UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Quarterly Period Ended March 31, 2001
Commission File Nos. 0-9115 and 0-24494
MATTHEWS INTERNATIONAL CORPORATION
(Exact Name of registrant as specified in its charter)
PENNSYLVANIA 25-0644320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO NORTHSHORE CENTER, PITTSBURGH, PA 15212-5851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 442-8200
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Class of Common Stock Outstanding at April 30, 2001
Class A - $1.00 par value 13,372,219 shares
Class B - $1.00 par value 1,821,527 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 2001 September 30, 2000
-------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 37,399,936 $ 29,150,118
Short-term investments 266,549 1,321,226
Accounts receivable 44,535,991 44,818,961
Inventories: Materials and finished goods $ 14,671,343 $ 14,927,664
Labor and overhead in process 1,517,741 1,498,130
Supplies 339,439 423,652
---------- ----------
16,528,523 16,849,446
Other current assets 2,390,933 2,693,039
----------- ----------
Total current assets 101,121,932 94,832,790
Investments 15,668,326 14,802,809
Property, plant and equipment: Cost 84,304,505 94,107,498
Less accumulated depreciation (42,855,228) (45,640,252)
---------- ----------
41,449,277 48,467,246
Deferred income taxes and other assets 13,843,365 13,850,559
Goodwill, net of accumulated amortization 47,895,017 48,712,046
----------- -----------
Total assets $219,977,917 $220,665,450
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 2,176,299 3,478,218
Accounts payable 10,678,667 10,075,166
Accrued compensation 10,639,796 16,729,194
Accrued income taxes 4,691,918 270,124
Customer prepayments 6,016,278 5,874,352
Other current liabilities 11,215,332 10,405,088
---------- ----------
Total current liabilities 45,418,290 46,832,142
Long-term debt 10,738,363 13,908,448
Estimated finishing costs 4,161,280 4,071,884
Postretirement benefits 18,792,369 18,991,385
Other liabilities 10,732,385 10,005,882
Shareholders' equity:
Common stock 18,166,996 18,166,996
Retained earnings 187,806,888 174,689,060
Accumulated other comprehensive income (loss) (10,557,561) (9,177,176)
Notes receivable - (6,596)
Treasury stock, at cost (65,281,093) (56,816,575)
----------- -----------
130,135,230 126,855,709
----------- -----------
Total liabilities and shareholders' equity $219,977,917 $220,665,450
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 66,339,218 $ 67,128,978 $132,895,045 $131,825,916
Cost of sales (38,121,175) (36,488,235) (76,516,584) (73,161,298)
---------- ---------- ----------- -----------
Gross profit 28,218,043 30,640,743 56,378,461 58,664,618
Selling and
administrative expenses (16,796,375) (18,132,137) (33,483,006) (35,770,285)
Special items 2,177,292 - 2,177,292 -
---------- ---------- ----------- -----------
Operating profit 13,598,960 12,508,606 25,072,747 22,894,333
Investment income 777,346 373,310 1,416,723 828,987
Interest expense (293,856) (411,378) (655,652) (819,647)
Other income
(deductions), net (464,399) (13,750) (557,392) (33,964)
Minority interest (477,215) (741,753) (1,065,717) (1,149,860)
---------- ---------- ----------- -----------
Income before
income taxes 13,140,836 11,715,035 24,210,709 21,719,849
Income taxes (5,016,356) (4,600,509) (9,344,583) (8,522,046)
---------- ---------- ----------- -----------
Net income $ 8,124,480 $ 7,114,526 $ 14,866,126 $ 13,197,803
========== ========== =========== ===========
Basic earnings per share $ .53 $ .46 $ .97 $ .85
===== ===== ===== =====
Diluted earnings per share $ .52 $ .45 $ .95 $ .83
===== ===== ===== =====
Dividends per share $ .05 $.0475 $ .10 $ .095
===== ===== ===== =====
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
March 31,
--------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 14,866,126 $ 13,197,803
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,838,258 6,230,786
Change in deferred taxes 58,252 5,326
Changes in working capital items (2,219,421) (5,783,499)
Increase in other assets (180,137) (218,074)
Increase in estimated finishing costs 89,396 137,974
Increase (decrease) in other liabilities (97,600) 558,550
Decrease in postretirement benefits (199,016) (314,687)
Impairment losses 2,823,661 -
Net (gain) loss on sales of assets (21,125) 30,538
Gain on sale of subsidiary (7,098,554) -
Net (gain) loss on investments (113,271) 74,481
Effect of exchange rate changes on operations (781,743) (995,297)
---------- ----------
Net cash provided by operating activities 12,964,826 12,923,901
---------- ----------
Cash flows from investing activities:
Capital expenditures (3,470,730) (4,262,901)
Proceeds from sales of assets 34,386 16,360
Acquisitions, net of cash acquired (7,461,068) (5,798,892)
Proceeds from sale of subsidiary 18,581,528 -
Purchases of investment securities (11,076,655) (6,486,565)
Proceeds from disposition of investment securities 10,531,799 2,012,386
Collections on loans to officers and employees 6,596 31,791
---------- ----------
Net cash provided by (used in) investing activities 7,145,856 (14,487,821)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt - -
Payments on long-term debt (1,143,825) (3,259,626)
Proceeds from the sale of treasury stock 167,523 95,921
Purchases of treasury stock (8,853,273) (4,358,737)
Dividends (1,527,066) (1,475,442)
---------- ----------
Net cash used in financing activities (11,356,641) (8,997,884)
---------- ----------
Effect of exchange rate changes on cash (504,223) (723,132)
---------- ----------
Net increase (decrease) in cash and cash equivalents $ 8,249,818 $(11,284,936)
========== ==========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
Note 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 custom-made products which are used to identify people, places,
products and events. The Company's products and operations are comprised of
three business segments: Bronze, Graphics Imaging and Marking Products. 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.
The Company has manufacturing and marketing facilities in the United States,
Australia, Canada and Europe.
Note 2. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information for commercial and industrial companies and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three
months and six months ended March 31, 2001 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30,
2001. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended September 30, 2000.
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, Tukaiz Communications, L.L.C.
("Tukaiz"), O.N.E. Color Communications, L.L.C. and S+T GmbH & Co. KG. All
intercompany accounts and transactions have been eliminated. On January 19,
2001, the Company sold its 50% interest in Tukaiz (see Note 7).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
MARCH 31, 2001
Note 2. Basis of Presentation, continued
Sales and cost of goods sold for the three-month and six-month periods ended
March 31, 2000 have been adjusted in accordance with Emerging Issues Task
Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
to reflect the reclassification of shipping costs billed to customers.
Note 3. Income Taxes
Income tax provisions for the Company's interim periods are based on the
effective income tax rate expected to be applicable for the full year. The
difference between the estimated effective tax rate of 38.6% and the Federal
statutory rate of 35% primarily reflects the impact of state and foreign
income taxes and non-deductible goodwill amortization.
Note 4. Earnings Per Share
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 8,124,480 $ 7,114,526 $14,866,126 $13,197,803
========== ========== ========== ==========
Weighted average common
shares outstanding 15,332,564 15,536,606 15,384,806 15,583,051
Dilutive securities,
primarily stock options 310,334 310,786 293,383 341,048
---------- ---------- ---------- ----------
Diluted weighted average
common shares outstanding 15,642,898 15,847,392 15,678,189 15,924,099
========== ========== ========== ==========
Basic earnings per share $ .53 $ .46 $ .97 $ .85
==== ==== ==== ====
Diluted earnings per share $ .52 .45 $ .95 $ .83
==== ==== ==== ====
Note 5. Segment Information
The Company is organized into three business segments based on products and
services. The segments, which are Bronze, Graphics Imaging and Marking
Products, 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.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
MARCH 31, 2001
Note 5. Segment Information, continued
Information about the Company's segments follows:
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales to external customers:
Graphics Imaging $ 21,696,163 $ 22,829,484 $ 45,233,632 $ 45,865,410
Marking Products 7,456,483 8,497,547 15,452,611 16,868,228
Bronze 37,186,572 35,801,947 72,208,802 69,092,278
----------- ----------- ----------- -----------
$ 66,339,218 $ 67,128,978 $132,895,045 $131,825,916
=========== =========== =========== ===========
Operating profit:
Graphics Imaging $ 6,969,342 $ 2,536,250 $ 9,559,787 $ 4,299,801
Marking Products (509,789) 1,266,224 1,230,231 2,878,059
Bronze 7,139,407 8,706,132 14,282,729 15,716,473
----------- ----------- ----------- -----------
$ 13,598,960 $ 12,508,606 $ 25,072,747 $ 22,894,333
=========== =========== =========== ===========
Operating profit, excluding special
items and other one-time charges:
Graphics Imaging $ 2,568,103 $ 2,536,250 $ 5,158,548 $ 4,299,801
Marking Products 944,524 1,266,224 2,684,544 2,878,059
Bronze 9,077,499 8,706,132 16,220,821 15,716,473
----------- ----------- ----------- -----------
$ 12,590,126 $ 12,508,606 $ 24,063,913 $ 22,894,333
=========== =========== =========== ===========
Note 6. Comprehensive Income
Comprehensive income consists of net income adjusted for changes, net of tax,
in cumulative foreign currency translation, unrealized investment gains and
losses and minimum pension liability. For the three months ended March 31,
2001 and 2000, comprehensive income was $6,028,775 and $5,092,334,
respectively. For the six months ended March 31, 2001 and 2000, comprehensive
income was $13,485,741 and $10,673,051, respectively.
Note 7. Disposition
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz.
Proceeds to Matthews from the sale were approximately $18.6 million, which
included the repayment of intercompany debt of $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.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
MARCH 31, 2001
Note 8. Special Items
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 have been classified as Special Items on the
Consolidated Statement of Income, except for $1,168,458 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, primarily reflecting 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 on a
discounted cash flow basis. Asset impairments also included other write-downs
of certain assets to reflect estimated realizable values.
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
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 $500,000 (classified in other income (deductions), net),
and other one-time charges. A significant portion of the restructuring costs
and non-recurring expenses were incurred as of March 31, 2001, except for the
trust contribution and certain other costs which are expected to be completed
by the end of the fiscal year.
Note 9. Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 outlines basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company will be
required to implement SAB No. 101 in the fourth quarter of fiscal 2001. The
provisions of SAB No. 101 are not expected to have a material impact on the
Company's consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement:
The following discussion should be read in conjunction with the consolidated
financial statements and footnotes thereto included in this Quarterly Report
on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended
September 30, 2000. Any forward-looking statements contained herein are
included pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks and uncertainties that may cause the Company's actual
results in future periods to be materially different from management's
expectations. Although the Company believes that the expectations reflected
in such forward-looking statements are reasonable, no assurance can be given
that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements principally include changes in domestic or
international economic conditions, changes in 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, and
technological factors beyond the Company's control.
Results of Operations:
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods indicated.
Six months ended Years ended
March 31, September 30,
------------------ --------------------
2001 2000 2000 1999 1998
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 42.4 44.5 44.2 42.3 43.2
Operating profit 18.9 17.4 17.9 16.8 16.7
Income before income taxes 18.2 16.5 17.2 17.0 17.2
Net income 11.2 10.0 10.5 10.3 10.4
Note: Prior periods have been adjusted to reflect the reclassification, in
accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," of shipping costs billed to customers.
Sales for the six months ended March 31, 2001 were $132.9 million and were
$1.1 million, or approximately 1.0%, higher than sales of $131.8 million for
the six months ended March 31, 2000. Bronze segment sales for the first six
months of fiscal 2001 were $72.2 million, or 5%, higher than the same period a
year ago, primarily reflecting an increase in mausoleum construction revenues
and the acquisition of The SLN Group, Inc. in October 2000 (see
"Acquisitions"). Year-to-date sales for the Graphics Imaging segment as of
March 31, 2001 were $45.2 million, representing a decrease of 1% from the same
period a year ago. The decline reflected the sale of Tukaiz Communications,
L.L.C. ("Tukaiz") on January 19, 2001 (see "Disposition"). Fiscal 2001
revenues for Tukaiz up to the disposition date were $6.5 million, compared to
$12.1 million for the six months ended March 31, 2000. The decline from the
divestiture of Tukaiz was partially offset by the Company's recent
acquisitions of Repro-Busek GmbH ("Busek") in August 2000, Press Ready Plate,
Inc. in November 2000 and Klischeewerkstatt Scholler GmbH ("Scholler") in
January 2001 (see "Acquisitions").
Results of Operations, continued:
Marking Products segment sales for the six months ended March 31, 2001 were
$15.5 million compared to $16.9 million for the first half of fiscal 2000.
The decline was mainly due to lower exports coupled with a slow-down in
capital goods purchases domestically. For the six months ended March 31,
2001, declines in foreign currency values against the U.S. dollar had an
unfavorable impact of approximately $2.7 million on the Company's consolidated
sales for the six months ended March 31, 2001 compared to the same period a
year ago.
Gross profit for the six months ended March 31, 2001 was $56.4 million,
compared to $58.7 million for the first six months of fiscal 2000. The
reduction in consolidated gross profit for the period reflected the impact of
the divesture 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, which generally have lower margins
than the segment's memorial products. Consolidated gross profit as a percent
of sales for the six months ended March 31, 2001 declined to 42.4%, compared
to 44.5% for the same period a year ago, primarily reflecting the change in
product mix within the Bronze segment.
Selling and administrative expenses for the six months ended March 31, 2001
were $33.5 million, representing a decrease of $2.3 million, or 6.4%, compared
to the same period a year ago. 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
$3.5 million, or 9.7%, from the same period last year reflecting internal cost
control initiatives and lower employee benefit costs in all three of the
Company's business segments. Employee benefit costs were favorably impacted
by an increase in the Company's pension fund assets compared to the prior
year, 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 24.3% for the first six months of fiscal 2001 compared
to 27.1% for the same period a year ago.
Operating profit for the six months ended March 31, 2001 was $25.1 million,
representing an increase of $2.2 million, or 9.5%, over operating profit of
$22.9 million for the first six months of 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 the first six months of
fiscal 2001 was $24.1 million.
Excluding special items, operating profit for the Graphics imaging segment for
the first six months of fiscal 2001 was $5.2 million, representing an increase
of 20% over the same period last year. The increase was due to a combination
of factors including cost control initiatives implemented in fiscal years 2000
and 2001, 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 $1.2 million for the six months
ended March 31, 2000. Bronze segment operating profit, excluding special
items, for the first six months of fiscal 2001 was $16.2 million, compared to
$15.7 million for the same period a year ago. Fiscal 2001 reflected higher
mausoleum construction revenues, which generally have lower margins than the
segment's memorial products.
Results of Operations, continued:
Operating profit, excluding special items, for the Marking Products segment
for the six months ended March 31, 2001 was $2.7 million, compared to
operating profit of $2.9 million for the same period a year ago. The decrease
in operating profit reflected a decline in sales for the period, 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 $450,000 on the Company's consolidated operating profit for the
six months ended March 31, 2001 compared to the same period last year.
Investment income for the first six months of fiscal 2001 was $1.4 million
compared to $829,000 for the first six months of fiscal 2000. The increase
reflected higher average cash and investment balances and a higher average
rate of return on the Company's invested funds. Interest expense for the six
months ended March 31, 2001 was $656,000, compared to $820,000 for the first
six months of fiscal 2000. The decline in interest expense compared to the
same period last year principally reflected the divestiture of Tukaiz and
lower outstanding debt balances for Caggiati S.p.A. as a result of repayments.
Other income (deductions), net, for the first six months of fiscal 2001
represented a reduction to pre-tax income of $557,000, compared to a reduction
of $34,000 for the first six months of fiscal 2000. Fiscal 2001 other
deductions included a special contribution of $500,000 to the Jas. H. Matthews
Educational and Charitable Trust. Minority interest for the first six months
of fiscal 2001 was $1.1 million compared to $1.2 million for the same period a
year ago. The lower minority interest deduction for the current period
resulted from the divestiture of Tukaiz, offset by the recent acquisitions of
Busek and Scholler.
The Company's effective tax rate for the first six months of fiscal 2001 was
38.6%, compared to 39.2% for the year ended September 30, 2000. The reduction
reflects a lower projected effective state income tax rate for fiscal 2001.
The difference between the Company's effective tax rate and the Federal
statutory rate of 35% primarily reflects the impact of state and foreign
income taxes and non-deductible goodwill amortization.
Special Items:
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz (see
"Disposition"). 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.
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 have been classified as Special Items on the
Consolidated Statement of Income, except for $1,168,458 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, primarily reflecting 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 on a
discounted cash flow basis. Asset impairments also included other write-downs
of certain assets to reflect estimated realizable values.
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
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 $500,000 (classified in other income (deductions), net),
and other one-time charges. A significant portion of the restructuring costs
and non-recurring expenses were incurred as of March 31, 2001, except for the
trust contribution and certain other costs which are expected to be completed
by the end of the fiscal year.
Liquidity and Capital Resources:
Net cash provided by operating activities was $13.0 million for the six months
ended March 31, 2001, compared to $12.9 million for the first six months of
fiscal 2000. For the six months ended March 31, 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) recorded in
connection with the special charges for the period. Operating cash flow for
the first six months of fiscal 2000 primarily reflected net income adjusted
for depreciation and amortization and the payment of year-end compensation and
profit distribution accruals.
Cash provided by investing activities was $7.1 million for the six months
ended March 31, 2001, compared to cash used of $14.5 million in investing
activities for the first six months of fiscal 2000. Investing activities for
the current period reflected proceeds of $18.6 million from the sale of Tukaiz
which was partially offset by capital expenditures of $3.5 million and cash
payments of $7.5 million in connection with the acquisitions of The SLN Group,
Inc., Press Ready Plate, Inc. and Scholler (see "Acquisitions"). Investing
activities for the first six months of fiscal 2000 included capital
expenditures of $4.3 million, cash payments of $5.8 million in connection with
acquisitions and net purchases of investment securities of $4.5 million.
Capital spending for property, plant and equipment has averaged $9.4 million
for the last three fiscal years. The capital budget of the Company for fiscal
2001 is $11.0 million. The Company expects to generate sufficient cash from
operations to fund all anticipated capital spending projects.
Cash used in financing activities for the six months ended March 31, 2001 was
$11.4 million, consisting of net treasury stock purchases of $8.7 million, net
repayments of $1.2 million on long-term debt, and dividends of $1.5 million to
the Company's shareholders. Cash provided by financing activities was
$9.0 million for the six months ended March 31, 2000 consisting principally of
net treasury stock purchases of $4.3 million, net repayments of $3.2 million
on long-term debt, and dividends of $1.5 million. At March 31, 2001, the
Company had available lines of credit with U.S. and Canadian banks of
approximately $12 million.
At March 31, 2001 and September 30, 2000 and 1999, the Company's current ratio
was 2.2, 2.0 and 1.6, respectively. The Company had cash and cash equivalents
at March 31, 2001 and September 30, 2000 of $37.4 million and $29.2 million,
respectively. Net working capital at March 31, 2001 and September 30, 2000
was $55.7 million and $48.0 million, respectively. The Company believes that
its current liquidity sources, combined with its operating cash flow and
additional borrowing capacity, will be sufficient to meet its capital needs
for the next 12 months.
Acquisitions:
In October 2000, Matthews acquired certain assets and liabilities of The SLN
Group, Inc. ("SLN"). SLN, located in Nanuet, New York, is a manufacturer and
marketer of photo-etched metal plaques and water-jet cut letters and logos.
The acquisition of SLN is 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 flexible
packaging industry. The acquisition of Press Ready is designed to increase
Matthews' presence in the market for pre-press services used by the flexible
packaging industry. In January 2001, Matthews acquired a 75% interest in
Klischeewerkstatt Scholler GmbH ("Scholler"). Scholler, located in Nuremberg,
Germany, is a graphics and flexographic printing plate manufacturer. The
acquisition of Scholler is 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.
Disposition:
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz.
Proceeds to Matthews from the sale were approximately $18.6 million, which
included the repayment of intercompany debt of $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
transaction resulted in a pre-tax gain of $7.1 million, which has been
reported in Special Items on the Consolidated Statement of Income.
Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 outlines basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company will be
required to implement SAB No. 101 in the fourth quarter of fiscal 2001. The
provisions of SAB No. 101 are not expected to have a material impact on the
Company's consolidated financial statements.
Sales and cost of goods sold for the three-month and six-months periods ended
March 31, 2000 have been adjusted in accordance with Emerging Issues Task
Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
to reflect the reclassification of shipping costs billed to customers.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibit to this report is filed herewith:
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTHEWS INTERNATIONAL CORPORATION
(Registrant)
Date 5/10/01 D.M. Kelly
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D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 5/10/01 E.J. Boyle
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E.J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary