UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Quarterly Period Ended June 30, 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 July 31, 2001
Class A - $1.00 par value 13,412,089 shares
Class B - $1.00 par value 1,742,978 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 2001 September 30, 2000
------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,879,390 $ 29,150,118
Short-term investments 265,193 1,321,226
Accounts receivable 50,584,775 44,818,961
Inventories: Materials and finished goods $ 15,824,101 $ 14,927,664
Labor and overhead in process 1,462,714 1,498,130
Supplies 327,331 423,652
---------- ----------
17,614,146 16,849,446
Other current assets 2,406,984 2,693,039
----------- ----------
Total current assets 93,750,488 94,832,790
Investments 15,976,555 14,802,809
Property, plant and equipment: Cost 94,547,710 94,107,498
Less accumulated depreciation (44,670,896) (45,640,252)
---------- ----------
49,876,814 48,467,246
Deferred income taxes and other assets 15,983,064 13,850,559
Goodwill, net of accumulated amortization 86,308,392 48,712,046
----------- -----------
Total assets $261,895,313 $220,665,450
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 4,906,294 3,478,218
Accounts payable 10,956,424 10,075,166
Accrued compensation 13,184,591 16,729,194
Accrued income taxes 4,553,232 270,124
Customer prepayments 5,949,422 5,874,352
Other current liabilities 7,943,984 10,405,088
---------- ----------
Total current liabilities 47,493,947 46,832,142
Long-term debt 40,585,786 13,908,448
Estimated finishing costs 8,014,316 4,071,884
Postretirement benefits 18,647,271 18,991,385
Other liabilities 11,611,965 10,005,882
Shareholders' equity:
Common stock 18,166,996 18,166,996
Retained earnings 195,793,658 174,689,060
Accumulated other comprehensive income (loss) (10,826,010) (9,177,176)
Notes receivable - (6,596)
Treasury stock, at cost (67,592,616) (56,816,575)
----------- -----------
135,542,028 126,855,709
----------- -----------
Total liabilities and shareholders' equity $261,895,313 $220,665,450
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 71,460,987 $ 69,025,427 $204,356,032 $200,851,343
Cost of sales (40,071,350) (37,926,781) (116,587,934) (111,088,079)
---------- ---------- ----------- -----------
Gross profit 31,389,637 31,098,646 87,768,098 89,763,264
Selling and
administrative expenses (16,758,457) (17,768,132) (50,241,463) (53,538,417)
Special items - - 2,177,292 -
---------- ---------- ----------- -----------
Operating profit 14,631,180 13,330,514 39,703,927 36,224,847
Investment income 524,993 436,266 1,941,716 1,265,253
Interest expense (390,809) (369,658) (1,046,461) (1,189,305)
Other income
(deductions), net 3,863 (138,753) (553,529) (172,717)
Minority interest (503,947) (566,284) (1,569,664) (1,716,144)
---------- ---------- ----------- -----------
Income before
income taxes 14,265,280 12,692,085 38,475,989 34,411,934
Income taxes (5,504,553) (4,966,728) (14,849,136) (13,488,774)
---------- ---------- ----------- -----------
Net income $ 8,760,727 $ 7,725,357 $ 23,626,853 $ 20,923,160
========== ========== =========== ===========
Basic earnings per share $ .58 $ .50 $ 1.54 $ 1.35
===== ===== ===== =====
Diluted earnings per share $ .56 $ .49 $ 1.51 $ 1.32
===== ===== ===== =====
Dividends per share $ .05 $.0475 $ .15 $.1425
===== ===== ===== =====
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended
June 30,
--------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 23,626,853 $ 20,923,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,001,715 9,228,802
Change in deferred taxes 156,452 1,753
Changes in working capital items (5,543,146) (4,946,187)
Increase in other assets (1,469,401) (313,344)
Increase in estimated finishing costs 202,507 155,784
Increase in other liabilities 53,000 548,730
Decrease in postretirement benefits (344,114) (360,449)
Impairment losses 2,823,661 -
Net (gain) loss on sales of assets (28,245) 277,802
Gain on sale of subsidiary (7,098,554) -
Net (gain) loss on investments (181,713) 113,701
Effect of exchange rate changes on operations (239,412) (674,076)
---------- ----------
Net cash provided by operating activities 20,959,603 24,955,676
---------- ----------
Cash flows from investing activities:
Capital expenditures (5,354,578) (5,714,973)
Proceeds from sales of assets 38,124 467,592
Acquisitions, net of cash acquired (57,192,958) (9,520,333)
Proceeds from sale of subsidiary 18,581,528 -
Purchases of investment securities (11,431,814) (6,716,970)
Proceeds from disposition of investment securities 10,546,053 2,031,756
Collections on loans to officers and employees 6,596 40,994
---------- ----------
Net cash used in investing activities (44,807,049) (19,411,934)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 32,743,326 4,023,360
Payments on long-term debt (1,188,505) (3,779,161)
Proceeds from the sale of treasury stock 219,878 197,457
Purchases of treasury stock (11,372,862) (7,672,327)
Dividends (2,283,312) (2,204,463)
---------- ----------
Net cash provided by (used in) financing activities 18,118,525 (9,435,134)
---------- ----------
Effect of exchange rate changes on cash (541,807) (888,576)
---------- ----------
Net decrease in cash and cash equivalents $ (6,270,728) $ (4,779,968)
========== ==========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 nine months ended June 30, 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
JUNE 30, 2001
Note 2. Basis of Presentation, continued
Sales and cost of goods sold for the three-month and nine-month periods ended
June 30, 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 Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 8,760,727 $ 7,725,357 $23,626,853 $20,923,160
========== ========== ========== ==========
Weighted-average common
shares outstanding 15,180,961 15,420,408 15,319,315 15,529,805
Dilutive securities,
primarily stock options 419,321 355,757 335,362 354,990
---------- ---------- ---------- ----------
Diluted weighted-average
common shares outstanding 15,600,282 15,776,165 15,654,677 15,884,795
========== ========== ========== ==========
Basic earnings per share $ .58 $ .50 $1.54 $1.35
==== ==== ==== ====
Diluted earnings per share $ .56 .49 $1.51 $1.32
==== ==== ==== ====
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
JUNE 30, 2001
Note 5. Segment Information, continued
Information about the Company's segments follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales to external customers:
Graphics Imaging $ 20,492,701 $ 23,393,503 $ 65,726,333 $ 69,258,913
Marking Products 7,209,209 8,390,401 22,661,820 25,258,629
Bronze 43,759,077 37,241,523 115,967,879 106,333,801
----------- ----------- ----------- -----------
$ 71,460,987 $ 69,025,427 $204,356,032 $200,851,343
=========== =========== =========== ===========
Operating profit:
Graphics Imaging $ 2,465,974 $ 2,643,102 $ 12,025,761 $ 6,942,903
Marking Products 1,059,962 1,484,213 2,290,192 4,362,272
Bronze 11,105,244 9,203,199 25,387,974 24,919,672
----------- ----------- ----------- -----------
$ 14,631,180 $ 13,330,514 $ 39,703,927 $ 36,224,847
=========== =========== =========== ===========
Operating profit, excluding special
items and other one-time charges:
Graphics Imaging $ 2,465,974 $ 2,643,102 $ 7,624,522 $ 6,942,903
Marking Products 1,059,962 1,484,213 3,744,506 4,362,272
Bronze 11,105,244 9,203,199 27,326,065 24,919,672
----------- ----------- ----------- -----------
$ 14,631,180 $ 13,330,514 $ 38,695,093 $ 36,224,847
=========== =========== =========== ===========
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 June 30,
2001 and 2000, comprehensive income was $8,492,278 and $7,430,465,
respectively. For the nine months ended June 30, 2001 and 2000, comprehensive
income was $21,978,019 and $18,103,516, 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
JUNE 30, 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 were 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. Substantially all of the restructuring costs and
non-recurring expenses were incurred as of June 30, 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. Acquisitions
On May 24, 2001, Matthews acquired the Commemorative Products business of The
York Group, Inc. ("York") for $45 million cash. 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 transaction was financed by Matthews through existing
cash on hand and a $30 million bank loan under the Company's Revolving Credit
and Term Loan Agreement with Mellon Bank, N.A. The loan bears interest at
LIBOR plus .75%, which totaled 4.83% at June 30, 2001.
The following unaudited pro forma information presents a summary of the
consolidated results of Matthews and the Commemorative Products business of
York as if the acquisition had occurred on October 1, 1999:
Nine Months Ended
June 30,
---------------------------
2001 2000
---- ----
Sales $232,000,000 $233,000,000
Net income 24,310,000 22,460,000
Earnings per share, diluted $1.55 $1.41
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
JUNE 30, 2001
Note 9. Acquisitions, continued
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as goodwill amortization and
interest expense on acquisition debt. 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.
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
is to 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 the excess cash remaining on York's balance sheet as of October 31,
2001. Completion of this transaction, anticipated to occur in the fourth
quarter of 2001, is subject to York achieving earnings before interest, taxes,
depreciation and amortization ("EBITDA") from its casket operations greater
than the same period of the prior year for the nine months ended September 30,
2001; approval of the merger by the shareholders of York; compliance with
applicable legal and regulatory requirements; and standard closing conditions.
York, a leading casket manufacturer in the United States, expects to have
annual revenues approximating $130 million following the sale of its other
operating businesses.
Note 10. Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
the purchase method of accounting (instead of pooling-of-interests) for all
business combinations initiated after June 30, 2001. 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. Upon adoption, goodwill related to business
combinations on or before June 30, 2001 will no longer be amortized and will
be subject to periodic review for impairment. Goodwill in connection with
acquisitions subsequent to June 30, 2001 will not be amortized and will also
be subject to periodic review for impairment. The Company will be required to
adopt the provisions of SFAS No. 142 in the first quarter of fiscal 2003, but
application as early as the first quarter of fiscal 2002 is permitted. The
Company is currently evaluating SFAS No. 142 in order to determine its impact
on the consolidated financial statements.
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.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
JUNE 30, 2001
Note 11. Subsequent Event
Effective July 1, 2001, Matthews acquired a 75% interest in Rudolf Reproflex
GmbH ("Rudolf"), a German graphics and flexographic printing plate
manufacturer. The purchase price was DM 24 million (US$10.5 million) and is
payable to the seller by September 30, 2001. Rudolf is headquartered in
Goslar, Germany and has annual sales of approximately US$14 million.
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.
Nine months ended Years ended
June 30, September 30,
------------------ --------------------
2001 2000 2000 1999 1998
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 42.9 44.7 44.2 42.3 43.2
Operating profit 19.4 18.0 17.9 16.8 16.7
Income before income taxes 18.8 17.1 17.2 17.0 17.2
Net income 11.6 10.4 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 nine months ended June 30, 2001 were $204.4 million and were
$3.5 million, or approximately 1.7%, higher than sales of $200.9 million for
the nine months ended June 30, 2000. Bronze segment sales for the first nine
months of fiscal 2001 were $116.0 million, which was 9% higher than the same
period a year ago, primarily reflecting an increase in mausoleum construction
revenues and the acquisition of the Commemorative Products business of The
York Group, Inc. (see "Acquisitions"). Year-to-date sales for the Graphics
Imaging segment as of June 30, 2001 were $65.7 million, representing a
decrease of 5% 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 $17.8 million for the nine months ended June
30, 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 nine months ended June 30, 2001 were
$22.7 million compared to $25.3 million for the first nine months of fiscal
2000. The decline was mainly due to lower exports coupled with a slow-down in
capital goods purchases domestically. For the nine months ended June 30,
2001, declines in foreign currency values against the U.S. dollar had an
unfavorable impact of approximately $4.6 million on the Company's consolidated
sales for the nine months ended June 30, 2001 compared to the same period a
year ago.
Gross profit for the nine months ended June 30, 2001 was $87.8 million,
compared to $89.8 million for the first nine 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 nine months ended June 30, 2001 declined to 42.9%, compared
to 44.7% for the same period a year ago, primarily reflecting the change in
product mix within the Bronze segment.
Selling and administrative expenses for the nine months ended June 30, 2001
were $50.2 million, representing a decrease of $3.3 million, or 6.2%, 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
$4.5 million, or 8.3%, from the same period last year 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 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 24.0% for the first nine months of fiscal 2001 compared to 26.7% for
the same period a year ago.
Operating profit for the nine months ended June 30, 2001 was $39.7 million,
representing an increase of $3.5 million, or 9.6%, over operating profit of
$36.2 million for the first nine 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 nine months
of fiscal 2001 was $38.7 million.
Excluding special items, operating profit for the Graphics imaging segment for
the first nine months of fiscal 2001 was $7.6 million, representing an
increase of 10% 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 $1.8 million for the nine months
ended June 30, 2000. Bronze segment operating profit, excluding special
items, for the first nine months of fiscal 2001 was $27.3 million, compared to
$24.9 million for the same period a year ago. Fiscal 2001 reflected the
benefits of the acquisition of the Commemorative Products business of the York
Group, Inc. (see "Acquisitions"), higher mausoleum construction revenues, cost
control initiatives and lower employee benefit costs.
Results of Operations, continued:
Operating profit, excluding special items, for the Marking Products segment
for the nine months ended June 30, 2001 was $3.7 million, compared to
operating profit of $4.4 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 $900,000 on the Company's consolidated operating profit for the
nine months ended June 30, 2001 compared to the same period last year.
Investment income for the first nine months of fiscal 2001 was $1.9 million
compared to $1.3 million for the first nine 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 nine months ended June 30, 2001 was $1.0 million, compared to $1.2 million
for the first nine months of fiscal 2000. The decline in interest expense
compared to the same period last year principally reflected the divestiture of
Tukaiz, which was partially offset by new borrowings in connection with the
acquisition of the Commemorative Products business of the York Group, Inc.
(see "Acquisitions").
Other income (deductions), net, for the first nine months of fiscal 2001
represented a reduction to pre-tax income of $554,000, compared to a reduction
of $173,000 for the first nine 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 nine months
of fiscal 2001 was $1.6 million compared to $1.7 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 nine 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. Substantially all of the restructuring costs and
non-recurring expenses were incurred as of June 30, 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 $21.0 million for the nine
months ended June 30, 2001, compared to $25.0 million for the first nine
months of fiscal 2000. For the nine months ended June 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. Operating cash flow for the first nine months of fiscal 2000
primarily reflected net income adjusted for depreciation and amortization.
Cash used in investing activities was $44.8 million for the nine months ended
June 30, 2001, compared to $19.4 million for the first nine months of fiscal
2000. Investing activities for the current period primarily reflected the
acquisitions of the Commemorative Products business of York ($45.0 million),
The SLN Group, Inc., Press Ready Plate, Inc., and Scholler (see
"Acquisitions"). Fiscal 2001 investing activities also included proceeds of
$18.6 million from the sale of Tukaiz, capital expenditures of $5.4 million
and the final payment of Lit. 7.2 billion (US$3.2 million) in connection with
the acquisition of Caggiati S.p.A. Investing activities for the first nine
months of fiscal 2000 included capital expenditures of $5.7 million, payments
of $9.5 million in connection with acquisitions and net purchases of
investment securities of $4.7 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 provided by financing activities for the nine months ended June 30, 2001
was $18.1 million, consisting of proceeds from long-term debt of $32.7 million
offset partially by net treasury stock purchases of $11.1 million, net
repayments of $1.2 million on long-term debt, and dividends of $2.3 million to
the Company's shareholders. Cash used in financing activities was
$9.4 million for the nine months ended June 30, 2000 consisting principally of
net treasury stock purchases of $7.4 million, repayments of $3.8 million on
long-term debt, and dividends of $2.2 million offset partially by proceeds
from long-term debt of $4.0 million.
Liquidity and Capital Resources:
At June 30, 2001 and September 30, 2000 and 1999, the Company's current ratio
was 2.0, 2.0 and 1.6, respectively. The Company had cash and cash equivalents
at June 30, 2001 and September 30, 2000 of $22.9 million and $29.2 million,
respectively. Net working capital at June 30, 2001 and September 30, 2000 was
$46.3 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:
On May 24, 2001, Matthews acquired the Commemorative Products business of The
York Group, Inc. ("York") for $45 million cash. 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 transaction was financed by Matthews through existing
cash on hand and a $30 million bank loan under the Company's Revolving Credit
and Term Loan Agreement with Mellon Bank, N.A. The loan bears interest at
LIBOR plus .75%, which totaled 4.83% at June 30, 2001.
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
is to 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 the excess cash remaining on York's balance sheet as of October 31,
2001. Completion of this transaction, anticipated to occur in the fourth
quarter of 2001, is subject to York achieving earnings before interest, taxes,
depreciation and amortization ("EBITDA") from its casket operations greater
than the same period of the prior year for the nine months ended September 30,
2001; approval of the merger by the shareholders of York; compliance with
applicable legal and regulatory requirements; and standard closing conditions.
York believes that the interim period prior to closing will permit York to
increase the per share value received by shareholders in the merger through
the disposition of non-casket operations and other non-operating assets.
York, a leading casket manufacturer in the United States, expects to have
annual revenues approximating $130 million following the sale of its other
operating businesses. The acquisition is expected to be accretive to
Matthews' earnings in its first year.
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 June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
the purchase method of accounting (instead of pooling-of-interests) for all
business combinations initiated after June 30, 2001. 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. Upon adoption, goodwill related to business
combinations on or before June 30, 2001 will no longer be amortized and will
be subject to periodic review for impairment. Goodwill in connection with
acquisitions subsequent to June 30, 2001 will not be amortized and will also
be subject to periodic review for impairment. The Company will be required to
adopt the provisions of SFAS No. 142 in the first quarter of fiscal 2003, but
application as early as the first quarter of fiscal 2002 is permitted. The
Company is currently evaluating SFAS No. 142 in order to determine its impact
on the consolidated financial statements.
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 nine-month periods ended
June 30, 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.
Subsequent Event
Effective July 1, 2001, Matthews acquired a 75% interest in Rudolf Reproflex
GmbH ("Rudolf"), a German graphics and flexographic printing plate
manufacturer. The purchase price was DM 24 million (US$10.5 million) and is
payable to the seller by September 30, 2001. Rudolf is headquartered in
Goslar, Germany and has annual sales of approximately US$14 million.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits to this report are incorporated by reference from the
Registrant's Current Report on Form 8-K, dated May 24, 2001:
Exhibit
No. Description
- ------- -----------
10.1 Matthews International Corporation, Empire Stock Corp., and
The York Group, Inc., Stock Purchase Agreement, dated as of
May 24, 2001
10.2 Matthews International Corporation, Empire Stock Corp., The
York Group, Inc., York Bronze Company and OMC Industries,
Inc., Asset Purchase Agreement, dated as of May 24, 2001
10.3 Agreement And Plan Of Merger By And Among Matthews International
Corporation, Empire Merger Corp. and The York Group, Inc., dated
as of May 24, 2001
(b) Report on Form 8-K
On June 8, 2001, Matthews filed a Current Report on Form 8-K, dated May 24,
2001, under Item 2 in connection with the purchase by Matthews of the
Commemorative Products business of The York Group, Inc. ("York") and Item 5 in
connection with a merger agreement between Matthews and York whereby Matthews
is to acquire 100% of the outstanding common shares of York. See
"Acquisitions" under Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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 8/10/01 D.M. Kelly
------------ -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 8/10/01 E.J. Boyle
------------ -----------------------------------------
E.J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary