1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2002
Commission File Numbers 0-9115 and 0-24494
MATTHEWS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF PENNSYLVANIA 25-0644320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 442-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, $1.00 par value NASDAQ National Market System
Class B Common Stock, $1.00 par value None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405a of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 30, 2002 was $689,000,000.
As of November 30, 2002, shares of common stock outstanding were:
Class A Common Stock 31,268,409 shares
Class B Common Stock none
Documents incorporated by reference: None
The index to exhibits is on pages 85-86.
2
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
Any forward-looking statements contained in this Annual Report on Form 10-K
(specifically those contained in Item 1, "Business" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations") are
included in this report pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties that may cause
the Company's actual results in future periods to be materially different from
management's expectations. Although 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 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 competitive pressures, unknown risks in connection with the Company's
acquisitions, and technological factors beyond the Company's control.
ITEM 1. BUSINESS.
Matthews International Corporation ("Matthews"), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of memorialization products and caskets for the cemetery and
funeral home industries and custom-made products which are used to identify
people, places, products and events. In fiscal 2002, the Company's products
and operations were comprised of four business segments: Bronze, Graphics
Imaging, Marking Products, and York Casket. Beginning with the first quarter
of fiscal 2003, the Company changed its internal reporting structure and will
report five business segments. The fifth business will be reported as the
Cremation segment. The Bronze segment is a leading manufacturer of cast
bronze memorials and other memorialization products, crematories and
cremation-related products and a leading builder of mausoleums in the United
States. The Graphics Imaging segment manufactures and provides printing
plates, pre-press services and imaging services for the corrugated and
flexible packaging industries. The Marking Products segment designs,
manufactures and distributes a wide range of marking equipment and consumables
for identifying various consumer and industrial products, components and
packaging containers. The York Casket segment, which was acquired by the
Company on December 3, 2001, is the second leading casket manufacturer in the
United States. The Cremation segment will consist of the Company's cremation
equipment business (formerly part of the Bronze segment) and the Company's
cremation casket business (formerly part of the York Casket segment).
At November 30, 2002, the Company and its majority-owned subsidiaries had
approximately 3,000 employees. The Company's principal executive offices are
located at Two NorthShore Center, Pittsburgh, Pennsylvania 15212 and its
telephone number is (412) 442-8200.
The following table sets forth reported sales and operating profit for the
Company's business segments for the past three fiscal years. Detailed
financial information relating to business segments and to domestic and
international operations is presented in Note 16 (Segment Information) to the
Consolidated Financial Statements included in Part II of this Annual Report on
Form 10-K.
3
ITEM 1. BUSINESS, continued.
Fiscal Year Ended September 30,
--------------------------------------------------------
2002 2001 2000
--------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Sales to unaffiliated customers:
Bronze $197,098 46.0% $164,078 57.9% $142,368 53.3%
Graphics Imaging 94,814 22.2 89,568 31.6 92,169 34.5
Marking Products 28,668 6.7 29,636 10.5 32,450 12.2
York Casket 107,506 25.1 - - - -
------- ----- ------- ----- ------- -----
Total $428,086 100.0% $283,282 100.0% $266,987 100.0%
======= ===== ======= ===== ======= =====
Operating profit (1):
Bronze $ 44,870 65.8% $ 37,744 72.1% $ 33,416 69.9%
Graphics Imaging 9,724 14.3 10,042 19.2 9,640 20.2
Marking Products 3,595 5.3 4,562 8.7 4,720 9.9
York Casket 9,998 14.6 - - - -
------- ----- ------- ----- ------- -----
Total $ 68,187 100.0% $ 52,348 100.0% $ 47,776 100.0%
======= ===== ======= ===== ======= =====
(1) Fiscal 2001 excludes special items. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Part II
of this Annual Report on Form 10-K.
In fiscal 2002, approximately 82% of the Company's sales were made from the
United States, and 15%, 2% and 1% were made from Europe, Canada and Australia,
respectively. Bronze segment products are sold throughout the world with the
segment's principal operations located in the United States, Italy, Canada and
Australia. Products and services of the Graphics Imaging segment are sold
primarily in the United States, Germany and Austria. The Marking Products
segment sells equipment and consumables directly to industrial consumers in
the United States and internationally through the Company's wholly-owned
subsidiaries in Canada and Sweden and through other foreign distributors.
Matthews owns a minority interest in distributors in Asia, Australia, France,
Germany, the Netherlands and the United Kingdom. York Casket products are
sold in the United States and Canada.
PRODUCTS AND MARKETS:
Bronze:
The Bronze segment manufactures and markets in the United States, Europe,
Canada and Australia products used primarily in the cemetery and funeral home
industries. The segment's principal products include cast bronze memorials
and other memorialization products used primarily in cemeteries. The segment
also manufactures and markets cast bronze and aluminum architectural products
used to identify or commemorate people, places and events.
4
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Bronze, continued:
Memorial products, which comprise the majority of the Bronze segment's sales,
include flush bronze memorials, flower vases, crypt letters, cremation urns,
niche units, cemetery features and statues, along with other related
products. Flush bronze memorials are bronze plaques which contain personal
information about a deceased individual such as name, birth date and death
date. These memorials are used in cemeteries as an alternative to upright
granite monuments. The memorials are even or "flush" with the ground and
therefore are preferred by many cemeteries for easier mowing and other
maintenance. In order to provide products for the granite memorial and
mausoleum markets, the Company's other memorial products include community and
family mausoleums, granite monuments and bronze plaques, letters, emblems,
vases, lights and photoceramics that can be affixed to granite monuments,
mausoleums and crypts. Matthews is a leading builder of mausoleums within
North America. Principal customers for memorial products are cemeteries and
memorial parks, which in turn sell the Company's products to the consumer.
The Bronze segment manufactures a full line of memorial products for
cremation, including urns in a variety of sizes, styles and shapes. The
segment also manufactures bronze and granite niche units, which are comprised
of numerous compartments used to display cremation urns in mausoleums and
churches. In addition, the Company also markets "turnkey" cremation gardens,
which include the design and all related products for a cremation garden.
Architectural products include cast bronze and aluminum plaques, etchings and
letters that are used to recognize, commemorate and identify people, places,
events and accomplishments. The Company's plaques are frequently used to
identify the name of a building or the names of companies or individuals
located within a building. Such products are also used to commemorate events
or accomplishments, such as military service or financial donations. The
principal markets for the segment's architectural products are corporations,
fraternal organizations, contractors, churches, hospitals, schools and
government agencies. These products are sold to and distributed through a
network of independent dealers including sign suppliers, recognition companies
and trophy dealers.
The Company is the leading North American designer and manufacturer of
cremation equipment and cremation-related products. Cremation equipment and
products are sold primarily to cemeteries, crematories and mortuary facilities
within North America, Asia, Australia and Europe. Beginning with the first
quarter of fiscal 2003, the cremation equipment business will be reported as
part of the Cremation segment.
Raw materials used by the Bronze segment consist principally of bronze and
aluminum ingot, sheet metal, coating materials, polymer sheet, electrical
components and construction materials and are generally available in adequate
supply. Ingot is obtained from various North American, European and
Australian smelters.
5
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Bronze, continued:
Competition from other bronze memorialization product manufacturers is on
the basis of reputation, product quality, delivery, price and design
availability. The Company also competes with upright granite monument and
flush granite memorial providers. The Company believes that its superior
quality, broad product lines, innovative designs, delivery capability,
customer responsiveness, experienced personnel and customer-oriented
merchandising systems are competitive advantages in its markets. Competition
in the mausoleum construction industry includes various construction companies
throughout North America and is on the basis of design, quality and price.
Competitors in the architectural market are numerous and include companies
that manufacture cast and painted signs, plastic materials, sand-blasted wood
and other fabricated products. The Company competes with several
manufacturers in the crematory market principally on the basis of product
quality and price.
Graphics Imaging:
The Graphics Imaging segment provides printing plates, pre-press services and
imaging services to the corrugated and primary packaging industries. The
corrugated packaging industry consists of manufacturers of printed corrugated
containers. The primary packaging industry consists of manufacturers of
printed packaging materials such as boxes, folding cartons and bags commonly
seen at retailers of consumer goods.
The principal products and services of this segment include printing plates,
pre-press graphics services, print process assistance, print production
management, digital asset and content management and package design. These
products and services are used by packaging manufacturers and end-users to
develop and print packaging graphics that identify and help sell the product.
Other packaging graphics can include nutritional information, directions for
product use, consumer warning statements and UPC codes. The corrugated
packaging manufacturer produces printed containers from corrugated sheets.
Using the Company's products, this sheet is printed and die cut to make a
finished container. The primary packaging manufacturer produces printed
packaging from paper, film, foil and other composite materials used to
display, protect and market the product.
The Company works closely with manufacturers to provide the proper printing
plates and tooling used to print the packaging to the user's specifications.
The segment's printing plate products are made principally from photopolymer
resin and sheet materials. Upon customer request, plates can be pre-mounted
press-ready in a variety of configurations that maximize print quality and
minimize press set-up time.
6
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Graphics Imaging, continued:
The segment offers a wide array of value-added services and products. These
include print process and print production management services; pre-press
preparation, which includes computer-generated art, films and proofs; plate
mounting accessories and various press aids; and rotary and flat cutting dies
used to cut out intricately designed containers and point-of-purchase
displays. The segment also provides creative digital graphics services to
advertising agencies and packaging markets through its Studio M design studio,
located in Pittsburgh and its 50%-owned affiliate, O.N.E. Color
Communications, L.L.C., located in Oakland, California.
The Graphics Imaging segment customer base consists primarily of packaging
industry converters and "national accounts." National accounts are generally
large, well-known consumer products companies with a national presence. These
types of companies tend to purchase their graphics needs directly and supply
the printing plates, or the film to make the printing plates, to the packaging
printer for their products. The Graphics Imaging segment serves customers
primarily in the United States and Europe. In Europe, Matthews owns a 50%
interest in S+T GmbH (Julich, Germany) and 75% interests in Repro-Busek GmbH
(Vienna, Austria), Scholler GmbH (Nuremberg, Germany) and Rudolf Reproflex
GmbH (Goslar, Germany). Products and services of these operations include
pre-press packaging, digital and analog flexographic printing plates, design,
artwork, lithography and color separation.
Major raw materials for this segment's products include photopolymers, film
and graphic art supplies. All such materials are presently available in
adequate supply from various industry sources.
Graphics Imaging is one of several manufacturers of printing plates and
providers of pre-press services with a national presence in the United States.
The segment competes in a fragmented industry consisting of a few multi-plant
regional printing plate suppliers and a large number of local single-facility
companies located across the United States. The combination of the Company's
Graphics Imaging business in the United States and Europe is an important part
of Matthews' strategy to become a worldwide leader in the graphics industry
and service multinational customers on a global basis. Competition is on the
basis of product quality, timeliness of delivery, price and value-added
services. The Company differentiates itself from the competition by
consistently meeting customer demands, its ability to service customers
nationally and globally and its ability to provide value-added services.
7
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
Marking Products:
The Marking Products segment designs, manufactures and distributes a wide
range of marking equipment and consumables used by customers to identify
various consumer and industrial products, components and packaging containers.
Marking products range from simple indent hand stamps made from a special
alloy steel to a wide variety of sophisticated microprocessor-based ink-jet
printing systems. The segment manufactures and markets products and systems
that employ the following marking methods to meet customer needs: contact
printing, indenting, etching, ink-jet printing and laser marking. Customers
will often use a combination of these methods in order to achieve an
appropriate mark. These methods apply product information required for
identification and traceability as well as to facilitate inventory and quality
control, regulatory compliance and brand name communication.
A significant portion of the revenue of the Marking Products segment is
attributable to the sale of consumables and replacement parts in connection
with the marking hardware sold by the Company. The Company develops inks,
rubber and steel consumables in harmony with the marking equipment in which
they are used, which is critical to assure ongoing equipment reliability and
mark quality. Many marking equipment customers also use the Company's inks,
solvents and cleaners.
The principal customers for the Company's marking products include food and
beverage processors, metal fabricators, producers of health and beauty
products and manufacturers of textiles, plastic, rubber and building products.
A large percentage of the segment's sales are outside the United States and
are distributed through the Company's subsidiaries in Canada and Sweden in
addition to other international distributors. Matthews owns a minority
interest in distributors in Asia, Australia, France, Germany, the Netherlands
and the United Kingdom.
The marking products industry is diverse, with many companies offering limited
product lines focusing only on well-defined specialty markets. Other industry
participants, like the Company, have broad product offerings and compete in
various product markets and countries. In the United States, the Company has
manufactured and sold marking products and related consumable items for over
150 years.
Major raw materials for this segment's products include printing components,
tool steels, rubber and chemicals, all of which are presently available in
adequate supply from various sources.
Competition for marking products is intense and based on product performance,
service and price. The Company normally competes with specialty companies in
specific marking applications. The Company believes that, in general, it
offers the broadest line of marking products to address a wide variety of
industrial marking applications.
8
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
York Casket:
The York Casket segment, acquired by Matthews in December 2001, is the second
leading casket manufacturer in the United States. The segment produces three
types of caskets: metal, wood and other. Caskets can be customized with many
different options such as color, interior design, handles and trim in order to
accommodate specific religious, ethnic, or other personal preferences.
Metal caskets are made from various gauges of cold rolled steel, stainless
steel, copper and bronze. Metal caskets are generally categorized by whether
the casket is non-gasketed or gasketed, and by material (i.e., bronze, copper,
or steel) and in the case of steel, by the gauge, or thickness, of the metal.
The segment's wood caskets are manufactured from nine different species of
wood, as well as from veneer and paper-covered particleboard and fiberboard.
The species of wood used are poplar, pine, ash, oak, maple, birch, cherry,
walnut and mahogany. The Company believes the York Casket segment is the
largest manufacturer of all-wood constructed caskets, which are manufactured
using pegged and dowelled construction, and include no metal parts. All-wood
constructed caskets are preferred by certain religious groups.
The segment's other caskets, including cremation containers, are manufactured
from particleboard and corrugated materials covered with cloth or paper.
These products are used primarily, although not exclusively, in cremation.
Beginning with the first quarter of fiscal 2003, the cremation casket business
will be reported as part of the Cremation segment.
The segment also produces casket components. Casket components include
stamped metal parts, metal locking mechanisms for gasketed metal caskets,
adjustable beds, interior panels, and plastic handles and corners.
Metal casket parts are produced by stamping cold rolled steel, stainless
steel, copper and bronze sheets into casket body parts. Locking mechanisms
and adjustable beds are produced by stamping and assembling a variety of steel
parts. Casket handles and corners are produced from injection molded plastic.
The segment purchases from sawmills various species of uncured wood, which it
dries and cures. The cured wood is processed into casket components. Other
caskets are produced by cutting and forming particleboard and corrugated
materials into component parts for assembly.
The segment currently markets its casket products through Company-owned and
independent distributors. The segment provides product planning and
merchandising and display products to funeral service businesses. These
products assist funeral service professionals in providing value and
satisfaction to their client families.
The primary basic materials required for casket manufacturing are cold rolled
steel, lumber and corrugated materials. The segment also purchases copper,
bronze, stainless steel, textiles and coating materials. Blanket purchase
orders or supply agreements are typically negotiated with large, integrated
steel producers that have demonstrated timely delivery, high quality material
and competitive prices. Lumber is purchased from a number of sawmills and
distributors. The Company purchases most of its lumber from sawmills within
150 miles of its wood casket manufacturing facility in York, Pennsylvania.
9
ITEM 1. BUSINESS, continued.
PRODUCTS AND MARKETS, continued:
York Casket, continued:
Particleboard and corrugated materials are obtained primarily from major
suppliers of wood and paper products. Although the segment purchases some of
its supplies and raw materials from a limited number of suppliers, the Company
believes that alternative sources are readily available.
The casket business is highly competitive. The segment competes with other
manufacturers on the basis of product quality, price, service, design
availability and breadth of product line. The segment provides a line of
casket products that it believes is more comprehensive than any of its major
competitors. Although there are a large number of casket industry
participants, the three largest casket manufacturers account for a substantial
portion of the finished caskets produced.
Historically, the segment's operations have experienced seasonal variations.
Generally, casket sales are highest in the second quarter and lowest in the
fourth quarter of each fiscal year. These fluctuations are due in part to the
seasonal variance in the death rate, with a greater number of deaths generally
occurring in cold weather months.
PATENTS, TRADEMARKS AND LICENSES:
The Company holds a number of domestic and foreign patents and trademarks.
However, the Company believes the loss of any or a significant number of
patents or trademarks would not have a material impact on consolidated
operations or revenues.
BACKLOG:
Because the nature of the Company's Bronze and Graphics Imaging businesses are
primarily custom products made to order with short lead times, backlogs are
not generally material except for mausoleums and cremation equipment.
Backlogs generally vary in a range of approximately one year of sales for
mausoleums and eight to ten months of sales for cremation equipment. Backlogs
generally vary in a range of up to four weeks of sales in the Marking Products
segment. The York Casket segment normally fills sales orders within one month
and, therefore, does not have a significant backlog of unfilled orders.
10
ITEM 1. BUSINESS, continued.
REGULATORY MATTERS:
The Company's operations are subject to various federal, state and local laws
and regulations relating to the protection of the environment. These laws and
regulations impose limitations on the discharge of materials into the
environment and require the Company to obtain and operate in compliance with
conditions of permits and other government authorizations. As such, the
Company has developed policies and procedures with respect to environmental,
safety and health, including 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, York
was identified, along with others, by the Environmental Protection Agency as a
potentially responsible party for remediation of a landfill site in York, PA.
At this time, the Company has not been joined in any lawsuit or administrative
order related to the site or its clean-up.
At September 30, 2002, an accrual of $12.2 million has been recorded for
environmental remediation (of which $850,000 has been classified in other
current liabilities), representing management's best estimate of the probable
and reasonably estimable costs of the Company's known remediation obligations.
The accrual does not consider the effects of inflation and anticipated
expenditures are not discounted to their present value. While final
resolution of these contingencies could result in costs different than current
accruals, management believes the ultimate outcome will not have a significant
effect on the Company's consolidated results of operations or financial
position.
11
ITEM 2. PROPERTIES.
Principal properties of the Company and its majority-owned subsidiaries as of
November 30, 2002 were as follows (properties are owned by the Company except
as noted):
Location Description of Property Square Feet
- -------- ----------------------- -----------
Bronze:
Pittsburgh, PA Manufacturing / Division Offices 97,000
Kingwood, WV Manufacturing 59,000
Kingwood, WV Manufacturing 43,000(1)
Melbourne, Australia Manufacturing 26,000(1)
Milton, Ontario, Canada Manufacturing 30,000
Parma, Italy Manufacturing / Warehouse 231,000(1)
Searcy, AR Manufacturing 104,000
Seneca Falls, NY Manufacturing 21,000
Sun City, CA Manufacturing 24,000
Graphics Imaging:
Pittsburgh, PA Manufacturing / Division Offices 56,000
Atlanta, GA Manufacturing 16,000
Dallas, TX Manufacturing 15,000(1)
Denver, CO Manufacturing 12,000(1)
Goslar, Germany Manufacturing 39,000(1)
High Point, NC Manufacturing 35,000(1)
Kansas City, MO Manufacturing 42,000(1)
Nuremberg, Germany Manufacturing 27,000(1)
St. Louis, MO Manufacturing 25,000
Vienna, Austria Manufacturing 12,000(1)
Julich, Germany Manufacturing 20,400(1)
Marking Products:
Pittsburgh, PA Manufacturing / Division Offices 85,000
Gothenburg, Sweden Manufacturing / Distribution 28,000(1)
Melbourne, Australia Leased to distributor 13,000
York Casket:
York, PA Manufacturing 307,000
Quebec, Canada Manufacturing 35,000
Marshfield, MO Manufacturing 86,000
Lynn, IN Manufacturing 76,000
West Point, MS Manufacturing 99,000
Richmond, IN Manufacturing/Metal Stamping 92,000
Richmond, IN Injection Molding 18,000(1)
Cremation:
Apopka, FL Manufacturing 40,000
Richmond, IN Manufacturing 164,000(1)
Corporate Office:
Pittsburgh, PA General Offices 48,000
(1) These properties are leased by the Company under operating lease
arrangements. Rent expense incurred by the Company for leased facilities
was $2,400,000 in fiscal 2002.
12
ITEM 2. PROPERTIES, continued.
All of the owned properties are unencumbered. The Company believes its
facilities are generally well suited for their respective uses and are of
adequate size and design to provide the operating efficiencies necessary for
the Company to be competitive. The Company's facilities provide adequate
space for meeting its near-term production requirements and have availability
for additional capacity. The Company intends to continue to expand and
modernize its facilities as necessary to meet the demand for its products.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to various legal proceedings, the eventual outcome of
which are not predictable. It is possible that an unfavorable resolution of
these matters could have a material impact to the Company. Although the
ultimate disposition of these proceedings is not presently determinable,
management is of the opinion that they should not result in liabilities in an
amount which would materially affect the Company's consolidated financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal year 2002.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information:
The authorized common stock of the Company consists of 70,000,000 shares of
Class A Common Stock, $1 par value. Prior to September 2001, the authorized
common stock of the Company was divided into two classes consisting of Class A
Common Stock, $1 par value, and Class B Common Stock, $1 par value. Shares of
Class A stock have one vote per share and are freely transferable subject to
applicable securities laws. Shares of Class B stock had ten votes per share
and were only transferable by a shareholder to the Company or to an active
employee of the Company. In September 2001, the number of outstanding shares
of Class B stock declined below 5% of the aggregate outstanding shares of
Class A and Class B stock. As a result, in accordance with the Company's
Restated Articles of Incorporation, all shares of Class B stock were
immediately converted to an equivalent number of shares of Class A stock.
In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Class A and Class B Common Stock in the form of a 100% stock
distribution. Shareholders' equity was adjusted for the stock split by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. All per share amounts and numbers
of shares in this report reflect the stock split.
The Company's Class A Common Stock is traded on the NASDAQ National Market
System. The following table sets forth the high, low and closing prices as
reported by NASDAQ (adjusted for the stock split) for the periods indicated:
High Low Close
---- --- -----
Fiscal 2002:
Quarter ended: September 30, 2002 $25.10 $20.85 $23.37
June 30, 2002 29.00 23.01 23.35
March 31, 2002 25.71 23.00 25.10
December 31, 2001 25.58 20.65 24.58
Fiscal 2001:
Quarter ended: September 30, 2001 $22.96 $16.12 $22.06
June 30, 2001 22.63 15.86 21.98
March 31, 2001 16.56 14.53 16.36
December 31, 2000 16.25 12.50 15.78
The Company has a stock repurchase program, which was initiated in 1996.
Under the program, the Company's Board of Directors has authorized the
repurchase of a total of 8,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,085,072 shares have been repurchased as of
September 30, 2002. 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.
14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS, continued.
(b) Holders:
Based on records available to the Company, the number of registered holders of
the Company's common stock was 637 at November 30, 2002.
(c) Dividends:
A quarterly dividend of $.02750 per share was paid for the fourth quarter of
fiscal 2002 to shareholders of record on October 31, 2002. The Company paid
quarterly dividends of $.02625 per share for the first three quarters of
fiscal 2002 and the fourth quarter of fiscal 2001. The Company paid quarterly
dividends of $.025 per share for the first three quarters of fiscal 2001.
Cash dividends have been paid on common shares in every year for at least the
past thirty years. It is the present intention of the Company to continue to
pay quarterly cash dividends on its common stock. However, there is no
assurance that dividends will be declared and paid as the declaration and
payment of dividends is at the discretion of the Board of Directors of the
Company and is dependent upon the Company's financial condition, results of
operations, cash requirements, future prospects and other factors deemed
relevant by the Board.
15
ITEM 6. SELECTED FINANCIAL DATA.
Years ended September 30,
------------------------------------------------------------------
2002 2001 (2) 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share data)
(Not Covered by Report of Independent Accountants)
Net sales $428,086 $283,282 $266,987 $243,370 $215,379
Gross profit 160,364 119,436 118,089 103,037 93,050
Operating profit 68,187 53,357 47,776 40,948 35,929
Interest expense 4,171 1,647 1,488 867 466
Income before income taxes
and change in accounting 62,457 51,458 45,938 41,277 37,132
Income taxes 24,225 19,859 18,015 16,261 14,630
------- ------- ------- ------- -------
Income before change in accounting 38,232 31,599 27,923 25,016 22,502
Cumulative effect of change in
accounting, net of tax (1) (3,226) - - - -
------- ------- ------- ------- -------
Net income $ 35,006 $ 31,599 $ 27,923 $ 25,016 $ 22,502
======= ======= ======= ======= =======
Earnings per common share:
Diluted, before change
in accounting $ 1.20 $ 1.01 $ .88 $ .77 $ .67
Diluted 1.10 1.01 .88 .77 .67
Basic 1.14 1.03 .90 .79 .69
Weighted-average common
shares outstanding:
Basic 30,765 30,560 31,031 31,703 32,673
Diluted 31,796 31,320 31,703 32,482 33,540
Cash dividends per share $ .106 $ .101 $ .096 $ .091 $ .086
Total assets $422,601 $288,952 $220,665 $225,678 $187,206
Long-term debt, noncurrent 96,487 40,726 13,908 14,144 1,435
(1) In fiscal 2002, the Company recorded a pre-tax charge of $5,255 ($.10 per share after-tax) for
transitional goodwill impairment as a result of the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
(2) The second quarter of fiscal 2001 included after-tax income of $300 ($.01 per share) from special
items which consisted of a pre-tax gain of $7,099 on the sale of a subsidiary and asset impairments,
restructuring costs and other special pre-tax charges totaling $6,600 (see Note 19 to the Consolidated
Financial Statements).
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements of Matthews International Corporation and related notes
thereto. In addition, see "Cautionary Statement Regarding Forward-Looking
Information" included in Part I of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS:
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods indicated and the
percentage change in such income statement data from year to year.
Years Ended
September 30, Percentage Change
---------------------- -----------------
2002- 2001-
2002 2001(2) 2000 2001 2000
---- ------ ---- ----- -----
Sales 100.0% 100.0% 100.0% 51.1% 6.1%
Gross profit 37.5 42.2 44.2 34.3 1.1
Operating profit 15.9 18.8 17.9 27.8 11.7
Income before taxes (1) 14.6 18.2 17.2 21.4 12.0
Net income (1) 8.9 11.2 10.5 21.0 13.2
(1) Before cumulative effect of change in accounting. In fiscal 2002, the
Company recorded a pre-tax charge of $5.3 million ($.10 per share after tax)
for transitional goodwill impairment (see "Goodwill").
(2) Fiscal 2001 included after-tax income of $300,000 ($.01 per share) from
special items (see "Special Items").
Comparison of Fiscal 2002 and Fiscal 2001:
Sales for the year ended September 30, 2002 were $428.1 million and were
$144.8 million, or 51.1%, higher than sales of $283.3 million for the year
ended September 30, 2001. The increase primarily related to the acquisition
of The York Group, Inc. ("York") on December 3, 2001. Sales for the York
Casket segment totaled $107.5 million from the acquisition date through
September 30, 2002. Bronze segment sales for fiscal 2002 were $197.1 million,
$33.0 million, or 20.1%, higher than fiscal 2001. The increase in Bronze
sales primarily resulted from the acquisition of the commemorative products
business of York in May 2001, higher mausoleum construction revenues and
increased sales of bronze memorial and architectural products. Mausoleum
sales for fiscal 2002 were 29% higher than fiscal 2001. Architectural product
sales were higher in fiscal 2002 as orders for architectural commemorative and
tribute products increased following the events of September 11, 2001. Fiscal
2002 sales for the Graphics Imaging segment were $94.8 million, representing
an increase of $5.2 million, or 5.9%, over fiscal 2001. The increase
primarily reflected the acquisitions of Scholler GmbH ("Scholler") in January
2001 and Rudolf Reproflex GmbH ("Rudolf") in July 2001, which were partially
offset by the divestiture in January 2001 of the Company's investment in
Tukaiz Communications, L.L.C. ("Tukaiz"). In addition, sales for the Graphics
Imaging segment's domestic operations were adversely impacted by continued
weak demand and price pressure for printing plates sold into the corrugated
and primary packaging markets.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 2002 and Fiscal 2001, continued:
Marking Products segment sales for the year ended September 30, 2002 were
$28.7 million, compared to $29.6 million for fiscal 2001. The decline of
$970,000, or 3.3%, was mainly due to a drop in demand for equipment products
sold to the tire, automotive and building segments of the economy. For fiscal
2002, higher foreign currency values against the U.S. dollar had a favorable
impact of approximately $2.0 million on the Company's consolidated sales
compared to fiscal 2001.
Gross profit for the year ended September 30, 2002 was $160.4 million,
compared to $119.4 million for the year ended September 30, 2001. The
increase in consolidated gross profit primarily resulted from the acquisition
of York on December 3, 2001. Gross profit for the Bronze segment for fiscal
2002 increased from fiscal 2001 due to higher sales. Gross margin percentages
for the segment were consistent with fiscal 2001. Fiscal 2002 gross profit
for the Graphics Imaging segment declined from fiscal 2001 principally
reflecting the divestiture of Tukaiz combined with the unfavorable impact of
price pressure on printing plate sales. These declines were offset partially
by the acquisitions of Scholler and Rudolf. Gross profit for the Marking
Products segment for fiscal 2002 declined as a result of lower sales volume.
Consolidated gross profit as a percent of sales for the year ended September
30, 2002 declined to 37.5%, compared to 42.2% for fiscal 2001. Factors
contributing to this decline included the addition of York Casket revenues,
which generally have lower margins than other Matthews segments, price
pressure in the Graphics Imaging segment and an increase in pension and health
care costs for all segments.
Selling and administrative expenses for the year ended September 30, 2002 were
$92.2 million, representing an increase of $23.9 million, or 35.0%, over
fiscal 2001. Fiscal 2001 selling and administrative expenses included special
charges of $1.2 million (see "Special Items"). Excluding special charges,
selling and administrative expenses increased $25.1 million, or 37.4%, from
fiscal 2001. The increase primarily resulted from the acquisition of York in
December 2001 and York's commemorative products business in May 2001. In
addition, selling and administrative expenses for the Bronze segment included
costs of $2.2 million incurred in connection with a potential acquisition in
the cremation equipment business, which was terminated and not completed.
Excluding special charges, selling and administrative expenses declined in the
Graphics Imaging and Marking Products segments due to cost control efforts,
lower domestic sales and the divestiture of Tukaiz.
Fiscal 2002 consolidated selling and administrative expenses were favorably
impacted by the adoption of Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142,
the Company discontinued the amortization of goodwill effective October 1,
2001. Goodwill amortization was $3.6 million for the year ended September 30,
2001. The favorable impact of SFAS No. 142 on operating profit was more than
offset by increases in pension and health care costs. Pension costs were
adversely effected by a decline in the Company's pension fund assets.
Consolidated selling and administrative expenses as a percent of sales were
21.5% for the year ended September 30, 2002 compared to 23.7% (excluding
special charges) in fiscal 2001, principally due to the lower ratio of selling
and administrative costs for York Casket sales.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 2002 and Fiscal 2001, continued:
Operating profit for the year ended September 30, 2002 was $68.2 million,
representing an increase of $14.8 million, or 27.8%, over operating profit of
$53.4 million for the year ended September 30, 2001. Fiscal 2001 operating
profit was favorably impacted by special items (including special charges
classified as selling and administrative expenses) of $1.0 million. Excluding
these special items, consolidated operating profit for the year ended
September 30, 2001 was $52.4 million. A significant portion of the increase
in fiscal 2002 operating profit resulted from the addition of the York Casket
segment in December 2001. Operating profit for the York Casket segment was
$10.0 million from the acquisition date through September 30, 2002. Bronze
segment operating profit was $44.9 million for the year ended September 30,
2002 compared to $37.7 million (excluding special items) for fiscal 2001. The
increase in Bronze operating profit primarily reflected the acquisition of the
commemorative products business of York and higher sales of memorial and
architectural products. Fiscal 2002 operating profit for the Bronze segment
also included a loss of $540,000 on the sale in March 2002 of its granite
import business. Graphics Imaging operating profit for the year ended
September 30, 2002 was $9.7 million compared to $10.0 million (excluding
special items) for fiscal 2001. The slight decline was due primarily to the
divestiture of Tukaiz, which was nearly offset by the acquisitions of Scholler
and Rudolf. Fiscal 2002 operating profit for the Marking Products segment was
$3.6 million, compared to $4.6 million (excluding special items) a year ago.
The decline reflected lower sales combined with higher employee benefit costs
in the current fiscal year. Higher foreign currency values against the U.S.
dollar had a favorable impact of approximately $460,000 on the Company's
consolidated operating profit for the year ended September 30, 2002 compared
to fiscal 2001.
Investment income for the year ended September 30, 2002 was $1.6 million
compared to $2.4 million for the year ended September 30, 2001. The decrease
resulted from a lower rate of return on investments during the year. Interest
expense for the year ended September 30, 2002 was $4.2 million, compared to
$1.6 million for the year ended September 30, 2001. The increase in interest
expense primarily reflected borrowings of $124.5 million in December 2001
primarily in connection with the acquisition of York.
Other income (deductions), net, for the year ended September 30, 2002
represented a reduction in pre-tax income of $119,000, compared to a reduction
of $279,000 for fiscal 2001. Minority interest deduction for fiscal 2002 was
$3.0 million compared to $2.3 million for fiscal 2001. The higher minority
interest deduction for fiscal 2002 resulted from the acquisitions of Scholler
and Rudolf, offset partially by the divestiture of Tukaiz.
The Company's effective tax rate for the year ended September 30, 2002 was
38.8%, compared to 38.6% for the year ended September 30, 2001. The slight
increase resulted primarily from higher foreign income taxes for the year.
The difference between the Company's effective tax rate in fiscal 2002 and the
Federal statutory rate of 35% primarily reflected the impact of state and
foreign income taxes.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Goodwill:
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses the
financial statement accounting for goodwill and other intangible assets upon
acquisition and the accounting subsequent to their initial recognition in the
financial statements. The Company adopted SFAS No. 142 effective October 1,
2001. Under this standard, goodwill related to business combinations is no
longer amortized, but is subject to periodic review for impairment. Excluding
goodwill amortization, income before income taxes and net income for the year
ended September 30, 2001 would have been $55.0 million and $34.0 million,
respectively.
The new standard also requires a periodic assessment of the carrying value of
goodwill for impairment. If the carrying value of a reporting unit exceeds
its implied fair value, an impairment loss must be recognized. For purposes
of testing for transitional impairment, the Company used a combination of
valuation techniques, including discounted cash flows. Based on this
assessment, the Company recorded a pre-tax charge in fiscal 2002 for
transitional goodwill impairment of $5.3 million ($3.2 million after-tax).
The impairment was primarily related to a reporting unit within the Company's
Bronze segment and was determined based upon a comparison of carrying value to
fair market value as determined by a combination of valuation techniques,
including discounted cash flows. Prior to the adoption of SFAS No. 142,
valuation for impairment was determined using undiscounted future cash flows.
Comparison of Fiscal 2001 and Fiscal 2000:
Sales for the year ended September 30, 2001 were $283.3 million and were
$16.3 million, or 6.1%, higher than sales of $267.0 million for the year ended
September 30, 2000. Bronze segment sales for fiscal 2001 were $164.1 million,
which was 15.3% higher than fiscal 2000, primarily reflecting an increase in
mausoleum construction revenues and the acquisition of the commemorative
products business of York in May 2001. The Bronze segment also benefited from
an increase in architectural product sales due to the acquisition of The SLN
Group, Inc. in October 2000. Fiscal 2001 sales for the Graphics Imaging
segment were $89.6 million, representing a decrease of 2.8% below fiscal 2000.
The decline reflected the sale of Tukaiz in January 2001 (see "Disposition").
Fiscal 2001 revenues for Tukaiz up to the disposition date were $6.5 million,
compared to $23.5 million for the year ended September 30, 2000. The sales
decline from the divestiture of Tukaiz was partially offset by the Company's
acquisitions of Repro-Busek GmbH ("Busek") in August 2000, Press Ready Plate,
Inc. in November 2000, Scholler in January 2001 and Rudolf in July 2001.
Marking Products segment sales for the year ended September 30, 2001 were
$29.6 million compared to $32.5 million for fiscal 2000. The decline was
mainly due to a drop in demand for equipment products sold to the tire,
automotive and building segments of the domestic economy. For the year ended
September 30, 2001, declines in foreign currency values against the U.S.
dollar had an unfavorable impact of approximately $5.5 million on the
Company's consolidated sales compared to fiscal 2000.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 2001 and Fiscal 2000, continued:
Gross profit for the year ended September 30, 2001 was $119.4 million,
compared to $118.1 million for fiscal 2000. The increase in consolidated
gross profit reflected higher sales in the Bronze segment offset partially by
the divestiture of Tukaiz, a decline in sales for the Marking Products segment
and a change in product mix in the Bronze segment. Fiscal 2001 reflected
higher mausoleum construction revenues in the Bronze segment, which generally
have lower margins than the segment's memorial products. Consolidated gross
profit as a percent of sales for the year ended September 30, 2001 declined to
42.2%, compared to 44.2% for fiscal 2000, primarily reflecting the change in
product mix within the Bronze segment.
Selling and administrative expenses for the year ended September 30, 2001 were
$68.3 million, representing a decrease of $2.1 million, or 2.9%, compared to
fiscal 2000. Fiscal 2001 selling and administrative expenses included special
charges of $1.2 million (see "Special Items"). Excluding the special charges,
selling and administrative expenses declined $3.2 million, or 4.6%, from
fiscal 2000 reflecting the divestiture of Tukaiz, internal cost control
initiatives and lower employee benefit costs. Employee benefit costs were
favorably impacted by an increase in the Company's pension fund assets during
fiscal 2000, which was partially offset by an increase in health care costs.
Excluding special charges, consolidated selling and administrative expenses as
a percent of sales was 23.7% for fiscal 2001 compared to 26.3% for fiscal
2000.
Operating profit for the year ended September 30, 2001 was $53.4 million,
representing an increase of $5.6 million, or 11.7%, over operating profit of
$47.8 million for fiscal 2000. Fiscal 2001 operating profit was favorably
impacted by special items (including special charges classified as selling and
administrative expenses) of $1.0 million. Excluding these special items,
consolidated operating profit for fiscal 2001 was $52.4 million. Excluding
special items, operating profit for the Graphics Imaging segment for fiscal
2001 was $10.0 million, representing an increase of 4.2% over fiscal 2000.
The increase was due to a combination of factors including cost control
initiatives, contributions from the segment's recent acquisitions and higher
profitability of the Company's 50%-owned affiliate, O.N.E. Color
Communications L.L.C. These increases were partially offset by the
divestiture of Tukaiz. Fiscal 2001 operating profit for Tukaiz up to the
disposition date was $700,000, compared to $2.7 million for the year ended
September 30, 2000. Bronze segment operating profit, excluding special items,
for the year ended September 30, 2001 was $37.7 million, compared to $33.4
million for fiscal 2000. Fiscal 2001 reflected the benefits of the
acquisition of the commemorative products business of York, higher mausoleum
construction revenues, cost control initiatives and lower employee benefit
costs. Operating profit, excluding special items, for the Marking Products
segment for the year ended September 30, 2001 was $4.6 million, compared to
operating profit of $4.7 million for fiscal 2000. The reduction in the
segment's operating profit reflected a decline in sales for the year, which
was partially offset by lower selling and administrative costs. Declines in
foreign currency values against the U.S. dollar had an unfavorable impact of
approximately $1.0 million on the Company's consolidated operating profit for
the year ended September 30, 2001 compared to fiscal 2000.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Comparison of Fiscal 2001 and Fiscal 2000, continued:
Investment income for fiscal 2001 was $2.4 million compared to $1.8 million
for fiscal 2000. The increase reflected higher average cash and investment
balances and realized gains on sales of investment securities. Interest
expense for the year ended September 30, 2001 was $1.6 million, compared to
$1.5 million for fiscal 2000. The increase in interest expense principally
reflected the effect of new borrowings of $30.0 million in connection with the
acquisition of the commemorative products business of York, which was
partially offset by reduced debt from the divestiture of Tukaiz.
Other income (deductions), net, for fiscal 2001 represented a reduction to
pre-tax income of $279,000, compared to an increase of $125,000 for
fiscal 2000. Fiscal 2001 other deductions included a special contribution of
$500,000 to the Jas. H. Matthews Educational and Charitable Trust. Minority
interest deduction approximated $2.3 million for both fiscal 2001 and fiscal
2000. Increases in minority interest deduction for fiscal 2001 from the
recent acquisitions of Busek, Scholler and Rudolf were offset by a reduction
due to the divestiture of Tukaiz.
The Company's effective tax rate for the year ended September 30, 2001 was
38.6%, compared to 39.2% for the year ended September 30, 2000. The reduction
resulted primarily from a lower effective state income tax rate for fiscal
2001. The difference between the Company's effective tax rate in fiscal 2001
and the Federal statutory rate of 35% primarily reflected the impact of state
and foreign income taxes and non-deductible goodwill amortization.
Special Items:
In January 2001, Matthews sold its fifty percent interest in Tukaiz (see
"Disposition"). The sale resulted in a pre-tax gain of $7.1 million, which
was reported in Special Items on the Consolidated Statement of Income. In the
second quarter of fiscal 2001, the Company recorded asset impairments,
restructuring costs and other special charges totaling $6.6 million. The
majority of these charges were classified as Special Items on the Consolidated
Statement of Income, except for $1.2 million classified as selling and
administrative expenses and $500,000 classified as other deductions.
In connection with the restructuring of certain operations within the Graphics
Imaging and Marking Products segments, asset impairments of $4.0 million were
recorded, which primarily reflected a reduction in the value of goodwill
related to various investments. In accordance with the Company's accounting
policies, management evaluated the net realizable value of such goodwill and,
based on this analysis, goodwill was reduced to reflect estimated fair value.
Asset impairments also included other write-downs of certain assets to reflect
estimated realizable values.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
Special Items, continued:
In addition, special items included restructuring costs of $1.2 million for
certain operations within the Graphics Imaging and Marking Products segments.
These restructuring costs were designed to improve operating efficiency and
primarily included consulting fees and personnel reduction costs. Special
items also included non-recurring expenses of approximately $1.4 million,
which consisted of costs incurred in connection with a potential acquisition
which was not completed, a special contribution to the Company's educational
and charitable trust of $500,000 (classified in other deductions), and other
one-time charges.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash provided by operating activities was $55.5 million for the year ended
September 30, 2002, compared to $39.0 million for fiscal 2001 and $39.0
million for fiscal 2000. Operating cash flow for fiscal 2002 primarily
reflected net income adjusted for depreciation and amortization (non-cash
charges) and the impairment of goodwill resulting from the adoption of SFAS
No. 142 (see "Goodwill"). Operating cash flow for fiscal 2002 also included a
tax benefit of $5.5 million from exercised stock options. For the year ended
September 30, 2001, operating cash flow reflected net income, excluding the
gain on the sale of Tukaiz, adjusted for depreciation, amortization and
impairment losses (non-cash items) in connection with the special charges
recorded in the fiscal 2001 second quarter. Fiscal 2000 operating cash flow
principally reflected the Company's net income adjusted for non-cash expenses
such as depreciation and amortization. Operating cash flow for fiscal 2000
also included a tax benefit of $2.4 million from exercised stock options.
Cash used in investing activities was $86.6 million for the year ended
September 30, 2002, compared to $54.5 million and $24.4 million for fiscal
years 2001 and 2000, respectively. Investing activities for fiscal 2002
included payments (net of cash acquired) of $88.8 million in connection with
acquisitions, principally related to York (December 2001) and Rudolf (July
2001). Although Rudolf was acquired in fiscal 2001, the purchase price
(approximately $11.0 million) was paid in the first quarter of fiscal 2002.
See "Acquisitions" for further discussion of the Company's acquisitions during
the last three fiscal years. Fiscal 2002 investing activities also reflected
capital expenditures of $10.1 million, proceeds of $9.0 million from the net
disposition of investment securities and proceeds of $2.0 million from the
sale of the Company's granite import business.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LIQUIDITY AND CAPITAL RESOURCES, continued:
Fiscal 2001 investing activities primarily reflected the acquisitions of the
commemorative products business of York ($45.0 million), The SLN Group, Inc.,
Press Ready Plate, Inc. and Scholler. Investing activities in fiscal 2001
also included proceeds of $18.6 million from the sale of Tukaiz, capital
expenditures of $7.3 million and the final payment of Lit. 7.2 billion in
connection with the acquisition of Caggiati S.p.A (June 1999). In accordance
with the Caggiati S.p.A. purchase agreement, Matthews paid Lit. 20.2 billion
upon closing, with Lit. 7.2 billion paid on June 1, 2000 and the remainder of
Lit. 7.2 billion paid on June 1, 2001. Investing activities in fiscal 2000
consisted of capital expenditures totaling $7.7 million, net purchases of
investment securities of $4.9 million and payments of $12.2 million in
connection with the acquisitions of S+T, Busek and Caggiati S.p.A. The
purchase price for the acquisition of a 50% interest in S+T (September 1998)
was paid in January 2000 in accordance with the purchase agreement.
Capital expenditures were $10.1 million for the year ended September 30, 2002,
compared to $7.3 million and $7.7 million for fiscal 2001 and 2000,
respectively. Capital expenditures in each of the last three fiscal years
reflected reinvestment in the Company's business segments and were made
primarily for the purchase of new manufacturing machinery, equipment and
facilities designed to improve product quality, increase manufacturing
efficiency, lower production costs and meet regulatory requirements. The
higher level of capital expenditures in fiscal 2002 resulted primarily from
the addition of the York Casket segment. Capital expenditures for the last
three fiscal years were primarily financed through operating cash. Capital
spending for property, plant and equipment has averaged $8.3 million for the
last three fiscal years. The capital budget for fiscal 2003 is $11.5 million.
The Company expects to generate sufficient cash from operations to fund all
anticipated capital spending projects.
Cash provided by financing activities for the year ended September 30, 2002
was $58.5 million, reflecting proceeds from long-term debt of $126.4 million,
debt repayments of $71.3 million, net proceeds of $6.7 million from the sale
of treasury stock (stock option exercises), and dividends of $3.3 million
($0.106 per share) to the Company's shareholders.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LIQUIDITY AND CAPITAL RESOURCES, continued:
On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125.0 million with a syndicate of four financial institutions. Borrowings
under the facility, which matures on November 30, 2004, bear interest at LIBOR
plus a factor ranging from .75% to 1.5% based on the Company's leverage ratio.
The leverage ratio is defined as net indebtedness divided by EBITDA (earnings
before interest, taxes, depreciation and amortization). The weighted-average
interest rate on outstanding borrowings under this facility at September 30,
2002 was 3.09%. The Company is required to pay an annual commitment fee
ranging from .20% to .375% (based on the Company's leverage ratio) of the
unused portion of the facility. The Revolving Credit Facility requires the
Company to maintain minimum levels of consolidated net worth and fixed charge
and interest coverage ratios. A portion of the facility (not to exceed $10.0
million) is available for the issuance of trade and standby letters of credit.
The Revolving Credit Facility replaced the existing Revolving Credit and Term
Loan Agreement. The Company borrowed $124.5 million under the Revolving
Credit Facility on December 3, 2001 in connection with the acquisition of
York, and for the repayment of all amounts outstanding under its Revolving
Credit and Term Loan Agreement. The outstanding balance on the Revolving
Credit Facility was $84.5 million at September 30, 2002.
Cash provided by financing activities for fiscal 2001 was $16.0 million,
consisting of proceeds from long-term debt of $32.4 million, offset partially
by net treasury stock purchases of $12.0 million, repayments of $1.3 million
on long-term debt, and dividends of $3.1 million ($0.101 per share) to the
Company's shareholders. Fiscal 2001 proceeds from long-term debt primarily
reflected borrowings of $30.0 million under the Revolving Credit and Term Loan
Agreement in connection with the acquisition of the commemorative products
business of York. At September 30, 2001, outstanding borrowings under the
agreement totaled $30.0 million at an interest rate of 3.36%.
Cash used in financing activities for the year ended September 30, 2000 was
$14.4 million, consisting of net treasury stock purchases of $9.9 million,
proceeds of $3.9 million from borrowings by Caggiati S.p.A., repayments of
$5.4 million on long-term debt of Caggiati S.p.A. and Tukaiz, and dividend
payments of $3.0 million ($0.096 per share) to the Company's shareholders.
The Company has a line of credit of $500,000 (Canadian dollars), which
provides for borrowings at the bank's prime interest rate. There were no
borrowings outstanding on this line of credit at September 30, 2002 and 2001.
Caggiati S.p.A. has four lines of credit totaling 11.8 million Euros
(U.S.$11.7 million) with various banks. Outstanding borrowings on these lines
approximated $4.1 million at September 30, 2002 and 2001. The
weighted-average interest rate on these borrowings, which are collateralized
by certain trade accounts receivable, was 3.5% at September 30, 2002.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LIQUIDITY AND CAPITAL RESOURCES, continued:
The Company has a stock repurchase program, which was initiated in 1996.
Under the program, the Company's Board of Directors has authorized the
repurchase of a total of 8,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,085,072 shares have been repurchased as of
September 30, 2002. 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 $68.8 million at September 30,
2002, compared to $35.8 million and $48.0 million at September 30, 2001
and 2000, respectively. The higher level of working capital at September 30,
2002 reflected the acquisition of York. In addition, working capital at
September 30, 2001 reflected a liability of approximately $11.0 million for
the acquisition of Rudolf. Cash and cash equivalents were $57.1 million at
September 30, 2002, compared to $28.7 million and $29.2 million at
September 30, 2001 and 2000, respectively. The Company's current ratio at
September 30, 2002 was 1.8, compared to 1.5 and 2.0 at September 30, 2001 and
2000, respectively.
RESTRUCTURING AND RELOCATION COSTS
Accrued reserves for restructuring and relocation costs were $3.7 million at
September 30, 2002. These reserves have been provided for the restructuring,
sale or closure of certain of York's operations and facilities, including the
disposition of York's remaining distribution operations and the relocation of
York's administrative functions to Pittsburgh. The accrued liability includes
previously established reserves assumed with the acquisition of York as well
as reserves recorded for costs to be incurred as a result of the acquisition.
The majority of the restructuring and relocation activities included in the
reserves are expected to be completed during fiscal 2003.
Restructuring reserves recorded for costs to be incurred as a result of the
acquisition were recorded as a purchase accounting adjustment and did not
affect the fiscal 2002 operating results of the Company. Accrued costs of
$665,000 related to the relocation of York's administrative functions to
Pittsburgh were expensed during fiscal 2002. Other accrued costs related to
the relocation were recorded as a purchase accounting adjustment.
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 policies and procedures with respect to environmental,
safety and health, including the proper handling, storage and disposal of
hazardous materials.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
ENVIRONMENTAL MATTERS, continued:
The Company is party to various environmental matters. These include
obligations to investigate and mitigate the effects on the environment of the
disposal of certain materials at various operating and non-operating sites.
The Company is currently performing environmental assessments and remediation
at these sites, as appropriate. In addition, prior to its acquisition, York
was identified, along with others, by the Environmental Protection Agency as a
potentially responsible party for remediation of a landfill site in York, PA.
At this time, the Company has not been joined in any lawsuit or administrative
order related to the site or its clean-up.
At September 30, 2002, an accrual of $12.2 million has been recorded for
environmental remediation (of which $850,000 has been classified in other
current liabilities), representing management's best estimate of the probable
and reasonably estimable costs of the Company's known remediation obligations.
The accrual, which reflects previously established reserves assumed with the
acquisition of York and additional reserves recorded as a purchase accounting
adjustment, does not consider the effects of inflation and anticipated
expenditures are not discounted to their present value. While final
resolution of these contingencies could result in costs different than current
accruals, management believes the ultimate outcome will not have a significant
effect on the Company's consolidated results of operations or financial
position.
ACQUISITIONS:
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would acquire 100% of the outstanding common shares of York for $10 cash per
share. Matthews also agreed to pay up to an additional $1 cash per share
based on excess cash (as defined in the merger agreement) remaining on York's
balance sheet as of October 31, 2001. On December 3, 2001, this transaction
was completed at $11 per share. At December 3, 2001, there were 8,940,950
shares of York common stock outstanding. The transaction was financed by
Matthews through borrowings under a $125.0 million Revolving Credit Facility
(see "Liquidity and Capital Resources"). The acquisition of York, which is
the second leading casket manufacturer in the United States, is expected to
expand Matthews' position in the death care industry. York operates as a
wholly-owned subsidiary and separate segment of Matthews.
On May 24, 2001, Matthews acquired the commemorative products business of York
for $45.0 million. The transaction was completed through the purchase of
certain assets (pursuant to an asset purchase agreement) and stock of
subsidiaries under the commemorative products segment of York (pursuant to a
stock purchase agreement). As part of the transaction, Matthews acquired
York's manufacturing facilities in Kingwood, West Virginia and Bryan, Texas.
The acquisition of York is intended to expand Matthews' product offerings to
the death care industry. The transaction was financed by Matthews through
existing cash on hand and a $30.0 million bank loan under the Company's
Revolving Credit and Term Loan Agreement (see "Liquidity and Capital
Resources").
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
ACQUISITIONS, continued:
Effective July 1, 2001, Matthews acquired a 75% interest in Rudolf, which is
headquartered in Goslar, Germany. The purchase price of DM 24 million
(U.S.$11.0 million) was paid in October 2001. In January 2001, Matthews
acquired a 75% interest in Scholler, which is located in Nuremberg, Germany.
In August 2000, Matthews purchased a 75% interest in Busek, which is
headquartered in Vienna, Austria. Products and services of Rudolf, Scholler
and Busek include pre-press packaging, digital and analog flexographic
printing plates, design, artwork, lithography and color separation. The
acquisitions of Rudolf, Scholler and Busek are an important part of the
Matthews strategy to become a worldwide leader in the graphics industry and
serve existing multinational customers on a global basis.
In October 2000, Matthews acquired certain assets and liabilities of The SLN
Group, Inc. ("SLN"). SLN is a manufacturer and marketer of photo-etched metal
plaques and water-jet cut letters and logos. The acquisition of SLN was
intended to broaden Matthews' offerings for identification and recognition
products. In November 2000, Matthews acquired Press Ready Plate, Inc. ("Press
Ready"). Press Ready, located in Kansas City, Missouri, provides pre-press
services and printing plates to the primary packaging industry. The
acquisition of Press Ready was designed to increase Matthews' presence in the
market for pre-press services used by the primary packaging industry.
Matthews has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the estimated fair value of the net assets acquired was recorded as goodwill,
which, until September 30, 2001, had been amortized on a straight-line basis
over periods ranging from 20 to 25 years, except for Rudolf, which was
acquired July 1, 2001 (subsequent to the effective date of SFAS No. 141). In
June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires the purchase method of accounting (instead of pooling-of-
interests) for all business combinations initiated after June 30, 2001. In
addition, goodwill related to business combinations after June 30, 2001 is not
amortized, but is subject to periodic review for impairment. Effective
October 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." As a result, goodwill from acquisitions prior to July 1,
2001 is no longer amortized and is also subject to periodic review for
impairment (see "Result of Operations - Goodwill").
DISPOSITION:
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz.
Proceeds to Matthews from the sale were $18.6 million, which included the
repayment of intercompany debt of approximately $8.4 million. All
intercompany debt provided by Matthews to Tukaiz, including a $5.5 million
Subordinated Convertible Note, was repaid upon the closing of this
transaction. The sale resulted in a pre-tax gain of $7.1 million, which has
been reported in Special Items on the Consolidated Statement of Income.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
FORWARD-LOOKING INFORMATION:
The Company's objective with respect to operating performance is to increase
annual earnings per share in the range of 12% to 15% annually. For the past
eight fiscal years, the Company has achieved an average annual increase in
earnings per share of 15.1%.
Matthews International Corporation has a three-pronged strategy to attain the
annual growth rate objective, which has remained unchanged from the prior
year. This strategy consists of the following: internal growth (which
includes 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").
Based on the expected impact of the Company's recent acquisitions, anticipated
internal growth and the unfavorable impact of changes in pension and health
care costs, the Company expects to achieve diluted earnings per share of $1.36
for the fiscal year ended September 30, 2003. In addition, the Company has
scaled back the repurchases of its common stock and intends to concentrate its
efforts at this time on using excess cash for the repayment of debt.
FTC INVESTIGATION:
Matthews received a preliminary inquiry from the Federal Trade Commission
("FTC") requesting information with respect to its acquisition and merger
related activities during 2001 with York. On December 20, 2002, the Company
was advised by the FTC that no further action was warranted by the FTC and the
investigation has been closed.
STOCK SPLIT:
In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Common Stock in the form of a 100% stock distribution.
Shareholders' equity has been adjusted for the stock split by reclassifying
from retained earnings to common stock the par value of the additional shares
arising from the split. All per share amounts and numbers of shares have been
adjusted in this report to reflect the stock split.
CRITICAL ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Therefore, the determination of estimates requires the exercise of judgment
based on various assumptions and other factors such as historical experience,
economic conditions, and in some cases, actuarial techniques. Actual results
may differ from those estimates. A discussion of market risks affecting the
Company can be found in Item 7A, "Quantitative and Qualitative Disclosures
about Market Risk," of this Annual Report on Form 10-K.
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
CRITICAL ACCOUNTING POLICIES, continued:
The Company's significant accounting policies are included in the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
Management believes that the application of these policies on a consistent
basis enables the Company to provide useful and reliable financial information
about the company's operating results and financial condition. The following
accounting policies involve significant estimates, which are considered
critical to the preparation of the Company's consolidated financial statements
for the year ended September 30, 2002.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts is based on an evaluation of specific
customer accounts in which available facts and circumstances indicate
collectibility may be a problem. In addition, the allowance includes a
general reserve for all customers based on historical collection experience.
Long-Lived Assets:
Property, plant and equipment, goodwill and other intangible assets are
carried at cost. Depreciation on property, plant and equipment is computed
primarily on the straight-line method over the estimated useful lives of the
assets. Under SFAS No. 142, goodwill is no longer amortized, but is subject
to periodic review for impairment. 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.
Pension Costs:
Pension assets and liabilities are determined on an actuarial basis and are
affected by the market value of plan assets, estimates of the expected return
on plan assets and the discount rate used to determine the present value of
benefit obligations. Actual changes in the fair market value of plan assets
and differences between the actual return on plan assets, the expected return
on plan assets and changes in the selected discount rate will affect the
amount of pension cost.
Estimated Finishing Costs:
Estimated costs for finishing have been provided for bronze memorials, vases
and granite bases which have been manufactured, sold to customers and placed
in storage for future delivery.
Environmental Reserve:
Environmental liabilities are recorded when the Company's obligation is
probable and reasonably estimable. Accruals for losses from environmental
remediation obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present value.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
LONG-TERM CONTRACTUAL OBLIGATIONS AND COMMITMENTS:
The following table summarizes the Company's contractual obligations at
September 30, 2002, and the effect such obligations are expected to have on
its liquidity and cash flows in future periods.
Payments due by:
------------------------------------------------
After
Total 2003 2004 to 2005 2006 to 2007 2007
--------- ----------- ------------ ------------ ------
Contractual Cash Obligations: (Dollar amounts in thousands)
Revolving credit facility $ 84,500 $ - $ 84,500 $ - $ -
Notes payable to banks 13,586 1,804 2,624 2,365 6,793
Short-term borrowings 4,150 4,150 - - -
Capital lease obligations 378 173 180 25 -
Non-cancelable operating leases 10,183 3,105 3,870 1,479 1,729
Purchase obligation 4,500(1) - 4,500 - -
------- ----- ------ ----- ------
Total contractual cash obligations $117,297 $ 9,232 $ 95,674 $3,869 $8,522
======= ===== ====== ===== ======
(1) The Company has an obligation to purchase the remaining fifty percent interest in its 50%
owned affiliate, O.N.E. Color Communications, LLC ("O.N.E.") no later than 2004. The purchase
price is contingent on the attainment of certain operating performance levels of O.N.E. with such
payment to be not less than $4.5 million. A liability has been recorded in the consolidated
financial statements for the present value of the future minimum payout.
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.
SUBSEQUENT EVENT:
Beginning with the first quarter of fiscal 2003, Matthews changed its internal
reporting structure and will report five segments of business for financial
reporting. In fiscal 2002, the Company reported four business segments:
Bronze, Graphics Imaging, Marking Products and York Casket. The fifth
business will be reported as the Cremation segment. The Cremation segment
will consist of the Company's cremation equipment business (formerly part of
the Bronze segment) located in Florida and the Company's cremation casket
business (formerly part of the York Casket segment) located in Indiana. The
objective of the new segment, which is expected to generate approximately $20
million in sales for fiscal 2003, is to focus on the fastest growing segment
of the death care industry, which is cremation products and services and
increase the Company's participation in this market.
INFLATION:
Inflation has not had a material impact on the Company over the past three
years nor is it anticipated to have a material impact for the foreseeable
future.
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, continued.
ACCOUNTING PRONOUNCEMENTS:
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity." The principal difference between SFAS No. 146 and EITF Issue
No. 94-3 relates to its requirements for recognition of a liability for costs
associated with an exit or disposal activity. SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue No. 94-3, a liability for
exit costs as defined in Issue No. 94-3 was recognized at the date of an
entity's commitment to an exit plan. SFAS No. 146, which is not expected to
have a material impact on the Company's results of operations or financial
position, will be effective for exit or disposal activities initiated after
December 31, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets,
including long-lived assets to be held and used, long-lived assets to be
disposed of other than by sale and long-lived assets to be disposed of by
sale. This statement, which is effective for the Company's fiscal year ended
September 30, 2003, is not expected to have a material impact on the Company's
results of operations or financial position.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk involves forward-
looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company has market risk
related to changes in interest rates, commodity prices and foreign currency
exchange rates. The Company does not use derivative financial instruments in
connection with these market risks.
The Company's most significant long-term debt instrument, the Revolving Credit
Facility, bears interest at variable rates based on LIBOR and the carrying
amount of such debt approximates fair value. In the normal course of
business, the Company is exposed to commodity price fluctuations related to
the purchases of certain materials and supplies (such as bronze ingot, steel
and wood) used in its manufacturing operations. The Company obtains
competitive prices for materials and supplies when available. The Company is
subject to foreign currency exchange rate changes 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.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Description Pages
- ----------- -----
Report of Independent Accountants 34
Consolidated Balance Sheet 35-36
Consolidated Statement of Income 37
Consolidated Statement of Shareholders' Equity 38
Consolidated Statement of Cash Flows 39
Notes to Consolidated Financial Statements 40-63
Supplementary Financial Information 64
Report of Independent Accountants
on Financial Statement Schedule 65
Financial Statement Schedule 66
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Matthews International Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Matthews
International Corporation and subsidiaries at September 30, 2002 and 2001, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2002 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 20 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets." Accordingly, the Company changed its method of
accounting for goodwill in 2002.
PRICEWATERHOUSECOOPERS LLP
Pittsburgh, Pennsylvania
November 14, 2002
35
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2002 and 2001
(Dollar amounts in thousands, except per share data)
----------
ASSETS 2002 2001
---- ----
Current assets:
Cash and cash equivalents $ 57,101 $ 28,691
Short-term investments 4,565 240
Accounts receivable, net of allowance
for doubtful accounts of $8,289
and $3,725, respectively 66,239 52,086
Inventories (Note 3) 24,403 18,773
Deferred income taxes 1,741 1,241
Other current assets 1,971 1,297
------- -------
Total current assets 156,020 102,328
Investments (Note 4) 4,699 18,048
Property, plant and equipment, net (Note 5) 75,143 49,009
Deferred income taxes (Note 11) 18,095 5,151
Other assets 10,274 9,831
Goodwill 144,960 104,585
Other intangible assets, net of
accumulated amortization of $290 13,410 -
------- -------
Total assets $422,601 $288,952
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
36
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
September 30, 2002 and 2001
(Dollar amounts in thousands, except per share data)
----------
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
---- ----
Current liabilities:
Long-term debt, current maturities $ 6,127 $ 5,023
Trade accounts payable 19,462 12,971
Accrued compensation 22,859 16,283
Accrued income taxes 4,114 4,962
Customer prepayments 2,675 6,130
Accrued rebates 9,697 -
Accrued shutdown and relocation costs 3,680 -
Other current liabilities 18,572 21,170
------- -------
Total current liabilities 87,186 66,539
Long-term debt (Note 6) 96,487 40,726
Estimated finishing costs 6,811 7,401
Postretirement benefits other than pensions
(Note 10) 17,907 18,639
Environmental reserve (Note 14) 11,300 -
Other liabilities 21,535 11,931
Commitments and contingent liabilities (Note 12)
Shareholders' equity (Notes 2, 7 and 8):
Class A common stock, $1.00 par value; authorized
70,000,000 shares; 36,333,992 shares issued 36,334 36,334
Preferred stock, $100 par value, authorized
10,000 shares, none issued - -
Additional paid-in capital 2,119 -
Retained earnings 216,569 184,845
Accumulated other comprehensive income (loss) (15,216) (8,983)
Treasury stock, 5,166,586 and 6,060,158 shares,
respectively, at cost (58,431) (68,480)
------- -------
Total shareholders' equity 181,375 143,716
------- -------
Total liabilities and shareholders' equity $422,601 $288,952
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
37
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
for the years ended September 30, 2002, 2001 and 2000
(Dollar amounts in thousands, except per share data)
----------
2002 2001 2000
---- ---- ----
Sales $ 428,086 $ 283,282 $ 266,987
Cost of sales (267,722) (163,846) (148,898)
------- ------- -------
Gross profit 160,364 119,436 118,089
Selling expense (43,468) (38,100) (42,923)
Administrative expense (48,709) (30,156) (27,390)
Special items (Note 19) - 2,177 -
------- ------- -------
Operating profit 68,187 53,357 47,776
Investment income 1,587 2,365 1,828
Interest expense (4,171) (1,647) (1,488)
Other income (deductions), net (119) (279) 125
Minority interest (3,027) (2,338) (2,303)
------- ------- -------
Income before income
taxes and change in accounting 62,457 51,458 45,938
Income taxes (Note 11) (24,225) (19,859) (18,015)
------- ------- -------
Income before cumulative
effect of change in accounting 38,232 31,599 27,923
Cumulative effect of change in
accounting, net of tax (3,226) - -
------- ------- -------
Net income $ 35,006 $ 31,599 $ 27,923
======= ======= =======
Earnings per share before cumulative
effect of change in accounting:
Basic $ 1.24 $ 1.03 $ .90
==== ==== ====
Diluted $ 1.20 $ 1.01 $ .88
==== ==== ====
Earnings per share (Notes 2 and 9):
Basic $ 1.14 $ 1.03 $ .90
==== ==== ====
Diluted $ 1.10 $ 1.01 $ .88
==== ==== ====
The accompanying notes are an integral part of these consolidated financial
statements.
38
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended September 30, 2002, 2001 and 2000
(Dollar amounts in thousands, except per share data)
----------
Accumulated
Other
Common Additional Comprehensive
Stock Paid-in Retained Income (Loss) Treasury
(Note 7) Capital Earnings (net of tax) Stock Total
-------- ---------- -------- ------------ --------- ----------
Balance, September 30, 1999 $18,167 $ - $152,099 $ (4,025) $(51,619) $114,622
Net income - - 27,923 - - 27,923
Unrealized gains (losses) - - - 36 - 36
Minimum pension liability - - - (727) - (727)
Translation adjustment - - - (4,468) - (4,468)
Total comprehensive income 22,764
Treasury stock transactions:
Purchase of 1,018,492 shares - - - - (13,225) (13,225)
Issuance of 706,722 shares
under stock plans - - (2,355) - 8,028 5,673
Dividends, $.096 per share - - (2,978) - - (2,978)
------ ------ ------- ------ ------ -------
Balance, September 30, 2000 18,167 - 174,689 (9,184) (56,816) 126,856
Net income - - 31,599 - - 31,599
Unrealized gains (losses) - - - 402 - 402
Minimum pension liability - - - 787 - 787
Translation adjustment - - - (988) - (988)
Total comprehensive income 31,800
Treasury stock transactions:
Purchase of 778,462 shares - - - - (12,305) (12,305)
Issuance of 44,538 shares
under stock plans - - (198) - 641 443
Stock split, two-for-one 18,167 - (18,167) - - -
Dividends, $.101 per share - - (3,078) - - (3,078)
------ ------ ------- ------ ------ -------
Balance, September 30, 2001 36,334 - 184,845 (8,983) (68,480) 143,716
Net income - - 35,006 - - 35,006
Unrealized gains (losses) - - - (342) - (342)
Minimum pension liability - - - (10,042) - (10,042)
Translation adjustment - - - 4,151 - 4,151
Total comprehensive income 28,773
Treasury stock transactions:
Purchase of 6,000 shares - - - - (124) (124)
Issuance of 899,572 shares
under stock plans - 2,119 - - 10,173 12,292
Dividends, $.106 per share - - (3,282) - - (3,282)
------ ------ ------- ------ ------ -------
Balance, September 30, 2002 $36,334 $ 2,119 $216,569 $(15,216) $(58,431) $181,375
====== ====== ======= ====== ====== =======
The accompanying notes are an integral part of these consolidated financial statements.
39
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended September 30, 2002, 2001 and 2000
(Dollar amounts in thousands, except per share data)
----------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 35,006 $ 31,599 $ 27,923
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,856 12,932 12,007
Change in deferred taxes 5,286 709 1,041
Changes in working capital items (Note 15) (4,050) 768 (2,917)
(Increase) decrease in other assets (3,786) (2,813) (972)
Increase (decrease) in estimated finishing costs (590) 126 12
Increase (decrease) in other liabilities (1,060) 107 (594)
Decrease in postretirement benefits (376) (317) (533)
Tax benefit on exercised stock options 5,473 174 2,370
Impairment losses 5,776 2,824 -
Loss on dispositions of assets 401 248 570
Gain on sale of subsidiary - (7,099) -
Net (gain) loss on investments (456) (209) 113
------ ------ ------
Net cash provided by operating activities 55,480 39,049 39,020
------ ------ ------
Cash flows from investing activities:
Capital expenditures (10,063) (7,264) (7,674)
Proceeds from dispositions of assets 3,228 75 366
Proceeds from sale of subsidiary - 18,582 -
Acquisitions, net of cash acquired (88,767) (63,567) (12,245)
Purchases of investment securities (4,771) (12,883) (6,967)
Proceeds from dispositions of investments 13,730 10,553 2,053
Payments on notes receivable - 7 48
------ ------ ------
Net cash used in investing activities (86,643) (54,497) (24,419)
------ ------ ------
Cash flows from financing activities:
Proceeds from long-term debt 126,433 32,430 3,943
Payments on long-term debt (71,310) (1,320) (5,401)
Proceeds from the sale of treasury stock 6,819 269 3,303
Purchases of treasury stock (124) (12,305) (13,225)
Dividends (3,282) (3,078) (2,978)
------ ------ ------
Net cash provided by (used in) financing activities 58,536 15,996 (14,358)
------ ------ ------
Effect of exchange rate changes on cash 1,037 (1,007) (2,625)
------ ------ ------
Net change in cash and cash equivalents 28,410 (459) (2,382)
Cash and cash equivalents at beginning of year 28,691 29,150 31,532
------ ------ ------
Cash and cash equivalents at end of year $ 57,101 $ 28,691 $ 29,150
====== ====== ======
Cash paid during the year for:
Interest $ 3,952 $ 1,630 $ 1,488
Income taxes 10,080 13,227 15,618
The accompanying notes are an integral part of these consolidated financial statements.
40
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
----------
1. NATURE OF OPERATIONS:
Matthews International Corporation ("Matthews"), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of memorialization products and caskets for the cemetery and
funeral home industries and custom-made products which are used to identify
people, places, products and events. In fiscal 2002, the Company's products
and operations were comprised of four business segments: Bronze, Graphics
Imaging, Marking Products, and York Casket. The Bronze segment is a leading
manufacturer of cast bronze memorials and other memorialization products,
crematories and cremation-related products and is a leading builder of
mausoleums in the United States. The Graphics Imaging segment manufactures
and provides printing plates, pre-press services and imaging systems for the
corrugated and flexible packaging industries. The Marking Products segment
designs, manufactures and distributes a wide range of equipment and
consumables for identifying various consumer and industrial products,
components and packaging containers. On December 3, 2001, the Company
acquired The York Group, Inc. ("York"). York is the second leading casket
manufacturer in the United States (see Note 17). York operates as a wholly-
owned subsidiary and separate segment of Matthews. Beginning with the first
quarter of fiscal 2003, Matthews changed its internal reporting structure and
will report five segments of business for financial reporting. The fifth
business will be reported as the Cremation segment (see Note 16).
The Company has manufacturing and marketing facilities in the United States,
Australia, Canada and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include all majority-owned foreign and
domestic subsidiaries. The consolidated financial statements also include the
accounts of the Company's 50%-owned affiliates, O.N.E. Color Communications,
L.L.C. ("O.N.E.") and S+T GmbH & Co. KG ("S+T"). All intercompany accounts
and transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Stock Split:
In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Class A and Class B Common Stock in the form of a 100% stock
distribution. Shareholders' equity has been adjusted for the stock split by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. All per share amounts and numbers
of shares have been adjusted in this report to reflect the stock split.
Foreign Currency:
Balance sheet accounts for foreign subsidiaries are translated into U.S.
dollars at exchange rates in effect at the consolidated balance sheet date.
Gains or losses that result from this process are recorded in other
comprehensive income. The cumulative translation adjustment at September 30,
2002 and 2001 was a reduction in accumulated other comprehensive income of
$5,256 and $9,407, respectively. The revenue and expense accounts of foreign
subsidiaries are translated into U.S. dollars at the average exchange rates
that prevailed during the period.
Cash and Cash Equivalents:
For purposes of the consolidated statement of cash flows, the Company
considers all investments purchased with a remaining maturity of three months
or less to be cash equivalents. The carrying amount of cash and cash
equivalents approximates fair value due to the short-term maturities of these
instruments.
Inventories:
Inventories are stated at the lower of cost or market with cost generally
determined under the average cost method.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is computed
primarily on the straight-line method over the estimated useful lives of the
assets, which generally range from 10 to 45 years for buildings and 3 to 12
years for machinery and equipment. Gains or losses from the disposition of
assets are generally included in other income or other deductions from income.
The cost of maintenance and repairs is charged against income as incurred.
Renewals and betterments of a nature considered to extend the useful lives of
the assets are capitalized.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Goodwill and Other Intangible Assets:
Prior to fiscal 2002, goodwill, which represents the excess of cost over the
estimated fair value of net assets of acquired businesses, was amortized using
the straight-line method over periods ranging from 10 to 25 years. Effective
October 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under
this standard, goodwill is no longer amortized, but is subject to periodic
review for impairment. Intangible assets are amortized over their estimated
useful lives unless such lives are considered to be indefinite.
Estimated Finishing Costs:
Estimated costs for finishing have been provided for bronze memorials, vases
and granite bases which have been manufactured, sold to customers and placed
in storage for future delivery.
Environmental:
Costs that mitigate or prevent future environmental issues or extend the life
or improve equipment utilized in current operations are capitalized and
depreciated on a straight-line basis over the estimated useful lives of the
related assets. Costs that relate to current operations or an existing
condition caused by past operations are expensed. Environmental liabilities
are recorded when the Company's obligation is probable and reasonably
estimable. Accruals for losses from environmental remediation obligations do
not consider the effects of inflation, and anticipated expenditures are not
discounted to their present value.
Treasury Stock:
Treasury stock is carried at cost. The cost of treasury shares sold is
determined under the average cost method.
Income Taxes:
Deferred tax assets and liabilities are provided for the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to
reverse. Deferred income taxes for U.S. tax purposes have not been provided
on the undistributed earnings of foreign subsidiaries, as such earnings are
considered to be reinvested indefinitely. At September 30, 2002,
undistributed earnings for which deferred U.S. income taxes have not been
provided approximated $19,018. Determination of the amount of unrecognized
U.S. deferred tax liability on these unremitted earnings is not practical as
any taxes paid upon distribution to the Company would be offset, at least in
part, by foreign tax credits under U.S. tax regulations.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Revenue Recognition:
Revenues are generally recognized when title and risk of loss pass to the
customer, which is generally at the time of product shipment, except for
construction revenues which are recognized under the percentage-of-completion
method of accounting. The Company offers rebates to certain customers
participating in volume purchase programs. Rebates are estimated and recorded
as a reduction in sales at the time the Company's products are sold.
Research and Development Expenses:
Research and development costs are expensed as incurred and approximated
$2,800, $2,500 and $1,900 for the years ended September 30, 2002, 2001 and
2000, respectively.
Earnings Per Share:
Basic earnings per share is computed by dividing net income by the average
number of common shares outstanding. Diluted earnings per share is computed
using the treasury stock method, which assumes the issuance of common stock
for all dilutive securities.
Reclassifications:
Certain reclassifications have been made to the financial statements for the
years ended September 30, 2001 and 2000 to conform to the current year
presentation.
3. INVENTORIES:
Inventories at September 30 consisted of the following:
2002 2001
---- ----
Materials and finished goods $22,320 $16,816
Labor and overhead in process 1,606 1,520
Supplies 477 437
------ ------
$24,403 $18,773
====== ======
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
4. INVESTMENTS:
Investment securities are recorded at estimated market value at the
consolidated balance sheet date and are classified as available-for-sale.
Short-term investments consisted principally of corporate obligations with
purchased maturities of over three months but less than one year. The cost of
short-term investments approximated market value at September 30, 2002 and
2001. Investments classified as non-current consisted of securities of the
U.S. government and its agencies and corporate obligations with purchased
maturities in the range of one to five years. Accrued interest on all
investment securities was classified with short-term investments.
At September 30, 2002 and 2001, investments classified as non-current were as
follows:
Book Value Gross Gross
(Amortized Unrealized Unrealized Market
Cost) Gains Losses Value
---------- ---------- ---------- ------
September 30, 2002:
- ------------------
U.S. government and
its agencies $ 1,184 $ 52 $ - $ 1,236
Corporate obligations 1,255 69 - 1,324
Other 487 - - 487
------ --- --- ------
Total $ 2,926 $121 $ - $ 3,047
====== === === ======
September 30, 2001:
- ------------------
U.S. government and
its agencies $ 8,281 $429 $ - $ 8,710
Corporate obligations 6,171 266 - 6,437
Other 93 - - 93
------ --- --- ------
Total $14,545 $695 $ - $15,240
====== === === ======
Unrealized gains and losses on investment securities, including related
deferred taxes, are reflected in accumulated other comprehensive income.
Realized gains and losses are based on the specific identification method and
are recorded in investment income. Realized gains (losses) for fiscal 2002,
2001 and 2000 were $456, $225 and $(30), respectively. Bond premiums and
discounts are amortized on the straight-line method, which does not
significantly differ from the interest method.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
4. INVESTMENTS, continued:
In addition, investments included the Company's 49% ownership interest in
Applied Technology Developments, Ltd. ("ATD"), which was $647 at September 30,
2002 and 2001. The investment in ATD is recorded under the equity method of
accounting. Income under the equity method of accounting is recorded in
investment income. Investments also included ownership interests in various
entities of less than 20%, which totaled $1,005 and $2,161 at September 30,
2002 and 2001, respectively. Investments of less than 20% ownership interest
are recorded under the cost method of accounting.
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment and the related accumulated depreciation at
September 30, 2002 and 2001 were as follows:
2002 2001
---- ----
Buildings $ 35,562 $ 25,666
Machinery and equipment 88,916 65,515
------- -------
124,478 91,181
Less accumulated depreciation (56,163) (46,409)
------- -------
68,315 44,772
Land 5,379 3,159
Construction in progress 1,449 1,078
------- -------
$ 75,143 $ 49,009
======= =======
6. LONG-TERM DEBT:
Long-term debt at September 30, 2002 and 2001 consisted of the following:
2002 2001
---- ----
Revolving Credit Facility $ 84,500 $ -
Revolving Credit and Term Loan Agreement - 30,000
Note payable to bank, 4.145% 8,072 8,082
Note payable to bank, 4.0% 5,514 3,395
Short-term borrowings 4,150 4,073
Capital lease obligations 378 199
------- -------
102,614 45,749
Less current maturities (6,127) (5,023)
------- -------
$ 96,487 $ 40,726
======= =======
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
6. LONG-TERM DEBT, continued:
Until December 3, 2001, the Company had a Revolving Credit and Term Loan
Agreement. Under terms of the agreement, the Company could borrow principal
amounts up to $30,000 in the aggregate at LIBOR plus .75%. At September 30,
2001, outstanding borrowings under this agreement totaled $30,000 at an
interest rate of 3.36%.
On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125,000 with a syndicate of four financial institutions. Borrowings under
the facility, which matures on November 30, 2004, bear interest at LIBOR plus
a factor ranging from .75% to 1.5% based on the Company's leverage ratio. The
leverage ratio is defined as net indebtedness divided by EBITDA (earnings
before interest, taxes, depreciation and amortization). The Company is
required to pay an annual commitment fee ranging from .20% to .375% (based on
the Company's leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility requires the Company to maintain minimum levels of
consolidated net worth and fixed charge and interest coverage ratios. A
portion of the facility (not to exceed $10,000) is available for the issuance
of trade and standby letters of credit. The Revolving Credit Facility
replaced the existing Revolving Credit and Term Loan Agreement. The Company
borrowed $124,500 under the Revolving Credit Facility on December 3, 2001 in
connection with the acquisition of York, and for the repayment of all amounts
outstanding under the Revolving Credit and Term Loan Agreement. Outstanding
borrowings on the Revolving Credit Facility at September 30, 2002 were
$84,500. The interest rate on outstanding borrowings at September 30, 2002
was 3.09%.
In June 1999, Caggiati S.p.A. borrowed Lit. 20.2 billion (U.S.$10,900) from an
Italian bank, UniCredito Italiano, Parma, Italy. The loan amortization period
is 15 years with interest at an annual rate of 4.145%, subject to renewal
after five and ten years at an interest rate approximating current market
rates. In June 2000, a deferred payment due in connection with the purchase
of Caggiati S.p.A. was financed through a bank loan of Lit. 7.9 billion
(U.S.$3,600). The loan amortization period is 14 years, subject to renewal
after five and ten years, with a variable interest rate which approximates
market. The interest rate on this loan was 4.0% at September 30, 2002.
In fiscal 2002, Caggiati S.p.A. obtained additional financing of 2.1 million
Euros (U.S.$2,024) through two bank loans. The first loan was obtained in
June 2002 for 1.0 million Euros and has an amortization period of 18 months
with interest at 4.0%. The second loan was obtained in September 2002 for 1.1
million Euros and has an amortization period of five years with interest at
4.0%.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
6. LONG-TERM DEBT, continued:
Aggregate maturities of long-term debt, including short-term borrowings and
capital leases, follows:
2003 $ 6,127
2004 86,065
2005 1,239
2006 1,195
2007 1,195
Thereafter 6,793
-------
$102,614
=======
The carrying amounts of the Company's borrowings under its financing
arrangements approximated their fair value.
Long-term debt, current maturities, also included short-term borrowings by
Caggiati S.p.A. of $4,150 and $4,073 at September 30, 2002 and 2001,
respectively. These short-term borrowings consisted principally of several
line of credit arrangements for working capital requirements. The
weighted-average interest rate on these borrowings, which are collateralized
by certain trade accounts receivable, was 3.5% at September 30, 2002.
The Company has a line of credit of $500 (Canadian dollars), which provides
for borrowings at the bank's prime interest rate. There were no borrowings
outstanding on this line of credit at September 30, 2002 and 2001. Caggiati
S.p.A. has four lines of credit totaling 11.8 million Euros (U.S. $11,700)
with various banks. Outstanding borrowings on these lines at September 30,
2002 and 2001 were $4,150 and $4,073, respectively.
7. SHAREHOLDERS' EQUITY:
The authorized common stock of the Company consists of 70,000,000 shares of
Class A Common Stock, $1 par value. Prior to September 2001, the authorized
common stock of the Company was divided into two classes consisting of Class A
Common Stock, 70,000,000 shares, $1 par value, and Class B Common Stock,
30,000,000 shares, $1 par value. Shares of Class A stock have one vote per
share and are freely transferable subject to applicable securities laws.
Shares of Class B stock had ten votes per share and were only transferable by
a shareholder to the Company or to an active employee of the Company. In
September 2001, the number of outstanding shares of Class B stock declined
below 5% of the aggregate outstanding shares of Class A and Class B stock. As
a result, in accordance with the Company's Restated Articles of Incorporation,
all shares of Class B stock were immediately converted to an equivalent number
of shares of Class A stock. During fiscal 2000, 512,188 shares of Class B
Common Stock were exchanged for an equal number of shares of Class A Common
Stock.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
7. SHAREHOLDERS' EQUITY, continued:
The Company has a stock repurchase program, which was initiated in 1996.
Under the program, the Company's Board of Directors has authorized the
repurchase of a total of 8,000,000 shares (adjusted for stock splits) of
Matthews common stock, of which 7,085,072 shares have been repurchased as of
September 30, 2002. 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.
At September 30, 2000, shareholders' equity included notes receivable from
employees, which resulted from purchases of common stock by designated
employees under the Employees' Stock Purchase Plan. All outstanding amounts
under these notes were paid in full during fiscal 2001.
Comprehensive income consists of net income adjusted for changes, net of any
related income tax effect, in cumulative foreign currency translation,
unrealized investment gains and losses and minimum pension liability.
8. STOCK PLANS:
The Company has a stock incentive plan that provides for grants of incentive
stock options, nonstatutory stock options and restricted share awards in an
aggregate number not to exceed 15% of the outstanding shares of the Company's
common stock. The plan is administered by the Compensation Committee of the
Board of Directors. The option price for each stock option that may be
granted under the plan may not be less than the fair market value of the
Company's common stock on the date of grant. The aggregate number of shares
of the Company's common stock that may be issued upon exercise of outstanding
stock options was 4,675,111 shares at September 30, 2002.
Outstanding stock options are exercisable in various share amounts based on
the attainment of certain market value levels of Class A Common Stock but, in
the absence of such events, are exercisable in full for a one-week period
beginning five years from the date of grant. In addition, options granted
after September 1996 vest in one-third increments after three, four and five
years, respectively, from the grant date (but, in any event, not until the
attainment of the certain market value levels described above). The options
expire on the earlier of ten years from the date of grant, upon employment
termination, or within specified time limits following voluntary employment
termination (with the consent of the Company), retirement or death.
The Company has elected to account for its stock incentive plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." If compensation cost had been determined under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
diluted earnings per share would have been as follows:
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
8. STOCK PLANS, continued:
2002 2001 2000
---- ---- ----
Net income, as reported $35,006 $31,599 $27,923
Net income, pro forma 33,620 30,198 26,357
Earnings per share, as reported $1.10 $1.01 $ .88
Earnings per share, pro forma 1.06 .97 .84
The weighted-average fair value of options granted was $7.77 per share in
2002, $5.28 per share in 2001 and $5.37 per share in 2000.
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes based pricing model with the following assumptions:
2002 2001 2000
---- ---- ----
Expected volatility 26.7% 27.0% 26.0%
Dividend yield 1.0% 0.8% 0.8%
Average risk-free interest rate 3.0% 4.5% 5.8%
Average expected term (years) 7.6 8.1 8.3
The transactions for shares under options were as follows:
2002 2001 2000
---- ---- ----
Outstanding, beginning of year:
Number 3,698,866 3,397,866 3,898,700
Weighted-average exercise price $10.92 $10.53 $ 9.34
Granted:
Number 459,700 402,000 223,100
Weighted-average exercise price $24.55 $14.03 $12.84
Exercised:
Number 898,700 43,666 701,002
Weighted-average exercise price $ 7.58 $ 6.05 $ 4.64
Expired or forfeited:
Number 43,433 57,334 22,932
Weighted-average exercise price $13.14 $13.43 $10.91
Outstanding, end of year:
Number 3,216,433 3,698,866 3,397,866
Weighted-average exercise price $13.77 $10.92 $10.53
Exercisable, end of year:
Number 1,187,077 1,103,955 585,254
Weighted-average exercise price $ 9.84 $ 7.27 $ 6.48
Shares reserved for future options,
end of year 1,458,678 842,209 1,253,298
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
8. STOCK PLANS, continued:
The following tables summarize certain stock option information at
September 30, 2002
Options outstanding:
- -------------------
Range of Weighted-average Weighted-average
exercise price Number remaining life exercise price
- -------------- -------- ---------------- ----------------
$3.56 60,000 2.2 $ 3.56
$7.03 - $8.69 548,334 4.2 7.07
$10.70 283,233 5.2 10.70
$13.84 - $15.34 251,166 6.1 13.90
$12.84 and $13.98 1,225,800 6.5 13.82
$14.03 388,200 8.1 14.03
$24.37 and $28.49 459,700 9.3 24.55
--------- --- -----
3,216,433 6.5 $13.77
========= === =====
Options exercisable:
- -------------------
Range of Weighted-average
exercise price Number exercise price
- -------------- ------- ----------------
$3.56 60,000 $ 3.56
$7.03 - $8.69 548,334 7.07
$10.70 150,233 10.70
$13.84 - $15.34 428,510 13.97
--------- -----
1,187,077 $ 9.84
========= =====
Under the Company's Director Fee Plan, directors who are not also officers of
the Company each receive, as an annual retainer fee, shares of the Company's
Class A Common Stock equivalent to approximately $16. Directors may also
elect to receive the common stock equivalent of meeting fees. 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. Shares deferred under the
Director Fee Plan at September 30, 2002, 2001 and 2000 were 56,288, 53,218 and
48,014, respectively.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
9. EARNINGS PER SHARE
2002 2001 2000
---- ---- ----
Net income $35,006 $31,599 $27,923
====== ====== ======
Weighted-average common
shares outstanding 30,765,177 30,560,339 31,031,016
Dilutive securities,
primarily stock options 1,030,813 759,715 672,138
---------- ---------- ----------
Diluted weighted-average
common shares outstanding 31,795,990 31,320,054 31,703,154
========== ========== ==========
Basic earnings per share $1.14 $1.03 $ .90
==== ==== ====
Diluted earnings per share $1.10 $1.01 $ .88
==== ==== ====
Diluted earnings per share before
change in accounting $1.20 $1.01 $ .88
==== ==== ====
10. PENSION AND OTHER POSTRETIREMENT PLANS:
The Company provides defined benefit pension and other postretirement plans to
certain employees. Net periodic pension and other postretirement benefit
(income) cost for the plans included the following:
Pension Other Postretirement
-------------------------- --------------------------
2002 2001 2000 2002 2001 2000
------ ------ ------ ------ ------ ------
Service cost $ 2,948 $ 3,059 $ 2,452 $ 357 $ 303 $ 268
Interest cost 4,619 4,384 3,955 916 913 882
Expected return on
plan assets (6,461) (8,807) (6,100) - - -
Amortization:
Transition asset - - (404) - - -
Prior service cost 162 162 162 (1,009) (1,009) (1,009)
Net actuarial (gain) loss - (1,948) (430) 114 136 137
----- ----- ----- ----- ----- -----
Net benefit cost (income) $ 1,268 $(3,150) $ (365) $ 378 $ 343 $ 278
===== ===== ===== ===== ===== =====
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
10. PENSION AND OTHER POSTRETIREMENT PLANS, continued:
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
Pension Other Postretirement
------------------- --------------------
2002 2001 2002 2001
------ ------ ------ ------
Change in benefit obligation:
Benefit obligation, beginning $ 67,856 $ 60,196 $ 13,569 $ 12,983
Acquisition - 5,282 - -
Service cost 2,948 3,059 357 303
Interest cost 4,619 4,384 916 913
Assumption changes (1) (207) 534 336
Actuarial (gain) loss (1,017) (1,747) 1,119 (306)
Benefit payments (3,430) (3,111) (754) (660)
------ ------ ------ ------
Benefit obligation, ending 70,975 67,856 15,741 13,569
------ ------ ------ ------
Change in plan assets:
Fair value, beginning 74,059 98,108 - -
Acquisition - 5,690 - -
Actual return (20,820) (26,934) - -
Benefit payments (3,430) (3,111) (754) (660)
Employer contributions 3,874 306 754 660
------ ------ ------ ------
Fair value, ending 53,683 74,059 - -
------ ------ ------ ------
Funded status (17,292) 6,203 (15,741) (13,569)
Unrecognized actuarial (gain) loss 25,627 (669) 4,402 2,863
Unrecognized prior service cost 411 574 (7,740) (8,750)
------ ------ ------ ------
Net amount recognized $ 8,746 $ 6,108 $(19,079) $(19,456)
====== ====== ====== ======
Amounts recognized in the
balance sheet:
Prepaid pension cost $ 11,581 $ 8,751 $ - $ -
Accrued benefit liability (19,674) (2,643) (19,079) (19,456)
Intangible asset 377 - - -
Accumulated other
comprehensive income 16,462 - - -
------ ------ ------ ------
Net amount recognized $ 8,746 $ 6,108 $(19,079) $(19,456)
====== ====== ====== ======
The Company has an unfunded defined benefit pension plan, which had a benefit
obligation at September 30, 2002 and 2001 of $2,934 and $2,923, respectively.
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the
Company recorded an obligation at September 30, 2002 for the underfunded
status of the pension plans, principally through a charge to accumulated other
comprehensive income.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
10. PENSION AND OTHER POSTRETIREMENT PLANS, continued:
Weighted-average assumptions for the pension and other postretirement benefit
plans were:
Pension Other Postretirement
---------------------------- ----------------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- -------- -------- --------
Discount rate 7.00% 7.00% 7.25% 7.00% 7.00% 7.25%
Return on plan assets 9.00 9.00 9.00 - - -
Compensation increase 4.25 4.25 4.50 4.25 4.25 4.50
For measurement purposes, annual rates of increase of 12.0% and 18.0% in the
per capita cost of health care benefits for Medicare HMO Plans and all other
plans, respectively, were assumed for 2002; the rates were assumed to decrease
gradually to 5.0% for 2008 and remain at that level thereafter. Assumed
health care cost trend rates have a significant effect on the amounts
reported. An increase in the assumed health care cost trend rates by one
percentage point would have increased the accumulated postretirement benefit
obligation as of September 30, 2002 by $571 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the year then ended by $71. A decrease in the assumed health care cost trend
rates by one percentage point would have decreased the accumulated
postretirement benefit obligation as of September 30, 2002 by $503 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $62.
11. INCOME TAXES:
The provision for income taxes (before cumulative effect of change in
accounting) consisted of the following:
2002 2001 2000
---- ---- ----
Current:
Federal $ 14,531 $ 13,694 $ 11,940
State 1,907 2,006 1,843
Foreign 2,812 3,435 2,761
------ ------ ------
19,250 19,135 16,544
Deferred 4,975 724 1,471
------ ------ ------
Total $ 24,225 $ 19,859 $ 18,015
====== ====== ======
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
11. INCOME TAXES, continued:
The components of the net deferred tax asset at September 30 were as follows:
2002 2001
---- ----
Deferred tax assets:
Postretirement benefits $ 7,441 $ 7,588
Environmental reserve 4,820 222
Bad debt reserve 3,600 946
Deferred compensation 3,138 1,454
Pension costs 3,093 (2,268)
Impairments/other provisions 2,369 526
Estimated finishing costs 2,304 2,524
Accrued vacation pay 1,450 933
Accrued rebates 868 -
Other 1,701 725
------ ------
30,784 12,650
------ ------
Deferred tax liabilities:
Depreciation (6,675) (3,212)
Goodwill amortization (4,220) (2,775)
Unrealized investment gain (53) (271)
------ ------
(10,948) (6,258)
------ ------
Net deferred tax asset 19,836 6,392
Less current portion (1,741) (1,241)
------ ------
$ 18,095 $ 5,151
====== ======
The components of the provision for deferred income taxes were as follows:
2002 2001 2000
---- ---- ----
Postretirement benefits $ 147 $ 99 $ 207
Environmental reserve 141 - -
Bad debt reserve 208 (506) 85
Deferred compensation 766 51 444
Pension costs 1,059 1,473 233
Impairments/other provisions 189 (53) (78)
Estimated finishing costs 220 (170) (31)
Accrued vacation pay 55 131 (15)
Accrued rebates 699 - -
Depreciation 293 (186) 244
Goodwill amortization 1,445 26 (4)
Foreign subsidiary losses, net - - 170
Other (247) (141) 216
----- ----- -----
$4,975 $ 724 $1,471
===== ===== =====
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
11. INCOME TAXES, continued:
The reconciliation of the federal statutory tax rate to the consolidated
effective tax rate was as follows:
2002 2001 2000
---- ---- ----
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
Effect of state income taxes,
net of federal deduction 2.7 2.6 2.8
Foreign taxes in excess of
federal statutory rate .6 .4 .5
Goodwill amortization .2 .4 .5
Other .3 .2 .4
---- ---- ----
Effective tax rate 38.8 % 38.6 % 39.2 %
==== ==== ====
The Company's foreign subsidiaries had income before income taxes for the
years ended September 30, 2002, 2001 and 2000 of approximately $10,200, $8,400
and $7,000, respectively.
12. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates various production and office facilities and equipment
under operating lease agreements. Annual rentals under these and other
operating leases were $5,400, $4,300 and $3,700 in 2002, 2001 and 2000,
respectively. Future minimum rental commitments under non-cancelable
operating lease arrangements for fiscal years 2003 through 2007 are $3,105,
$2,292, $1,578, $768 and $711, respectively, and $1,729 thereafter.
The Company is party to various legal proceedings, the eventual outcome of
which are not predictable. It is possible that an unfavorable resolution of
these matters could have a material impact to the Company. Although the
ultimate disposition of these proceedings is not presently determinable,
management is of the opinion that they should not result in liabilities in an
amount which would materially affect the Company's consolidated financial
position, results of operations or cash flows.
The Company has employment agreements with certain employees, the terms of
which expire at various dates between 2003 and 2006. The agreements generally
provide for base salary and bonus levels and include a non-compete clause.
The aggregate commitment for salaries under these agreements at September 30,
2002 was approximately $1,500.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
13. RESTRUCTURING AND RELOCATION COSTS
Accrued reserves for restructuring and relocation costs were $3,680 at
September 30, 2002. These reserves have been provided for the restructuring,
sale or closure of certain of York's operations and facilities, including the
disposition of York's remaining distribution operations and the relocation of
York's administrative functions to Pittsburgh, Pennsylvania. The accrued
liability includes previously established reserves assumed with the
acquisition of York as well as reserves recorded for costs to be incurred as a
result of the acquisition. The majority of the restructuring and relocation
activities included in the reserves are expected to be completed during fiscal
2003.
Restructuring reserves recorded for costs to be incurred as a result of the
acquisition were recorded as a purchase accounting adjustment and did not
affect the fiscal 2002 operating results of the Company. Accrued costs of
$665 related to the relocation of York's administrative functions to
Pittsburgh were expensed during fiscal 2002. Other accrued costs related to
the relocation were recorded as a purchase accounting adjustment.
14. 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 policies and procedures with respect to environmental,
safety and health, including 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, York
was identified, along with others, by the Environmental Protection Agency as a
potentially responsible party for remediation of a landfill site in York, PA.
At this time, the Company has not been joined in any lawsuit or administrative
order related to the site or its clean-up.
At September 30, 2002, an accrual of $12,150 has been recorded for
environmental remediation (of which $850 has been classified in other current
liabilities), representing management's best estimate of the probable and
reasonably estimable costs of the Company's known remediation obligations.
The accrual, which reflects previously established reserves assumed with the
acquisition of York and additional reserves recorded as a purchase accounting
adjustment, does not consider the effects of inflation and anticipated
expenditures are not discounted to their present value. While final
resolution of these contingencies could result in costs different than current
accruals, management believes the ultimate outcome will not have a significant
effect on the Company's consolidated results of operations or financial
position.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
15. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in working capital items as presented in the Consolidated Statement of
Cash Flows consisted of the following:
2002 2001 2000
---- ---- ----
Current assets:
Accounts receivable $ 2,906 $ (4,854) $ 1,603
Inventories 1,301 728 (574)
Other current assets (417) 709 109
------ ------ ------
3,790 (3,417) 1,138
------ ------ ------
Current liabilities:
Trade accounts payable (2,910) 806 145
Accrued compensation 1,232 (680) (1,399)
Accrued income taxes (1,623) 4,503 (548)
Customer prepayments (3,456) 257 (950)
Accrued rebates 642 - -
Accrued shutdown (251) - -
Other current liabilities (1,474) (701) (1,303)
------ ------ ------
(7,840) 4,185 (4,055)
------ ------ ------
Net change $ (4,050) $ 768 $ (2,917)
====== ====== ======
In July 2001, Matthews acquired a 75% interest in Rudolf Reproflex GmbH (see
Note 17). The purchase price of DM 24.0 million (U.S.$11,000), which was paid
in October 2001, was recorded in other current liabilities at September 30,
2001 and reflected as a non-cash adjustment in the Consolidated Statement of
Cash Flows.
16. SEGMENT INFORMATION:
In fiscal 2002, the Company was organized into four business segments based on
products and services. The segments, which are Bronze, Graphics Imaging,
Marking Products, and York Casket are described under Nature of Operations
(Note 1). Management evaluates segment performance based on operating profit
(before income taxes) and does not allocate non-operating items such as
investment income, interest expense, other income (deductions), net and
minority interest.
The accounting policies of the segments are the same as those described in
Summary of Significant Accounting Policies (Note 2). Intersegment sales are
accounted for at negotiated prices. Operating profit is total revenue less
operating expenses. Segment assets include those assets that are used in the
Company's operations within each segment. Assets classified under Other
principally consist of cash and cash equivalents, investments, deferred income
taxes and corporate headquarters' assets. Long-lived assets include property,
plant and equipment (net of accumulated depreciation), goodwill, and other
intangible assets (net of accumulated amortization).
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
16. SEGMENT INFORMATION, continued:
Beginning with the first quarter of fiscal 2003, Matthews changed its internal
reporting structure and will report five segments of business. The fifth
business will be reported as the Cremation segment. The Cremation segment
will consist of the Company's cremation equipment business (formerly part of
the Bronze segment) located in Florida and the Company's cremation casket
business (formerly part of the York Casket segment) located in Indiana.
Information about the Company's segments follows:
Graphics Marking York
Imaging Products Bronze Casket Other Consolidated
-------- -------- -------- -------- ------- ------------
Sales to external customers:
2002 $ 94,814 $ 28,668 $197,098 $107,506 $ - $428,086
2001 89,568 29,636 164,078 - - 283,282
2000 92,169 32,450 142,368 - - 266,987
Intersegment sales:
2002 9 46 10 - - 65
2001 5 46 26 - - 77
2000 14 50 199 - - 263
Depreciation and amortization:
2002 4,508 539 4,736 3,641 432 13,856
2001 5,264 613 6,626 - 429 12,932
2000 5,844 532 5,199 - 432 12,007
Operating profit:
2002 9,724 3,595 44,870 9,998 - 68,187
2001 14,443 3,108 35,806 - - 53,357
2001 (excluding
special items) 10,042 4,562 37,744 - - 52,348
2000 9,640 4,720 33,416 - - 47,776
Total assets:
2002 83,414 15,908 149,408 126,891 46,980 422,601
2001 75,572 17,417 149,407 - 46,556 288,952
2000 64,186 18,449 88,194 - 49,836 220,665
Capital expenditures:
2002 3,129 253 4,121 2,127 433 10,063
2001 2,752 307 3,825 - 380 7,264
2000 4,227 640 2,610 - 197 7,674
Information about the Company's operations by geographic area follows:
United States Canada Australia Europe Consolidated
------------- ------ --------- ------ ------------
Sales to external customers:
2002 $348,986 $8,547 $4,883 $65,670 $428,086
2001 221,326 9,140 4,511 48,305 283,282
2000 216,550 9,365 4,632 36,440 266,987
Long-lived assets:
2002 183,658 2,001 2,442 45,412 233,513
2001 109,830 2,186 2,135 39,443 153,594
2000 69,426 2,401 2,404 22,948 97,179
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
17. ACQUISITIONS:
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would acquire 100% of the outstanding common shares of York for $10 cash per
share. Matthews also agreed to pay up to an additional $1 cash per share
based on excess cash (as defined in the merger agreement) remaining on York's
balance sheet as of October 31, 2001. On December 3, 2001, the transaction
was completed at $11 per share. At December 3, 2001, there were 8,940,950
shares of York common stock outstanding. The transaction was financed by
Matthews through borrowings under a $125,000 Revolving Credit Facility. The
acquisition of York, which is the second leading casket manufacturer in the
United States, is expected to expand Matthews' position in the death care
industry. York operates as a wholly-owned subsidiary and separate segment of
Matthews.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
Cash $ 25,544
Other current assets 27,275
Property, plant and equipment 29,516
Intangible assets 13,700
Goodwill 39,318
Other assets 18,099
-------
Total assets acquired 153,452
-------
Other current liabilities 38,215
Environmental reserve 12,150
Other liabilities 2,747
-------
Total liabilities assumed 53,112
-------
Net assets acquired $100,340
=======
Acquired intangible assets include trade names with an assigned value of
$8,000 which are not subject to amortization. Intangible assets also include
patents, copyrights, customer relationships and other intangible assets with
an assigned value of $5,700 and have assigned useful lives ranging from 15 to
17 years. The acquired goodwill is not deductible for tax purposes.
On May 24, 2001, Matthews acquired the commemorative products business of York
for $45,000. The transaction was completed through the purchase of certain
assets (pursuant to an asset purchase agreement) and stock of subsidiaries
under the commemorative products segment of York (pursuant to a stock purchase
agreement). As part of the transaction, Matthews acquired York's
manufacturing facilities in Kingwood, West Virginia and Bryan, Texas. The
acquisition of the commemorative products business of York is intended to
expand Matthews' product offerings to the death care industry. The
transaction was financed by Matthews through existing cash on hand and a
$30,000 bank loan under the Company's Revolving Credit and Term Loan
Agreement.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
17. ACQUISITIONS, continued:
The following unaudited pro forma information presents a summary of the
consolidated results of Matthews and York (including the commemorative
products business of York) as if the acquisitions had occurred on October 1,
2000:
2002 2001
---- ----
Sales $449,753 $414,280
Income before change in accounting 38,216 35,124
Net income 34,990 35,124
Earnings per share before change in accounting 1.20 1.12
Earnings per share 1.10 1.12
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as interest expense on acquisition
debt. The pro forma results include non-recurring property, plant and
equipment write-offs and plant closure and restructuring charges for York of
$1,270 and $1,924 for the years ended September 30, 2002 and 2001,
respectively. The pro forma information does not purport to be indicative of
the results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in the future.
Effective July 1, 2001, Matthews acquired a 75% interest in Rudolf, which is
headquartered in Goslar, Germany. The purchase price of DM 24.0 million
(U.S.$11,000) was paid in October 2001. In January 2001, Matthews acquired a
75% interest in Scholler GmbH ("Scholler"), which is located in Nuremberg,
Germany. In August 2000, Matthews purchased a 75% interest in Repro-Busek
GmbH ("Busek"), which is headquartered in Vienna, Austria. Products and
services of Rudolf, Scholler and Busek include pre-press packaging, digital
and analog flexographic printing plates, design, artwork, lithography and
color separation.
In October 2000, Matthews acquired certain assets and liabilities of The SLN
Group, Inc. ("SLN"). SLN is a manufacturer and marketer of photo-etched metal
plaques and water-jet cut letters and logos. In November 2000, Matthews
acquired Press Ready Plate, Inc. ("Press Ready"). Press Ready, located in
Kansas City, Missouri, provides pre-press services and printing plates to the
flexible packaging industry.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
17. ACQUISITIONS, continued:
Matthews has accounted for these acquisitions using the purchase method and,
accordingly, recorded the acquired assets and liabilities at their estimated
fair values at the acquisition dates. The excess of the purchase price over
the estimated fair value of the net assets acquired was recorded as goodwill,
which, until September 30, 2001, had been amortized on a straight-line basis
over periods ranging from 20 to 25 years, except for Rudolf, which was
acquired July 1, 2001 (subsequent to the effective date of SFAS No. 141). In
June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141 requires the purchase method of accounting (instead of pooling-of-
interests) for all business combinations initiated after June 30, 2001. In
addition, goodwill related to business combinations after June 30, 2001 is not
amortized, but subject to periodic review for impairment. Effective October
1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets." As a result, goodwill from acquisitions prior to July 1, 2001 is no
longer amortized and is also subject to periodic review for impairment (see
Note 20).
18. DISPOSITION:
In January 2001, Matthews sold its fifty percent interest in Tukaiz. Proceeds
to Matthews from the sale were $18,582, which included the repayment of
intercompany debt of approximately $8,400. All intercompany debt provided by
Matthews to Tukaiz, including a $5,500 Subordinated Convertible Note, was
repaid upon the closing of this transaction. The sale resulted in a pre-tax
gain of $7,099, which has been reported in Special Items on the Consolidated
Statement of Income.
19. SPECIAL ITEMS:
In the second quarter of fiscal 2001, the Company recorded asset impairments,
restructuring costs and other special charges of approximately $6,600. The
majority of these charges were classified as Special Items on the Consolidated
Statement of Income, except for $1,168 classified as selling and
administrative expenses and $500 classified as other income (deductions), net.
In connection with the restructuring of certain operations within the Graphics
Imaging and Marking Products segments, asset impairments of $4,000 were
recorded, primarily reflecting a reduction in the value of goodwill related to
various investments. Asset impairments also included other write-downs of
certain assets to reflect estimated realizable values.
In addition, special items included restructuring costs of $1,200 for certain
operations within the Graphics Imaging and Marking Products segments. These
restructuring costs were designed to improve operating efficiency and
primarily included consulting fees and personnel reduction costs. Special
items also included non-recurring expenses of approximately $1,400 consisting
of costs incurred in connection with a potential acquisition which was not
completed, a special contribution to the Company's educational and charitable
trust of $500 (classified in other income (deductions), net), and other one-
time charges.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
20. GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses the financial statement accounting for
goodwill and other intangible assets upon acquisition and the accounting
subsequent to their initial recognition in the financial statements. The
Company adopted SFAS No. 142 effective October 1, 2001. Under this standard,
goodwill is no longer amortized, the effect of which is summarized as follows:
For the years ended
September 30,
-------------------------
2002 2001 2000
---- ---- ----
Income before income taxes and
accounting change, as reported $ 62,457 $ 51,458 $ 45,938
Add back: Goodwill amortization - 3,582 2,691
------ ------ ------
Income before income taxes and
accounting change, as adjusted $ 62,457 $ 55,040 $ 48,629
====== ====== ======
Net income, as reported $ 35,006 $ 31,599 $ 27,923
Add back: Effect of goodwill amortization - 2,375 1,886
------ ------ ------
Net income, as adjusted $ 35,006 $ 33,974 $ 29,809
====== ====== ======
Basic earnings per share, as reported $ 1.14 $ 1.03 $ 0.90
Add back: Effect of goodwill amortization - 0.08 0.06
---- ---- ----
Basic earnings per share, as adjusted $ 1.14 $ 1.11 $ 0.96
==== ==== ====
Diluted earnings per share, as reported $ 1.10 $ 1.01 $ 0.88
Add back: Effect of goodwill amortization - 0.08 0.06
---- ---- ----
Diluted earnings per share, as adjusted $ 1.10 $ 1.09 $ 0.94
==== ==== ====
Diluted earnings per share, as adjusted,
before change in accounting $ 1.20 $ 1.09 $ 0.94
==== ==== ====
The new standard also requires a periodic assessment of the carrying value of
goodwill for impairment. If the carrying value of a reporting unit exceeds
its implied fair value, an impairment loss must be recognized. Based on this
assessment, the Company recorded a pre-tax charge in fiscal 2002 for
transitional goodwill impairment of $5,255 ($3,226 after-tax). The impairment
was primarily related to a reporting unit within the Company's Bronze segment
and was determined based upon a comparison of carrying value to implied fair
market value as determined by a combination of valuation techniques, including
discounted cash flows. Prior to the adoption of SFAS No. 142, valuation of
impairment was determined using undiscounted cash flows.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share data)
----------
20. GOODWILL AND OTHER INTANGIBLE ASSETS, continued:
Matthews performed its annual impairment review as of March 31, 2002 and will
perform its future assessments in its second fiscal quarter. No additional
impairments were required in fiscal 2002. Changes to goodwill, net of
accumulated amortization, during the year ended September 30, 2002, including
the effects of adopting SFAS No. 142, follow.
Graphics Marking York
Imaging Products Bronze Casket Consolidated
-------- -------- -------- ------- ------------
Goodwill:
Balance at September 30, 2001 $ 28,353 $ 165 $ 76,067 $ - $104,585
Additions during period 557 - 2,914 39,313 42,784
Transitional impairment charge - - (5,255) - (5,255)
Translation and other adjustments 1,654 - 1,192 - 2,846
------ --- ------ ------ -------
Balance at September 30, 2002 $ 30,564 $ 165 $ 74,918 $ 39,313 $144,960
====== === ====== ====== =======
The additions to goodwill during the period related primarily to the
acquisition of York on December 3, 2001 (see Note 17). The Company also
acquired $13,700 of intangible assets related to the acquisition of York,
which are reported under the York Casket segment. During the period from the
purchase date to the end of the fiscal 2002 the Company recorded amortization
expense of $290 on those intangible assets.
The following table summarizes the carrying amount and related accumulated
amortization for intangible assets.
Carrying Accumulated
Amount Amortization
------- ------------
Trade names $ 8,000 $ - *
Customer relationships 4,100 (201)
Copyrights/patents/other 1,600 (89)
------ ---
$ 13,700 $ (290)
====== ===
* Not subject to amortization
Amortization expense for intangible assets is expected to approximate $350
each year between 2003 and 2007.
64
SUPPLEMENTARY FINANCIAL INFORMATION
Selected Quarterly Financial Data (Unaudited):
The following table sets forth certain items included in the Company's
unaudited consolidated financial statements for each quarter of fiscal 2002
and fiscal 2001.
Quarter Ended
----------------------------------------------------- Year Ended
December 31 (1) March 31 (2) June 30 September 30 September 30
-------------- ----------- ----------- ------------ ------------
(Dollar amounts in thousands, except per share data)
FISCAL YEAR 2002:
Sales $ 85,319 $110,110 $118,825 $113,832 $428,086
Gross profit 31,624 40,262 45,144 43,334 160,364
Operating profit 13,327 17,301 18,897 18,662 68,187
Net income 4,595 9,633 10,558 10,220 35,006
Earnings per share .15 .30 .33 .32 1.10
Earnings per share
before change in
accounting .25 .30 .33 .32 1.20
FISCAL YEAR 2001:
Sales $ 66,556 $ 66,339 $ 71,461 $ 78,926 $283,282
Gross profit 28,160 28,218 31,390 31,668 119,436
Operating profit 11,474 13,599 14,631 13,653 53,357
Net income 6,742 8,124 8,761 7,972 31,599
Earnings per share .21 .26 .28 .26 1.01
(1) The first quarter of fiscal 2002 reflects an after-tax charge of $3,226 for
transitional goodwill impairment. This charge was reported in the second
quarter of fiscal 2002 and retroactively applied to the beginning of the
Company's fiscal year.
(2) The second quarter of fiscal 2001 included after-tax income of $300 ($.01
per share) from special items which consisted of a pre-tax gain of $7,099
on the sale of a subsidiary and asset impairments, restructuring costs and
other special pre-tax charges totaling $6,600 (see Notes 18 and 19 to the
Consolidated Financial Statements).
65
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and
Board of Directors of
Matthews International Corporation:
Our audits of the consolidated financial statements referred to in our report
dated November 14, 2002 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 8 of this
Form 10-K. In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Pittsburgh, Pennsylvania
November 14, 2002
66
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL.A COL.B COL. C COL. D COL.E
- -----------------------------------------------------------------------------------------
Additions
-----------------------
Balance at Charged to
beginning of Charged to other Balance at
Description period expense accounts Deductions end of period
- ----------- ------------ ---------- ---------- ---------- -------------
(1) (2)
Allowance for Doubtful Accounts:
- -------------------------------
Fiscal Year Ended:
September 30, 2002 $ 3,725 $ 1,134 $ 5,039 $(1,609) $ 8,289
September 30, 2001 2,468 1,427 300 (470) 3,725
September 30, 2000 2,397 908 - (837) 2,468
(1) Purchase accounting adjustments in connection with acquisitions.
(2) Amounts determined not to be collectible, net of recoveries. Fiscal 2002 amount also
includes a reduction of $107 in the reserve from the sale of a business.
67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in accountants or disagreements on accounting or
financial disclosure between the Company and PricewaterhouseCoopers LLP,
Certified Public Accountants, for the fiscal years ended September 30, 2002,
2001 and 2000.
68
PART III
ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT.
The following information is furnished with respect to directors, officers and
executive management:
Name Age Positions with Registrant
- ---- --- -------------------------
David M. Kelly 60 Chairman of the Board, President and
Chief Executive Officer
Joseph C. Bartolacci 42 President, Matthews Europe
Edward J. Boyle 56 Chief Financial Officer, Secretary
and Treasurer
David J. DeCarlo 57 President, Bronze Division
and Director
Brian J. Dunn 45 President, Marking Products,
North America
Robert J. Kavanaugh 65 Director
Lawrence W. Keeley, Jr. 41 President, Graphic Systems Division
Thomas N. Kennedy 67 Director
Jonathan H. Maurer 47 President, York Casket Division
Steven F. Nicola 42 Vice President, Accounting & Finance
John P. O'Leary, Jr. 55 Director
Paul F. Rahill 45 President, Cremation Division
Robert J. Schwartz 55 Group President, Graphic Systems &
Marking Products Divisions
William J. Stallkamp 63 Director
John D. Turner 56 Director
David M. Kelly has been Chairman of the Board since March 1996. He was
appointed President and Chief Operating Officer of the Company in April 1995
and President and Chief Executive Officer in October 1995. He was appointed
as a Director of the Company in May 1995. Mr. Kelly is also on the Board of
Directors of DQE, Inc. and Mestek, Inc.
Joseph C. Bartolacci, President, Matthews Europe, was appointed an officer of
the Company in April 2002. He has also been President, Caggiati, S.p.A. (a
wholly-owned subsidiary of Matthews International Corporation) since June
1999. Prior thereto, he was General Counsel of Matthews.
69
ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT,
continued.
Edward J. Boyle was appointed Chief Financial Officer, Secretary and Treasurer
in December 2001. He had been Vice President, Accounting & Finance, Treasurer
and Secretary since September 1996.
David J. DeCarlo, a Director of the Company since 1987, has been President,
Bronze Division since November 1993.
Brian J. Dunn was appointed President, Marking Products, North America in
November 2000. He had been National Sales Manager, Marking Products, North
America since joining the Company in November 1998. Prior thereto, Mr. Dunn
was a regional sales manager for the Automation Division of Rockwell
International Corporation, an industrial automation company.
Robert J. Kavanaugh was elected to the Board of Directors in February 1998.
Mr. Kavanaugh retired in 1996 as a partner of the Pittsburgh office of Arthur
Andersen LLP, an accounting firm.
Lawrence W. Keeley, Jr. joined the Company in September 1999 as President,
Graphic Systems Division. Prior thereto, he was a Vice President for
Container Graphics Corporation, a provider of printing plates, cutting dies
and services to the packaging industry.
Thomas N. Kennedy, a Director of the Company since 1987, retired as an officer
of the Company in December 1995. He was Senior Vice President, Chief
Financial Officer and Treasurer.
Jonathan H. Maurer joined the Company as President, York Casket Division in
April 2002. He had been an independent business consultant since April 2000.
Prior thereto, he was a Senior Vice President of Calgon Carbon Corporation, a
supplier of purification systems.
Steven F. Nicola was appointed Vice President, Accounting and Finance in
December 2001. He had been Controller of the Company since December 1995.
John P. O'Leary, Jr., a Director of the Company since 1992, has been Senior
Vice President, SCA North America, a packaging supplier, since May 2002.
Prior thereto, he had been President and Chief Executive Officer of Tuscarora,
Incorporated, a manufacturer of custom design protective packaging.
Tuscarora, Incorporated is a wholly-owned subsidiary of SCA Packaging
International B.V.
Paul F. Rahill rejoined the Company as President, Cremation Division in
October 2002. He previously was President of Industrial Equipment and
Engineering Company (a wholly-owned subsidiary of Matthews International
Corporation) until his retirement in April 2000. He performed independent
consulting services from April 2000 until October 2002.
Robert J. Schwartz was appointed Group President, Graphic Systems & Marking
Products Divisions in November 2000. Prior thereto, he had been President,
Marking Products Division.
70
ITEM 10. DIRECTORS, OFFICERS and EXECUTIVE MANAGEMENT OF THE REGISTRANT,
continued.
William J. Stallkamp, a Director of the Company since 1981, is currently a
Managing Partner of Penn Hudson Financial Group, Inc., a private investment
bank. Until January 2002, he was a fund advisor and Chairman of the
Operations Group at Safeguard Scientifics, Inc., a technology company. Mr.
Stallkamp was a Vice Chairman of Mellon Financial Corporation, a financial
services company, in Pittsburgh, PA and Chairman and Chief Executive Officer
of Mellon PSFS in Philadelphia, PA, until his retirement on January 1, 2000.
John D. Turner was elected to the Board of Directors in April 1999. Mr.
Turner has been Chairman and Chief Executive Officer of Copperweld
Corporation, a manufacturer of tubular and bimetallic wire products and
wholly-owned subsidiary of The LTV Corporation, since December 2001. Prior
thereto, Mr. Turner had been Executive Vice President and Chief Operating
Officer of The LTV Corporation, an integrated steel producer, and President of
LTV Copperweld. Mr. Turner is also on the Board of Directors of DQE, Inc.
Board Committees:
The Executive Committee is appointed by the Board of Directors to have and
exercise during periods between Board meetings all of the powers of the Board
of Directors, except that the Executive Committee may not elect directors,
change the membership of or fill vacancies in the Executive Committee, change
the By-laws of the Company or exercise any authority specifically reserved by
the Board of Directors. Among the functions customarily performed by the
Executive Committee during periods between Board meetings are the approval,
within limitations previously established by the Board of Directors, of the
principal terms involved in sales of securities of the Company, and such
reviews as may be necessary of significant developments in major events and
litigation involving the Company. In addition, the Executive Committee is
called upon periodically to provide advice and counsel in the formulation of
corporate policy changes and, where it deems advisable, make recommendations
to the Board of Directors. The Committee members are David M. Kelly
(Chairman), David J. DeCarlo and Thomas N. Kennedy.
The principal function of the Audit Committee is to serve as an independent
and objective party to monitor the Company's financial reporting and internal
control systems. The Committee periodically reviews and appraises the
Company's outside auditors and the Company's internal audit department and
serves as a vehicle to provide an open avenue of communication between the
Company's Board of Directors and financial management, the internal audit
department, and independent accountants. The Committee members are John P.
O'Leary, Jr. (Chairman), William J. Stallkamp and Robert J. Kavanaugh.
The principal function of the Compensation Committee, the members of which are
William J. Stallkamp (Chairman), Robert J. Kavanaugh and John D. Turner, is to
review periodically the suitability of the remuneration arrangements
(including benefits), other than stock remuneration, for the principal
executives of the Company. A subcommittee of the Compensation Committee, the
Stock Compensation Committee, the members of which are Messrs. Stallkamp
(Chairman), Kavanaugh and Turner, consider and grant stock remuneration and
administer the Company's 1992 Stock Incentive Plan.
71
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the individual compensation information for the
fiscal years ended September 30, 2002, 2001 and 2000 for the Company's Chief
Executive Officer and the four most highly compensated executives.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
----------------- -----------------------
Awards Payouts
------ ------- All
Securities Other
Name of Individual Underlying LTIP Compen-
and Principal Position Year Salary Bonus Options Payouts sation
- ---------------------- ---- ------- ------- ---------- --------- -------
(1) (Shares) (2) (3)
David M. Kelly 2002 $412,002 $422,642 140,000 $550,000 $ 204
Chairman of the Board and 2001 376,506 385,365 112,000 262,878 1,195
Chief Executive Officer 2000 367,117 360,585 None 736,928 117
David J. DeCarlo 2002 250,245 177,282 38,000 217,841 1,892
Director and President, 2001 238,380 174,685 28,000 372,415 1,564
Bronze Division 2000 236,095 163,498 None 761,709 1,492
Edward J. Boyle 2002 200,250 124,200 35,000 124,909 1,472
Chief Financial Officer, 2001 174,300 109,876 26,000 114,639 990
Secretary and Treasurer 2000 160,232 94,876 None 190,292 2,142
Joseph C. Bartolacci 2002 166,050 85,000 18,000 88,741 39,330
President, Matthews Europe
Robert J. Schwartz 2002 183,255 4,228 30,000 None 3,661
Group President, Graphic 2001 165,450 2,771 24,000 90,770 4,432
Systems & Marking 2000 139,913 85,646 10,000 118,929 3,189
Products Divisions
(1) Includes the current portion of management incentive plan and supplemental management
incentive payments. The Company has adopted a management incentive plan for officers and
key management personnel. Participants in such plan are not eligible for the Company's
profit distribution plan. The incentive plan is based on improvement in divisional and
Company economic value added and the attainment of established personal goals. A portion
of amounts earned are deferred by the Company and are payable with interest at a market
rate over a two-year period contingent upon economic value added performance and continued
employment during such period. See Long-Term Incentive Plans - Awards in Last Fiscal Year
table. In addition, payments include a supplement in amounts which are sufficient to pay
annual interest expense on the outstanding notes of management under the Company's
Designated Employee Stock Purchase Plan and to pay medical costs which are not otherwise
covered by a Company plan.
(2) Represents payments of deferred amounts under the management incentive plan.
72
ITEM 11. EXECUTIVE COMPENSATION, continued.
(3) Includes premiums for term life insurance and educational assistance for dependent children.
Each officer of the Company is provided term life insurance coverage in an amount equivalent
to approximately three times their respective salary. Educational assistance for dependent
children is provided to any officer or employee of the Company whose child meets the
scholastic eligibility criteria and is attending an eligible college or university. Amounts
reported in this column include only life insurance benefit costs, except for Mr. Bartolacci
and Mr. Schwartz. In fiscal years 2002, 2001 and 2000, Mr. Schwartz received $2,400, $3,600
and $2,400, respectively, under the educational assistance program. The amount reported in
this column for Mr. Bartolacci includes supplemental compensation of $38,886 to cover
expenses while on an international assignment.
The Summary Compensation Table does not include expenses of the Company for
incidental benefits of a limited nature to executives, including the use of
Company vehicles, club memberships, dues, or tax planning services. The
Company believes such incidental benefits are in the conduct of the Company's
business; but, to the extent such benefits and use would be considered
personal benefits, the value thereof is not reasonably ascertainable and does
not exceed, with respect to any individual named in the Summary Compensation
Table, the lesser of $50,000 or 10% of the annual compensation reported in
such table.
Long-Term Incentive Plans - Awards in Last Fiscal Year
Performance Estimated Future
or Other Payouts Under
Number Period Non-Stock Price-
of Shares Until Based Plans
or Other Maturation ----------------
Name Rights or Payout Maximum
- ------------- ---------- ----------- ----------------
D.M. Kelly - 2 Years $ 441,867
D.J. DeCarlo - 2 Years 180,653
E.J. Boyle - 2 Years 130,088
J.C. Bartolacci - 2 Years 89,018
R.J. Schwartz - - None
The Company has a management incentive plan based on improvement in divisional and
Company economic value added and the attainment of established personal goals. A
portion of amounts earned are deferred by the Company and are payable with interest at
a market rate over a two-year period contingent upon economic value added performance
and continued employment during such period. Payment of these amounts may be subject
to further deferral by the Company under the deferred compensation provisions of the
management incentive plan.
73
ITEM 11. EXECUTIVE COMPENSATION, continued.
Option/SAR Grants in Last Fiscal Year
Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants (1) Option Term
- ----------------------------------------------------------------- ----------------------
Percent
of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year per Share Date 5% 10%
- -------------- ---------- ---------- --------- ---------- ---------- ---------
D.M. Kelly 140,000 34.4% $24.37 1/17/12 $2,145,663 $5,437,531
D.J. DeCarlo 38,000 9.3 24.37 1/17/12 582,394 1,475,901
E.J. Boyle 35,000 8.6 24.37 1/17/12 536,416 1,359,383
J.C. Bartolacci 18,000 4.4 24.37 1/17/12 275,871 699,111
R.J. Schwartz 30,000 7.4 24.37 1/17/12 459,785 1,165,185
(1) All options were granted at market value as of the date of grant. Options are
exercisable in various share amounts based on the attainment of certain market value
levels of Class A Common Stock, but, in the absence of such events, are exercisable in
full for a one-week period beginning five years from the date of grant. In addition,
options vest in one-third increments after three, four and five years, respectively,
from the grant date (but, in any event, not until the attainment of the certain market
value levels described above). The options are not exercisable within six months from
the date of grant and 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 consent of the Company), retirement or death.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Value of Unexercised
Shares Securities Underlying In-the-Money Options
Acquired Unexercised Options at Fiscal Year End
On Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- ----------- ------------- ----------- -------------
D.M. Kelly 183,800 $3,330,895 514,867 645,333 $6,931,949 $4,817,927
D.J. DeCarlo 300,000 5,241,688 299,334 264,666 4,195,183 2,125,074
E.J. Boyle 130,000 2,104,391 52,000 189,000 488,237 1,522,110
J.C. Bartolacci 79,767 1,393,963 16,900 93,333 182,267 828,306
R.J. Schwartz 84,000 1,643,552 61,334 98,666 778,717 725,014
74
ITEM 11. EXECUTIVE COMPENSATION, continued.
Retirement Plans:
The Company's domestic retirement plan is noncontributory and provides
benefits based upon length of service and final average earnings. Generally,
employees age 21 with one year of continuous service are eligible to
participate in the retirement plan. The benefit formula is 3/4 of 1% of the
first $550 of final average monthly earnings plus 1-1/4% of the excess times
years of credited service (maximum 35). The plan is a defined benefit plan
and covered compensation is limited generally to base salary or wages.
Benefits are not subject to any deduction or offset for Social Security.
In addition to benefits provided by the Company's retirement plan, the Company
has a Supplemental Retirement Plan, which provides for supplemental pension
benefits to executive officers of the Company designated by the Board of
Directors. Upon normal retirement under this plan, such individuals who meet
stipulated age and service requirements are entitled to receive monthly
supplemental retirement payments which, when added to their pension under the
Company's retirement plan and their maximum anticipated Social Security
primary insurance amount, equal, in total, 1.85% of final average monthly
earnings (including incentive compensation) times the individual's years of
continuous service (subject to a maximum of 35 years). Upon early retirement
under this plan, reduced benefits will be provided, depending upon age and
years of service. Benefits under this plan do not vest until age 55 and the
attainment of 15 years of continuous service. However, in order to recruit
Mr. Kelly, the Company waived such minimum service requirement with respect to
Mr. Kelly. No benefits will be payable under such supplemental plan following
the voluntary employment termination or death of any such individual. The
Supplemental Retirement Plan is unfunded; however, a provision has been made
on the Company's books for the actuarially computed obligation.
The following table shows the total estimated annual retirement benefits
payable at normal retirement under the above plans for the individuals named
in the Summary Compensation Table at the specified executive remuneration and
years of continuous service:
Years of Continuous Service
Covered ----------------------------------------------------
Remuneration 15 20 25 30 35
- ------------------ -------- -------- -------- -------- --------
$125,000 $ 34,688 $ 46,250 $ 57,813 $ 69,375 $ 80,938
150,000 41,625 55,500 69,375 83,250 97,125
175,000 48,563 64,750 80,938 97,125 113,313
200,000 55,500 74,000 92,500 111,000 129,500
250,000 69,375 92,500 115,625 138,750 161,875
300,000 83,250 111,000 138,750 166,500 194,250
400,000 111,000 148,000 185,000 222,000 259,000
500,000 138,750 185,000 231,250 277,500 323,750
600,000 166,500 222,000 277,500 333,000 388,500
700,000 194,250 259,000 323,750 388,500 453,250
800,000 222,000 296,000 370,000 444,000 518,000
900,000 249,750 333,000 416,250 499,500 582,750
75
ITEM 11. EXECUTIVE COMPENSATION, continued.
The table shows benefits at the normal retirement age of 65, before applicable
reductions for Social Security benefits. The Employee Retirement Income
Security Act of 1974 places limitations, which may vary from time to time, on
pensions which may be paid under federal income tax qualified plans, and some
of the amounts shown on the foregoing table may exceed the applicable
limitation. Such limitations are not currently applicable to the Company's
Supplemental Retirement Plan.
Estimated years of continuous service for each of the individuals named in the
Summary Compensation Table, as of October 1, 2002 and rounded to the next
higher year, are: Mr. Kelly, 8 years; Mr. DeCarlo, 18 years; Mr. Boyle,
16 years; Mr. Bartolacci, 6 years; and Mr. Schwartz, 6 years.
Compensation of Directors:
Pursuant to the Director Fee Plan, directors who are not also officers of the
Company each receive, as an annual retainer fee, shares of the Company's Class
A Common Stock equivalent to approximately $16,000. In addition, each such
director is paid $1,000 for every meeting of the Board of Directors attended
and (other than a Chairman) $500 for every committee meeting attended. The
Chairman of a committee of the Board of Directors is paid $700 for every
committee meeting attended. Directors may also elect to receive the common
stock equivalent of meeting fees. 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. No other remuneration is otherwise paid by the
Company to any director for services as a director.
76
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Equity Compensation Plans:
The Company has a stock incentive plan that provides for grants of incentive
stock options, nonstatutory stock options and restricted share awards in an
aggregate number not to exceed 15% of the outstanding shares of the Company's
common stock. The option price for each stock option that may be granted
under the plan may not be less than the fair market value of the Company's
common stock on the date of grant. Outstanding stock options are exercisable
in various share amounts based on the attainment of certain market value
levels of Class A Common Stock but, in the absence of such events, are
exercisable in full for a one-week period beginning five years from the date
of grant. In addition, options granted after September 1996 vest in one-third
increments after three, four and five years, respectively, from the grant date
(but, in any event, not until the attainment of the certain market value
levels described above). The options expire on the earlier of ten years from
the date of grant, upon employment termination, or within specified time
limits following voluntary employment termination (with the consent of the
Company), retirement or death.
Under the Company's Director Fee Plan, directors who are not also officers of
the Company each receive, as an annual retainer fee, shares of the Company's
Class A Common Stock equivalent to approximately $16,000. Directors may also
elect to receive the common stock equivalent of meeting fees. 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 following table provides information about grants under the Company's
equity compensation plans as of September 30, 2002:
Equity Compensation Plan Information
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price compensation plans
exercise of of outstanding (excluding
outstanding options, options, warrants securities reflected
Plan category warrants and rights and rights in column (a))
- ------------------------------------------------------------------------------------------
(a) (b) (c)
- ------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 3,272,721 (1) $13.77 3,449,239 (2)(3)
Equity compensation
plans not approved
by security holders None None None
--------- ----- ---------
Total 3,272,721 $13.77 3,449,239
========= ===== =========
77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
continued.
Equity Compensation Plans, continued:
(1) Includes 56,288 shares under the Director Fee Plan.
(2) The number of shares remaining available under the stock incentive plan at September 30,
2002 was 1,458,678. The aggregate number of shares available for grant under such plan
cannot exceed 15% of the outstanding shares of the Company's common stock.
(3) Includes (i) up to 1,000,000 shares that can be issued as restricted stock under the
Company's 1992 Stock Incentive Plan, (ii) 128,879 shares that can be issued as deferred
stock under the Company's 1994 Director Fee Plan and (iii) 1,861,682 shares that can be
sold to employees through the Company under the Company's 1994 Employee Stock Purchase
Plan, which is an open market purchase plan.
(a)(b) Security Ownership of Certain Beneficial Owners and Management:
The Company's Articles of Incorporation divide its voting stock into three
classes: Preferred Stock and Class A and Class B Common Stock. At the
present time, none of the Preferred Stock is issued or outstanding. In
addition, in September 2001, all outstanding shares of Class B Common Stock
were automatically converted to an equivalent number of Class A shares (see
Item 5, "Market For Registrant's Common Equity And Related Stockholder
Matters"). The following information is furnished with respect to persons who
the Company believes, based on its records, beneficially own more than five
percent of the outstanding shares of Class A Common Stock of the Company, and
with respect to directors, officers and executive management. Those
individuals with more than five percent of such shares could be deemed to be
"control persons" of the Company.
This information is as of November 30, 2002.
Number of
Class A Shares
Name of Beneficially Percent
Beneficial Owner (1) Owned (2) of Class
- ---------------- -------------- --------
Directors, Officers and Executive Management:
- --------------------------------------------
D.M. Kelly 613,654 (3) 1.9%
J.C. Bartolacci 69,566 (3) 0.2
E.J. Boyle 159,000 (3) 0.5
D.J. DeCarlo 894,376 (3) 2.8
R.J. Kavanaugh 2,000 *
T.N. Kennedy 60,000 0.2
J.P. O'Leary, Jr. 23,824 0.1
R.J. Schwartz 116,950 (3) 0.4
W.J. Stallkamp 12,000 *
J.D. Turner 4,000 *
All directors, officers and executive
management as a group (15 persons) 2,108,928 (3) 6.5
78
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
continued.
(a)(b) Security Ownership of Certain Beneficial Owners and Management,
continued:
Number of
Class A Shares
Name of Beneficially Percent
Beneficial Owner (1) Owned (2) of Class
- ---------------- -------------- --------
Others:
- ------
Ariel Capital Management, Inc.
200 East Randolph Drive, Suite 2900
Chicago, IL 60601 3,672,925 11.7
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202 3,133,700 10.0
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158 2,313,682 7.4
* Less than 0.1%
(1) Unless otherwise noted, the mailing address of each beneficial owner is
the same as that of the Registrant.
(2) The nature of the beneficial ownership for all shares is sole voting and
investment power, except as follows:
Mr. Schwartz has sole voting power except for 80 Class A shares held by
Mr. Schwartz as custodian for daughter.
Ariel Capital Management, Inc. has no beneficial interest in any of the
3,672,925 shares owned. Ariel Capital Management, Inc. holds the
shares solely for its clients of whom none of them individually owns
5% or more of Matthews International Corporation common stock. Ariel
Capital Management, Inc., in its capacity as investment advisor, has
sole voting power for 3,338,625 shares and sole investment discretion
for 3,672,925 shares.
Shares held by T. Rowe Price Associates, Inc. ("Price Associates") are
owned by various individual and institutional investors, including
T. Rowe Price Small-Cap Stock Fund, Inc. (which owns 1,733,100
shares), for which Price Associates serves as investment advisor with
power to direct investments and/or power to vote the shares. For
purposes of the reporting requirements of the Securities Exchange
Act of 1934, Price Associates is deemed to be a beneficial owner of
such shares; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such shares. Price Associates
has sole dispositive power for 3,133,700 shares and sole voting power
for 949,200 shares.
79
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
continued.
Neuberger Berman, LLC ("NB"), as a registered investment advisor, may
have discretionary authority to dispose of or to vote shares that
are under its management. As a result, NB may be deemed to have
beneficial ownership of such shares. NB does not, however, have any
economic interest in the shares. The clients are the actual owners
of the shares and have the sole right to receive and the power to
direct the receipt of dividends from or proceeds from the sale of
such shares. As of November 30, 2002, of the shares set forth in the
table, NB had shared dispositive power with respect to 2,313,682
shares, sole voting power with respect to 166,500 shares and shared
voting power on 1,427,700 shares. With regard to the shared voting
power, Neuberger Berman Management, Inc. and Neuberger Berman Funds
are deemed to be beneficial owners for purpose of Rule 13(d) since
they have shared power to make decisions whether to retain or dispose
of the shares. NB is the sub-advisor to the above referenced Funds.
It should be further noted that the above mentioned shares are also
included with the shared power to dispose calculation.
(3) Includes options exercisable within 60 days of November 30, 2002 as
follows: Mr. Kelly, 458,200 shares; Mr. Bartolacci, 63,566 shares;
Mr. Boyle, 86,000 shares; Mr. DeCarlo, 314,667 shares; Mr. Schwartz,
92,666 shares; and all directors and officers as a group, 1,078,766
shares.
(c) Changes in Control:
The Company knows of no arrangement which may, at a subsequent date, result in
a change in control of the Company.
80
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Securities and Exchange Commission requires disclosure of certain business
transactions or relationships between the Company, or its subsidiaries, and
other organizations with which any of the Company's directors are affiliated
as an owner, partner, director, officer or employee. Briefly, disclosure is
required where such a business transaction or relationship meets the standards
of significance established by the Securities and Exchange Commission with
respect to the types and amounts of business transacted. The Company is aware
of no transaction requiring disclosure pursuant to this item during the past
fiscal year.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Based on their evaluation as of a date within 90 days of the filing date of
this Annual Report on Form 10-K, the Company's chief executive officer and
chief financial officer have concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act") are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following items are included in Part II, Item 8:
Pages
-----
Report of Independent Accountants 34
Consolidated Balance Sheet 35-36
Consolidated Statement of Income 37
Consolidated Statement of Shareholders' Equity 38
Consolidated Statement of Cash Flows 39
Notes to Consolidated Financial Statements 40-63
Supplementary Financial Information 64
81
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K,
continued.
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and the related report of
independent accountants are included on pages 65 and 66 in Part II, Item 8 of
this Annual Report on Form 10-K.
3. Exhibits Filed:
The index to exhibits is on pages 85-86.
(b) Reports on Form 8-K:
None
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 20, 2002.
MATTHEWS INTERNATIONAL CORPORATION
----------------------------------
(Registrant)
By David M. Kelly
-------------------------------------
David M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 20, 2002:
David M. Kelly Edward J. Boyle
- ------------------------------------ ------------------------------------
David M. Kelly Edward J. Boyle
Chairman of the Board, President Chief Financial Officer, Secretary
and Chief Executive Officer and Treasurer (Principal Financial
(Principal Executive Officer) and Accounting Officer)
David J. DeCarlo John P. O'Leary, Jr.
- ------------------------------------ ------------------------------------
David J. DeCarlo, Director John P. O'Leary, Jr., Director
Robert J. Kavanaugh William J. Stallkamp
- ------------------------------------ ------------------------------------
Robert J. Kavanaugh, Director William J. Stallkamp, Director
Thomas N. Kennedy John D. Turner
- ------------------------------------ ------------------------------------
Thomas N. Kennedy, Director John D. Turner, Director
83
CERTIFICATION
PRINCIPAL EXECUTIVE OFFICER
I, David M. Kelly, certify that:
1. I have reviewed this annual report on Form 10-K of Matthews International
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: December 20, 2002
David M. Kelly
- -------------------------
David M. Kelly
Chairman of the Board, President
and Chief Executive Officer
84
CERTIFICATION
PRINCIPAL FINANCIAL OFFICER
I, Edward J. Boyle, certify that:
1. I have reviewed this annual report on Form 10-K of Matthews International
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: December 20, 2002
Edward J. Boyle
- -------------------------
Edward J. Boyle
Chief Financial Officer,
Secretary and Treasurer
85
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBITS
INDEX
----------
The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated by reference. Exhibits marked with an "a"
represent a management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------
3.1 Restated Articles of Incorporation * Exhibit Number 3.1 to Form
10-K for the year ended
September 30, 1994
3.2 Restated By-laws * Exhibit Number 3.1 to Form
8-K dated July 22, 1999
4.1 a Form of Revised Option Agreement Exhibit Number 4.5 to Form
of Repurchase (effective 10-K for the year ended
October 1, 1993) * September 30, 1993
4.2 Form of Share Certificate for Exhibit Number 4.9 to Form
Class A Common Stock * 10-K for the year ended
September 30, 1994
4.3 Form of Share Certificate for Exhibit Number 4.10 to Form
Class B Common Stock * 10-K for the year ended
September 30, 1994
10.1 Revolving Credit Facility Filed Herewith
10.2 a Supplemental Retirement Plan * Exhibit Number 10.8 to Form
10-K for the year ended
September 30, 1988
10.3 a 1992 Stock Incentive Plan (as Exhibit A to Definitive
amended through December 23, 1998) * Proxy Statement filed on
January 20, 1999
10.4 a Form of Stock Option Agreement * Exhibit Number 10.1 to Form
10-Q for the quarter ended
December 31, 1994
10.5 a 1994 Director Fee Plan (as Exhibit Number 10.7 to Form
amended through April 22, 1999) * 10-K for the year ended
September 30, 1999
10.6 a 1994 Employee Stock Purchase Plan * Exhibit Number 10.2 to Form
10-Q for the quarter ended
March 31, 1995
10.7 Asset Purchase and Membership Exhibit Number 10.1 to Form
Interest Agreement, O.N.E. Color 10-Q for the quarter ended
Communications, L.L.C. * June 30, 1998
86
INDEX, Continued
----------
Exhibit Prior Filing or Sequential
No. Description Page Numbers Herein
- ------- ----------- --------------------------
10.8 Caggiati S.p.A. Asset Purchase Exhibit Number 10.1 to
Agreement * Form 10-Q for the quarter
ended June 30, 1999
10.9 Loan Agreement, Caggiati S.p.A. * Exhibit Number 10.20 to
Form 10-K for the year
ended September 30, 1999
10.10 Purchase Agreement among priNexus, Exhibit Number 10.17 to
Inc., Matt-One Holding Corporation, Form 10-K for the year
Tukaiz Litho, Inc. and Tukaiz ended September 30, 2000
Communications, LLC *
10.11 Stock Purchase Agreement among Exhibit Number 10.1 to
Matthews International Corporation, Form 8-K dated May 24, 2001
Empire Stock Corp., and The York
Group, Inc., dated as of May 24, 2001 *
10.12 Asset Purchase Agreement among Exhibit Number 10.2 to
Matthews International Corporation, Form 8-K dated May 24, 2001
Empire Stock Corp., The York Group,
Inc., York Bronze Company and OMC
Industries, Inc., dated as of
May 24, 2001 *
10.13 Agreement and Plan of Merger By and Exhibit Number 10.3 to
Among Matthews International Form 8-K dated May 24, 2001
Corporation, Empire Merger Corp.,
and The York Group, Inc., dated as
of May 24, 2001 *
21 Subsidiaries of the Registrant Filed Herewith
23 Consent of Independent Accountants Filed Herewith
99.1 Certification Pursuant to 18 U.S.C. Filed Herewith
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002, of David M. Kelly
99.2 Certification Pursuant to 18 U.S.C. Filed Herewith
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002, of Edward J. Boyle
Copies of any Exhibits will be furnished to shareholders upon written request.
Requests should be directed to Mr. Edward J. Boyle, Chief Financial Officer,
Secretary and Treasurer of the Registrant.