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, 1995 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, 1995 Class A - $1.00 par value 2,582,618 shares Class B - $1.00 par value 6,267,732 shares PART I - FINANCIAL INFORMATION MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 1995 September 30, 1994 -------------- ------------------ ASSETS Current assets: Cash and cash equivalents $ 28,925,671 $ 24,264,967 Accounts and notes receivable, net 26,509,433 27,122,619 Inventories: Materials and finished goods $ 8,980,295 $ 8,697,118 Labor and overhead in process 776,383 764,219 Supplies 551,861 540,557 Less LIFO reserve (241,530) (241,530) ---------- ---------- 10,067,009 9,760,364 Other current assets 1,131,054 1,469,040 ---------- ---------- Total current assets 66,633,167 62,616,990 Accounts receivable, noncurrent 1,413,577 1,402,129 Property, plant and equipment: Cost 61,733,225 60,070,477 Less accumulated depreciation (23,220,852) (21,821,201) ---------- ---------- 38,512,373 38,249,276 Deferred income taxes and other assets 12,094,462 11,565,822 Goodwill 5,467,730 5,780,027 ----------- ----------- Total assets $124,121,309 $119,614,244 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current maturities 438,420 423,263 Accounts payable 3,852,290 4,699,634 Accrued compensation 6,157,241 8,311,734 Accrued income taxes 1,161,512 1,248,377 Customer prepayments and other current liabilities 5,974,953 6,923,147 ---------- ---------- Total current liabilities 17,584,416 21,606,155 Long-term debt 522,550 745,616 Estimated cemetery and finishing costs 4,901,105 4,761,113 Postretirement benefits 19,318,720 18,584,826 Deferred revenue and other liabilities 2,709,505 2,553,266 Shareholders' equity: Common stock: Class A, par value $1.00 2,353,590 1,380,000 Class B, par value $1.00 6,496,760 7,470,350 Other shareholders' equity 70,234,663 62,512,918 ---------- ---------- 79,085,013 71,363,268 ----------- ----------- Total liabilities and shareholders' equity $124,121,309 $119,614,244 =========== =========== /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended March 31, March 31, ------------------------- -------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Sales $ 42,085,583 $ 39,734,580 $ 82,171,388 $ 77,715,907 Cost of sales 23,180,292 22,037,614 44,902,530 42,940,693 Selling and administrative expenses 12,555,911 11,411,244 24,555,784 22,289,534 ---------- ---------- ---------- ---------- Operating profit 6,349,380 6,285,722 12,713,074 12,485,680 Interest expense 21,824 98,883 40,365 190,690 Other (income) & deductions, net (356,083) (11,325) (526,413) (103,718) ---------- ---------- ---------- ---------- Income before income taxes 6,683,639 6,198,164 13,199,122 12,398,708 Income taxes (1) 2,603,011 2,482,016 5,208,829 5,065,720 ---------- ---------- ---------- ---------- Net income $ 4,080,628 $ 3,716,148 $ 7,990,293 $ 7,332,988 ========== ========== ========== ========== Earnings per share (4) $ .46 $ .42 $ .90 $ .80 ===== ===== ===== ===== Dividends per share (4) $ .06 $ .01 $ .12 $ .02 ===== ===== ===== ===== Weighted average number of common shares outstanding (4) 8,850,350 8,832,195 8,850,350 9,130,590 ========= ========= ========= ========= /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, -------------------------- 1995 1994 ---- ---- Cash flows from operating activities: Net Income $ 7,990,293 $ 7,332,988 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,286,393 2,048,018 Deferred taxes (344,600) (289,532) Net increase in certain working capital items (3,400,848) (1,863,073) Increase in accounts receivable, noncurrent (11,448) (95,079) (Increase) decrease in cemetery inventory (2,893) 27,356 Decrease in other noncurrent assets 22,840 (765,680) Increase in estimated finishing and cemetery costs 139,992 228,253 Decrease in deferred revenue and expenses and other liabilities (39,270) (7,906) Increase in postretirement benefits 733,894 499,226 Net loss on sale of property, plant and equipment 20,659 20,896 Effect of exchange rate changes on operations 196,861 383,871 ---------- --------- Net cash provided by operating activities 7,591,873 7,519,338 ---------- --------- Cash flows from investing activities: Acquisitions of property, plant and equipment (2,329,309) (1,951,216) Proceeds from disposals of property, plant and equipment 19,264 15,787 Collections on loans to officers and employees 692,636 381,623 --------- --------- Net cash used in investing activities (1,617,409) (1,553,806) --------- --------- Cash flows from financing activities: Payments on long-term debt (207,909) (3,314,342) Proceeds from the sale of treasury stock - 104,579 Purchases of treasury stock - (6,100,893) Dividends paid (1,061,647) (188,791) --------- --------- Net cash used in financing activities (1,269,556) (9,499,447) --------- --------- Effect of exchange rate changes on cash and cash equivalents (44,205) 9,783 --------- --------- Net increase (decrease) in cash and cash equivalents $ 4,660,703 $(3,524,132) ========= ========= Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 40,365 $ 190,690 Income Taxes 5,640,294 4,395,148 /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1995 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 39.5% 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 and six-month periods ended March 31, 1995 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, certain 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 if not exercised. 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. Six months ended Years ended March 31, September 30, ------------------ -------------------- 1995 1994 1994 1993 1992 ---- ---- ---- ---- ---- Sales 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 45.4 44.7 45.1 42.4 43.5 Operating profit 15.5 16.1 15.1 11.6 12.0 Income before income taxes 16.1 16.0 14.9 11.0(1) 12.0 Net income 9.7 9.4 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 six months ended March 31, 1995 were $82.2 million and were $4.5 million, or 5.7%, higher than sales of $77.7 million for the first six months of fiscal 1994. The increase for the first six 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 12.2% over the first six months of fiscal 1994. The increase in this segment's sales is the result of higher sales volume, principally in Europe and Australia. Bronze segment sales for the first six months of fiscal 1995 were up 5.3% over the same period of fiscal 1994 reflecting improvements in both selling price and unit volume. Graphic Systems sales for the first six months of fiscal 1995 were up only slightly over the first six months of fiscal 1994 as both sales volume and unit prices were relatively consistent with the prior year. The Graphic Systems sales volume also reflected a temporary decline in demand for printing plates used in the corrugated packaging industry. Gross profit for the six months ended March 31, 1995 was $37.3 million, or 45.4% of sales, compared to $34.8 million, or 44.7%, for the first six months of fiscal 1994. The increase in gross profit of $2.5 million, or 7.2%, and the increased percentage of gross profit to sales for the first six months of fiscal 1995 were attributable principally to the higher sales levels of each of the Company's segments and a reduction in certain employee benefit expenses and other overhead costs for the period offset partially by increased prices for certain raw materials. Selling and administrative expenses for the six months ended March 31, 1995 were $24.6 million, representing an increase of $2.3 million, or 10.2%, from $22.3 million for the first six months of fiscal 1994. Selling and administrative expenses increased in connection with higher sales for the period and also reflected an increase in domestic advertising costs of the Marking Products segment combined with higher selling expenses in Australia and Operating profit for the six months ended March 31, 1995 was $12.7 million and was $227,000, or 1.8%, higher than operating profit of $12.5 million for the first six months of fiscal 1994. Increased sales and related gross profit in the Bronze and Marking Products segments were the primary factors contributing to the higher operating profit level offset partially by an increase in consolidated selling and administrative expenses. Interest expense for the six months ended March 31, 1995 was approximately $40,000, compared to $191,000 for the first six 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 six months ended March 31, 1995 resulted in a $526,000 increase in income before income taxes compared a $104,000 increase for the first six months of fiscal 1994. Other income and deductions (net) for the first six months of fiscal 1995 primarily reflected an increase in interest income as a result of a higher cash position during the current period and an increase in interest rates. The Company's effective tax rate for the first six months of fiscal 1995 was 39.5%, compared to 40.8% for the year ended September 30, 1994. The lower 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 $7.6 million for the six months ended March 31, 1995, compared to $7.5 million for the first six months of fiscal 1994. Operating cash flow for the first six months of both fiscal 1995 and 1994 was primarily generated by the Company's net income of $8.0 million and $7.3 million, respectively. Cash used in investing activities approximated $1.6 million for the six months ended March 31, 1995, representing an increase of $64,000 over the same period a year ago. Capital expenditures for the six months ended March 31, 1995 amounted to $2.3 million, compared to capital expenditures of $2.0 million for the same period in fiscal 1994. The increase is due primarily to an increase in the capital budget for fiscal 1995 and the timing of capital spending projects in comparison to the prior period. The capital budget of the Company for fiscal 1995 is $12.0 million. Capital spending for property, plant and equipment has averaged approximately $6.4 million for the last three fiscal years. 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, 1995 was $1.3 million reflecting the payment of dividends ($.12 per share for the six month period) and repayments under the Company's capital lease agreements. Cash used in financing activities in the first six months of fiscal 1994 was $9.5 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 first six months of fiscal 1994 were $.02 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 March 31, 1995. As of such date, the Company's outstanding long-term debt, which consisted of capital lease obligations, was $961,000. At March 31, 1995 and September 30, 1994 and 1993, the Company's current ratio was 3.8, 2.9 and 3.0, respectively. The Company had cash and cash equivalents at March 31, 1995 and September 30, 1994 of $28.9 million and $24.3 million, respectively. Net working capital at March 31, 1995 was $49.0 million. The Company believes that its current liquidity sources, combined with its operating cash flow and additional borrowing capacity, are presently sufficient to meet its capital needs (excluding acquisitions) 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, certain 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 if not exercised. Other Matters The Company recently announced the appointment of David M. Kelly as President and Chief Operating Officer of Matthews International Corporation. Prior to the appointment, this position had been vacant. Mr. Kelly joins Matthews International Corporation following a 22-year career with Carrier Corporation where he was most recently responsible for worldwide operations of its PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Shareholders of Matthews International Corporation was held on February 17, 1995. Total shares eligible for vote at such meeting were: Class A Common Stock (one vote per share) 1,380,000 shares Class B Common Stock (ten votes per share) 7,470,350 shares The matters voted upon at such meeting were as follows: 1. Election of Directors The following individuals were nominated for election to the Board of Directors for terms expiring at the Annual Meeting of Shareholders in the year as set forth below. All nominations were made by the Board of Directors and no other nominations were made by any shareholder. All nominees had currently been members of the Board of Directors at the date of the Annual Meeting. Votes ----------------------------- Term Withhold Nominee Expiration For Authority ------- ---------- ----------- ----------- G.D. Barefoot 1997 65,384,155 1,172,700 R.T. Busteed 1996 65,382,455 1,174,400 W.A. Coates 1998 64,268,755 2,288,100 D.J. DeCarlo 1998 65,381,255 1,175,600 W.M. Hauber 1998 63,841,105 2,715,750 T.N. Kennedy 1997 65,383,955 1,172,900 G.C. Oehmler 1996 64,043,635 2,513,220 J.P. O'Leary, Jr. 1998 65,384,455 1,172,400 J.L. Parker 1996 65,383,955 1,172,900 W.J. Stallkamp 1997 65,246,755 1,310,100 2. Approval of the 1994 Director Fee Plan At its meeting held December 9, 1994, the Board of Directors adopted and recommended for shareholder approval a fee plan for outside directors. The shareholders voted to adopt this plan, which will replace the existing fee arrangement. Votes For: 57,873,589 Votes Against: 6,120,455 Abstaining: 2,049,472 Broker Non-Votes: 513,339 3. Approval of the 1994 Employee Stock Purchase Plan At its meeting held December 9, 1994, the Board of Directors adopted and recommended for shareholder approval the 1994 Employee Stock Purchase Plan to replace existing Employee Stock Purchase Plan. The shareholders voted to adopt this plan. Votes For: 63,715,865 Votes Against: 1,343,850 Abstaining: 980,510 Item 4. Submission of Matters to a Vote of Security Holders, continued 4. Selection of Auditors The shareholders voted to ratify the appointment by the Board of Directors of Coopers & Lybrand as independent certified public accountants to audit the records of the Company for the year ending September 30, 1995. Votes For: 64,530,573 Votes Against: 601,070 Abstaining: 1,425,212 Item 5. Other Information At its meeting held March 10, 1995, the Board of Directors increased the size of the full Board from 10 to 11 persons. Effective April 3, 1995, David M. Kelly was appointed to fill the vacancy thereby created. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following Exhibits to this report are filed herewith: Exhibit No. Description ------- ----------- 10.1 1994 Director Fee Plan 10.2 1994 Employee Stock Purchase Plan (b) Reports on Form 8-K A Form 8-K current report was filed by the Company on February 21, 1995 reporting under "Item 5 - Other Events," 1. Matthews International Corporation (the "Company") adds the following exhibits to Item 8 of its Form S-8 (the "Form S-8") Registration Statement (Registration No. 2-48760) for its Employees' Stock Purchase Plan (the "Plan"): Exhibit No. Description ----------- -------------------------------------------------- 4.1 Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit Number 3.1 to Form 10-K for the year ended September 30, 1994 4.2 By-Laws of the Company, incorporated by reference to Exhibit 3.2 to Form 10-K for the year ended September 30, 1994 Item 6. Exhibits and Reports on Form 8-K, continued (b) Reports on Form 8-K, continued 2. On July 20, 1994, the Company's Restated Articles of Incorporation (the "Restated Articles") were filed with the Commonwealth of Pennsylvania thereby converting each share of the Company's then outstanding Common Stock, par value $.10 per share, into 15 shares of Class B Common Stock, par value $1.00 per share (the "Class B Common Stock"). The Restated Articles also authorized the issuance of Class A Common Stock, par value $1.00 per share (the "Class A Common Stock"). Either Class A Common Stock or Class B Common Stock can be issued under the Plan. A description of the Class A Common Stock containing the information required by Item 202 of Regulation S-K is incorporated herein by reference to the Company's filed Registration Statement on Form 8-A dated July 8, 1994. A description of the Company's Class B Common Stock containing the information required by Item 202 of Regulation S-K is incorporated herein by reference to the "Description of Capital Stock" contained in Amendment No. 2 to the Company's Registration Statement on Form S-2 (No. 33-79538) filed with the Securities and Exchange Commission on July 8, 1994. These descriptions of Class A Common Stock and Class B Common Stock, along with any amendment to or restatement of such descriptions hereafter filed by the Company, are incorporated into the Form S-8. 3. The description of Class B Common Stock set forth in No. 2 above also updates and replaces the description of the Company's Common Stock contained in any previous Registration Statement filed by the Company under the Securities Exchange Act of 1934, as amended. 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 5/10/95 T.N. Kennedy ------------- ------------------------------------- T. N. Kennedy, Senior Vice President, Chief Financial Officer and Treasurer Date 5/10/95 J.L. Parker ------------- ------------------------------------- J. L. Parker, Senior Vice President, General Counsel and Secretary