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, 2000
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, 2001
Class A - $1.00 par value 13,427,029 shares
Class B - $1.00 par value 1,952,937 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 2000 September 30, 2000
------------------------ ------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,298,645 $ 29,150,118
Short-term investments 3,286,228 1,321,226
Accounts receivable, net 45,649,903 44,818,961
Inventories: Materials and finished goods $ 15,320,704 $ 14,927,664
Labor and overhead in process 1,549,673 1,498,130
Supplies 396,828 423,652
---------- ----------
17,267,205 16,849,446
Other current assets 2,754,105 2,693,039
---------- ----------
Total current assets 87,256,086 94,832,790
Investments 21,261,911 14,802,809
Property, plant and equipment: Cost 96,686,733 94,107,498
Less accumulated depreciation (48,293,528) (45,640,252)
---------- ----------
48,393,205 48,467,246
Deferred income taxes and other assets 14,653,633 13,850,559
Goodwill, net of accumulated amortization 52,161,117 48,712,046
----------- -----------
Total assets $223,725,952 $220,665,450
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 3,569,733 3,478,218
Accounts payable 10,889,709 10,075,166
Accrued compensation 11,120,967 16,729,194
Accrued income taxes 2,830,606 270,124
Customer prepayments 6,148,556 5,874,352
Other current liabilities 10,437,224 10,405,088
---------- ----------
Total current liabilities 44,996,795 46,832,142
Long-term debt 14,553,586 13,908,448
Estimated finishing costs 4,156,860 4,071,884
Postretirement benefits 18,893,064 18,991,385
Other liabilities 9,996,234 10,005,882
Shareholders' equity:
Common stock 18,166,996 18,166,996
Retained earnings 180,580,339 174,689,060
Accumulated other comprehensive income (loss) (8,461,856) (9,177,176)
Notes receivable (2,500) (6,596)
Treasury stock, at cost (59,153,566) (56,816,575)
----------- -----------
131,129,413 126,855,709
----------- -----------
Total liabilities and shareholders' equity $223,725,952 $220,665,450
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
December 31,
--------------------------
2000 1999
---- ----
Sales $ 66,555,827 $ 64,696,938
Cost of sales 38,395,409 36,673,063
----------- -----------
Gross profit 28,160,418 28,023,875
Selling and
administrative expenses 16,686,631 17,638,148
----------- -----------
Operating profit 11,473,787 10,385,727
Investment income 639,377 455,677
Interest expense (361,796) (408,269)
Other income (deductions), net (92,993) (20,214)
Minority interest (588,502) (408,107)
----------- -----------
Income before income taxes 11,069,873 10,004,814
Income taxes 4,328,227 3,921,537
----------- -----------
Net income $ 6,741,646 $ 6,083,277
=========== ===========
Basic earnings per share $ .44 $ .39
===== =====
Diluted earnings per share $ .43 $ .38
===== =====
Dividends per share $ .05 $.0475
===== =====
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31,
--------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 6,741,646 $ 6,083,277
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,947,229 3,097,754
Change in deferred taxes (23,065) 14,737
Changes in working capital items (2,787,789) 213,923
Increase in other assets (863,490) (57,769)
Increase in estimated finishing costs 84,976 58,124
Increase (decrease) in other liabilities (9,648) (444,844)
Decrease in postretirement benefits (98,321) (103,012)
Net loss on sale of assets 10,400 18,400
Net (gain) loss on investments 14,516 9,672
Effect of exchange rate changes on operations (41,717) 853,476
---------- ----------
Net cash provided by operating activities 5,974,737 9,743,738
---------- ----------
Cash flows from investing activities:
Capital expenditures (1,546,709) (2,361,859)
Proceeds from sale of assets - 654
Acquisitions, net of cash acquired (3,728,771) -
Purchases of investment securities (10,715,329) (6,177,991)
Proceeds from disposition of investment securities 2,514,089 -
Collections on loans to officers and employees 4,096 18,415
---------- ----------
Net cash used in investing activities (13,472,624) (8,520,781)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 37,152 177,143
Payments on long-term debt (513,625) (1,444,080)
Proceeds from the sale of treasury stock 37,786 4,683
Purchases of treasury stock (2,457,246) (1,381,224)
Dividends (767,898) (740,497)
---------- ----------
Net provided by (cash used) in financing activities (3,663,831) (3,383,975)
---------- ----------
Effect of exchange rate changes on cash 310,245 (469,927)
---------- ----------
Net increase (decrease) in cash and cash equivalents $(10,851,473) $ (2,630,945)
========== ==========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
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 ended December 31, 2000 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 8).
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
DECEMBER 31, 2000
Note 2. Basis of Presentation, continued
Sales and cost of goods sold for the three months ended December 31, 1999 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 39.1% 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
December 31,
--------------------------
2000 1999
---- ----
Net income $ 6,741,646 $ 6,083,277
========== ==========
Weighted-average common
shares outstanding 15,446,077 15,631,086
Dilutive securities,
primarily stock options 273,830 370,375
---------- ----------
Diluted weighted-average
common shares outstanding 15,719,907 16,001,461
========== ==========
Basic earnings per share $ .44 $ .39
==== ====
Diluted earnings per share $ .43 $ .38
==== ====
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
DECEMBER 31, 2000
Note 5. Segment Information, continued
Information about the Company's segments follows:
Three Months Ended
December 31,
--------------------------
2000 1999
---- ----
Sales to external customers:
Graphics Imaging $ 23,537,469 $ 23,035,926
Marking Products 7,996,128 8,370,681
Bronze 35,022,230 33,290,331
----------- -----------
$ 66,555,827 $ 64,696,938
=========== ===========
Operating profit:
Graphics Imaging $ 2,590,445 $ 1,763,551
Marking Products 1,740,020 1,611,835
Bronze 7,143,322 7,010,341
----------- -----------
$ 11,473,787 $ 10,385,727
=========== ===========
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-month periods ended
December 31, 2000 and 1999, comprehensive income was $7,456,966 and
$5,580,717, respectively.
Note 7. Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 outlines basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company will be
required to implement SAB No. 101 in the fourth quarter of fiscal 2001. The
provisions of SAB No. 101 are not expected to have a material impact on the
Company's consolidated financial statements.
Note 8. Subsequent Event
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz. Net
proceeds to Matthews from the sale, after the repayment of intercompany debt,
were approximately $10.0 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.
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.
Three months ended Years ended
December 31, September 30,
------------------ --------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 42.3 43.3 44.2 42.3 43.2
Operating profit 17.2 16.1 17.9 16.8 16.7
Income before income taxes 16.6 15.5 17.2 17.0 17.2
Net income 10.1 9.4 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 three months ended December 31, 2000 were $66.6 million and were
$1.9 million, or 2.9%, higher than sales of $64.7 million for the three months
ended December 31, 1999. Bronze segment sales in the fiscal 2001 first
quarter were $35.0 million, or 5%, higher than the first three months of
fiscal 2000, primarily reflecting an increase in mausoleum construction
revenues and the acquisition of The SLN Group, Inc. (October 2000). Fiscal
2001 first quarter sales for the Graphics Imaging segment were $23.5 million,
representing an increase of 2% over the same period a year ago. The increase
primarily reflected the Company's recent acquisitions of Repro-Busek GmbH
(August 2000) and Press Ready Plate, Inc. (November 2000). Marking Products
segment sales for the three months ended December 31, 2000 were $8.0 million,
compared to $8.4 million for the first quarter of fiscal 2000. The decline
was mainly due to lower exports coupled with a slow-down in capital goods
purchases domestically. Declines in foreign currency values against the U.S.
dollar had an unfavorable impact of approximately $1.9 million on consolidated
sales compared to the same period a year ago.
Results of Operations, continued:
Gross profit for the three months ended December 31, 2000 was $28.2 million,
compared to $28.0 million for the first three months of fiscal 2000. The
increase in consolidated gross profit reflected growth in the Company's
consolidated sales offset partially by a change in product mix within the
Bronze segment. Gross margins on mausoleum construction revenues are
generally lower than the segment's memorial products. Consolidated gross
profit as a percent of sales for the three months ended December 31, 2000
declined to 42.3%, compared to 43.3% for the same period a year ago,
reflecting the change in product mix within the Bronze segment.
Selling and administrative expenses for the three months ended December 31,
2000 were $16.7 million, representing a decrease of $1.0 million, or 5.4%,
compared to the same period a year ago. Selling and administrative expenses
declined in all three of the Company's business segments reflecting 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. Consolidated selling and administrative expenses as a
percent of sales was 25.1% for the first three months of fiscal 2001 compared
to 27.3% for the same period a year ago.
Operating profit for the quarter ended December 31, 2000 was $11.5 million,
representing an increase of $1.1 million, or 10.5%, over an operating profit
of $10.4 million for the first three months of fiscal 2000. Graphics Imaging
operating profit for the first quarter of fiscal 2001 was $2.6 million,
representing an increase of 47% over the same period last year. The increase
was due to a combination factors including cost control initiatives
implemented in fiscal 2000, contributions from the segment's recent
acquisitions and higher profitability of the Company's 50%-owned affiliates,
Tukaiz Communications, L.L.C. ("Tukaiz") and O.N.E. Color Communications
L.L.C. Bronze segment operating profit for the first three months of fiscal
2001 was $7.1 million, compared to $7.0 million for the same period a year
ago. The current period reflected higher mausoleum construction revenues,
which generally have lower margins than the segment's memorial products.
Operating profit for the Marking Products segment for the three months ended
December 31, 2000 was $1.7 million, compared to $1.6 million for the same
period a year ago. Despite a decline in sales for the quarter, the segment
reported an increase in operating profit as a result of lower material costs
combined with reductions in selling and administrative costs. Declines in
foreign currency values against the U.S. dollar had an unfavorable impact of
approximately $300,000 on consolidated operating profit compared to the same
period a year ago.
Investment income for the first three months of fiscal 2001 was $639,000
compared to $456,000 for the first quarter of fiscal 2000. The increase
reflected a higher average rate of return on the Company's invested funds.
Interest expense for the three months ended December 31, 2000 was $362,000,
compared to $408,000 for the first three months of fiscal 2000. The decline
in interest expense compared to the same period last year principally
reflected lower average outstanding debt balances as a result of repayments.
Other income (deductions), net, for the fiscal 2001 first quarter represented
a reduction to pre-tax income of $93,000, compared to a reduction of $20,000
for the first three months of fiscal 2000. Minority interest for the first
three months of fiscal 2001 was $589,000 compared to $408,000 for the same
period a year ago. The higher minority interest deduction for the current
period resulted from higher operating results of Tukaiz.
Results of Operations, continued:
The Company's effective tax rate for the first three months of fiscal 2001 was
39.1%, compared to 39.2% for the year ended September 30, 2000. 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.
Liquidity and Capital Resources:
Net cash provided by operating activities was $6.0 million for the three
months ended December 31, 2000, compared to $9.7 million for the first three
months of fiscal 2000. Operating cash flow for both periods primarily
reflected net income adjusted for depreciation and amortization (non-cash
expenses). Operating cash flow for the current period also reflected a higher
level of payments on year-end compensation accruals compared to the same
period a year ago.
Cash used in investing activities was $13.5 million for the three months ended
December 31, 2000, compared to $8.5 million for the first three months of
fiscal 2000. Investing activities for the current period reflected capital
expenditures of $1.5 million, net purchases of investment securities of
$8.2 million and cash payments of $3.7 million in connection with the
acquisitions of The SLN Group, Inc. (October 2000) and Press Ready Plate, Inc.
(November 2000). Investing activities for the first three months of fiscal
2000 included capital expenditures of $2.4 million and net purchases of
investment securities of $6.2 million. Investment securities, which primarily
consisted of corporate obligations and U.S. government securities, were
purchased to obtain a better rate of return on the Company's excess cash.
Capital spending for property, plant and equipment has averaged $9.4 million
for the last three fiscal years. The capital budget of the Company for fiscal
2001 is $11.0 million. The Company expects to generate sufficient cash from
operations to fund all anticipated capital spending projects.
Cash used in financing activities for the three months ended December 31, 2000
was $3.7 million, consisting of net treasury stock purchases of $2.4 million,
net repayments of $476,000 on long-term debt, and dividend payments of
$768,000 to the Company's shareholders. Cash provided by financing activities
was $3.4 million for the three months ended December 31, 1999 consisting
principally of net treasury stock purchases of $1.4 million, net repayments of
$1.3 million on long-term debt, and the dividend payments of $740,000. The
Company had available lines of credit with U.S. and Canadian banks of
approximately $12 million at December 31, 2000.
At December 31, 2000 and September 30, 2000 and 1999, the Company's current
ratio was 1.9, 2.0 and 1.6, respectively. The Company had cash and cash
equivalents at December 31, 2000 and September 30, 2000 of $18.3 million and
$29.2 million, respectively. Net working capital at December 31, 2000 and
September 30, 2000 was $42.3 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 October 21, 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. On November 21, 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.
Subsequent Events:
On January 19, 2001, Matthews sold its fifty percent interest in Tukaiz. Net
proceeds to Matthews from the sale, after the repayment of intercompany debt,
approximated $10.0 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.
Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 outlines basic
criteria that must be met to recognize revenue and provides guidance for
disclosure related to revenue recognition policies. The Company will be
required to implement SAB No. 101 in the fourth quarter of fiscal 2001. The
provisions of SAB No. 101 are not expected to have a material impact on the
Company's consolidated financial statements.
Sales and cost of goods sold for the three months ended December 31, 1999 have
been adjusted in accordance with Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," to reflect the
reclassification of shipping costs billed to customers.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibit to this report is filed herewith:
Exhibit
No. Description
------- -----------
27 Financial Data Schedule (via EDGAR)
(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 2/13/01 D.M. Kelly
------------ -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 2/13/01 E.J. Boyle
------------ -----------------------------------------
E.J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary