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, 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 January 31, 2002
Class A - $1.00 par value 30,299,967 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(dollar amounts in thousands, except share data)
December 31, 2001 September 30, 2001
------------------------ ------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 44,686 $ 28,691
Short-term investments 4,517 240
Accounts receivable, net 64,746 52,086
Inventories: Materials and finished goods $ 24,629 $ 16,816
Labor and overhead in process 1,471 1,520
Supplies 654 437
---------- ----------
26,754 18,773
Other current assets 2,985 2,538
---------- ----------
Total current assets 143,688 102,328
Investments 4,548 18,048
Property, plant and equipment: Cost 125,272 95,418
Less accumulated depreciation (50,304) (46,409)
---------- ----------
74,968 49,009
Deferred income taxes and other assets 26,074 14,982
Goodwill, net of accumulated amortization 145,264 104,585
----------- -----------
Total assets $ 394,542 $ 288,952
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 4,164 5,023
Accounts payable 18,604 12,971
Accrued compensation 14,319 16,283
Accrued income taxes 9,660 4,962
Customer prepayments 5,491 6,130
Other current liabilities 23,941 21,170
---------- ----------
Total current liabilities 76,179 66,539
Long-term debt 125,935 40,726
Estimated finishing costs 7,470 7,401
Postretirement benefits 18,574 18,639
Other liabilities 16,700 11,931
Shareholders' equity:
Common stock 36,334 36,334
Retained earnings 191,826 184,845
Accumulated other comprehensive income (loss) (10,027) (8,983)
Treasury stock, at cost (68,449) (68,480)
----------- -----------
149,684 143,716
----------- -----------
Total liabilities and shareholders' equity $ 394,542 $ 288,952
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(dollar amounts in thousands, except share data)
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Sales $ 85,319 $ 66,556
Cost of sales 53,695 38,396
----------- -----------
Gross profit 31,624 28,160
Selling and
administrative expenses 18,297 16,686
----------- -----------
Operating profit 13,327 11,474
Investment income 813 639
Interest expense (804) (362)
Other income (deductions), net 56 (92)
Minority interest (655) (589)
----------- -----------
Income before income taxes 12,737 11,070
Income taxes 4,916 4,328
----------- -----------
Net income $ 7,821 $ 6,742
=========== ===========
Basic earnings per share $ .26 $ .22
===== =====
Diluted earnings per share $ .25 $ .21
===== =====
Dividends per share $.0263 $ .025
===== =====
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(dollar amounts in thousands, except share data)
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 7,821 $ 6,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,953 2,947
Change in deferred taxes (207) (23)
Changes in working capital items 750 (2,788)
Increase in other assets (691) (863)
Increase in estimated finishing costs 69 85
Decrease in other liabilities (357) (10)
Decrease in postretirement benefits (64) (98)
Net (gain) loss on sale of assets (6) 10
Net (gain) loss on investments (585) 15
---------- ----------
Net cash provided by operating activities 9,683 6,017
---------- ----------
Cash flows from investing activities:
Capital expenditures ( 1,686) (1,547)
Proceeds from sale of assets held for sale 445 -
Proceeds from sale of assets 10 -
Acquisitions, net of cash acquired (84,864) (3,729)
Purchases of investment securities (4,517) (10,715)
Proceeds from disposition of investment securities 13,713 2,514
Collections on loans to officers and employees - 4
---------- ----------
Net cash used in investing activities (76,899) (13,473)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 124,500 37
Payments on long-term debt (40,248) (514)
Proceeds from the sale of treasury stock 110 38
Purchases of treasury stock (124) (2,457)
Dividends (795) (768)
---------- ----------
Net cash provided by (used in) financing activities 83,443 (3,664)
---------- ----------
Effect of exchange rate changes on cash (232) 268
---------- ----------
Net increase (decrease) in cash and cash equivalents $ 15,995 $ (10,852)
========== ==========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except share data)
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 memorialization products and caskets for the cemetery and
funeral home industries, and custom-made products which are used to identify
people, places, products and events. The Company's products and operations
are comprised of four business segments: Bronze, Graphics Imaging, Marking
Products and York Casket. 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
primary packaging industries. The Marking Products segment designs,
manufactures and distributes a wide range of marking equipment and consumables
used by customers to identify various consumer and industrial products,
components and packaging containers. On December 3, 2001, the Company
acquired The York Group, Inc. ("York"), a manufacturer of caskets and casket
components in the United States (see Note 8). York will operate as a wholly-
owned subsidiary and separate segment of Matthews.
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, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2002.
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, 2001.
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.
In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Common Stock in the form of a 100% stock distribution.
Shareholders' equity has been adjusted for the stock split by reclassifying
from retained earnings to common stock the par value of the additional shares
arising from the split. All per share amounts and numbers of shares have been
adjusted in this report to reflect the stock split.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(dollar amounts in thousands, except share data)
Note 2. Basis of Presentation, continued
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.
Certain reclassifications have been made in the December 31, 2000 financial
statements to conform to the current period presentation.
Note 3. Long Term Debt
On December 3, 2001, the Company entered into a Revolving Credit Facility for
$125,000 with a syndicate of four financial institutions. Borrowings under
the facility, which matures on November 30, 2004, bear interest at LIBOR plus
a factor ranging from .75% to 1.5% based on the Company's leverage ratio. The
leverage ratio is defined as net indebtedness divided by EBITDA (earnings
before interest, taxes, depreciation and amortization). The Company is
required to pay an annual commitment fee ranging from .20% to .375% (based on
the Company's leverage ratio) of the unused portion of the facility. The
Revolving Credit Facility requires the Company to maintain minimum levels of
consolidated net worth and fixed charge and interest coverage ratios. A
portion of the facility (not to exceed $10,000) is available for the issuance
of trade and standby letters of credit. In addition, the facility provides
for an additional credit line for borrowings up to $10,000 at current market
rates. The Revolving Credit Facility replaced the existing Revolving Credit
and Term Loan Agreement. The Company borrowed $124,500 under the Revolving
Credit Facility on December 3, 2001 in connection with the acquisition of York
(see Note 8) and for the repayment of all amounts outstanding ($30,000) under
the Revolving Credit and Term Loan Agreement. Outstanding borrowings on the
Revolving Credit Facility at December 31, 2001 were $114,500. The weighted-
average interest rate on outstanding borrowings at December 31, 2001 was
3.16%.
The carrying amounts of the Company's borrowings under its financing
arrangements approximated their fair value.
Note 4. 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.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(dollar amounts in thousands, except share data)
Note 5. Earnings Per Share
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Net income $ 7,821 $ 6,742
========== ==========
Weighted-average common
shares outstanding 30,278,084 30,892,154
Dilutive securities,
primarily stock options 1,242,461 547,660
---------- ----------
Diluted weighted-average
common shares outstanding 31,520,545 31,439,814
========== ==========
Basic earnings per share $ .26 $ .22
==== ====
Diluted earnings per share $ .25 $ .21
==== ====
Note 6. Segment Information
The Company is organized into four business segments based on products and
services. The segments, which are Bronze, Graphics Imaging, Marking Products
and York Casket, 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
(dollar amounts in thousands, except share data)
Note 6. Segment Information, continued
Information about the Company's segments follows:
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Sales to external customers:
Graphics Imaging $ 22,667 $ 23,538
Marking Products 6,779 7,996
Bronze 44,371 35,022
York Casket 11,502 -
----------- -----------
$ 85,319 $ 66,556
=========== ===========
Operating profit:
Graphics Imaging $ 2,327 $ 2,591
Marking Products 864 1,740
Bronze 8,937 7,143
York Casket 1,199 -
----------- -----------
$ 13,327 $ 11,474
=========== ===========
Note 7. 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, 2001 and 2000, comprehensive income was $6,777 and $7,457,
respectively.
Note 8. Acquisition
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would 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 (as defined in the merger agreement) remaining on
York's balance sheet as of October 31, 2001. At December 3, 2001, there were
8,940,950 shares of York common stock outstanding. On December 3, 2001, the
transaction was completed at $11 per share generating approximately $40,000 in
goodwill. The acquisition of York, which is the second leading casket
manufacturer in the United States, is expected to expand Matthews' position in
the death care industry. York is expected to have annual sales of
approximately $130.0 million and will operate as a wholly-owned subsidiary and
separate segment of Matthews.
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(dollar amounts in thousands, except share data)
Note 8. Acquisition, continued
The following unaudited pro-forma information presents a summary of the
consolidated results of Matthews and York (including the Commemorative
Products business of York acquired by Matthews on May 24, 2001) as if the
acquisition had occurred on October 1, 2000:
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Sales $ 106,986 $ 108,672
Net Income 7,823 6,714
Earnings Per Share 0.25 0.21
These unaudited pro-forma results have been prepared for comparative purposes
only and include certain adjustments, such as interest expense on acquisition
debt. The pro-forma results include non-recurring property, plant and
equipment write-offs and plant closure and restructuring charges for York of
$1,270 and $1,924 for the three months ended December 31, 2001 and 2000,
respectively. 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.
Note 9. Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." 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. The Company adopted SFAS No. 142 in the first quarter of fiscal
2002. Management is currently performing an assessment of its existing
goodwill for impairment in accordance with SFAS No. 142. This assessment is
expected to be completed by March 31, 2002. The following table sets forth
the effect of SFAS No. 142:
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(dollar amounts in thousands, except share data)
Note 9. Accounting Pronouncements, continued
Three Months Ended
December 31,
--------------------------
2001 2000
---- ----
Income before income taxes, as reported $ 12,737 $ 11,070
Add back: Goodwill amortization - 683
---------- ----------
Income before income taxes, as adjusted $ 12,737 $ 11,753
========== ==========
Net income, as reported $ 7,821 $ 6,742
Add back: Effect of goodwill
amortization - 478
---------- ----------
Net income, as adjusted $ 7,821 $ 7,220
========== ==========
Basic earnings per share, as reported $ 0.26 $ 0.22
Add back: Effect of goodwill
amortization - 0.02
---------- ----------
Basic earnings per share, as adjusted $ 0.26 $ 0.24
========== ==========
Diluted earnings per share, as reported $ 0.25 $ 0.21
Add back: Effect of goodwill
amortization - 0.02
---------- ----------
Diluted earnings per share, as adjusted $ 0.25 $ 0.23
========== ==========
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-lived Assets." This pronouncement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of," and will be effective for the Company's fiscal year
beginning October 1, 2002. The Company is currently evaluating the provisions
of SFAS No. 144 to determine the impact, if any, on the Company's consolidated
financial statements.
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, 2001. 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,
------------------ --------------------
2001 2000 2001 2000 1999
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 37.1 42.3 42.2 44.2 42.3
Operating profit 15.6 17.2 18.8 17.9 16.8
Income before income taxes 14.9 16.6 18.2 17.2 17.0
Net income 9.2 10.1 11.2 10.5 10.3
Sales for the three months ended December 31, 2001 were $85.3 million and were
$18.7 million, or 28.2%, higher than sales of $66.6 million for the three
months ended December 31, 2000. Bronze segment sales in the fiscal 2002 first
quarter were $44.4 million, or 26.7%, higher than the first three months of
fiscal 2001, primarily reflecting the acquisition of the commemorative
products business of The York Group, Inc. (May 2001), higher mausoleum
construction revenues and increased sales of bronze memorial and architectural
products. Sales for the Graphics Imaging segment in the fiscal 2002 first
quarter were $22.7 million, representing a decrease of 3.7% from the same
period a year ago. The decline primarily reflected the divestiture in January
2001 of the Company's investment in Tukaiz Communications, L.L.C. ("Tukaiz")
partially offset by the acquisitions of Press Ready Plate, Inc. (November
2000), Scholler GmbH (January 2001) and Rudolf Reproflex GmbH (July 2001). In
addition, sales for the segment's domestic operations were adversely impacted
by price discounting due to competitive market conditions. Marking Products
segment sales for the three months ended December 31, 2001 were $6.8 million,
compared to $8.0 million for the first quarter of fiscal 2001. The decline
was mainly due to a drop in demand for equipment products sold to the tire,
automotive and building segments of the economy, which has been the trend for
the last five quarters.
Results of Operations, continued:
On December 3, 2001, Matthews completed its acquisition of The York Group,
Inc. ("York"). York is the second leading casket manufacturer in the United
States and is expected to have annual sales of approximately $130.0 million.
York will operate as a wholly-owned subsidiary and separate segment of
Matthews. Sales for the York Casket segment were $11.5 million from the
acquisition date through December 31, 2001.
Gross profit for the three months ended December 31, 2001 was $31.6 million,
compared to $28.2 million for the first three months of fiscal 2001. The
increase in consolidated gross profit primarily resulted from the acquisition
of York on December 3, 2001. Gross profit for the Bronze segment increased
from the same period last year due to higher sales. Gross profit for the
Graphics Imaging segment declined from the prior year principally reflecting
the divestiture of Tukaiz combined with the unfavorable impact of price
discounting due to competitive market conditions. These declines were offset
partially by the acquisitions of Press Ready Plate, Inc., Scholler GmbH and
Rudolf Reproflex GmbH. Gross profit for the Marking Products segment declined
as a result of lower sales volume. Consolidated gross profit as a percent of
sales for the three months ended December 31, 2001 declined to 37.1%, compared
to 42.3% for the same period a year ago. Factors contributing to this decline
included the addition of York casket revenues, which generally have lower
margins than other Matthews segments, changes in product mix within the Bronze
segment due to higher mausoleum sales and an increase in pension and health
care costs for all segments.
Selling and administrative expenses for the three months ended December 31,
2001 were $18.3 million, representing an increase of $1.6 million, or 9.7%,
compared to the same period a year ago. The increase primarily resulted from
the acquisition of York, including the commemorative products business.
Selling and administrative expenses declined in the Graphics Imaging and
Marking Products segments due to cost control efforts, lower domestic sales
and the divestiture of Tukaiz. In addition, selling and administrative
expenses were favorably impacted by the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
in the first quarter of fiscal 2002. Under SFAS No. 142, the Company
discontinued the amortization of goodwill effective October 1, 2001. Goodwill
amortization was $683,000 for the first quarter of fiscal 2001. The operating
profit impact of SFAS No. 142 was more than offset by increases in pension and
health care costs. Pension costs were unfavorably impacted by a decline in
the Company's pension fund assets. Consolidated selling and administrative
expenses as a percent of sales was 21.4% for the first three months of fiscal
2002 compared to 25.1% for the same period a year ago, principally due to the
lower ratio of selling and administrative costs for York casket sales and the
adoption of SFAS No. 142.
Operating profit for the quarter ended December 31, 2001 was $13.3 million,
representing an increase of $1.8 million, or 16.2%, over operating profit of
$11.5 million for the first three months of fiscal 2001. Operating profit for
the York Casket segment was $1.2 million from the acquisition date through
December 31, 2001. Bronze segment operating profit was $8.9 million for the
first three months of fiscal 2002 compared to $7.1 million for the same period
a year ago. The increase in Bronze operating profit primarily reflected the
acquisition of the commemorative products business of York and higher sales of
memorial and architectural products. Graphics Imaging operating profit for
the first quarter of fiscal 2002 was $2.3 million, representing a decrease of
10.2% from the same period last year. The decline was due primarily to the
divestiture of Tukaiz offset partially by the acquisitions of Scholler GmbH
and Rudolf Reproflex GmbH.
Results of Operations, continued:
Operating profit for the Marking Products segment in the first quarter of
fiscal 2002 was $864,000, compared to $1.7 million for the same period a year
ago. The decline reflected lower sales and higher employee benefit costs in
the current period.
Investment income for the first three months of fiscal 2002 was $813,000
compared to $639,000 for the first quarter of fiscal 2001. The increase
resulted from a gain on the sale of investment securities in October 2001, the
proceeds of which were used in connection with the purchase of Rudolf
Reproflex GmbH. Interest expense for the three months ended December 31, 2001
was $804,000, compared to $362,000 for the first three months of fiscal 2001.
The higher interest expense compared to the same period last year reflected
borrowings of $30.0 million in May 2001 for the acquisition of the
commemorative products business of York, which was increased to $124.5 million
in December 2001 for the acquisition of York.
Other income (deductions), net, for the fiscal 2002 first quarter represented
an increase to pre-tax income of $56,000, compared to a reduction of $92,000
for the first three months of fiscal 2001. Minority interest for the first
three months of fiscal 2002 was $655,000 compared to $589,000 for the same
period a year ago. The higher minority interest deduction for the current
period resulted from the acquisitions of Scholler GmbH and Rudolf Reproflex
GmbH, offset partially by the divestiture of Tukaiz.
The Company's effective tax rate for the first three months of fiscal 2002 was
38.6%, compared to 38.6% for the year ended September 30, 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.
Liquidity and Capital Resources:
Net cash provided by operating activities was $9.7 million for the three
months ended December 31, 2001, compared to $6.0 million for the first three
months of fiscal 2001. Operating cash flow for both periods primarily
reflected net income adjusted for depreciation and amortization (non-cash
expenses). Operating cash flow for the first quarter of fiscal 2001 also
reflected a higher level of payments on year-end compensation accruals
compared to the current period.
Cash used in investing activities was $76.9 million for the three months ended
December 31, 2001, compared to $13.5 million for the first three months of
fiscal 2001. Investment activities for the fiscal 2002 first quarter included
payments (net of cash acquired) of $84.9 million in connection with the
acquisitions of York (see "Acquisition") and Rudolf Reproflex GmbH. In July
2001, Matthews acquired a 75% interest in Rudolf Reproflex GmbH for DM 24
million (U.S. $11.0 million). The purchase price, which was recorded in other
current liabilities at September 30, 2001, was paid in October 2001.
Investing activities for the current period also reflected capital
expenditures of $1.7 million and proceeds of $9.2 million from the net
disposition of investment securities. Investing activities for the same
period last year included capital expenditures of $1.5 million, net purchases
of investment securities of $8.2 million and payments of $3.7 million in
connection with the acquisitions of The SLN Group, Inc. (October 2000) and
Press Ready Plate, Inc.
Liquidity and Capital Resources, continued:
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
2002 is $12.9 million. The Company expects to generate sufficient cash from
operations to fund all anticipated capital spending projects.
Cash provided by financing activities for the three months ended December 31,
2001 was $83.4 million, consisting primarily of proceeds from long-term debt
of $124.5 million, debt repayments of $40.2 million and dividend payments of
$795,000 to the Company's shareholders. On December 3, 2001, the Company
entered into a Revolving Credit Facility for $125.0 million with a syndicate
of four financial institutions. Borrowings under the facility, which matures
on November 30, 2004, bear interest at LIBOR plus a factor ranging from .75%
to 1.5% based on the Company's leverage ratio. The leverage ratio is defined
as net indebtedness divided by EBITDA (earnings before interest, taxes,
depreciation and amortization). The Company is required to pay an annual
commitment fee ranging from .20% to .375% (based on the Company's leverage
ratio) of the unused portion of the facility. The Revolving Credit Facility
requires the Company to maintain minimum levels of consolidated net worth and
fixed charge and interest coverage ratios. A portion of the facility (not to
exceed $10.0 million) is available for the issuance of trade and standby
letters of credit. In addition, the facility provides for an additional
credit line for borrowings up to $10.0 million at current market rates. The
Revolving Credit Facility replaced the existing Revolving Credit and Term Loan
Agreement. The Company borrowed $124.5 million under the Revolving Credit
Facility on December 3, 2001 in connection with the acquisition of York (see
"Acquisition") and for the repayment of all amounts outstanding under its
Revolving Credit and Term Loan Agreement. Outstanding borrowings under the
Revolving Credit Facility at December 31, 2001 were $114.5 million. The
weighted-average interest rate on outstanding borrowings at December 31, 2001
was 3.16%.
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 $477,000 on long-term debt, and dividend payments of
$768,000 to the Company's shareholders.
At December 31, 2001 and September 30, 2001 and 2000, the Company's current
ratio was 1.9, 1.5 and 2.0, respectively. The Company had cash and cash
equivalents at December 31, 2001 and September 30, 2001 of $44.7 million and
$28.7 million, respectively. Net working capital at December 31, 2001 and
September 30, 2001 was $67.5 million and $35.8 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.
Acquisition:
On May 24, 2001, Matthews and York signed a merger agreement whereby Matthews
would 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 (as defined in the merger agreement) remaining on
York's balance sheet as of October 31, 2001. On December 3, 2001, this
transaction was completed at $11 per share. At December 3, 2001, there were
8,940,950 shares of York common stock outstanding.
Liquidity and Capital Resources, continued:
The acquisition of York, which is the second leading casket manufacturer in
the United States, is expected to expand Matthews' position in the death care
industry. York, which is expected to have annual sales of approximately $130.0
million, will operate as a wholly-owned subsidiary and separate segment of
Matthews.
Stock Split:
In August 2001, the Board of Directors declared a two-for-one stock split on
the Company's Common Stock in the form of a 100% stock distribution.
Shareholders' equity has been adjusted for the stock split by reclassifying
from retained earnings to common stock the par value of the additional shares
arising from the split. All per share amounts and numbers of shares have been
adjusted in this report to reflect the stock split.
Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." 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 will no longer be
amortized and will be subject to periodic review for impairment. The Company
adopted SFAS No. 142 in the first quarter of fiscal 2002. Excluding goodwill
amortization, income before income taxes and net income for the three-months
ended December 31, 2000 would have been $11.8 million and $7.2 million,
respectively. Management is currently performing an assessment of its
existing goodwill for impairment in accordance with SFAS No. 142. This
assessment is expected to be completed by March 31, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-lived Assets." This pronouncement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of," and will be effective for the Company's fiscal year
beginning October 1, 2002. The Company is currently evaluating the provisions
of SFAS No. 144 to determine the impact, if any, on the Company's consolidated
financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following discussion about the Company's market risk involves forward-
looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company has market risk
related to changes in interest rates, commodity prices and foreign currency
exchange rates. The Company does not use derivative financial instruments in
connection with these market risks.
The Company's most significant long-term debt instrument, the Revolving Credit
Facility, bears interest at variable rates based on LIBOR and the carrying
amount of such debt approximates fair value. In the normal course of
business, the Company is exposed to commodity price fluctuations related to
the purchases of certain materials and supplies (such as bronze ingot) used in
its manufacturing operations. The Company obtains competitive prices for
materials and supplies when available. The Company is subject to foreign
currency exchange rate changes in the conversion from local currencies to the
U.S. dollar of the reported financial position and operating results of its
non-U.S. based subsidiaries.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibit to this report is filed herewith:
None
(b) Reports on Form 8-K
On December 17, 2001, Matthews filed a Current Report on Form 8-K, dated
December 3, 2001, under Item 2 in connection with the completion of the
acquisition by merger of The York Group, Inc. ("York"). See "Acquisition"
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 2/12/02 D.M. Kelly
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D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 2/12/02 E.J. Boyle
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E.J. Boyle, Chief Financial Officer,
Secretary and Treasurer