30, 2001
|
|
|
|
|
|
10.2
|
|
First
Amendment to Revolving Credit Facility*
|
|
Exhibit
Number 10.1 to Form 10-Q
for
the quarter ended March 31, 2004
|
|
|
|
|
|
10.3
|
|
Second
Amendment to Revolving Credit Facility *
|
|
Exhibit
Number 10.1 to Form 10-Q
for
the quarter ended December 31, 2004
|
|
|
|
|
|
10.4
|
|
Third
Amendment to Revolving Credit Facility
|
|
Filed
Herewith
|
|
|
|
|
|
10.5
a
|
|
Supplemental
Retirement Plan*
|
|
Exhibit
Number 10.4 to Form 10-K
for
the year ended September 30, 2006
|
|
|
|
|
|
10.6
a
|
|
1992
Stock Incentive Plan (as amended through
April
25, 2006) *
|
|
Exhibit
Number 10.1 to Form 10-Q
for
the quarter ended March 31, 2006
|
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
Prior
Filing or Sequential Page Numbers Herein
|
|
|
|
|
|
10.7
a
|
|
Form
of Stock Option Agreement *
|
|
Exhibit
Number 10.1 to Form 10-Q
for
the quarter ended December 31, 1994
|
|
|
|
|
|
10.8
a
|
|
Form
of Restricted Stock Agreement
|
|
Filed
Herewith
|
|
|
|
|
|
10.9
a
|
|
1994
Director Fee Plan (as amended through
November
13, 2007)
|
|
Filed
Herewith
|
|
|
|
|
|
10.10
a
|
|
1994
Employee Stock Purchase Plan *
|
|
Exhibit
Number 10.2 to Form 10-Q
for
the quarter ended March 31, 1995
|
|
|
|
|
|
10.11
a
|
|
Key
Employee Employment Agreement by and between The York Group, Inc.
and
Harry Pontone dated May 28, 2005 and effective July 11,
2005*
|
|
Exhibit
Number 10.2 to Form 8-K
dated
July 14, 2005
|
|
|
|
|
|
10.12
|
|
Agreement
and Plan of Merger By and Among Matthews International Corporation,
Empire
Merger Corp., and The York Group, Inc., dated as of May 24, 2001
*
|
|
Exhibit
Number 10.3 to Form 8-K
dated
May 24, 2001
|
|
|
|
|
|
10.13
|
|
Asset
Purchase Agreement between I.D.L. Incorporated and Hugh Andrew, L.P.
and
Big Red Rooster, Inc. and The Cloverleaf Group, L.P. and iDL shareholders
and the BRR shareholders and The Cloverleaf Group, Inc. and Matthews
International Corporation dated as of July 19, 2004*
|
|
Exhibit
Number 10.1 to Form 10-Q
for
the quarter ended June 30, 2004
|
|
|
|
|
|
10.14
|
|
Share
Sale and Purchase Agreement between Graeme Phillip King and Brian
Ernest
Tottman and Robert Greig Watkins and Geoffrey William Roberts and
Helen M.
King and Josephine Tottman and Sally R. Watkins and Jennifer R. Roberts
and Matthews Holding Company (U.K.) Limited.*
|
|
Exhibit
Number 10.11 to Form 10-K
for
the year ended September 30, 2004
|
|
|
|
|
|
10.15
|
|
Asset
Purchase Agreement by and among The York Group, Inc., Midnight Acquisition
Corporation, Milso Industries, Inc., Milso Industries, LLC, SBC Holding
Corporation, the Shareholders identified therein and Matthews
International Corporation*
|
|
Exhibit
Number 10.1 to Form 8-K
dated
on July 14, 2005
|
|
|
|
|
|
14.1
|
|
Form
of Code of Ethics Applicable to Executive Management *
|
|
Exhibit
Number 14.1 to Form 10-K
for
the year ended September 30, 2004
|
|
|
|
|
|
INDEX,
Continued
|
_______
|
Exhibit
No.
|
|
Description
|
|
Prior
Filing or Sequential Page Numbers
Herein
|
21
|
|
Subsidiaries
of the Registrant
|
|
Filed
Herewith
|
|
|
|
|
|
23
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
Filed
Herewith
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer for Joseph C. Bartolacci
|
|
Filed
Herewith
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer for Steven F. Nicola
|
|
Filed
Herewith
|
|
|
|
|
|
32.1
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, of Joseph C. Bartolacci
|
|
Filed
Herewith
|
|
|
|
|
|
32.2
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, of Steven F. Nicola
|
|
Filed
Herewith
|
Copies
of
any Exhibits will be furnished to shareholders upon written
request. Requests should be directed to Mr. Steven F. Nicola, Chief
Financial Officer, Secretary and Treasurer of the Registrant.