<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, 1999
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, 2000
Class A - $1.00 par value 13,270,748 shares
Class B - $1.00 par value 2,302,837 shares
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PART I - FINANCIAL INFORMATION
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999
----------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,900,741 $ 31,531,686
Short-term investments 3,211,512 147,114
Accounts receivable 42,954,034 45,949,743
Inventories: Materials and finished goods $ 15,180,949 $ 14,883,879
Labor and overhead in process 1,408,261 1,212,485
Supplies 293,951 304,113
---------- ----------
16,883,161 16,400,477
Other current assets 2,633,658 2,862,341
---------- ----------
Total current assets 94,583,106 96,891,361
Investments 13,966,983 11,312,730
Property, plant and equipment: Cost 91,795,180 89,777,983
Less accumulated depreciation (41,283,330) (39,107,236)
---------- ----------
50,511,850 50,670,747
Deferred income taxes and other assets 13,714,519 13,639,723
Goodwill, net of accumulated amortization 51,168,709 53,163,011
----------- -----------
Total assets $223,945,167 $225,677,572
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current maturities 7,081,895 7,604,443
Accounts payable 10,777,576 9,798,531
Accrued compensation 12,576,334 18,127,646
Accrued income taxes 4,482,063 818,324
Customer prepayments 6,719,061 6,825,149
Other current liabilities 17,625,520 19,117,031
---------- ----------
Total current liabilities 59,262,449 62,291,124
Long-term debt 12,447,946 14,144,038
Estimated finishing costs 4,117,961 4,059,837
Postretirement benefits 19,410,924 19,513,936
Other liabilities 10,601,862 11,046,706
Shareholders' equity:
Common stock 18,166,996 18,166,996
Retained earnings 157,444,860 152,098,622
Accumulated other comprehensive income (loss) (4,472,560) (3,970,000)
Notes receivable (36,385) (54,800)
Treasury stock, at cost (52,998,886) (51,618,887)
----------- -----------
118,104,025 114,621,931
----------- -----------
Total liabilities and shareholders' equity $223,945,167 $225,677,572
=========== ===========
</TABLE>
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<PAGE> 3
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Sales $ 63,539,741 $ 56,441,488
Cost of goods sold 35,515,866 32,982,990
---------- ----------
Gross profit 28,023,875 23,458,498
Selling and administrative expenses 17,638,148 14,759,243
---------- ----------
Operating profit 10,385,727 8,699,255
Investment income 455,677 438,593
Interest expense (408,269) (122,570)
Other income (deductions), net (20,214) (31,976)
Minority interest (408,107) (43,846)
---------- ----------
Income before income taxes 10,004,814 8,939,456
Income taxes 3,921,537 3,524,337
---------- ----------
Net income $ 6,083,277 $ 5,415,119
========== ==========
Earnings per share:
Basic $ .39 $ .34
===== =====
Diluted $ .38 $ .33
===== =====
Dividends per share $.0475 $ .045
===== =====
</TABLE>
<PAGE>
<PAGE> 4
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,083,277 $ 5,415,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,097,754 2,283,021
Change in deferred taxes 14,737 (123,337)
Changes in working capital items 213,923 (2,906,207)
Increase in other assets (57,769) (64,766)
Increase in estimated finishing costs 58,124 203,719
Increase (decrease) in other liabilities (444,844) 173,166
Decrease in postretirement benefits (103,012) (124,701)
Loss on sale of property, plant and equipment 18,400 2,280
Net loss on investments 9,672 15,087
Effect of exchange rate changes on operations 853,476 (58,981)
---------- ----------
Net cash provided by operating activities 9,743,738 4,814,400
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,361,859) (3,782,093)
Proceeds from sales of property, plant and equipment 654 1,000
Acquisitions, net of cash acquired - -
Investments (6,177,991) (193,906)
Proceeds from disposition of investments - 2,210,471
Collections on loans to officers and employees 18,415 106,301
---------- ----------
Net cash used in investing activities (8,520,781) (1,658,227)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 177,143 470,000
Payments on long-term debt (1,444,080) (195,025)
Proceeds from the sale of treasury stock 4,683 188,750
Purchases of treasury stock (1,381,224) (1,329,730)
Dividends (740,497) (718,980)
---------- ----------
Net cash used in financing activities (3,383,975) (1,584,985)
---------- ----------
Effect of exchange rate changes on cash (469,927) (45,189)
---------- ----------
Net increase (decrease) in cash and cash equivalents $(2,630,945) $ 1,525,999
========== ==========
</TABLE>
<PAGE>
<PAGE> 5
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1. Nature of Operations
Matthews International Corporation ("Matthews"), founded in 1850 and
incorporated in Pennsylvania in 1902, is a designer, manufacturer and marketer
principally of custom-made products which are used to identify people, places,
products and events. The Company's products and operations are comprised of
three business segments: Bronze, Graphics Imaging and Marking Products. The
Bronze segment is a leading manufacturer of cast bronze memorials and other
memorialization products, crematories and cremation-related products and is a
leading builder of mausoleums in the United States. The Graphics Imaging
segment manufactures and provides printing plates, pre-press services and
imaging systems for the corrugated and flexible packaging industries. The
Marking Products segment designs, manufactures and distributes a wide range of
equipment and consumables for identifying various consumer and industrial
products, components and packaging containers.
The Company has manufacturing and marketing facilities in the United States,
Australia, Canada, Germany, Italy and Sweden.
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, 1999 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 2000.
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, 1999.
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.,
O.N.E. Color Communications, L.L.C. and, effective April 1, 1999, S+T GmbH &
Co. KG. All intercompany accounts and transactions have been eliminated.
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.
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MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
DECEMBER 31, 1999
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 39.2% and the Federal statutory rate of 35%
primarily reflects the impact of state income taxes.
Note 4. Earnings Per Share
For the Three Months Ended
December 31,
--------------------------
1999 1998
---- ----
Net income $ 6,083,277 $ 5,415,119
========== ==========
Weighted average common
shares outstanding 15,631,086 15,998,525
Dilutive securities,
primarily stock options 370,375 431,561
---------- ----------
Diluted weighted average
common shares outstanding 16,001,461 16,430,086
========== ==========
Basic earnings per share $ .39 $ .34
==== ====
Diluted earnings per share $ .38 $ .33
==== ====
Note 5. Segment Information
The Company is organized into three business segments based on products and
services. The segments, which are Bronze, Graphics Imaging and Marking
Products, are described under Nature of Operations (Note 1). Management
evaluates segment performance based on operating profit (before income taxes)
and does not allocate non-operating items such as investment income, interest
expense, other income (deductions),net and minority interest.
Information about the Company's segments follows:
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<PAGE> 7
MATTHEWS INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
DECEMBER 31, 1999
Note 5. Segment Information, continued
For the Three Months Ended
December 31,
--------------------------
1999 1998
---- ----
Sales to external customers:
Graphics Imaging $22,552,382 $19,579,363
Marking Products 8,232,376 7,805,677
Bronze 32,754,983 29,056,448
---------- ----------
$63,539,741 $56,441,488
========== ==========
Operating profit:
Graphics Imaging $ 1,763,551 $ 1,032,478
Marking Products 1,611,835 1,229,609
Bronze 7,010,341 6,437,168
---------- ----------
$10,385,727 $ 8,699,255
========== ==========
Note 6. Comprehensive Income
Comprehensive income consists of net income adjusted for changes in cumulative
foreign currency translation, unrealized investment gains and losses and
minimum pension liability. Comprehensive income for the three months ended
December 31, 1999 and 1998 were $5,580,717 and $5,266,156, respectively.
<PAGE>
<PAGE> 8
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, 1999. 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,
------------------ --------------------
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 44.1 41.6 43.1 44.0 44.1
Operating profit 16.3 15.4 17.1 17.0 16.3
Income before income taxes 15.7 15.8 17.2 17.5 17.1
Net income 9.6 9.6 10.5 10.6 10.4
Sales for the three months ended December 31, 1999 were $63.5 million and were
$7.1 million, or 12.6%, higher than sales of $56.4 million for the quarter
ended December 31, 1998. The sales increase for the first three months of
fiscal 2000 reflected higher sales in all three of the Company's business
segments. Sales for the Bronze segment increased $3.7 million, or 13%, over
the fiscal 1999 first quarter resulting primarily from the Company's
acquisition of Caggiati S.p.A. in June 1999. Sales for the Graphics Imaging
segment were up $3.0 million, or 15%, from the same period a year ago
principally reflecting the Company's acquisition of a 50% interest in S+T
GmbH & Co. KG ("S+T GmbH") in September 1998. S+T GmbH was recorded under the
equity method of accounting until March 31, 1999. The consolidated financial
statements of Matthews included the accounts of S+T GmbH effective April 1,
1999 as a result of a change in control. The sales increase of the Graphics
Imaging segment for the fiscal 2000 first quarter also reflected higher sales
for the Company's 50%-owned subsidiary, Tukaiz Communications, L.L.C.
("Tukaiz"). The sales increase for Tukaiz primarily resulted from the
installation of a commercial printing operation in January 1999.
<PAGE>
<PAGE> 9
Results of Operations, continued:
Marking Products segment sales for the three months ended December 31, 1999
increased $400,000, or 5%, from the same period a year ago. The higher level
of sales for the fiscal 2000 first quarter resulted principally from an
increase in sales in North America of ink-jet equipment and related products.
Gross profit for the three months ended December 31, 1999 was $28.0 million,
or 44.1% of sales, compared to $23.5 million, or 41.6% of sales, for the first
three months of fiscal 1999. The increase in consolidated gross profit of
$4.5 million, or 19.5%, 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. Marking Products gross
profit also improved over the fiscal 1999 first quarter reflecting higher sales
and a change in product mix. Consolidated gross profit as a percent of sales
for the quarter ended December 31, 1999 increased to 44.1%, compared to 41.6%
for the same period a year ago, reflecting an improved product mix in both the
Bronze and Marking Products segments. Bronze segment sales for the fiscal 2000
first quarter reflected a higher level of memorialization products as a result
of the acquisition of Caggiati S.p.A.
Selling and administrative expenses for the three months ended December 31,
1999 were $17.6 million, representing an increase of $2.8 million, or 19.5%,
over $14.8 million for the fiscal 1999 first quarter. The increase in selling
and administrative expenses over the prior period principally resulted from the
acquisitions of Caggiati S.p.A. and S+T GmbH combined with other increases in
selling and administrative costs within the Bronze segment. Consolidated
selling and administrative expense as a percent of sales was 27.8% for the
first quarter of fiscal 2000 compared to 26.1% for the same quarter last year.
Operating profit for the three months ended December 31, 1999 was $10.4 million
and was $1.7 million, or 19.4%, higher than operating profit of $8.7 million
for the first three months of fiscal 1999. Graphics Imaging operating profit
for the fiscal 2000 first quarter was $700,000, or 70.8%, higher than the same
quarter last year reflecting higher sales and lower selling and administrative
costs as a percent of sales. The first quarter results for the current year
were favorably impacted by the Company's investment in S+T GmbH. The increase
in operating profit for the Graphics Imaging segment also reflected
an improvement in the operating results of Tukaiz, which resulted from
higher sales. Operating profit for the Bronze segment increased $600,000,
or 8.9%, over the same period a year ago resulting primarily from the
Company's acquisition of Caggiati S.p.A. in June 1999. Operating profit for
the Marking Products segment increased $400,000, or 31.1%, for the quarter
primarily reflecting higher sales in North America of ink-jet equipment and
related products.
Investment income for the first quarter of fiscal 2000 was $456,000 compared
to $439,000 for the first three months of fiscal 1999. Interest expense for
the three months ended December 31, 1999 was $408,000, compared to $123,000 for
the first quarter of fiscal 1999. The increase in interest expense compared
to the same period last year principally related to fiscal 1999 borrowings by
Tukaiz and new borrowings and assumed debt in connection with the acquisition
of Caggiati in June 1999.
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<PAGE> 10
Results of Operations, continued:
Other income (deductions), net, for the three months ended December 31, 1999
represented a reduction to pre-tax income of $20,000 compared to a reduction
of $32,000 for the first three months of fiscal 1999. Minority interest for
the fiscal 2000 first quarter was $408,000 compared to $44,000 for the same
period a year ago. The higher minority interest deduction over the fiscal 1999
first quarter resulted from the Company's acquisition of S+T GmbH and an
improvement in the operating results of Tukaiz.
The Company's effective tax rate for the first quarter of fiscal 2000 was
39.2%, compared to 39.4% for the year ended September 30, 1999. 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 $9.7 million for the three months
ended December 31, 1999, compared to $4.8 million for the quarter ended
December 31, 1998. Operating cash flow for both periods primarily reflected
net income adjusted for depreciation and amortization (non-cash expenses) and
the payment of year-end compensation and profit distribution accruals.
Operating cash flow for the fiscal 2000 first quarter was favorably impacted
by a reduction in trade accounts receivable from September 30, 1999.
Cash used in investing activities was approximately $8.5 million for the three
months ended December 31, 1999 compared to $1.7 million for the same period a
year ago. Investing activities for the fiscal 2000 first quarter primarily
reflected capital expenditures of $2.4 million and the purchase of investment
securities of $6.2 million. Capital expenditures for the quarter ended
December 31, 1999 were lower than the fiscal 1999 first quarter principally
reflecting the investment last year in a commercial printing operation at
Tukaiz. Investment securities were purchased in the fiscal 2000 first quarter
to obtain a better rate of return on the Company's excess cash. Investing
activities for the first three months of fiscal 1999 principally included
capital expenditures of $3.8 million, which were partially offset by proceeds
of $2.2 million from the disposition of investment securities. Capital
spending for property, plant and equipment has averaged $8.9 million for the
last three fiscal years. The capital budget of the Company for fiscal 2000 is
$11.7 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, 1999
was $3.4 million, consisting principally of net treasury stock purchases of
$1.4 million, repayments of $1.4 million on long-term debt of Caggiati S.p.A.
and Tukaiz, and the Company's quarterly dividend of $.0475 per share. 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. The Company had available lines of credit with U.S. and Canadian
banks, net of outstanding borrowings, of approximately $11 million at
December 31, 1999.
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<PAGE> 11
Liquidity and Capital Resources, continued
At December 31, 1999 and September 30, 1999 and 1998, the Company's current
ratio was 1.6, 1.6 and 1.7, respectively. The Company had cash and cash
equivalents at December 31, 1999 and September 30, 1999 of $28.9 million and
$31.5 million, respectively. Net working capital at December 31, 1999 was
$35.3 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 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 and, as such, the Year 2000 issue did not
have a material impact on the consolidated financial position, results of
operations or cash flows of the Company.
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<PAGE> 12
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> 13
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 2/9/00 D.M. Kelly
------------ -----------------------------------------
D.M. Kelly, Chairman of the Board,
President and Chief Executive Officer
Date 2/9/00 E.J. Boyle
------------ -----------------------------------------
E. J. Boyle, Vice President, Accounting &
Finance, Treasurer and Secretary
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> $ 28,900,741
<SECURITIES> 3,211,512
<RECEIVABLES> 42,954,034
<ALLOWANCES> 0
<INVENTORY> 16,883,161
<CURRENT-ASSETS> 94,583,106
<PP&E> 91,795,180
<DEPRECIATION> 41,283,330
<TOTAL-ASSETS> 223,945,167
<CURRENT-LIABILITIES> 59,262,449
<BONDS> 0
0
0
<COMMON> 18,166,996
<OTHER-SE> 99,937,029
<TOTAL-LIABILITY-AND-EQUITY> 223,945,167
<SALES> 63,539,741
<TOTAL-REVENUES> 63,539,741
<CGS> 35,515,866
<TOTAL-COSTS> 35,515,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,269
<INCOME-PRETAX> 10,004,814
<INCOME-TAX> 3,921,537
<INCOME-CONTINUING> 6,083,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,083,277
<EPS-BASIC> .39
<EPS-DILUTED> .38
</TABLE>
