Attached files

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EX-32.1 - EXHIBIT 32.1 TO 2ND QTR 10Q 2010 SARBANES OXLEY CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit32-1jb2010q2.htm
EX-31.2 - EXHIBIT 31.2 TO 2ND QTR 10Q 2010 PRINCIPAL FINANCIAL OFFICER CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit31-2sn2010q2.htm
EX-31.1 - EXHIBIT 31.1 TO 2ND QTR 10Q 2010 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit31-1jb2010q2.htm
EX-32.2 - EXHIBIT 32.2 TO 2ND QTR 10Q 2010 SARBANES OXLEY CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit32-2sn2010q2.htm
EX-10.3 - EXHIBIT 10.3 TO 2ND QTR 10Q REVOLVING CREDIT FACILITY FORM OF GUARANTY AND SURETYSHIP AGREEMENT - MATTHEWS INTERNATIONAL CORPexhibit10-3gsa2010q2.htm
EX-10.1 - EXHIBIT 10.1 TO 2ND QTR 10Q 2010 REVOLVING CREDIT FACILITY FORM OF REVOLVING CREDIT NOTE - MATTHEWS INTERNATIONAL CORPexhibit10-1rcn2010q2.htm
EX-10.2 - EXHIBIT 10.2 TO 2ND QTR 10Q 2010 REVOLVING CREDIT FACILITY SWING LINE NOTE - MATTHEWS INTERNATIONAL CORPexhibit10-2sln2010q2.htm
EX-10.4 - EXHIBIT 10.4 TO 2ND QTR 10Q REVOLVING CREDIT FACILITY FORM OF ASSIGNMENT AGREEMENT - MATTHEWS INTERNATIONAL CORPexhibit10-4exhdaa2010q2.htm
EX-10.5 - EXHIBIT 10.5 TO 2ND QTR 10Q REVOLVING CREDIT FACILITY FORM OF COMPLIANCE CERTIFICATE - MATTHEWS INTERNATIONAL CORPexhibit10-5exhccc2010q2.htm
EX-10.6 - EXHIBIT 10.6 TO 2ND QTR 10Q FIRST AMENDMENT TO REVOLVING CREDIT FACILITY FORM OF TERM LOAN - MATTHEWS INTERNATIONAL CORPexhibit10-6exhbtn2010q2.htm
EX-10.7 - EXHIBIT 10.7 TO 2ND QTR 10Q FIRST AMENDMENT TO REVOLVING CREDIT FACILITY FORM OF COMPLIANCE CERTIFICATE - MATTHEWS INTERNATIONAL CORPexhibit10-7exhccc2010q2.htm




UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form 10-Q

x
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Quarterly Period Ended March 31, 2010

Commission File No. 0-9115

MATTHEWS INTERNATIONAL CORPORATION
(Exact Name of registrant as specified in its charter)


PENNSYLVANIA
 
25-0644320
(State or other jurisdiction of
 
(I.R.S. Employer
Incorporation or organization)
 
Identification No.)


TWO NORTHSHORE CENTER, PITTSBURGH, PA
 
15212-5851
(Address of principal executive offices)
 
(Zip Code)
     
     
Registrant's telephone number, including area code
 
(412) 442-8200

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
Yes x
No o
 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit an post such files.

 
Yes o
No o
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

 
Yes o
No x
 

As of April 30, 2010, shares of common stock outstanding were:

Class A Common Stock 30,209,257 shares

 
 

 

PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)

   
March 31, 2010
   
September 30, 2009
 
   
(unaudited)
       
ASSETS
                       
Current assets:
                       
Cash and cash equivalents
        $ 60,934           $ 57,732  
Short-term investments
          1,392             62  
Accounts receivable, net
          129,520             138,927  
Inventories
          95,339             94,455  
Deferred income taxes
          1,797             1,816  
Other current assets
          15,112             12,430  
                             
Total current assets
          304,094             305,422  
                             
Investments
          13,619             13,389  
Property, plant and equipment: Cost
    302,671               305,098          
Less accumulated depreciation
    (171,016 )             (167,038 )        
              131,655               138,060  
Deferred income taxes
            33,240               32,563  
Other assets
            24,588               19,999  
Goodwill
            385,550               385,219  
Other intangible assets, net
            53,749               55,001  
                                 
Total assets
          $ 946,495             $ 949,653  
                                 
LIABILITIES
                               
Current liabilities:
                               
Long-term debt, current maturities
          $ 13,921             $ 14,188  
Accounts payable
            32,826               28,604  
Accrued compensation
            34,055               35,592  
Accrued income taxes
            13,383               8,120  
Other current liabilities
            43,285               45,836  
                                 
Total current liabilities
            137,470               132,340  
                                 
Long-term debt
            218,981               237,530  
Accrued pension
            55,826               53,734  
Postretirement benefits
            25,090               24,599  
Deferred income taxes
            12,429               13,464  
Environmental reserve
            6,186               6,482  
Other liabilities and deferred revenue
            18,708               15,489  
Total liabilities
            474,690               483,638  
                                 
Arrangement with noncontrolling interest
            25,036               27,121  
                                 
SHAREHOLDERS’ EQUITY
                               
Shareholders' equity-Matthews:
                               
Common stock
    36,334               36,334          
Additional paid in capital
    44,886               47,436          
Retained earnings
    584,469               559,786          
Accumulated other comprehensive loss
    (42,292 )             (29,884 )        
Treasury stock, at cost
    (182,207 )             (179,454 )        
Total shareholders’ equity-Matthews
            441,190               434,218  
Noncontrolling interests
            5,579               4,676  
Total shareholders’ equity
            446,769               438,894  
                                 
Total liabilities and shareholders' equity
          $ 946,495             $ 949,653  



The accompanying notes are an integral part of these consolidated financial statements.


 
2

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)


   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
                         
                         
Sales
  $ 200,866     $ 197,362     $ 393,839     $ 388,648  
Cost of sales
    (123,085 )     (124,245 )     (242,668 )     (247,679 )
                                 
Gross profit
    77,781       73,117       151,171       140,969  
                                 
Selling and administrative expenses
    (50,663 )     (49,678 )     (101,877 )     (97,451 )
                                 
Operating profit
    27,118       23,439       49,294       43,518  
                                 
Investment income (loss)
    809       (307 )     2,004       (695 )
Interest expense
    (1,812 )     (3,030 )     (3,751 )     (6,294 )
Other income (deductions), net
    (633 )     114       (731 )     3  
                                 
Income before income taxes
    25,482       20,216       46,816       36,532  
                                 
Income taxes
    (9,187 )     (7,388 )     (16,865 )     (12,424 )
                                 
Net income
    16,295       12,828       29,951       24,108  
Less: net income attributable to  noncontrolling interests
    (364 )     (86 )     (1,024     (77 )
                                 
Net income attributable to Matthews’ shareholders
  $ 15,931     $ 12,742     $ 28,927     $ 24,031  
                                 
Earnings per share attributable to Matthews' shareholders:
                               
Basic
    $.53       $.42       $0.97       $0.79  
                                 
Diluted
    $.53       $.42       $0.96       $0.79  




The accompanying notes are an integral part of these consolidated financial statements.






 
3

 
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 2010 and 2009
(Dollar amounts in thousands, except per share data)
__________

   
Shareholders’ Equity – Matthews
             
                     
Accumulated
                   
                     
Other
                   
         
Additional
         
Comprehensive
         
Non-
       
   
Common
   
Paid-in
   
Retained
   
Income (Loss)
   
Treasury
   
controlling
       
   
Stock
   
Capital
   
Earnings
   
(net of tax)
   
Stock
   
interests
   
Total
 
Balance,
   September 30, 2009
  $ 36,334     $ 47,436     $ 559,786     $ (29,884   $ (179,454   $ 4,676     $ 438,894  
Net income
    -       -       28,927       -       -       1,024       29,951  
Minimum pension liability
    -       -       -       1,578       -       -       1,578  
Translation adjustment
    -       -       -       (14,410     -       113       (14,297
Fair value of derivatives
    -       -       -       424       -       -       424  
Total comprehensive income
                                                    17,656  
Stock-based compensation
    -       3,293       -       -       -       -       3,293  
Treasury stock transactions:
                                                       
Purchase of 272,125 shares
    -       -       -       -       (9,386     -       (9,386
Issuance of  30,790 shares under stock plans
    -       (5,843     -       -       6,633       -       790  
Dividends, $.14 per share
    -       -       (4,244     -       -       -       (4,244
Distributions to
   noncontrolling interests
                                            (234 )     (234 )
Balance,
   March 31, 2010
  $ 36,334     $ 44,886     $ 584,469     $ (42,292   $ (182,207   $ 5,579     $ 446,769  

 
   
Shareholders’ Equity - Matthews
             
                     
Accumulated
                   
                     
Other
                   
         
Additional
         
Comprehensive
         
Non-
       
   
Common
   
Paid-in
   
Retained
   
Income (Loss)
   
Treasury
   
controlling
       
   
Stock
   
Capital
   
Earnings
   
(net of tax)
   
Stock
   
interests
   
Total
 
Balance,
  September 30, 2008
  $ 36,334     $ 47,250     $ 511,130     $ (2,979   $ (157,780   $ 4,963     $ 438,918  
Net income
    -       -       24,031       -       -       77       24,108  
Minimum pension liability
    -                       259       -       -       259  
Translation adjustment
    -                       (18,881     -       (265 )     (19,146
Fair value of derivatives
    -                       (3,605     -       -       (3,605
Total comprehensive income
                                                    1,616  
Stock-based compensation
    -       2,858       -       -       -       -       2,858  
Pension liability adjustment
    -       -       (702 )     -       -       -       (702
Arrangement with noncontrolling interest
    -       -       (174 )     -       -       -       (174
Treasury stock transactions:
                                                       
 Purchase of 615,266 shares
    -       -       -       -       (23,133     -       (23,133
 Issuance of  59,611 shares  under stock plans
    -       (5,621 )     -       -       6,997       -       1,376  
Dividends, $.13 per share
    -       -       (4,109 )     -       -       -       (4,109
Distributions to
   noncontrolling interests
                                            (2,291 )     (2,291 )
Balance,
   March 31, 2009
  $ 36,334     $ 44,487     $ 530,176     $ (25,206 )     $ (173,916   $ 2,484     $ 414,359  

The accompanying notes are an integral part of these consolidated financial statements.
 
4

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands, except per share data)


   
Six Months Ended
 
   
March 31,
 
   
2010
   
2009
 
             
             
Cash flows from operating activities:
           
Net income
  $ 29,951     $ 24,108  
Adjustments to reconcile net income to net cash
provided by operating activities:
               
Depreciation and amortization
    12,543       15,854  
(Gain) loss on investments
    (601 )     1,375  
Loss on sale of assets
    68       21  
Stock-based compensation expense
    3,293       2,858  
Change in deferred taxes
    (2,372 )     (1,293 )
Changes in working capital items
    10,966       1,220  
Increase in other assets
    (3,513 )     (513 )
Increase (decrease) in other liabilities
    175       (1,265 ) 
Increase in pension and postretirement benefits
    5,170       2,353  
                 
Net cash provided by operating activities
    55,680       44,718  
                 
Cash flows from investing activities:
               
Capital expenditures
    (8,410 )     (6,605 )
Proceeds from sale of assets
    100       160  
Acquisitions, net of cash acquired
    (14,606 )     (865 )
Proceeds from sale of investments
    638       -  
Purchases of investments
    (1,612 )     (2,611 )
                 
Net cash used in investing activities
    (23,890 )     (9,921 )
                 
Cash flows from financing activities:
               
Proceeds from long-term debt
    25,484       35,336  
Payments on long-term debt
    (38,812 )     (35,926 )
Proceeds from the sale of treasury stock
    726       1,143  
Purchases of treasury stock
    (9,386 )     (23,133 )
Tax benefit of exercised stock options
    64       98  
Dividends
    (4,244 )     (4,109 )
Distributions to minority interests
    (234 )     (2,291 )
                 
Net cash used in financing activities
    (26,402 )     (28,882 )
                 
Effect of exchange rate changes on cash
    (2,186 )     (7,002 ) 
                 
Net increase (decrease) in cash and cash equivalents
  $ 3,202     $ (1,087 ) 
                 
Non-cash investing and financing activities:
               
Acquisition of equipment under capital lease
  $ -     $ 2,068  


The accompanying notes are an integral part of these consolidated financial statements.

 
5

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Dollar amounts in thousands, except per share data)


Note 1.   Nature of Operations

Matthews International Corporation ("Matthews" or the “Company”), founded in 1850 and incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer principally of memorialization products and brand solutions.  Memorialization products consist primarily of bronze memorials and other memorialization products, caskets and cremation equipment for the cemetery and funeral home industries.  Brand solutions include graphics imaging products and services, marking products and merchandising solutions. The Company's products and operations are comprised of six business segments:  Bronze, Casket, Cremation, Graphics Imaging, Marking Products and Merchandising Solutions.  The Bronze segment is a leading manufacturer of cast bronze memorials and other memorialization products, cast and etched architectural products, granite memorials and is a leading builder of mausoleums in the United States.  The Casket segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood and metal caskets.  The Cremation segment is a leading designer and manufacturer of cremation equipment and cremation caskets primarily in North America. The Graphics Imaging segment manufactures and provides brand management, printing plates, gravure cylinders, pre-press services and imaging services for the primary packaging and corrugated industries.  The Marking Products segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, and industrial automation products for identifying, tracking and conveying various consumer and industrial products, components and packaging containers.  The Merchandising Solutions segment designs and manufactures merchandising displays and systems and provides creative merchandising and marketing solutions services.

The Company has manufacturing and marketing facilities in the United States, Mexico, Canada, Europe, Australia and Asia.


Note 2.   Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the six months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2009.  The consolidated financial statements include all domestic and foreign subsidiaries in which the Company maintains an ownership interest and has operating control.  All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 
 


 
6

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 3.   Fair Value Measurements

The Company adopted new guidance issued by the Financial Accounting Standards Board (“FASB”) on fair value measurements as of October 1, 2008 for financial assets and liabilities. This new guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:

Level 1:                      Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2:                      Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3:                      Unobservable inputs for the asset or liability.

As of March 31, 2010, the fair values of the Company’s assets and liabilities measured on a recurring basis are categorized as follows:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Short term investments
  $ 1,392       -       -     $ 1,392  
   Trading securities
    11,655       -       -       11,655  
Total assets at fair value
  $ 13,047       -       -     $ 13,047  
                                 
Liabilities:
                               
   Derivatives (1)
    -     $ 5,014       -     $ 5,014  
Total liabilities at fair value
    -     $ 5,014       -     $ 5,014  
                                 
(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
 


Note 4.   Inventories

Inventories consisted of the following:

   
March 31, 2010
   
September 30, 2009
 
             
Materials and finished goods
  $ 80,773     $ 80,692  
Labor and overhead in process
    14,566       13,763  
    $ 95,339     $ 94,455  


 
7

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 5.   Debt

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions.  The maximum amount of borrowings available under the facility is $225,000 and the facility’s maturity is September 2012. Borrowings under the facility bear interest at LIBOR plus a factor ranging from .40% to .80% based on the Company’s leverage ratio.  The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization).  The Company is required to pay an annual commitment fee ranging from .15% to .25% (based on the Company’s leverage ratio) of the unused portion of the facility.   The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios.  A portion of the facility (not to exceed $20,000) is available for the issuance of trade and standby letters of credit.  Outstanding borrowings on the Revolving Credit Facility as of March 31, 2010 and September 30, 2009 were $173,000 and $177,500, respectively.  The weighted-average interest rate on outstanding borrowings at March 31, 2010 and 2009 was 3.01% and 3.92%, respectively.

The Company has entered into the following interest rate swaps:

Date
 
Initial Amount
   
Fixed Interest Rate
   
Interest Rate Spread at March 31, 2010
 
 
Maturity Date
September 2007
  $ 25,000       4.77%       .60%  
September 2012
May 2008
    40,000       3.72%       .60%  
September 2012
October 2008
    20,000       3.21%       .60%  
October 2010
October 2008
    20,000       3.46%       .60%  
October 2011

The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility which are considered probable of occurring.  Based on the Company’s assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss of $5,014 ($3,058 after tax) at March 31, 2010 that is included in shareholders’ equity as part of accumulated other comprehensive income.  Assuming market rates remain constant with the rates at March 31, 2010, approximately $1,522 of the $3,058 loss included in accumulated other comprehensive income is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.

On January 1, 2009, the Company adopted guidance issued by the FASB regarding disclosures about derivative instruments and hedging activities.  This guidance amends and expands the disclosure requirements of previous guidance to require qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative agreements.

At March 31, 2010 and September 30, 2009, the interest rate swap contracts were reflected as a liability on the balance sheets.  The following derivatives are designated as hedging instruments:


Liability Derivatives
     
Balance Sheet Location:
 
March 31, 2010
   
September 30, 2009
 
Current liabilities:
           
Other current liabilities
  $ 2,495     $ 2,441  
Long-term liabilities:
               
Other accrued liabilities and deferred revenue
    2,519       3,267  
Total derivatives
  $ 5,014     $ 5,708  
                 

 
8

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 5.  Debt (continued)

The loss recognized on derivatives was as follows:

 
Location of
           
Derivatives in
Gain or (Loss)
 
Amount of
   
Amount of
 
Cash Flow
Recognized in
 
Loss
   
Loss
 
Hedging
Income on
 
Recognized in Income
   
Recognized in Income
 
Relationships
Derivative
 
on Derivatives
   
on Derivatives
 
     
Three Months ended March 31,
   
Six Months ended March 31,
 
     
2010
   
2009
   
2010
   
2009
 
                           
Interest rate swaps
Interest expense
  $ (946 )   $ (1,079 )   $ (1,893 )   $ (1,445 )
                                   

The Company recognized the following losses in accumulated other comprehensive loss (“OCL”):
               
       
Location of
     
       
Loss
     
       
Reclassified
 
Amount of Loss
 
       
from
 
Reclassified from
 
   
Amount of Loss
 
Accumulated
 
Accumulated OCL into
 
Derivatives in
 
Recognized in
 
OCL into
 
Income
 
Cash Flow
 
OCL on Derivatives
 
Income
 
(Effective Portion*)
 
Hedging Relationships
 
March 31, 2010
   
September 30, 2009
 
(Effective
Portion*)
 
March 31, 2010
   
September 30, 2009
 
                           
Interest rate swaps
  $ (3,058 )   $ (3,482 )
Interest expense
  $ (1,155 )   $ (2,134 )
                                   
*There is no ineffective portion or amount excluded from effectiveness testing.
 


The Company, through certain of its German subsidiaries, has a credit facility with a European bank.  The maximum amount of borrowings available under this facility was 25.0 million Euros ($33,773).  Outstanding borrowings under the credit facility totaled 15.0 million Euros ($20,264) and 18.0 million Euros ($26,341) at March 31, 2010 and  September 30, 2009, respectively.  The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2010 and 2009 was 1.58% and 2.93%, respectively.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks.  Outstanding borrowings under these loans totaled 9.2 million Euros ($12,425) and 10.0 million Euros ($14,717) at March 31, 2010 and September 30, 2009, respectively.  The weighted-average interest rate on outstanding borrowings of Saueressig at March 31, 2010 and 2009 was 5.99% and 5.82%, 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 10.8 million Euros ($14,549) and 12.2 million Euros ($17,962) at March 31, 2010 and September 30, 2009, respectively.  Matthews International S.p.A. also has three lines of credit totaling 8.4 million Euros ($11,307) with the same Italian banks.  Outstanding borrowings on these lines were 2.9 million Euros ($3,912) and 2.0 million Euros ($2,855) at March 31, 2010 and September 30, 2009, respectively.

 
9

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 5.  Debt (continued)

The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at March 31, 2010 and 2009 was 3.66% and 3.82%, respectively.

As of March 31, 2010 and September 30, 2009, the fair value of the Company’s long-term debt, including current maturities, was as follows:

   
Carrying Value included
       
   
in the Balance Sheet
   
Fair Value
 
   
March 31, 2010
   
September 30, 2009
   
March 31, 2010
   
September 30, 2009
 
                         
Long-term debt, including current maturities
  $ 232,902     $ 251,718     $ 213,719     $ 230,482  


Note 6.   Share-Based Payments

The Company maintains a stock incentive plan (the “1992 Incentive Stock Plan”) that provided for grants of stock options, restricted shares and certain other types of stock-based awards.  In February 2008, the Company’s shareholders approved the adoption of a new plan, the 2007 Equity Incentive Plan (the “2007 Plan”), that provides for the grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards. Under the 2007 Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,200,000. There will be no further grants under the 1992 Incentive Stock Plan.  At March 31, 2010, there were 1,534,764 shares reserved for future issuance under the 2007 Plan. Both plans are administered by the Compensation Committee of the Board of Directors.

The option price for each stock option granted under either plan may not be less than the fair market value of the Company's common stock on the date of grant.  Outstanding stock options are generally exercisable in one-third increments upon the attainment of 10%, 33% and 60% appreciation in the market value of the Company’s Class A Common Stock.  In addition, options generally vest in one-third increments after three, four and five years, respectively, from the grant date (but, in any event, not until the attainment of the market value thresholds).  The options expire on the earlier of ten years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company generally settles employee stock option exercises with treasury shares.  With respect to outstanding restricted share grants, generally one-half of the shares vest on the third anniversary of the grant.  The remaining one-half of the shares vest in one-third increments upon attainment of 10%, 25% and 40% appreciation in the market value of the Company’s Class A Common Stock. Additionally, beginning in fiscal 2009, restricted shares cannot vest until the first anniversary of the grant date.  Unvested restricted shares generally expire on the earlier of five years from the date of grant, upon employment termination, or within specified time limits following voluntary employment termination (with the consent of the Company), retirement or death.  The Company issues restricted shares from treasury shares.

For the three-month periods ended March 31, 2010 and 2009, total stock-based compensation cost totaled $1,684 and $1,522, respectively.  For the six-month periods ended March 31, 2010 and 2009, total stock-based compensation cost totaled $3,293 and $2,858, respectively.  The associated future income tax benefit recognized was $656 and $593 for the three-month periods ended March 31, 2010 and 2009, respectively, and $1,284 and $1,115 for the six-month periods ended March 31, 2010 and 2009, respectively.

 
10

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

For the three-month periods ended March 31, 2010 and 2009, the amount of cash received from the exercise of stock options was $54 and $888, respectively. For the six-month periods ended March 31, 2010 and 2009, the amount of cash received from the exercise of stock options was $726 and $1,143, respectively. In connection with these exercises, the
tax benefits realized by the Company were $15 and $153 for the three-month periods ended March 31, 2010 and 2009, respectively, and $151 and $242 for the six-month periods ended March 31, 2010 and 2009, respectively.

Changes to restricted stock for the six months ended March 31, 2010 were as follows:

         
Weighted-
 
         
average
 
         
grant-date
 
   
Shares
   
fair value
 
Non-vested at September 30, 2009
    271,656      $ 37.61  
Granted
    178,009        33.65  
Vested
    -       -  
Expired or forfeited
    (1,110     34.28  
Non-vested at March 31, 2010
    448,555        36.05  

As of March 31, 2010, the total unrecognized compensation cost related to unvested restricted stock was $6,835 and is expected to be recognized over a weighted average period of 1.7 years.

The transactions for shares under options for the six months ended March 31, 2010 were as follows:

               
Weighted-
       
         
Weighted-
   
average
   
Aggregate
 
         
average
   
remaining
   
intrinsic
 
   
Shares
   
exercise price
   
contractual term
   
value
 
Outstanding, September 30, 2009
    1,224,909     $ 35.94              
Granted
    -       -              
Exercised
    (31,600 )     22.99              
Expired or forfeited
    (197,417 )     37.90              
Outstanding, March 31, 2010
    995,892       35.96       5.3     $ -  
Exercisable, March 31, 2010
    692,024       34.45       4.8     $ 727  

The fair value of shares earned during the three-month periods ended March 31, 2010 and 2009 was $86 and $73, respectively, and $3,120 and $2,799 during the six-month periods ended March 31, 2010 and 2009, 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 six-month periods ended March 31, 2010 and 2009 was $457 and $657, respectively.

 
11

 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 6.   Share-Based Payments (continued)

The transactions for non-vested options for the six months ended March 31, 2010 were as follows:

         
Weighted-average
 
         
grant-date
 
Non-vested shares
 
Shares
   
fair value
 
Non-vested at September 30, 2009
    673,035     $ 12.17  
Granted
    -       -  
Vested
    (283,018 )     11.03  
Expired or forfeited
    (86,149 )     9.79  
Non-vested at March 31, 2010
    303,868       13.92  

As of March 31, 2010, the total unrecognized compensation cost related to non-vested stock options was approximately $714. This cost is expected to be recognized over a weighted-average period of 1.4 years in accordance with the vesting periods of the options.

The fair value of each restricted stock grant is estimated on the date of grant using a binomial lattice valuation model.  The following table indicates the assumptions used in estimating fair value of restricted stock for the quarters ended March 31, 2010 and 2009.

   
Six Months Ended March 31,
 
   
2010
   
2009
 
Expected volatility
    30.0 %     27.0 %
Dividend yield
    .8 %     .6 %
Average risk free interest rate
    2.3 %     2.4 %
Average expected term (years)
    2.2       2.3  


The risk free interest rate is based on United States Treasury yields at the date of grant. The dividend yield is based on the most recent dividend payment and average stock price over the 12 months prior to the grant date.  Expected volatilities are based on the historical volatility of the Company’s stock price.  The expected term represents an estimate of the average period of time for restricted shares to vest.  The option characteristics for each grant are considered separately for valuation purposes.

Under the Company’s Director Fee Plan, directors who are not also officers of the Company each receive, as an annual retainer fee, either cash or shares of the Company's Class A Common Stock equivalent to $60.  An additional annual retainer fee of $70 is paid to a non-employee Chairman of the Board. Where the annual retainer fee is provided in shares, each director may elect to be paid these shares on a current basis or have such shares credited to a deferred stock account as phantom stock, with such shares to be paid to the director subsequent to leaving the Board.  The value of deferred shares is recorded in other liabilities.  A total of 25,013 shares had been deferred under the Director Fee Plan at March 31, 2010.  Additionally, directors who are not also officers of the Company each receive an annual stock-based grant (non-statutory stock options, stock appreciation rights and/or restricted shares) with a value of $70. A total of 22,300 stock options have been granted under the plan.  At March 31, 2010, 17,800 options were outstanding and vested. Additionally, 51,525 shares of restricted stock have been granted under the plan, 27,695 of which were unvested at March 31, 2010.  A total of 300,000 shares have been authorized to be issued under the Director Fee Plan.


 
12

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 7.   Earnings Per Share Attributable to Matthews’ Shareholders

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net income attributable to
    Matthews’ shareholders
  $ 15,931     $ 12,742     $ 28,927     $ 24,031  
                                 
Weighted-average common shares outstanding
    29,841,709       30,314,212       29,910,728       30,403,150  
Dilutive securities, stock options and restricted shares
    182,664       122,928       220,402       181,041  
Diluted weighted-average
common shares outstanding
    30,024,373       30,437,140       30,131,130       30,584,191  
                                 
Basic earnings per share
    $.53       $.42       $.97       $.79  
Diluted earnings per share
    $.53       $.42       $.96       $.79  


Options to purchase 621,050 and 812,071 shares of common stock were not included in the computation of diluted earnings per share for the three months and six months ended March 31, 2010, respectively, because the inclusion of these options would be anti-dilutive.  Options to purchase 1,016,836 of shares of common stock and 7,399 restricted stock shares were not included in the computation of diluted earnings per share for the three-month period ended March 31, 2009 because the inclusion of these options and restricted stock would be anti-dilutive. Options to purchase 771,316 shares of common stock were not included in the computation of diluted earnings per share for the six-month period ended March 31, 2009 because the inclusion of these options would be anti-dilutive.


Note 8.   Pension and Other Postretirement Benefit Plans
 
The Company provides defined benefit pension and other postretirement plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:

 
   
Pension
   
Other Postretirement
 
Three months ended March 31,
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 1,078     $ 856     $ 173     $ 143  
Interest cost
    1,853       1,868       346       386  
Expected return on plan assets
    (1,717 )     (1,900 )     -       -  
Amortization:
                               
   Prior service cost
    (10 )     (9 )     (181 )     (322 )
   Net actuarial loss
    1,338       456       130       71  
                                 
Net benefit cost
  $ 2,542     $ 1,271     $ 468     $ 278  


 
13

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)

Note 8.   Pension and Other Postretirement Benefit Plans (continued)
 

   
Pension
   
Other Postretirement
 
Six months ended March 31,
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 2,156     $ 1,712     $ 346     $ 286  
Interest cost
    3,706       3,736       692       772  
Expected return on plan assets
    (3,434 )     (3,800 )     -       -  
Amortization:
                               
   Prior service cost
    (20 )      (18 )      (362 )     (644 )
   Net actuarial loss
    2,676       912       260       142  
                                 
 Net benefit cost
  $ 5,084     $ 2,542     $ 936     $ 556  

Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under supplemental retirement plan and the postretirement benefit plan are made from the Company’s operating funds.  Under IRS regulations, the Company is not required to make any significant contributions to its principal retirement plan in fiscal year 2010. During the six months ended March 31, 2010, contributions of $387 and $434 were made under the supplemental retirement plan and postretirement plan, respectively.  The Company currently anticipates contributing an additional $386 and $617 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2010.

On October 1, 2008, the Company adopted the FASB guidance on accounting for defined benefit pension and other postretirement plans. The measurement date for the Company’s pension and postretirement plans was changed from July 31 to September 30.  Accordingly, an additional pension liability of $577 and postretirement liability of $125, net of tax, was recorded as of December 31, 2008 to recognize the additional expense through September 30, 2008, with a corresponding adjustment to retained earnings.


Note 9.   Income Taxes

Income tax provisions for the Company’s interim periods are based on the effective income tax rate expected to be applicable for the full year. The Company's effective tax rate for the six months ended March 31, 2010 was 36.0%, compared to 34.0% for the first six  months of fiscal 2009. The six months of fiscal 2009 included a one-time reduction in income tax expense of $923 to reflect the Company’s ability to utilize a European tax loss carryover.  The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state and foreign income taxes.

The Company had unrecognized tax benefits (excluding penalties and interest) of $3,418 and $3,575 at March 31, 2010 and September 30, 2009, respectively, all of which, if recorded, would impact the fiscal 2010 annual effective tax rate.  It is reasonably possible that the amount of unrecognized tax benefits could change by approximately $342 in the next 12 months primarily due to tax examinations and the expiration of statutes related to specific tax positions.

The Company classifies interest and penalties on tax uncertainties as a component of the provision for income taxes. The Company included $126 in interest and penalties in the provision for income taxes for the first six months of fiscal 2010. Total penalties and interest accrued were $2,964 and $2,838 at March 31, 2010 and September 30, 2009, respectively.  These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.


 
14

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions.  As of March 31, 2010, the tax years that remain subject to examination by major jurisdiction generally are:

United States – Federal
 
2007 and forward
United States – State
 
2006 and forward
Canada
 
2004 and forward
Europe
 
2002 and forward
United Kingdom
 
2008 and forward
Australia
 
2005 and forward
Asia
 
2004 and forward


Note 10.   Segment Information

The Company's products and operations consist of two principal businesses that are comprised of three operating segments each, as described under Nature of Operations (Note 1):  Memorialization 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 net income attributable to noncontrolling interests.

Information about the Company's segments follows:


   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
 
 
2010
   
2009
   
2010
   
2009
 
Sales to external customers:
                       
Memorialization:
                       
Bronze
  $ 53,719     $ 52,711     $ 102,978     $ 102,445  
Casket
    55,249       54,972       105,913       107,571  
Cremation
    8,991       8,011       17,491       14,294  
      117,959       115,694       226,382       224,310  
Brand Solutions:
                               
Graphics Imaging
    60,335       55,627       120,141       112,821  
Marking Products
    11,867       9,517       23,433       21,102  
Merchandising Solutions
    10,705       16,524       23,883       30,415  
      82,907       81,668       167,457       164,338  
                                 
    $ 200,866     $ 197,362     $ 393,839     $ 388,648  



 
15

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 10.   Segment Information (continued)

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
 
 
2010
   
2009
   
2010
   
2009
 
Operating profit:
                       
Memorialization:
                       
Bronze
  $ 12,200     $ 12,275     $ 22,560     $ 21,535  
Casket
    8,740       5,414       14,548       11,815  
Cremation
    953       1,297       2,083       2,110  
      21,893       18,986       39,191       35,460  
Brand Solutions:
                               
Graphics Imaging
    4,577       3,102       8,566       5,737  
Marking Products
    1,279       374       1,879       1,045  
Merchandising Solutions
    (631 )     977       (342 )     1,276  
      5,225       4,453       10,103       8,058  
                                 
    $ 27,118     $ 23,439     $ 49,294     $ 43,518  


Note 11.   Acquisitions

Acquisition spending, net of cash acquired, during the six months ended March 31, 2010 totaled $14,606, and primarily included the following:

In March 2010, the Company acquired an 80% interest in Furnace Construction Cremators Limited (“FCC”), a manufacturer of cremation equipment located in the United Kingdom.  The acquisition was structured as an asset purchase and was designed to expand the Company’s global presence in the European cremation markets.

 
In February 2010, the Company acquired A.J. Distribution, Inc. (“A.J. Distribution”), a distributor of primarily York brand caskets in the Northwest region of the United States.  The  transaction was structured as an asset purchase and was intended to expand the Company’s casket distribution capabilities in the Northwestern United States.

In December 2009, the Company acquired United Memorial Products, Inc. (“UMP”), a supplier of granite memorial products, burial vaults and caskets in the western United States. UMP reported sales of approximately $11,000 in calendar 2009.  The transaction was structured as an asset purchase and was designed to extend Matthews’ presence in the broad granite market. The purchase price for the acquisition is $10,000, plus additional consideration of $3,500 payable over five years.

In May 2008, the Company acquired a 78% interest in Saueressig, a manufacturer of gravure printing cylinders.  The transaction was structured as a stock purchase with a purchase price of approximately 58.1 million Euros ($90,783). In addition, the Company entered into an option agreement related to the remaining 22% interest in Saueressig.  The option agreement contains certain put and call provisions for the purchase of the remaining 22% interest in future years at a price to be determined by a specified formula based on future operating results of Saueressig.  The initial carrying value of minority interest was adjusted to the estimated future purchase price (“Redemption Value”) of the minority interest, with a corresponding charge to retained earnings. For subsequent periods, the carrying value of minority interest reflected on the Company’s balance sheet will be adjusted for changes in Redemption Value, with a corresponding

 
16

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 11.   Acquisitions (continued)

adjustment to retained earnings.  To the extent Redemption Value in future periods is less than or greater than the estimated fair value of the minority interest, income available to common shareholders in the determination of earnings per share will increase or decrease, respectively, by such amount.  However, income available to common shareholders will only increase to the extent that a decrease was previously recognized.  In any case, net income will not be affected by such amounts. At March 31, 2010, Redemption Value was equal to fair value, and there was no impact on income available to common shareholders.


Note 12.   Goodwill and Other Intangible Assets

Goodwill related to business combinations is not amortized but is subject to annual review for impairment. In general, when the carrying value of a reporting unit exceeds its implied fair value, an impairment loss must be recognized. For purposes of testing for impairment, the Company uses a discounted cash flow technique. Intangible assets are amortized over their estimated useful lives unless such lives are considered to be indefinite. A significant decline in cash flows generated from these assets may result in a write-down of the carrying values of the related assets.  The Company performed its annual impairment review in the second fiscal quarter of 2010 and determined that no additional adjustments to the carrying values of goodwill or indefinite-lived intangible assets were necessary.

A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:

                     
Graphics
   
Marking
   
Merchandising
       
   
Bronze
   
Casket
   
Cremation
   
Imaging
   
Products
   
Solutions
   
Consolidated
 
                                           
Goodwill
  $ 79,707     $ 122,896     $ 13,887     $ 158,863     $ 9,980     $ 9,138     $ 394,471  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at
September 30, 2009
    79,295       122,896       8,887       155,023       9,980       9,138       385,219  
                                                         
Additions during period
    7,399       3,525       2,968       (1,464 )     36       -       12,464  
Translation and other  adjustments
    (1,991 )             (181 )     (9,929 )     (32 )     -       (12,133 )
Goodwill
    85,115       126,421       16,674       147,470       9,984       9,138       394,802  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at
March 31, 2010
  $ 84,703     $ 126,421     $ 11,674     $ 143,630     $ 9,984     $ 9,138     $ 385,550  

The addition to Bronze goodwill represents the acquisition of UMP; the addition to Casket goodwill primarily represents the acquisition of A.J. Distribution; the addition to Cremation goodwill represents the acquisition of FCC; and the change in Graphics goodwill represents the effect of an adjustment to the purchase price for the Saueressig acquisition.


 
17

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 12.   Goodwill and Other Intangible Assets (continued)

The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of March 31, 2010 and September 30, 2009, respectively.


   
Carrying
   
Accumulated
       
   
Amount
   
Amortization
   
Net
 
March 31, 2010:
                 
Trade names
  $ 24,308     $ - *   $ 24,308  
Trade names
    1,475       (593 )     882  
Customer relationships
    35,513       (9,306 )     26,207  
Copyrights/patents/other
    8,113       (5,761 )     2,352  
    $ 69,409     $ (15,660 )   $ 53,749  
                         
September 30, 2009:
                       
Trade names
  $ 24,418     $ - *   $ 24,418  
Trade names
    1,598       (458 )     1,140  
Customer relationships
    35,568       (8,232 )     27,336  
Copyrights/patents/other
    7,777       (5,670 )     2,107  
    $ 69,361     $ (14,360 )   $ 55,001  
* Not subject to amortization
                       

The net change in intangible assets during fiscal 2010 included an increase for the acquisition of UMP, offset by the impact of changes in foreign currency exchange rates and additional amortization.

Amortization expense on intangible assets was $937 and $1,048 for the three-month periods ended March 31, 2010 and 2009, respectively.  For the six-month periods ended March 31, 2010 and 2009, amortization expense was $1,787 and    $2,111, respectively.  Amortization expense is estimated to be $1,741 in 2010, $3,131 in 2011, $2,673 in 2012, $2,338 in 2013 and $2,158 in 2014.


Note 13.   Accounting Pronouncements

 
On September 30, 2009, the Company adopted changes issued by the FASB to the authoritative hierarchy of generally accepted accounting principles (“GAAP”).  These changes establish the FASB Accounting Standards CodificationTM (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the U.S. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption had no material impact on the Company’s consolidated results of operations or financial condition.

The Company adopted changes issued by the FASB regarding accounting for income tax benefits of dividends on share-based payment awards on October 1, 2008.  The changes require that tax benefits generated by dividends on equity classified non-vested equity shares, non-vested equity share units, and outstanding equity share options be classified as additional paid-in capital and included in a pool of excess tax benefits available to absorb tax deficiencies from share-based payment awards.  The adoption had no material impact on the Company’s consolidated results of operations or financial condition.

 
18

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 13.   Accounting Pronouncements (continued)

In December 2007, the FASB issued new guidance regarding business combinations.  This guidance requires recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in a business combination, goodwill acquired or a gain from a bargain purchase.  It is effective for fiscal years beginning on or after December 15, 2008.  The Company adopted the new guidance effective October 1, 2009. See Note 12.

In December 2007, the FASB issued new guidance regarding noncontrolling interests in consolidated financial statements.  This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary. It requires that consolidated net income reflect the amounts attributable to both the parent and the noncontrolling interest, and also includes additional disclosure requirements. It was effective for fiscal years beginning on or after December 15, 2008.and is to be applied prospectively as of the beginning of the fiscal year in which the guidance is initially applied, except for the presentation and disclosure requirements which shall be applied retrospectively for all periods presented.  The Company adopted the new guidance effective October 1, 2009, as reflected in the Condensed Consolidated Balance Sheets, the Consolidated Statements of Income and the Consolidated Statements of Changes in Shareholders’ Equity.

In December 2008, the FASB issued changes to employers’ disclosures about postretirement benefit plan assets. These changes require enhanced disclosures regarding assets in defined benefit pension or other postretirement plans.  It is effective for fiscal years ending after December 31, 2009.  Earlier application is permitted. The Company is currently evaluating the impact of adopting these changes, which is effective for the Company’s Annual Report on Form 10-K for fiscal 2010.

In April 2009, the FASB issued changes to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It also requires those disclosures in summarized financial information at interim reporting periods. These changes are effective for interim reporting periods ending after June 15, 2009 and were adopted by the Company as of June 30, 2009.  See Notes 3 and 5.
 
 
Effective September 30, 2007, the Company adopted the recognition and related disclosure provisions of guidance on employers’ accounting for defined benefit pension and other postretirement plans which amended earlier guidance.  In the first quarter of fiscal 2009, the Company adopted the provision requiring 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.  Adoption of this provision did not have a material effect on the Company’s consolidated results of operations or financial condition. See Note 8.

In May 2009, the FASB issued new guidance regarding subsequent events, which was subsequently revised in February 2010.  The guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The adoption of this guidance had no material impact on the Company’s consolidated results of operations or financial condition.  See Note 14.

In June 2008, the FASB issued guidance regarding instruments granted in share-based payments.  The guidance requires unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be considered participating securities and therefore included in the computation of earnings per share pursuant to the two-class method.  This guidance is effective for years beginning after December 31, 2008.  The Company adopted the provisions of this guidance effective October 1, 2009, which did not have a material effect on the Company’s financial statements.


 
19

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)


Note 14.   Subsequent Events:

On April 9, 2010, the Company acquired Reynoldsville Casket Company, a manufacturer and distributor of caskets primarily in the Northeast region of the United States.   The purchase price for the acquisition was $13,600, plus additional consideration up to $3,500 contingent on operating performance over the next three years.  Reynoldsville reported sales of approximately $13,000 in calendar 2009.

Management has evaluated subsequent events and has concluded that all events that would require recognition or disclosure are appropriately reflected in the consolidated financial statements.





 
20

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Cautionary Statement:

The following discussion should be read in conjunction with the consolidated financial statements of Matthews International Corporation (“Matthews” or the “Company”) and related notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended September 30, 2009.  Any forward-looking statements contained herein are included pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct.  Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in 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.


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.

   
Six months ended
   
Years ended
 
   
March 31,
   
September 30,
 
   
2010
   
2009
   
2009
   
2008
 
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
Gross profit
    38.4 %     36.3 %     37.7 %     39.5 %
Operating profit
    12.5 %     11.2 %     12.9 %     16.2 %