form10q2013.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, 2013

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 website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
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 April 30, 2013, shares of common stock outstanding were:

  Class A Common Stock 27,609,284 shares

 
 

 

PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands)


   
March 31, 2013
   
September 30, 2012
 
             
ASSETS
                       
Current assets:
                       
Cash and cash equivalents
        $ 51,528           $ 58,259  
Accounts receivable, net
          185,235             174,632  
Inventories
          137,440             130,690  
Deferred income taxes
          1,669             1,694  
Other current assets
          21,850             19,950  
                             
Total current assets
          397,722             385,225  
                             
Investments
          19,242             18,842  
Property, plant and equipment: Cost
  $ 385,844             $ 350,521          
Less accumulated depreciation
    (216,291 )             (206,472 )        
              169,553               144,049  
Deferred income taxes
            32,978               32,647  
Other assets
            12,511               12,083  
Goodwill
            530,869               476,181  
Other intangible assets, net
            54,828               59,015  
                                 
Total assets
          $ 1,217,703             $ 1,128,042  
                                 
LIABILITIES
                               
Current liabilities:
                               
Long-term debt, current maturities
          $ 18,746             $ 21,566  
Accounts payable
            46,197               44,294  
Accrued compensation
            31,503               30,222  
Accrued income taxes
            7,896               7,632  
Customer prepayments
            16,193               15,883  
Contingent consideration
            11,873               13,298  
Other current liabilities
            47,841               47,978  
                                 
Total current liabilities
            180,249               180,873  
                                 
Long-term debt
            377,069               298,148  
Accrued pension
            85,656               78,563  
Postretirement benefits
            28,364               27,725  
Deferred income taxes
            19,160               18,624  
Other liabilities
            29,891               33,194  
Total liabilities
            720,389               637,127  
                                 
Arrangement with noncontrolling interest
            -               10,481  
                                 
SHAREHOLDERS’ EQUITY
                               
Shareholders' equity-Matthews:
                               
Common stock
  $ 36,334             $ 36,334          
Additional paid-in capital
    44,391               47,893          
Retained earnings
    749,040               727,176          
Accumulated other comprehensive loss
    (67,135 )             (65,083 )        
Treasury stock, at cost
    (268,975 )             (268,499 )        
Total shareholders’ equity-Matthews
            493,655               477,821  
Noncontrolling interests
            3,659               2,613  
Total shareholders’ equity
            497,314               480,434  
                                 
Total liabilities and shareholders' equity
          $ 1,217,703             $ 1,128,042  

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


 
2

 

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


   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
   
2013
   
2012
   
2013
   
2012
 
                         
                         
                         
Sales
  $ 256,390     $ 225,545     $ 481,999     $ 442,758  
Cost of sales
    (161,524 )     (140,838 )     (307,159 )     (280,056 )
                                 
Gross profit
    94,866       84,707       174,840       162,702  
                                 
Selling and administrative expenses
    (69,796 )     (59,420 )     (133,271 )     (118,490 )
                                 
Operating profit
    25,070       25,287       41,569       44,212  
                                 
Investment income
    607       1,243       840       2,844  
Interest expense
    (3,051 )     (2,727 )     (6,298 )     (5,284 )
Other income (deductions), net
    (1,067 )     (638 )     (2,172 )     (1,153 )
                                 
Income before income taxes
    21,559       23,165       33,939       40,619  
                                 
Income taxes
    (7,504 )     (7,973 )     (11,881 )     (14,007 )
                                 
Net income
    14,055       15,192       22,058       26,612  
                                 
Net (income) loss attributable to  noncontrolling interests
    137       66       389       (69 )
                                 
Net income attributable to  Matthews shareholders
  $ 14,192     $ 15,258     $ 22,447     $ 26,543  
                                 
Earnings per share attributable to Matthews shareholders:
                               
Basic
    $0.51       $0.54       $0.81       $0.93  
                                 
Diluted
    $0.51       $0.54       $0.81       $0.93  




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

 
3

 


MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands)


   
Three Months Ended March 31,
 
 
 
Matthews
   
Noncontrolling Interest
   
Total
 
   
2013
   
2012
   
2013
   
2012
   
2013
   
2012
 
                                     
Net income (loss):
  $ 14,192     $ 15,258     $ (137 )   $ (66 )   $ 14,055     $ 15,192  
Other comprehensive income (loss), net of tax:
                                               
  Foreign currency translation adjustment
    (13,543 )     8,566       356       (101 )     (13,187 )     8,465  
  Pension plans and other postretirement benefits
    1,074       1,022       -       -       1,074       1,022  
  Unrecognized gain (loss) on derivatives:
                                               
     Net change from periodic revaluation
    486       (341 )     -       -       486       (341 )
     Net amount reclassified to earnings
    626       447       -       -       626       447  
       Net change in unrecognized gain (loss)
                                               
         on derivatives
    1,112       106       -       -       1,112       106  
Other comprehensive income (loss), net of tax
    (11,357 )     9,694       356       (101 )     (11,001 )     9,593  
Comprehensive income (loss)
  $ 2,835     $ 24,952     $ 219     $ (167 )   $ 3,054     $ 24,785  


   
Six Months Ended March 31,
 
 
 
Matthews
   
Noncontrolling Interest
   
Total
 
   
2013
   
2012
   
2013
   
2012
   
2013
   
2012
 
                                     
Net income (loss):
  $ 22,447     $ 26,543     $ (389 )   $ 69     $ 22,058     $ 26,612  
Other comprehensive income (loss), net of tax:
                                               
  Foreign currency translation adjustment
    (5,934 )     3,202       55       (68 )     (5,879 )     3,134  
  Pension plans and other postretirement benefits
    2,147       2,045       -       -       2,147       2,045  
  Unrecognized gain (loss) on derivatives:
                                               
     Net change from periodic revaluation
    497       (661 )     -       -       497       (661 )
     Net amount reclassified to earnings
    1,238       866       -       -       1,238       866  
       Net change in unrecognized gain (loss)
                                               
         on derivatives
    1,735       205       -       -       1,735       205  
Other comprehensive income (loss), net of tax
    (2,052 )     5,452       55       (68 )     (1,997 )     5,384  
Comprehensive income (loss)
  $ 20,395     $ 31,995     $ (334 )   $ 1     $ 20,061     $ 31,996  


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




 
4

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the six months ended March 31, 2013 and 2012 (Unaudited)
(Dollar amounts in thousands, except per share data)


   
Shareholders’ Equity
 
                     
Accumulated
                   
         
Additional
         
Other
         
Non-
       
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
   
controlling
       
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Stock
   
interests
   
Total
 
Balance,
   September 30, 2011
  $ 36,334     $ 48,554     $ 681,658     $ (58,658   $ (243,246 )   $ 3,451     $ 468,093  
Net income
    -       -       26,543       -       -       69       26,612  
Minimum pension liability
    -       -       -       2,045       -       -       2,045  
Translation adjustment
    -       -       -       3,202       -       (68     3,134  
Fair value of derivatives
    -       -       -       205       -       -       205  
Total comprehensive income
                                                    31,996  
Stock-based compensation
    -       2,731       -       -       -       -       2,731  
Purchase of 354,040 shares of treasury stock
    -       -       -       -       (11,298 )     -       (11,298 )
Issuance of 183,765 shares of treasury stock
    -       (5,421     -       -       5,674       -       253  
Dividends, $.18 per share
    -       -       (5,093     -       -       -       (5,093 )
Distributions to
   noncontrolling interests
    -       -       -       -       -       (170     (170 )
Balance, March 31, 2012
  $ 36,334     $ 45,864     $ 703,108     $ (53,206   $ (248,870 )   $ 3,282     $ 486,512  


   
Shareholders’ Equity
 
                     
Accumulated
                   
         
Additional
         
Other
         
Non-
       
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
   
controlling
       
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Stock
   
interests
   
Total
 
Balance,
   September 30, 2012
  $ 36,334     $ 47,893     $ 727,176     $ (65,083   $ (268,499 )   $ 2,613     $ 480,434  
Net income
    -       -       22,447       -       -       (389     22,058  
Minimum pension liability
    -       -       -       2,147       -       -       2,147  
Translation adjustment
    -       -       -       (5,934     -       55       (5,879
Fair value of derivatives
    -       -       -       1,735       -       -       1,735  
Total comprehensive income
                                                    20,061  
Stock-based compensation
    -       2,757       -       -       -       -       2,757  
Purchase of 237,132 shares of treasury stock
    -       -       -       -       (7,259 )     -       (7,259 )
Issuance of 213,648 shares of treasury stock
    -       (6,259     -       -       6,783       -       524  
Dividends, $.20 per share
    -       -       (5,563     -       -       -       (5,563 )
Arrangement with noncontrolling interests
                    4,980       -       -       1,653       6,633  
Distributions to
   noncontrolling interests
    -       -       -       -       -       (273     (273 )
Balance, March 31, 2013
  $ 36,334     $ 44,391     $ 749,040     $ (67,135   $ (268,975 )   $ 3,659     $ 497,314  



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



 
5

 

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


   
Six Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
             
Cash flows from operating activities:
           
Net income
  $ 22,058     $ 26,612  
Adjustments to reconcile net income to net cash
provided by operating activities:
               
Depreciation and amortization
    17,314       14,532  
Stock-based compensation expense
    2,757       2,731  
Gain on sale of assets
    (1,110 )     (4,511 )
Change in deferred taxes
    (787 )     (1,349 )
Changes in working capital items
    (10,554 )     (17,305 )
(Increase) decrease in other assets
    (95 )     1,528  
Decrease in other liabilities
    (2,785 )     (2,318 )
Increase in pension and postretirement benefits
    6,642       6,266  
                 
Net cash provided by operating activities
    33,440       26,186  
                 
Cash flows from investing activities:
               
Capital expenditures
    (10,947 )     (15,921 )
Proceeds from sale of assets
    221       357  
Acquisitions, net of cash acquired
    (63,769 )     (1,388 )
Purchases of investments
    -       (950 )
                 
Net cash used in investing activities
    (74,495 )     (17,902 )
                 
Cash flows from financing activities:
               
Proceeds from long-term debt
    113,569       7,984  
Payments on long-term debt
    (54,055 )     (7,667 )
Payments of contingent consideration
    (9,542 )     -  
Proceeds from the sale of treasury stock
    524       268  
Purchases of treasury stock
    (7,259 )     (11,298 )
Dividends
    (5,563 )     (5,093 )
Distributions to noncontrolling interests
    (273 )     (170 )
                 
Net cash provided by (used in) financing activities
    37,401       (15,976 )
                 
Effect of exchange rate changes on cash
    (3,077 )     701  
                 
Net change in cash and cash equivalents
  $ (6,731 )   $ (6,991 )
                 
Non-cash investing and financing activities:
               
Acquisition of equipment under capital lease
  $ -     $ 420  

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

 
6

 

MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2013
(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 and granite 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 and fulfillment systems and merchandising solutions.  The Company's products and operations are comprised of six business segments:  Cemetery Products, Funeral Home Products, Cremation, Graphics Imaging, Marking and Fulfillment Systems and Merchandising Solutions.  The Cemetery Products segment is a leading manufacturer of cast bronze and granite memorials and other memorialization products, cast and etched architectural products and is a leading builder of mausoleums in the United States.  The Funeral Home Products segment is a leading casket manufacturer and distributor in North America and produces a wide variety of wood, metal and cremation caskets.  The Cremation segment is a leading designer and manufacturer of cremation equipment in North America and Europe. 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 and Fulfillment Systems segment designs, manufactures and distributes a wide range of marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.  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. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  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, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013. 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, 2012.  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.


 
7

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), 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.  A three level fair value hierarchy is used 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.

The fair values of the Company’s assets and liabilities measured on a recurring basis are categorized as follows:

   
March 31, 2013
   
September 30, 2012
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                                               
Trading
  securities
  $ 16,715       -       -     $ 16,715     $ 16,265       -       -     $ 16,265  
Total assets at
  fair value
  $ 16,715       -       -     $ 16,715     $ 16,265       -       -     $ 16,265  
                                                                 
Liabilities:
                                                               
Derivatives (1)
    -     $ 6,289       -     $ 6,289       -     $ 9,133       -     $ 9,133  
Total liabilities
  at fair value
    -     $ 6,289       -     $ 6,289       -     $ 9,133       -     $ 9,133  
                                                                 
(1) Interest rate swaps are valued based on observable market swap rates.
 

Note 4.   Inventories

Inventories consisted of the following:

   
March 31, 2013
   
September 30, 2012
 
             
Raw Materials
  $ 43,550     $ 41,003  
Work in process
    27,408       22,772  
Finished goods
    66,482       66,915  
    $ 137,440     $ 130,690  


 
8

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), 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 $400,000 and borrowings under the facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% based on the Company’s leverage ratio.  The facility’s maturity is March 2017.  The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization).  The Company is required to pay an annual commitment fee ranging from .20% to .30% (based on the Company’s leverage ratio) of the unused portion of the facility.

The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios.  A portion of the facility (not to exceed $25,000) is available for the issuance of trade and standby letters of credit. Outstanding borrowings on the Revolving Credit Facility at March 31, 2013 and September 30, 2012 were $325,000 and $281,323, respectively.  The weighted-average interest rate on outstanding borrowings on this facility at March 31, 2013 and 2012 was 2.98% and 2.89%, respectively.

The Company has entered into the following interest rate swaps:

Effective Date
Amount
Fixed Interest Rate
Interest Rate Spread at March 31, 2013
 
Maturity Date
May 2011
$25,000
1.37%
1.50%
May 2014
October 2011
  25,000
1.67%
1.50%
October 2015
November 2011
  25,000
2.13%
1.50%
November 2014
March 2012
  25,000
2.44%
1.50%
March 2015
June 2012
  40,000
1.88%
1.50%
June 2022
August 2012
  35,000
1.74%
1.50%
June 2022
September 2012
  25,000
3.03%
1.50%
December 2015
September 2012
  25,000
1.24%
1.50%
March 2017
November 2012
  25,000
1.33%
1.50%
November 2015

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of the future variable interest payments under the Revolving Credit Facility, which are considered probable of occurring.  Based on the Company’s assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss of $6,289 ($3,837 after tax) and $6,825 ($4,163 after tax) at March 31, 2013 and 2012, respectively, that is included in shareholders’ equity as part of accumulated other comprehensive loss (“AOCL”).  Assuming market rates remain constant with the rates at March 31, 2013, approximately $1,664 of the $3,837 loss included in AOCL is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.






 
9

 

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

Note 5.  Debt (continued)

At March 31, 2013 and September 30, 2012, 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, 2013
   
September 30, 2012
 
Current liabilities:
           
Other current liabilities
  $ 2,727     $ 2,851  
Long-term liabilities
               
Other liabilities
    3,562       6,282  
Total derivatives
  $ 6,289     $ 9,133  

The loss recognized on derivatives was as follows:

 
Location of
           
Derivatives in
Loss
 
Amount of
   
Amount of
 
Cash Flow
Recognized in
 
Loss Recognized
   
Loss Recognized
 
Hedging
Income on
 
in Income
   
in Income
 
Relationships
Derivative
 
on Derivatives
   
on Derivatives
 
     
Three Months ended March 31,
   
Six Months ended March 31,
 
     
2013
   
2012
   
2013
   
2012
 
                           
Interest rate swaps
Interest expense
    $(1,026)       $(733)       $(2,029)       $(1,420)  
                                   

The Company recognized the following losses in AOCL:

               
       
Location of
     
       
Gain or
     
       
(Loss)
 
Amount of Loss
 
       
Reclassified
 
Reclassified from
 
   
Amount of
 
From
 
AOCL into
 
Derivatives in
 
Gain or (Loss) Recognized in
 
AOCL into
 
Income
 
Cash Flow
 
AOCL on Derivatives
 
Income
 
(Effective Portion*)
 
Hedging Relationships
 
March 31,
2013
   
March 31,
2012
 
(Effective
Portion*)
 
March 31, 2013
   
March 31,
2012
 
                           
Interest rate swaps
    $497       $(661)  
Interest expense
    $(1,238)       $(866)  
                                   
*There is no ineffective portion or amount excluded from effectiveness testing.
 

In March 2013, the Company, through certain of its European subsidiaries, entered into a credit facility with a European bank.  The maximum amount of borrowing available under this facility was 25.0 million Euros ($32,000).  Outstanding borrowings under the credit facility totaled 25.0 million Euros ($32,000) at March 31, 2013. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2013 was 1.37%.


 
10

 

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

Note 5.  Debt (continued)

The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks.  Outstanding borrowings under these loans totaled 2.9 million Euros ($3,719) and 8.2 million Euros ($10,514) at March 31, 2013 and September 30, 2012, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at March 31, 2013 and 2012 was 3.89% and 6.10%, respectively.

The Company, through its German subsidiary, Wetzel GmbH (“Wetzel”), acquired in November 2012, has several loans with various European banks.  Outstanding borrowings under these loans totaled 8.3 million Euros ($10,701) at March 31, 2013.  The weighted-average interest rate on outstanding borrowings of Wetzel at March 31, 2013 was 7.17%.

The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks.  Outstanding borrowings on these loans totaled 5.3 million Euros ($6,767) and 6.3 million Euros ($8,080) at March 31, 2013 and September 30, 2012, respectively.  Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($14,574) with the same Italian banks.  Outstanding borrowings on these lines were 5.2 million Euros ($6,714) and 3.4 million Euros ($4,322) at March 31, 2013 and September 30, 2012, respectively.  The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at March 31, 2013 and 2012 was 3.16% and 3.15%, respectively.

As of March 31, 2013 and September 30, 2012 the fair value of the Company’s long-term debt, including current maturities, approximated the carrying value included in the Condensed Consolidated Balance Sheet.

Note 6.   Share-Based Payments

The Company maintains an equity incentive plan (the “2007 Equity Incentive Plan”) that provides for the grants of stock options, restricted shares, stock-based performance units and certain other types of stock-based awards.  The Company also maintains a stock incentive plan (the “1992 Incentive Stock Plan”) that previously provided for grants of stock options, restricted shares and certain other types of stock-based awards.  In February 2013, the Company’s shareholders approved the adoption of a new plan, the 2012 Equity Incentive Plan (“the 2012 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 2012 Plan, which has a ten-year term, the maximum number of shares available for grants or awards is an aggregate of 2,500,000.  There will be no further grants under the 2007 Equity Incentive Plan or the 1992 Incentive Stock Plan.  At March 31, 2013, there were 2,500,000 shares reserved for future issuance under the 2012 Equity Incentive Plan. All 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 pre-defined levels of 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, for grants made prior to fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, with the remaining one-half of the shares vesting in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company’s Class A Common Stock.  For grants made in fiscal 2013, generally one-half of the shares vest on the third anniversary of the grant, one-quarter of the shares vest in one-third increments upon the attainment of pre-defined levels of adjusted earnings per share, and the remaining one-quarter of the shares vest in one-third increments upon attainment of pre-defined levels of appreciation in the market value of the Company’s Class A Common Stock.  Additionally, 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 
 
 
 
11

 

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

Note 6.   Share-Based Payments (continued)

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, 2013 and 2012, total stock-based compensation cost totaled $1,378 and $1,319, respectively.  For the six-month periods ended March 31, 2013 and 2012, total stock-based compensation cost totaled $2,757 and $2,731, respectively.  The associated future income tax benefit recognized was $537 and $514 for the three-month periods ended March 31, 2013 and 2012, respectively, and $1,075 and $1,065 for the six-month periods ended March 31, 2013 and 2012, respectively.

For the three-month periods ended March 31, 2013 and 2012, the amount of cash received from the exercise of stock options was $48 and $237, respectively. For the six-month periods ended March 31, 2013 and 2012, the amount of cash received from the exercise of stock options was $523 and $265, respectively. In connection with these exercises, the tax benefits realized by the Company were $3 and $19 for the three-month periods ended March 31, 2013 and 2012, respectively, and $66 and $22 for the six-month periods ended March 31, 2013 and 2012, respectively.

The transactions for restricted stock for the six months ended March 31, 2013 were as follows:

         
Weighted-
 
         
average
 
         
grant-date
 
   
Shares
   
fair value
 
Non-vested at September 30, 2012
    551,389     $ 32.56  
Granted
    236,500       25.22  
Vested
    (73,710     37.31  
Expired or forfeited
    (42,956     30.82  
Non-vested at March 31, 2013
    671,223       29.57  

As of March 31, 2013, the total unrecognized compensation cost related to unvested restricted stock was $6,484 and is expected to be recognized over a weighted average period of 1.8 years.

The transactions for shares under options for the six months ended March 31, 2013 were as follows:

               
Weighted-
       
         
Weighted-
   
average
   
Aggregate
 
         
average
   
remaining
   
intrinsic
 
   
Shares
   
exercise price
   
contractual term
   
value
 
Outstanding, September 30, 2012
    840,282       $37.15              
Granted
    -       -              
Exercised
    (23,141 )     22.59              
Expired or forfeited
    (47,683 )     37.09              
Outstanding, March 31, 2013
    769,458       37.60       2.6       $  -  
Exercisable, March 31, 2013
    433,220       36.69       2.4       $  -  

No shares were earned during the three-month and six-month periods ended March 31, 2013 and 2012, 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, 2013 and 2012 was $190 and $57, respectively.

 
12

 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), 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, 2013 were as follows:

         
Weighted-average
 
         
grant-date
 
Non-vested shares
 
Shares
   
fair value
 
Non-vested at September 30, 2012
    355,872       $11.35  
Granted
    -       -  
Vested
    -       -  
Expired or forfeited
    (19,634 )     12.16  
Non-vested at March 31, 2013
    336,238       11.30  

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 March 31, 2013 and 2012.

   
Six Months Ended March 31,
 
   
2013
   
2012
 
Expected volatility
    29.5 %     30.4 %
Dividend yield
    1.2 %     1.0 %
Average risk free interest rate
    0.6 %     0.9 %
Average expected term (years)
    2.0       2.0  


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 (except for the Chairman of the Board) 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.  The equivalent amount paid to a non-employee Chairman of the Board is $130. 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 17,005 shares had been deferred under the Director Fee Plan at March 31, 2013.  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 $100.  A total of 22,300 stock options have been granted under the plan.  At March 31, 2013, 11,800 options were outstanding and vested. Additionally, 103,150 shares of restricted stock have been granted under the plan, 38,227 of which were unvested at March 31, 2013.  A total of 300,000 shares have been authorized to be issued under the Director Fee Plan.


 
13

 

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


Note 7.   Earnings Per Share Attributable to Matthews’ Shareholders

The information used to compute earnings per share attributable to Matthews’ common shareholders was as follows:

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
   
2013
   
2012
   
2013
   
2012
 
Net income attributable to Matthews shareholders
  $ 14,192     $ 15,258     $ 22,447     $ 26,543  
Less: dividends and undistributed earnings
allocated to participating securities
    145       224       251       436  
Net income available to Matthews shareholders
  $ 14,047     $ 15,034     $ 22,196     $ 26,107  
                                 
Weighted-average shares outstanding (in thousands):
                               
Basic shares
    27,369       27,926       27,312       27,933  
Effect of dilutive securities
    143       42       99       80  
Diluted shares
    27,512       27,968       27,411       28,013  
                                 

Options to purchase 730,642 and 749,667 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, 2013, respectively, because the inclusion of these options would be anti-dilutive.  Options to purchase 786,292 and 786,667 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, 2012, 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 plans to certain employees. Net periodic pension and other postretirement benefit cost for the plans included the following:

 
   
Three months ended March 31,
 
   
Pension
   
Other Postretirement
 
   
2013
   
2012
   
2013
   
2012
 
                         
Service cost
  $ 1,685     $ 1,424     $ 199     $ 182  
Interest cost
    1,913       1,950       282       321  
Expected return on plan assets
    (2,243 )     (1,953 )     -       -  
Amortization:
                               
   Prior service cost
    (52 )     (11 )     (68 )     (113 )
   Net actuarial loss
    1,806       1,680       110       134  
                                 
Net benefit cost
  $ 3,109     $ 3,090     $ 523     $ 524  


 
14

 

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

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

   
Six months ended March 31,
 
   
Pension
   
Other Postretirement
 
   
2013
   
2012
   
2013
   
2012
 
                         
Service cost
  $ 3,370     $ 2,848     $ 398     $ 364  
Interest cost
    3,826       3,900       564       642  
Expected return on plan assets
    (4,486 )     (3,906 )     -       -  
Amortization:
                               
Prior service cost
    (104 )     (22 )     (136 )     (226 )
Net actuarial loss
    3,612       3,360       220       268  
                                 
Net benefit cost
  $ 6,218     $ 6,180     $ 1,046     $ 1,048  

Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the postretirement benefit plan are made from the Company’s operating funds.  Under IRS regulations, the Company is not required to make any significant contributions to its principal retirement plan in fiscal year 2013.

Contributions made and anticipated for fiscal year 2013 are as follows:

Contributions
 
Pension
   
Other Postretirement
 
             
Contributions during the six months ended March 31, 2013:
           
   Supplemental retirement plan
  $ 362     $ -  
   Other postretirement plan
    -       441  
                 
Additional contributions expected in fiscal 2013:
               
   Supplemental retirement plan
    358       -  
   Other postretirement plan
    -       665  

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, 2013 was 35.0%, compared to 34.5% for the first half of fiscal 2012. The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.

The Company had unrecognized tax benefits (excluding penalties and interest) of $3,074 and $2,708 on March 31, 2013 and September 30, 2012, respectively, all of which, if recorded, would impact the 2013 annual effective tax rate.  It is reasonably possible that $36 of the unrecognized tax benefits could be recognized 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 $187 in interest and penalties in the provision for income taxes for the first six months of fiscal 2013. Total penalties and interest accrued were $2,058 and $1,871 at March 31, 2013 and September 30, 2012, respectively.  These accruals may potentially be applicable in the event of an unfavorable outcome of uncertain tax positions.



 
15

 

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


Note 9.   Income Taxes (continued)

The Company is currently under examination in several tax jurisdictions and remains subject to examination until the statute of limitations expires for those tax jurisdictions.  As of March 31, 2013, the tax years that remain subject to examination by major jurisdiction generally are:

United States – Federal
2010 and forward
United States – State
2009 and forward
Canada
2008 and forward
Europe
2004 and forward
United Kingdom
2010 and forward
Australia
2009 and forward
Asia
2005 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 (Cemetery Products, Funeral Home Products, Cremation) and Brand Solutions (Graphics Imaging, Marking and Fulfillment Systems, Merchandising Solutions).  Management evaluates segment performance based on operating profit (before income taxes) and does not allocate non-operating items such as investment income, interest expense, other income (deductions), net and minority interests.

Information about the Company's segments follows:


   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
 
 
2013
   
2012
   
2013
   
2012
 
Sales to external customers:
                       
Memorialization:
                       
Cemetery Products
  $ 55,690     $ 53,575     $ 108,514     $ 98,725  
Funeral Home Products
    67,996       61,767       128,753       120,338  
Cremation
    12,320       11,098       23,422       20,532  
      136,006       126,440       260,689       239,595  
Brand Solutions:
                               
Graphics Imaging
    78,519       64,839       140,954       135,282  
Marking and Fulfillment Systems
    22,350       17,756       40,265       34,139  
Merchandising Solutions
    19,515       16,510       40,091       33,742  
      120,384       99,105       221,310       203,163  
                                 
    $ 256,390     $ 225,545     $ 481,999     $ 442,758  



 
16

 

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


Note 10.   Segment Information (continued)

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
 
 
2013
   
2012
   
2013
   
2012
 
Operating profit:
                       
Memorialization:
                       
Cemetery Products
  $ 5,851     $ 10,165     $ 12,223     $ 14,700  
Funeral Home Products
    9,751       7,327       17,444       13,815  
Cremation
    997       1,232       1,472       1,989  
      16,599       18,724       31,139       30,504  
Brand Solutions:
                               
Graphics Imaging
    5,510       3,731       5,802       8,712  
Marking and Fulfillment Systems
    2,407       2,045       2,783       3,413  
Merchandising Solutions
    554       787       1,845       1,583  
      8,471       6,563       10,430       13,708  
                                 
    $ 25,070     $ 25,287     $ 41,569     $ 44,212  

Note 11.   Acquisitions

In March 2013, the Company completed the purchase of the remaining 38.5% interest in Kroma Pre-Press Preparation Systems Industry & Trade, Inc. (“Kroma”), completing the option arrangement in connection with the July 2011 acquisition of a 61.5% interest in Kroma.

In March 2013, the Company completed the purchase of the remaining 20% interest in Furnace Construction Cremators Limited (“FCC”).  The Company had acquired an 80% interest in FCC in March 2010.

In December 2012, the Company acquired Pyramid Controls, Inc. and its affiliate, Pyramid Control Systems (collectively, “Pyramid”).  Pyramid is a provider of warehouse control systems and conveyor control solutions for distribution centers.  The acquisition is designed to expand Matthews' fulfillment products and services in the warehouse management market.   The initial purchase price for the transaction was $24,532, plus potential additional consideration up to $3,700 based on future operating results. 

In November 2012, the Company completed the acquisition of Wetzel Holding AG, Wetzel GmbH and certain related affiliates (collectively “Wetzel”).  Wetzel is a leading European provider of pre-press services and gravure printing forms, with manufacturing operations in Germany and Poland.  Wetzel’s products and services are sold primary within Europe, and the acquisition is designed to expand Matthews' products and services in the global graphics imaging market.  The purchase price for Wetzel was 42.6 million Euros ($54,748) on a cash-free, debt-free basis.

The allocation of purchase price for the Wetzel and Pyramid acquisitions are preliminary.  The Company has allocated the additional purchase price to goodwill.  Adjustments are expected to other intangibles and property, plant and equipment once the valuations are finalized.

 
17

 

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


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.

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

   
Cemetery
   
Funeral Home
         
Graphics
   
Marking and Fulfillment
   
Merchandising
       
   
Products
   
Products
   
Cremation
   
Imaging
   
Products
   
Solutions
   
Consolidated
 
                                           
Goodwill
  $ 97,783     $ 162,876     $ 17,558     $ 167,262     $ 30,816     $ 9,138     $ 485,433  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at September 30, 2012
    97,371       162,876       12,558       163,422       30,816       9,138       476,181  
                                                         
Additions during period
    914       199       269       30,303       24,961       -       56,646  
Translation and other  adjustments
    (97 )     -       (242 )     (1,675 )     56       -       (1,958 )
Goodwill
    98,600       163,075       17,585       195,890       55,833       9,138       540,121  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at March 31, 2013
  $ 98,188     $ 163,075     $ 12,585     $ 192,050     $ 55,833     $ 9,138     $ 530,869  

The addition to Graphics Imaging goodwill reflects the acquisition of Wetzel; the addition to Marking and Fulfillment Systems goodwill reflects the acquisition of Pyramid; the addition to Cemetery Products goodwill reflects the acquisition of a small bronze manufacturer in Europe; the addition to Cremation goodwill reflects the acquisition of the remaining 20% interest in FCC; and the addition to Funeral Home Products primarily represents the effect of an adjustment to the purchase price for a small casket distributor.

 
18

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), 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, 2013 and September 30, 2012, respectively.

   
Carrying
   
Accumulated
   
Impairment
       
   
Amount
   
Amortization
   
Loss
   
Net
 
March 31, 2013:
                       
Trade names
  $ 24,119     $ - *   $ (1,520 )   $ 22,599  
Trade names
    2,174       (1,775 )     -       399  
Customer relationships
    47,499       (16,893 )     -       30,606  
Copyrights/patents/other
    9,772       (8,548 )     -       1,224  
    $ 83,564     $ (27,216 )   $ (1,520 )   $ 54,828  
                                 
September 30, 2012:
                               
Trade names
  $ 24,488     $ - *   $ -     $ 24,488  
Trade names
    2,182       (1,571 )     -       611  
Customer relationships
    47,654       (15,689 )     -       31,965  
Copyrights/patents/other
    9,920       (7,969 )     -       1,951  
    $ 84,244     $ (25,229 )   $ -     $ 59,015  
* Not subject to amortization
                         

The net change in intangible assets during the six months ended March 31, 2013 included the impact of an impairment loss in the Graphic Imaging segment, foreign currency fluctuations during the period, and additional amortization.

Amortization expense on intangible assets was $943 and $1,004 for the three-month periods ended March 31, 2013 and 2012, respectively.  For the six-month periods ended March 31, 2013 and 2012, amortization expense was $1,886 and $2,009, respectively. Amortization expense is estimated to be $1,805 for the remainder of 2013, $3,316 in 2014, $3,058 in 2015, $2,768 in 2016 and $2,568 in 2017.



 
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, 2012.  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 sales and operating profit for the Company’s Memorialization and Brand Solutions businesses for the periods indicated.

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
 
 
2013
   
2012
   
2013
   
2012
 
Sales:
                       
Memorialization
  $ 136,006     $ 126,440     $ 260,689     $ 239,595  
Brand Solutions
    120,384       99,105       221,310       203,163  
    $ 256,390     $ 225,545     $ 481,999     $ 442,758  
                                 
Operating Profit:
                               
Memorialization
  $ 16,599     $ 18,724     $ 31,139     $ 30,504  
Brand Solutions
    8,471       6,563       10,430       13,708  
    $ 25,070     $ 25,287     $ 41,569     $ 44,212  


Sales for the six months ended March 31, 2013 were $482.0 million, compared to $442.8 million for the six months ended March 31, 2012.  Higher sales were reported in each of the Company’s segments, reflecting volume growth in several of the Company’s segments and the impact of recent acquisitions.

In the Memorialization businesses, Cemetery Products segment sales for the first six months of fiscal 2013 were $108.5 million compared to $98.7 million for the first six months of fiscal 2012.  The increase resulted primarily from the acquisition of Everlasting Granite in May 2012. Sales for the Funeral Home Products segment were $128.8 million for the first six months of fiscal 2013 compared to $120.3 million for the same period in fiscal 2012.  The increase resulted principally from higher unit volume to funeral homes and an improvement in price realization. Sales for the Cremation segment were $23.4 million for the first half of fiscal 2013 compared to $20.5 million for the same period a year ago. The increase principally reflected higher equipment sales in all of the segment’s principal markets and the benefit of a small acquisition completed in fiscal 2012.
 
 
 
20

 
 
In the Brand Solutions businesses, sales for the Graphics Imaging segment in the first six months of fiscal 2013 were $141.0 million, compared to $135.3 million for the same period a year ago.  The increase resulted principally from the acquisition of Wetzel Holding AG and certain of its subsidiaries (collectively “Wetzel”) in late November 2012, partially offset by lower sales volume in the segment’s principal markets, particularly Europe, and the unfavorable impact of changes in foreign currency values against the U.S. dollar.  Marking and Fulfillment Systems segment sales for the six months ended March 31, 2013 were $40.3 million, compared to $34.1 million for the first six months of fiscal 2012.  The increase resulted principally from the acquisition of Pyramid Controls, Inc. (“Pyramid”) in December 2012 and higher sales in the U.S. market.  Sales for the Merchandising Solutions segment were $40.1 million for the first half of fiscal 2013, compared to $33.7 million for the same period a year ago.  The increase principally reflected higher sales volume.
 
Consolidated gross profit for the six months ended March 31, 2013 was $174.8 million, compared to $162.7 million for the six months ended March 31, 2012.  Consolidated gross profit as a percent of sales for the first half of fiscal 2013 decreased to 36.3% from 36.7% for the first half of fiscal 2012.  The increase in consolidated gross profit primarily reflected higher sales.  The decrease in consolidated gross profit as a percentage of sales primarily reflected lower margins in the Cemetery Products and Graphics Imaging segments.

Selling and administrative expenses for the six months ended March 31, 2013 were $133.3 million, compared to $118.5 million for the first half of fiscal 2012.  Consolidated selling and administrative expenses as a percent of sales were 27.6% for the six months ended March 31, 2013, compared to 26.8% for the same period last year.  The increase in selling and administrative expenses was primarily attributable to higher sales and the impact of unusual charges in fiscal 2013, compared to fiscal 2012.

Operating profit for the six months ended March 31, 2013 was $41.6 million, compared to $44.2 million for the six months ended March 31, 2012.  Unusual charges were a significant factor in the decrease in fiscal 2013 operating profit compared to fiscal 2012.  Unusual items totaled $5.7 million for the current period, primarily reflecting the cost of the Company’s strategic initiatives, acquisition-related activities and an impairment of a trade name.  Unusual charges last year primarily reflected ERP implementation and acquisition costs.  Cemetery Products segment operating profit for the six months ended March 31, 2013 was $12.2 million, compared to $14.7 million for the first half of fiscal 2012.  The decrease primarily reflected unusual charges of approximately $3.0 million associated with the Company’s strategic initiatives, including the segment’s ERP implementation.  In addition, fiscal 2012 included a favorable settlement on a claim related to the Company’s granite business.  Funeral Home Products segment operating profit was $17.4 million for the first six months of fiscal 2013, compared to $13.8 million for the same period in fiscal 2012.  The increase primarily reflected the impact of higher sales and the benefit of improved production and distribution efficiencies.  Cremation segment operating profit for the first half of fiscal 2013 was $1.5 million, compared to $2.0 million for the same period in the prior year.  The decrease principally reflected lower margins on several European-based projects, higher material costs in the U.K., compliance costs in connection with new regulations in Italy and charges in connection with strategic reduction initiatives.  Graphics Imaging segment operating profit for the six months ended March 31, 2013 was $5.8 million, compared to $8.7 million for the same period in fiscal 2012.  The decrease resulted mainly from lower sales (excluding the Wetzel acquisition) and the unfavorable impact of unusual items of approximately $1.2 million.   The segment’s unusual items included charges related to acquisition activities and strategic initiatives, and an impairment charge related to the carrying value of an intangible asset.  These charges were partially offset by a gain on the final settlement of the purchase of the remaining ownership interest in one of the Company’s subsidiaries.  Operating profit for the Marking and Fulfillment Systems segment for the first half of fiscal 2013 was $2.8 million, compared to $3.4 million for the same period a year ago.  The decrease primarily resulted from an unfavorable change in product mix and charges related to strategic initiatives.  Merchandising Solutions segment operating profit was $1.8 million for the first six months of fiscal 2013, compared to $1.6 million for the same period in fiscal 2012, primarily reflecting higher sales.

Investment income was $840,000 for the six months ended March 31, 2013, compared to $2.8 million for the six months ended March 31, 2012.  The decrease reflected lower rates of return on investments held in trust for certain of the Company’s benefit plans.  Interest expense was approximately $6.3 million for the first six months of fiscal 2013, compared to $5.3 million for the first six months of fiscal 2012. The increase primarily reflected higher debt levels compared to a year ago.  Other income (deductions), net for the six months ended March 31, 2013 represented a decrease in pre-tax income of $2.2 million, compared to $1.2 million for the same period last year.  Other income and deductions generally include banking-related fees and the impact of currency gains and losses on certain intercompany debt.
 
 
 
21

 

 
The Company's effective tax rate for the six months ended March 31, 2013 was 35.0%, compared to 34.5% for the first half of fiscal 2012 and 34.2% for the fiscal 2012 full year.  The fiscal 2012 full year effective tax rate included the favorable impact of adjustments totaling $528,000 in income tax expense, primarily related to changes in the estimated tax accruals for open tax periods.  Excluding those adjustments, the Company’s effective tax rate for fiscal 2012 was 34.8%.  The increase in the effective tax rate for the first six months of fiscal 2013 primarily reflected the impact of a higher level of earnings generated in the U.S.  The difference between the Company's effective tax rate and the Federal statutory rate of 35.0% primarily reflected the impact of state taxes, offset by lower foreign income taxes.

Net earnings attributable to noncontrolling interests was a loss of $389,000 in the first half of fiscal 2013, compared to net income of $69,000 for the same period a year ago.  The decrease related principally to net losses recorded by the Company’s Italian cremation operation and Turkish graphics business in fiscal 2013.

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.  The Company performed its annual impairment review in the second quarter of fiscal 2013 and determined that no additional adjustments to the carrying values of goodwill were necessary at March 31, 2013.  As discussed under “Results of Operations”, recent economic conditions in Europe have unfavorably impacted the operating results of the Graphics Imaging segment.  Consequently, the Graphics Imaging reporting unit’s implied fair value is approaching the unit’s carrying value.  If the segment’s operating results deteriorate further, an impairment charge could be required in future periods.

The Company also performed its annual impairment review of other intangible assets in the second quarter of fiscal 2013.  Based on this assessment, the Company recorded an impairment charge of approximately $1.6 million related to the carrying value of a trade name of one of its European Graphics businesses.  The impairment was determined based upon a comparison of the carrying value of the trade name to its implied fair market value.

Liquidity and Capital Resources:

Net cash provided by operating activities was $33.4 million for the six months ended March 31, 2013, compared to $26.2 million for the first six months of fiscal 2012. Operating cash flow for both periods reflected net income adjusted for depreciation, amortization, stock-based compensation expense and pension expense, partially offset by decreases in deferred taxes.   The increase in operating cash flows primarily reflected cash management related to the payment of current liabilities.

Cash used in investing activities was $74.5 million for the six months ended March 31, 2013, compared to $17.9 million for the six months ended March 31, 2012.  Investing activities for the first half of fiscal 2013 primarily reflected capital expenditures of $10.9 million and payments (net of cash acquired) of $63.8 million for acquisitions (primarily Wetzel and Pyramid).  Investing activities for the first half of fiscal 2012 primarily reflected capital expenditures of $15.9 million, payments (net of cash acquired) of $1.4 million for acquisitions, net purchases of investments of $950,000 and proceeds from sale of assets of $357,000.

Capital expenditures reflected reinvestment in the Company's business segments and were made primarily for the purchase of new manufacturing machinery, equipment and facilities designed to improve product quality, increase manufacturing efficiency, lower production costs and meet regulatory requirements.  Capital expenditures for the last three fiscal years were primarily financed through operating cash.  Capital spending for property, plant and equipment has averaged $25.7 million for the last three fiscal years.  Capital spending for fiscal 2013 is currently expected to be approximately $30.0 million.  The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects.
 
 
 
22

 

 
Cash provided by financing activities for the six months ended March 31, 2013 was $37.4 million, primarily reflecting long-term debt proceeds, net of repayments, of $59.5 million, contingent consideration payments of $9.5 million in connection with acquisitions, treasury stock purchases of $7.3 million and dividends of $5.6 million to the Company's shareholders.  Cash used in financing activities for the first half of 2012 was $16.0 million, primarily reflecting treasury stock purchases of $11.3 million and dividends of $5.1 million to the Company’s shareholders.

The Company has a domestic Revolving Credit Facility with a syndicate of financial institutions.  The maximum amount of borrowings available under the facility is $400.0 million and borrowings under the facility bear interest at LIBOR plus a factor ranging from 1.00% to 1.50% based on the Company’s leverage ratio.  The facility’s maturity is March 2017.  The leverage ratio is defined as net indebtedness divided by EBITDA (earnings before interest, taxes, depreciation and amortization).  The Company is required to pay an annual commitment fee ranging from .20% to .30% (based on the Company’s leverage ratio) of the unused portion of the facility.  The Revolving Credit Facility requires the Company to maintain certain leverage and interest coverage ratios.  A portion of the facility (not to exceed $25.0 million) is available for the issuance of commercial and standby letters of credit.  Outstanding borrowings on the Revolving Credit Facility as of March 31, 2013 and September 30, 2012 were $325.0 million and $281.3 million, respectively.  The weighted-average interest rate on outstanding borrowings under this facility was 2.98% and 2.89% at March 31, 2013 and 2012, respectively.

The Company has entered into the following interest rate swaps:

Effective Date
Amount
Fixed Interest Rate
Interest Rate Spread at March 31, 2012
 
Maturity Date
May 2011
$25 million
1.37%
1.50%
May 2014
October 2011
25 million
1.67%
1.50%
October 2015
November 2011
25 million
2.13%
1.50%
November 2014
March 2012
25 million
2.44%
1.50%
March 2015
June 2012
40 million
1.88%
1.50%
June 2022
August 2012
35 million
1.74%
1.50%
June 2022
September 2012
25 million
3.03%
1.50%
December 2015
September 2012
25 million
1.24%
1.50%
March 2017
November 2012
25 million
1.33%
1.50%
November 2015

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

The fair value of the interest rate swaps reflected an unrealized loss of $6.3 million ($3.8 million after tax) at March 31, 2013 that is included in shareholders’ equity as part of accumulated other comprehensive loss (“AOCL”).  Assuming market rates remain constant with the rates at March 31, 2013, approximately $1.7 million of the $3.8 million loss included in AOCL is expected to be recognized in earnings as an adjustment to interest expense over the next twelve months.

In March 2013, the Company, through certain of its European subsidiaries, entered into a credit facility with a European bank.  The maximum amount of borrowings available under this facility was 25.0 million Euros ($32.0 million).  Outstanding borrowings under the credit facility totaled 25.0 million Euros ($32.0 million) at March 31, 2013.  The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2013 was 1.37%.

The Company, through its German subsidiary, Saueressig GmbH & Co. KG (“Saueressig”), has several loans with various European banks.  Outstanding borrowings under these loans totaled 2.9 million Euros ($3.7 million) and 8.2 million Euros ($10.5 million) at March 31, 2013 and September 30, 2012, respectively. The weighted-average interest rate on outstanding borrowings of Saueressig at March 31, 2013 and 2012 was 3.89% and 6.10%, respectively.
 
 
 
23

 

 
The Company, through its German subsidiary, Wetzel, has several loans with various European banks.  Outstanding borrowings under these loans totaled 8.3 million Euros ($10.7 million) at March 31, 2013.  The weighted-average interest rate on outstanding borrowings of Wetzel at March 31, 2013 was 7.17%.

The Company, through its wholly-owned subsidiary, Matthews International S.p.A., has several loans with various Italian banks.  Outstanding borrowings on these loans totaled 5.3 million Euros ($6.8 million) and 6.3 million Euros ($8.1 million) at March 31, 2013 and September 30, 2012, respectively.  Matthews International S.p.A. also has four lines of credit totaling 11.4 million Euros ($14.6 million) with the same Italian banks.  Outstanding borrowings on these lines were 5.2 million Euros ($6.7 million) and 3.4 million Euros ($4.3 million) at March 31, 2013 and September 30, 2012, respectively.  The weighted-average interest rate on outstanding Matthews International S.p.A. borrowings at March 31, 2013 and 2012 was 3.16% and 3.15%, respectively.

The Company has a stock repurchase program.  Under the current authorization, the Company’s Board of Directors has authorized the repurchase of a total of 2,500,000 shares of Matthews’ common stock under the program, of which 1,577,519 shares remain available for repurchase as of March 31, 2013.  The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share.  Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company’s Restated Articles of Incorporation.

Consolidated working capital of the Company was $217.5 million at March 31, 2013, compared to $204.4 million at September 30, 2012.  Cash and cash equivalents were $51.5 million at March 31, 2013, compared to $58.3 million at September 30, 2012. The Company's current ratio was 2.2 and 2.1 at March 31, 2013 and September 30, 2012, respectively.

Environmental Matters:

The Company's operations are subject to various federal, state and local laws and regulations relating to the protection of the environment.  These laws and regulations impose limitations on the discharge of materials into the environment and require the Company to obtain and operate in compliance with conditions of permits and other government authorizations.  As such, the Company has developed environmental, health, and safety policies and procedures that include the proper handling, storage and disposal of hazardous materials.

The Company is party to various environmental matters.  These include obligations to investigate and mitigate the effects on the environment of the disposal of certain materials at various operating and non-operating sites.  The Company is currently performing environmental assessments and remediation at these sites, as appropriate.  In addition, prior to its acquisition, The York Group, Inc. (“York”), a wholly-owned subsidiary of the Company, was identified, along with others, by the Environmental Protection Agency as a potentially responsible party for remediation of a landfill site in York, Pennsylvania.  At this time, the Company has not been joined in any lawsuit or administrative order related to the site or its clean-up.

At March 31, 2013, an accrual of approximately $5.9 million had been recorded for environmental remediation (of which $1.3 million was classified in other current liabilities), representing management's best estimate of the probable and reasonably estimable costs of the Company's known remediation obligations.  The accrual, which reflects previously established reserves assumed with the acquisition of York and additional reserves recorded as a purchase accounting adjustment, does not consider the effects of inflation and anticipated expenditures are not discounted to their present value.  Changes in the accrued environmental remediation obligation from the prior fiscal year reflect payments charged against the accrual.

While final resolution of these contingencies could result in costs different than current accruals, management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations or financial position.


 
24

 

Acquisitions:

In March 2013, the Company completed the purchase of the remaining 38.5% interest in Kroma Pre-Press Preparation Systems Industry & Trade, Inc. (“Kroma”), completing the option arrangement in connection with the July 2011 acquisition of a 61.5% interest in Kroma.

In March 2013, the Company completed the purchase of the remaining 20% interest in Furnace Construction Cremators Limited (“FCC”).  The Company had acquired an 80% interest in FCC in March 2010.

In December 2012, the Company acquired Pyramid, a provider of warehouse control systems and conveyor control solutions for distribution centers.  The acquisition is designed to expand Matthews' fulfillment products and services in the warehouse management market.   The initial purchase price for the transaction was $24.5 million, plus potential additional consideration up to $3.7 million based on future operating results. 

In November 2012, the Company completed the acquisition of Wetzel, a leading European provider of pre-press services and gravure printing forms, with manufacturing operations in Germany and Poland.  Wetzel’s products and services are sold primary within Europe, and the acquisition is designed to expand Matthews' products and services in the global graphics imaging market.  The purchase price for Wetzel was 42.6 million Euros ($54.7 million) on a cash-free, debt-free basis.

Forward-Looking Information:

Matthews has a three-pronged strategy to attain annual growth in earnings per share. This strategy consists of the following:  internal growth (which includes organic growth, cost structure and productivity improvements, new product development and the expansion into new markets with existing products), acquisitions and share repurchases under the Company’s stock repurchase program (see "Liquidity and Capital Resources").

The Company’s results for the first six months of fiscal 2013 were impacted by several significant factors, including:
·  
Funeral Home Products segment reported higher sales for the quarter due mainly to increased unit volume of caskets, and generated improved operating margins;
·  
Merchandising Solutions business continued to grow;
·  
recent acquisitions contributed to the Company’s growth for the second quarter;
·  
market conditions in Europe continued to unfavorably impact several of our businesses, particularly the Graphics Imaging segment;
·  
the Company accelerated initiatives to resolve the remaining ERP implementation issues in the Cemetery Products segment;
·  
strategic initiatives are being implemented which are affecting all of the Company’s businesses (these initiatives are ongoing and will result in additional unusual charges); and
·  
several non-operating items (such as investment income and interest expense) affected the comparability of the Company’s year-over-year earnings per share.

Based on the Company’s year-to-date operating results and current forecasts, excluding unusual costs, the Company is projecting growth in fiscal 2013 earnings per share over fiscal 2012.

Critical Accounting Policies:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, economic conditions, and in some cases, actuarial techniques.  Actual results may differ from those estimates.  A discussion of market risks affecting the Company can be found in "Quantitative and Qualitative Disclosures about Market Risk" in this Quarterly Report on Form 10-Q.
 
 
 
25

 

 
A summary of the Company's significant accounting policies are included in the Notes to Consolidated Financial Statements and in the critical accounting policies in Management’s Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended September 30, 2012.  Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the company's operating results and financial condition.

LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:

The following table summarizes the Company’s contractual obligations at March 31, 2013, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

   
Payments due in fiscal year:
 
         
2013
               
After
 
   
Total
   
Remainder
   
2014 to 2015
   
2016 to 2017
   
2017
 
Contractual Cash Obligations:
 
(Dollar amounts in thousands)
 
Revolving credit facilities
  $ 357,045     $ -     $ 32,045     $ 325,000     $ -  
Notes payable to banks
    23,759       7,988       11,035       4,295       441  
Short-term borrowings
    6,714       6,714       -       -       -  
Capital lease obligations
    9,740       1,074       2,783       1,345       4,538  
Non-cancelable operating leases
    22,019       5,656       11,335       3,638       1,390  
                                         
Total contractual cash obligations
  $ 419,277     $ 21,432     $ 57,198     $ 334,278     $ 6,369  


A significant portion of the loans included in the table above bear interest at variable rates.  At March 31, 2013, the weighted-average interest rate was 2.98% on the Company’s domestic Revolving Credit Facility, 1.37% on the credit facility through the Company’s European subsidiaries 3.89% on bank loans to its wholly-owned subsidiary, Saueressig, and 3.16% on bank loans to the Company’s wholly-owned subsidiary, Matthews International S.p.A.

Benefit payments under the Company’s principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company’s operating cash.  The Company is not required to make any significant contributions to its principal retirement plan in fiscal 2013.  During the six months ended March 31, 2013, contributions of $362,000 and $441,000 were made under the supplemental retirement plan and postretirement plan, respectively.  The Company currently anticipates contributing an additional $358,000 and $665,000 under the supplemental retirement plan and postretirement plan, respectively, for the remainder of fiscal 2013.

Unrecognized tax benefits are positions taken, or expected to be taken, on an income tax return that may result in additional payments to tax authorities.  If a tax authority agrees with the tax position taken, or expected to be taken, or the applicable statute of limitations expires, then additional payments will not be necessary.  As of March 31, 2013, the Company had unrecognized tax benefits, excluding penalties and interest, of approximately $3.1 million.  The timing of potential future payments related to the unrecognized tax benefits is not presently determinable. The Company believes that its current liquidity sources, combined with its operating cash flow and borrowing capacity, will be sufficient to meet its capital needs for the foreseeable future.



 
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Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
The following discussion about the Company's market risk involves forward-looking statements.  Actual results could differ materially from those projected in the forward-looking statements.  The Company has market risk related to changes in interest rates, commodity prices and foreign currency exchange rates.  The Company does not generally use derivative financial instruments in connection with these market risks, except as noted below.

Interest Rates - The Company’s most significant long-term debt instrument is the domestic Revolving Credit Facility which bears interest at variable rates based on LIBOR.

The Company has entered into interest rate swaps as listed under “Liquidity and Capital Resources”.

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

The fair value of the interest rate swaps reflected an unrealized loss of $6.3 million ($3.8 million after tax) at March 31, 2013 that is included in equity as part of accumulated other comprehensive loss.  A decrease of 10% in market interest rates (e.g. a decrease from 5.0% to 4.5%) would result in an increase of approximately $703,000 in the fair value liability of the interest rate swaps.

Commodity Price Risks - In the normal course of business, the Company is exposed to commodity price fluctuations related to the purchases of certain materials and supplies (such as bronze ingot, steel, fuel and wood) used in its manufacturing operations. The Company obtains competitive prices for materials and supplies when available. In addition, based on competitive market conditions and to the extent that the Company has established pricing terms with customers through contracts or similar arrangements, the Company’s ability to immediately increase the price of its products to offset the increased costs may be limited.

Foreign Currency Exchange Rates - The Company is subject to changes in various foreign currency exchange rates, including the Euro, British Pound, Canadian Dollar, Australian Dollar, Swedish Krona, Chinese Yuan, Hong Kong Dollar, Polish Zloty, Turkish Lira, Brazilian Real and Vietnamese Dong in the conversion from local currencies to the U.S. dollar of the reported financial position and operating results of its non-U.S. based subsidiaries.  A strengthening of the U. S. dollar of 10% would have resulted in a decrease in reported sales of $15.5 million and a decrease in reported operating income of $1.5 million for the six months ended March 31, 2013.


 
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Actuarial Assumptions – The most significant actuarial assumptions affecting pension expense and pension obligations include the valuation of retirement plan assets, the discount rate and the estimated return on plan assets.  The estimated return on plan assets is currently based upon projections provided by the Company’s independent investment advisor, considering the investment policy of the plan and the plan’s asset allocation.  The fair value of plan assets and discount rate are “point-in-time” measures, and the recent volatility of the debt and equity markets makes estimating future changes in fair value of plan assets and discount rates more challenging.  The following table summarizes the impact on the September 30, 2012 actuarial valuations of changes in the primary assumptions affecting the Company’s principal retirement plan and supplemental retirement plan.
 

   
Impact of Changes in Actuarial Assumptions
 
   
Change in Discount Rate
   
Change in Expected Return
   
Change in Market Value of Assets
 
      +1%       -1%       +1%       -1%       +5%       -5%  
   
(Dollar amounts in thousands)
 
Increase (decrease) in net benefit cost
    $  (2,747)       $   3,339       $ (1,056)       $ 1,056       $   (965)       $    965  
                                                 
Increase (decrease) in projected benefit obligation
      (24,551)          30,652       -       -       -       -  
                                                 
Increase (decrease) in funded status
      24,551         (30,652)       -       -          5,438           (5,438)  

Item 4.  Controls and Procedures:

The Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to provide reasonable assurance that information required to be disclosed in our reports filed under that Act (the “Exchange Act”), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. These disclosure controls and procedures also are designed to provide reasonable assurance that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of March 31, 2013. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that material information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, and that such information is recorded, summarized and properly reported within the appropriate time period, relating to the Company and its consolidated subsidiaries, required to be included in the Exchange Act reports, including this Quarterly Report on Form 10-Q.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the fiscal quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.


 
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PART II - OTHER INFORMATION
 
Item 1.                      Legal Proceedings

Matthews is subject to various legal proceedings and claims arising in the ordinary course of business.  Management does not expect that the results of any of these legal proceedings will have a material adverse effect on Matthews’ financial condition, results of operations or cash flows.

Item 2.                      Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Stock Repurchase Plan

The Company has a stock repurchase program.  The buy-back program is designed to increase shareholder value, enlarge the Company's holdings of its common stock, and add to earnings per share.  Repurchased shares may be retained in treasury, utilized for acquisitions, or reissued to employees or other purchasers, subject to the restrictions of the Company’s Restated Articles of Incorporation.  Under the current authorization, the Company's Board of Directors had authorized the repurchase of a total of 2,500,000 shares of Matthews’ common stock under the program, of which 1,577,519 shares remain available for repurchase as of March 31, 2013.

The following table shows the monthly fiscal 2013 stock repurchase activity:

Period
 
Total number of shares purchased
   
Average price paid per share
   
Total number of shares purchased as part of a publicly announced plan
   
Maximum number of shares that may yet be purchased under the plan
 
                         
October 2012
    123,000       $29.12       123,000       1,691,651  
November 2012
    31,732       28.91       31,732       1,659,919  
December 2012
    1,000       30.72       1,000       1,658,919  
January 2013
    -       -       -       1,658,919  
February 2013
    41,200       32.67       41,200       1,617,719  
March 2013
    40,200       34.41       40,200       1,577,519  
    Total
    237,132       $30.61       237,132          


 
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Item 6.  Exhibits and Reports on Form 8-K

(a)
Exhibits
 
     
 
Exhibit
 
 
No.
Description
     
 
31.1
Certification of Principal Executive Officer for Joseph C. Bartolacci
 
31.2
Certification of Principal Financial Officer for Steven F. Nicola
 
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Joseph C. Bartolacci
 
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Steven F. Nicola
   
(b)
Reports on Form 8-K
     
 
On January 17, 2013, Matthews filed a Current Report on Form 8-K under Item 2.02 in connection with a press release announcing its earnings for the first fiscal quarter of 2013.
 
On February 26, 2013, Matthews filed a Current Report on Form 8-K under Item 5.07 reporting the results of the matters voted on at the Company’s Annual Meeting of Shareholders held on February 21, 2013.
 


 
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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



   
MATTHEWS INTERNATIONAL CORPORATION
   
(Registrant)
 
     
     
     
Date:  May 3, 2013
 
/s/ Joseph C. Bartolacci
   
Joseph C. Bartolacci, President
   
and Chief Executive Officer
     
     
     
     
Date:  May 3, 2013
 
/s/ Steven F. Nicola
 
 
Steven F. Nicola, Chief Financial Officer,
 
 
Secretary and Treasurer
     



 
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