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 December 31, 1994
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 January 31, 1995
Class A - $1.00 par value 1,738,275 shares
Class B - $1.00 par value 7,112,075 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 1994 September 30, 1994
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 25,516,129 $ 24,264,967
Accounts and notes receivable, net 25,330,611 27,122,619
Inventories:
Materials and finished goods $ 9,087,670 $ 8,697,118
Labor and overhead in process 617,609 764,219
Supplies 563,182 540,557
Less LIFO reserve (241,530) (241,530)
---------- ----------
10,026,931 9,760,364
Other current assets 1,195,205 1,469,040
---------- ----------
Total current assets 62,068,876 62,616,990
Accounts receivable, noncurrent 1,428,581 1,402,129
Property, plant and equipment: Cost 60,516,902 60,070,477
Less accumulated depreciation (22,595,821) (21,821,201)
---------- ----------
37,921,081 38,249,276
Deferred income taxes and other assets 11,890,603 11,565,822
Goodwill 5,775,757 5,780,027
----------- -----------
Total assets $119,084,898 $119,614,244
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 430,775 423,263
Accounts payable 3,324,839 4,699,634
Accrued compensation 4,547,474 8,311,734
Accrued income taxes 3,214,868 1,248,377
Customer prepayments and other current liabilities 5,412,494 6,923,147
---------- ----------
Total current liabilities 16,930,450 21,606,155
Long-term debt 635,064 745,616
Estimated cemetery and finishing costs 4,817,190 4,761,113
Postretirement benefits 18,848,999 18,584,826
Deferred revenue and other liabilities 2,685,627 2,553,266
Shareholders' equity:
Common stock: Class A, par value $1.00 1,380,000 1,380,000
Class B, par value $1.00 7,470,350 7,470,350
Other shareholders' equity 66,317,218 62,512,918
---------- ----------
75,167,568 71,363,268
----------- -----------
Total liabilities and shareholders' equity $119,084,898 $119,614,244
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
December 31,
--------------------------
1994 1993
---- ----
Sales $ 40,085,805 $ 37,981,327
Cost of sales 21,722,238 20,903,079
Selling and administrative expenses 11,999,873 10,878,290
---------- ----------
Operating profit 6,363,694 6,199,958
Interest expense 18,541 91,807
Other (income) & deductions, net (170,330) (92,393)
---------- ----------
Income before income taxes 6,515,483 6,200,544
Income taxes (1) 2,605,818 2,583,704
---------- ----------
Net income $ 3,909,665 $ 3,616,840
========== ==========
Earnings per share (4) $ .44 $ .38
===== =====
Dividends per share (4) $ .06 $ .01
===== =====
Weighted average number of
common shares outstanding (4) 8,850,350 9,429,000
========= =========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31,
--------------------------
1994 1993
---- ----
Cash flows from operating activities:
Net Income $ 3,909,665 $ 3,616,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,119,889 866,613
Deferred taxes (116,007) (109,060)
Net increase in certain working capital items (2,898,624) (2,051,425)
Increase in accounts receivable, noncurrent (26,452) (24,151)
(Increase) decrease in cemetery inventory (18,454) 12,704
Decrease in other noncurrent assets 7,627 72,303
Increase in estimated finishing and cemetery costs 56,077 114,156
Decrease in deferred revenue and expenses and
other liabilities (50,903) (15,223)
Increase in postretirement benefits 264,173 246,903
Net loss on sale of property, plant and equipment 6,588 6,301
Effect of exchange rate changes on operations 10,721 (140,458)
---------- ---------
Net cash provided by operating activities 2,264,300 2,595,503
---------- ---------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (719,331) (855,015)
Proceeds from disposals of property,
plant and equipment 13,617 650
Collections on loans to officers and employees 352,012 191,107
--------- ---------
Net cash used in investing activities (353,702) (663,258)
--------- ---------
Cash flows from financing activities:
Payments on long-term debt (103,040) (1,906,619)
Proceeds from the sale of treasury stock - -
Purchases of treasury stock - (1,097,010)
Dividends paid (530,685) (95,084)
--------- ---------
Net cash used in financing activities (633,725) (3,098,713)
--------- ---------
Effect of exchange rate changes on
cash and cash equivalents (25,711) 7,997
--------- ---------
Net increase (decrease) in cash and cash equivalents $ 1,251,162 $(1,158,471)
========= =========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 18,541 $ 91,807
Income Taxes 755,334 1,386,529
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
Note 1. Income Taxes
The income tax provision for the period is based on the effective tax rate
expected to be applicable for the full year. The difference between the
estimated effective tax rate of 40% and the Federal statutory rate of 35% is
primarily due to state and foreign income taxes.
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-month period ended December 31, 1994 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 1995.
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, 1994.
Note 3. Stock Option Plan
The Company has a stock incentive plan which provides for the grant of
incentive stock options, nonstatutory stock options and restricted share
awards. The aggregate number of shares of the Company's common stock which may
be issued upon exercise of the stock options and pursuant to the restricted
share awards under the stock incentive plan is 600,000 shares. The option
price for each stock option which may be granted under the plan may not be less
than fair market value of the Company's common stock on the date of grant. In
December 1994, by action of the Compensation Committee of the Company's Board
of Directors, officers and other management personnel were granted nonstatutory
stock options to purchase a combined total of 377,500 shares of the Company's
Class A Common Stock at an exercise price of $14.25 per share. The 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 during the period December 9, 1999 through December 16,
1999. The options are not exercisable before June 9, 1995 and expire
December 9, 2004.
Note 4. Stock Split
Fiscal 1994 earnings and dividends per share and average share information have
been restated for the 15-for-1 common stock split which occurred in July 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
[CAPTION]
Three months ended Years ended
December 31, September 30,
------------------ --------------------
1994 1993 1994 1993 1992
---- ---- ---- ---- ----
[S] [C] [C] [C] [C] [C]
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 45.8 45.0 45.1 42.4 43.5
Operating profit 15.9 16.3 15.1 11.6 12.0
Income before income taxes 16.3 16.3 14.9 11.0(1) 12.0
Net income 9.8 9.5 8.8 6.6(1) 7.1
(1) Excludes the cumulative effect of changes in accounting principles for
the adoptions of SFAS No. 106 and SFAS No. 109.
Sales for the three months ended December 31, 1994 were $40.1 million and were
$2.1 million, or 5.5%, higher than sales of $38.0 million for the first three
months of fiscal 1994. The increase for the first three months of fiscal 1995
reflected higher sales in all three of the Company's segments. The Marking
Products segment generated the largest sales increase, up 16.5% over the fiscal
1994 first quarter. The increase in this segment's sales is the result of
higher sales volume in North America, Europe and Australia. Bronze segment
sales for the first quarter of fiscal 1995 were up 2.6% over the fiscal 1994
first quarter reflecting improvements in both unit volume and price. Graphic
Systems sales for the first three months of fiscal 1995 were up slightly over
the first three months of fiscal 1994 as both sales volume and prices were
relatively consistent with the prior year for this segment.
Gross profit for the three months ended December 31, 1994 was $18.4 million,
or 45.8% of sales, compared to $17.1 million, or 45.0%, for the first three
months of fiscal 1994. The increase in gross profit of $1.3 million, or 7.5%,
and the increased percentage of gross profit to sales for the first three
months of fiscal 1995 were attributable principally to the higher sales levels
of each of the Company's segments and a reduction in group insurance costs for
the period.
Selling and administrative expenses for the three months ended December 31,
1994 were $12.0 million, representing an increase of $1.1 million, or 10.3%,
from $10.9 million for the first three months of fiscal 1994. Although the
Company's consolidated sales increased 5.5% for the period, selling and
administrative expenses increased 10.3% as a result of higher domestic
advertising costs of the Marking Products segment and an increase in selling
expenses in Australia and Europe.
Operating profit for the three months ended December 31, 1994 was $6.4 million
and was $164,000, or 2.6%, higher than operating profit of $6.2 million for the
first three months of fiscal 1994. The operating profit for the first quarter
established a new quarterly operating profit record for the Company. Increased
sales and related gross profit in all three of the Company's segments were the
primary factors contributing to the higher operating profit level.
Interest expense for the three months ended December 31, 1994 was approximately
$19,000, compared to $92,000 for the first three months of fiscal 1994. The
decrease in interest expense was principally a result of the repayment of all
amounts outstanding under the Term Loan Agreement during fiscal 1994.
Other income and deductions (net) for the three months ended December 31, 1994
resulted in a $170,000 increase in income before income taxes compared a
$92,000 increase for the first three months of fiscal 1994. Other income and
deductions (net) for the first three months of fiscal 1995 primarily reflected
an increase in interest income as a result of a higher cash position during the
current period.
The Company's effective tax rate for the first quarter of fiscal 1995 was
40.0%, compared to 40.8% for the year ended September 30, 1994. The lower
estimated effective tax rate for fiscal 1995 is primarily the result of a
reduction in the effect of foreign income taxes on the Company's consolidated
tax position. The difference between the Company's effective tax rate and the
Federal statutory rate of 35% is primarily the impact of state and foreign
income taxes.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.3 million for the three months
ended December 31, 1994, compared to $2.6 million for the first three months
of fiscal 1994. Operating cash flow for the first quarter of both fiscal 1995
and 1994 resulted primarily from the Company's net income of $3.9 million and
$3.6 million, respectively, offset partially by the use of working capital for
the payment of current liabilities which were accrued at year-end.
Cash used in investing activities approximated $354,000 for the three months
ended December 31, 1994 compared to $663,000 for the same period a year ago.
Capital expenditures for the three months ended December 31, 1994 amounted to
$719,000, representing a decrease of approximately $136,000 from capital
expenditures of $855,000 in the fiscal 1994 first quarter. The decline is due
primarily to the timing of capital spending projects in comparison to the prior
period. Capital spending for property, plant and equipment has averaged
approximately $6.4 million for the last three fiscal years. The capital budget
of the Company for fiscal 1995 is $12.0 million. The Company expects to
generate sufficient cash from operations to fund all anticipated capital
spending projects.
Cash used in financing activities for the three months ended December 31, 1994
was $634,000 principally reflecting the Company's quarterly dividend of $.06
per share and repayments under the Company's capital lease agreements. Cash
used in financing activities in the first three months of fiscal 1994 was
$3.1 million primarily consisting of repayments under the Company's Term Loan
Agreement and treasury stock redemptions under the Employees' Stock Purchase
Plan. Dividends for the fiscal 1994 first quarter were $.01 per share. The
Company currently has available lines of credit of approximately $11 million.
There were no outstanding borrowings on any of the Company's lines of credit
at December 31, 1994. As of such date, the Company's outstanding long-term
debt, which consisted of capital lease obligations, was $1.1 million.
At December 31, 1994 and September 30, 1994 and 1993, the Company's current
ratio was 3.7, 2.9 and 3.0, respectively. The Company had cash and cash
equivalents at December 31 and September 30, 1994 of $25.5 million and
$24.3 million, respectively. Net working capital at December 31, 1994 was
$45.1 million. 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.
Stock Option Plan
The Company has a stock incentive plan which provides for the grant of
incentive stock options, nonstatutory stock options and restricted share
awards. The aggregate number of shares of the Company's common stock which may
be issued upon exercise of the stock options and pursuant to the restricted
share awards under the stock incentive plan is 600,000 shares. The option
price for each stock option which may be granted under the plan may not be less
than fair market value of the Company's common stock on the date of grant. In
December 1994, by action of the Compensation Committee of the Company's Board
of Directors, officers and other management personnel were granted nonstatutory
stock options to purchase a combined total of 377,500 shares of the Company's
Class A Common Stock at an exercise price of $14.25 per share. The 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 during the period December 9, 1999 through December 16,
1999. The options are not exercisable before June 9, 1995 and expire
December 9, 2004.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibit to this report is filed herewith:
Exhibit
No. Description
------- -----------
10.1 Form of Stock Option Agreement
(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 2/9/95 T.N. Kennedy
------------- -------------------------------------
T. N. Kennedy, Senior Vice President,
Chief Financial Officer and Treasurer
Date 2/9/95 J.L. Parker
------------- -------------------------------------
J. L. Parker, Senior Vice President,
General Counsel and Secretary