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, 1997 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, 1997 Class A - $1.00 par value 6,478,714 shares Class B - $1.00 par value 2,036,232 shares MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1997 September 30, 1996 ------------- ------------------ ASSETS Current assets: Cash and cash equivalents $ 20,803,291 $ 12,418,718 Short-term investments 1,047,303 3,079,084 Accounts and notes receivable, net 29,993,708 26,158,666 Inventories: Materials and finished goods $10,756,032 $10,424,521 Labor and overhead in process 642,478 879,593 Supplies 416,181 669,080 ---------- ---------- 11,814,691 11,973,194 Other current assets 1,964,399 2,130,556 ---------- ---------- Total current assets 65,623,392 55,760,218 Investments 31,921,699 35,333,326 Property, plant and equipment: Cost 71,203,939 63,492,651 Less accumulated depreciation (28,706,972) (26,169,878) ---------- ---------- 42,496,967 37,322,773 Deferred income taxes and other assets 11,016,527 13,569,805 Goodwill 15,771,311 11,425,587 ----------- ----------- Total assets $166,829,896 $153,411,709 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current maturities 979,992 270,092 Accounts payable 5,113,611 6,049,732 Accrued compensation 8,361,841 8,536,221 Accrued income taxes 2,149,407 963,886 Customer prepayments 8,225,471 3,069,904 Other current liabilities 6,957,424 6,021,095 ---------- ---------- Total current liabilities 31,787,746 24,910,930 Long-term debt 2,395,090 - Estimated finishing costs 3,135,472 2,954,299 Postretirement benefits 20,505,364 21,005,067 Other liabilities 2,454,411 2,082,370 Shareholders' equity: Common stock: Class A, par value $1.00 6,786,168 6,039,542 Class B, par value $1.00 2,297,330 3,043,956 Other shareholders' equity 97,468,315 93,375,545 ---------- ---------- 106,551,813 102,459,043 ----------- ----------- Total liabilities and shareholders' equity $166,829,896 $153,411,709 =========== =========== /TABLE MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------- -------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Sales $ 51,736,477 $ 44,304,394 $139,746,680 $128,281,218 Cost of sales 28,893,420 24,580,058 77,803,006 71,001,775 ---------- ---------- ----------- ----------- Gross Profit 22,843,057 19,724,336 61,943,674 57,279,443 Selling and administrative expenses 14,045,115 12,744,710 38,646,767 37,001,278 ---------- ---------- ---------- ---------- Operating profit 8,797,942 6,979,626 23,296,907 20,278,165 Investment income 542,119 677,468 1,773,478 1,824,124 Interest expense (182,546) (9,000) (208,910) (76,696) Other income (deductions), net (187,557) (171,835) (468,758) 5,501,484 Minority interest (71,480) - (152,849) - ---------- ---------- ---------- ---------- Income before income taxes 8,898,478 7,476,259 24,239,868 27,527,077 Income taxes 3,413,870 2,996,188 9,437,859 11,424,972 ---------- ---------- ---------- ---------- Net income $ 5,484,608 $ 4,480,071 $14,802,009 $ 16,102,105 ========== ========== ========== ========== Earnings per share $ .64 $ .50 $ 1.71 $ 1.81 ===== ===== ===== ===== Dividends per share $ .08 $ .07 $ .24 $ .21 ===== ===== ===== ===== Weighted average number of common shares outstanding 8,534,251 9,006,898 8,650,248 8,908,370 ========= ========= ========= =========
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, -------------------------- 1997 1996 ---- ---- Cash flows from operating activities: Net income $14,802,009 $ 16,102,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,307,582 5,978,008 Deferred taxes 727,775 77,417 Net increase (decrease) in working capital items 5,444,482 (990,523) (Increase) decrease in other noncurrent assets 1,830,515 (479,613) Increase in estimated finishing costs 181,173 246,900 Increase (decrease) in other liabilities 526,167 (371,690) Increase (decrease) in postretirement benefits (499,703) 731,208 (Gain) loss on sale of property, plant and equipment 83,238 (131,273) Net loss on investments 55,106 16,031 Gain on sale of subsidiary - (9,409,058) Effect of exchange rate changes on operations (457,405) 10,665 ---------- ---------- Net cash provided by operating activities 27,000,939 11,780,177 ---------- ---------- Cash flows from investing activities: Acquisitions of property, plant and equipment (4,185,153) (3,794,583) Acquisitions, net of cash acquired (6,004,320) (3,667,062) Proceeds from disposals of property, plant and equipment 15,295 439,802 Investments (1,414,305) (43,193,066) Proceeds from disposition of investments 7,226,741 5,202,739 Proceeds from sale of subsidiary - 13,070,853 Collections on loans to officers and employees 392,955 1,216,854 ---------- ---------- Net cash used in investing activities (3,968,787) (30,724,463) ---------- ---------- Cash flows from financing activities: Payments on long-term debt (4,139,209) (323,939) Proceeds from the sale of treasury stock 815,163 107,969 Purchases of treasury stock (8,855,411) (2,838,201) Dividends paid (2,063,991) (1,878,935) ---------- ---------- Net cash used in financing activities (14,243,448) (4,933,106) ---------- ---------- Effect of exchange rate changes on cash (404,131) 106,173 ---------- ---------- Net increase (decrease) in cash and cash equivalents $ 8,384,573 $(23,771,219) ========== ========== Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 208,910 $ 76,696 Income Taxes 7,459,132 9,779,747
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 Note 1. Nature of Operations Matthews International Corporation, 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, Graphic Systems and Marking Products. The Bronze segment is a leading manufacturer of cast bronze memorial products, crematories and cremation-related products. The Graphic Systems segment manufactures and provides custom identification-related products, pre-press services and imaging systems used by the corrugated and flexible packaging industries. 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 sales and manufacturing facilities in the United States, Canada, Australia and Sweden as well as sales and distribution operations in France and the United Kingdom. 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, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1997. 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, 1996. 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 38.9% 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 JUNE 30, 1997 Note 4. Acquisitions On January 31, 1997, Matthews International Corporation acquired 50% of Tukaiz Litho, Inc.("Tukaiz"), a Chicago-based pre-press and pre-media firm. The remaining 50% will continue to be owned by the existing president and chief executive officer of Tukaiz. The transaction was structured as an asset purchase with the purchase price consisting of $4.0 million cash and the assumption of a 50% interest, approximately $4.0 million, in certain of the liabilities of Tukaiz. The parties have each contributed their respective 50% interests into a newly-formed Illinois limited liability company, Tukaiz Communications, L.L.C. Matthews also provided the new company with subordinated convertible debt of $5.5 million. Matthews has accounted for this acquisition using the purchase method and, accordingly, has recorded the acquired assets and liabilities at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets was recorded as goodwill to be amortized on a straight-line basis over 25 years. The accounts of Tukaiz have been included in the consolidated financial statements of Matthews. On May 23, 1997, Matthews acquired for $2.4 million the common stock of both Carolina Repro-Graphic and Dieworks, Inc., manufacturers of pre-press services, flexible printing plates and steel rule cutting dies, located in North Carolina. Matthews has accounted for these acquisitions using the purchase method and, accordingly, has recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The excess of the purchase price over the fair value of the net assets was recorded as goodwill to be amortized on a straight-line basis over 25 years. Note 5. Supplemental Cash Flow Information On March 25, 1996, the Company issued 213,862 shares of authorized Class A Common Stock, valued at $5.4 million, in connection with the acquisition of Industrial Equipment and Engineering Company, Inc. On May 6, 1996, the Company issued 19,286 shares of authorized Class A Common Stock, valued at $527,975, in connection with the purchase of a 49% interest in Applied Technology Developments Ltd. Note 6. Reclassifications Certain amounts in the 1996 consolidated financial statements have been reclassified to conform to the current year presentation. 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, ----------------- -------------------- 1997 1996 1996 1995 1994 ---- ---- ---- ---- ---- Sales 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 44.3 44.7 44.6 44.8 45.1 Operating profit 16.7 15.8 15.6 14.7 15.1 Income before income taxes 17.3 21.5 19.5 15.0 14.9 Net income 10.6 12.6 11.8 9.3 8.8 Sales for the nine months ended June 30, 1997 were $139.7 million and were $11.4 million, or 8.9%, higher than sales of $128.3 million for the first nine months of fiscal 1996. The increase for the first nine months of fiscal 1997 reflected higher sales in the Company's Bronze and Graphic Systems segments. Bronze segment sales were up 16% over the first nine months of fiscal 1996, primarily reflecting higher volume of memorial products as well as sales by Industrial Equipment and Engineering Company, Inc. ("IEEC") of crematories and cremation-related products. Fiscal 1997 revenues of IEEC, which was acquired in March 1996, also included sales of All Crematory Corporation, which was acquired in August 1996. Sales for the Bronze segment increased over the prior year despite the absence of Sunland Memorial Park, Inc. (the Company's only cemetery/mortuary facility) which was sold in January 1996. Graphic Systems segment sales for the nine months ended June 30, 1997 increased 25% over the same period last year principally due to acquisitions. On January 31, 1997, Matthews acquired a 50% interest in Tukaiz Litho, Inc. ("Tukaiz") and, on May 23, 1997, Matthews purchased 100% of the common stock of both Carolina Repro-Graphic and Dieworks, Inc.(collectively "Carolina")(See "Acquisitions"). Marking Products sales for the first nine months of fiscal 1997 declined approximately 19% from the first nine months of fiscal 1996. The decrease in sales for Marking Products resulted from the sale of the segment's label printer application business in September 1996 and the Company's decision in September 1996 to liquidate its German subsidiary. The label printer application business had historically produced marginal results for the Company and the German subsidiary had accumulated significant losses during the past few years. Gross profit for the nine months ended June 30, 1997 was $61.9 million, or 44.3% of sales, compared to $57.3 million, or 44.7% of sales, for the first nine months of fiscal 1996. The increase of $4.6 million, or 8.1%, was attributable to higher gross profits in the Bronze and Graphic Systems segments. Bronze gross profit improved as a result of higher sales of bronze memorials and crematories and related products. Gross profit for the Graphic Systems segment increased as a result of the acquisitions of Tukaiz and Carolina. Marking Products gross profit declined from the first nine months of fiscal 1996 as a result of lower sales. Selling and administrative expenses for the nine months ended June 30, 1997 were $38.6 million, representing an increase of $1.6 million, or 4.4%, over $37.0 million for the first nine months of fiscal 1996. Selling and administrative expenses for the Bronze segment increased over the first nine months of fiscal 1996 primarily reflecting the additions of IEEC and All Crematory Corporation. Graphic Systems expenses also increased for the period reflecting the acquisitions of Tukaiz and Carolina. These increases were offset by reductions in Marking Products selling and administrative costs with the disposition of the label printer application business and the liquidation of the German subsidiary. Operating profit for the nine months ended June 30, 1997 was $23.3 million and was $3.0 million, or 14.9%, higher than the first nine months of fiscal 1996 reflecting improvements in all three of the Company's business segments. Operating profit for the Bronze segment was higher for the period reflecting an increase in the profitability of its core business and the additions of IEEC and All Crematory Corporation. Graphic Systems operating profit increased from the prior year as a result of the acquisitions of Tukaiz and Carolina. Operating profit for the Marking Products segment also improved principally as a result of the absence of losses of the German subsidiary. Consolidated operating profit for the first nine months of fiscal 1997 also reflected the favorable impact of changes to the retiree medical plan which were approved by the Board of Directors in September 1996. These changes, which provide additional plan options while limiting future Company contributions to retiree benefits, have reduced net periodic postretirement benefit cost from the prior year. This reduction was partially offset by costs associated with the Company's implementation of a 401(k) employee savings plan and related Company contributions. Investment income for the first nine months of fiscal 1997 was $1.8 million, representing a slight reduction of 2.8% from the first nine months of fiscal 1996. The slight decrease principally reflects a lower average cash and investment position during the current period as a result of the Company's recent acquisitions. In December 1995, the Company shifted its excess cash to short-term and intermediate-term securities of the U.S. government and its agencies and corporate obligations. These investments 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. Interest expense for the nine months ended June 30, 1997 was $209,000, compared to $77,000 for the first nine months of fiscal 1996. The increase in interest expense for the current period reflects the capital lease obligations assumed in connection with the acquisition of Tukaiz in January 1997. Other income (deductions), net for the nine months ended June 30, 1997 represented a net reduction to pre-tax income of $469,000 compared to a net increase of $5.5 million for the first nine months of fiscal 1996. Other income for the first nine months of fiscal 1996 reflected a $9.4 million pre-tax gain on the sale of Sunland Memorial Park, Inc. This gain was partially offset by the write-off of the remaining goodwill with respect to the Company's investment in its Swedish subsidiary and a charge for certain other non-operating expenses during the period. The Company's effective tax rate for the first nine months of fiscal 1997 was 38.9%, compared to 39.6% for the year ended September 30, 1996. The decline from fiscal 1996 reflects a reduction in the effect of foreign taxes. 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 $27.0 million for the nine months ended June 30, 1997, compared to $11.8 million for the first nine months of fiscal 1996. The increase in operating cash flow for the current period principally reflected the improvement in operating profit over the prior year and an increase in customer prepayments. Cash used in investing activities was approximately $4.0 million for the nine months ended June 30, 1997 compared to $30.7 million for the same period a year ago. Investing activities for the first nine months of fiscal 1997 primarily reflected the acquisitions of Tukaiz and Carolina (See "Acquisitions"), capital expenditures of $4.2 million and net proceeds from investment activities of $5.8 million. Investing activities for the nine months ended June 30, 1996 included capital expenditures of $3.8 million; the acquisition of IEEC for 213,862 shares of authorized Matthews Class A common stock (approximately $5.4 million) and $3.6 million cash; the purchase of 49% of the common stock of Applied Technology Developments, Ltd. for $1.6 million cash and 19,286 shares of authorized Matthews Class A common stock (approximately $527,975); and investments of $35.8 million in short-term and intermediate-term securities of the U.S. government and its agencies and corporate obligations. Investing activities for the nine months ended June 30, 1996 also included the sale of the Company's cemetery and mortuary facility in Arizona for $13.1 million. Capital spending for property, plant and equipment has averaged approximately $5.1 million for the last three fiscal years. The capital budget of the Company for fiscal 1997 is $8.8 million. The Company expects to generate sufficient cash from operations to fund all anticipated capital spending projects. Cash used in financing activities for the nine months ended June 30, 1997 was $14.2 million which included net treasury stock purchases totaling $8.0 million, payments of $4.1 million on long-term debt assumed in the acquisition of Tukaiz, and dividends of $2.1 million. The Company paid dividends of $.08 per share for each of the first three quarters of fiscal 1997. In March 1997, the Company announced that the Board of Directors approved a continuation of its limited stock repurchase program. The original stock repurchase program announced in May 1996 for 500,000 has been completed. The second program authorizes the Company to purchase up to an additional 500,000 shares of its Class A and Class B common stock. The buy-back program is designed to increase shareholder value and enlarge the Company's holdings of its Class A and Class B common stock for retention in treasury, use in acquisitions or reissuance to employees or other purchasers. Cash used in financing activities for the first nine months of fiscal 1996 was $4.9 million, consisting principally of net treasury stock purchases of $2.7 million and dividends of $1.9 million. The Company paid dividends of $.07 per share in each of the first three quarters of fiscal 1996. 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, 1997. At June 30, 1997 and September 30, 1996 and 1995, the Company's current ratio was 2.1, 2.2 and 3.5, respectively. The Company had cash and cash equivalents at June 30, 1997 and September 30, 1996 of $20.8 million and $12.4 million, respectively. Net working capital at June 30, 1997 was $33.8 million. 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 January 31, 1997, Matthews International Corporation acquired 50% of Tukaiz Litho, Inc.("Tukaiz"), a leading Chicago-based pre-press and pre-media firm. A pre-press firm prepares art or digital files for printing or reproduction. The remaining 50% will continue to be owned by the existing president and chief executive officer of Tukaiz. The transaction was structured as an asset purchase with the purchase price consisting of $4.0 million cash and the assumption of a 50% interest, approximately $4.0 million, in certain of the Company's liabilities. The parties have each contributed their respective 50% interests into a newly-formed Illinois limited liability company, Tukaiz Communications, L.L.C. Matthews also agreed to provide the new company with subordinated convertible debt of $5.5 million. Matthews has accounted for this acquisition using the purchase method and, accordingly, has recorded the acquired assets and liabilities at their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets was recorded as goodwill to be amortized on a straight-line basis over 25 years. Tukaiz has annual sales of approximately $16.5 million and is headquartered in Franklin Park, Illinois. The combination of the Company's Graphic Systems business and Tukaiz is designed to create a leader in the graphics industry, providing a unique array of pre-press and pre-media services to ad agencies, manufacturers, printers and publishers. These services include creative design, audio, video, animation, multimedia, digital photography, web site service and on-demand digital printing. On May 23, 1997, Matthews acquired for $2.4 million the common stock of both Carolina Repro-Graphic and Dieworks, Inc., manufacturers of pre-press services, flexible printing plates and steel rule cutting dies, located in North Carolina. The acquisitions are expected to increase Matthews' market share for these products in the southeast region of the United States. Matthews has accounted for these acquisitions using the purchase method and, accordingly, has recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The excess of the purchase price over the fair value of the net assets was recorded as goodwill to be amortized on a straight-line basis over 25 years. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following Exhibits to this report are filed herewith or incorporated by reference: Exhibit No. Description ------- ----------- 10.1 Asset Purchase Agreement among TKZ Holding Corp., Tukaiz Litho, Inc. and Michael Vitallo, incorporated by reference to Exhibit No. 10.1 to Form 10-Q for the quarter ended December 31, 1996 10.2 Membership Interest Agreement among TKZ Holding Corp., Tukaiz Litho, Inc., Frank Defino, Sr. and Tukaiz Communications, L.L.C., incorporated by reference to Exhibit No. 10.2 to Form 10-Q for the quarter ended December 31, 1996 10.3 Subordinated Convertible Note from Tukaiz Communications, L.L.C. in favor of Venetian Investment Corporation, incorporated by reference to Exhibit No. 10.3 to Form 10-Q for the quarter ended December 31, 1996 10.4 Operating Agreement of Tukaiz Communications, L.L.C. between TKZ Holding Corp. and Tukaiz Litho, Inc., incorporated by reference to Exhibit No. 10.4 to Form 10-Q for the quarter ended December 31, 1996 11 Computation of Earnings Per Share, filed herewith 27 Financial Data Schedule, filed herewith (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 8/12/97 D.M. Kelly ------------- ----------------------------------------- D.M. Kelly, Chairman of the Board, President and Chief Executive Officer Date 8/12/97 E.J. Boyle ------------- ----------------------------------------- E. J. Boyle, Vice President, Accounting & Finance - Secretary and Treasurer