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, 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 January 31, 1996
Class A - $1.00 par value 5,480,434 shares
Class B - $1.00 par value 3,369,916 shares
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 1995 September 30, 1995
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,301,874 $ 39,204,010
Short-term investments 6,518,027 -
Accounts and notes receivable, net 26,115,023 28,515,610
Inventories:
Materials and finished goods $10,374,685 $ 9,209,411
Labor and overhead in process 673,705 812,178
Supplies 772,399 618,907
Less LIFO reserve (298,673) (298,673)
---------- ----------
11,522,116 10,341,823
Other current assets 1,196,516 1,174,796
---------- ----------
Total current assets 58,653,556 79,236,239
Investments 19,995,611 -
Property, plant and equipment: Cost 63,506,312 62,429,586
Less accumulated depreciation (25,382,099) (24,407,809)
---------- ----------
38,124,213 38,021,777
Deferred income taxes and other assets 15,966,978 15,588,221
Goodwill 5,232,171 5,360,139
----------- -----------
Total assets $137,972,529 $138,206,376
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 436,564 433,465
Accounts payable 4,057,076 5,181,954
Accrued compensation 4,943,319 7,944,824
Accrued income taxes 3,206,627 1,165,805
Customer prepayments and other current liabilities 5,689,021 8,183,972
---------- ----------
Total current liabilities 18,332,607 22,910,020
Long-term debt 159,778 270,092
Estimated cemetery and finishing costs 5,125,234 4,991,476
Postretirement benefits 19,951,909 19,727,632
Deferred revenue and other liabilities 3,549,073 3,508,752
Shareholders' equity:
Common stock: Class A, par value $1.00 5,020,250 4,009,753
Class B, par value $1.00 3,830,100 4,840,597
Other shareholders' equity 82,003,578 77,948,054
---------- ----------
90,853,928 86,798,404
----------- -----------
Total liabilities and shareholders' equity $137,972,529 $138,206,376
=========== ===========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
December 31,
--------------------------
1995 1994
---- ----
Sales $ 41,185,350 $ 40,085,805
Cost of sales 22,602,002 21,722,238
Selling and administrative expenses 12,131,095 11,999,873
---------- ----------
Operating profit 6,452,253 6,363,694
Other income (deductions), net 404,625 170,330
Interest expense 21,359 18,541
---------- ----------
Income before income taxes 6,835,519 6,515,483
Income taxes 2,589,530 2,605,818
---------- ----------
Net income $ 4,245,989 $ 3,909,665
========== ==========
Earnings per share $ .48 $ .44
===== =====
Dividends per share $ .07 $ .06
===== =====
Weighted average number of
common shares outstanding 8,850,350 8,850,350
========= =========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31,
--------------------------
1995 1994
---- ----
Cash flows from operating activities:
Net Income $ 4,245,989 $ 3,909,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,249,725 1,119,889
Deferred taxes (197,098) (116,007)
Net increase in certain working capital items (3,474,422) (2,898,624)
Increase in accounts receivable, noncurrent 29,726 (26,452)
(Increase) decrease in cemetery inventory (199,439) (18,454)
Decrease in other noncurrent assets 9,489 7,627
Increase in estimated finishing and cemetery costs 133,758 56,077
Decrease in deferred revenue and expenses and
other liabilities 40,893 (50,903)
Increase in postretirement benefits 224,277 264,173
Net loss on sale of property, plant and equipment 9,474 6,588
Effect of exchange rate changes on operations (30,866) 10,721
---------- ---------
Net cash provided by operating activities 2,041,506 2,264,300
---------- ---------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (1,304,795) (719,331)
Proceeds from disposals of property,
plant and equipment 3,931 13,617
Purchases of short-term investments (6,393,000) -
Purchases of investments (20,000,000) -
Collections on loans to officers and employees 485,883 352,012
---------- ---------
Net cash used in investing activities (27,207,981) (353,702)
---------- ---------
Cash flows from financing activities:
Payments on long-term debt (107,215) (103,040)
Proceeds from the sale of treasury stock - -
Purchases of treasury stock - -
Dividends paid (619,455) (530,685)
---------- ---------
Net cash used in financing activities (726,670) (633,725)
---------- ---------
Effect of exchange rate changes on
cash and cash equivalents (8,991) (25,711)
---------- ---------
Net increase (decrease) in cash and cash equivalents $(25,902,136) $ 1,251,162
========== =========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 21,359 $ 18,541
Income Taxes 745,806 755,334
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1. Nature of Operations
Matthews International Corporation, founded in 1850 and incorporated in
Pennsylvania in 1902, is a designer, manufacturer and marketer 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, Graphic Systems and Marking Products. The Bronze segment is a leading
manufacturer of cast bronze memorial products used primarily in cemeteries.
The Graphic Systems segment manufactures and provides custom identification-
related products and services used by the corrugated packaging industry and the
flexible packaging industry. The Marking Products segment designs,
manufactures and distributes a wide range of equipment and consumables used by
customers to mark or identify various consumer and industrial products,
components and packaging containers. The Company has manufacturing facilities
in the United States, Canada, Australia and Sweden as well as sales and
distribution facilities in France and Germany.
Note 2. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information for commercial and industrial companies and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the
three-month period ended December 31, 1995 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 1996.
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, 1995.
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.
Note 3. 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 37.9% 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
DECEMBER 31, 1995
Note 4. Investments
Investment securities are classified as available-for-sale and are recorded at
market value at the consolidated balance sheet date. Short-term investments
consist of securities with purchased maturities of over three months but less
than one year. Accrued interest on all investment securities, including
purchased interest, is also classified with short-term investments.
Investments classified as non-current consist of securities with purchased
maturities intended to range from one to five years.
Unrealized holding gains and losses on investment securities are included as
a separate component of shareholders' equity. Bond premiums and discounts are
amortized on the straight-line method which does not significantly differ from
the interest method.
The amortized cost and market values of investments at December 31, 1995 were
as follows:
Book Value Gross Gross
(Amortized Unrealized Unrealized Market
Cost) Gains Losses Value
---------- ---------- ---------- ------
Short-term investments:
U.S. government and
its agencies $ 2,194,047 $ 2,476 $ - $ 2,196,523
Corporate obligations 4,196,000 - - 4,196,000
Other 125,504 - - 125,504
---------- ------ ------ ----------
Total $ 6,515,551 $ 2,476 $ - $ 6,518,027
========== ====== ====== ==========
Investments:
U.S. government and
its agencies $ 8,007,114 $28,466 $ - $ 8,035,580
Corporate obligations 11,932,362 19,218 - 11,951,580
Other 8,451 - - 8,451
---------- ------ ------ ----------
Total $19,947,927 $47,684 $ - $19,995,611
========== ====== ====== ==========
Note 5. Subsequent Event
On January 5, 1996, Matthews International Corporation sold for cash its
cemetery and mortuary facility (Sunland Memorial Park, Inc.) in Sun City,
Arizona to Service Corporation International. Sunland Memorial Park, Inc.,
which was purchased in 1982, was the only such facility owned by Matthews. The
facility had sales in fiscal year 1995 of approximately $5 million,
representing about 3 percent the consolidated sales of the Company.
Matthews International Corporation will realize a pre-tax gain of approximately
$10 million on this sale, which will be recorded in the Company's second
quarter (March 31, 1996) financial statements.
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.
Three months ended Years ended
December 31, September 30,
------------------ --------------------
1995 1994 1995 1994 1993
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 45.1 45.8 44.8 45.1 42.4
Operating profit 15.7 15.9 14.7 15.1 11.6
Income before income taxes 16.6 16.3 15.0 14.9 11.0(1)
Net income 10.3 9.8 9.3 8.8 6.6(1)
(1) Excludes the cumulative effect of changes in accounting principles for
the adoptions of SFAS No. 106 and SFAS No. 109.
Sales for the three months ended December 31, 1995 were $41.2 million and were
$1.1 million, or 2.7%, higher than sales of $40.1 million for the first three
months of fiscal 1995. The increase for the first three months of fiscal 1996
reflected higher sales in the Company's Bronze and Marking Products segments.
Bronze segment sales were up 5% over the fiscal 1995 first quarter, reflecting
increases in both price and unit volume. Marking Products sales for the first
quarter of fiscal 1996 were up 2% over the fiscal 1995 first quarter reflecting
higher demand in Europe and Australia. The segment's international sales
increased 25% over the same period a year ago which more than offset a decline
in North American sales volume. Graphic Systems sales for the first three
months of fiscal 1996 were relatively unchanged from the first three months of
fiscal 1995 as a result of sluggish demand related to the adverse affects in
the packaging industry from increased linerboard costs.
Gross profit for the three months ended December 31, 1995 was $18.6 million,
or 45.1% of sales, compared to $18.4 million, or 45.8%, for the first three
months of fiscal 1995. The increase in gross profit of $220,000, or 1.2%, was
attributable principally to the Marking Products segment. International gross
profit improved with higher sales volume and the current quarter also reflected
a reduction in lower margin sales in Italy. Gross profit in the Bronze segment
was relatively consistent with the same period a year ago reflecting higher
material (principally bronze ingot) costs. Graphic Systems gross profit
declined as a result of slightly higher cost of sales.
Selling and administrative expenses for the three months ended December 31,
1995 were $12.1 million, representing an increase of $131,000, or 1.1%, over
$12.0 million for the first three months of fiscal 1995. Although the
Company's consolidated sales increased 2.7% for the period, selling and
administrative expenses were relatively consistent with the same period a year
ago reflecting cost control and the fixed nature of many of these costs.
Operating profit for the three months ended December 31, 1995 was $6.5 million
and was $89,000, or 1.4%, higher than operating profit of $6.4 million for the
first three months of fiscal 1995. The operating profit for the first quarter
established a new quarterly operating profit record for the Company. Increased
sales and related gross profit for the Company's international operations was
the primary factor contributing to the higher operating profit.
Interest expense for the three months ended December 31, 1995 was approximately
$21,000, compared to $19,000 for the first three months of fiscal 1995.
Interest expense principally relates to the Company's capital lease
obligations.
Other income (deductions), net for the three months ended December 31, 1995 was
$405,000 compared to $170,000 for the first three months of fiscal 1995. The
increase of $235,000 from the same period a year ago reflects higher investment
income as a result of the Company's increased cash and investment position.
The Company's effective tax rate for the first quarter of fiscal 1996 was
37.9%, compared to 38.4% for the year ended September 30, 1995. The lower
estimated effective tax rate for fiscal 1996 is primarily the result of a
reduction in the impact 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% primarily reflects the impact of state and
foreign income taxes.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.0 million for the three months
ended December 31, 1995, compared to $2.3 million for the first three months
of fiscal 1995. Operating cash flow for the first quarter of both fiscal 1996
and 1995 resulted primarily from the Company's net income of $4.2 million and
$3.9 million, respectively, offset partially by the use of working capital for
the payment of year-end compensation and profit distribution accruals.
Cash used in investing activities was approximately $27.2 million for the three
months ended December 31, 1995 compared to $354,000 for the same period a year
ago. Investing activities for the first quarter of fiscal 1996 included
investments of $26.4 million in short-term and intermediate-term securities of
the U.S. government and its agencies and corporate obligations. These
invesments are designed to improve the investment rate of return on the
Company's excess cash position while maintaining a sufficient degree of
liquidity for future cash needs. Capital expenditures for the three months
ended December 31, 1995 amounted to $1.3 million, representing an increase of
approximately $600,000 from capital expenditures of $719,000 in the fiscal 1995
first quarter. The increase is due primarily to the timing of capital spending
projects in comparison to the prior period. Capital spending for property,
plant and equipment has averaged approximately $4.9 million for the last three
fiscal years. The capital budget of the Company for fiscal 1996 is
$12.7 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, 1995
was $727,000 principally reflecting the Company's quarterly dividend of $.07
per share and repayments under the Company's capital lease agreements. Cash
used in financing activities in the first three months of fiscal 1995 was
$634,000 also consisting of dividends and capital lease payments. Dividends
for the fiscal 1995 first quarter were $.06 per share. The Company currently
has available lines of credit of approximately $11 million. There were no
outstanding borrowings on any of the Company's lines of credit at December 31,
1995. As of such date, the Company's outstanding long-term debt, which
consisted of capital lease obligations, was approximately $600,000.
At December 31, 1995 and September 30, 1995 and 1994, the Company's current
ratio was 3.2, 3.5 and 2.9, respectively. The Company had cash and cash
equivalents at December 31 and September 30, 1995 of $13.3 million and
$39.2 million, respectively. Net working capital at December 31, 1995 was
$40.3 million. The reduction in the current ratio and cash and cash
equivalents balance from September 30, 1995 reflects investments in securities
with longer maturities. 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.
Subsequent Event
On January 5, 1996, Matthews International Corporation sold for cash its
cemetery and mortuary facility (Sunland Memorial Park, Inc.) in Sun City,
Arizona to Service Corporation International. Sunland Memorial Park, Inc.,
which was purchased in 1982, was the only such facility owned by Matthews. The
facility had sales in fiscal year 1995 of approximately $5 million,
representing about 3 percent the consolidated sales of the Company.
Matthews International Corporation will realize a pre-tax gain of approximately
$10 million on this sale, which will be recorded in the Company's second
quarter (March 31, 1996) financial statements.
The sale of Sunland Memorial Park, Inc. will permit Matthews International
Corporation to concentrate on growing its core business profitability. The
proceeds from this transaction will provide additional resources to fund
internal and acquisition growth in the Company's related businesses.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibit to this report is filed herewith:
Exhibit
No. Description
------- -----------
10.1 Capital Stock Purchase Agreement, Sunland Memorial Park, Inc.
11 Computation of Earnings Per Share
(b) Reports on Form 8-K
A Form 8-K current report was filed by the Company on January 17, 1995
reporting the following under "Item 5 - Other Events:"
Matthews International Corporation (the "Company") announced on January 5,
1996 that it has sold for cash its cemetery and mortuary facility (Sunland
Memorial Park, Inc.) in Sun City, Arizona to Service Corporation
International (SCI). Sunland Memorial Park, Inc., which was purchased in
1982, was the only such facility owned by the Company. The facility had
sales in fiscal year 1995 of approximately $5 million, representing about
3 percent the consolidated sales of the Company.
Matthews International Corporation will realize a pre-tax gain of
approximately $10 million on this sale, which will be recorded in the
Company's second quarter (March 31, 1996) financial statements.
The sale of Sunland Memorial Park, Inc. will permit Matthews International
Corporation to concentrate on growing its core business profitability.
The proceeds from this transaction will provide additional resources to
fund internal and acquisition growth in the Company's related businesses.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTHEWS INTERNATIONAL CORPORATION
(Registrant)
Date 2/9/96 E.J. Boyle
------------- -------------------------------------
E. J. Boyle, Vice President,
Accounting & Finance
Date 2/9/96 J.L. Parker
------------- -------------------------------------
J. L. Parker, Senior Vice President,
General Counsel and Secretary