Attached files

file filename
EX-32.1 - EXHIBIT 32.1 TO 3RD QTR 10Q 2010 SARBANES OXLEY CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit32-1jb2010q3.htm
EX-31.2 - EXHIBIT 31.2 TO 3RD QTR 10Q 2010 PRINCIPAL FINANCIAL OFFICER CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit31-2sn2010q3.htm
EX-32.2 - EXHIBIT 32.2 TO 3RD QTR 10Q 2010 SARBANES OXLEY CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit32-2sn2010q3.htm
EX-10.1 - SALE AND PURCHASE AND TRANSFER AGREEMENT REGARDING THE SALE AND PURCHASE AND TRANSFER OF A PARTNERSHIP INTEREST IN SAUERESSIG GMBH + CO. KG - MATTHEWS INTERNATIONAL CORPexhibit10-1sptasau2010q3.htm
EXCEL - IDEA: XBRL DOCUMENT - MATTHEWS INTERNATIONAL CORPFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 TO 3RD QTR 10Q 2010 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION - MATTHEWS INTERNATIONAL CORPexhibit31-1jb2010q3.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 June 30, 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 x
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 July 31, 2010, shares of common stock outstanding were:

Class A Common Stock 29,778,189 shares

 
 

 

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

   
June 30, 2010
   
September 30, 2009
 
   
(unaudited)
       
ASSETS
                       
Current assets:
                       
Cash and cash equivalents
        $ 55,974           $ 57,732  
Short-term investments
          1,396             62  
Accounts receivable, net
          142,633             138,927  
Inventories
          99,462             94,455  
Deferred income taxes
          1,183             1,816  
Other current assets
          14,070             12,430  
                             
Total current assets
          314,718             305,422  
                             
Investments
          13,062             13,389  
Property, plant and equipment: Cost
    292,485               305,098          
Less accumulated depreciation
    (168,574 )             (167,038 )        
              123,911               138,060  
Deferred income taxes
            35,518               32,563  
Other assets
            23,618               19,999  
Goodwill
            380,848               385,219  
Other intangible assets, net
            55,911               55,001  
                                 
Total assets
          $ 947,586             $ 949,653  
                                 
LIABILITIES
                               
Current liabilities:
                               
Long-term debt, current maturities
          $ 12,379             $ 14,188  
Accounts payable
            38,110               28,604  
Accrued compensation
            34,797               35,592  
Accrued income taxes
            15,211               8,120  
Other current liabilities
            46,149               45,836  
                                 
Total current liabilities
            146,646               132,340  
                                 
Long-term debt
            219,951               237,530  
Accrued pension
            56,884               53,734  
Postretirement benefits
            25,364               24,599  
Deferred income taxes
            11,267               13,464  
Environmental reserve
            6,067               6,482  
Other liabilities
            20,842               15,489  
                                 
Total liabilities
            487,021               483,638  
                                 
Arrangement with noncontrolling interest
            -               27,121  
                                 
SHAREHOLDERS’ EQUITY
                               
Shareholders' equity-Matthews:
                               
Common stock
    36,334               36,334          
Additional paid-in capital
    46,509               47,436          
Retained earnings
    604,557               559,786          
Accumulated other comprehensive loss
    (60,595 )             (29,884 )        
Treasury stock, at cost
    (193,724 )             (179,454 )        
Total shareholders’ equity-Matthews
            433,081               434,218  
Noncontrolling interests
            27,484               4,676  
                                 
Total shareholders’ equity
            460,565               438,894  
                                 
Total liabilities and shareholders' equity
          $ 947,586             $ 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
   
Nine Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
                         
Sales
  $ 213,329     $ 192,047     $ 607,168     $ 580,695  
Cost of sales
    (128,360 )     (116,581 )     (371,028 )     (364,260 )
                                 
Gross profit
    84,969       75,466       236,140       216,435  
                                 
Selling and administrative expenses
    (50,455 )     (45,656 )     (152,332 )     (143,107 )
                                 
Operating profit
    34,514       29,810       83,808       73,328  
                                 
Investment income (loss)
    (96     1,324       1,908       629  
Interest expense
    (1,869 )     (2,759 )     (5,620 )     (9,053 )
Other income (deductions), net
    (329 )     80       (1,060 )     83  
                                 
Income before income taxes
    32,220       28,455       79,036       64,987  
                                 
Income taxes
    (11,011 )     (9,645 )     (27,876 )     (22,069 )
                                 
Net income
    21,209       18,810       51,160       42,918  
Less: net income attributable to  noncontrolling interests
    (798 )     (742 )     (1,822     (819 )
                                 
Net income attributable to Matthews’  shareholders
  $ 20,411     $ 18,068     $ 49,338     $ 42,099  
                                 
Earnings per share attributable to Matthews’ shareholders:
                               
Basic
    $.68       $.60       $1.65       $1.39  
                                 
Diluted
    $.68       $.60       $1.64       $1.38  




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 Nine Months Ended June 30, 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
    -       -       49,338       -       -       1,822       51,160  
Minimum pension liability
    -       -       -       2,367       -       -       2,367  
Translation adjustment
    -       -       -       (33,653     -       (58     (33,711
Fair value of derivatives
    -       -       -       575       -       -       575  
Total comprehensive income
                                                    20,391  
Stock-based compensation
    -       4,926       -       -       -       -       4,926  
Purchase of 634,300
   shares treasury stock
    -       -       -       -       (20,942     -       (20,942
Issuance of  32,090 shares
   treasury stock under stock
   plans
    -       (5,853     -       -       6,672       -       819  
Dividends, $.14 per share
    -       -       (6,336     -       -       -       (6,336
Distributions to
   noncontrolling interests
                                            (234 )     (234 )
Adjustment for arrangement
  with noncontrolling
  interest
                    1,769                       21,278       23,047  
Balance, June 30, 2010
  $ 36,334     $ 46,509     $ 604,557     $ (60,595   $ (193,724   $ 27,484     $ 460,565  
 
   
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
    -       -       42,099       -       -       819       42,918  
Minimum pension liability
    -                       388       -       -       388  
Translation adjustment
    -                       (5,873     -       (282 )     (6,155
Fair value of derivatives
    -                       (2,558     -       -       (2,558
Total comprehensive income
                                                    34,593  
Stock-based compensation
    -       4,358       -       -       -       -       4,358  
Pension liability adjustment
    -       -       (702 )     -       -       -       (702
Arrangement with
   noncontrolling interest
    -       -       (175 )     -       -       -       (175
Purchase of 756,896 shares
   treasury stock
    -       -       -       -       (27,348     -       (27,348
Issuance of  59,611 shares
   treasury stock under stock
   plans
    -       (5,621 )     -       -       6,997       -       1,376  
Dividends, $.13 per share
    -       -       (6,078 )     -       -       -       (6,078
Distributions to
   noncontrolling interests
                                            (2,291 )     (2,291 )
Balance, June 30, 2009
  $ 36,334     $ 45,987     $ 546,274     $ (11,022 )     $ (178,131   $ 3,209     $ 442,651  
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)

   
Nine Months Ended
 
   
June 30,
 
   
2010
   
2009
 
             
             
Cash flows from operating activities:
           
Net income
  $ 51,160     $ 42,918  
Adjustments to reconcile net income to net cash
provided by operating activities:
               
Depreciation and amortization
    20,021       23,118  
(Gain) loss on investments
    (226 )     354  
Loss on sale of assets
    131       39  
Stock-based compensation expense
    4,926       4,358  
Change in deferred taxes
    (4,473 )     (1,757 )
Changes in working capital items
    7,618       (837 )
Increase in other assets
    (2,543 )     (1,426 )
Decrease in other liabilities
    (871     (833 )
Increase in pension and postretirement benefits
    7,795       3,561  
                 
Net cash provided by operating activities
    83,538       69,495  
                 
Cash flows from investing activities:
               
Capital expenditures
    (11,050 )     (11,556 )
Proceeds from sale of assets
    172       311  
Acquisitions, net of cash acquired
    (28,249 )     (4,843 )
Proceeds from sale of investments
    756       -  
Purchases of investments
    (1,616 )     (2,615 )
                 
Net cash used in investing activities
    (39,987 )     (18,703 )
                 
Cash flows from financing activities:
               
Proceeds from long-term debt
    38,465       45,156  
Payments on long-term debt
    (46,790 )     (56,309 )
Proceeds from the sale of treasury stock
    749       1,143  
Purchases of treasury stock
    (20,942 )     (27,348 )
Tax benefit of exercised stock options
    70       98  
Dividends
    (6,336 )     (6,078 )
Distributions to noncontrolling interests
    (234 )     (2,291 )
                 
Net cash used in financing activities
    (35,018 )     (45,629 )
                 
Effect of exchange rate changes on cash
    (10,291 )     (3,937 ) 
                 
Net (decrease) increase in cash and cash equivalents
  $ (1,758 )   $ 1,226  
                 
Non-cash investing and financing activities:
               
Acquisition of equipment under capital lease
  $ -     $ 5,130  


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

 
5

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 (primarily in North America and Europe) 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 (“GAAP”) for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine months ended June 30, 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

Fair value is defined 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. The three level fair value hierarchy prioritizes the inputs used in valuations, as defined below:

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

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

Level 3:                      Unobservable inputs for the asset or liability.

As of June 30, 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
  $ 1,396       -       -     $ 1,396  
   Trading securities
    11,280       -       -       11,280  
Total assets at fair value
  $ 12,676       -       -     $ 12,676  
                                 
Liabilities:
                               
   Derivatives (1)
    -     $ 4,765       -     $ 4,765  
Total liabilities at fair value
    -     $ 4,765       -     $ 4,765  
                                 
(1) Interest rate swaps are valued based on observable market swap rates and are classified within Level 2 of the fair value hierarchy.
 


Note 4.   Inventories

Inventories consisted of the following:

   
June 30, 2010
   
September 30, 2009
 
             
Materials and finished goods
  $ 85,992     $ 80,692  
Labor and overhead in process
    13,470       13,763  
    $ 99,462     $ 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 June 30, 2010 and September 30, 2009 were $183,000 and $177,500, respectively.  The weighted-average interest rate on outstanding borrowings at June 30, 2010 and 2009 was 2.94% and 3.95%, respectively.

The Company has entered into the following interest rate swaps:

Date
 
Initial Amount
   
Fixed Interest Rate
   
Interest Rate Spread at June 30, 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 $4,765 ($2,907 after tax) at June 30, 2010 that is included in shareholders’ equity as part of accumulated other comprehensive income.  Assuming market rates remain constant with the rates at June 30, 2010, approximately $1,566 of the $2,907 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 June 30, 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:
 
June 30, 2010
   
September 30, 2009
 
Current liabilities:
           
Other current liabilities
  $ 2,567     $ 2,441  
Long-term liabilities:
               
Other liabilities
    2,198       3,267  
Total derivatives
  $ 4,765     $ 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 June 30,
   
Nine Months ended June 30,
 
     
2010
   
2009
   
2010
   
2009
 
                           
Interest rate swaps
Interest expense
  $ (926 )   $ (1,110 )   $ (2,819 )   $ (2,555 )
                                   

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
 
June 30, 2010
   
September 30, 2009
 
(Effective
Portion*)
 
June 30, 2010
   
September 30, 2009
 
                           
Interest rate swaps
  $ (2,907 )   $ (3,482 )
Interest expense
  $ (1,720 )   $ (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 ($30,573).  Outstanding borrowings under the credit facility totaled 12.5 million Euros ($15,286) and 18.0 million Euros ($26,341) at June 30, 2010 and September 30, 2009, respectively.  The weighted-average interest rate on outstanding borrowings under this facility at June 30, 2010 and 2009 was 1.58% and 2.74%, 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 8.7 million Euros ($10,674) and 10.0 million Euros ($14,717) at June 30, 2010 and September 30, 2009, respectively.  The weighted-average interest rate on outstanding borrowings of Saueressig at June 30, 2010 and 2009 was 6.05% and 5.84%, 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 10.0 million Euros ($12,251) and 12.2 million Euros ($17,962) at June 30, 2010 and September 30, 2009, respectively.  Matthews International S.p.A. also has three lines of credit totaling 8.4 million Euros ($10,236) with the same Italian banks.  Outstanding borrowings on these lines were 3.2 million Euros ($3,879) and 2.0 million Euros ($2,855) at June 30, 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 June 30, 2010 and 2009 was 3.61% and 3.80%, respectively.

As of June 30, 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
 
   
June 30, 2010
   
September 30, 2009
   
June 30, 2010
   
September 30, 2009
 
                         
Long-term debt,  including current maturities
  $ 232,331     $ 251,718     $ 217,944     $ 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 June 30, 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 June 30, 2010 and 2009, total stock-based compensation cost totaled $1,633 and $1,500, respectively.  For the nine-month periods ended June 30, 2010 and 2009, total stock-based compensation cost totaled $4,926 and $4,358, respectively.  The associated future income tax benefit recognized was $636 and $585 for the three-month periods ended June 30, 2010 and 2009, respectively, and $1,921 and $1,700 for the nine-month periods ended June 30, 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 period ended June 30, 2010, the amount of cash received from the exercise of stock options was $23. There was no cash received from the exercise of stock options for the three months ended June 30, 2009.  For the nine-month periods ended June 30, 2010 and 2009, the amount of cash received from the exercise of stock options was $749 and $1,143, respectively. In connection with these exercises, the tax benefits realized by the Company were $8 for the three-month period ended June 30, 2010, and $159 and $242 for the nine-month periods ended June 30, 2010 and 2009, respectively.

Changes to restricted stock for the nine months ended June 30, 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 June 30, 2010
    448,555        36.05  

As of June 30, 2010, the total unrecognized compensation cost related to unvested restricted stock was $5,516 and is expected to be recognized over a weighted average period of 1.6 years.

The transactions for shares under options for the nine months ended June 30, 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
    (32,900 )     22.76              
Expired or forfeited
    (205,484 )     37.79              
Outstanding, June 30, 2010
    986,525       35.99       5.0     $ -  
Exercisable, June 30, 2010
    683,524       34.48       4.6     $ -  

The fair value of shares earned during the three-month period ended June 30, 2009 was $77. There were no shares earned during the three-month period ended June 30, 2010.  During the nine-month periods ended June 30, 2010 and 2009, the fair value of shares earned was $3,120 and $2,722, respectively. The intrinsic value of options (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) exercised during the nine-month periods ended June 30, 2010 and 2009 was $479 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 nine months ended June 30, 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
    (87,016 )     9.79  
Non-vested at June 30, 2010
    303,001       13.92  

As of June 30, 2010, the total unrecognized compensation cost related to non-vested stock options was approximately $522. This cost is expected to be recognized over a weighted-average period of 1.2 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 periods ended June 30, 2010 and 2009.

   
Nine Months Ended June 30,
 
   
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 June 30, 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 June 30, 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 June 30, 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
   
Nine Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net income attributable to
    Matthews’ shareholders
  $ 20,411     $ 18,068     $ 49,338     $ 42,099  
                                 
Weighted-average common shares outstanding
    29,640,501       30,117,360       29,816,009       30,311,529  
Dilutive securities, stock options and restricted shares
    196,960       104,750       231,048       192,229  
Diluted weighted-average
common shares outstanding
    29,837,461       30,222,110       30,047,057       30,503,758  
                                 
Basic earnings per share
    $.68       $.60       $1.65       $1.39  
Diluted earnings per share
    $.68       $.60       $1.64       $1.38  


Options to purchase 616,783 and 805,671 shares of common stock were not included in the computation of diluted earnings per share for the three months and nine months ended June 30, 2010, respectively, because the inclusion of these options would be anti-dilutive.  Options to purchase 1,009,421 and 764,650 shares of common stock were not included in the computation of diluted earnings per share for the three months and nine months ended June 30, 2009, respectively, 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 benefit plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:

 
   
Pension
   
Other Postretirement
 
Three months ended June 30,
 
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
 
Nine months ended June 30,
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 3,234     $ 2,568     $ 519     $ 429  
Interest cost
    5,559        5,604        1,038        1,158   
Expected return on plan assets
    (5,151 )     (5,700 )     -       -  
Amortization:
                               
   Prior service cost
    (30 )     (27 )     (543 )     (966 )
   Net actuarial loss
    4,014        1,368        390        213   
                                 
 Net benefit cost
  $ 7,626     $ 3,813     $ 1,404     $ 834  

Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the 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 nine months ended June 30, 2010, contributions of $579 and $672 were made under the supplemental retirement plan and postretirement plan, respectively.  The Company currently anticipates contributing an additional $193 and $379 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 benefit 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 nine months ended June 30, 2010 was 35.3%, compared to 34.0% for the first nine months of fiscal 2009. The tax rate for the first nine months of fiscal 2010 reflected the favorable impact of adjustments totaling $656 in income tax expense related to changes in the estimated tax accruals for the closure of open tax periods. The nine-month period ended June 30, 2009 included the favorable impact of adjustments totaling $1.2 million in income tax expense related to the Company’s ability to utilize a tax loss carryover in Europe and changes in the estimated tax accrual for open tax periods.   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 $3,335 and $3,575 at June 30, 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 $438 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 a credit of $475 in interest and penalties in the provision for income taxes for the first nine months of fiscal 2010. Total penalties and interest accrued were $2,363 and $2,838 at June 30, 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 June 30, 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
   
Nine Months Ended
 
   
             June 30,
   
June 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Sales to external customers:
                       
Memorialization:
                       
Bronze
  $ 62,001     $ 56,678     $ 164,979     $ 159,123  
Casket
    52,358       48,159       158,270       155,730  
Cremation
    10,906       7,698       28,397       21,992  
      125,265       112,535       351,646       336,845  
Brand Solutions:
                               
Graphics Imaging
    57,993       57,768       178,134       170,589  
Marking Products
    13,223       9,870       36,656       30,972  
Merchandising Solutions
    16,848       11,874       40,732       42,289  
      88,064       79,512       255,522       243,850  
                                 
    $ 213,329     $ 192,047     $ 607,168     $ 580,695  



 
15

 

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


Note 10.   Segment Information (continued)

   
Three Months Ended
   
Nine Months Ended
 
   
June 30,
   
June 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Operating profit:
                       
Memorialization:
                       
Bronze
  $ 18,464     $ 18,531     $ 41,024     $ 40,066  
Casket
    5,472       3,848       20,020       15,663  
Cremation
    1,265       1,464       3,348       3,574  
      25,201       23,843       64,392       59,303  
Brand Solutions:
                               
Graphics Imaging
    5,533       5,336       14,099       11,073  
Marking Products
    2,118       445       3,997       1,490  
Merchandising Solutions
    1,662       186       1,320       1,462  
      9,313       5,967       19,416       14,025  
                                 
    $ 34,514     $ 29,810     $ 83,808     $ 73,328  


Note 11.   Acquisitions

Acquisition spending, net of cash acquired, during the nine months ended June 30, 2010 totaled $28,249, and primarily included the following:

In April 2010, the Company acquired Reynoldsville Casket Company (“Reynoldsville”), a manufacturer and distributor of caskets primarily in the Northeast region of the United States.  The acquisition was structured as an asset purchase and was intended to expand the Company’s casket distribution capabilities in the Northeastern United States. 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.

In March 2010, the Company acquired an 80% interest in Furnace Construction Cremators Limited (“FCC”), a manufacturer of cremation equipment located in the United Kingdom.  The acquisition was designed to expand the Company’s global presence in the European cremation markets.
 
 In February 2010, the Company acquired A.J. Distribution, Inc. (“A.J. Distribution”), a distributor of primarily York brand caskets in the Northwest region of the United States.  The transaction was structured as an asset purchase and was intended to expand the Company’s casket distribution capabilities in the Northwestern United States.
 
In December 2009, the Company acquired United Memorial Products, Inc. (“UMP”), primarily a supplier of granite memorial products and caskets in the West region of the 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 was $10,000, plus additional consideration of up to $3,500 payable over five years.


 
16

 

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


Note 11.   Acquisitions (continued)

In connection with its May 2008 acquisition of a 78% interest in Saueressig, the Company entered into an option agreement related to the remaining 22% interest in Saueressig.  The option agreement contained 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.  During the third fiscal quarter of 2010, the Company reached an agreement to purchase the remaining 22% interest in Saueressig for 17.4 million Euros in October 2011. The Company has included the purchase price of 17.4 million Euros ($21,300) as a part of noncontrolling interests in the shareholders’ equity section of the Condensed Consolidated Balance Sheet as of June 30, 2010.


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       12,275       2,968       (1,449 )     36       -       21,229  
Translation and other  adjustments
    (4,583 )             (431 )     (20,548 )     (38 )     -       (25,600 )
Goodwill
    82,523       135,171       16,424       136,866       9,978       9,138       390,100  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at June 30, 2010
  $ 82,111     $ 135,171     $ 11,424     $ 133,026     $ 9,978     $ 9,138     $ 380,848  

The addition to Bronze goodwill represents the acquisition of UMP; the addition to Casket goodwill primarily represents the acquisition of A.J. Distribution and Reynoldsville; 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 June 30, 2010 and September 30, 2009, respectively.


   
Carrying
   
Accumulated
       
   
Amount
   
Amortization
   
Net
 
June 30, 2010:
                 
Trade names
  $ 24,017     $ - *   $ 24,017  
Trade names
    1,535       (621 )     914  
Customer relationships
    38,069       (9,743 )     28,326  
Copyrights/patents/other
    8,526       (5,872 )     2,654  
    $ 72,147     $ (16,236 )   $ 55,911  
                         
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, A.J. Distribution, and Reynoldsville offset by the impact of changes in foreign currency exchange rates and additional amortization.

Amortization expense on intangible assets was $954 and $1,067 for the three-month periods ended June 30, 2010 and 2009, respectively.  For the nine-month periods ended June 30, 2010 and 2009, amortization expense was $2,741 and    $3,178, respectively.  Amortization expense is estimated to be $926 for the remainder of 2010, $3,429 in 2011, $2,977 in 2012, $2,644 in 2013 and $2,464 in 2014.

Note 13.   Accounting Pronouncements

 
On September 30, 2009, the Company adopted changes issued by the FASB to the authoritative hierarchy of 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.

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.


 
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 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.

Note 14.   Subsequent Events:

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.






 
19

 

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.

   
Nine months ended
   
Years ended
 
   
June 30,
   
September 30,
 
   
2010
   
2009
   
2009
   
2008
 
Sales
    100.0 %     100.0 %     100.0 %     100.0 %
Gross profit
    38.9 %     37.3 %     37.7 %     39.5 %
Operating profit
    13.8 %     12.6 %     12.9 %     16.2 %
Net income attributable to Matthews’ shareholders
    8.1 %     7.3 %     7.4 %     9.7 %


Sales for the nine months ended June 30, 2010 were $607.2 million, compared to $580.7 million for the nine months ended June 30, 2009.  The increase principally reflected higher sales in five of the Company’s six segments.  The increase mainly reflected higher unit volume in several segments, the impact of recent acquisitions, and a favorable impact of changes in foreign currency values against the U.S. dollar.  These increases were partially offset by the effects of a decline in the estimated number of U.S. casketed deaths on bronze memorial and casket unit volume.  For the nine months ended June 30, 2010, changes in foreign currency values against the U.S. dollar had a favorable impact of approximately $8.3 million on the Company’s consolidated sales compared to the nine months ended June 30, 2009.

In the Memorialization businesses, Bronze segment sales for the first nine months of fiscal 2010 were $165.0 million compared to $159.1 million for the first nine months of fiscal 2009.  The increase primarily reflected the acquisition of United Memorial Products, Inc. (“UMP”), primarily a supplier of granite memorial products and caskets in the West region of the U