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, 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 July 31, 1995 Class A - $1.00 par value 3,720,043 shares Class B - $1.00 par value 5,130,307 shares PART I - FINANCIAL INFORMATION MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1995 September 30, 1994 ------------- ------------------ ASSETS Current assets: Cash and cash equivalents $ 34,231,054 $ 24,264,967 Accounts and notes receivable, net 26,040,344 27,122,619 Inventories: Materials and finished goods $ 9,986,232 $ 8,697,118 Labor and overhead in process 815,099 764,219 Supplies 600,176 540,557 Less LIFO reserve (241,530) (241,530) ---------- ---------- 11,159,977 9,760,364 Other current assets 932,453 1,469,040 ---------- ---------- Total current assets 72,363,828 62,616,990 Accounts receivable, noncurrent 1,440,315 1,402,129 Property, plant and equipment: Cost 63,315,422 60,070,477 Less accumulated depreciation (23,979,085) (21,821,201) ---------- ---------- 39,336,337 38,249,276 Deferred income taxes and other assets 12,658,933 11,565,822 Goodwill 5,239,874 5,780,027 ----------- ----------- Total assets $131,039,287 $119,614,244 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current maturities 446,201 423,263 Accounts payable 4,937,185 4,699,634 Accrued compensation 7,040,741 8,311,734 Accrued income taxes 793,174 1,248,377 Customer prepayments and other current liabilities 6,611,050 6,923,147 ---------- ---------- Total current liabilities 19,828,351 21,606,155 Long-term debt 408,039 745,616 Estimated cemetery and finishing costs 5,042,459 4,761,113 Postretirement benefits 19,787,557 18,584,826 Deferred revenue and other liabilities 2,683,220 2,553,266 Shareholders' equity: Common stock: Class A, par value $1.00 3,308,378 1,380,000 Class B, par value $1.00 5,541,972 7,470,350 Other shareholders' equity 74,439,311 62,512,918 ---------- ---------- 83,289,661 71,363,268 ----------- ----------- Total liabilities and shareholders' equity $131,039,287 $119,614,244 =========== =========== /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------- ------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Sales $ 42,729,909 $ 40,644,593 $124,901,297 $118,360,500 Cost of sales 23,588,458 22,521,719 68,490,988 65,462,412 Selling and administrative expenses 12,783,734 12,182,893 37,339,518 34,472,427 ---------- ---------- ---------- ---------- Operating profit 6,357,717 5,939,981 19,070,791 18,425,661 Interest expense 23,977 62,331 64,342 253,021 Other (income) & deductions, net (356,900) (67,269) (883,313) (170,987) ---------- ---------- ---------- ---------- Income before income taxes 6,690,640 5,944,919 19,889,762 18,343,627 Income taxes (1) 2,548,264 2,554,288 7,757,093 7,620,008 ---------- ---------- ---------- ---------- Net income $ 4,142,376 $ 3,390,631 $ 12,132,669 $ 10,723,619 ========== ========== ========== ========== Earnings per share $ .47 $ .39 $ 1.37 $ 1.20 ===== ===== ===== ===== Dividends per share $ .06 $ .01 $ .18 $ .03 ===== ===== ===== ===== Weighted average number of common shares outstanding 8,850,350 8,642,700 8,850,350 8,967,900 ========= ========= ========= ========= /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, -------------------------- 1995 1994 ---- ---- Cash flows from operating activities: Net Income $12,132,669 $10,723,619 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,538,786 3,125,658 Deferred taxes (542,609) (490,198) Net increase in certain working capital items (1,588,540) (1,019,557) Increase in accounts receivable, noncurrent (38,186) (130,581) (Increase) decrease in cemetery inventory (294,455) 38,851 Decrease in other noncurrent assets 49,889 (772,558) Increase in estimated finishing and cemetery costs 281,346 329,298 Decrease in deferred revenue and expenses and other liabilities (168,935) 230,217 Increase in postretirement benefits 1,202,731 757,902 Net loss on sale of property, plant and equipment 51,049 56,750 Effect of exchange rate changes on operations 312,707 505,464 ----------- ---------- Net cash provided by operating activities 14,936,452 13,354,865 ----------- ---------- Cash flows from investing activities: Acquisitions of property, plant and equipment (4,361,903) (2,862,077) Proceeds from disposals of property, plant and equipment 50,758 25,900 Collections on loans to officers and employees 1,278,382 521,884 --------- ---------- Net cash used in investing activities (3,032,763) (2,314,293) --------- ---------- Cash flows from financing activities: Payments on long-term debt (314,639) (3,724,100) Proceeds from the sale of treasury stock - 642,752 Purchases of treasury stock - (7,459,086) Dividends paid (1,592,609) (276,301) --------- ---------- Net cash used in financing activities (1,907,248) (10,816,735) --------- ---------- Effect of exchange rate changes on cash and cash equivalents (30,354) 34,814 --------- ---------- Net increase (decrease) in cash and cash equivalents $ 9,966,087 $ 258,651 ========= ========== Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 64,342 $ 253,021 Income Taxes 8,754,905 7,999,637 /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 39.0% 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 nine-month periods ended June 30, 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. During fiscal 1995, 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 477,500 shares of the Company's Class A Common Stock. On December 9, 1994, options to purchase 377,500 shares were granted at an exercise price of $14.25 per share. Of these grants, options to purchase 53,667 shares had been cancelled by July 31, 1995. On May 19, 1995, options to purchase 100,000 shares were granted at an exercise price of $16.375 per share. The outstanding options are exercisable in various share amounts based on the attainment of certain market value levels of Class A Common Stock, but, in the absence of such events, are exercisable in full for a one-week period beginning five years from the date of grant. The options are not exercisable within six months from the date of grant and expire ten years from the date of grant if not exercised. 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. Nine months ended Years ended June 30, September 30, ----------------- -------------------- 1995 1994 1994 1993 1992 ---- ---- ---- ---- ---- Sales 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 45.2 44.7 45.1 42.4 43.5 Operating profit 15.3 15.6 15.1 11.6 12.0 Income before income taxes 15.9 15.5 14.9 11.0(1) 12.0 Net income 9.7 9.1 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 nine months ended June 30, 1995 were $124.9 million and were $6.5 million, or 5.5%, higher than sales of $118.4 million for the first nine months of fiscal 1994. The first nine months of fiscal 1995 reflected an increase in sales for the Company's Marking Products and Bronze segments. Sales in the Marking Products segment increased 10.9% over the first nine months of fiscal 1994. The increase in this segment's sales is the result of higher sales volume, principally reflecting increased demand in Europe and Australia. Bronze segment sales for the first nine months of fiscal 1995 were up 6.8% over the same period a year ago reflecting an increase in unit volume and improvements in selling price. Graphic Systems sales for the first nine months of fiscal 1995 were slightly below the first nine months of fiscal 1994 reflecting lower demand for printing plates used by the corrugated packaging industry. This reduction in demand is expected to be temporary and has been precipitated by a shortage of linerboard and unprecedented price increases for corrugated shipping containers. Gross profit for the nine months ended June 30, 1995 was $56.4 million, or 45.2% of sales, compared to $52.9 million, or 44.7%, for the first nine months of fiscal 1994. The increase in gross profit of $3.5 million, or 6.6%, and higher percentage of gross profit to sales for the first nine months of fiscal 1995 resulted primarily from higher sales levels in the Marking Products and Bronze segments. Improvements in operating efficiency and a reduction in certain employee benefit expenses and other overhead costs for the period also contributed to the higher gross profit but were offset partially by increased prices for certain raw materials. Selling and administrative expenses for the nine months ended June 30, 1995 were $37.3 million, representing an increase of $2.8 million, or 8.3%, from $34.5 million for the first nine months of fiscal 1994. Selling and administrative expenses rose proportionate with the higher sales for the period and also reflected increased sales promotional costs for the Bronze segment and Operating profit for the nine months ended June 30, 1995 was $19.1 million and was $645,000, or 3.5%, higher than operating profit of $18.4 million for the first nine months of fiscal 1994. Increased sales and related gross profit in the Marking Products and Bronze 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 nine months ended June 30, 1995 was approximately $64,000, compared to $253,000 for the first nine 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 nine months ended June 30, 1995 resulted in a $883,000 increase in income before income taxes compared to a $171,000 increase for the first nine months of fiscal 1994. Other income and deductions (net) for the first nine 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 nine months of fiscal 1995 was 39.0%, 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 $14.9 million for the nine months ended June 30, 1995, compared to $13.4 million for the first nine months of fiscal 1994. Operating cash flows for the first nine months of both fiscal 1995 and 1994 were primarily generated by the Company's net income of $12.1 million and $10.7 million, respectively. Cash used in investing activities approximated $3.0 million for the nine months ended June 30, 1995 compared to $2.3 million for the same period a year ago. Capital expenditures for the nine months ended June 30, 1995 amounted to $4.4 million, representing an increase of $1.5 million over capital expenditures of $2.9 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 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. Partially offsetting capital expenditures were collections on loans to officers and employees which amounted to $1.3 million for the nine months ended June 30, 1995 compared to $522,000 for the same period a year ago. Cash used in financing activities for the nine months ended June 30, 1995 was $1.9 million reflecting the payment of dividends ($.18 per share for the nine month period) and repayments under the Company's capital lease agreements. Cash used in financing activities in the first nine months of fiscal 1994 was $10.8 million which primarily consisted of repayments under the Company's Term Loan Agreement and treasury stock redemptions under the Employees' Stock Purchase Plan. Dividends for the first nine months of fiscal 1994 were $.03 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 June 30, 1995. As of such date, the Company's outstanding long-term debt, which consisted of capital lease obligations, was $854,000. At June 30, 1995 and September 30, 1994 and 1993, the Company's current ratio was 3.6, 2.9 and 3.0, respectively. The Company had cash and cash equivalents at June 30, 1995 and September 30, 1994 of $34.2 million and $24.3 million, respectively. Net working capital at June 30, 1995 was $52.5 million. The Company believes that its current liquidity sources, combined with its operating cash flow and additional borrowing capacity, are presently more than adequate 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. During fiscal 1995, 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 477,500 shares of the Company's Class A Common Stock. On December 9, 1994, options to purchase 377,500 shares were granted at an exercise price of $14.25 per share. Of these grants, options to purchase 53,667 shares had been cancelled by July 31, 1995. On May 19, 1995, options to purchase 100,000 shares were granted at an exercise price of $16.375 per share. The outstanding options are exercisable in various share amounts based on the attainment of certain market value levels of Class A Common Stock, but, in the absence of such events, are exercisable in full for a one-week period beginning five years from the date of grant. The options are not exercisable within six months from the date of grant and expire ten years from the date of grant if not exercised. 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 ------- ----------- 11 Computation of Earnings Per Share (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 8/7/95 T.N. Kennedy ------------- ------------------------------------- T. N. Kennedy, Senior Vice President, Chief Financial Officer and Treasurer Date 8/7/95 J.L. Parker ------------- ------------------------------------- J. L. Parker, Senior Vice President, General Counsel and Secretary