<PAGE>
<PAGE> 1
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, 1998
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, 1999
Class A - $1.00 par value 13,143,257 shares
Class B - $1.00 par value 2,824,760 shares
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<PAGE> 2
PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
----------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,895,833 $ 25,369,834
Short-term investments 246,058 229,903
Accounts receivable 32,533,341 32,892,094
Inventories:
Materials and finished goods $15,116,890 $15,114,759
Labor and overhead in process 1,110,841 1,248,815
Supplies 381,335 388,219
---------- ----------
16,609,066 16,751,793
Other current assets 1,693,878 1,984,053
---------- ----------
Total current assets 77,978,176 77,227,677
Investments 22,027,734 24,250,799
Property, plant and equipment: Cost 82,505,263 78,876,967
Less accumulated depreciation (35,903,225) (34,146,591)
---------- ----------
46,602,038 44,730,376
Deferred income taxes and other assets 14,246,687 14,005,434
Goodwill 26,707,965 26,991,478
----------- -----------
Total assets $187,562,600 $187,205,764
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 1,257,275 800,252
Accounts payable 5,908,647 6,901,044
Accrued compensation 11,321,698 16,224,508
Accrued income taxes 6,758,420 3,942,617
Customer prepayments 7,176,644 7,441,088
Other current liabilities 8,253,466 8,597,060
---------- ----------
Total current liabilities 40,676,150 43,906,569
Long-term debt 1,252,631 1,434,679
Estimated finishing costs 4,035,393 3,831,674
Postretirement benefits 19,957,847 20,082,548
Other liabilities 13,817,786 13,639,998
Shareholders' equity:
Common stock: Class A, par value $1.00 14,441,529 14,414,944
Class B, par value $1.00 3,725,467 3,752,052
Other shareholders' equity 89,655,797 86,143,300
---------- ----------
107,822,793 104,310,296
----------- -----------
Total liabilities and shareholders' equity $187,562,600 $187,205,764
=========== ===========
/TABLE
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<PAGE> 3
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Sales $ 56,441,488 $ 49,440,454
Cost of goods sold 32,982,990 28,209,018
---------- ----------
Gross profit 23,458,498 21,231,436
Selling and administrative expenses 14,759,243 13,615,117
---------- ----------
Operating profit 8,699,255 7,616,319
Investment income 438,593 668,330
Interest expense (122,570) (86,821)
Other income (deductions), net (31,976) 111,631
Minority interest (43,846) (271,372)
---------- ----------
Income before income taxes 8,939,456 8,038,087
Income taxes 3,524,337 3,139,823
---------- ----------
Net income $ 5,415,119 $ 4,898,264
========== ==========
Earnings per share:
Basic $ .34 $ .29
===== =====
Diluted $ .33 $ .29
===== =====
Dividends per share $ .045 $.0425
===== =====
</TABLE>
<PAGE>
<PAGE> 4
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,415,119 $ 4,898,264
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,283,021 1,863,841
Change in deferred taxes (123,337) (673,595)
Changes in working capital items (2,906,207) (709,366)
(Increase) decrease in other non-current assets (64,766) 341,190
Increase in estimated finishing costs 203,719 6,145
Increase in other liabilities 173,166 215,186
Decrease in postretirement benefits (124,701) (66,611)
(Gain) loss on sale of property, plant and equipment 2,280 (68,106)
Net loss on investments 15,087 17,481
Effect of exchange rate changes on operations (58,981) (17,692)
---------- ----------
Net cash provided by operating activities 4,814,400 5,806,737
---------- ----------
Cash flows from investing activities:
Capital expenditures (3,782,093) (1,295,687)
Proceeds from disposals of property,
plant and equipment 1,000 309,130
Acquisitions, net of cash acquired - (2,730,172)
Investments (193,906) (459,225)
Proceeds from disposition of investments 2,210,471 20,541
Collections on loans to officers and employees 106,301 166,150
---------- ----------
Net cash used in investing activities (1,658,227) (3,989,263)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 470,000 -
Payments on long-term debt (195,025) (539,129)
Proceeds from the sale of treasury stock 188,750 771,410
Purchases of treasury stock (1,329,730) (6,271,317)
Dividends (718,980) (748,553)
---------- ----------
Net cash used in financing activities (1,584,985) (6,787,589)
---------- ----------
Effect of exchange rate changes on cash (45,189) (433,233)
---------- ----------
Net increase (decrease) in cash and cash equivalents $ 1,525,999 $(5,403,348)
========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 122,570 $ 86,821
Income Taxes 831,871 721,107
</TABLE>
<PAGE>
<PAGE> 5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, Graphics Imaging and Marking Products. The Bronze segment
is a leading manufacturer of cast bronze memorial 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 used by customers to mark
or identify various consumer and industrial products and containers. The
Company has sales and manufacturing facilities in the United States, Canada,
Australia, Sweden 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, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 1999.
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, 1998.
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 39.4% and the Federal statutory rate of 35%
primarily reflects the impact of state income taxes.
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<PAGE> 6
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
DECEMBER 31, 1998
Note 4. Earnings Per Share
For the Three Months Ended
December 31,
--------------------------
1998 1997
---- ----
Net income $ 5,415,119 $ 4,898,264
========== ==========
Weighted average common
shares outstanding 15,998,525 16,633,601
Dilutive securities,
primarily stock options 431,561 517,420
---------- ----------
Diluted weighted average
common shares outstanding 16,430,086 17,151,021
========== ==========
Basic earnings per share $ .34 $ .29
==== ====
Diluted earnings per share $ .33 $ .29
==== ====
<PAGE>
<PAGE> 7
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, 1998. 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 economic, competitive 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,
------------------ --------------------
1998 1997 1998 1997 1996
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 41.6 42.9 44.0 44.1 44.6
Operating profit 15.4 15.4 17.0 16.3 15.6
Income before income taxes 15.8 16.3 17.5 17.1 19.5
Net income 9.6 9.9 10.6 10.4 11.8
Sales for the three months ended December 31, 1998 were $56.4 million and were
$7.0 million, or 14.2%, higher than sales of $49.4 million for the quarter
ended December 31, 1997. The sales increase for the first three months of
fiscal 1999 principally resulted from higher sales in the Company's Bronze and
Graphics Imaging segments. Sales for the Bronze segment increased 21% over the
fiscal 1998 first quarter resulting primarily from the Company's acquisition
of Gibraltar Mausoleum Construction Company in September 1998. In addition,
Bronze segment sales for the fiscal 1999 first quarter reflected an increase
in the unit volume of memorial products and cremation equipment over the same
period a year ago. Sales for the Graphics Imaging segment were up 14% from the
fiscal 1998 first quarter, primarily reflecting the Company's acquisition of
a 50% interest in O.N.E. Color Communications, L.L.C. ("O.N.E.") in May 1998.
Excluding the impact of this acquisition, sales of the Graphics Imaging segment
for the fiscal 1999 first quarter were slightly below the same period last
year, reflecting weak demand for corrugated printing plates. Marking Products
segment sales for the three months ended December 31, 1998 declined
approximately 5% from the same period a year ago. The decline, which was
expected, resulted from the sale of the segment's distribution operation in
France in February 1998 which had historically produced marginal results for
the Company. Sales for the segment's North American operations increased 8%
over the fiscal 1998 first quarter.
<PAGE> 8
Results of Operations, continued:
Gross profit for the three months ended December 31, 1998 was $23.5 million,
or 41.6% of sales, compared to $21.2 million, or 42.9% of sales, for the first
three months of fiscal 1998. The increase in consolidated gross profit of
$2.3 million, or 10.5%, reflected higher gross profit levels in all three of
the Company's business segments. Increases in gross profit in the Bronze and
Graphics Imaging segments resulted from higher sales, reflecting the Company's
fiscal 1998 acquisitions and, for the Bronze segment, higher sales of memorial
products and cremation equipment. Marking Products gross profit also improved
slightly over the fiscal 1998 first quarter despite the reduction in the
segment's sales. Higher margins were realized in the fiscal 1999 first quarter
on the segment's North American sales which more than offset a decrease in
gross profit resulting from the sale of the segment's distribution operation
in France. Consolidated gross profit as a percent of sales for the quarter
ended December 31, 1998 was 41.6%, compared to 42.9% for the same period a year
ago. Gross profit as a percent of sales declined in the Bronze segment as a
result of lower margins on sales of mausoleums. The reduction in gross profit
as a percent of sales for the Graphics Imaging segment reflected a decline in
the segment's sales (excluding the impact of the acquisition of a 50% interest
in O.N.E.) combined with an increase in depreciation expense due to higher
levels of capital investment.
Selling and administrative expenses for the three months ended December 31,
1998 were $14.8 million, representing an increase of $1.2 million, or 8.4%,
over $13.6 million for the fiscal 1998 first quarter. The increase in selling
and administrative expenses over the prior period principally resulted from the
acquisition of O.N.E. and other increases in selling costs by the Graphics
Imaging segment. Partially offsetting this increase was a reduction in Marking
Products selling and administrative costs due to the sale of its French
subsidiary. Although sales for the Bronze segment increased for the period,
the segment's selling and administrative expenses were relatively consistent
with the same period a year ago. Consolidated selling and administrative
expense as a percent of sales was 26.2% for the first quarter of fiscal 1999
compared to 27.5% for the same quarter last year.
Operating profit for the three months ended December 31, 1998 was $8.7 million
and was $1.1 million, or 14.2%, higher than the first three months of fiscal
1998. The increase in the Company's operating profit for the fiscal 1999 first
quarter resulted primarily from higher sales in the Bronze segment. The
increased sales volume of memorial products and cremation equipment accounted
for the Bronze segment's operating profit improvement. Operating profit for
the Marking Products segment also improved for the quarter despite the sale of
the segment's distribution operation in France. The improvement resulted from
higher sales in the segment's North American operations. Operating profit for
the Graphics Imaging segment for the three months ended December 31, 1998 was
lower than the same period last year due to several factors including weak
demand for corrugated printing plates, an increase in depreciation expense due
to higher levels of capital investment, and poor results from one of the
segment's recent acquisitions. Management has developed an action plan
designed to improve the segment's operating performance which includes an
overall reduction of operating expenses while at the same time focusing on an
increase in sales.
Investment income for the first quarter of fiscal 1999 was $439,000, compared
to $668,000 for the first three months of fiscal 1998. The Company's average
cash and investment balances were lower than a year ago as a result of
acquisitions and stock repurchases completed during fiscal 1998.
<PAGE>
<PAGE> 9
Results of Operations, continued:
Interest expense for the three months ended December 31, 1998 was approximately
$123,000, compared to $87,000 for the first quarter of fiscal 1998. Interest
expense principally related to the Company's capital lease obligations. In
addition, interest expense for the first quarter of fiscal 1999 includes
interest on the Company's obligations related to the acquisition of O.N.E. An
additional amount is payable by Matthews for its 50% interest three years from
the acquisition date contingent on the attainment of certain operating
performance levels of O.N.E., with such payout to be not less than $400,000.
In addition, Matthews is obligated to purchase the remaining 50% interest no
later than May 2004, also contingent on the attainment of certain operating
performance levels of O.N.E., with such payment to be not less than
$4.5 million. A liability has been recorded for the present value of the
minimum future payouts with interest imputed on the obligation and recorded on
a monthly basis as a charge against income.
Other income (deductions), net, for the three months ended December 31, 1998
represented a net reduction to pre-tax income of $32,000 compared to a net
increase of $112,000 for the first three months of fiscal 1998. The first
quarter of fiscal 1998 included gains on the sale of various fixed assets.
Minority interest relates to the Company's 50%-owned affiliate, Tukaiz
Communications L.L.C.
The Company's effective tax rate for the first quarter of fiscal 1999 was
39.4%, compared to 39.4% for the year ended September 30, 1998. The difference
between the Company's effective tax rate and the Federal statutory rate of 35%
primarily reflects the impact of state income taxes.
Liquidity and Capital Resources
Net cash provided by operating activities was $4.8 million for the three months
ended December 31, 1998, compared to $5.8 million for the first three months
of fiscal 1998. Operating cash flow for both periods primarily reflected net
income for the respective quarters adjusted for depreciation and amortization
and the payment of year-end compensation and profit distribution accruals.
Cash used in investing activities was approximately $1.7 million for the three
months ended December 31, 1998 compared to $4.0 million for the same period a
year ago. Investing activities for the three months ended December 31, 1998
primarily reflected capital expenditures of $3.8 million which were partially
offset by proceeds of $2.2 million from the disposition of investment
securities. Capital expenditures for the first quarter of fiscal 1999 were
higher than the same period last year principally as a result of capital
investments in the Graphics Imaging segment. Investing activities in the first
three months of fiscal 1998 included acquisitions in the Graphics Imaging
segment of $2.7 million (Western Plasti-Type Co., Allied Reprographics, Inc.
and Palomar Packaging, Inc.) and capital expenditures of $1.3 million. Capital
spending for property, plant and equipment has averaged approximately $6.3
million for the last three fiscal years. The capital budget of the Company for
fiscal 1999 is $10.9 million. The Company expects to generate sufficient cash
from operations to fund all anticipated capital spending projects.
<PAGE>
<PAGE> 10
Liquidity and Capital Resources, continued
Cash used in financing activities for the three months ended December 31, 1998
was $1.6 million consisting principally of net treasury stock purchases of
$1.1 million and the Company's quarterly dividend of $.045 per share.
Financing activities in the fiscal 1999 first quarter also included proceeds
of $470,000 from borrowings by Tukaiz Communications, L.L.C. under its line of
credit. Cash used in financing activities for the three months ended
December 31, 1997 was $6.8 million consisting principally of treasury stock
purchases of $5.5 million, the Company's quarterly dividend of $.0425 per share
and repayments under the Company's capital lease agreements. The Company
currently has available lines of credit of approximately $13 million. Except
as noted above, there were no outstanding borrowings on any of the Company's
lines of credit at December 31, 1998.
At December 31, 1998 and September 30, 1998 and 1997, the Company's current
ratio was 1.9, 1.8 and 1.9, respectively. The Company had cash and cash
equivalents at December 31, 1998 and September 30, 1998 of $26.9 million and
$25.4 million, respectively. Net working capital at December 31, 1998 was
$37.3 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.
Year 2000 Issue
The Company has assessed the potential impact of the Year 2000 issue on its
operations and information systems. Costs incurred to date for this assessment
and for systems modifications required to address any Year 2000 issues have not
been material. The Company's significant operating and information systems are
substantially Year 2000 compliant except for certain systems within the
Graphics Imaging segment, which are expected to be Year 2000 compliant before
December 31, 1999. Based on management's assessment, the Year 2000 issue is
not expected to have a material impact on the consolidated financial position,
results of operations or cash flows of the Company.
<PAGE>
<PAGE> 11
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
<PAGE>
<PAGE> 12
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 2/10/99 D.M. Kelly
------------- -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 2/10/99 E.J. Boyle
------------- -----------------------------------------
E. J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE-MONTH PERIOD
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> $ 26,895,833
<SECURITIES> 246,058
<RECEIVABLES> 32,533,341
<ALLOWANCES> 0
<INVENTORY> 16,609,066
<CURRENT-ASSETS> 77,978,176
<PP&E> 82,505,263
<DEPRECIATION> 35,903,225
<TOTAL-ASSETS> 187,562,600
<CURRENT-LIABILITIES> 40,676,150
<BONDS> 0
0
0
<COMMON> 18,166,996
<OTHER-SE> 89,655,797
<TOTAL-LIABILITY-AND-EQUITY> 187,562,600
<SALES> 56,441,488
<TOTAL-REVENUES> 56,441,488
<CGS> 32,982,990
<TOTAL-COSTS> 32,982,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,570
<INCOME-PRETAX> 8,939,456
<INCOME-TAX> 3,524,337
<INCOME-CONTINUING> 5,415,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,415,119
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
</TABLE>
